On the ‘Steady State’ Properties of Financial Ratios

This paper uses the methods of continuous time stochastic calculus to investigate the ‘steady state’ properties of financial ratios. Basing our analysis on previous work in the area, we show that, if a financial ratio can be characterised as a diffusion process which possesses an asymptotic equilibrium, then the Fokker-Kolmogorov-Planck forward equation may be used to ‘retrieve’ its probability density. The approach is ‘flexible’ enough to incorporate a wide variety of density functions, many of which have not been investigated in the literature. We demonstrate the procedures which may be used to derive both the cross-sectional and time series tests implied by these distributions. The paper also includes a section dealing with the methods which may be used for parameter estimation, once the underlying distribution has been determined.     

Morgan Stanley's Risk‐Reward Views: Unlocking the Full Potential of Fundamental Analysis

Since 2008, Risk‐Reward Views have been the basis for the recommendations on all the stocks covered by Morgan Stanley's equity research analysts globally. The firm's analysts use this systematic approach to communicate a broader range of fundamental insights about expected returns and risks, and to articulate more clearly the logic underlying their price targets and calls, and the level of conviction associated with them. The rationale for this approach is to align the firm's research product with its clients' thinking and investment discipline while also creating a link between traditional equity analysis and widely accepted principles of modern portfolio management. Too many sell‐side analysts still try to manifest expertise and conviction with one‐sided investment theses backed by single‐point estimates and “table pounding.” That does a disservice to investors who are looking to sell‐side analysts for an ongoing dialogue about the future with experts on company fundamentals. Risk‐Reward Views are designed to produce a more complete view of the risk‐reward trade‐off in a given stock. They are meant to supplement the use of quant‐only risk models that, while offering at least the illusion of precision, are also often opaque and backward looking. The approach aims to increase transparency while avoiding unnecessary complexity by focusing on a handful of critical uncertainties and modeling a manageable number of coherent scenarios that are relevant to investor debates and cover a full range of plausible outcomes. This article focuses on the theoretical underpinnings of the department's Risk‐Reward initiative. For a more detailed discussion of the institutional setting and the processes followed to implement these ideas, readers are referred to the recently published Harvard Business School case study, “The Risk‐Reward Framework at Morgan Stanley Research” (Harvard Business School Case N9–111–011).     

Peri‐urban land tenure: Problems and prospects

Informal settlements in Natal are discussed. The need for and the reasons against informal settlement are examined. Means of overcoming the shortcomings of informal settlement are suggested and the need for security of tenure in order to promote ‘self‐help’ is highlighted.     

Explaining greater test use for selection: the role of HR professionals in a world of expanding regulation

In recent decades there has been a well‐documented increase in organisations' use of formal tests for selection purposes. This article investigates whether tests' technical qualities and predictive validity are the critical determinants of take‐up, or whether other organisational and contextual factors are more important. Case studies of organisations were used to identify the factors driving change and Workplace Employee Relations Survey data were analysed to determine the consistency of the findings with national data. The single most important factor appears to be the regulatory environment, with tests used as a precautionary measure to protect selection decisions from challenge. The growing formal professionalisation of HR departments is also important, and the influence of both factors is consistent with current theories of organisational decision‐making. Continued growth in test use is likely, but the implications for efficiency in selection are less clear.     

Variance Estimation for Generalized Entropy and Atkinson Inequality Indices: the Complex Survey Data Case*

We derive the sampling variances of generalized entropy and Atkinson indices when estimated from complex survey data, and show how they can be calculated straightforwardly using widely available software. We also show that, when the same approach is used to derive variance formulae for the independent and identically distributed case, it leads to estimators that are simpler than those proposed before. Both cases are illustrated with a comparison of income inequality in Britain and Germany.     

The european motor industry

The removal of tariff barriers within the European Economic Community has presented manufacturing industry with the opportunity to plan for and to supply a greatly Increased home market. This paper Is directed at showing how the motor Industry, and especially certain firms within it, are In the vanguard of European integration.