On the Role of Futures Trading in Spot Market Fluctuations: Perpetrator of Volatility or Victim of Regret?

We examine the role of index futures trading in spot market volatility. We use the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) approach to measure volatility, analyze causality and feedback relations between volatilities in the spot and futures markets, and test various hypotheses in the context of a multivariate model that incorporates other macrostate variables. Our empirical results suggest index futures trading may not be blamed for the observed volatility in the spot market. Rather, we find stronger and more consistent support for the alternative posture that volatility in the futures market is an outgrowth of a turbulent cash market. We use the regret (cognitive dissonance) theory to explain our results.     

Labor unemployment risk and firm risk

This paper examines the effect of labor unemployment risk on firm risk. Using unemployment insurance benefits as a proxy for unemployment risk, we find an economically significant positive relation between unemployment risk and firm risk. This positive relation is more pronounced for firms that are more labor-intensive, have a higher layoff propensity and are more financially constrained. While existing literature that employs corporate policy measures such as debt and cash holdings suggests an opposite relationship, our paper presents evidence that the effects stemming from earnings management, earnings quality and reporting quality appear to dominate.     

Cointegration of U.S. budget and current account deficits: Twins or strangers?

In this paper the authors employ the cointegration approach to explore empirically the existence of a possible long-run equilibrium relationship between the U.S. budget deficits and the current account deficits. This study uses annual nominal data in levels for the postwar period 1946–1988. Both the DW and the ADF tests confirm that the two deficits are not cointegrated. It implies that the two deficits have no possibility of reverting to a long-run equilibrium relation.     

Can innovation shocks determine CO2 emissions (CO2e) in the OECD economies? A new perspective

ABSTRACT

This study has attempted to address prior knowledge gaps in the environmental economics literature by integrating the innovation shocks into the Environment Kuznets Curve (EKC) equation for twenty-six OECD economies using data from 1990 to 2014. Foreign direct investment (FDI), exports (EXP), renewable energy consumption (REC), and GDP per capita were included as control variables. The results from multiple empirical analyses indicated that positive shocks to innovation improve, but the negative shocks disrupt environmental quality. Data analyses also showed that a positive correlation exists between income per capita of OECD economies. From the negative coefficient of income per capita (squared) and the existence of a negative nexus between FDI and CO2e, both the EKC and the Pollution Halo Hypothesis (PHH) were confirmed in sampled economies, respectively. The paper offers empirical support for the favourable impacts of REC on the quality of the environment and calls for the adoption of innovation shocks as a policy instrument to formulate better environmental policies for a sustainable future.     

Institutional ownership,cross-shareholdings and corporate cash reserves in Japan

Cross-country studies document a negative relation between corporate governance and cash holdings. In contrast, this relation is found to be positive in the United States. In this paper, we examine the case of Japanese firms. Using institutional ownership and cross-shareholdings as the main governance variables, we show that better governance is associated with higher cash balances as in the United States. The reason is that better-governed firms make better investment decisions. Their investments are not driven by excess liquidity and result in higher profitability and higher firm valuation. Overall, our findings indicate that management profligacy is a bigger concern to shareholders than management propensity to hoard cash because of risk aversion.     

Bioelectricity in Malaysia: economic feasibility,environmental and deforestation implications

We investigate the economic feasibility of bioelectricity production from biomass in Malaysia and its impact on greenhouse gas (GHG) emissions and storage, agricultural prices, agricultural employment and deforestation. For this purpose, we develop a partial equilibrium model that projects agricultural prices, production, imports, exports, domestic consumption and land use in 5‐year increments between 2015 and 2065. Our results show that by 2030 biomass‐generated electricity can supply 36.5 per cent of the electricity generated in Malaysia, 16 times more than the 2016 electricity supply from biomass. Increased bioelectricity production from biomass will significantly reduce GHG emissions and will help Malaysia meet its commitment in the Paris Agreement to mitigate GHG emission by 45 per cent before 2030. Our modelling shows that biomass‐generated electricity creates a derived demand for waste biomass that expands the area of oil palm plantations. The expansion lowers agricultural prices, boosts agricultural employment and leads to some deforestation as landowners clear rainforest to plant oil palm trees. Nonetheless, the deforestation does not increase GHG emissions since GHG gains from bioelectricity significantly exceed GHG losses from deforestation.     

Impact of land fragmentation and resource ownership on productivity and efficiency: The case of rice producers in Bangladesh

The paper analyzes the impact of land fragmentation and ownership of resources on productivity and technical efficiency in rice production in Bangladesh using farm level survey data. Results reveal that land fragmentation has a significant detrimental effect on productivity and efficiency as expected. The elasticity estimates of land fragmentation reveal that a 1% increase in land fragmentation reduces rice output by 0.05% and efficiency by 0.03%. On the other hand, ownership of key resources (land, family labour, and draft animals) significantly increases efficiency. The mean elasticity estimates reveal that a 1% increase in family labour and owned draft animal improve technical efficiency by 0.04% and 0.03%, respectively. Also, a 1% increase in the adoption of modern technology improves efficiency by 0.04%. The mean technical efficiency in rice production is estimated at 0.91 indicating little scope to improve rice production per se using existing varieties. Policy implications include addressing structural causes of land fragmentation (e.g., law of inheritance and political economy of agrarian structure), building of physical capital (e.g., land and livestock resources), improvements in extension services and adoption of modern rice technology.