Consumption and Portfolio Choice over the Life Cycle

This article solves a realistically calibrated life cycle modelof consumption and portfolio choice with non-tradable laborincome and borrowing constraints. Since labor income substitutesfor riskless asset holdings, the optimal share invested in equitiesis roughly decreasing over life. We compute a measure of theimportance of human capital for investment behavior. We findthat ignoring labor income generates large utility costs, whilethe cost of ignoring only its risk is an order of magnitudesmaller, except when we allow for a disastrous labor incomeshock. Moreover, we study the implications of introducing endogenousborrowing constraints in this incomplete-markets setting.     

The Effects of NAFTA/CUSFTA on Agricultural Trade Flows: An Empirical Investigation

This paper examines the effects of the North American Free Trade Agreement (NAFTA) and its predecessor, the Canada‐United States Free Trade Agreement (CUSFTA), on agricultural trade flows at disaggregated product categories. The empirical analysis is implemented through gravity models using different econometric methods. It accounts for the baseline NAFTA/CUSFTA‐unrelated magnitudes of trade between member countries throughout the assessment of the NAFTA/CUSFTA trade effects. The benchmark estimates show considerable differences across agricultural product categories. The net post‐NAFTA/CUSFTA magnitudes of trade between member countries are found to be markedly low in some cases, underlining missed regional trade opportunities. The empirical analysis proceeds to estimate the NAFTA/CUSFTA trade effects by time period and by bilateral trading partnership, revealing important variations. Cet article examine les effets de l'Accord de Libre‐Échange Nord‐Américain (ALÉNA) et de son prédécesseur, l'Accord de Libre‐Échange entre le Canada et les États‐Unis (ALÉCÉU), sur les flux commerciaux agricoles au niveau des catégories ventilées. L'analyse empirique est mise en ?uvre grâce à des modèles de gravité en utilisant une variété de méthodes économétriques. Elle compte pour la ligne de base des magnitudes non‐reliées à l'ALÉNA/ALÉCÉU du commerce entre les pays membres à travers l′évaluation des effets de l'ALÉNA/ALÉCÉU sur le commerce. Les estimations de référence montrent des différences considérables entre les catégories de produits agricoles. Les magnitudes post‐ALÉNA/ALÉCÉU nettes du commerce entre les pays membres se trouvent d′être considérablement faibles dans certains cas. Ces résultats soulignent des opportunités commerciales régionales manquées. L'analyse empirique procède à estimer les effets de l'ALÉNA/ALÉCÉU sur le commerce par période et par partenariat commercial bilatéral, et elle montre des variations importantes.     

Predicting uncertainty: the impact of risk measurement on value of real estate portfolios

This paper presents a theoretical framework for an assessment and valuation of real estate assets and funds, based on modern stochastic discounted cash flow (DCF) models, which accurately captures the nature of related risks. We show that an accurate risk-adjusted valuation is particularly difficult for real estate investments, due to practical limits to diversification and difficulties in approximating total risk with systematic risk. We develop a risk assessment framework that includes idiosyncratic risk but focuses on insolvency risk related to a specific cash flow profile. We also present a methodology of rating this risk, using forecasts and simulations. We conclude that simulation techniques are a valuable tool in property risk assessment. Further, we show that cost of capital and value of assets depend on diversification of specific risks, investors can achieve in their portfolios.     

Managerial ownership and firm performance: Evidence from China's privatizations

We examine the relationship between managerial ownership and firm performance for a sample of Chinese State-owned enterprises (SOEs) privatized over the period 1992-2000. The results indicate that managerial ownership has a positive effect on firm performance. Although return on assets (ROA) and return on sales (ROS) decline post-privatization, firms with high managerial ownership and, specially, high CEO ownership, exhibit a smaller performance decline. The difference is highly significant, with or without controlling for residual state ownership and changes in the firm's operating environment. We also find that the influence on firm performance becomes less significant at higher levels of CEO ownership. In contrast, performance continues to increase with managerial ownership. This finding suggests that, beyond a certain point, the distribution of shares would be more effective if extended to the whole management team instead of being limited to the chief executive.     

Dual VATs and Cross-Border Trade: Two Problems, One Solution?

In recent years, two distinct but related questions have been raised with respect to value-added taxes (VATs). Concern has been expressed over whether it is desirable or even possible for both national and subnational governments in federal countries such as India, Argentina, and Russia to impose VATs. One reason for thinking that such subnational VATs are unlikely to be workable on a destination basis is the problem of cross-border trade. Of course, this same problem also arises within the European Union, where there is no EU VAT. Drawing upon Canadian experience, we argue that not only is it possible to have two-tier or dual VATs on a destination basis in a single country but that the existence of dual VATs may help deal with some of the problems of cross-border trade.     

Tariff equivalents of nontariff measures: the case of European horticultural and fish imports from African countries

In the context of the Partnership Agreements between the European Union (EU) and the African, Caribbean, and Pacific countries, this study estimates ad valorem tariff equivalents of European food safety standards on imports of key horticultural and fish products from Kenya, Tanzania, Uganda, and Zambia. The study uses an extension of the price‐wedge method to account for imperfect substitution and factor endowment in monopolistic competition. The estimated tariff equivalents are 55% and 98% for imports of fresh peas from Zambia to the Netherlands and the U.K., respectively. They range from 39% to 64% for imports of green beans and avocados from Kenya and from 63% to 270% for imports of frozen fish fillets in EU countries from the East African Community. We also observe large variations in tariff equivalents for the horticultural and fish products over time and EU importing countries.     

CUSFTA effects: A joint consideration of trade and multinational activities

This paper estimates the effects of the Canada–US Free Trade Agreement (CUSFTA) on trade, sales of foreign affiliates of multinational enterprises, and total bilateral commerce (aggregate of both trade ands sales of foreign affiliates) in the manufacturing sector. The empirical investigation is carried out over a panel dataset covering the US bilateral transactions with the Organization for Economic Cooperation and Development (OECD) countries for the period 1983–1998. The empirical specification is guided by a gravity-based model that accounts for trade and the operation of foreign affiliates as alternative modes of accessing foreign markets. The results show that the CUSFTA induced an increase in inward and outward trade between the US and Canada, but also led to a significant reduction in sales of their foreign affiliates in the corresponding CUSFTA partner country. This outcome implies that the trade-generating effect of the CUSFTA is overstated.     

Accounting earnings and firm valuation: the French case

Considering that the level of the association between stock returns and accounting earnings provides a measure of the extent to which earnings summarize the information which is useful for firm valuation, this paper analyses the contemporaneous association between stock returns and earnings changes or earnings level of individual French stocks and portfolios for periods of one, two and five years between 1981 and 1990. The empirical findings are as follows. (a) Stock returns are more linked to earnings changes than to earnings levels indicating that earnings provide more information about changes in firm value than about firm value. (b) Earnings prepared in accordance with the French accounting principles are not less value-relevant than those prepared in accordance with US or UK GAAP. (c) A cross-sectionally and time-aggregated data procedure provides a large increase in the explanatory power of earnings for returns which is consistent with a noise-in-earnings effect probably induced by accounting measurement and valuation principles and with a recognition lag effect due to the fact that value-relevant events are not integrated into earnings exactly when they occur. These two effects are shown to be the major causes of the low association between earnings and returns generally observed in studies based on short period data for individual stocks.