Stock market volatility forecasting: Do we need high-frequency data?

The general consensus in the volatility forecasting literature is that high-frequency volatility models outperform low-frequency volatility models. However, such a conclusion is reached when low-frequency volatility models are estimated from daily returns. Instead, we study this question considering daily, low-frequency volatility estimators based on open, high, low, and close daily prices. Our data sample consists of 18 stock market indices. We find that high-frequency volatility models tend to outperform low-frequency volatility models only for short-term forecasts. As the forecast horizon increases (up to one month), the difference in forecast accuracy becomes statistically indistinguishable for most market indices. To evaluate the practical implications of our results, we study a simple asset allocation problem. The results reveal that asset allocation based on high-frequency volatility model forecasts does not outperform asset allocation based on low-frequency volatility model forecasts.     

Transition towards and of sustainability—Understanding sustainability as performative

Our purpose is to explore the concept of “sustainability” when understood from a performative perspective, i.e. as a concept that is filled with meaning across time. Drawing on a 10 year-long study of the digital footprint of Stockholm Royal Seaport, claimed to be northern Europe's largest sustainable urban development district, we show that “sustainability” emerged as the project became associated with particular places, projects, histories, and technologies. This means that “sustainability” was local in that it was situated in the particular spatial context of the project; temporal in that it was situated in a particular time; and political in that it expressed particular values and perspectives. The study contributes to explaining why “sustainability” remains—and always will remain—a contested concept, which is why sustainability transitions are complex. Consequently, we suggest that the transition towards sustainability always involves the transition of sustainability, something that needs to be acknowledged in order for a transition to actually become sustainable.     

Real Incentive Effects of Soft Information

Both soft, noncontractible, and hard, contractible, information are informative about managerial ability and future firm performance. If a manager's future compensation depends on expectations of ability or future performance, then the manager has implicit incentives to affect the information. We examine the real incentive effects of soft information in a dynamic agency with limited commitment. When long-term contracts are renegotiated, the rewards for future performance inherent in long-term contracts allow the principal partial control over the implicit incentives. This is because the soft information affects the basis for contract renegotiation. With short-term contracts, the principal has no control over the basis for contract negotiation, and thus long-term contracts generally dominate short-term contracts. With long-term contracts, the principal's control over implicit incentives is characterized in terms of effective contracting on an implicit aggregation of the soft information that arises from predicting (forming expectations of) future performance. We provide sufficient conditions for soft information to have no real incentive effects. In general, implicit incentives not controllable by the principal include fixed effects, such as career concerns driven by labor markets external to the agency. When controllable incentives span the fixed effects of career concerns, the latter have no real effects with regard to total managerial incentives—they would optimally be the same with or without career concerns. Our analysis suggests empirical tests for estimating career concerns that should explicitly incorporate noncontractible information.     

Costs and potential funding of expanded public pension coverage in Asia

Public pension burdens in most emerging Asian economies are still relatively small. However, there are a number of reasons to believe that they will increase markedly in the coming years. First, many Asian economies will face rapidly ageing populations, which will raise pension and other old‐age‐related spending dramatically. Second, as economies develop, political pressures to expand the coverage of public pensions and raise pension benefits will likely increase. The first objective of this paper is to identify the potential fiscal burden of public pensions in 23 emerging Asian economies, based on econometric models and forecasts of GDP and demographic trends. Using two different methodologies yields estimated increases in the average share of public pension expenditures in GDP of 1.0 percentage point and 3.6 percentage points by 2030 compared with current levels. We believe the latter estimate is more realistic. The second objective is to recommend policies to provide adequate funding for public pension needs, including enhancing the efficiency of social insurance programs, improving the balance of revenues and expenditures, implementing more explicit fiscal rules and frameworks, and establishing stronger fiscal surveillance at the national and regional levels.     

Patterns and dynamics of population heterogeneity in mixtures models

Mixtures of distributions are a common modelling tool for durations of social phenomena, especially when the population is believed to be heterogeneous. We discuss heterogeneity patterns which can be captured by various mixing distributions in continuous and discrete time. Particular attention is given to recidivism data which Kaplan modeled by beta-mixtures of geometric distributions. We also investigate the dynamics of heterogeneity, measured via the variance of the mixing distribution, over the duration. It is shown that not all mixture models display decreasing heterogeneity over time.     

Two Dimensions of Convergence: National and International Wage Adjustment Effects of Cross-border Outsourcing in Europe

The paper proposes a distinction between the two dimensions of convergence—within and between countries—when analyzing the impact of cross‐border outsourcing on real wage rates in the EU‐15 and the CEEC. In the CEEC, international outsourcing has not affected the adjustment of average real wage rates at the manufacturing industry level, but it has led to a closure of the gap within a typical EU economy. Between‐country convergence is likewise fostered by cross‐border outsourcing, supporting the hypothesis that outsourcing facilitates international factor price equalization.     

WHAT ACCOUNTS FOR THE DECLINE IN CRIME?*

In this article we analyze recent trends in aggregate property crime rates in the United States. We propose a dynamic equilibrium model that guides our quantitative investigation of the major determinants of observed patterns of crime. Our main findings can be summarized as follows: First, the model is capable of reproducing the drop in crime between 1980 and 1996. Second, the most important factors that account for the observed decline in property crime are the higher apprehension probability, the stronger economy, and the aging of the population. Third, the effect of unemployment on crime is negligible. Fourth, the increased inequality prevented an even larger decline in crime. Overall, our analysis can account for the behavior of the time series of property crime rates over the past quarter century.     

Fashion centres: An approach to sector intervention

The clothing and textile industry is a major employer in many areas. It consists of a large number of small firms characterised by very poor working conditions. The need to sustain employment in the industry and improve conditions has led to several local authorities adopting a sector approach to intervention. This paper looks at the development of one particular measure, the establishment of fashion centres.     

Entry and growth in a perfectly competitive vintage model

A perfectly competitive vintage-knowledge model of Schumpeterian growth is introduced to study the relation between growth, technology-lifetime, entry, and productivity-dispersion. The incentive to innovate is generated by the productivity-dispersion (latent in traditional vintage models) between new and old plants, rather than by monopoly rents. The model has a unique steady-state REE with endogenous growth. The endogenous extent of entry constitutes a buffer, dampening the effect of research-efficiency and completely neutralizing the effect of population size or population growth rates on per-capita income levels and growth rates. Variations of research-efficiency lead to a negative relation between growth and vintage-lifetime and a non-monotonic relation between growth and productivity-dispersion.