The Local Whittle Estimator of Long-Memory Stochastic Volatility

We propose a new semiparametric estimator of the degree of persistencein volatility for long memory stochastic volatility (LMSV) models.The estimator uses the periodogram of the log squared returnsin a local Whittle criterion which explicitly accounts for thenoise term in the LMSV model. Finite-sample and asymptotic standarderrors for the estimator are provided. An extensive simulationstudy reveals that the local Whittle estimator is much lessbiased and that the finite-sample standard errors yield moreaccurate confidence intervals than the widely-used GPH estimator.The estimator is also found to be robust against possible leverageeffects. In an empirical analysis of the daily Deutsche Mark/USDollar exchange rate, the new estimator indicates stronger persistencein volatility than the GPH estimator, provided that a largenumber of frequencies is used.     

Drug testing in the transportation industry: The maritime case

The maritime industry provides an interesting case study of the design and implementation of drug-testing programs in the transportation industry during the 1980s. It is clear that such programs were designed and implemented less because of empirical evidence of safety problems than for political reasons. The results in the maritime industry are indicative of a program that is expensive to operate, intrusive with regard to employee privacy, and which will have little or no impact on safety. Focusing such programs on the issue of impairment rather than on the issue of drug usage per se is likely to improve the outcome of the programs. Although, despite common belief, there is little evidence that drug usage or the “drug problem” in U.S. society as a whole had gotten worse in the preceding years (Schonsheck, 1989, 250–251).     

Decentralization and Pay Reform in Central Government: a Study of Three Countries

Over the past decade central governments of the UK, Sweden and Australia have been engaged in significant reforms in the way they pay their employees. These reforms have generally taken the form of the decentralization of pay bargaining and the individualization of pay. This paper details the policies that have been implemented in central government in these countries and presents some preliminary results on the effects of these. While the actual implementation has varied quite substantially across the countries and the analysis of the outcomes must be regarded as preliminary, there is some evidence that the reforms have led to an increase in earnings dispersion.     

OPTIMAL FORECAST COMBINATION UNDER REGIME SWITCHING*

This article proposes a new forecast combination method that lets the combination weights be driven by regime switching in a latent state variable. An empirical application that combines forecasts from survey data and time series models finds that the proposed regime switching combination scheme performs well for a variety of macroeconomic variables. Monte Carlo simulations shed light on the type of data‐generating processes for which the proposed combination method can be expected to perform better than a range of alternative combination schemes. Finally, we show how time variations in the combination weights arise when the target variable and the predictors share a common factor structure driven by a hidden Markov process.     

Small firm mutual funds: Additional evidence on the small firm effect

Returns generated with small firm mutual fund data are used to examine the extent to which identification of a small firm effect is due to the difficulty in measuring the direct and indirect transaction costs involved in investing in the common shares of small capitalization stocks. Little if any evidence of the excess risk-adjusted returns is obtained for either of the period 1978–1983, when the small firm effect was observed, or the period 1984–1989, when it was not. The small firm effect may therefore be attributed to (1) higher direct transaction costs including bid-ask spread and broker fees and (2) higher indirect transaction costs including portfolio management expenses and market impact costs.The authors thank an anonymous referee for helpful comments on an earlier version of this paper, and Brett Salazar for valuable assistance in data collection. Errors remain our own.     

All politics is local: The effect of fiscal and monetary constitutions on economic policy

The rules of behavior for the monetary authorities changed in 1933 and 1947 and the Fed temporarily changed its operating procedures in 1979, but these changes did not alter the fact that the monetary authorities serve as the agent of the fiscal authorities. On the fiscal side, a shift from a centralized process to one where Congress was composed of a set of individual entrepreneurs altered the fiscal focus from the national economy to one of localized interests. This change led to a more autoregressive and deficit-prone federal budget and changed the interaction between monetary and fiscal policy. It also elevated the status of monetary policy to the extent where financial markets react to every utterance from the monetary authorities.     

Do share prices matter?

This paper examines whether the cross sectional variation in Australian share prices is partially explained by measures of firm size and ownership characteristics in a manner that is consistent with firms behaving in accordance with Merton's (1987) model of capital market equilibrium with incomplete information. Based on a sample of firms whose shares were traded on the ASX during 1995, we show that firms largely owned by less wealthy shareholders tend to have low stock prices, although this relation is not linear. In addition, larger, better–known, firms tend to have higher stock prices. These findings are consistent with prior evidence from US markets, and suggest the existence of a shareholder clientele effect in Australia that is related to the share price of the underlying firm.     

Contagion or Competition: Going Concern Audit Opinions for Real Estate Firms

We examine whether intra–industry information transfers from going–concern audit opinion announcements create contagion or competitive stock price reactions for other real estate firms operating in the same line of business. Using returns from publicly-traded land subdivision/development firms and Real Estate Investment Trusts, we find modest evidence supporting a competitive effect among rival firms as a result of another real estate firm announcing the receipt of a Going Concern Opinion (GCO) from its independent auditors.     

Substitution between leisure activities: a quasi-natural experiment using sports viewing and cinema attendance

The allocation of time between leisure activities and work has been extensively analysed in academic literature. However, leisure time is limited and there may not be sufficient time to enjoy all the leisure activities desired. Hence, this article considers the allocation of time between substitute leisure activities. International football tournaments provide an opportunity to consider consumers’ preferences for watching football and films in a quasi-natural experimental setting. A trade-off between these leisure activities is identified using a difference-in-difference methodology. Using an original, four-country data set, a large and robust negative effect of mega sports events on cinema admissions is identified.     

Notes from a life influenced by Wendell Bell

Wendell Bell's idealistic vision of the role of the sociologist in creating a brighter future for society and his theoretical framework of the role of intellectual elites in the decisions of nationhood are examined through the personal lens of a former Caribbean student of the West Indies Study Program at UCLA.