Testing PPP hypothesis under temporary structural breaks and asymmetric dynamic adjustments

ABSTRACT

We test the empirical validity of the PPP proposition under temporary structural breaks and dynamic nonlinear adjustments. Although several testing procedures have recently been proposed in the existing literature to investigate stochastic properties of the series under gradual breaks and nonlinear adjustments, none of these tests are compatible with the PPP proposition. Therefore, we propose new testing procedures that restrict the break to be temporary while simultaneously allowing for asymmetric dynamic nonlinear adjustment towards equilibrium. Using these newly proposed tests, we test stationarity of real exchange rate of 24 OECD countries vis-à-vis USA, and find support in favour of PPP proposition in majority of the countries.     

Inequality,Nonhomothetic Preferences,and Trade: A Gravity Approach

We construct the first direct classification of goods as luxuries or necessities that is compatible with international trade data. We then use it to test an idea that has not been tested directly in the literature: Countries' income distributions are important determinants of their import demand, and, in particular, of the difference in their import demands of luxuries versus necessities. We interpret this result with the aid of a model in which preferences are nonhomothetic, thus relaxing a long-held and standard—but empirically dubious—assumption in the theory of international trade. Our model is strongly borne out by the results: Imports of luxuries increase with the importing country's inequality, and imports of necessities decrease with it. Our calculations imply that if income distribution in the United States became as equal as in Canada, the United States would import about 9-13% fewer luxury goods and 13-19% more necessities.     

Market segmentation,performance differences and strategic orientation - the case of German reinsurers

We apply the concept of strategic groups to the German reinsurance market. We use a cluster analysis to subdivide reinsurance companies into strategic groups and analyze the effect of a set of strategic choice variables on their performance. Furthermore, we examine the impact of the financial crisis of 2008 on the reinsurance sector. Our dataset encompasses 142 firm-year observations for the years 2004 until 2012. Our results indicate the existence of three strategic groups in the German reinsurance market. Moreover, we find that most strategic choice variables that characterize the individual strategic groups affect the reinsurers’ level of performance. Finally, we find that the reinsurers’ performance increased in the aftermath of the financial crisis. This holds in particular for professional reinsurance companies.     

Feature Article: A Resource‐Based Perspective on Business Strategies of Newly Founded Subsidiaries: The Case of German Pensionsfonds

Diversification by firms into unfamiliar areas of business is achieved either by acquisition of an existing business in the destination industry or a greenfield start‐up. This article focuses on the business strategy of greenfield start‐ups. We theorize and find that firms entering a market by establishing a new subsidiary rely solely on their own preexisting internal resources, making it favorable to align the business strategy of the start‐up with the firm's value‐generating competencies. Our empirical results, which are based on a sample of German Pensionsfonds and their parent companies, are consistent with the view that the business strategy choice of a newly founded subsidiary is substantially directed by the internal resources and competencies of the parent firm.     

Modeling current and emerging threats in the airport domain through adversarial risk analysis

Airports are critical infrastructures entailing intense human, commercial and economic activity. As such, they are preferred targets for criminal and terrorist groups, who are attracted by the promisingly high revenues they might get from an attack. Every year, airport authorities worldwide have to face, with limited resources, attacks arising from different adversaries. There are several sensible areas within an airport organization that are especially vulnerable to the terrorist threat, including, among others: (1) those related to human lives (of passengers or staff); (2) airport infrastructure (airport perimeter, main terminal, Air Traffic Control Tower, runways, hangars, etc.); (3) aircrafts and other ground vehicles; and (4) IT systems and services. Besides the more traditional ones, we are particularly concerned with attacks launched against the last type of targets, an emerging and increasingly worrisome threat. Specifically, we analyze the impact of cyber-attacks launched by organized groups whose main goal is to take hold of airport operations. In some cases, in order to have more chances to achieve their purpose (and take advantage of its eventual success), cyber attackers may be backed up by a terrorist group who will try to interfere with the Air Traffic Management network. In this paper, we aim at supporting airport authorities in their fight against both threats, by devising a security allocation plan. We provide an adversarial risk analysis model to address the problem, and apply it to obtain the optimal portfolio of preventive measures in an illustrative case study. The model is open to extensions, as e.g. larger and more complex technical infrastructures, new threats, or additional recovery measures deployed by different defensive agents.     

Determinants of M&A success in the European insurance industry

This research analyzes the success of mergers and acquisitions (M&A) for European acquiring insurers using a stock market perspective. In contrast to previous papers that use an event study approach, our analysis is based on the stochastic dominance methodology, in which we analyze short and long term capital market reactions following an M&A announcement. In addition, we examine firm- and transaction-specific determinants associated with superior M&A success. Using a sample of 102 European insurance M&A transactions over the period 1993–2009, our results indicate that acquiring insurers are second-order dominated by their benchmark portfolio in the short term. In the long run, we find no evidence of stochastic dominance compared to their non-acquiring counterparts. Moreover, we find that geographically diversifying acquirers are rewarded by the market, and that transactions in which the acquirer and target have a business relationship before the M&A announcement outperform transactions without pre-M&A participation in the short-term. Finally, we detect a positive relationship between cash payment and acquirers’ M&A success.     

Nonlinearity and nonstationarity in international art market prices: evidence from Markov-switching ADF unit root tests

This study investigates the presence (or lack thereof) of nonlinear dynamics and nonstationarity in international art market prices using quarterly data for the period 1990–2011. We first test whether art market price indices follow stochastic trends or whether they are stationary by means of linear unit root tests. Next, we estimate the Markov regime-switching ADF model and test whether the linear or the nonlinear regime-switching model provides a better characterization of the global art market price series. We find that all art market price indices (except for Drawings) exhibit nonlinearity. To our knowledge, our study is the first one in the literature to suggest that a nonlinear (Markov regime-switching) model provides a better characterization of the behavior of price dynamics in international art markets. In particular, our findings indicate that the market for the overall global art market, paintings, old masters, sculptures, photographs, prints, and contemporary art might indeed be stationary while exhibiting nonlinear regime-switching properties. On the other hand, the market for drawings and the Nineteenth century art are found to be nonstationary. Overall, despite the common ground of a regime-switching framework, we still find that the sub-segments of the art market have their own inner regime switching dynamics and hence they can evolve differently overtime.     

Property tax and inter-municipal migration in canada: a multivariate test of the Tiebout hypothesis

This paper tests the causal ordering between property taxes and inter-municipal migration, using both bivariate and multivariate methods. Empirical results, based on annual data for post-war Canada (1940–84), support the Tiebout–Tullock hypothesis, which implies that differential local tax system and public services induce inter-comunity migration, inter alia. Local spending and taxation are not therefore fully capitalized in property values. The bivariate tests, based on the Granger–Sims test and Hsiao's procedure, indicate an instantaneous bidirectional causality between property taxes and migration but the multivariate Granger test supports only a unidirectional causality from property taxes to migration.