FORWARD RISK PREMIA AND THE MATURITY OF CONTRACTS: A NOTE

This paper examines the behavior of the risk premium component of currency forward rates. Analyzing forward rates of one, two and three-month maturity, we find that the power of forward rate as a predictor of future spot rate decreases with the length of contract maturity. Further, we find that the proportion of the variance of the forward premium which is due to the variation of the risk premium is larger than the proportion due to the expected spot rate change for all currencies except for the Canadian dollar. This proportion also increases with the length of maturity.     

Optimal Development of Agricultural Sectors in the Basin Based on Economic Efficiency and Social Equality

The limitation of freshwater resources and the growing demand for water, make the issue of water resource development planning and water allocation among stakeholders even more important. Ideally, water allocation should be economically efficient and socially equitable. In this study, a water allocation model is presented in an integrated framework that considers the interaction of water supply and demand according to economic and social factors. To achieve this, a reliability-based multi-objective optimization - simulation approach has been employed. The objective functions of the problem are: 1) maximizing GDP from agricultural sectors and 2) maximizing social equality in different provinces of the basin (measured using the Williamson coefficient). The fair development and allocation among the shared provinces in the basin can reduce conflicts in the region. Karkheh basin has been considered as a case study and decision variables of the problem are area under cultivation of agricultural development sectors in different provinces. The results show that, without harming the income of the agricultural sector, the spatial distribution of development projects can be done in such a way that equality (according to income level and the number of people working in each province) is achieved. One of the solutions of Pareto front compared to previous studies shows that, in addition to an increase of about 12% of the objective function 1 (GDP), the value of the objective function 2 (Williamson coefficient) decreased from 1.19 to 0.98. This indicates a decrease in income inequality among the provinces of the basin.

     

Modeling River Mixing Mechanism Using Data Driven Model

Modeling river mixing mechanism in terms of pollution transmission in rivers is an important subject in environmental studies. Dispersion coefficient is an important parameter in river mixing problem. In this study, to model and predict the longitudinal dispersion coefficient (D _L ) in natural streams, two soft computing techniques including multivariate adaptive regression splines (MARS) as a new approach to study hydrologic phenomena and multi-layer perceptron neural network as a common type of neural network model were prepared. To this end, related dataset were collected from literature and used for developing them. Performance of MARS model was compared with MLP and the empirical formula was proposed to calculate D _L . To define the most effective parameters on D _L structure of obtained formula from MARS model and more accurate formula was evaluated. Calculation of error indices including coefficient of determination (R²) and root mean square error (RMSE) for the results of MARS model showed that MARS model with R²?=?0.98 and RMSE?=?0.89 in testing stage has suitable performance for modeling D _L . Comparing the performance of empirical formulas, ANN and MARS showed that MARS model is more accurate compared to others. Attention to the structure of developed MARS and the most accurate empirical formulas model showed that flow velocity, depth of flow (H) and shear velocity are the most influential parameters on D _L .     

Continuous Stochastic Games of Capital Accumulation with Convex Transitions

We consider a discounted stochastic game of common-property capital accumulation with nonsymmetric players, bounded one-period extraction capacities, and a transition law satisfying a general strong convexity condition. We show that the infinite-horizon problem has a Markov-stationary (subgame-perfect) equilibrium and that every finite-horizon truncation has auniqueMarkovian equilibrium, both in consumption functions which arecontinuous and nondecreasingand have all slopes bounded above by 1. Unlike previous results in strategic dynamic models, these properties are reminiscent of the corresponding optimal growth model.Journal of Economic LiteratureClassification Codes: C73, O41, Q20.     

On strategic complementarity conditions in Bertrand oligopoly

Summary. For Bertrand duopoly with linear costs, we establish via a single (counter-)example that: (i) A new monotone transformation of the firms' profit functions may lead to the supermodularity of transformed profits when the standard log and identity transformations both fail to do so, and (ii) Topkis's notion of critical sufficient condition for monotonicity of a Bertrand firm's best-reply correspondence cannot be extended to rely only on positive unit costs. Received: January 16, 2001; revised version: March 20, 2002 RID="*" ID="*" This work was completed while the first author was visiting the Institute for Industrial Economics at the University of Copenhagen during Spring 2000. Their financial support and stimulating research environment are gratefully acknowledged. The views expressed here are those of the authors and should not be attributed to the European Commission. Correspondence to: R. Amir     

Human capital and earnings distribution dynamics

Earnings heterogeneity plays a crucial role in modern macroeconomics. We document that mean earnings and measures of earnings dispersion and skewness all increase in US data over most of the working life-cycle for a typical cohort as the cohort ages. We show that (i) a human capital model can replicate these properties from the right distribution of initial human capital and learning ability, (ii) differences in learning ability are essential to produce an increase in earnings dispersion over the life cycle and (iii) differences in learning ability account for the bulk of the variation in the present value of earnings across agents. These findings emphasize the need to further understand the role and origins of initial conditions.     

Dynamic lot sizing problem with continuous-time Markovian production cost

This paper develops a polynomial algorithm for obtaining dynamic economic lot sizes in a single product multiperiod production system with the objective of minimizing total production and inventory costs over T periods. It is assumed that production costs are linear, inventory costs are concave, setup costs are zero and backlogging is not permitted in all periods. Moreover, the unit production cost is a stochastic variable, which is evolved according to a continuous-time Markov process over the planning horizon. The model is formulated as a stochastic dynamic programming (DP) optimization with the state variable being unit production cost. Then, it is solved using the backward dynamic programming approach. To justify the application of the proposed model, two practical cases are presented.     

Conditional Persistence of Earnings Components and Accounting Anomalies

We suggest that the failure of investors to distinguish between an earnings component's autocorrelation coefficient (unconditional persistence) and the marginal contribution of that component's persistence to the persistence of earnings (conditional persistence) provides a partial explanation of post‐earnings‐announcement drift, post‐revenue‐announcement drift, and the accrual anomaly. When the conditional persistence of revenue surprises is high (low) relative to its unconditional persistence, both the post‐earnings‐announcement drift and the post‐revenue‐announcement drift are high (low), because investors’ under‐reaction to revenues and earnings is stronger when the persistence of revenue surprises is more strongly associated with the persistence of earnings surprises. Also, the mispricing of accruals decreases substantially when the conditional persistence of accruals is high relative to its unconditional persistence, because investors’ over‐reaction to accruals is mitigated when the persistence of accruals is indeed more strongly associated with the persistence of earnings. Our findings also suggest that financial analysts’ failure to distinguish between unconditional and conditional persistence of revenues and accruals results in more biased revenue and earnings predictions.     

Free Trade versus Autarky under Asymmetric Cournot Oligopoly

The paper compares free trade with autarky in an asymmetric multi‐country world under Cournot competition with constant returns to scale and linear demand. We derive respective conditions under which free trade will hurt a country's consumers, benefit its firms, induce it to export, increase its output and raise its welfare. We show that these conditions are linked in a clear order, with one implying the next. We further demonstrate that free trade can reduce world total output and total consumer surplus as well as world welfare. Along the way, we correct several oversights in the literature.     

Are sponsorship announcements good news for the shareholders? Evidence from international stock exchanges

The objective of this study is to analyse investors’ perceptions of sponsorship’s ability to increase brand equity, through the impact of sponsorship announcement on stock market value. An event study method, based on a unique sample of 293 worldwide sponsorship announcements from 2010, shows substantial negative abnormal returns following announcement dates. In addition, a cross-sectional regression analysis reveals the influence of several featured factors. Philanthropic sponsorships and sponsorships of events with distinctive values are less negatively perceived by investors, but US companies exhibit more negative returns in shareholder value than other firms. This study offers no support for varying impacts of event audience, renewal agreement, property sponsorship and title sponsorship on abnormal returns though.