Forbearance and Prompt Corrective Action

This article investigates whether a bank regulator should terminate problem banks promptly or exercise forbearance. We construct a dynamic model economy in which entrepreneurs pledge collateral, borrow from banks, and invest in long-term projects. We assume that collateral value has aggregate risk over time, that in any period entrepreneurs can abscond with the projects but lose the collateral, and that depositors can withdraw deposits. We show that optimal regulation exhibits forbearance if the ex-ante probability of collapse in collateral value is sufficiently low, but exhibits prompt termination of problem banks if this probability is sufficiently high.     

Influence of lifestyle and evaluative criteria for apparel on information search among non-employed female consumers

This study was designed to investigate the influence of lifestyle and apparel evaluative criteria on information search in apparel purchasing decisions among non-employed female consumers. A random sample of non-employed female consumers (n = 476) was collected via a self-administered questionnaire mailed across the nation. Principal Components Factor Analysis with Varimax Rotation was used to reduce the number of lifestyle, evaluative criteria, and information search activity items. As a result of Stepwise Multiple Regression Analyses, it was found that relationships existed among evaluative criteria, lifestyle, and informarion search patterns. Search profiles were developed to describe the four consumer information search patterns in terms of their lifestyle and evaluative criteria. Results will benefit consumers, marketers, and legislators because an understanding of consumer information seeking activities is essential in the design of efficient communication among these three groups.     

Insider employee stock option trading and stock prices

The question of which factors determine corporate bonds pricing is investigated by analysing the spreads of eurobonds issued by major G-10 companies during the 1991–2001 period. Three main results emerge from the analysis. First, bond ratings appear as the most important determinant of yield spreads, with investors’ reliance on rating agencies judgments increasing over time. Second, the primary market efficiency and the expected secondary market liquidity are not relevant explanatory factors of spreads cross-sectional variability. Finally, rating agencies adopt a different, ‘through the cycle’, evaluation criteria of default risk with respect to the forward looking one adopted by bond investors.     

Identification of technological structures using patent statistics

This paper studies the use of patent statistics in identifying four aspects of technological structure, namely, the potential knowledge pool, cumulativeness, inter-firm homogeneity in technology levels, and the scope of innovations. The firms are sampled from the chemical (CHEM), the computer (COM) and the electrical and electronic (EE) industries worldwide. Using the proxies defined, we find that (i) the contributions of intra-industry spillover are low, at 12%, 10%, and 9% for the three industries respectively; (ii) they can internalize 15%, 19% and 13% of their previous research efforts respectively; and (iii) a positive relationship between knowledge spillover and technology overlap, and between scope of innovation and number of patents being cited in future.     

The Early Careers Of Engineers And The Accumulation Of Skills In The Canadian Economy

In this paper we use world cycling records to study the pattern of technological development of the track bicycle. We find that there is a strong evidence of ‘contagious’ effects among cycling records which in turn provides indirect evidence of ‘contagious’ effects among technological innovations. Interestingly, the ‘contagiousness’ of records is not a salient characteristic of track and field competitions where, arguably, technology plays a smaller role.     

Does the digital divide matter? The role of information and communication technology in cross-country level and growth estimates

The bulk of information and communication technology is made of weightless, implementable, and infinitely reproducible knowledge products (such as software and databases). These products are transferred by telephone lines, accessed through internet hosts, and processed through personal computers. In this work, the coefficient of the labour augmenting factor in the aggregate production function has been estimated using proxies of variables crucially affecting the diffusion of (non-rival and almost non-excludable) knowledge products. This specification provides interesting answers to some of the open issues in the existing growth literature. The most recent information, though available for a limited period, shows that telephone lines, personal computers, mobile phones, and internet hosts significantly affect levels and growth of income per worker across countries. The result is robust to changes in sample composition, econometric specification, and estimation approach.     

Volatility forecasts and at-the-money implied volatility: a multi-component ARCH approach and its relation to market models

This article explores the relationships between several forecasts for the volatility built from multi-scale linear ARCH processes, and linear market models for the forward variance. This shows that the structures of the forecast equations are identical, but with different dependencies on the forecast horizon. The process equations for the forward variance are induced by the process equations for an ARCH model, but postulated in a market model. In the ARCH case, they are different from the usual diffusive type. The conceptual differences between both approaches and their implication for volatility forecasts are analysed. The volatility forecast is compared with the realized volatility (the volatility that will occur between date t and t + ΔT), and the implied volatility (corresponding to an at-the-money option with expiry at t + ΔT). For the ARCH forecasts, the parameters are set a priori. An empirical analysis across multiple time horizons ΔT shows that a forecast provided by an I-GARCH(1) process (one time scale) does not capture correctly the dynamics of the realized volatility. An I-GARCH(2) process (two time scales, similar to GARCH(1,1)) is better, while a long-memory LM-ARCH process (multiple time scales) replicates correctly the dynamics of the implied and realized volatilities and delivers consistently good forecasts for the realized volatility.     

How Do Switching Costs Affect Market Concentration and Prices in Network Industries?

I investigate the effects of switching costs on the market outcome in network industries using a dynamic duopoly model of price competition in the presence of an outside option. I find that the role of switching costs depends on network effects and the outside option. Without a viable outside option, high switching costs can neutralize the tendency towards high market concentration associated with network effects, but with a viable outside option, switching costs increase market concentration. Furthermore, switching costs lower prices if network effects are modest and there exists a viable outside option, but generally raise prices otherwise.     

Financial Identity‐Processing Styles Among Young Adults: A Longitudinal Study of Socialization Factors and Consequences for Financial Capabilities

Using identity theory as a basis for conceptualizing and clustering the financial identity‐processing styles of young adults, this study examines antecedent socialization factors and consequent financial capabilities associated with those clusters. Using two‐timed longitudinal surveys (N = 1,511) of college students, we proposed and confirmed three financial identity‐processing styles, resembling Berzonsky's three identity‐processing styles (i.e., informational, normative, and diffused‐avoidant). Labeled Pathfinders, Followers and Drifters: these three clusters were profiled with respect to their socialization factors and financial capabilities. We concluded that identity theory can be applied to the financial domain, financial identity‐processing styles are influenced by socialization factors (e.g., parents, learning), and these styles have consequences for individuals' financial capabilities (financial knowledge, self‐efficacy, attitudes, and behaviors). Insights from this study may inform the design and implementation of effective financial parenting, financial education and intervention programs, and identify those young adults who may benefit from education and intervention efforts .     

On the equivalence of the static and dynamic asset allocation problems

A classic dynamic asset allocation problem optimizes the expected final-time utility of wealth, for an individual who can invest in a risky stock and a risk-free bond, trading continuously in time. Recently, several authors considered the corresponding static asset allocation problem in which the individual cannot trade but can invest in options as well as the underlying. The optimal static strategy can never do better than the optimal dynamic one. Surprisingly, however, for some market models the two approaches are equivalent. When this happens the static strategy is clearly preferable, since it avoids any impact of market frictions. This paper examines the question: when, exactly, are the static and dynamic approaches equivalent? We give an easily tested necessary and sufficient condition, and many non-trivial examples. Our analysis assumes that the stock follows a scalar diffusion process, and uses the completeness of the resulting market model. A simple special case is when the drift and volatility depend only on time; then the two approaches are equivalent precisely if (μ (t)? r)/σ²(t) is constant. This is not the Sharpe ratio or the market price of risk, but rather a nondimensional ratio of excess return to squared volatility that arises naturally in portfolio optimization problems.