On Hoover’s Scale-Free Forecast Accuracy Metric MAD/MEAN

Asia-Pacific Financial Markets - In this study, we find that Hoover’s scale-free forecast accuracy metric MAD/MEAN is only recommended when the coefficient of variation (c.v.) is small. Using...     

Applicability of the Revised Mean Absolute Percentage Errors (MAPE) Approach to Some Popular Normal and Non-normal Independent Time Series

Commonly used Mean Absolute Percentage Errors (MAPE) and the authors’ revised Mean Absolute Percentage Errors (RMAPE) are applied to measure the forecasting accuracy from different Moving Average Methods for independent time series. Simulation results show that both MAPE and RMAPE can only provide sensitive forecasting accuracy measurements on Moving Average Methods when coefficients of variation (c.v.) are smaller than 0.4 or is much greater than 4.0 for those independent time series. For independent time series with moderate c.v.’s, the complexity from the ratios of MAPE and RMAPE will mislead researchers on distinguishing the forecasting accuracies from different Moving Average Methods. The complexity from the ratios will be released only when the c.v. is very small, or when the c.v. is very large. Therefore, when data are from independent time series, the Mean Absolute Deviation (MAD) reveals valid the forecasting accuracies from various Moving Average Methods, but not from MAPE or RMAPE.     

When Bad Things Happen to the Endorsers of Good Products

We investigate how a firm's financial performance (as measured by stock returns) is influenced when celebrity endorsers become involved in undesirable events, i.e., events that have a deleterious effect on the spokespersons. We find that the stock market reaction to these events is negatively related to spokesperson blameworthiness. The lower (higher) the culpability, the higher (lower) the stock return. Interestingly, it is only those firms associated with spokespersons having high culpability that tend to experience losses in stock market value. In contrast, we find that events rated at or below the mean level of blameworthiness are associated with positive stock market returns.     

Win Some,Lose Some: The Effect of Chronic Losses on Decision Making Under Risk

Losses, including those that are chronic in nature, are a fact of life. The research reported here was designed to examine, using a controlled experiment, the effect of chronic losses in a given contextual domain on subsequent decisions with uncertain outcomes that take place in the same and in unrelated domains. Randomly selected adult subjects who took part in the experiment were randomly assigned to one of three treatment groups: One group, chronic losers, was exposed to chronic financial losses as part of a controlled, multi‐round gambling simulation. Groups two and three were exposed to chronic wins and random outcomes, respectively, as part of the same gambling simulation. Results from the experiment revealed that chronic losses, in contrast to random outcomes and chronic wins, had clear effects on decision making in the domain where the initial losses were incurred. Subjects who were exposed to the chronic loss induction demonstrated a significantly higher level of risk aversion when compared with subjects who were exposed to either random outcomes or chronic wins. Subjects exposed to chronic losses also displayed a depressed affective state and a tendency to accept less as an outcome of future decisions, and still consider it to be a satisfactory result, when compared to subjects in the two control conditions. There appears to be no spillover, however, of a similar degree of risk aversion when considering similar kinds of decisions in unrelated contextual domains. These results seem consistent with prospect theory and the theory of learned helplessness, and have implications for risk communication and management in a variety of contexts.     

Host-country governance, tax treaties and US direct investment abroad

We investigate how the quality of the host-country governance and a bilateral US income tax treaty affect the rates of return that US companies require on their foreign direct investment (FDI). Using indexes of corruption and political instability, we find that poor governance causes the companies to require significantly higher rates of return. This lends support to earlier authors who have concluded that poor governance discourages both local investment and inward FDI. After accounting for the quality of host-country governance, however, no evidence could be found that an income tax treaty has any effect on the required rates of return.      

Efficient Congestion Tolls in the Presence of Unpriced Congestion: A Peak and Off-Peak Simulation Model

This paper develops a congestion pricing model to examine efficient congestion tolls for an urban highway facility that resembles California State Route 91, the highway that has been subject to congestion tolls since December 27, 1995. Two lanes out of six (each way) are subject to congestion tolls, and the other four lanes are not. The simulation model combines the economic theories of second-best pricing of transportation facilities and peak-load pricing, and considers both welfare-maximizing and profit-maximizing cases. The simulation results show that the second-best peak period toll is quite low and that the welfare gains from the toll are modest compared to a regime in which all lanes are subject to tolls.     

CEO retention,firm performance and corporate governance

This paper seeks to determine if CEO turnover is a function of firm performance, and therefore attempts to gauge the extent to which CEO interests are aligned with those of stockholders. The methodology in this paper focuses primarily on estimating the relationship between the probability of CEO exit and indices of firm performance and corporate governance structure. A major finding of the paper is that the accountability of CEOs to stockholders is significantly limited by CEO power, and CEO turnover is influenced more by internal governance structure than by firm profit or sales performance.