The welfare effects of disclosure under cognitive dissonance

Atlantic Economic Journal -     

Overlapping Generations or Infinitely-Lived Agents: Intergenerational Altruism and the Economics of Global Warming

Do we need an overlapping generations model for the economics of global warming? To answer this question, an infinitely-lived agent (ILA) approach and an overlapping generations (OLG) model are contrasted. ILA and OLG can be viewed as polar representations of intergenerational altruism. With ILA an immortal agent acts through his investment/savings decisions as trustee on the behalf of the future generations. With OLG, agents need not behave altruistic. They simply save during working years and dissave completely during retirement. Nevertheless, ILA and OLG must not differ in their implication for greenhouse policy. Greenhouse gas abatement is a straightforward alternative to physical capital formation and, even without altruism, each age cohort has an incentive to provide current abatement in order to reduce future damages attributable to climate change. Indeed, under reasonable assumptions and parameter values, our simulations reveal such an invariance result. Provided carbon taxes are the only policy tool and tax revenues are recycled through socially mandated rules, projections of economic growth, climate change and energy consumption are only insignificantly affected by the choice of approach.     

The Lévy LIBOR model

Models driven by Lévy processes are attractive because of their greater flexibility compared to classical diffusion models. First we derive the dynamics of the LIBOR rate process in a semimartingale as well as a Lévy Heath-Jarrow-Morton setting. Then we introduce a Lévy LIBOR market model. In order to guarantee positive rates, the LIBOR rate process is constructed as an ordinary exponential. Via backward induction we get that the rates are martingales under the corresponding forward measures. An explicit formula to price caps and floors which uses bilateral Laplace transforms is derived.     

Reserve Requirements,Liquidity Risk,and Bank Lending Behavior

Although reserve requirements (RR) have been used in emerging markets to smooth credit cycles, the transmission mechanism remains blurry. Using bank‐level data, we unveil the interaction of RR with bank lending. We identify a new channel that works through a decline in banks’ liquid assets and loan supply due to an increase in RR. “Quantitative tightening” through RR raises the short‐term funding needs of the banking system, which is met by collateralized central bank lending, thus depleting banks’ unencumbered liquid assets. Our results suggest that such a shift in bank liquidity is associated with a significant change in lending.     

The Effect of Regulatory Harmonization on Cross‐Border Labor Migration: Evidence from the Accounting Profession

The paper examines whether international regulatory harmonization increases cross‐border labor migration. To study this question, we analyze European Union initiatives that harmonized accounting and auditing standards. Regulatory harmonization should reduce economic mobility barriers, essentially making it easier for accounting professionals to move across countries. Our research design compares the cross‐border migration of accounting professionals relative to tightly matched other professionals before and after regulatory harmonization. We find that international labor migration in the accounting profession increases significantly relative to other professions. We provide evidence that this effect is due to harmonization, rather than increases in the demand for accounting services during the implementation of the rule changes. The findings illustrate that diversity in rules constitutes an economic barrier to cross‐border labor mobility and, more specifically, that accounting harmonization can have a meaningful effect on cross‐border migration.     

Trust Me! I am a European Central Banker

In the aftermath of the financial crisis, the European Central Bank (ECB) has experienced an unprecedented deterioration in the level of trust. This raises the question as to what factors determine trust in central banking. We use a unique cross‐country data set that includes a rich set of socioeconomic characteristics and supplement it with variables meant to reflect a country's macroeconomic condition. We find that besides individual socioeconomic characteristics, macroeconomic conditions play a crucial role in the trust‐building process. Our results suggest that agents are boundedly rational in the trust‐building process and that current ECB market operations may even be beneficial for trust in the ECB in the long run.     

Handelsblatt Ranking and Journal Quality: A Cautionary Note

I provide a brief discussion of the Handelsblatt ranking by focusing on its journal quality weights. I summarize the methodology underlying journals’ prestige measure, which is derived from their citation networks, and discuss its strengths and shortcomings. Although I agree that Handelsblatt ranking provides a great service to the profession, that same profession needs to be rather careful not to overemphasize the journal quality weights.     

Persistent mispricing in a recently opened emerging index futures market: Arbitrageurs invited

The purpose of this study is to analyze the persistent, typically negative, mispricing in the new stock index futures market in Turkey, which has amounted to 5–8%, several multiples of transaction costs. The observations suggest that it is the outcome of a combination of practical difficulties of shorting in the spot stock market, behavioral effects, and insufficient arbitrage. The magnitude of the mispricing and the absence of arbitrage make behavioral effects more visible and provide a unique opportunity to examine extant behavioral hypotheses. Results confirm effects such as disposition and/or conservatism with the mispricing negatively related to past returns, but unrelated to future returns. Finally, an orderly weakening of the negative relation to past returns and behavioral effects is observed, suggesting that such effects will diminish as the market matures. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:218–243, 2009     

Portfolio optimization based on GARCH-EVT-Copula forecasting models

This study uses GARCH-EVT-copula and ARMA-GARCH-EVT-copula models to perform out-of-sample forecasts and simulate one-day-ahead returns for ten stock indexes. We construct optimal portfolios based on the global minimum variance (GMV), minimum conditional value-at-risk (Min-CVaR) and certainty equivalence tangency (CET) criteria, and model the dependence structure between stock market returns by employing elliptical (Student-$t$ and Gaussian) and Archimedean (Clayton, Frank and Gumbel) copulas. We analyze the performances of 288 risk modeling portfolio strategies using out-of-sample back-testing. Our main finding is that the CET portfolio, based on ARMA-GARCH-EVT-copula forecasts, outperforms the benchmark portfolio based on historical returns. The regression analyses show that GARCH-EVT forecasting models, which use Gaussian or Student-$t$ copulas, are best at reducing the portfolio risk.     

Sustainability practices of family firms: the interplay between family ownership and long-term orientation

Sustainability practices are critical for family firms, as they relate directly to the continuity of the business and relationships with important stakeholders, such as members of the local community. Nevertheless, not all family firms wish to adopt sustainability practices. To examine this, we draw upon the socioemotional wealth perspective in order to develop a theoretical model of the direct negative effects of family ownership on the adoption of sustainability practices. We also suggest moderating effects of long-term orientation (LTO) on this link. Our model is tested on a sample of 195 family firms in the tourism and hospitality sector. The results support our hypothesis that family ownership negatively influences the adoption of sustainability practices. Additionally, LTO moderates the relationship between family ownership and the adoption of sustainability practices, such that family owners with a high LTO are more likely to adopt this particular practice compared to those with a low LTO.