estimation methods in portfolio selection and the effectiveness of short sales restrictions uk evidence forecasting the mean returns vector and the covariance matrix is a key feature in implementing portfolio theory the performance of the bayes stein method for forecasting these parameters for use in the markowitz model with and without short sales was compared with that of seven other estimation methods and three alternative portfolio selection techniques this paper represents the first large scale empirical investigation of the usefulness of the bayes stein approach using historical data this data was drawn from the london stock exchange in contrast to earlier studies the relative performance of bayes stein was mixed while it produced reasonable estimates of the mean returns vector there were superior methods e g overall mean for estimating the covariance matrix when short sales were permitted when short sales were prohibited actual portfolio performance was clearly improved although there was little to choose between the various estimation methods

more on estimation risk and simple rules for optimal portfolio selection for the risk averse investor consideration of estimation risk is important in selecting an expected utility maximizing portfolio it has previously been shown that the composition of the tangency portfolio is unaffected by the recognition of estimation risk if the full covariance model is used alternatively if the market model is used the composition of the tangency portfolio has been shown to be affected by the recognition of estimation risk however as is demonstrated in this paper the effect will generally not be as substantive as previously believed and in many situations can be safely ignored in order to determine the composition and location of an efficient frontier from which an optimal portfolio will be selected the investor must employ estimates of expected returns variances and covariances for the set of securities under consideration if the investor simply treats the estimated parameter values for the securities as true parameter values then estimation risk will have been ignored and as shown by barry 1 and klein and bawa 14 15 a suboptimal portfolio will most likely have been selected bawa brown and klein 6 and klein and bawa 14 discuss the effects of estimation risk on the selection of an optimal portfolio from a set of risky assets and note that the location but not the composition of the efficient frontier changes when estimation risk is recognized if security returns are generated by a stationary multivariate normal distribution for which the investor has a diffuse prior furthermore brown 8 has shown these results to be robust for severe misspecification of the underlying multivariate distribution of returns e g assuming it to be normal when in actuality it is student t with small degrees of freedom this paper is concerned with the effects of estimation risk on the composition of the tangency portfolio derived from a set of risky assets and a risk free asset under the assumption that the investor has a diffuse prior 1 barry 2 bawa and brown 4 and brown 7 have shown analytically that the composition of the tangency portfolio is unaffected by estimation risk if the full covariance model is used chen and brown 10 have expanded upon the work of brown 9 and have argued that if security returns are generated by the market model then the composition of the tangency portfolio will be substantively different when estimation risk is recognized

portfolio selection under institutional procedures for short selling normative and market equilibrium considerations abstract in view of the acceptance of short selling of stocks as an investment tool in the portfolio context by a growing number of institutional investors in recent years the present study considers both normative and market equilibrium aspects of portfolio selection with short selling under the full information covariance structure of security returns the study accurately captures institutional procedures for short selling without sacrificing analytical tractability while short selling enhances the portfolio s risk return trade off from a normative perspective the equilibrium analysis reveals that there is a continuum of market clearing prices within two boundaries for each security economic implications of the equilibrium pricing relationship are also explored in the study

on optimal production and the market to book ratio given limited shareholder diversification our purpose is to examine a firm s optimal output decision and valuation when its shareholders hold a limited number of risky assets the primary theoretical result indicates that the market to book ratio is a function of the degree of shareholder diversification our theory suggests a negative relationship between a firm s market to book ratio and shareholder diversification

factor related and specific returns of common stocks serial correlation and market inefficiency one of the most basic tests of market efficiency is the test for serial correlation of returns if the return on a typical stock in period t is correlated with its return in period t 1 then the best unbiased minimum mean square error prediction for the return in period t equals the prior return multiplied by the correlation coefficient an investor concerned only about the mean and variance of portfolio return would use the prediction to improve the mean variance trade off of portfolio return by shading the portfolio toward stocks predicted to have high returns and away from stocks predicted to have low returns hence using knowledge about the previous month s returns the investor produces a portfolio with superior mean variance performance this violates the weak form of market efficiency fama 1 in the sense that the expected return for each stock based upon knowledge of the previous month s return is different from the expected return based only upon the current stock price the same argument may be applied to any component of returns as distinct from total return for example in a linear multiple factor plus specific return model of security returns total excess return is decomposed into factor related return and specific return the empirical results in this paper find positive serial dependence in the factor related component and negative serial dependence in the specific component which nearly offset one another resulting in zero correlation in total excess returns formally

the optimal selection of small portfolios portfolios that are risk return efficient in the sense of markowitz sometimes contain too many securities to be attractive to the small investor an optimal portfolio subject to a size constraint can be found by an implicit enumeration algorithm that is much faster than a previous approach and moreover allows the inclusion of securities whose coefficient is negative a simple and computationally very efficient heuristic method that almost always produces optimal portfolios is described as well

international factor movements in the presence of a fixed factor abstract to the basic model of international factor mobility is added a third immobile factor unlike the basic model the factor flows that result from a policy of free mobility are now uniquely determined additionally a large variety of privately optimal national policies is predicted each dependent upon the country s endowment pattern and the fiscal instruments available to it several of the predicted policies e g subsidies paid to migrant factors and simultaneous restrictions on the export of both factors are incompatible with the basic model

the capital gain lock in effect and perfect substitutes abstract this paper analyses the effect of investors accrued capital gains on optimal portfolio composition and equilibrium returns under the assumption that investors are able to re balance with perfect substitute securities no dominance arguments are used to show that pricing differences because of accrued capital gains do not arise among securities which are perfect substitutes these arguments are insufficient however to prevent pricing differences because of accrued capital gains among securities which are not perfect substitutes trading rules are developed which outline the conditions necessary for the realisation of accrued capital gains and the deferral of capital losses these trading rules also provide guidance on which securities investors should sell given their tax basis when re balancing their portfolios

a simple algorithm to incorporate transactions costs in quadratic optimisation quantitative fund management invariably involves portfolio performance being measured in terms of a quadratic objective function due to the inclusion of variance terms as a measure of risk periodically the constituents of the fund are adjusted to improve performance this adjustment incurs a transaction cost which is a modulus function of the changes in holdings thus the fund manager wishes to minimise a combined quadratic and modulus function this paper presents a new approach to deal with the minimisation of this hybrid function using a well tried quadratic programming algorithm the new algorithm is demonstrated using a tactical asset allocation problem and an equity index tracking fund

market structure uncertainty and the cost of equity capital the cost of capital plays a key role in the allocation of funds between different sectors of the economy the linkage between the cost of capital and market power has been hinted at by several authors however no rigorous development has been made this paper uses the simple static analysis of the capital asset pricing model to show that with more market power a firm s cost of equity capital declines hence firms with more market power will be able to raise equity capital at lower market rates than would the competitive firm if the product market had been perfectly competitive

on diversification given asymmetry in returns complete diversification is the rational investment strategy for a risk averse individual in a homogeneous securities market who considers only the first two moments of return observed behavior of market participants however demonstrates that the majority of individual investors hold imperfectly diversified portfolios the purpose of the present study is to examine one potential cause for this behavior which does not rely on imperfection in the capital market specifically we show that given the existence of and investor preference for positive skewness a rational investor may hold an optimal limited number of homogeneous risk assets the relationship between the number of risk assets in a portfolio and the total risk of the portfolio has been examined extensively both theoretically and empirically 7 8 16 the general conclusion from these analyses which are set in a mean variance framework is that adding randomly selected and equally weighted risk assets to a portfolio will reduce total risk without affecting return the implication for risk averse investors in a perfect market is that complete diversification is optimal observed behavior of market participants however demonstrates that the majority of individual investors hold imperfectly diversified portfolios in the wharton survey of 1975 in 4 the median number of stocks held was found to be fewer than 4 with 34 percent of the investors holding no more than 2 stocks the two primary studies providing evidence of the undiversified portfolios of individual investors are blume and friend 3 and blume friend and crockett 5 the former analysis was based on a sample of individual income tax returns from 1971 and indicated that considering only dividend paying stocks 34 15 percent of investors sampled held only one stock 50 51 percent held no more than 2 stocks and only 10 72 percent held 10 or more stocks the latter study which included nondividend paying stocks was based on the federal reserve board s 1962 survey of the financial characteristics of consumers the median number of holdings per household was 2 while the average was 3 41 in both 3 and 5 numerous other measures of diversification were employed with the results confirming the conclusion that individual investors are on average highly undiversified the principal theoretical reasons advanced by the authors of these studies relate to the relaxation of assumptions of the standard capital asset

commercial policy in a fragmented world there is abundant evidence that the production process of firms is becoming increasingly fragmented internationally in the sense that a final manufactured good will consist of parts that have been manufactured in a variety of different countries studies of manufacturing industries suggest that the share of imported inputs in international trade rose significantly in the 1970 s and 1980 s and that the fragmentation of the production process has been particularly pronounced in industries such as transportation equipment and electrical machinery 1 what difference does it make if trade reflects a fragmentation of the production process rather than the traditional horizontal specialization in final goods in this paper i focus on the implications of fragmentation for the analysis of commercial policy and emphasize two features of vertical relationships 2 the first is the market linkages that are introduced in models of fragmentation due to the interaction between tariffs on final goods and tariffs on intermediate goods the incentives of countries regarding tariff reduction can vary significantly depending on the pattern of trade the second feature of vertical specialization is that producers of final goods often require inputs that are specialized to their particular needs so that vertical relationships may create contracting problems because of the possibility for opportunistic behavior commercial policy may play a role in altering the form of these vertical relationships

optimal portfolio selection under institutional procedures for short selling abstract this study presents and formally justifies a simple ranking approach for optimal portfolio selection under institutional procedures for short selling it also provides economic insights of the explicit solution of the portfolio problem the analysis is applicable to different treatments of the short sale proceeds and any margin deposits in contrast to previous approaches it does not require assumptions that overstate short sale benefits for maintaining analytical tractability and it can easily identify and filter out securities that are undesirable for investing or for short selling thus this study can enhance the usefulness of portfolio modeling for assisting practical investment decisions

international outsourcing and factor prices with multistage production we develop a dual representation of the technology of international fragmentation for an industry using 2 factors in a continuum of stages we then derive a generalised factor price frontier which incorporates an endogenous adjustment of the margin of fragmentation using this frontier in a 2 2 general equilibrium model we investigate the role of outsourcing in the adjustment to a decline in the final output price of the multistage industry and the attendant factor price effects we also explore the implications of an improved technology of international fragmentation on the margin of fragmentation and on domestic factor prices

an evolutionary heuristic for the index tracking problem abstract index tracking is a popular form of passive fund management the index tracking problem is the problem of reproducing the performance of a stock market index but without purchasing all of the stocks that make up the index our formulation of the problem explicitly includes transaction costs associated with buying or selling stocks and a limit on the total transaction cost that can be incurred our formulation also includes a constraint limiting the number of stocks that can be purchased an evolutionary heuristic population heuristic is presented for the solution of the index tracking problem reduction tests are also presented computational results are presented for five data sets drawn from major world markets these data sets are made publicly available for use by other workers

understanding the cell phone effect on vehicle fatalities a bayesian view this article examines the potential effect of various factors on motor vehicle fatality rates using a rich set of panel data and classical regression analysis combined with bayesian extreme bounds analysis eba bayesian model averaging bma and stochastic search variable selection ssvs procedures the variables examined in the models include traditional motor vehicle and socioeconomic factors in addition the models address the effects of cell phone usage on such accidents the use of both classical and bayesian techniques diminish the model and parameter uncertainties which afflict more conventional modelling methods which rely on only one of the two methods

portfolio optimization with factors scenarios and realistic short positions this paper presents fast algorithms for calculating mean variance efficient frontiers when the investor can sell securities short as well as buy long and when a factor and or scenario model of covariance is assumed currently fast algorithms for factor scenario or mixed factor and scenario models exist but except for a special case of the results reported here apply only to portfolios of long positions factor and scenario models are used widely in applied portfolio analysis and short sales have been used increasingly as part of large institutional portfolios generally the critical line algorithm cla traces out mean variance efficient sets when the investor s choice is subject to any system of linear equality or inequality constraints versions of cla that take advantage of factor and or scenario models of covariance gain speed by greatly simplifying the equations for segments of the efficient set these same algorithms can be used unchanged for the long short portfolio selection problem provided a certain condition on the constraint set holds this condition usually holds in practice

beating the market with small portfolios evidence from brazil abstract optimal portfolios with a restriction on the number of assets also referred to as cardinality constrained portfolios have been receiving attention in the literature due to its popularity among market practitioners and retail investors in most cases however the interest is in proposing efficient optimization methods to solve the problem with little or no attention to the characteristics of the resulting portfolio such as risk adjusted performance and turnover we address this question by implementing a tractable reformulation of the cardinality constrained version of the minimum variance portfolio we analyze the out of sample performance of cardinality constrained portfolios according to alternative criteria and check the robustness of the results for portfolios with alternative number of assets and under alternative re balancing frequencies our empirical application for the brazilian equities market shows that cardinality constrained minimum variance portfolios with very few assets e g 3 stocks can deliver statistically lower portfolio risk and higher sharpe ratios in comparison to the market index similar results are obtained for constrained portfolios with 5 and 10 assets and under daily weekly and monthly re balancing frequencies our evidence indicates that it is possible to obtain better risk adjusted performance with fewer securities in the portfolio by using an improved allocation scheme

more powerful portfolio approaches to regressing abnormal returns on firm specific variables for cross sectional studies ols regression ignores both heteroscedasticity and cross correlations of abnormal returns therefore tests of regression coefficients are weak and biased a portfolio ols pols regression accounts for correlations and ensures unbiasedness of tests but does not improve their power we propose portfolio weighted least squares pwls and portfolio constant correlation model pccm regressions to improve the power both utilize the heteroscedasticity of abnormal returns in estimating the coefficients pwls ignores the correlations while pccm uses intra and inter industry correlations simulation results show that both lead to more powerful tests of regression coefficients than pols cross sectional studies that attempt to explain event period abnormal returns on firms securities by economic and or firm specific variables generally use cross sectional ordinary least squares ols regression abnormal returns of different securities are heteroscedastic of unequal variances and contemporaneous abnormal returns may be cross correlated ols ignores both heteroscedasticity and correlations therefore it leads to inefficient and biased tests of significance of regression coefficients for these reasons sefcik and thompson 1986 suggested using generalized least squares gls regression when sufficient data are available to obtain a reliable estimate of the covariance matrix of abnormal returns and portfolio time series ols pols regression should be used when that matrix cannot be estimated reliably in pols regression a cross sectional ols is used to estimate the regression coefficients and a time series of portfolio of estimation period unsystematic returns to estimate the standard errors of those estimates the resulting coefficients estimates are unbiased and their standard errors account for correlations among abnormal returns thus unbiasedness of tests is insured however concern for the power of tests lingers on because cross sectional

capital asset prices with and without negative holdings prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

trade liberalization and strategic outsourcing this paper develops a model of strategic outsourcing with trade liberalization in the intermediate product market a domestic firm may choose to purchase a key intermediate good from a more efficient foreign producer who also competes with the domestic firm for a final good this has a strategic effect on competition unlike the outsourcing motivated by cost saving the strategic outsourcing has a collusive effect that could raise the prices of both intermediate and final goods trade liberalization in the intermediate good market has a very different effect compared with trade liberalization in the final good market d 2003 elsevier b v all rights reserved

a portfolio approach to estimating the average correlation coefficient for the constant correlation model this paper presents a portfolio approach to estimating the average correlation coefficient of a group of stocks which are considered for portfolio analysis the average correlation coefficient has been shown to produce a better estimate of the future correlation matrix than individual pairwise correlations the advantage of the approach described here is that it does not require the estimation of pairwise correlations for estimating their average a major obstacle to the implementation of markowitz s 1952 mean variance portfolio selection model is the difficulty in estimating the required inputs particularly troublesome are the pairwise correlations among all stocks which are being considered for inclusion in a portfolio the sheer number of required correlation estimates makes it highly impractical to examine a large number of stocks sharpe s 1963 single index model sim was developed in response to this problem it assumes correlations with a common index to be the only source of covariation among stock returns the necessary number of estimations is much reduced since only the correlations with the index need be considered accumulated empirical evidence suggests that the sim is misspecified bernard 1987 provides evidence of significant intra industry cross sectional correlations in contemporaneous market model residuals this evidence implies that correlations with a common index will not capture the total covariation among stock returns an alternative simple structure is the constant correlation model ccm which uses the historical average correlation coefficient for the future in two related articles elton and gruber 1973 and elton gruber and urich 1978 have shown that despite its simplicity the ccm produces better forecasts of the future correlation matrix than those obtained from the sim or the full historical correlation matrix the superior performance of the ccm should make it an attractive alternative to the sim although simple portfolio selection procedures have been developed for the ccm by elton gruber and padberg 1976 1977a b the computational problem will still be large if the full correlation matrix needs to be estimated to compute the average correlation we present below a simplified but exact method of estimating the average correlation coefficient which can be applied

the information content of short interest a natural experiment an increase in the cost of selling short should increase the bearish information content of short interest announcements by driving relatively uninformed short sellers out of the market we extend the diamond and verrecchia 1987 model to include short selling against the box and test the extended model using a natural experiment based around the taxpayer relief act of 1997 tra97 tra97 made short selling more costly for those shorting against the box consistent with the implications of our extended model this increase in short selling costs strengthens the negative relationship between short interest and subsequent stock price performance post tra97

short selling and efficient sets the effect of short selling on the composition and location of the efficient set has been analyzed in a variety of ways however the situation typically facing investors where the initial margin requirement is less than 100 percent and the riskfree interest rate that is paid on the short proceeds is less than the rate paid on initial margin has not previously been considered the elton gruber padberg algorithm 1976 1978 subject to certain modifications is shown here to be capable of identifying the efflcient set under such conditions when harry markowitz 1952 developed the notion of efficient sets as a method of identifying an investor s optimal portfolio he did so in a setting where short selling was prohibited since then the effect of short selling on the composition and location of the efficient set has been considered in a variety of ways for example lintner 1965 suggested that short sales be treated from the perspective of a broker dealer where an amount of money equal to the short proceeds must be put up as initial margin with the short seller receiving riskfree interest on both the short proceeds and the margin alternatively black 1972 and merton 1972 assumed that the short seller did not have to put up any initial margin and that the short seller actually got the use of the short proceeds more recently dyl 1975 has assumed that the short seller must put up initial margin that is less than the short proceeds but receives no interest on either the margin or short proceeds this paper is concerned with the generation of efficient sets where short selling is allowed but with certain restrictions attached to it referred to hereafter as restricted short selling in particular initial margin is required but can be met by depositing interest bearing securities with the brokerage firm where the short seller s account is kept furthermore the model allows the short seller to earn interest on the short proceeds accordingly the model

active portfolio management with benchmarking adding a value at risk constraint abstract we examine the impact of adding a value at risk var constraint to the problem of an active manager who seeks to outperform a benchmark while minimizing tracking error variance tev by using the model of roll 1992 a mean variance analysis of tracking error journal of portfolio management 18 13 22 we obtain three main results first portfolios on the constrained mean tev boundary still exhibit three fund separation but the weights of the three funds when the constraint binds differ from those in roll s model second the constraint mitigates the problem that when an active manager seeks to outperform a benchmark using the mean tev model he or she selects an inefficient portfolio finally when short sales are disallowed the extent to which the constraint reduces the optimal portfolio s efficiency loss can still be notable but is smaller than when short sales are allowed

estimation risk and simple rules for optimal portfolio selection elton gruber and padberg egp 6 7 have recently simplified the process of constructing optimal portfolios by developing simple criteria for optimal portfolio selection which do not involve use of mathematical programming their simple decision rules permit one to determine easily which securities to include in an optimal portfolio and how much to invest in each however in practical applications of theoretical models sample estimators are usually treated as if they were true values of unknown parameters as a result the effect of the standard errors of sample estimators on decision rules are completely ignored bawa brown and klein 1 have shown that what is optimal in the absence of estimation risk is not necessarily optimal or even approximately optimal in the presence of estimation risk moreover brown 4 examined optimal portfolio choice under uncertainty for various portfolio selection procedures the diffuse bayes rule the markowitz certainty equivalent ce rule the aggregation ce rule and the equal weight rule 1 and found that the diffuse bayes rule uniformly dominates the markowitz ce rule in repeated samples for the quadratic utility case as the sample size increases the bayes rule becomes superior to the aggregation ce and the equal weight rules in addition the result holds even where the probability distribution of returns is seriously misspecified thus brown s 4 study has clearly indicated that without taking estimation risk into account portfolio selection rules other than the bayes rule can lead investors to select suboptimal portfolios this paper shows by using the single index model for the return generating process that the simple decision rules for optimal portfolio selection derived by elton gruber and padberg 7 are not identical under the bayesian and the traditional methods of analysis 2 moreover in the case where short sales are not

transaction costs and the pricing of assets the existence of transaction costs explains why investors do not fully diversify their portfolios this paper examines the implications of such limited diversification oi equilibrium asset prices in the framework of the capital asset pricing model in the pricing equation obtained here an asset s risk premium depends on a weighted average of its covariance with the market and its own variance the absence of transaction costs in the sharpe lintner capital asset pricing model capm is often claimed to be only a minor idealization which hardly affects the substantive implications of the model this paper aims to demonstrate that this is not the case incorporating transaction costs into the capm leads to a major reformulation of its basic asset pricing equation in contrast with the capm formula

revisiting tobin s 1950 study of food expenditure this re analysis of tobin s 1950 study makes three points 1 graphs are a powerful device for discovery and for communication and can reveal much of the information in the data 2 squeezing out the more subtle multivariate messages requires some solution to the usual overparameterization problem data mining is still the treatment of choice for this crippling disease but it is more akin to leeches than to anti biotics a bayesian sensitivity analysis is an alternative but it isn t a perfect cure either 3 clear identification of the issues can help keep the enterprise from wandering off in technically amusing but largely irrelevant directions 1997 john wiley sons ltd

vertical foreclosure and international trade policy international differences in the cost of production of a key intermediate product can mean that a domestic firm is dependent on supplies from a foreign vertically integrated firm this paper considers the incentives for the foreign firm and foreign country to supply the domestic firm when the firms compete in a cournot or bertrand market for the final product the vertical supply decision is significantly affected by domestic supply conditions for the input and a domestic tariff on final product imports optimal policy by the exporting country may require a tax on both exports or a subsidy on both exports countries that are dependent on imports of a key intermediate product or raw material from a dominant world supplier are often concerned about the price and the availability of imports a notable current example involves the computer industry japanese suppliers with the help of the japanese government recently restricted the exports of dram semiconductors substantially raising their price these suppliers control about 80 of the market for semiconductors and the higher prices and shortage in supply have forced u s producers of computers to curtail production and increase prices vertically integrated japanese firms such as toshiba and n e c have benefitted both from increased profits in the export market for semiconductors and from the improvement in their competitive position in the market for final computers as this example indicates the price and availability of imported supplies can depend on both public and private incentives in the exporting country in this paper we first examine the private incentives for a vertically integrated firm to export an intermediate product to a higher cost rival lowering its rival s costs the exporting firm may choose vertical foreclosure thus fully cutting off supplies we then consider the public interest of the exporting country does the exporting country gain by encouraging the export of the intermediate product or alternatively might government foreclosure occur the government is in a position to affect the quantity of exports of both the input and the final product by an appropriate choice of export tax and subsidy policies

the optimal tariff structure in higher dimensions this paper generalizes to higher dimensions the two good result that the optimal trade policy for a large country is an import tariff a weak form of the optimal tariff requiring that an import export good be most least protected holds under gross substitutability sufficient conditions are obtained for a strong form of the optimal tariff which requires that all imports be more protected than any export and also for the trade tax revenue to be nonnegative in the optimal policy copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on the optimal selection of portfolios under limited diversification abstract we address the problem of selecting portfolios which maximize the ratio of the average excess return to the standard deviation among all those portfolios which comprise at most a pre specified number k of securities under the assumptions of constant pairwise correlations and no short selling we argue that the simple ranking procedure of elton gruber and padberg effectively solves the problem for all values of k and that as a function of k the optimal ratio increases at a decreasing rate we also clarify why further generalization or extension of our results to other situations is improbable

a simple algorithm for optimal portfolio selection with fixed transaction costs the general optimal portfolio selection problem with fixed transaction costs is a complex mathematical programming problem however by placing reasonable restrictions on the variance covariance matrix of returns it is possible to simplify the solution of the problem specifically if the structure of returns between securities is such that the pairwise correlation coefficients are approximately the same a fairly simple algorithm which requires little computational effort can be employed this method can also be extended to the case where changes in the information set necessitate a revision of an existing portfolio

short interest explanations and tests cross sectional and time series tests are performed to explain levels and changes in short interest explanatory variables and tests are chosen based on tax arbitrage and speculative reasons for going short short interest is found to follow a seasonal pattern that is weakly consistent with tax based trading stocks with high betas and the existence of convertible securities or options tend to have higher levels of short interest which is con sistent with arbitrage efforts for firms with traded options there is a positive association between the month to month changes in option open interest and short interest prior months returns and changes in short interest are positively related but there is no rela tionship between changes in short interest and returns in the subsequent month

portfolio rebalancing model with transaction costs based on fuzzy decision theory the fuzzy set is one of the powerful tools used to describe an uncertain environment as well as quantifying any potential return and risk portfolio liquidity is taken into account and a linear programming model for portfolio rebalancing with transaction costs is proposed the level of return that an investor might aspire to the risk and the liquidity of portfolio are vague in an uncertain financial environment considering them as fuzzy numbers we propose a portfolio rebalancing model with transaction costs based on fuzzy decision theory an example is given to illustrate the behavior of the proposed model using real data from the shanghai stock exchange

cross sectional dependence and problems in inference in market based accounting research this paper provides a framework and some empirical evidence to evaluate the seriousness of problems in inference that arise in stockreturn based studies when the data are cross sectionally dependent the study is motivated on the grounds that statistical procedures designed to address such problems are often infeasible and even when they can be implemented they sometimes introduce other more serious difficulties thus researchers have frequently adopted an approach that ignores the cross sectional dependence e g ordinary least squares ols the objective of this paper is to help identify the contexts in which ignoring the dependence would lead to serious misstatement of significance levels cross sectional dependence in stock returns data is likely to exist when at least some of the returns are sampled from common time periods this would be the case in all studies of the reaction of stock prices to a

a note on simple criteria for optimal portfolio selection using sharpe s 7 single index model elton gruber and padberg egp 4 5 have established some simple ranking criteria for optimal portfolio selection a further extension has been made by chen and brown 2 and alexander and resnick 1 to incorporate the risk associated with the estimation of input parameters this note explores the economic rationale underlying the portfolio formation process based on the single index model in so doing we seek to enhance the intuitive appeal of the simplified portfolio criteria developed in the above studies to practitioners to this end we restate the egp solution with short sales allowed as

world food demand long term projections of global food demand are heavily dependent on which functional form of the food demand equation is used given that real incomes can change substantially over the long term key elements are the dependence of the income elasticity on income which ensures that the food budget share always lies within the 0 1 range and the role of income inequality this article analyzes these issues proposes a new functional form that deals with them and presents estimates of income and price elasticities for food in 138 countries copyright 2012 oxford university press

welfare enhancing export subsidies this paper shows that export subsidies on marginal goods and those on nonmarginal goods have opposite welfare effects for the country imposing these subsidies where marginal goods are the ones that would be exported by only a small amount or not at all under free trade but whose export can be promoted considerably by export subsidies the former enhances the imposing country s welfare while the latter worsens it the paper also throws light on related issues such as industrial targeting policy

trade policy with several goods and market linkages abstract in this paper we demonstrate a substantial role for trade policy in a competitive model finding that a an export subsidy may benefit the exporting country b a voluntary export restraint may benefit the importing country and c a countervailing duty may benefit the importing country even if it has no effect on the foreign price of that good these results are in sharp contrast to the conventional wisdom from two good or partial equilibrium models and are derived in a framework of several goods the pattern of substitution and complementarity across goods or market linkages determines the role for trade policy

a note on market neutral portfolio selection abstract long short equity strategies allow investors to benefit potentially from both undervalued and overvalued securities the present study develops a normative portfolio model under the practical conditions that a market neutral strategy entails the offsetting long and short equity holdings are established jointly and without any constraints by the underlying market index while accurately capturing institutional procedures for short selling the model contains the analytical and economic properties as required for a ranking approach to filter out any undesirable securities under consideration in view of its practical features the analysis should be of interest to practitioners for assisting their long short investment decisions

portfolio analysis using single index multi index and constant correlation models a unified treatment in this study a simple common algorithm which is applicable to seven models is proposed for optimal portfolio selection disallowing short sales of risky securities the models considered in the analysis consist of a single index model four multi index models and two constant correlation models unlike the previous approach the proposed algorithm does not require explicit ranking of securities therefore it is particularly useful for two multi index models with orthogonal indices which do not provide any ranking criterion also because of its algorithmic efficiency as demonstrated in a simulation study on models with multiple groups the approach here can enhance their usefulness in portfolio analysis in a series of publications elton and gruber 2 and elton gruber and padberg hereafter egp 3 8 have considered extensively portfolio optimization problems using a variety of index models and constant correlation models these models are sharpe s 12 single index model cohen and pogue s 1 multi index model in the diagonal form a multi index model with orthogonal indices 8 a constant correlation model with a single group 3 and a constant correlation model with multiple groups 7 hereafter sim mim di mim or ccm s and ccm m respectively using these models egp have developed some ranking procedures to reach optimal portfolios disallowing short sales of risky securities all securities in each group are ranked according to their performance as measured by a ratio of excess return to risk they are sequentially added to feasible portfolios following the ranking hierarchy until the optimal portfolio is reached for models where explicit ranking criteria can be established the egp approach is easy to implement and it clearly explains why a security belongs or does not belong to a portfolio besides the above models it is also applicable to cohen and pogue s 1 multi index model in the covariance form hereafter mim co however it does not work well for models lacking appropriate criteria to rank securities in order to overcome ranking difficulties in mim or egp 8 have introduced a market portfolio with zero residual risk to establish an alternative ranking criterion unfortunately as egp have indicated this causes internal inconsistency in the analysis in the present study a simple algorithm for optimal portfolio selection disal