dynamic market models in industrial organization abstract this paper surveys empirical work done on dynamic models of market performance these fall into one of two categories structural models which model how market structure and performance change in response to entry and reduced form models which describe change regardless of how it is brought about a typical example of each type of model is chosen from the literature and simulations are used to draw out the implications of the estimated coefficients both models depict the competitive process in the us economy as being extremely slow

on the inverse of the covariance matrix in portfolio analysis the goal of this paper is the derivation and application of a direct characterization of the inverse of the covariance matrix central to portfolio analysis such a characterization in terms of a few primitive constructs provides the basis for new and illuminating expressions for key concepts as the optimal holding of a given risky asset and the slope of the risk return efficiency frontier faced by the individual investor the building blocks of the inverse turn out to be the regression coefficients and residual variance obtained by regressing the asset s excess return on the set of excess returns for all other risky assets copyright the american finance association 1998

informal economy wage goods and accumulation under structural adjustment theoretical reflections based on the tanzanian experience economic development in sub saharan africa under structural adjustment witnessed the upsurge of informal sector development the development of unregulated labour intensive activities in part export oriented this paper argues that two factors played an important role in shaping the dynamics of informal sector development 1 the process of the relative cheapening of wage goods as a result of their importation partly financed through foreign aid thereby lowering unit labour costs in labour intensive production and 2 the processes at work of subsidising real wages by other forms of economic security as a result of multiple diversified and spatially extended livelihood strategies while these factors undoubtedly brought a new vitality to economic development this paper questions the long run sustainability of this new trend for two reasons one is its dependence on foreign aid to finance imports the other is that it does not appear to propel endogenous increases in productivity by achieving greater synergy in intersectoral linkages between agriculture and industry copyright 2001 by oxford university press

entry in greek manufacturing industry athens vs the rest of greece the paper reports an attempt to estimate the determinants of entry in greek manufacturing industry in the 1984 87 period and to identify the differences between locatio nal entry preferences entry in athens is found to be hesitant with respect to factors such as profitability and increased competition conversely entry in the rest of the country is strongly related to expected profits and safe markets negatively affected by relative labour costs and indifferent to international competition threats the healthier approach of regional entry is enhancing regional development prospects and partly justifies the strict regional policies of the 1980s

new firm startups technology and macroeconomic fluctuations new firm startup activity is examined within a framework pooling a cross section of 117 industries over six time periods between 1976 and 1986 a model is introduced relating startup activity both to elements of the business cycle in particular the macroeconomic growth rate the cost of capital and the unemployment rate and to industry specific characteristics especially the technological conditions underlying the industry the pooled cross section regression results suggest that macroeconomic fluctuations as well as industry specific elements contribute to startup activity while new firm startups respond positively to macroeconomic growth they are promoted by a low cost of capital and high unemployment rate a somewhat surprising result is that new firm startups are not apparently deterred in capital intensive industries and where r d expenditures play an important role the empirical results suggest that new firms may be able to overcome their inherent size and experience disadvantages in such markets through exploiting university research and pursuing innovative activity

diversifying entry some ex ante explanations for postentry survival and growth links between theoretically determined preentry conditions and the postentry performance of diversifying entries made by large industrial firms are examined industry firm and relatedness variabl

diversification market growth and concentration in u s manufacturing in this paper i report the results of an empirical investigation of the sources of expansion in secondary industries by diversified firms and the influence of that expansion on changes in seller concentration during the period from 1972 to 1977 interest in the issue arises from long lived public policy arguments over the effects of conglomerate diversification and the expected results of restrictions on conglomerate mergers despite the interest data weaknesses have restricted both the number of statistical studies of the issue and their results i use census data to test several distinct hypotheses generated by past studies the results indicate that diversification is directed toward industries of high growth and profits and they also provide support for a view first advanced by charles berry that diversification into an industry is associated with declining concentration in industries of initially

tangible and intangible sunk costs and the entry and exit of firms in a small open economy the case of austria the paper provides evidence on the role of sunk costs as mobility barriers an empirical study of the austrian manufacturing industry explicitly considers sunk costs related to investment in dedicated intangible assets the results confirm the relevance of sunk costs as mobility barriers their symmetry with respect to entry and exit and show that the influence of sunk costs is robust to aggregation

should investors include commodities in their portfolios after all new evidence abstract this paper investigates whether an investor is made better off by including commodities in a portfolio that consists of traditional asset classes first we revisit the posed question within an in sample setting by employing mean variance and non mean variance spanning tests then we form optimal portfolios by taking into account the higher order moments of the portfolio returns distribution and evaluate their out of sample performance under the in sample setting we find that commodities are beneficial only to non mean variance investors however these benefits are not preserved out of sample our findings challenge the alleged diversification benefits of commodities and are robust across a number of performance evaluation measures utility functions and datasets the results hold even when transaction costs are considered and across various sub periods not surprisingly the only exception appears over the 2005 2008 unprecedented commodity boom period

accounting for net entry into greek manufacturing by establishments of varying size adopting the view that size matters in understanding entry exit patterns this research explores the nature and causes of net entry patterns of various size defined groups of establishments in the case of a less industrialised country greece the hypothesis to be tested is that the determinants of entry are not independent of firm size throughout this paper the analysis has had to confront difficulties arising from the use of net entry rates defined at the size class level the degree of size disaggregation used in this paper is considerably finer than used before five employment defined size classes have been used instead of sliding cut off points discriminating between small and large firms unlike other research using pooled models to explain variation in entry exit rates across industries the data used here are characterised by the absence of significant industry specific systematic variation overall the results obtained in this paper indicate that there is a gradation in the responses of different size classes to stimuli defined at the industry level evidence is offered that small firms are different in that they manage to overcome entry barriers perhaps adopting different survival strategies and that large firms are well aware of market conditions and are in an advantageous position to overcome many of the problems imposed by entry barriers size classes in the middle of the size class distribution offer a rather mixed result due to size related advantages and disadvantages

entry into regulated monopoly markets the development of a competitive fringe in the local telephone industry abstract incumbent firms operating in today s local telephone industry are beginning to face competition from new entrants using the dominant firm competitive fringe framework and a recently constructed panel data set of local telephone markets this paper provides an empirical analysis of the competitive transition underway in the u s local telephone industry of particular interest is the differential impact of economic regulation on the development of fringe competition in flocal telephone markets empirical results reveal that local telephone markets with price cap regulation have witnessed less net fringe entry and subsequently contain smaller competitive fringes during the time period studied these findings imply that the widespread adoption of price cap regulation by state public utility commissions has contributed to the slow development of local telephone competition to reconcile this surprising conclusion a political economy explanation that details how state regulators have benefited from

prices technology and farm size in this paper we construct and empirically test a theory of the agricultural firm which explains the long term growth in farm size in the united states typically the u s farm unit is a family enterprise consequently the ratio of the opportunity cost of farm labor to the price of machinery services determines the size of the farm operation by influencing the machine labor ratio applying the model to u s data we explain virtually all of the growth in the machine labor ratio and in farm size over the 1930 70 period by changes in relative factor prices without reference to technological change or economies of scale

bridging behavioral and economic theories of decline organizational inertia strategic competition and chronic failure this paper is another plea for bridging behavioral and economic approaches to the study of competition in markets and strategy making by firms the arguments focus on a specific case in point the behavioral theory of organizational decline and the economic modeling of immediate exit the arguments come in three steps first the literature on organizational decline is reviewed by organizing a framework that summarizes arguments from varying economic and organizational perspectives that have for the most part developed independently observations from empirical and theoretical studies are combined in order to investigate the causes conditions courses and consequences of organizational downturn second a theoretical argument is developed that explains voluntary exit and chronic failure by introducing a proxy of organizational inertia in a model of strategic cournot duopoly the key assumptions which have a behavioral flavour that seemingly contradicts orthodox economics are grounded in the theoretical and empirical literatures the results of the model support the claim that pure profit maximizing behavior may be at the expense of organizational survival d aveni 1990 p 135 third by formulating two hypotheses and presenting tentative evidence from the chemical industry the paper hopes to convincingly argue that such integrative models lead to empirical testing of interesting hypotheses a key finding here is that inefficient firms may outlast their efficient rivals cf d aveni 1989a

the relationship between firm growth size and age estimates for 100 manufacturing industries this study uses a sample of all firms operating in 100 manufacturing industries to examine some aspects of firm dynamics it finds that firm growth the variability of firm growth and the probability that a firm will fail decrease with firm age it also finds that firm growth decreases at a diminishing rate with firm size even after controlling for the exit of slow growing firms from the sample gibrat s law therefore fails although the severity of the failure decreases with firm size copyright 1987 by blackwell publishing ltd

on the jensen measure and marginal improvements in portfolio performance a note the marginal performance contribution made by new assets in a portfolio is identified the maximum change in a portfolio s sharpe performance from the addition of new assets is a simple function of a generalized jensen index and the unexplained covariances from a multivariate market model deviations from a higher dimension market line may be used to rank the desirability of asset additions to an existing portfolio statistical tests for the equality of the performance contributions by new assets is possible the portfolio performance measures of treynor 11 and jensen 12 are based on the systematic or beta measure of risk when originally developed it was advocated that these measures of performance were useful for comparing and ranking performances of various portfolios after many years of use in this area it was demonstrated by roll 7 and ross 8 that it is theoretically inappropriate to use these performance measures for this purpose since differences in portfolios performance indicate only inefficiency in the index used for the computation of beta dybvig and ross 1 subsequently proved that a portfolio can be improved by adding or shorting a small investment in another asset if the asset lies above or below the security market line a potentially important use of the market line was therefore preserved the purpose of this note is the development of a procedure which identifies the exact performance contribution made by one or more assets when they enter the investor s optimal portfolio of assets it is demonstrated that the change in squared sharpe 10 performance is a simple function of a generalized jensen index and the unexplained covariances from a multivariate market model new assets may be ranked according to the magnitude of their performance contribution the improvements in a portfolio are easily computable from the same linear regression employed to calculate an asset s jensen measure thus the appeal of the security market line as a useful financial tool may be preserved the first section briefly establishes the efficient set algebra required to develop the marginal contribution made by new assets in a portfolio section ii presents the performance contribution dependent on the number of new assets and whether partial or full optimal adjustment of the portfolio weights are permitted section iii concludes the note

potential performance and tests of portfolio efficiency abstract the potential performance of an asset set may be obtained by choosing the portfolio proportions to maximize the sharpe 1966 performance measure if a portfolio has a sharpe measure equivalent to the potential performance of the underlying set of assets then it is efficient multivariate statistical procedures for comparing potential performance and testing portfolio efficiency are developed and then evaluated using simulations two likelihood ratio statistics are then used to compare stock and bond indices against sets of 20 and 40 portfolios the procedures are also compared to the gibbons 1982 methodology for testing financial models

entry and exit on the competitive fringe microeconomic theories of industry evolution reserve key roles for the entry and exit of firms competitive models of industry supply often assume that individual firms have ushaped long run average cost curves in consequence an industry s output adjustment in movement from one long run equilibrium to another is entirely accomplished through the entry and exit of firms rather than through changes in long run equilibrium output of individual firms in empirical applications the speed of movement to new equilibrium levels of output and price measured by the time it takes for profits to return to competitive levels following a demand shock clearly depends upon the ease of entry and exit however the simplest competitive models have a clear theoretical weakness abundant evidence against u shaped long run average cost curves precludes a simple identification of entry with industry expansion and exit with industry contraction expansion of industry supply can be met either by incumbents or entrants and we have little empirical evidence of the division entry conditions are also a staple of oligopoly and monopoly models potential entry constrains the pricing options open to industry leaders and actual entry of new firms and new products erodes at varying rates the market power of incumbent firms if actual entry responds rapidly to profit opportunities then the persistent exercise of monopoly power will be rare however analyses of monopoly and oligopoly models typically approach entry indirectly by inferring that persistent profit differentials reflect high barriers to entry there are few direct tests of the effects of such barriers on actual entry despite their importance very few empirical studies of entry and exit exist severe data limitations restrict both the number of studies and the scope of extant analyses the research reported in this paper provides measures of entry and exit in 46 food manufacturing industries during the 1976 82 period measures of incidence the number of firms as well as extent the size of firms are provided the analysis also distinguishes between diversified firms and specialist producers entry and exit rates vary considerably across industries and the paper reports the results of statistical analyses that account for industry differences in entry and exit rates by specialist firms

currency hedging for international portfolios this paper examines the benefits from currency hedging both for speculative and risk minimization motives in international bond and equity portfolios the riskreturn performances of globally diversified portfolios are compared with and without forward contracts over the period 1974 to 1990 inclusion of forward contracts results in statistically significant improvements in the performance of unconditional portfolios containing bonds conditional strategies are also implemented both in sample and out of sample and are shown to both significantly improve the risk return tradeoff of global portfolios and to outperform unconditional hedging strategies whether international portfolios should be hedged against currency risks is the subject of an active debate the theoretical side of the debate has been closely associated with two strands in the academic literature international asset pricing and optimal hedging in the futures markets in the international asset pricing model iapm of solnik 1974 optimal portfolios contain positions in forward contracts or equivalently foreign currency denominated bills these positions which can differ from the positions in foreign stocks have since been termed hedges black 1990 shows that under additional assumptions the hedge ratios should be identical for all investors regardless of their nationality universality and that investors should never fully hedge their foreign currency exposures similarly theoretical models from the futures literature produce demands for hedging instruments that contain both speculative and hedging components the empirical issue unanswered so far is whether adding forward contracts to international portfolios significantly improves the risk return profile of global investments empirical research has barely begun to respond to the challenges of theoretical models there exists little empirical evidence on either the relevance of black s universal hedge ratios or the optimality of hedge ratios less than one instead researchers have concentrated on the benefits of fully hedging exchange risk for example eun and resnick 1988 indicate that stock portfolios perform better when fully hedged but offer no statistical tests

a currency preferential approach to international equity investment we propose a timex strategy for reducing the foreign exchange risk associated with international equity investment pertaining to countries with currencies correctly or undervalued by the standard of ppp the performance of timex is examined from the perspectives of eight developed nations with long histories of free floating currencies based on the data from 1986 q1 to 2014 q4 we find unambiguous evidence for the superior performance of timex in the foreign exchange market compared with the passive diversification strategy and the morgan stanley capital international msci world index timex offers higher total returns and risk adjusted total returns when rebalanced every 6 or 12 months for investors based in all eight countries under study when rebalanced at a 3 year interval timex outperforms the passive diversification and the msci world index for five and all eight countries respectively

entry industry growth and the microdynamics of industry supply entry is widely discussed but rarely subjected to empirical study this study develops a competitive theory of entry with primary focus on the relationship between entry and industry growth the main ingredients are adjustment costs to firms already in the industry and the distribution of fixed entry cost to potential entrants the theory suggests sufficient conditions under which the entry rate is an increasing convex function of the industry growth rate a regression model correcting for severe heteroscedasticity is applied to data from swedish manufacturing industries the results are consistent with the theoretical prediction for growth and other key variables expected to influence entry significantly

the determinants of exit in an open economy in this paper the determinants of exit are investigated for the manufacturing sector of the united states economy which has been subjected to growing international influences the analysis uses united states cross sectional data the results of the exit equation suggest that low profitability declining industry growth and displacement of incumbents by entrants foster exit international influences are also seen to have an impact on u s manufacturing exit specifically imports into an industry have a small effect on exit and protection has little influence in stemming exit

the life cycle of the u s tire industry 1 introduction a recent literature has emerged focusing on industry evolution or the dynamic patterns that industries and firms follow as they systematically evolve over time this literature is important because of the insights provided about how industries change why they change and the consequences of industrial change the year 1982 saw three fundamental contributions made to the research on the evolution of industry boyan jovanovic published the first formal model of industry evolution richard nelson and sidney winter presented their influential book on the causes and effects of this phenomenon and michael gort and steven klepper published their careful analysis of the stages of the product life cycle knowledge concerning industry dynamics and industry evolution has expanded since then despite this progress in the field of industry evolution considerable gaps remain for example we lack an adequate empirical understanding of the evolutionary process at the single industry level from the early to the late stages of its life cycle shakeouts have been identified in the literature as an integral component of this evolutionary process the sudden disappearance of large numbers of firms have been documented across a broad spectrum of industries such as steel airline carriers financial intermediaries automobiles and tires an important strand in the literature argues that the catalyst for these shakeouts is the introduction of a new dominant innovation confronted by a new technology introduced by a competitor the inability of other firms to adopt this new dominant technology presumably forces them out of the market jovanovic and macdonald 1994 made a pioneering and parsimonious contribution in this field of research by explaining patterns of number of firms output and prices of the u s tire industry despite the importance of their contribution we argue that their model does not adequately describe the key historic developments that have taken place in this or many other industries that faced a shakeout of producers 2 the domain of relevance of the jovanovic macdonald model is limited it assumes that one innovation followed by just one refinement is responsible for the nonmonotonicity in firm numbers this implies that the model is applicable only for those industries having experienced just two technologies in their entire history an initial low tech and a subsequent high tech phase most industries including the automobile tire industry that was the testing ground of jovanovic and macdonald have an ongoing history of significant improvements in product quality and productivity it seldom occurs that one innovation is dominant this is certainly true for the tire industry nelson 1987 in his study on the u s tire industry observed that there was no single technical breakthrough that unlocked the industry s potential for highspeed production nor was any individual or firm of overriding importance the advent of mass production was a cumulative process resulting from a vast number of successive small changes pp 331 2 italics added almost half a century ago reynolds 1938 p 463 described a similar process the great improvement in tire quality during the past 30 years is undoubtedly due to constant repetition of the cycle of invention and imitation we take a different approach than jovanovic and macdonald and explain the nonmonitonicity in firm numbers as resulting from gradual unit cost reduction over time leading to declining profit margins in the present paper we relate this cumulative process to the concept of learning by doing we will test the model using data of the american tire industry we do this to facilitate the comparison between our model and that of jovanovic and macdonald and because this industry is one of the few for which data are available for a long time period the process of learning by doing leading to decreasing marginal costs over time has an important impact on the number of firms in the industry

currency hedging for international stock portfolios the usefulness of mean variance analysis abstract we test whether hedging currency risk improves the performance of international stock portfolios we show that an auxiliary regression provides a wealth of information about the optimal portfolio holdings for non mean variance investors analogous to the information provided by the jensen regression about optimal portfolio holdings for the mean variance case we find that static hedging with currency forwards does not lead to significant improvements in portfolio performance for a us dollar based stock portfolio from the g5 countries whereas dynamic hedges that are conditional on the interest rate spread do these conclusions hold for both mean variance and power utility investors and show up both in sample and out of sample however the optimal forward positions can differ significantly for both types of investors

the determinants of smes market share in 1991 taiwan manufacturers small and medium sized enterprises smes have become increasingly popular in recent decades having caused concern among scholars of various areas our line of research focuses on the determinants of smes market share this study explores the topic base on taiwan s manufacturers data collected in 1991 our empirical results indicate that taiwan has witnessed smes becoming prosperous in manufacturing industries with higher relative labor productivity low entry barriers prosperous subcontracting activities and young ages our results indicate that in the transitory process of industrial development taiwan s smes no longer can afford high wage payments when at the same time the quality of labor does not increase accordingly as taiwan approaches the status of a developed economy the beneficiaries of export activities have changed unlike 1986 in 1991 there was a smaller share of smes in taiwan s export oriented industries furthermore smes benefited from their efforts to increase their automation status the emphasis on issues concerning environmental protection proved to be another source of entry barrier that kept smes from prospering certain similarities arise when comparing our conclusions with those of the u s canada germany and japan all of whom represent industrialized countries we can conclude that as taiwan matures in her industrial development process smes also struggle to a certain maturity in theirs

international diversification with securitized real estate and the veiling glare from currency risk this paper analyzes diversification benefits from international securitized real estate in a mixed asset context we apply regression based mean variance efficiency tests conditional on currency unhedged and fully hedged portfolios to account for foreign exchange risk exposure from the perspective of a us investor it is shown that first international diversification is superior to a us mixed asset portfolio second adding international real estate to an already internationally diversified stock and bond portfolio results in a further significant improvement of the risk return trade off and third considering unhedged international assets could lead to biased asset allocation decisions not realizing the true diversification benefits from international assets our in sample results are quite robust in out of sample analysis and when investment frictions like short selling constraints are introduced