mixed integer programming approaches for index tracking and enhanced indexation we consider the problem of reproducing the performance of a stock market index but without purchasing all of the stocks that make up the index index tracking we also consider the problem of out performing the index enhanced indexation we present mixed integer linear programming formulations of these problems our formulations include transaction costs a constraint limiting the number of stocks that can be purchased and a limit on the total transaction cost that can be incurred as our formulations of these problems are mixed integer linear programs we can use a standard solver cplex numeric results are presented for eight data sets drawn from major markets the largest of these data sets involves over 2000 stocks

risk aversion in contests in a contest participants spend money or effort to increase their chances of winning a prize the authors examine primarily the following question could the timid the more risk averse have a better chance of winning in contests under limited liability the answer is always positive in the absence of limited liability there is no single answer whereas when the prize is shared as a function of effort the outcome is independent of the contestants risk aversion the authors also relate their results to self protection and examine some other implications of risk aversion copyright 1995 by royal economic society

allocating between active and passive management with the recent difficulty in beating the s p 500 index the debate over active versus passive investing has risen to a new level of importance we provide a framework for analyzing the trade off the typical pension fund faces in deciding how much to index our analysis gets at the root of active performance stock picking skill after analyzing the performance associated with various degrees of skill in various equity styles for the 1985 97 period we found that a modest amount of stock picking skill goes a long way and that the optimal amount of allocation to indexing declines as skill increases for most risk categories however some allocation to indexing is appropriate

approximate surrogate production functions the cambridge debate showed that an aggregation of capital is not possible in general a recent investigation has found one example for reswitching and several for reverse capital deepening but the paradoxes appear to be infrequent the paper provides a theoretical justification of this result and shows how wage curves of input output matrices with small non dominant eigenvalues become quasi linear with some numeraires large random systems lead to the genesis of such states approximate surrogate production functions then seem possible a family of economic systems with constant capital composition allows construction of a surrogate production function copyright oxford university press

the 40 neoclassical aggregate theory of production the assumption that production in an economic system may be described by an aggregate neoclassical production function is at the heart of most modern equilibrium neoclassical business cycles and growth models its validity requires stringent assumptions on individual production functions and market structure in this article the likelihood that an aggregate neoclassical production function could emerge from a simple heterogeneous production system is assessed by the use of computer simulations the conclusion is that there exists a world of significant size for which the aggregate neoclassical theory of production does not hold

caps on political lobbying the cost of political campaigns in the u s has risen substantially in recent years for example real spending on congressional election campaigns doubled between 1976 and 1992 steven d levitt 1995 there are many reasons why increased campaign spending might be socially harmful first increased spending means increased fund raising which may keep politicians from their legislative duties 1 second a lobbyist who makes a large campaign contribution may have undue influence on electoral outcomes on the shaping of legislation or on the outcome of regulatory proceedings 2 that is the socially preferred candidate or legislation may not prevail likewise a lobbyist involved in a regulatory matter or a competition for a government contract may benefit unduly from a legislator s intervention 3 third a perception that campaign contributions purchase influence may lead to increased tolerance of corruption in the private sector a desire to control campaign spending has spawned many initiatives to limit both campaign contributions and spending beginning with the passage of the federal election campaign act feca political action committees pacs can contribute at most 5 000 per election to a candidate while individuals can contribute at most 1 000 restrictions have also been put on in kind contributions making it more difficult to circumvent these limits 4 while direct restrictions on campaign spending have proven difficult to implement recent initiatives aim to impose voluntary spending limits and stricter limits on contributions 5 despite the existing legislation and the proposals to limit contributions little is known about the impact of contribution limits on aggregate expenditures while it is intuitively appealing that aggregate expenditures would drop we challenge that intuition here we study a lobbying game and show that a cap on individual lobbyists expenditures may have the perverse effect of increasing aggregate expenditures and loweri this abstract was borrowed from another version of this item

an empirical investigation of paradoxes reswitching and reverse capital deepening in capital theory this paper examines the empirical relevance of the capital controversy the price model of sraffa and the dual models of the price and quantity systems of von neumann become the basis of the investigation in the course of the controversy it proved easy to construct theoretical examples which contradicted the fundamental neoclassical hypothesis of an inverse capital demand function this paper presents empirical examples for the first time thiry two input output tables from the oecd database serve as data as a result one envelope is found which involves reswitching reverse substitution of labour or reverse capital deepening are observed in about 3 65 of tested cases they involve at least two switchpoints copyright 2006 oxford university press

multiple benchmark and multiple portfolio optimization numerous real life portfolio optimization problems require consideration of more than one benchmark and or more than one portfolio these problems are formulated in a way that seems to be more complicated than the standard problem of mean tracking error variance optimization in fact however these diverse problems can be reduced to the standard case and solved with the same algorithm this article provides solutions to the dual benchmark problem the portfolio partition problem and the completion portfolio problem such solutions and applications are important to both portfolio managers and plan sponsors

dynamic models for fixed income portfolio management under uncertainty abstract we develop multi period dynamic models for fixed income portfolio management under uncertainty using multi stage stochastic programming with recourse the models integrate the prescriptive stochastic programs with descriptive monte carlo simulation models of the term structure of interest rates extensive validation experiments are carried out to establish the effectiveness of the models in hedging against uncertainty and to assess their performance vis a vis single period models an application to tracking the salomon brothers mortgage index is reported with very encouraging results results that establish the efficacy of the models in hedging against out of sample scenarios are also reported for an application from money management the multi period models outperform classical models based on portfolio immunization and single period models

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

the persistence of risk adjusted mutual fund performance the authors examine predictability for stock mutual funds using risk adjusted returns they find that past performance is predictive of future risk adjusted performance applying modern portfolio theory techniques to past data improves selection and allows the authors to construct a portfolio of funds that significantly outperforms a rule based on past rank alone in addition they can form a combination of actively managed portfolios with the same risk as a portfolio of index funds but with higher mean return the portfolios selected have small but statistically significant positive risk adjusted returns during a period where mutual funds in general had negative risk adjusted returns copyright 1996 by university of chicago press

the fund flow approach a critical survey the fund ow approach to production theory was proposed by nicholas georgescu roegen almost half a century ago and it provides a description of production as a process unfolding in time and entailing a temporal coordination between dierent elements despite the initial interest the approach has seldom received attention by mainstream economists and it is not yet well known the paper critically surveys georgescu roegen s model together with i the later developments and modications ii the recent criticisms focused on its limitations due to the instrumental assumption of constant eciency for funds the paper concludes by discussing the limits and comparative merits and suggesting possible applications

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

the aggregate production function is not neoclassical standard postulates concerning the aggregate production function are about marginal productivities and the associated demands for labour and capital these demands are supposed to be negatively related to the factor prices namely the wage rate and the interest rate the theoretical cases in which these neoclassical properties fail to hold are regarded as anomalies we compute the aggregate values for production capital and labour and find that the neoclassical postulates do not hold for the detailed dataset that we consider the obvious implication of this result is that the models and analysis based on the aggregate neoclassical production functions are ill founded as they are based on something that does not exist

the power of money wealth effects in contests abstract the relationship between wealth and power has long been debated nevertheless this relationship has been rarely studied in a strategic game in this paper we study wealth effects in a strategic contest game two opposing effects arise wealth reduces the marginal cost of effort but it also reduces the marginal benefit of winning the contest we consider three types of contests which vary depending on whether rents and efforts are commensurable with wealth our theoretical analysis shows that the effects of wealth are strongly contest dependent it thus does not support general claims that the rich lobby more or that low economic growth and wealth inequality spur conflicts

optimal construction and rebalancing of index tracking portfolios abstract index funds aim to track the performance of a financial index such as e g the standard poor s 500 index index funds have become popular because they offer attractive risk return profiles at low costs the index tracking problem considered in this paper consists of rebalancing the composition of the index fund s tracking portfolio in response to new market information and cash deposits and withdrawals from investors such that the index fund s tracking accuracy is maximized in a frictionless market maximum tracking accuracy is achieved by investing the index fund s entire capital in a tracking portfolio that has the same normalized value development as the index in the presence of transaction costs which reduce the fund s capital one has to manage the trade off between transaction costs and similarity in terms of normalized value developments existing mathematical programing formulations for the index tracking problem do not optimize this trade off explicitly which may result in substantial transaction costs or tracking portfolios that differ considerably from the index in terms of normalized value development in this paper we present a mixed integer linear programing formulation with a novel optimization criterion that directly considers the trade off between transaction costs and similarity in terms of normalized value development in an experiment based on a set of real world problem instances the proposed formulation achieves a considerably higher tracking accuracy than state of the art formulations

performance replication of the spot energy index with optimal equity portfolio selection evidence from the uk us and brazilian markets abstract this paper reproduces the performance of a geometric average spot energy index by investing only in a subset of stocks from the dow jones composite average the ftse 100 and bovespa composite indexes and in two pools that include only energy sector stocks from the us and the uk respectively daily data are used and the index tracking problem for passive investment is addressed with two evolutionary algorithms the differential evolution algorithm and the genetic algorithm the performance of the suggested investment strategy is tested under three different scenarios buy and hold quarterly and monthly rebalancing accounting for transaction costs where necessary

index tracking model downside risk and non parametric kernel estimation abstract in this paper we propose an index tracking model with the conditional value at risk cvar constraint based on a non parametric kernel npk estimation framework in theory we demonstrate that the index tracking model with the cvar constraint is a convex optimization problem we then derive npk estimators for tracking errors and cvar and thereby construct the npk index tracking model monte carlo simulations show that the npk method outperforms the linear programming lp method in terms of estimation accuracy in addition the npk method can enhance computational efficiency when the sample size is large empirical tests show that the npk method can effectively control downside risk and obtain higher excess returns in both bearish and bullish market environments

european economic integration and comparative advantages on the basis of a set of input output tables we computed the european net product possibility frontier nppf for the years from 1995 to 2011 during this period several barriers to trade have been removed allowing higher levels of trade and regional integration subsequently we propose a method to check whether the prediction to be derived from comparative advantages cas theory namely a specialization pattern that allows to reach the nppf is verified the results suggest that cas were not exploited well during the period considered and no positive trend emerged the implication of our results is that there is ample scope for a coordinated policy aimed at improving allocation of resources further research on this topic seems to be necessary

integrated simulation and optimization models for tracking indices of fixed income securities increasing performance pressures on fixed income managers have led to a search for new and creative ways to add to portfolio returns the largest pension plan sponsors insurance companies foundations and money management firms are using indexed portfolios as their fixed income assets management strategies since the late 1970s tracking a fixed income index is a difficult task due to transaction costs portfolio size and diversification restrictions liquidity requirements bid ask spreads etc this paper develops an integrated simulation and optimization approach for tracking fixed income indices the model was implemented at metropolitan life insurance company we introduce a simulation model for generating scenarios of holding period returns of the securities in the index then we develop optimization models to select a portfolio that tracks the index the models penalize downside deviations of the portfolio return from the index the developed framework is used to track the salomon brothers mortgag

on measuring the deviation of prices from values it has often been found useful to measure in some way the extent to which with profit prices diverge from zero profit values but it is not satisfactory to employ a measure which varies with the choice of numeraire for this element of arbitrariness has nothing to do with the central idea of asking how much the direction of the price vector differs from that of the value vector the authors develop a measure which involves no numeraire and then illustrate its use with data from the united kingdom the irish republic and australia copyright 1998 by oxford university press

technological change in canada 1961 80 an application of the surrogate wage function this paper applies c ozol s surrogate wage function to canadian input output data to analyz e the general properties of technological change during the 1961 80 p eriod technological change manifests itself in the shifts of the est imated surrogate wage curves which indicate the changing capital and labor intensities of the production system the empirical results of this study imply that technological progress in canada is generally l abor saving over the entire 1961 80 period and capital saving over th e 1961 66 period the actual tendencies of the technological evolutio n investigated appear to be explained by the continuous mechanization of the production process

deep time series forecasting for enhanced index tracking we consider the problem of enhanced index tracking whose objective is to construct a portfolio that maximizes the excess return and minimizes the tracking error between the returns of the tracking

rent seeking with asymmetric valuations this paper analyzes tullock s rent seeking game with asymmetric valuations for a variable range of the returns to scale parameter a necessary and sufficient condition for a unique pure strategy nash equilibrium is established equilibrium effort and expected profits are determined and subjected to comparative statics analysis increasing the underdog s valuation induces both players to increase their efforts increasing the favorite s valuation increases his effort but decreases the effort of the underdog expected profits increase with a player s valuation but decreases with the valuation of the competitor the impact of the returns to scale parameter is also analyzed

profits equal surplus value on average and the significance of this result for the marxian theory of accumulation being a new contribution to engels prize essay competition based on random matrices and on manuscripts recently published in the mega for the first time marx s justification of his theory of surplus value in the face of unequal compositions of capital by interpreting total profits as a redistribution of surplus value is not correct in general however it is shown here that the equality holds if the input matrices are random and the labour theory of value holds in a sense to be specified on average manuscripts recently published for the first time confirm that to the end marx trusted his approach to the theory of value in that he continued to use the identity of the aggregates of capital and surplus in value and in price terms his insistence was rooted in his philosophy an attempt is made to clarify his use of a hegelian methodology by comparing hegel s and marx s approaches to the foundation of the infinitesimal calculus the article concludes with marx s late reconsiderations of his theory of the falling rate of profit which also continue to be based on the equality of profit and surplus value

a linear model for tracking error minimization abstract this article investigates four models for minimizing the tracking error between the returns of a portfolio and a benchmark due to linear performance fees of fund managers we can argue that linear deviations give a more accurate description of the investors risk attitude than squared deviations all models have in common that absolute deviations are minimized instead of squared deviations as is the case for traditional optimization models linear programs are formulated to derive explicit solutions the models are applied to a portfolio containing six national stock market indexes usa japan uk germany france switzerland and the tracking error with respect to the msci morgan stanley capital international index world stock market index is minimized the results are compared to those of a quadratic tracking error optimization technique the portfolio weights of the optimized portfolio and its risk return properties are different across the models which implies that optimization models should be targeted to the specific investment objective finally it is shown that linear tracking error optimization is equivalent to expected utility maximization and lower partial moment minimization