demand and supply of infrequent payments as a commitment device evidence from kenya despite extensive evidence that preferences are often time inconsistent there is only scarce evidence of willingness to pay for commitment infrequent payments for frequently provided goods and services are a common feature of many markets and they may naturally provide commitment to save for lumpy expenses multiple experiments in the kenyan dairy sector show that i farmers are willing to incur sizable costs to receive infrequent payments as a commitment device ii poor contract enforcement however limits competition among buyers in the supply of infrequent payments we then present a model of demand and supply of infrequent payments and test its additional predictions

asymmetric effects of federal funds target rate changes on s p100 stock returns volatilities and correlations we study the effects of fomc announcements of federal funds target rate decisions on individual stock returns volatilities and correlations at the intraday level for all three characteristics we find that the stock market responds differently to positive and negative target rate surprises first the average response to positive surprises that is bad news for stocks is larger second in case of bad news the mere occurrence of a surprise matters most whereas for good news its magnitude is more important these new insights are possible due to the use of high frequency intraday data

uncertainty of governmental relief and the crowding out of flood insurance this paper discusses the problem of crowding out of insurance by co existing governmental relief programs the so called charity hazard in the context of different institutional schemes of governmental disaster relief in austria and germany we test empirically whether an assured partial relief scheme as in austria drives a stronger crowding out of private insurance than a scheme promising full relief which is subject to ad hoc political decision making as in germany our general finding is that the institutional design of governmental relief programs significantly affects the demand for private natural hazard insurance

roughing it up including jump components in the measurement modeling and forecasting of return volatility a rapidly growing literature has documented important improvements in financial return volatility measurement and forecasting via use of realized variation measures constructed from high frequency returns coupled with simple modeling procedures building on recent theoretical results in barndorff nielsen and shephard 2004a 2005 for related bi power variation measures the present paper provides a practical and robust framework for non parametrically measuring the jump component in asset return volatility in an application to the dm exchange rate the s p500 market index and the 30 year u s treasury bond yield we find that jumps are both highly prevalent and distinctly less persistent than the continuous sample path variation process moreover many jumps appear directly associated with specific macroeconomic news announcements separating jump from non jump movements in a simple but sophisticated volatility forecasting model we find that almost all of the predictability in daily weekly and monthly return volatilities comes from the non jump component our results thus set the stage for a number of interesting future econometric developments and important financial applications by separately modeling forecasting and pricing the continuous and jump components of the total return variation process

simultaneous monetary policy announcements and international stock markets response an intraday analysis abstract this paper investigates the return and volatility response of major european and us equity indices to monetary policy surprises by utilizing extensive intraday data on 5 min price quotes along with a comprehensive dataset on monetary policy decisions and macroeconomic news announcements the results indicate that the monetary policy decisions generally exert immediate and significant influence on stock index returns and volatilities in both european and the us markets the findings also show that press conferences held by the european central bank ecb that follow monetary policy decisions on the same day have a clear impact on european index return volatilities this implies that they convey additional important information to market participants overall our analysis suggests that the use of high frequency data is critical to separate the effect of monetary policy actions from those of macroeconomic news announcements on stock index returns and volatilities

where and how index insurance can boost the adoption of improved agricultural technologies abstract remote sensing and other advances have led to an outpouring of programs that offer index insurance to small scale farmers with the expectation that this insurance will enable adoption of improved technologies and boost living standards despite these expectations the evidence to date on the uptake and impacts of insurance is mixed this paper steps back and considers theoretically where index insurance might be most effective and whether it should be offered as a standalone contract or explicitly interlinked with credit contracts emerging from this analysis is a set of nuanced recommendations based on the structure of risk and the property rights collateral environment

news announcements and price discovery in foreign exchange spot and futures markets abstract this paper studies competition in price discovery between spot and futures rates for the eur usd and jpy usd markets around scheduled macroeconomic announcements using both the information shares approach and the common factor component weight approach for futures prices from the chicago mercantile exchange cme as well as deal prices from spot trading on the electronic broking services ebs we gauge how foreign exchange spot and futures markets respond to news surprises the results show that the spot rates provide more price discovery than do the cme futures rates overall however the contribution of the futures rates to price discovery increases in the time surrounding macroeconomic announcement releases

deutsche mark dollar volatility intraday activity patterns macroeconomic announcements and longer run dependencies this paper provides a detailed characterization of the volatility in the deutsche mark dollar foreign exchange market using an annual sample of five minute returns the approach captures the intraday activity patterns the macroeconomic announcements and the volatility persistence arch known from daily returns the different features are separately quantified and shown to account for a substantial fraction of return variability both at the intraday and daily level the implications of the results for the interpretation of the fundamental driving forces behind the volatility process is also discussed the efficient market hypothesis contends that financial asset prices provide rational assessments of fundamental values and future payoffs by implication price changes should reflect the arrival and processing of all relevant new information however the proportion of return variability that can be ascribed to public news announcements is low for example cutler poterba and summers 1989 find that even the largest daily price changes in the stock market generally cannot be associated with any significant economic news 1 moreover proxies for the flow of public information e g the number of news items released by reuter s news service berry and hiowe 1994 or dow jones company mitchell and mulherin 1994 explain little of the overall variation thus if private information is ruled out proponents of rational price formation have to assert the existence of important news items

patterns of rainfall insurance participation in rural india take up of an innovative rainfall insurance policy offered to smallholder farmers in rural india decreases with basis risk between insurance payouts and income fluctuations increases with household wealth and decreases with binding credit constraints these results are consistent with the predictions of a simple neoclassical model with borrowing constraints other patterns are less consistent with the benchmark model for example participation in village networks and measures of familiarity with the insurance vendor are strongly correlated with insurance take up decisions and risk averse households are less not more likely to purchase insurance these results may reflect household uncertainty about the product given their limited experience with it

how markets process information news releases and volatility we examine the impact of scheduled macroeconomic news announcements on interest rate and foreign exchange futures markets we find these announcements are responsible for most of the observed time of day and day of the week volatility patterns in these markets while the bulk of the price adjustment to a major announcement occurs within the first minute volatility remains substantially higher than normal for roughly fifteen minutes and slightly elevated for several hours nonetheless these subsequent price adjustments are basically independent of the first minute s return we identify those announcements with the greatest impact on these markets we examine the impact on interest rate and foreign exchange markets of scheduled macroeconomic news releases such as the employment report the consumer price index cpi and the producer price index ppi many market participants believe that such announcements have a major impact on financial markets indeed a small industry devoted to predicting the figures to be released in upcoming releases has evolved in recent years with the exception of the weekly money supply figures however the impact of such announcements on financial markets has received scant attention 1 this is doubly surprising given the considerable research interest in market volatility since these news releases are a potential source of much of this volatility consider for instance figure 1 as shown there prices in interest rate and foreign exchange futures markets are much more volatile between 8 30 and 8 35 a m eastern time et than during any other five minute trading period including

price vs weather shock hedging for cash crops ex ante evaluation for cotton producers in cameroon abstract in the sudano sahelian zone which includes northern cameroon the inter annual variability of the rainy season is high and irrigation scarce as a consequence bad rainy seasons have a detrimental impact on crop yield in this paper we assess the risk mitigation capacity of weather index based insurance for cotton farmers we compare the ability of various indices mainly based on daily rainfall to increase the expected utility of a representative risk averse farmer we first give a tractable definition of basis risk and use it to show that weather index based insurance is associated with a large basis risk whatever the index considered it has thus limited potential for income smoothing a conclusion which is robust to the utility function second in accordance with the existing agronomical literature we find that the length of the cotton growing cycle in days is the best performing index considered third we show that using observed cotton sowing dates to define the length of the growing cycle significantly decreases the basis risk compared to using simulated sowing dates finally we find that the gain of the weather index based insurance is lower than that of hedging against cotton price fluctuations provided by the national cotton company this casts doubt on the strategy of supporting weather index insurances in cash crop sectors selling at international market prices without recommending any price stabilisation scheme

evidence of demand for index insurance experimental games and commercial transactions in ethiopia abstractwe present results of experimental games with smallholder farmers in tigray ethiopia in 2010 in which participants in the games allocated money across risk management options one of the options was index insurance that was the same as commercial products sold locally participants exhibited clear preferences for insurance contracts with higher frequency payouts and for insurance over other risk management options including high interest savings the preference for higher frequency payouts is mirrored in commercial sales of the product with commercial purchasers paying substantially higher premiums than the minimal low frequency option available this combined evidence challenges claims that the very poor universally choose minimal index insurance coverage and supports concerns that demand may outpace supply of responsible insurance products

insurance credit and technology adoption field experimental evidence from malawi this brief summarizes the insurance credit and technology adoption field experimental evidence from malawi the farmers were offered loans for the november 2006 planting season does production risk suppress the demand for credit the author implemented a randomized field experiment to ask whether provision of insurance against a major source of production risk induces farmers to take out loans to adopt a new crop technology the study sample was composed of roughly 800 maize and groundnut farmers in malawi where by far the dominant source of production risk is the level of rainfall the author randomly selected half of the farmers to be offered credit to purchase high yielding hybrid maize and groundnut seeds for planting in the november 2006 crop season the other half of farmers were offered a similar credit package but were also required to purchase at actuarially fair rates a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall surprisingly take up was lower by 13 percentage points among farmers offered insurance with the loan take up was 33 0 percent for farmers who were offered the uninsured loan there is suggestive evidence that reduced take up of the insured loan was due to farmers already having implicit insurance from the limited liability clause in the loan contract insured loan take up was positively correlated with farmer education income and wealth which may proxy for the individual s default costs by contrast take up of the uninsured loan was uncorrelated with these farmer characteristics

macroeconomic news order flows and exchange rates under rational expectations and efficient markets the news contained in public information announcements is directly impounded into prices with there being no role for trades in this process of information assimilation this paper directly tests this assertion using transaction level exchange rate data and a sample of scheduled macroeconomic announcements the main result of the paper is that even information that is publicly and simultaneously released to all market participants is largely impounded into prices via the key micro level price determinant order flow we quantify the role that order flow plays and find that between a half and two thirds of price relevant information is incorporated into prices via the trading process

informal risk sharing index insurance and risk taking in developing countries this paper presents preliminary findings from a research project that examines the interaction between informal risk sharing index insurance and risk taking we have randomized rainfall insurance contracts offered to cultivating and landless households in a set of indian villages where pre existing census data on caste networks allows us to characterize the nature and extent of informal risk sharing in a series of papers we study a how informal risk sharing mediates the demand for index insurance b whether index insurance or informal indemnification allows farmers to invest in risky technologies and c the general equilibrium effects of offering insurance contracts to cultivators or to agricultural laborers

why has the number of teachers per student risen while teacher quality has declined abstract since 1970 the number of teachers per student rose while teacher quality apparently eroded a model of school and voter decisions shows that an increase in the skill price for women may induce schools to hire additional teachers rather than better quality teachers estimation results indicate that the price of skill and alternative wage had offsetting effects on the teacher pupil ratio increased demand for education therefore resulted in larger teacher student ratios in contrast both the skill price and the alternative wage reduced teacher quality increased demand for education did not outweigh the combined price effect and teacher quality fell

optimal insurance against climatic experience an optimal insurance contract against a climatic risk is derived in the presence of an uninsurable and dependent aggregate production risk the optimaldesign depends on the stochastic dependency between both sources of uncertainty and on the producer s attitude towards risk especially on his prudent behavior rationalweather insurance purchasing decisions are al so derived the prudent producer responds to actuarially fair weather insurance by increasing his exposure towards risk the u s multiple peril crop insurance program in which indemnity payments are based on the producer s individualyiel ds has been disappointing in that premiums have not been sufficient to cover indemnity payments and administrative costs this failure has induced the u s government to promote alternative insurance policies since 1993 the risk management agency has offered areayield contracts under its group risk plan in selected counties skees black and barnett another alternative is to base the indemnity on a weather index such as rainfall or temperature this policy was proposed in the past by sanderson but has failed to gain acceptance among policy makers the difficulties of rainfall insurance were a subject of debate in australia e g bardsley abey and davenport quiggin 1986 patrick the recent development of weather based instruments on financialmarkets known as weather derivatives for which the payoff depends on the cause of risk rather than on its effect on yield provide new opportunities for covering exposure to unfavorable weather events the objective of this article is threefold first a stochastic production function affected by a climatic risk and by an aggregate production risk where both sources of risk are stochastically dependent is de

risk and ambiguity aversion behavior in index based insurance uptake decisions experimental evidence from ethiopia abstract index based insurance ibi is an innovative pro poor climate risk management strategy that suffers from low uptake evidence on the role of behavioral impediments in adoption of ibi is scant we conducted lab in the field experiments with 1139 smallholders out of whom 596 have adopted ibi in ethiopia to elicit their risk and ambiguity aversion behavior and examine whether risk and or ambiguity aversion can explain actual ibi uptake decisions our study suggests that an increase in risk aversion increases uptake but an increase in ambiguity aversion lowers uptake of ibi we also find evidence that an increase in risk aversion speeds up the uptake of ibi while an increase in ambiguity aversion delays the adoption of ibi

rational insurance purchasing consideration of contract nonperformance much of the analysis of rational insurance purchasing and hedging strategies has been undertaken on the basis of the expected utility hypothesis this decision framework has been used to reformulate the bernoulli principle that a risk averter rationally would fully insure at a fair premium other applications include the analysis of insurance at unfair premiums mossin 1968 and smith 1968 the effects of state dependent utility on the rational insurance purchase cook and graham 1977 the effects of risky background wealth doherty and schlesinger 1983 and mayers and smith 1983 and the design of the optimal insurance policy raviv 1979 such analyses have been conducted on the assumption that insurance policies are free of insolvency default risk this assumption stands in sharp contrast to the actuarial literature in which the insolvency risk or probability of ruin is a central focus of attention

the demand for microinsurance a literature review summary microinsurance has recently received much attention as a promising tool to protect poor individuals from important shocks yet voluntary demand from people has been low shedding doubt on the viability of microinsurance as a useful risk management tool to better understand this puzzle this paper reviews both the theoretical and empirical literature on the demand for insurance while people s lack of understanding of insurance does seem to limit the demand for it several more fundamental factors such as price quality limited trust in the insurer and liquidity constraints also seem to have an important role in explaining the puzzle

intraday jumps and us macroeconomic news announcements this paper applies recent non parametric intraday jump detection procedures to investigate the presence and importance of intraday jumps in us futures markets more importantly the paper investigates the extent to which statistically significant intraday jumps are associated with us macroeconomic news announcements jumps are prevalent large and contribute heavily to total daily price variation approximately one third of jumps correspond to us macroeconomic news announcements with pure announcement effects causing large increases in the absolute sizes of jumps and the informational surprise of the announcement explaining large proportions of the jumps the statistical and economic significance of news related jumps is confirmed by results that show higher volatility persistence predictability of lower frequency returns larger effects on microstructure variables jump clustering and co jumps from these jumps versus non news related jumps although there are some interesting variations across asset classes

productivity credit risk and the demand for weather index insurance in smallholder agriculture in ethiopia the article explores the relationship between fertilizer use and the demand for weather index insurance wii among smallholder farmers in ethiopia we examine whether fertilizer use is profitable under current smallholder production conditions whether risk related factors affect fertilizer use and we estimate the returns to inputs in the agricultural production function in the absence of insurance we then study how these primitives of agricultural production functions relate to insurance demand the study compares a survey based estimate of willingness to pay with actual uptake for the weather insurance finding the stated and actual demand to be almost completely uncorrelated while those with high marginal returns to inputs say they would purchase insurance only those with low marginal returns actually do consistent with the stated purpose of the product as input insurance insurance demand proves to be highly responsive to the existence and amount of randomly allocated insurance vouchers jel classifications c83 g22 q12

vulnerability seasonality and poverty in ethiopia most studies examining the dynamics of welfare have found large fluctuations in consumption over relatively short periods suggesting substantial short run movements in and out of poverty the consequence is that cross section poverty research may not be able to identify the poor in this study we explore this short run variability further we use a data set on a panel of 1450 households in different communities in rural ethiopia surveyed thrice over 18 months on average year to year poverty is very similar however we find high variability in consumption and poverty over the seasons and year by year econometric analysis suggests that consumption is affected by idiosyncratic and common shocks including rainfall and household specific crop failure while households respond to seasonal incentives related to changing labour demand and prices the results imply that a larger number of households are vulnerable to shocks than implied by the standard poverty statistics while some of the non poor in the

how might climate change influence farmers demand for index based insurance the low observed uptake of non subsidised index based insurance policies in developing countries has been puzzling researchers for about a decade this paper analyses the role of drought frequency in farmers demand for index based insurance in developing countries while it is typically assumed that an increase in exposure to risk would result in higher demand for index insurance this paper finds the opposite an increase in drought frequency may result in lower demand for index insurance under fairly standard conditions in an expected utility model we show that the demand for insurance is an inverted u function of drought frequency we further show that downside basis risk decreases insurance demand under frequent drought conditions it implies that insurance against similar but more frequent events cannot meet large demand from farmers to check the empirical relevance of these effects we conduct an insurance field experiment in burkina faso with 205 farmers we analyse insurance demand for different drought frequencies different levels of basis risks and different loading factors through incentivised lottery choices this analysis confirms that for higher drought frequencies insurance demand is lower insurance demand also decreases with basis risk and the loading factor

insurability and moral hazard in agricultural insurance markets pareto optimal and constrained pareto optimal all risk insurance contracts are studied conditions required for emergence of competitive insurance markets are isolated and discussed full insurance contracts are shown to be dominated by contracts involving coinsurance and deductibles if insurers are pseudo risk averse the effect of moral hazard on all risk agricultural insurance indemnity schedules is examined results for indemnity schedules under moral hazard and constant absolute risk aversion show that providing farmers with the incentives to take appropriate actions may imply lower deductibles in the presence of moral hazard than in the absence of moral hazard

agricultural decisions after relaxing credit and risk constraints the investment decisions of small scale farmers in developing countries are conditioned by their financial environment binding credit market constraints and incomplete insurance can limit investment in activities with high expected profits we conducted several experiments in northern ghana in which farmers were randomly assigned to receive cash grants grants of or opportunities to purchase rainfall index insurance or a combination of the two demand for index insurance is strong and insurance leads to significantly larger agricultural investment and riskier production choices in agriculture the binding constraint to farmer investment is uninsured risk when provided with insurance against the primary catastrophic risk they face farmers are able to find resources to increase expenditure on their farms demand for insurance in subsequent years is strongly increasing with the farmer s own receipt of insurance payouts with the receipt of payouts by others in the farmer s social network and with recent poor rain in the village both investment patterns and the demand for index insurance are consistent with the presence of important basis risk associated with the index insurance imperfect trust that promised

time versus state in insurance experimental evidence from contract farming in kenya the gains from insurance arise from the transfer of income across states yet by requiring that the premium be paid upfront standard insurance products also transfer income across time we show that this intertemporal transfer can help explain low insurance demand especially among the poor and in a randomized control trial in kenya we test a crop insurance product which removes it the product is interlinked with a contract farming scheme as with other inputs the buyer of the crop offers the insurance and deducts the premium from farmer revenues at harvest time the take up rate is 72 compared to 5 for the standard upfront contract and take up is highest among poorer farmers additional experiments and outcomes indicate that liquidity constraints present bias and counterparty risk are all important constraints on the demand for standard insurance finally evidence from a natural experiment in the united states exploiting a change in the timing of the premium payment for federal crop insurance sho s that the transfer across time also affects insurance adoption in developed countries

jumps in financial markets a new nonparametric test and jump dynamics this paper introduces a new nonparametric test to detect jump arrival times and realized jump sizes in asset prices up to the intra day level we demonstrate that the likelihood of misclassiflcation of jumps becomes negligible when we use high frequency returns using our test we examine jump dynamics and their distributions in the u s equity markets the results show that individual stock jumps are associated with prescheduled earnings announcements and other company speciflc news events additionally s p 500 index jumps are associated with general market news announcements this suggests difierent pricing models for individual equity options versus index op

the statistical and economic role of jumps in continuous time interest rate models this paper analyzes the role of jumps in continuous time short rate models i first develop a test to detect jump induced misspecification and using treasury bill rates find evidence for the presence of jumps second i specify and estimate a nonparametric jump diffusion model results indicate that jumps play an important statistical role estimates of jump times and sizes indicate that unexpected news about the macroeconomy generates the jumps finally i investigate the pricing implications of jumps jumps generally have a minor impact on yields but they are important for pricing interest rate options

the high frequency response of exchange rates to monetary policy actions and statements abstract this paper investigates the impact of us monetary policy on the level and volatility of exchange rates using an event study with intraday data for five currencies the us dollar exchange rate versus the euro the canadian dollar the british pound the swiss franc and the japanese yen i construct two indicators of news about monetary policy stemming separately from policy decisions and from balance of risk statements estimation results show that both policy decisions and communication have economically large and highly significant effects on the exchange rates with the surprise component of statements accounting for most of the explainable variation in exchange rate returns in response to monetary policy this paper also shows that exchange rates tend to absorb fomc monetary surprises within 30 40 min from the announcement release