static mean variance analysis with uncertain time horizon we generalize markowitz analysis to the situations involving an uncertain exit time our approach preserves the form of the original problem in that an investor minimizes portfolio variance for a given level of the expected return however inputs are now given by the generalized expressions for mean and variance covariance matrix involving moments of the random exit time in addition to the conditional moments of asset returns although efficient frontiers in the generalized and the standard markowitz case may coincide under certain conditions we demonstrate that by means of an example in general that is not true in particular portfolios efficient in the standard markowitz sense can be inefficient in the generalized sense and vice versa as a result an investor facing an uncertain time horizon and investing as if her time of exit is certain would in general make suboptimal portfolio allocation decisions numerical simulations show that a significant efficiency loss can be induced by an improper use of standard mean variance analysis when time horizon is uncertain

agricultural productivity differences across countries abstract recent studies argue that cross country labor productivity differences are much larger in agriculture than in the aggregate we reexamine the agricultural productivity data underlying this conclusion using new evidence from disaggregate sources we find that for the world s staple grains maize rice and wheat cross country differences in the quantity of grain produced per worker are enormous according to both micro and macrosources our findings validate the idea that understanding agricultural productivity is at the heart of understanding world income inequality

the behavior of prices in the nikkei spot and futures market abstract we examine the relation between the prices of japanese stocks traded on the tokyo stock exchange tse as reflected in the nikkei stock average nsa stock index and the prices of the nsa futures contract traded on the singapore international monetary exchange simex since the inception of trading in september 1986 the nsa futures contract has generally sold at a discount relative to its theoretical value trading restrictions and transaction costs may explain some of this mispricing which has been declining over time as in the u s markets

premia for correlated default risk abstract using data on corporate default experience in the u s and market rates of cdx index and tranche swaps of various maturities we estimate reduced form models of correlated default timing in the cdx high yield and investment grade portfolios under actual and risk neutral probabilities the striking contrast between the estimated processes followed by the actual and risk neutral arrival intensities of defaults and between the parameters governing the actual and risk neutral dynamics of the risk neutral intensities indicates the presence of substantial default risk premia in cdx swap market rates the effects of risk premia on swap rates covary strongly across maturities and depend on general stock market volatility and several measures of credit spreads large moves in the effects of these premia on swap rates have natural interpretations in terms of economic and financial market developments during the sample period april 2004 to october 2007 our results suggest that a large portion of the movements in cdx swap market rates observed during the sample period may be caused by changing attitudes toward correlated default risk rather than changes in the economic factors affecting the actual risk of clustered defaults which ultimately governs swap payoffs

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

introduction understanding structural transformation in africa summary the limitations of neo classical growth models have led to a resurgence of interest in dual economy models and structural change structural change entails the movement of labor from low productivity sectors like agriculture into more modern sectors of the economy because the share of the labor force in agriculture is so high in most of sub saharan africa the potential for structural change to lead to growth and poverty alleviation in africa appears to be enormous yet very little of this new literature on structural change focuses on africa this special issue begins to fill that gap the first half of this special issue contains five original contributions that provide new insights with respect to the nature of africa s growth over the past two decades the second half contains six original contributions that examine opportunities for structural transformation in africa

portfolio selection with uncertain exit time a robust cvar approach abstract in this paper we explore the portfolio selection problem involving an uncertain time of eventual exit to deal with this uncertainty the worst case cvar methodology is adopted in the case where no or only partial information on the exit time is available and the corresponding problems are integrated into linear programs which can be efficiently solved moreover we present a method for specifying the uncertain information on the distribution of the exit time associated with exogenous and endogenous incentives numerical experiments with real market data and monte carlo simulation show the usefulness of the proposed model

seasonal migration and agricultural production in vietnam abstract when markets are incomplete migration can have multiple effects on agricultural production i use instrumental variables techniques to explore the effects of seasonal migration on agricultural production in rural vietnam during the 1990s using network variables specific to vietnam as instruments i find that migrant households in north vietnam appear to move out of rice production and into the production of other crops inputs used by migrant households decrease relative to similar non migrant households the evidence is consistent with a shift from labor intensive into land intensive crops rather than productivity changes or the use of additional capital in production

a cross country comparison of rural income generating activities summary this paper uses a newly constructed cross country database composed of comparable income aggregates to examine the full range of income generating activities carried out by rural households the analysis paints a clear picture of multiple activities across rural space in countries on all four continents though less so in the included african countries for most countries the largest share of income stems from off farm activities and the largest share of households has diversified sources of income diversification not specialization is the norm nevertheless agricultural sources of income remain critically important for rural livelihoods in all countries

nonfarm income diversification and household livelihood strategies in rural africa concepts dynamics and policy implications abstract asset activity and income diversification lie at the heart of livelihood strategies in rural africa this paper introduces a special issue on the topic income diversification and livelihoods in rural africa cause and consequence of change we concentrate on core conceptual issues that bedevil the literature on rural income diversification and the policy implications of the empirical evidence presented in this special issue

the forgotten property rights evidence on land use rights in vietnam summary studies of land property rights usually focus on tenure security and transfer rights rights to determine how to use the land are regularly ignored however user rights are often limited relying on a unique vietnamese panel data set at both household and plot levels we show that crop choice restrictions are widespread and prevent crop diversification restrictions do not decrease household income but restricted households work harder and there are indications that they are supplied with higher quality inputs our findings are consistent with the view that it is possible to intervene effectively in agricultural production to promote output and food security nevertheless potential benefits of a more diversified crop pattern must be carefully considered in a period where global food markets are in turmoil

custom hired tractor services and returns to scale in smallholder agriculture a production function approach historically agricultural transformation has often accompanied the increase in the returns to scale little direct evidence exists however on what actually causes such increase despite the knowledge of many factors that are associated with this increase we fill this knowledge gap by testing whether hiring in tractor services has raised returns to scale in agriculture at the household level in nepal terai that has undergone rapid growth in the tractor use through custom hiring services using switching regression and inverse probability weighted generalized method of moments we address two sources of endogeneity involved with the estimation of returns to scale 1 farmers self selection on whether to hire in tractor services and 2 use of inputs in the production function for both cobb douglas and translog production function specifications we find that hiring in tractor services significantly increased the returns to scale in agricultural production by about 0 2 0 3 among farm households not owning tractors for which suitable control groups are found findings are robust under various alternative specifications

on optimal portfolio choice under stochastic interest rates abstract in an economy where interest rates and stock price changes follow fairly general stochastic processes we analyze the portfolio problem of an investor endowed with a non traded cash bond position he can trade on stocks the riskless asset and a futures contract written on the bond so as to maximize the expected utility of his terminal wealth when the investment opportunity set is driven by an arbitrary number of state variables the optimal portfolio strategy is known to contain a pure preference free hedge component a speculative element and merton breeden hedging terms against the fluctuations of each and every state variable while the first two components are well identified and easy to work out the implementation of the last ones is problematic as the investor must identify all the relevant state variables and estimate their distribution characteristics using the martingale approach we show that the optimal strategy can be simplified to include in addition to the pure hedge and speculative components only two merton breeden type hedging elements however large is the number of state variables the first one is associated with interest rate risk and the second one with the risk brought about by the co movements of the spot interest rate and the market prices of risk the implementation of the optimal strategy is thus much easier as it involves estimating the characteristics of the yield curve and the market prices of risk only rather than those of numerous a priori unknown state variables moreover the investor s horizon is shown explicitly to play a crucial role in the optimal strategy design in sharp contrast with the traditional decomposition finally the role of interest rate risk in actual portfolio risk management is emphasized

the rapid rise of cross regional agricultural mechanization services in china although adam smith 1776 and alfred marshall 1920 emphasized the gains from specialization that arise from the division of labor their focus was on the manufacturing sector both saw farming as being on too small a scale and bereft of economies of scale with a market that was too small and local with too sharp a seasonality and too quick a succession of tasks to support either the development of a division of labor over the tasks of a cropping season or of mechanization smith and marshall s vision of farming and its implications for division of labor and mechanization was manifest again in the 1950s to the present in asia ruttan 2001 puts forward nearly the same ideas and terms as smith and marshall but for contemporary small rice farms in asia he emphasizes that the use of machines for the series of short tasks performed on tiny farms would imply costly investment in specialized machines that small farmers would be loath to make and even if these farmers mechanized ruttan posited that it would not induce a segmented and specialized farm labor market as again the critical mass of demand for each segment would not be present otsuka 2012 goes further along these lines to note that only on larger farms would the mechanization investment

inequality the urban rural gap and migration using population and product consumption data from the demographic and health surveys i construct comparable measures of inequality and migration for 65 countries including some of the poorest countries in the world i find that the urban rural gap accounts for 40 of mean country inequality and much of its cross country variation one out of every four or five individuals raised in rural areas moves to urban areas as a young adult where they earn much higher incomes than nonmigrant rural permanent residents equally one out of every four or five individuals raised in urban areas moves to rural areas as a young adult where they earn much lower incomes than their nonmigrant urban cousins these flows and relative incomes are suggestive of a world where the population sorts itself geographically on the basis of its human capital and skill i show that a simple model of this sort explains the urban rural gap in living standards

the intertemporal evolution of agriculture and labor over a rapid structural transformation lessons from vietnam abstract we combine nationally representative household and labor force survey data from 1992 to 2016 to provide a detailed description of rural labor market evolution and how it relates to the structural transformation of rural vietnam especially within the agricultural sector our study adds to the emerging literature on structural transformation in low income countries using micro level data and helps to answer several policy related questions we find limited employment creation potential of agriculture especially for youth rural urban real wage convergence has gone hand in hand with increased diversification of the rural economy into the non farm sector nationwide and rapid advances in educational attainment in all sectors and regions workforce minimum wage laws seem to have played no significant role in increasing agricultural wages this enhanced integration also manifests in steady attenuation of the longstanding inverse farm size yield relationship farming has remained securely household based and the family farmland distribution has remained largely unchanged small farm sizes have not obstructed mechanization nor the uptake of labor saving pesticides consistent with factor substitution induced by rising real wage rates as rural households rely more heavily on the labor market human capital accumulation rather than land endowments have become the key correlate of improvements in rural household well being

export markets and labor allocation in a low income country we study the effects of a positive export shock on labor allocation between the informal microenterprise sector and the formal firm sector in a low income country the united states vietnam bilateral trade agreement led to large reductions in us tariffs on vietnamese exports we find that the share of manufacturing workers in vietnam in the formal sector increased by 5 percentage points in response to the us tariff reductions the reallocation was greater for workers in more internationally integrated provinces and for younger cohorts we estimate the gap in labor productivity within manufacturing across the informal and formal sectors this gap and the aggregate labor productivity gain from the export induced reallocation of workers across the two sectors are reduced when we account for worker heterogeneity measurement error and differences in labor intensity of production

the rural non farm economy prospects for growth and poverty reduction summary policy makers have high expectations for the rural non farm economy rnfe given high income shares growing employment and frequently low capital requirements they see the rnfe as a potential pathway out of poverty for their rural poor yet available evidence suggests that pro poor rural non farm growth does not occur automatically for the poor to benefit from rural non farm growth policy makers must stimulate buoyant rural economies with robust non farm income growth not simply low productivity employment moreover the poor must gain access to growing market niches fluid labor markets provide one important bridge linking the rural poor to growing non farm opportunities

how much of the labor in african agriculture is provided by women the contribution of women to labor in african agriculture is regularly quoted in the range of 60 to 80 percent using individual disaggregated plot level labor input data from nationally representative household surveys across six sub saharan african countries this study estimates the average female labor share in crop production at 40 percent it is slightly above 50 percent in malawi tanzania and uganda and substantially lower in nigeria 37 percent ethiopia 29 percent and niger 24 percent there are no systematic differences across crops and activities but female labor shares tend to be higher in households where women own a larger share of the land and when they are more educated controlling for the gender and knowledge profile of the respondents does not meaningfully change the predicted female labor shares the findings question prevailing assertions regarding substantial gains in aggregate crop output as a result of increasing female agricultural productivity

valuation of mortality risk via the instantaneous sharpe ratio applications to life annuities we develop a theory for valuing non diversifiable mortality risk in an incomplete market by assuming that the company issuing a mortality contingent claim requires compensation for this risk in the form of a pre specified instantaneous sharpe ratio we apply our method to value life annuities one result of our paper is that the value of the life annuity is identical to the upper good deal bound of cochrane and saa requejo 2000 beyond arbitrage good deal asset price bounds in incomplete markets journal of political economy 108 79 119 and of bjork and slinko 2006 towards a general theory of good deal bounds review of finance 10 221 260 applied to our setting a second result of our paper is that the value per contract solves a linear partial differential equation as the number of contracts approaches infinity one can represent the limiting value as an expectation with respect to an equivalent martingale measure and from this representation one can interpret the instantaneous sharpe ratio as an annuity market s price of mortality risk

agriculture structural transformation and poverty reduction eight new insights abstract whether the sector of growth matters for the speed of poverty reduction why and how best to invest to maximize the poverty reducing effects of sectoral growth remain topics of intense debate drawing on the more recent history and applying a range of methods the papers in this special issue confirm the view that growth in agriculture is on average more poverty reducing than an equivalent amount of growth outside agriculture they also add important nuances to this broad empirical regularity uncover a series of structural conditions that affect this relation and show that different mechanisms to finance public investment to boost sectoral growth deficit financing taxation or aid can have widely different impacts on poverty a widely ignored issue so far they do so by going beyond the traditional agriculture nonagriculture dichotomy also looking at the subsectors and the differential effects of prices versus productivity they further distinguish between production for home and market consumption between modern outward oriented and informal domestically focused firms as well as between secondary towns and cities eight key insights emerge

dynamic asset pricing theory with uncertain time horizon abstract this paper addresses the problem of pricing and hedging a random cash flow received at a random date in a general setup with a random time that is not a stopping time of the filtration generated by asset prices we first provide an explicit characterization of the set of equivalent martingale measures we also present price bounds consistent with perfect replication in the absence of arbitrage as is often the case such bounds are too wide to be of any practical use and we consider several choices for narrowing down to one the number of equivalent martingale measures

reliability of recall in agricultural data despite the importance of agriculture to economic development and a vast accompanying literature on the subject little research has been done on the quality of the underlying data due to survey logistics agricultural data are usually collected by asking respondents to recall the details of events occurring during past agricultural seasons that took place a number of months prior to the interview this gap can lead to recall bias in reported data on agricultural activities the problem is further complicated when interviews are conducted over the course of several months thus leading to recall of variable length to test for such recall bias the length of time between harvest and interview is examined for three african countries with respect to several common agricultural input and harvest measures the analysis shows little evidence of recall bias impacting data quality there is some indication that more salient events are less subject to recall decay overall the results allay some concerns about the quality of some types of agricultural data collected through recall over lengthy periods

property rights labour markets and efficiency in a transition economy the case of rural china we investigate the consequences of imperfect factor market development for farm efficiency in north china we estimate the extent to which an inverse relationship in farm productivity can be attributed to the administrative as opposed to market allocation of land combined with unevenly developed off farm opportunities using a new household survey we find considerable inefficiency in the use of labour this inefficiency is alleviated by external labour markets and to a limited degree by administrative reallocations the reallocations do not go far enough however which raises important questions about con straints on rental activity and property rights formation more generally jel classification q15 012

systematic equity based credit risk a cev model with jump to default we use equity as the traded primitive for a detailed analysis of systematic default risk default is parsimoniously represented by equity value hitting the zero barrier so that unlike in reduced form models the explicit linkage to the firm s capital structure is preserved but unlike in structural models restrictive assumptions on the structure are avoided default risk is either jump like or diffusive the equity price can jump to default in line with recent empirical evidence on the jump to default risk price we highlight how reasonable choices of the pricing kernel can imply remarkable differences in the equity price dependent status between the objective default intensity and the risk neutral intensity as equity returns experience negative diffusive shocks their cev type local variance increases and boosts the objective and risk neutral probabilities of diffusive default a parsimonious version of our general model simultaneously enables analytical credit risk management and analytical pricing of credit sensitive instruments easy cross asset hedging ensues

agricultural factor markets in sub saharan africa an updated view with formal tests for market failure this paper uses the recently collected living standard measurement study integrated surveys on agriculture initiative data sets from five countries in sub saharan africa to provide a comprehensive overview of land and labor market participation by agrarian households and to formally test for failures in factor markets under complete and competitive markets households can solve their consumption and production problems separately so that household factor endowments do not predict input demand this paper implements a simple theoretically grounded test of this separation hypothesis which can be interpreted as a reduced form test of factor market failure in all five study countries the analysis finds strong evidence of factor market failure moreover those failures appear general and structural not specific to subpopulations defined by gender or geography

arbitrage opportunities in the japanese stock and futures markets 1990 arbitrage opportunities in the japanese stock and futures markets financial analysts journal vol 46 no 2 pp 14 24

option pricing with stochastic volatility information time vs calendar time empirical evidence has shown that subordinated processes represent well the price changes of stocks and futures using either transaction counts or trading volume as a proxy for information arrival it supports the contention that volatility is stochastic in calendar time because of random information arrival and thus becomes stationary in information time this contention has also been supported later in theoretical models in this paper we investigate the implication of this contention to option pricing first we price the option in calendar time where the return of the underlying asset follows a jump subordinated process we extend rubinstein s rubinstein m 1976 the valuation of uncertain income streams and the valuation of options bell j econom management sci 7 407 425 and ross s ross s 1989a information and volatility the no arbitrage martingale approach to timing and resolution irrelevancy finance44 1 17 martingale valuation methodology to incorporate the pricing of volatility risk the resulting equilibrium formula requires estimating seven parameters upon implementation we then make a stochastic time change from calendar time to information time in order to obtain a stationary underlying asset return process to price the option we find that the isomorphic option has random maturity because the number of information arrivals prior to the option s calendar time expiration date is random we value the option using dynkin s dynkin e b 1965 markov processes vols i and ii springer verlag berlin and new york version of the feynman kac formula that allows for a random terminal date the resulting information time formula requires estimating only one additional parameter compared to the black scholes s in practical application in this regard the time change has reduced the computational complexity of the option pricing problem simulations show that the formula may outperform the black scholes black f m scholes 1973 the pricing of options and corporate liabilities political econom 81 637 659 and merton merton robert c 1976a option pricing when underlying stock returns are discontinuous financial econom 3 125 143 models in pricing currency options as a first attempt to derive valuation relationships in the information time economy this investigation may suggest that the information time approach is a functional alternative to the current calendar time norm it is especially suitable for deriving volatility free portfolio insurance strategies

the african growth miracle measures of real consumption based on the ownership of durable goods the quality of housing the health and mortality of children the education of youths and the allocation of female time in the household indicate that sub saharan living standards have for the past two decades been growing about 3 4 3 7 percent per year that is three and a half to four times the rate indicated in international data sets

stock index futures arbitrage in finland theory and evidence in a new market abstract this paper examines the pricing of stock index futures contracts on the new finnish market the striking feature of the finnish market is that there is no institutional framework for short selling of stocks this has been suggested to be the most important reason for the underpricing futures contracts persistent mispricing would however imply that also early and delayed unwindings have value which increases the arbitrage profits several rollover profits are reported in this study this suggest that current stock owners have not yet begun trading on the finnish futures market on a large scale

adaptation to land constraints is africa different since the seminal works of malthus and boserup scientists have long debated the impact of population growth and land constraints on the wellbeing of rural people today these concerns are particularly relevant to africa with its rapid population growth very small farms and chronic food insecurity in this paper we examine adaptation to falling land labor ratios using a comprehensive theoretical framework in which households faced with binding land constraints can respond in three ways intensifying agricultural production diversifying out of agriculture and reducing fertility rates using cross country data and drawing upon the existing literature we reach three conclusions first population density is associated with reduced fallows and more intensive use of land but not fertilizer use or irrigation indicating major challenges in achieving sustainable intensification or agricultural productivity growth second there is little evidence of successful non farm diversification in response to land pressures in africa from domestic or international income sources third rural africans in land constrained countries desire smaller families but have thus far benefited little from family planning policies these findings underscore the need for a coordinated multi sectoral approach to sustainably reduce poverty in the region

the changing structure of africa s economies data from the groningen growth and development center s africa sector database and the demographic and health surveys reveals that much of africa s recent growth and poverty reduction has been associated with a substantive decline in the share of the labor force engaged in agriculture this decline is most pronounced for rural females over the age of 25 who have a primary education it has been accompanied by a systematic increase in the productivity of the labor force as it has moved from low productivity agriculture to higher productivity services and manufacturing although the employment share in manufacturing is not expanding rapidly in most of the low income african countries the employment share in manufacturing has not peaked and is still expanding albeit from very low levels more work is needed to understand the implications of these shifts in employment shares for future growth and development in africa south of the sahara

on price risk and the inverse farm size productivity relationship abstract the oft observed inverse relationship between farm size and productivity has elicited several explanations having important policy and theoretical implications using advances in the analysis of price risk effects on producer behavior and a simple two period model of an agricultural household that both produces and consumes under price uncertainty at the time labor allocation decisions are made this paper demonstrates analytically that a non degenerate land distribution and price risk can together produce an inverse relationship even absent any of the more common explanations empirical evidence from madagascar confirms the plausibility of this intuitive explanation for the phenomenon

land titling and rural transition in vietnam abstract we examine the impact of the 1993 land law of vietnam which gave households the power to exchange transfer lease inherit and mortgage their land use rights we use household surveys before and after the law was passed together with the considerable variation across provinces in the speed of implementation of the reform to identify the impact of the law we find that the additional land rights led to statistically significant increases in the share of total area devoted to long term crops and in labor devoted to nonfarm activities however these changes are not large in magnitude and appear to be driven mainly by the increased security of tenure provided by the law rather than by increased access to credit markets or greater land market participation

short sale restrictions implications for stock index arbitrage abstract this paper offers a study of relevant transaction costs when examining the efficiency of stock index futures markets we suggest that a different transaction cost estimate should be used when testing the upper side of the cost of carry model than when testing the lower side of the model empirical evidence indicates that this explains most of the underpricing observed in the finnish stock index futures market

pricing derivatives on financial securities subject to credit risk this article provides a new methodology for pricing and hedging derivative securities involving credit risk two types of credit risks are considered the first is where the asset underlying the derivative security may default the second is where the writer of the derivative security may default we apply the foreign currency analogy of jarrow and turnbull 1991 to decompose the dollar payoff from a risky security into a certain payoff and a spot exchange rate arbitrage free valuation techniques are then employed this methodology can be applied to corporate debt and over the counter derivatives such as swaps and caps the purpose of this article is to provide a new theory for pricing and hedging derivative securities involving credit risk two sources of credit risk are identified and analyzed the first is where the asset underlying the derivative security may default paying off less than promised this is the case for example with imbedded options on corporate debt the second is the credit risk introduced by the writer of the derivative security who may also default examples include over the counter writers of options on eurodollar futures swaps and swaptions for pricing derivative securities involving credit risk there are currently two approaches the first views these derivatives as contingent claims not on the financial securities themselves but as compound options on the assets underlying the financial securities this is the case for example with the pricing of imbedded options on corporate debt see merton 1974 1977 black and cox 1976 ho and singer 1982 chance 1990 and kim ramaswamy and sundaresan 1993 or the pricing of vulnerable options see johnson and stulz 1987 in practice however this valuation methodology is difficult to use first the assets underlying the financial security are often not tradeable and therefore their values are not observable this makes application of the theory and estimation of the relevant parameters problematic second as in the case of corporate debt all of the other liabilities of the firm senior to the corporate debt must first and simultaneously be valued this generates significant computational difficulties as a result this approach has not

index futures arbitrage and the behavior of stock index futures prices this article examines intraday transaction datafor s p 500 stock indexfutures prices and the intraday quotes for the underlying index the data indicate that thefutures price changes are uncorrelated and that the variability of these price changes exceeds the variability ofprice changes in the s p 500 index this excess variability of the futures over the index remains even after controlling for the nonsynchronous prices in the index quotes which induces autocorrelation in the index changes we advance and examine empirically two hypotheses regarding the difference between the futures price and its theoretical value that this mispricing increases on average with maturity and that it is path dependent evidence supporting these hypotheses is presented

smallholder technical efficiency controlling for environmental production conditions abstract smallholder agricultural production depends heavily on environmental production conditions that are largely exogenously determined yet few data sets collect necessary detailed information on environmental production conditions this oversight raises the spectre of likely omitted variables bias because farmers input choices typically respond in part to environmental conditions moreover because environmental production conditions are rarely symmetrically distributed the omission also generally leads to upward bias in estimated technical inefficiency and to biased estimates of the correlates of estimated technical inefficiency as well using panel data from 464 traditional rice plots in cote d ivoire we show that controlling for heterogeneous environmental production conditions significantly changes inferences perhaps especially with respect to smallholder rice farmers estimated technical inefficiency

the role of non convex costs in firms investment and financial dynamics abstract this paper shows that non convex costs of financial adjustment are quantitatively relevant for explaining firm dynamics first empirically financial activity is lumpy more than investment activity second non convex costs are necessary in the context of a dynamic investment and financing model to rationalize this lumpiness two versions of the model with and without non convex costs are compared only the non convex costs version replicates the dynamics in the data generating financial lumpiness higher than investment lumpiness other predictions of the model with respect to investment and finance are discussed

pesticides productivity and farmer health a philippine case study health is recognized as one of the most important components of the human capital of rural people in developing countries there is a growing body of literature showing the productivity effects of health associated with nutrition e g bliss and stern 1978 strauss 1986 deolalikar 1988 pitt rosenzweig and hassan 1990 in this literature the productivity effects of health are inferred either by correlating health indicators with wages or by including health indicators in an agricultural production function the human capital literature also has demonstrated that farmer education plays an important role in the allocative and technical efficiency of farmers welch 1970 schultz 1975

rising real wages mechanization and growing advantage of large farms evidence from indonesia this paper examines dynamic patterns of land use capital investments and wages in agriculture using farm panel data from indonesia the empirical analysis shows that with an increase in real wages that prevailed in both agricultural and non agricultural sectors in rural areas relatively larger farmers increased the size of operational farm land by renting in land as well as used more hired in machines through machine rental and or service providers which induces the substitution of labor by machines machines and land are complementary and consistently the inverse farm size productivity relationship tends to be reversed among relatively large holders the results support growing diminishing advantage of large small farms in the presence of rapidly rising real wages and have food security policy implications to many asian countries where real wages are rapidly rising and small farms are predominant

term structures of credit spreads with incomplete accounting information we study the implications of imperfect information for term structures of credit spreads on corporate bonds we suppose that bond investors cannot observe the issuer s assets directly and receive instead only periodic and imperfect accounting reports for a setting in which the assets of the firm are a geometric brownian motion until informed equityholders optimally liquidate we derive the conditional distribution of the assets given accounting data and survivorship contrary to the perfect information case there exists a default arrival intensity process that intensity is calculated in terms of the conditional distribution of assets credit yield spreads are characterized in terms of accounting information generalizations are provided

the evolving role of agriculture in poverty reduction an empirical perspective abstract the role of agriculture in development remains much debated this paper takes an empirical perspective and focuses on poverty as opposed to growth alone the contribution of a sector to poverty reduction is shown to depend on its own growth performance its indirect impact on growth in other sectors the extent to which poor people participate in the sector and the size of the sector in the overall economy bringing together these different effects using cross country econometric evidence indicates that agriculture is significantly more effective in reducing poverty among the poorest of the poor as reflected in the 1 day squared poverty gap it is also up to 3 2 times better at reducing 1 day headcount poverty in low income and resource rich countries including those in sub saharan africa at least when societies are not fundamentally unequal however when it comes to the better off poor reflected in the 2 day measure non agriculture has the edge these results are driven by the much larger participation of poorer households in growth from agriculture and the lower poverty reducing effect of non agriculture in the presence of extractive industries

the saga of the first stock index futures contract benchmarks models and learning in the presence of imperfect or perturbed benchmarks pricing based on relative valuation or arbitrage can be affected adversely this study highlights persistent pricing irregularities in the kansas city value line kcvl stock index futures market this contract is especially interesting because the underlying benchmark underwent a midstream change in definition from a complex equally weighted geometric index to an equally weighted arithmetic index empirical analysis reveals that during a four year period the market displayed herd like behavior and priced the kcvl geometric contract using the simple but wrong cost of carry benchmark model a dramatic change occurs around the publication of the eytan harpaz 1986 model when the market turns efficient from the perspective of this new model the market appears to have succumbed initially to a bad information cascade primarily because arbitrage was difficult to understand and carry out under complex benchmarking the evidence provides empirical extension to the observational social learning paradigms of simon 1955 banerjee 1992 and bikhchandani hirshleifer and welch 1992 that lead to behavioral herding and information cascades

general equilibrium pricing of options on the market portfolio with discontinuous returns when the price process for a long lived asset is of a mixed jump diffusion type pricing of options on that asset by arbitrage is not possible if trading is allowed only in the underlaying asset and a risk less bond using a general equilibrium framework we derive and analyze option prices when the underlying asset is the market portfolio with discontinuous returns the premium for the risk of jumps and the diffusion risks forms a significant part of the prices of the options in this economy an attempted replication of call and put options by the black scholes type of trading strategies may require substantial infusion of funds when jumps occur we study the cost and risk implications of such dynamic hedging plans article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the pricing of japanese equity warrants discrepancies between the black scholes value of japanese equity warrants and their observed prices are explained in part by the stochastic volatility of changes in prices of the underlying stocks we fit garch and egarch models to the stochastic volatility and briefly compare their performance to the cev model a hopscotch algorithm is used to value the warrants in the presence of the stochastic stock price volatility the stochastic volatility hopscotch warrant values still differ substantially from corresponding prices in contrast away from the money short term nikkei 225 options valued with the same stochastic volatility models are close to observed prices a regression model is used to fit the differences between warrant values and prices as a function of proxies for market impediments

intraday volatility in international stock index futures markets meteor showers or heat waves the international transmission of intraday price volatility among the united states united kingdom and japanese stock index futures markets in the period 1988 1994 is investigated in this paper the empirical results based on extreme value estimators and vector autoregression indicate the rapid transmission of information between markets the volatilities of the u s and u k futures markets appear to follow a meteor shower rather than a heat wave type of process this means that these volatilities react to shocks from other markets i e they cannot be described only by their past values however the heat wave hypothesis is not rejected for the japanese market meaning that the shocks to japanese volatility are mostly country specific a multivariate garch model supports the u k and japanese but not the u s results

labor productivity and employment gaps in sub saharan africa drawing on a new set of nationally representative internationally comparable household surveys this paper provides an overview of key features of structural transformation labor allocation and labor productivity in four african economies new micro based measures of sector labor allocation and cross sector productivity differentials describe the incentives households face when allocating their labor these measures are similar to national accounts based measures that are typically used to characterize structural changes in african economies however because agricultural workers supply far fewer hours of labor per year than do workers in other sectors productivity gaps disappear almost entirely when expressed on a per hour basis what look like large productivity gaps in national accounts data could really be employment gaps calling into question the prospective gains that laborers can achieve through structural transformation these employment gaps along with the strong linkages observed between rural non farm activities and primary agricultural production highlight agriculture s continued relevance to structural change in sub saharan africa

the relation between farm size and farm productivity the role of family labor supervision and credit constraints abstract the paper shows that if the performance of hired farmhands is affected by supervision from family members and if the availability of credit is dependent on the amount of land owned then a systematic positive or negative relationship between per acre yields and farm size will prevail a model with no supervision effects on labor productivity would predict that yields are unaffected by farm size the paper also investigates the relation between land utilization and owned holding size when land rental possibilities are limited results are shown to be compatible with various observed patterns in ldcs