can portmanteau nonlinearity tests serve as general mis specification tests a number of recent papers have employed the bds test as a general test for mis specification for linear and nonlinear models we show that for a particular class of conditionally heteroscedastic models the bds test is unable to detect a common mis specification our results also demonstrate that specific rather than portmanteau diagnostics are required to detect neglected asymmetry in volatility however for both classes of tests reasonable power is only obtained using very large sample sizes

are church and state substitutes evidence from the 1996 welfare reform abstract churches provide community services similar to those provided by the government but there has been no convincing analysis of the extent to which church activity can substitute for government activity to address this important issue this paper uses a new panel data set of presbyterian church usa congregations to regress both church member donations and a church s community spending on a number of variables including government welfare expenditures a provision of the 1996 welfare law that decreased the availability and use of welfare services by non citizens serves as an instrument to identify the causal effect of government spending on church activity the results show that church activities substitute for government activities extrapolating the findings to all denominations the estimated crowd out effect lies between 20 and 38 cents on the dollar the results are subjected to a number of robustness tests

omega performance measure and portfolio insurance abstract we analyze the performance of the two main portfolio insurance methods the obpi and cppi strategies using downside risk measures for this purpose we introduce kappa performance measures and especially the omega measure these measures take account of the entire return distribution we show that the cppi method performs better than the obpi as a by product we determine the set of threshold values for these risk reward performance measures

benchmarking portfolio insurance and technical analysis a monte carlo comparison of dynamic strategies of asset allocation abstract this paper makes an extensive simulation comparison of popular dynamic strategies of asset allocation for each strategy alternative measures have been calculated for risk return and risk adjusted performance sharpe ratio sortino ratio return at risk moreover the strategies are compared in different market situations bull bear no trend markets and with different market volatility taking into account transaction costs and discrete rebalancing of portfolios the simulations show a dominant role of constant proportion strategies in bear and no trend markets and a preference for benchmarking strategies in bull markets these results are independent of the volatility level and the risk adjusted measure adopted

the duration vector a continuous time extension to default free interest rate contingent claims abstract this paper presents a continuous time contingent claims framework for the traditional duration vector models of chambers et al journal of financial and quantitative analysis march 1988 89 104 prisman and shores journal of banking and finance 12 1988 493 504 and others by embedding these into the merton the bell journal of economics and management science 4 1973 141 183 stochastic interest rate option pricing model using this framework we analyze the interest rate risk characteristics of bond options and callable bonds we derive duration measures that are significantly different from the ones reported previously in the literature by garman journal of financial economics 14 1985 309 315 jamshidian and zhu advances in futures and options research 3 1988 63 95 and others the upper and lower bounds of the duration vectors of bond options and callable bonds are investigated an empirical technique based on the implied volatility methodology is suggested for the computation of the duration vectors of bond options and callable bonds

time irreversibility and egarch effects in us stock index returns in this paper we suggest using a modified version of the time reversibility tr test of chen chou and kuan 2000 as a complementary diagnostic test for time series models the modified cck test is easy to compute and requires weaker moment conditions than existing tests our simulations demonstrate that this test is powerful against asymmetry in volatility but the bds test is not in the empirical study of us stock index returns we first find that these returns are all time irreversible applying the garch and egarch models to these returns we also find that the q and bds tests always accept the null hypothesis and cannot distinguish between these models by contrast the modified cck test accepts only the egarch model with an order that can accommodate the underlying asymmetry in volatility our results suggest that the detected time irreversibility in these return series may be attributed to volatility asymmetry and that such asymmetry may be captured using a proper egarch model copyright 2002 john wiley sons ltd

religious participation and children s education a social capital approach abstract based on the argument in both economic and sociological literature that religion is conducive to children s human capital formation this paper provides a model of religious participation and explores a mechanism that social capital affects children s education a la coleman coleman j s 1988 social capital in the creation of human capital american journal of sociology 94 s95 s120 the model generates several interesting implications which help explain some important stylized facts about education and religion further in a dynamic setting the model shows that there exists a steady state in which individuals allocate a positive amount of time and resources to religious activities thus it complements the existing literature to explain why seemingly unproductive religions can be everlasting

mr smith and the preachers the economics of religion in the wealth of nations the extension of economic analysis to problems beyond the domain of formal markets and explicit prices represents a major recent intellectual development but economic imperialism is not new and was not invented in chicago adam smith in his wealth of nations extended economic reasoning to a variety of nonmarket exchange problems one example is his analysis of religious behavior smith viewed participation in religion as a rational device by which individual enhanced the value of their human capital he also explained the behavior of the clergy and other suppliers of religious services from an economic perspective

religious adherence and county economic growth in the us abstract we estimate a barro type conditional convergence model using religious adherence data from the american religious data archive to analyze independent effects of church adherence rates on economic growth in the united states at the county level per capita income growth is modeled as a function of initial per capita income initial human capital stock and a set of control and related variables including religious adherence religious diversity and regional indicator variables we also investigate the independent effects of three main denominations namely catholics evangelical christians and mainline christians on county economic growth our results indicate that the religious adherence in general is significantly greater than zero and not beneficial for us county income growth we find mixed results for effects of various denominations

continuous time mean variance asset allocation a time consistent strategy abstract we develop a numerical scheme for determining the optimal asset allocation strategy for time consistent continuous time mean variance optimization any type of constraint can be applied to the investment policy the optimal policies for time consistent and pre commitment strategies are compared when realistic constraints are applied the efficient frontiers for the pre commitment and time consistent strategies are similar but the optimal investment strategies are quite different

the economic organization of the english east india company abstract alfred chandler and oliver williamson pioneered the argument that the invention of the multidivisional firm in the 1920 s in the u s was a major organizational innovation in this paper we argue that the organizational principles underlying the multidivisional firm appeared much earlier in history specifically in the organization of the english east india company we document the presence of multidivisional principles in the east india company and we argue that most likely the company evolved to a divisionalized basis because of its monopoly status with respect to the sale of asian goods in england

the importance of brand and competition in defining u s religious markets author affiliation brian goff department of economics 1906 college heights boulevard western kentucky university bowling green ky 42101 usa brian goff wku edu corresponding authormichelle w trawick dagger department of economics 1906 college heights boulevard western kentucky university bowling green ky 42101 usa michelle trawick wku edu acknowledgment the authors thank bob tollison colleagues participating in the economics workshop at wku and two anonymous reviewers for comments any remaining flaws are the authors responsibility 1 introductionover the past 40 years economists have vastly expanded their study of behavior in markets where there is no explicit trade of goods or services one of the most fundamental and ubiquitous of these markets is that of religious behavior where economists and other social scientists have explored a variety of influences on religious participation at the outset of this research program economic models of religious choice borrowed from long used choice theoretic concepts such as the law of demand or the cost of time more recent contributions have included household production models taking account of human capital or the role of market level forces particularly religious competition prior empirical research has resulted in the identification of a variety of determinants of religious participation these include income education race and the degree of monopolization or competitiveness in the religious market as the empirical application and testing of these models has proceeded researchers have been aware of problems in measuring various aspects of religious choice such as religious participation or religiosity at the most general level religiosity may imply a difference in a secular versus religious worldview at the level of actual observation it often measures how frequently one attends church while some of the basic measurement issues related to religious choice and behavior may be beyond the power of researchers to investigate one important aspect is not but has largely been overlooked that is the type or brand of religious choice by and large empirical research has skirted this important definitional issue and treated different types or brands of religious choice much like one would treat different brands of carbonated soft drinks using such a broad homogeneous definition of the religious product implicitly assumes that economic and demographic characteristics exert similar influences on different types or brands of religious participation and thereby assumes that such branding is not of empirical significance in defining religious markets and behavior within them 1 moreover some tension has existed in prior empirical work as to whether religious competition is an exogenous factor the common assumption or whether it helps to define the choice variable 2our central question is whether the same processes are driving religiosity across brands we ask do consumers of religion respond differently to key economic variables such as income religious competition or other factors based on the brand of religion being consumed likewise do some economic variables exert their influence independently of brand an important part of our investigation centers on how to measure brand we first rely on two indicators of brand broad denominational categories and intensity of participation in religious activity the denominational categories are mainline protestant evangelical protestant and catholic the intensity breakdown is based on geographic regions of low moderate and high religious participation in addition we also examine whether the degree of religious competition itself helps to define brand in the next section we develop theoretical explanations for variation in overall religious participation as well as by brand and discuss prior empirical work in this area

a monte carlo method for optimal portfolios this paper proposes a new simulation based approach for optimal portfolio allocation in realistic environments with complex dynamics for the state variables and large numbers of factors and assets a first illustration involves a choice between equity and cash with nonlinear interest rate and market price of risk dynamics intertemporal hedging demands significantly increase the demand for stocks and exhibit low volatility we then analyze settings where stock returns are also predicted by dividend yields and where investors have wealth dependent relative risk aversion large scale problems with many assets including the nasdaq sp500 bonds and cash are also examined the question of optimal portfolio allocation has been of long standing interest for academics and practitioners in finance while the mean variance analysis of markowitz 1952 is still commonly used among portfolio managers it has been well understood since merton 1971 that long term investors would prefer portfolios that include hedging components to protect against fluctuations in their investment opportunities prompted by the seminal papers of merton 1969 1971 and samuelson 1969 studies have explored various aspects of the dynamic portfolio problem when asset prices follow diffusion processes e g richard 1975 this literature has relied for the most part on a dynamic programming approach to the problem more recent contributions by pliska 1986 karatzas lehoczky and shreve 1987 and cox and huang 1989 have proposed an alternative resolution method based on martingale techniques in the context of this approach an optimal portfolio formula was derived by ocone and karatzas 1991 this expression involves expectations of random variables depending on j6erme b detemple is at boston university school of management and cirano rene

effectiveness of cppi strategies under discrete time trading abstract the paper analyzes the effectiveness of the constant proportion portfolio insurance cppi method under trading restrictions if the cppi method is applied in continuous time the cppi strategies provide a value above a floor level unless the price dynamics of the risky asset permit jumps the risk of violating the floor protection is called gap risk in practice it is caused by liquidity constraints and price jumps both can be modelled in a setup where the price dynamics of the risky asset are described by a continuous time stochastic process but trading is restricted to discrete time we propose a discrete time version of the continuous time cppi strategies which satisfies three conditions the resulting strategies are self financing the asset exposure is non negative and the value process converges we determine risk measures such as the shortfall probability and the expected shortfall and discuss criteria which ensure that the gap risk does not increase to a level which contradicts the original intention of portfolio insurance in addition we introduce proportional transaction costs and analyze their effects on the risk profile

pay or pray the impact of charitable subsidies on religious attendance abstract the economic argument for subsidizing charitable giving relies on the positive externalities of charitable activities particularly from the religious institutions that are the largest recipients of giving but the net external effects of subsidies to religious giving will also depend on a potentially important indirect effect as well impacts on religious participation religious participation can be either a complement to or a substitute with the level of charitable giving understanding these spillover effects of charitable giving may be quite important given the existing observational literature that suggests that religiosity is a major determinant of well being among americans in this paper i investigate the impact of charitable subsidies on a measure of religious participation attendance at religious services i do so by using data over three decades from the general social survey as well as confirming the impact of such subsidies on religious giving using the consumer expenditure survey i find strong evidence that religious giving and religious attendance are substitutes larger subsidies to charitable giving lead to more religious giving but less religious attendance with an implied elasticity of attendance with respect to religious giving of as much as 1 1 these results have important implications for the debate over charitable subsidies they also serve to validate economic models of religious participation

a dynamic autoregressive expectile for time invariant portfolio protection strategies constant proportion portfolio insurance cppi is nowadays one of the most popular techniques for portfolio insurance strategies it simply consists of reallocating the risky part of a portfolio with respect to market conditions via a leverage parameter called the multiple guaranteeing a predetermined floor we propose to introduce a conditional time varying multiple as an alternative to the standard unconditional cppi method directly linked to actual risk management problematics this ex ante approach for the conditional multiple aims to diversify the risk model associated for example with the expected shortfall es or extreme risk measure estimations first we recall the portfolio insurance principles and main properties of the cppi strategy including the time invariant portfolio protection tipp strategy as introduced by estep and kritzman 1988 we emphasize the existence of an upper bound on the multiple for example to hedge against sudden drops in the market then we provide the main properties of the conditional multiples for well known financial models including the discrete time portfolio rebalancing case and levy processes to describe the risky asset dynamics for this purpose we precisely define and evaluate different gap risks in both conditional and unconditional frameworks as a by product the introduction of discrete or random time portfolio rebalancing allows us to determine and or estimate the density of durations between rebalancements finally from a more practical and statistical point of view due to trading restrictions we present the class of dynamic autoregressive expectile dare models for estimating the conditional multiple this latter approach provides useful complementary information about the risk and performance associated with probabilistic approaches to the conditional multiple

analysis of the term structure of implied volatilities from various empirical work it is well known that the volatility of asset returns changes over time this might be one of the reasons that implied volatilities differ for options that only differ in time to maturity we construct models for the relation between short and long term implied volatilities based on three different assumptions of stock return volatility behavior i e mean reverting garch and egarch models we test these relations on option price data and conclude that egarch gives the best description of asset prices and the term structure of options implied volatilities

the determinants of the maturity of corporate debt issues we document the determinants of the term to maturity of 7 369 bonds and notes issued between 1982 and 1993 our main finding is that large firms with investment grade credit ratings typically borrow at the short end and at the long end and of the maturity spectrum while firms with speculative grade credit ratings typically borrow in the middle of the maturity spectrum this pattern is consistent with the theory that risky firms do not issue short term debt in order to avoid inefficient liquidation but are screened out of the long term debt market because of the prospect of risky asset substitution traditionally capital structure research has focused on how much of a firm s future cash flows should be paid out to debtholders instead of equityholders an equally important issue is when future cash flows should be paid out to debtholders a firm that finances its projects with short term debt risks serious financial difficulty if the debt cannot be extended similarly a firm that finances its activities with long term debt can sacrifice profits by needlessly risking mismanagement of resources after cash flows are returned from investments but before they are due to debtholders this study investigates the factors that firms consider when choosing the maturity of their liabilities we document the determinants of the maturity of 7 368 public debt issues made by u s corporations between 1982 and 1993 our empirical tests are based on existing theoretical models that relate the maturity of a firm s borrowings to the riskiness of its cash flows the time until investments pay off the quality of information held by outsiders the expected

adam smith class labor and the industrial revolution abstract economists of virtually all schools of thought regard adam smith sympathetically this article explores adam smith s authoritarian side showing the close connection between smith s notion of appropriate behavior and the prevailing economic organization this article explores how this dimension of smith s pre analytic vision shaped his writings

portfolio insurance gap risk under conditional multiples abstract the research on financial portfolio optimization has been originally developed by markowitz 1952 it has been further extended in many directions among them the portfolio insurance theory introduced by leland and rubinstein 1976 for the option based portfolio insurance obpi and perold 1986 for the constant proportion portfolio insurance method cppi the recent financial crisis has dramatically emphasized the interest of such portfolio strategies this paper examines the cppi method when the multiple is allowed to vary over time to control the risk of such portfolio management a quantile approach is introduced together with expected shortfall criteria in this framework we provide explicit upper bounds on the multiple as function of past asset returns and volatilities these values can be statistically estimated from financial data using for example arch type models we show how the multiple can be chosen in order to satisfy the guarantee condition at a given level of probability and for various financial market conditions

a concentration index for differentiated products the case of religious competition in the past scholars have used a herfindahl hirschman index using denominational market shares to measure the competitiveness of religious markets however this approach ignores both the imperfect substitutability between denominations and the degree of competition within denominations these two shortcomings make the current index a suspect measure of religious competition it often falsely identifies which market micro economists would generally consider the more competitive one we develop a new religious competition index that incorporates intra denominational competition and creates a substitutability parameter to better specify the appropriate degree of inter denominational competition while the model developed in this article applies specifically to religious markets our index of competition could be expanded to other economic markets where such a substitutability parameter is meaningful

time irreversibility and business cycle asymmetry the problem of business cycle symmetry is addressed within the context of time reversibility to this effect the authors introduce a time domain test of time reversibility the tr test in an application they show that time irreversibility is the rule rather than the exception for two well known representative macroeconomic data sets this shows that many components of the business cycle have asymmetric fluctuations the characterization of asymmetry provided by the tr test shows that many series exhibit steepness asymmetry a few series appear to be either deep or sharp copyright 1996 by ohio state university press

robustness of stable volatility strategies abstract the paper analyzes the robustness of stable volatility strategies i e strategies in which the portfolio weight of the stock is inversely proportional to its local volatility these strategies are optimal for a crra investor if the stock follows a diffusion process the expected excess return is proportional to its volatility and the hedging demand is zero we assess the performance of stable volatility strategies when these restrictive assumptions do not hold in particular when the risk premium is not proportional to volatility and when the stock price is subject to jumps we find that stable volatility strategies are indeed robust or close to robust under a maxmin decision rule in addition to our theoretical results we perform a simulation analysis to evaluate strategies that scale the portfolio weight by the volatility variance or a constant portfolio weight and also analyze the strategies using empirical excess returns both analyses confirm the robustness of stable volatility strategies

does religion matter in corporate decision making in america abstract we examine how corporate culture influences firm behavior prior research suggests a link between individual religiosity and risk aversion we find that this relationship also influences organizational behavior firms located in counties with higher levels of religiosity display lower degrees of risk exposure as measured by variances in equity returns or returns on assets they exhibit a lower investment rate and less growth but generate a more positive market reaction when they announce new investments finally chief executive officers are more likely to join a firm with a similar religious environment as in their previous firm when they switch employers

using duration and convexity in the analysis of callable bonds 1988 using duration and convexity in the analysis of callable bonds financial analysts journal vol 44 no 3 pp 53 72

adam smith s analysis of joint stock companies we defend adam smith s theory of the firm from the standpoint of positive economics we argue that his evaluation of the joint stock firm was not moralistic but instead based on available empirical evidence the record showed that joint stock companies had a poor survivorship record even when granted legal monopoly status his analysis contained an explanation of the role of agency costs within the firm finally he did not discuss the east india company as an ordinary joint stock firm but rather as an aberrant form created by government

the economics of regional variation in religious attendance developments in modelling the demand for religion have identified both religious human capital and religious market structure as fundamental determinants of levels of formal religious practice in this paper these theories are confronted with survey data drawn from 163 regions across 16 countries although there are clearly political historical and other country specific factors that affect levels of participation in organized religion estimates from modified logit regression equations demonstrate the empirical significance at the regional level of variables suggested by recent innovations in the economics of religious behaviour

rituals or good works social signaling in religious organizations we develop a model of social signaling of religiosity and cooperative behavior in religious organizations the model embeds a ritual based religious organization in which signaling arises through the use of costly rituals and a discipline based religious organization in which such signaling occurs through the monitoring of past behavior we use this framework to contrast positively and normatively these two forms of social signaling we show we develop a model of social signaling of religiosity and cooperative behavior in religious organizations the model embeds a ritual based religious organization in which signaling arises through the use of costly rituals and a discipline based religious organization in which such signaling occurs through the monitoring of past behavior we use this framework to contrast positively and normatively these two forms of social signaling we show that ritual based religions while using a costly and wasteful signal also imply a higher level of coordination of behavior in social interactions and a higher incidence of mutual cooperation our welfare analysis suggests that communities are more likely to support a switch to a discipline based religion if strategic complementarities are high and if there is sufficiently high level of public information about social behavior this accords with the success of calvin s reformation in switzerland and france a process characterized by the reduction of rituals along with the creation of institutions to monitor and publicize individuals behavior such as the consistory

a new choice of dynamic asset management the variable proportion portfolio insurance the constant proportion portfolio insurance cppi achieves the advantage of simplicity due to its constant multiple however a dynamic multiple could improve the effectiveness of portfolio management in this article we provide a complete and detailed examination of the mechanism of variable proportion portfolio insurance vppi strategy the multiple of the vppi states that when the stock price goes up the multiple gets larger accordingly and when the stock price goes down the multiple gets smaller a portfolio insurance strategy with this discipline could yield better performance based on this principle we recommend an exponential proportion portfolio insurance eppi in addition we also propose a new performance measure for portfolio insurance compared with the cppi simulation and empirical evidence support that the eppi works better in both upside capture and downside protection implying that the eppi could be an effective tool for asset management

deregulating religion the economics of church and state traditional religious research fails to recognize religion as a market phenomenon it especially overlooks supply side factors that shape the incentives and opportunities of religious firms emphasizing instead demand side shifts in the perceptions tastes and needs of consumers this paper reviews the effects of government actions that alter religious supply a longer version appears in economic inquiry 40 2 april 1997

theory of constant proportion portfolio insurance abstract we study constant proportion portfolio insurance cppi a dynamic strategy that maintains the portfolio s risk exposure a constant multiple of the excess of wealth over a floor up to a borrowing limit we use this simple rule to investigate how transaction costs and borrowing constraints affect portfolio insurance type strategies absent transaction costs cppi is equivalent to investing in perpetual american call options and is optimal for a piecewise hara utility function with a minimum consumption constraint as the multiple increases the payoffs under cppi approach those of a stop loss strategy the expected holding period return is not monotonic in the multiple and a higher expected return can be obtained under cppi than with a stop loss strategy

introduction to the economics of religion after a very long hiatus economists have begun again to study the relationship between economics and religion this article seeks to summarize and evaluate the principal themes and empirical findings that have appeared in some 200 recent papers on the economics of religion although some of the research concerns the economic consequences of religiosity most applies standard economic theory to the study of individual religious activity the characteristics of religious groups and the impact of regulation and competition on religious markets

implications of nonlinear dynamics for financial risk management this paper demonstrates that when log price changes are not iid their conditional density may be more accurate than their unconditional density for describing short term behavior using the bds test of independence and identical distribution daily log price changes in four currency futures contracts are found to be not iid while there appear to be no predictable conditional mean changes conditional variances are predictable and can be described by an autoregressive volatility model that seems to capture all the departures from independence and identical distribution based on this model daily log price changes are decomposed into a predictable part which is described parametrically by the autoregressive volatility model and an unpredictable part which can be modeled by an empirical density either parametrically or nonparametrically this two step seminonparametric method yields a conditional density for daily log price changes which has a number of uses in financial risk management

church attendance in great britain an ordered logit approach the church attendance decision of individual economic agents is analysed within a becker style allocation of time framework using an ordered logit model with data derived from the british household panel study bhps separate attendance equations are estimated for males and females the empirical results in line with previous north american studies suggest that labour income variables do account for some of the variation in attendance in addition attendance is found to be correlated with factors such as denominational affiliation educational attainment and intensity of belief

effective duration of callable corporate bonds theory and evidence abstract this paper computes the effective duration of callable corporate bonds using a contingent claims model that incorporates both default risk and call risk the model generates empirical implications regarding the cross sectional variation and the firm specific determinants of duration and demonstrates that the effect of the call feature is to shorten duration except for low grade bonds the effective duration is also estimated empirically for a large sample of long term corporate bonds using monthly bond price and interest rate data cross sectional regression analysis is used to test the empirical implications of the model regarding the determinants of effective duration and the empirical results are quite supportive of the model s predictions

religious market competition in a richer world economic growth has not led to a decline in religion despite past predictions that it would using a formal model of religious competition i show how economic growth produces counteracting effects on religious activity in an open religious market and that it has little effect in a religious market that is already secularized due to regulations that prohibit religious competition or in a highly religious market with regulations that inhibit secular activities theories predicting the decline of religion due to rising opportunity costs of religious demand and supply ignore countervailing influences t he opinion is everywhere gaining ground that religion is a mere survival from a primitive age and its extinction only a matter of time crawley 1905 i think what i and most other sociologists of religion wrote in the 1960s about secularization was a mistake our understanding was that secularization and modernity go hand in hand it wasn t a crazy theory there was some evidence for it but i think it s basically wrong most of the world today is certainly not secular it s very religious berger 1997 1

religion and economic performance summary this paper investigates the relationship between religion and economic performance in both cross country and within country regressions the null hypothesis that religious affiliation is uncorrelated with performance can frequently be rejected i e religion matters though the regressions do not yield a robust pattern of coefficients with respect to particular religions the results with respect to islam do not support the notion that it is inimical to growth on the contrary virtually every statistically significant coefficient on muslim population shares reported in this paper in both cross country and within country statistical analyses is positive if anything islam promotes growth