analyst forecasting errors additional evidence analyst forecasting errors are approximately as large as dreman and berry 1995 documented and an optimistic bias is evident for all years from 1985 through 1996 in contrast to their findings i show that analyst forecasting errors and bias have decreased over time moreover the optimistic bias in quarterly forecasts was absent for sp 2 firms with comparatively large amounts of market capitalization absolute value of earnings forecast and analyst following and 3 firms in certain industries

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

having your cake and eating it too the before and after tax efficiencies of an extended equity mandate this article shows that extended mandates are especially effective for investors subject to taxes not only is the portfolio more efficiently positioned from a before tax perspective but it also offers significant after tax benefits from both increased loss harvesting and tax arbitrage between tax rates on long and short positions

comparisons and combinations of long and long short strategies market neutral long short strategies get their returns from alphas and short rebates long strategies get their returns from alpha and the market differing return and risk sources complicate their comparison partly because of the strong market referenced focus of conventional performance analysis compelling theoretical advantages of active return per unit of active risk suggest that long short strategies are better able to deliver excess return than are conventional institutional long strategies long short strategies even with tiny positive alphas are seen to improve investors efficient frontiers when added to a traditional t bill long portfolio mix mostly because their risk sources are uncorrelated surprisingly the improvement occurs even if long short strategies are sharpe ratio inferior to long strategies these results provide theoretical support for including long short strategies in most investors mix of assets

sacrifice and stigma reducing free riding in cults communes and other collectives this paper presents an economic analysis of religious behavior that accounts for the continuing success of groups with strange requirements and seemingly inefficient prohibitions the analysis does not presuppose any special motives for religious activity rather religion is modeled as a club good that displays positive returns to participatory crowding the analysis demonstrates that efficient religions with perfectly rational members may benefit from stigma self sacrifice and bizarre behavioral restrictions the model also addresses sacrifice in nonreligious social clubs fraternities communes political parties work groups and families

the efficiency gains of long short investing long short strategies have generated controversy and institutional interest for more than 10 years we analyzed the efficiency gains of long short investing where we defined efficiency as the information ratio of the implemented strategy the optimal portfolio relative to the intrinsic information ratio of the alphas the efficiency advantage of long short investing arises from the loosening of the surprisingly important long only constraint long short and long only managers need to understand the impact of this significant constraint long short implementations offer the most improvement over long only implementations when the universe of assets is large asset volatility is low and the strategy has high active risk the long only constraint induces biases particularly toward small stocks limits the manager s ability to act on upside information by not allowing short positions that could finance long positions and reduces the efficiency of traditional high risk long only strategies relative t

labour and environmental standards the lemons problem in international trade policy environmental and labour standards have become an important international trade issue this article examines and ranks alternative trade policy responses available to an importing country with concerns over such standards while a full import embargo may sometimes be preferable to allowing unrestricted access to unlabeled noconforming imports a partial embargo that allows imports which demonstrably conform to the standard is always a better policy and labeling solutions which separate conforming and non conforming imports are typically better still consequently full import embargoes based on non conformity with labour or environmental standards are poor policy choices and should generally remain prohibited by wto rules

sect subsidy and sacrifice an economist s view of ultra orthodox jews israeli ultra orthodox men study full time in yeshiva until age 40 on average why do fathers with families in poverty choose yeshiva over work draft deferments subsidize yeshiva attendance yet attendance typically continues long after exemption fertility rates are high tfr 7 6 and rising a social interaction approach explains these anomalies yeshiva attendance signals commitment to the community which provides mutual insurance to members prohibitions strengthen communities by effectively taxing real wages inducing high fertility historically the incursion of markets into traditional communities produces ultra orthodoxy subsidies induce dramatic reductions in labor supply and unparalleled increases in fertility illustrating extreme responses social groups may have to interventions

render unto caesar taxes charity and political islam abstract using an original nationally representative survey of 600 tunisians we show that support for the islamic party in the first post arab spring election came from wealthier districts and individuals we demonstrate that standard public finance arguments explain this voting pattern better than other available explanations our model predicts that a voter s probability of voting for a religious party i increases with income for the poorest voters but possibly decreases with income for the richest ii is greater for voters in richer districts and iii increases with the voter s religiosity our empirical results align with our predictions and suggest that individual and district wealth were key drivers of support for the islamic party we test for other possible factors affecting voting such as economic disgruntlement migration access to media or attitudes towards gender parity or towards the west finally we document similar patterns in other key elections in the muslim world

leverage aversion and portfolio optimality portfolio volatility is the only source of risk in mean variance optimality but it fails to capture all the risks faced by leveraged portfolios these risks include the possibility of margin calls and forced liquidations at adverse prices and losses beyond the capital invested to recognize these risks the authors incorporated leverage aversion into the optimization process and examined the effects of volatility and leverage aversion on optimal long short portfolios

evaluating the impact of inequality constraints and parameter uncertainty on optimal portfolio choice we present new analytical results for the impact of portfolio weight constraints on an investor s optimal portfolio when parameter uncertainty is taken into account while it is well known that parameter uncertainty and imposing weight constraints results in reduced certainty equivalent returns in the general case there are no analytical results in a special case commonly used in the funds management literature we derive analytical expression for the certainty equivalent loss that does not depend on the risk aversion parameter we illustrate our theoretical results using hedge fund data from the perspective of a fund of fund manager our contribution is to formalize the framework to investigate this problem as well as providing tractable analytical solutions that can be implemented using either simulated or asset manager returns

self centered inequity aversion and the mass politics of taxation the politics of economic crises brings distributive economic conflict to the fore of national political debates how policy should be used to transfer resources between citizens becomes a central p

people s opium religion and economic attitudes since max weber there has been an active debate on the impact of religion on people s economic attitudes much of the existing evidence however is based on cross country studies in which this impact is confounded by differences in other institutional factors we use the worldvalues surveys to id entify the relationship between intensity of religious beliefs and economic attitudes controlling for country fixed effects we study several economic attitudes towardcooperation the government working women legal rules thriftiness andthe market economy we also distinguish across religious denominations differentiating on whether a religion is dominant in a country we find that on average religious beliefs are associated with good economic attitudes where good is defined as conducive to higher per capita income andgrowth yet religious people tendto be more racist andless favorable with respect to working women these effects differ across religious denominations overall we find that christian religions are more positively associatedwith attitudes conducive to economic growth r 2003 elsevier science b v all rights reserved jel classification a1 e0 n4 z1

the politics of public provision of education public provision of education is usually viewed as a form of redistribution in kind however does it arise when income redistribution is feasible as well i analyze a two dimensional model of political decision making with endogenous political parties society chooses both the tax rate and the allocation of the revenues between income redistribution and public education agents differ in their income and in their age where young agents prefer public education and the old prefer income redistribution i find that when the cohort size of the young is not too large then public education arises as a political compromise between the rich and the young segment of the poor they collude in order to reduce the size of government which benefits the rich and target some of its resources to education which benefits the young poor when the cohort size of the young is too large however income redistribution crowds out public provision of education in the political equilibrium

capital asset prices with and without negative holdings prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

redistribution pork and elections why might citizens vote against redistributive policies from which they would seem to benefit many scholars focus on wedge issues such as religion or race but another explanation might be geographically based patronage or pork we examine the tension between redistribution and patronage with a model that combines partisan elections across multiple districts with legislation in spatial and divide the dollar environments the model yields a unique equilibrium that describes the circumstances under which poor voters support right wing parties that favor low taxes and redistribution and under which rich voters support left wing parties that favor high taxes and redistribution the model suggests that one reason standard tax and transfer models of redistribution often do not capture empirical reality is that redistributive transfers are a less efficient tool for attracting votes than are more targeted policy programs the model also underlines the central importance of party discipline during legislative bargaining in shaping the importance of redistribution in voter behavior and it describes why right wing parties should have an advantage over left wing ones in majoritarian systems

the race to the bottom from the bottom the dominant perspective in discussions of labour and environmental standards and globalization is that of north south competition and its impact on northern standards this paper presents an alternative perspective that of south south competition to export to the north and its impact on southern standards it develops a simple model of southern competition and demonstrates that whether a southern race to the bottom is possible depends intricately on the northern demand curve the size of large exporters relative to each other and the relative size of the competitive fringe of small exporters the possibility that northern trade protectionism may undermine southern standards is also examined

fundamentals of efficient factor investing corrected may 2017 combining long only constrained factor subportfolios is generally not a mean variance efficient way to capture expected factor returns for example a combination of four fully invested factor subportfolios low beta small size value and momentum captures less than half e g 40 of the potential improvement over the market portfolio s sharpe ratio in contrast a long only portfolio of individual securities using the same risk model and return forecasts captures most e g 80 of the potential improvement we adapt traditional portfolio theory to more recently popularized factor based investing and simulate optimal combinations of factor and security portfolios using the largest 1 000 common stocks in the us equity market from 1968 to 2015

60 years of portfolio optimization practical challenges and current trends abstract the concepts of portfolio optimization and diversification have been instrumental in the development and understanding of financial markets and financial decision making in light of the 60 year anniversary of harry markowitz s paper portfolio selection we review some of the approaches developed to address the challenges encountered when using portfolio optimization in practice including the inclusion of transaction costs portfolio management constraints and the sensitivity to the estimates of expected returns and covariances in addition we selectively highlight some of the new trends and developments in the area such as diversification methods risk parity portfolios the mixing of different sources of alpha and practical multi period portfolio optimization

belief in a just world and redistributive politics international surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate at the same time social ethnographies and experiments by psychologists demonstrate individuals recurrent struggle with cognitive dissonance as they seek to maintain and pass on to their children a view of the world where effort ultimately pays off and everyone gets their just deserts this paper offers a model that helps explain i why most people feel such a need to believe in a just world ii why this need and therefore the prevalence of the belief varies considerably across countries iii the implications of this phenomenon for international differences in political ideology levels of redistribution labor supply aggregate income and popular perceptions of the poor the model shows in particular how complementarities arise endogenously between individuals desired beliefs or ideological choices resulting in two equilibria a first american equilibrium is characterized by a high prevalence of just world beliefs among the population and relatively laissez faire policies the other european equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state more generally the paper develops a theory of collective beliefs and motivated cognitions including those concerning money consumption and happiness as well as religion

the myth of the absolute return investor the notion of absolute return investing is spreading like wildfire many people believe that superior returns can be achieved by managers with strong views and little regard for benchmarks this article attempts to define absolute return investing and figure out whether it exists the conclusion is that all investment returns consist of a beta part representing the correlation of the active portfolio with one or more market benchmarks or normal portfolios and an active alpha part thus all investing is relative return investing in which active returns are earned relative to an appropriate benchmark or mix of benchmarks

in defense of portfolio optimization what if we can forecast author response we thank richard o michaud david n esch and robert o michaud for their interest in our paper in their letter they suggest that our results are inconsistent with the canonical literature beca

why the poor do not expropriate the rich an old argument in new garb we consider a political economy with two partisan parties each party represents a given constituency of voters if one party labour represents poor voters and the other christian democrats rich voters if a redistributive tax policy is the only issue and if there are no incentive considerations then in equilibrium the party representing the poor will propose a tax rate of unity if however there are two issues tax policy and religion for instance then this is not generally the case the analysis shows that if a simple condition on the distribution of voter preferences holds then as the salience of the non economic issue increases the tax rate proposed by labour in equilibrium will fall possibly even to zero even though a majority of the population may have an ideal tax rate of unity 1998 elsevier science s a all rights reserved

church state separation and redistribution we analyze how religion affects voting and redistribution our model directs attention away from the particular faith belief or risk attitudes of religious individuals and emphasizes instead how organized religion opens the door to standard group based distributive politics we argue that organized religion makes it possible for the rich and the religious poor to form electoral coalitions in favor of low taxes and limited redistribution such electoral coalitions form out of simple material self interest and they occur at the expense of the secular poor however the material reward to the religious poor from supporting such electoral coalitions depends on the institutional context as state support for religion increases poor religious voters have greater incentives to vote with poor secular voters in favor of parties that support high taxes the analysis therefore highlights the possibilities of understanding how religion affects politics without asserting that religious individuals differ systematically from secular ones in their values or preferences

inequality social insurance and redistribution is the political support for welfare policy higher or lower in less egalitarian societies we answer the question using a model of welfare policy as publicly financed insurance that pays benefits in a redistributive manner when voters have both redistributive and insurance motives for supporting welfare spending the effect of inequality depends on how benefits are targeted greater inequality increases support for welfare expenditures when benefits are targeted to the employed but decreases support when benefits are targeted to those without earnings with endogenous targeting support for benefits to those without earnings declines as inequality increases whereas support for aggregate spending is a v shaped function of inequality statistical analysis of welfare expenditures in advanced industrial societies provides support for key empirical implications of the model

redistribution and affirmative action abstract the paper develops an integrated political economy model in which individuals are distinguished by earning ability and an ascriptive characteristic race the policy space is a transfer payment to low income workers financed by a flat tax on wages and an affirmative action constraint on firms hiring decisions the distribution of income and the policy are endogenous with the latter being the outcome of a legislative bargaining game between three legislative blocs the model provides support for the common claim that racial divisions reduce support for welfare expenditures even when voters have color blind preferences we show that relatively advantaged members of both the majority and minority group benefit from the introduction of a second dimension of redistribution while the less advantaged members of the majority are the principal losers

religiosity and state welfare abstract the catholic sex abuse scandals reduced both membership and religiosity in the catholic church because government spending on welfare may substitute for the religious provision of social services we consider whether this plausibly exogenous decline in religiosity affected several measures of the public taste toward government and spending on welfare between 1990 and 2008 in places where there were more scandals individuals state a preference for less government provision of social services in contrast a higher level of abuse is also associated with an increase in voting for democratic candidates for president state legislatures and the us house of representatives and an increase in per capita government welfare spending although this increase is insufficient to replace the decrease in catholic provided charity

portfolio frontiers with restrictions to tracking error volatility and value at risk abstract asset managers are often given the task of restricting their activity by keeping both the value at risk var and the tracking error volatility tev under control however these constraints may be impossible to satisfy simultaneously because var is independent of the benchmark portfolio the management of these restrictions is likely to affect portfolio performance and produces a wide variety of scenarios in the risk return space the aim of this paper is to analyse various interactions between portfolio frontiers when risk managers impose joint restrictions upon tev and var specifically we provide analytical solutions for all the intersections and we propose simple numerical methods when such solutions are not available finally we introduce a new portfolio frontier

how variation in signal quality affects performance the information coefficient ic the correlation between forecasted and realized return is a popular measure of signal quality as shown in this article variation in ic is an important source of active risk and ic variation has an effect on optimal portfolio structure contrary to popular belief the ability to take short positions in equity portfolios does not necessarily lead to superior performance managers who can maintain a stable ic over time will benefit from short extensions but managers who have an unstable ic may see their performance deteriorate from increased short positions

the economics of faith using an apocalyptic prophecy to elicit religious beliefs in the field abstract we model religious faith as a demand for beliefs following the logic of the pascalian wager we show how standard experimental interventions linking financial consequences to falsifiable religious statements can elicit and characterize beliefs we implemented this approach with members of a group that expected the end of the world to occur on may 21 2011 by varying monetary prizes payable before and after may 21st to our knowledge this is the first incentivized elicitation of religious beliefs ever conducted the results suggest that the members held extreme sincere beliefs that were unresponsive to experimental manipulations in price

the tax benefits of separating alpha from beta long only active investment strategies have an inherent flaw investors pay capital gains taxes on market related gains as well as on the alpha created by separating alpha and beta taxes can be r

on the optimality of long short strategies we consider the optimality of portfolios not subject to short selling constraints and derive conditions that a universe of securities must satisfy for an optimal active portfolio to be dollar neutr

which countries have state religions among 188 countries 72 had no state religion in 2000 1970 and 1900 58 had a state religion throughout and 58 had 1 or 2 transitions we use a hotelling spatial competition model to analyze the likelihood that the religion market would be monopolized similar forces influence a government s decision to establish a state religion consistent with the model the probability of state religion in 1970 and 2000 is increasing with the adherence rate to the main religion has a nonlinear relation with population and has little relation with per capita gdp the probability of state religion decreases sharply under communism but lagged communism has only a weak effect with costly adjustment for institutions the probability of state religion in 1970 or 2000 depends substantially on the status in 1900 this persistence is much stronger for countries with no major regime change than for countries with such a change

the multidimensional effects of religion on socioeconomic development a review of the empirical literature religion plays a fundamental role in most people s lives with profound implications for socioeconomic development this survey provides a comprehensive and systematic overview of the causal mechanisms between religion and development discussed and tested in the economics literature and reviews quantitative empirical evidence on the actual effects of religion on economic and social dimensions of development we start by disaggregating the concept of religion into four religious dimensions and propose a framework to conceptualize causal mechanisms numerous mechanisms are possible but only a few uncontested findings exist religion is ambivalent vis a vis development although religious ideas can foster certain forms of human capital acquisition and labor market participation scholars have found a negative relationship between religious dimensions and both income and gender equality as well as innovation activities religious identity is also a source of labor market discrimination and has ambivalent effects on economic growth and social cohesion methodological challenges refer to the availability of fine grained data especially for developing countries the use of concepts and definitions and the lack of causal inference

media freedom political knowledge and participation this paper examines the relationship between media freedom from government control and citizens political knowledge political participation and voter turnout to explore these connections i first examine media freedom and citizens political knowledge in thirteen central and eastern european countries with data from freedom house s freedom of the press report and the european commission s candidate countries eurobarometer survey next i consider media freedom and citizens political participation in 60 countries using data from the world values survey finally i investigate media freedom and voter turnout in these same 60 or so countries with data from the international institute for democracy and electoral assistance i find that where government owns a larger share of media outlets and infrastructure regulates the media industry more and does more to control the content of news citizens are more politically ignorant and apathetic where the media is less regulated and there is greater private ownership in the media industry citizens are more politically knowledgeable and active these results are robust to sample specification and alternative measures of media freedom

illiquidity position limits and optimal investment for mutual funds we study the optimal trading strategy of mutual funds that face both position limits and differential illiquidity we provide explicit characterization of the optimal trading strategy and conduct an extensive analytical and numerical analysis of the optimal trading strategy we show that the optimal trading boundaries are increasing in both the lower and the upper position limits we find that position limits can affect current trading strategy even when they are not currently binding and other seemingly intuitive trading strategies can be costly we also examine the optimal choice of position limits

portfolio constraints and the fundamental law of active management active portfolio management is typically conducted within constraints that do not allow managers to fully exploit their ability to forecast returns constraints on short positions and turnover for example are fairly common and materially restrictive other constraints such as market capitalization and value growth neutrality with respect to the benchmark or economic sector constraints can further restrict an active portfolio s composition we derive ex ante and ex post correlation relationships that facilitate the performance analysis of constrained portfolios the ex ante relationship is a generalized version of a previously developed fundamental law of active management and provides an important strategic perspective on the potential for active management to add value the ex post correlation relationship represents a practical decomposition of performance into the success of the return prediction process and the noise associated with portfolio constraints we verify the accuracy of these relati

performance attribution and the fundamental law the reported study operationalized the fundamental law of active management in the context of a factor based performance attribution system the system incorporates factor payoffs in the linear regression framework that many portfolio managers and external reviewers use to judge what is being rewarded in the market the study indicates that parameters of the fundamental law can be used to approximate and interpret the results of the regression based performance attribution system the procedure is illustrated by the use of security holdings returns and factor exposure data for two portfolios benchmarked to the s p 500 index for april 1995 to march 2004

optimizing tracking error constrained portfolios active portfolios subject to tracking error te constraints are the typical setup for active managers tasked with outperforming a benchmark the risk and return relationship of such constrained po

diversity and redistribution abstract in this paper we analyze the interaction of income and preference heterogeneity in a political economy framework we ask whether the presence of preference heterogeneity arising for example from different ethnic groups or geographic locations affects the ability of the poor to extract resources from the rich we study the equilibrium of a game in which coalitions of individuals form parties parties propose platforms and all individuals vote with the winning policy chosen by plurality political parties are restricted to offering platforms that are credible in that they belong to the pareto set of their members the platforms specify the values of two policy tools a general redistributive tax which is lump sum rebated or used to fund a general public good and a series of taxes whose revenue is used to fund specific targeted goods tailored to particular preferences or localities our analysis demonstrates that taste conflict first dilutes but later reinforces class interests when the degree of taste diversity is low the equilibrium policy is characterized by some amount of general income redistribution and some targeted transfers as taste diversity increases in society the set of equilibrium policies becomes more and more tilted towards special interest groups and against general redistribution as diversity increases further however the only policy that can emerge supports exclusively general redistribution

on the strategic behavior of large investors a mean variance portfolio approach abstract one key assumption of markowitz s model is that all traders act as price takers in this paper we extend this mean variance approach in a setting where large investors can move prices instead of having an individual optimization problem we find the investors nash equilibrium and redefine the efficient frontier in this new framework we also develop a simplified application of the general model with two assets and two investors to shed light on the potential strategic behavior of large and atomic investors our findings validate the claim that large investors enhance their portfolio performance in relation to perfect market conditions besides we show under which conditions atomic investors can benefit in relation to the standard setting even if they have not total influence on their eventual performance the two investors two assets setting allows us to quantify performance and do sensitivity analysis regarding investors market power risk tolerance and price elasticity of demand finally for a group of well known etfs we empirically show how price variations change depending on the volume traded we also explain how to set up and use our model with real market data

liberte egalite religiosite abstract we study the effect of religiosity on the political choices over redistribution and the legal restrictions on personal liberties we assume that the more religious an individual is i the less he enjoys the use of liberties prohibited by his religion and ii the higher the negative externality experienced when others practice those liberties we show that legal restrictions on liberties has an impact on income inequality we find that when the religious cleavage in society is large high intolerance due to negative externalities leads to a political outcome consisting of repression of liberties and relatively low taxes