wealth volume and stock market volatility case of hong kong 1993 2001 this article attempts to answer the question of whether the gain and loss in property market speculations and rate of information flow play a significant role in stock market volatility in hong kong to test for our wealth volume volatility hypothesis two different measures of volatility absolute absolute value of sd from mean with monthly dimension and conditional egarch are used and results are compared in both measures we find evidence of a statistical presence of a wealth effect on stock market volatility particularly in the investment of luxury class of property in hong kong to account for this result we apply the prospect theory house money effect and the newly developed conditional confidence theory although we fail to establish a volume volatility relationship in our estimation we offer additional dimensions to the explanation of our observation

on the measurement of risk aversion from experimental data attitudes towards risk are measured for households in northern zambia using an experimental gambling approach with real payoffs that at maximum were equal to 30 of average total annual income per capita the results of the experiment show decreasing absolute risk aversion and increasing partial risk aversion determinants of risk aversion are investigated using random effects interval regression model exploiting the panel data structure of the repeated experiments wealth indicator variables are found to be significant and partial relative risk aversion decreases as wealth increases females are found to be more risk averse than males

risk taking preferences of farmers in northern thailand measurements and implications abstract risk taking preferences were elicited from small semi commercial farmers in northern thailand using an experimental procedure that included real monetary payoffs of meaningful magnitudes a total of five sets of lotteries with increasing payoffs were offered the farmers were found to be risk averters and their preferences conformed to the hypothesis of increasing nondecreasing partial relative risk aversion using regression analysis farmers expected variation of rice yields and farm size were found to be directly related to a decrease in risk aversion while the extent of multiple cropping availability of non land household assets and tested mathematical ability were found to be indirectly related to a decrease in risk aversion the variables expected variation of rice prices farmer s age and tested abstract ability scores were not related to risk taking preferences

risk aversion and credit constraints in farmers decision making a reinterpretation in 1976 the agricultural development council sponsored a conference on risk uncertainty and agricultural development which has been summarised in a volume edited by james roumasset jean marc boussard and inderjit singh 1979 the volume provides an excellent review of the state of the art at that time however as discussed in the summary chapters of that volume there were few theoretical empirical or policy issues on which clear conclusions could be reached on the basis of knowledge then available in the intervening years progress has been made on a number of issues as a result of both empirical investigations and theoretical advances this paper concentrates on advances which have relevance to the controversy about the relative roles of risk aversion and credit constraints in limiting farmers investment levels especially for purchased inputs such as seeds or fertilizers in particular we review recent experimental studies on the extent of risk aversion among farmer populations in developing

external shocks financial volatility and reserve requirements in an open economy abstract the performance of a simple countercyclical reserve requirement rule is studied in a dynamic stochastic model of a small open economy with financial frictions imperfect capital mobility a managed float regime and sterilized foreign exchange market intervention bank funding sources domestic and foreign are imperfect substitutes the model is calibrated and used to study the effects of a temporary drop in the world risk free interest rate consistent with stylized facts the shock triggers an expansion in domestic credit and activity asset price pressures and a real appreciation an optimal credit based reserve requirement rule based on minimizing a composite loss function helps to mitigate both macroeconomic and financial volatility with the latter defined both in terms of a narrow measure based on the credit to output ratio the ratio of capital flows to output and interest rate spreads and a broader measure that includes real asset prices as well greater reliance on sterilization implies a less aggressive optimal reserve requirements rule implying that the two instruments are partial substitutes

risk and insurance in a rural credit market an empirical investigation in northern nigeria credit contracts play a direct role in pooling risk between households in northern nigeria repayments owed by borrowers depend on realizations of random shocks by both borrowers and lenders the paper develops two models of state contingent loans the first is a competitive equilibrium in perfectly enforceable contracts the second permits imperfect information and equilibrium default estimates of both models indicate that quantitatively important state contingent payments are embedded in these loan transactions but that a fully efficient risk pooling equilibrium is not achieved the research is based on a year long survey in zaria nigeria conducted by the author

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

the cyclical properties of disaggregated capital flows abstract we analyze the second moment properties of the components of international capital flows and their relationship to business cycle variables output investment and the real interest rate in 22 industrial and emerging countries total inward flows are procyclical with respect to all three macro variables net outward flows are countercyclical with respect to output and investment in most industrial and emerging countries disaggregated inward flows positively comove with output in industrial countries and with investment and the real interest rate in the g7 economies inward foreign direct investment is the only non procyclical type of inward capital flows with respect to output in the developing economies formal statistical tests based on nonparametric bootstrap techniques detect significant variance increases in all g7 countries disaggregated capital flows over exogenous and endogenously estimated breaks

interest rate co movements global factors and the long end of the term spread the decoupling of us short and long interest rates has been a distinctive feature of the 2000s we employ recent advances in panel econometrics to document this disconnect for industrial countries and link it to a global latent factor in long term rates we investigate whether international forces such as global inflation global output or the global savings glut may be behind this global latent factor the savings glut is the most likely contender suggesting that reserve accumulation and a search for yield from emerging markets has lowered long rates internationally driving a wedge between domestic short and long rates

on the measurement of the international propagation of shocks is the transmission stable abstract the empirical literature on contagion focuses mainly on two questions 1 what are the channels through which shocks are transmitted across countries trade macro similarities financial weaknesses or investor behavior 2 is there a shift in the transmission of shocks during crises are crises spread with higher intensity if so why this paper concentrates on the econometric problems that arise in dealing with the second question the data where most of these issues are raised are plagued with problems of simultaneous equations omitted variables and heteroskedasticity the standard methodologies used in the literature are inappropriate if all three are present this paper applies a new procedure that allows one to test for parameter stability taking into account all three predicaments the paper tests for the stability of the transmission mechanisms among 36 stock markets during the last three major international financial crises mexico 1994 asia 1997 and russia 1998

do some forms of financial flows help protect against sudden stops there is a debate on whether some forms of financial flows offer better protection against crises than others using a large panel data set that includes advanced emerging and developing economies during 1970 2003 this article analyzes the behavior of several types of flows foreign direct investment fdi portfolio equity investment portfolio debt investment other flows to the official sector other flows to banks and other flows to the nonbank private sector differences across types of flows are limited with respect to volatility persistence cross country co movement and correlation with growth at home or in the world economy however consistent with conventional wisdom fdi is the least volatile form of financial flow when the average size of net or gross flows is taken into account the differences are striking during sudden stops in financial flows defined as drops in total net financial inflows of more than percentage points of gross domestic product gdp compared with the previous year in such episodes fdi is remarkably stable and portfolio equity seems to play a limited role portfolio debt experiences a reversal though it recovers relatively quickly and other flows including bank loans and trade credit experience severe drops and often remain depressed for a few years

using field experiments to elicit risk and ambiguity preferences behavioural factors and the adoption of new agricultural technologies in rural india abstractwe conduct a series of experiments in rural india in order to measure preferences related to risk loss and ambiguity by combining these results with a discrete choice experiment over new and familiar rice seeds we demonstrate how these behavioural parameters affect decisions to adopt new agricultural technologies especially when the new technologies are risk reducing we find that risk averse and loss averse individuals are more likely to switch to new seeds demonstrating risk reducing characteristics while contrary to expectations ambiguity averse individuals are no more willing to retain their status quo than switch to cultivating the new variety

desperation or desire the role of risk aversion in marriage i introduction attitudes toward risk are an important determinant of a vast array of decisions such decisions include ones with a big impact on life the choice of education the choice of career investment decisions and even when and if to get married or divorced most empirical studies of behavior implicitly assume risk preferences are identical across households such a research strategy undoubtedly results in appreciably different predictions of behavior than would occur if risk preferences are permitted to vary while an increasing number of surveys are asking respondents questions that allow for construction of a measure of interpersonal variation in risk that is based on economic theory there is still a paucity of empirical studies that explicitly investigate the impact of risk preferences on behavior 1 i use information on risk preferences from the national longitudinal survey of youth 1979 nlsy79 to predict how interpersonal variation in these preferences affects the time to marriage decision because of the uncertainty inherent in searching for a partner and the uncertainty of the future quality and state of the marriage itself risk attitudes likely directly impact the timing of marriage risk preference variables are constructed from a series of hypothetical gambles over lifetime income that were offered to respondents in the nlsy79 i examine how the risk preference variables affect the hazard rate into marriage and find that the more risk averse marry sooner l also exploit sibling data from the nlsy79 to examine the robustness of the empirical results by controlling for unobserved family effects that might be correlated with risk attitudes and find qualitatively similar results in addition i find that risk preferences affect the timing of marriage differentially for the sexes with a larger and more statistically significant effect of risk preferences on the hazard rate into marriage for men one possible explanation for this finding is that women value risk aversion as a desirable characteristic in a spouse to explore this possibility i analyze spouse characteristics by the risk aversion of the respondent i find that spouse quality in terms of education and other measurable traits is generally lower for more risk averse men than for more risk loving men this finding is in accordance with a prediction of a search model the reservation price is decreasing in risk aversion spouse quality of more risk averse women is usually but not always lower than for more risk loving women suggesting that the effect of a woman s own risk aversion on time to marriage may be more complex than suggested by a search model overall the results suggest that risk preferences have some causal influence on the timing of marriage whether it be from a supply side standpoint such as in the case of a basic search model or from a demand side standpoint where risk aversion is a desirable trait this article contributes to a sparse literature that employs empirical measures of risk aversion many of these studies ask how demographic characteristics affect risk attitudes 2 a few ask how these measures of risk aversion affect behaviors like the propensity to smoke or invest in risky assets 3 these studies are however cross sectional and do not employ survival analysis as does this article to my knowledge only two existing studies light and ahn 2008 schmidt 2008 employ an empirical measure of risk aversion to investigate the relationship between risk preferences and the marriage market schmidt focuses on fertility but also considers marital timing of employed women and light and abn focus on divorce timing the findings of both studies are consistent with mine 4 my study adds to schmidt s by considering all women and men and exploring the differences between the genders including a discussion of how spousal characteristics might differ by the risk aversion of respondents

international capital flows to emerging markets national and global determinants using a novel dataset for emerging markets we empirically investigate the nature and determinants of aggregate and disaggregate capital inflows we present formal statistical evidence of commonalities in capital inflows with the strongest evidence for the level of equity and bank flows advanced economy long run bond yields and commodity prices are identified as determinants of global capital flows we also consider the national determinants of capital flows finding that financial openness and institutions matter for country flows finally we identify important commonalities in the volatility of bank inflows

financial crises and the composition of cross border lending abstract we examine the composition and drivers of cross border bank lending between 1995 and 2012 distinguishing between syndicated and non syndicated loans we show that on balance sheet syndicated loan exposures which account for almost one third of total cross border loan exposures increased during the global financial crisis due to large drawdowns on credit lines extended before the crisis our empirical analysis of the drivers of cross border loan exposures in a large bilateral dataset leads to three main results first banks with lower levels of capital favor syndicated over other kinds of cross border loans second borrower country characteristics such as level of development economic size and capital account openness are less important in driving syndicated than non syndicated loan activity suggesting a diversification motive for syndication third information asymmetries between lender and borrower countries became more binding for both types of cross border lending activity during the recent crisis

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

risk sharing between and within families this paper uses the panel study of income dynamics to test whether risk sharing is complete between or within american families the tests accommodate a wide variety in the configuration and availability of family data the test results reject inter as well as intra family full risk sharing even assuming that leisure is endogenous or that leisure and consumption are nonseparable

shocks individual risk attitude and vulnerability to poverty among rural households in thailand and vietnam summary we examine whether the experience of shocks influences individual risk attitude we measure the risk attitude of more than 4 000 households in thailand and vietnam via a simple survey item the experience of adverse shocks which is typical for poor and vulnerable households is related to a higher degree of risk aversion even when controlled for a large set of socio demographic variables therefore shocks perpetuate vulnerability to poverty via their effect on risk attitude we extend this general finding to various categories of shocks and find differences between thailand and vietnam this suggests that risk coping strategies profit from case specific design

rate of time preference intertemporal elasticity of substitution and level of wealth the rate of time preference rtp and the intertemporal elasticity of substitution ies are two important factors shaping intertemporal consumption decisions models in which the rtp and or the ies differ systematically between rich and poor households have different empirical and policy implications for economic development growth and the distribution of income and consumption from those of standard models in which these parameters are constant across households in this chapter we estimate a model in which both rtp and ies are allowed to differ across rich and poor households using household level panel data from india our empirical results are consistent with the view that the rtp is constant across poor and rich households but the ies is larger for the rich than it is for the poor

production risk risk aversion and the determination of risk attitudes among spanish rice producers agricultural production is subject to risk and the attitudes of producers toward risk will influence input choices insofar as these affect production risk risk attitudes in turn may be affected by certain socioeconomic characteristics of producers using 2004 survey data from a cross section of 130 spanish rice farms we estimate risk aversion coefficients of farmers and investigate the influence of a series of socioeconomic variables on their risk attitudes our results show that farmers exhibit risk averse behavior and that risk attitudes are related to a series of socioeconomic characteristics in particular the belief that the farm will continue after the producer retires is found to increase the degree of risk aversion while age is found to have nonlinear effects on risk aversion off farm income especially from nonagricultural activities is found to reduce risk aversion neither the educational level of the producer nor the presence of dependents on the household is found to have an effect on risk preferences regarding the production technology we find that land labor and fitosanitary products are risk reducing inputs whereas capital seeds and fertilizer all increase risk

economic performance through time prize lecture to the memory of alfred nobel december 9 1993 this abstract was borrowed from another version of this item

precautionary saving credit constraints and irreversible investment theory and evidence from serniarid india this article investigates the extent to which poor households are discouraged from making a non divisible but profitable investment using data on irrigation wells in india we estimate the parameters of a structural model of irreversible investment results show that poor farmers fail to undertake a profitable investment that they could in principle self finance because the nondivisibility of the investment puts it out of their reach irreversibility constitutes an additional disincentive to invest simulations show that the availability of credit can dramatically increase investment in irrigation and that interest rate subsidization has little impact

production risk pesticide use and gm crop technology in south africa technology involving genetic modification of crops has the potential to make a contribution to rural poverty reduction in many developing countries thus far pesticide producing bacillus thuringensis bt varieties of cotton have been the main gm crops under cultivation in developing nations several studies have evaluated the farm level performance of bt varieties in comparison to conventional ones by estimating production technology and have mostly found bt technology to be very successful in raising output and or reducing pesticide input however the production risk properties of this technology have not been studied although they are likely to be important to risk averse smallholders this study investigates the output risk aspects of bt technology by estimating two flexible risk production function models allowing technology to independently affect the mean and higher moments of output the first is the popular just pope model and the second is a more general damage control flexible risk mode

rational and self fulfilling balance of payments crises speculative attacks on a pegged exchange rate must sometimes occur ifasset price paths are to be free of abnormal profit opportunities suchattacks are fully rational as they reflect the market s response to aregime breakdown that is inevitable the authors shows that under someexpectations about policy balance of payments crises can also be purely self fulfilling events in such cases even a permanently viableregime may collapse and the economy will possess multiple equilibriacorresponding to different subjective assessments of the probability ofa crisis the behavior of the domestic interest rate will naturally reflect the possibility of a speculative attack copyright 1986 by american economic association

monetary policy divergence and net capital flows accounting for endogenous policy responses abstract this paper measures the effect of monetary tightening in key advanced economies on net capital flows around the world measuring this effect is complicated by the fact that the domestic monetary policies of affected economies respond endogenously to the foreign tightening shock using a structural var framework with quarterly panel data we estimate the impulse responses of domestic policy variables and net capital flows to a foreign monetary tightening shock we find that the endogenous response of domestic monetary policy depends on each economy s capital account openness and exchange rate regime we use a method to compute counterfactual impulse responses for net capital outflows under the assumption that the domestic policy rate does not respond to foreign monetary tightening our results suggests that failing to account for the endogenous response of domestic monetary policy biases down the estimated elasticity of net capital flows to foreign interest rates by as much as one third for countries with open capital accounts

measuring risk attitudes among mozambican farmers abstract although farmers in developing countries are generally thought to be risk averse little is known about the actual form of their risk preferences in this paper we use a relatively large lab in the field experiment to explore risk preferences related to sweet potato production among a sample of farmers in northern mozambique a unique feature of this experiment is that it includes a large subsample of husband and wife pairs after exploring correlations between husband and wife preferences we explicitly test whether preferences follow the constant relative risk aversion crra utility function and whether farmers follow expected utility theory or rank dependent utility theory in generating their preferences we reject the null hypothesis that farmers preferences follow the crra utility function in favor of the more flexible power risk aversion preferences if we make the common crra assumption in our sample we poorly predict risk preferences among those who are less risk averse

household s risk attitudes in indonesian villages this paper estimates attitudes towards risk using data obtained through interviews of 400 households in villages in indonesia participants were invited to play investment games in order to identify household risk attitudes the game result supports the hypothesis of non decreasing partial relative risk aversion using an ordered probit model the determinants of risk attitude were investigated the results show that the variable of co residence is important an individual living with his or her parents is less risk averse than an individual in a nuclear household co residence can be viewed as a type of security blanket partial relative risk aversion decreases with the level of education and wealth

why doesn t capital flow from rich to poor countries an empirical investigation we examine the empirical role of difierent explanations for the lack of ows of capital from rich to poor countries the lucas paradox the theoretical explanations include difierences in fundamentals across countries and capital market imperfections we show that during 1970i2000 low institutional quality is the leading explanation for example improving peru s institutional quality to australia s level implies a quadrupling of foreign investment recent studies emphasize the role of institutions for achieving higher levels of income but remain silent on the speciflc mechanisms our results indicate that foreign investment might be a channel through which institutions afiect long run development

the story of the moment risk averse cypriot farmers respond to drought management this article illustrates the importance of estimating risk preferences when evaluating water policy using agricultural production data from the kiti region of cyprus we estimate farmers risk preferences a la antle journal of business and economic statistics 1 192 201 1983 american journal of agricultural economics 69 509 22 1987 and show sensitivity to higher order moments of profit such as skewness we show that farmers in the kiti region are risk averse with risk premiums in the region of 20 of expected profit we use these estimates to analyse the impact of a water quota from the perspective of three policy makers who differ only in their understanding of farmers risk preferences we show in the case of kiti that policy makers who model risk preferences incorrectly that is either a assume risk neutrality or b ignore down side risk wrongly predict the magnitude and direction of input responses and therefore the magnitude of welfare changes this highlights the importance of accomm

coping with terms of trade shocks pegs versus floats the choice of the exchange rate regime has always been an area of great controversy and debate the discussion has once again taken center stage in the developing world the sequence of currency crises in the 1990 s the success of cultency board arrangements the dollarization plan of ecuador and the apparent swing toward flexible regimes of many emerging economies has revived interest in this debate milton friedman 1953 argued that one of the most important advantages of flexible regimes over fixed regimes is that they can smooth adjustment to real shocks even in the presence of nominal rigidities ever since this has been one of the least disputed benefits attributed to fully flexible exchange rate regimes subsequent to friedman many theories of the international transmission of real shocks have confirmed the original intuition that the shortrun responses to terms of trade shocks should be different across exchange rate regimes here i look at a post bretton woods sample of 74 developing countries to test whether flexible regimes can buffer terms of trade shocks better than fixed regimes

the drivers of financial globalization over the past decade emerging markets have accounted for a growing fraction of world gdp and international trade reflecting fast growth in china and india but also strong economic performance across the board and the spec tacular increase in foreign exchange reserve holdings the growing importance of sovereign wealth funds and the pattern of global imbal ances more generally suggest that these coun tries are also playing a major role in financial globalization

u s monetary policy and fluctuations of international bank lending abstract there is no consensus in the empirical literature on the direction in which u s monetary policy affects cross border bank lending we find robust evidence that the impact of the u s federal funds rate on cross border bank lending in a given period depends on the prevailing international capital flows regime and on the level of the two main components of the federal funds rate macroeconomic fundamentals and the monetary policy stance during episodes in which bank lending from advanced to emerging economies is booming the relationship between the federal funds rate and cross border bank lending is positive and mostly driven by the macroeconomic fundamentals component which is consistent with a search for yield behavior by internationally active banks in contrast during episodes of stagnant growth in bank lending from advanced to emerging economies the relationship between the federal funds rate and bank lending is negative mainly due to the monetary policy stance component of the federal funds rate the latter set of results is most pronounced for lending to emerging markets which is consistent with the international bank lending channel and flight to quality behavior by internationally active banks