fdi and business internationalization of the unorganized sector evidence from indian manufacturing available evidence though limited to the organized sector only suggests that fdi flowing in with mne activities or direct fiis generate technological and market access spillovers for firms outside the core group in destination countries we investigate the organizational link between formal and informal sectors in india and argue that the spread of internationalization is more when production outsourcing prevails between such units higher wage in the organized sector is a factor that breaks standard institutional barriers leading to outsourcing of production to informal units the evidence is puzzling to the extent that foreign capital and better know how as drivers of international business to developing countries usually relax the credit constraint facing formal sector units at the destination and cause expansion of formal units using a measure of technology and a panel data for a large number of industrial units in india we show that fdi transmitted through technology spillover leads to significant increase in the gross value added for several industries located in the informal sector the paper points out that production re organization associated with international capital movements should provide additional insights for standard measures of internationalization of production and services

a variance ratio test of random walks in foreign exchange rates the separate variance ratio tests under homoscedasticity and heteroscedasticity both provide evidence rejecting the random walk hypothesis using five pairs of weekly nominal exchange rate series over the period from august 7 1974 to march 29 1989 the rejections cast doubt on the random walk hypothesis in exchange rates which has received support in the existing literature furthermore since the rejections are robust to heteroscedasticity they suggest autocorelations of weekly increments in the nominal exchange rate series which may be consistent with the exchange rate overshooting or undershooting phenomenon in the past decade there has been a consensus that nominal exchange rates follow a random walk process since a unit root and uncorrelated increments are both required for a random walk process the random walk is usually supported in the existing literature either because a unit root component is detected in the exchange rate series or because the increment in the exchange rate is found to be serially uncorrelated for example meese and singleton 1982 and baillie and bollerslev 1989 both find a unit root component in the exchange rate series and the evidence provided in giddy and dufey 1975 cornell and dietrich 1978 logue sweeney and willett 1978 and hsieh 1988 all suggest that the exchange rate series contains uncorrelated increments in this paper the random walk hypothesis for the nominal exchange rate series is reexamined by applying a variance ratio test developed in lo and mackinlay 1988 to five pairs of weekly nominal exchange rate series over the period from august 7 1974 to march 29 1989 while there are two implications of the random walk unit root and uncorrelated increments this paper focuses on the uncorrelated increments aspect this is not only because there are some important departures from the random walk that unit root test cannot detect but also because the autocorrelation aspect may yield

exchange rate return predictability and the adaptive markets hypothesis evidence from major foreign exchange rates this study examines return predictability of major foreign exchange rates by testing for martingale difference hypothesis mdh using daily and weekly nominal exchange rates from 1975 to 2009 we use alternative mdh tests for linear and nonlinear dependence which include wild bootstrap automatic variance ratio test generalized spectral test and consistent tests we evaluate time varying return predictability by applying these tests with fixed length moving sub sample windows of two years while exchange rate returns are found to be unpredictable most of times we do observe episodes of statistically significant return predictability they are associated with coordinated central bank interventions and the subprime mortgage crisis in 2007 this finding suggests that return predictability of foreign exchange rates occurs from time to time depending on changing market conditions which is consistent with the implications of the adaptive markets hypothesis

misselling through agents this paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents prospecting for customers and advis ing on the product s suitability for the specific needs of customers when structuring salesforce compensation firms trade off the expected losses from misselling unsuitable products with the agency costs of providing market ing incentives we characterize how the equilibrium amount of misselling and thus the scope of policy intervention depends on features of the agency problem including the internal organization of a firm s sales process the transparency of its commission structure and the steepness of its agents sales incentives jel m31 m37 m52 when purchasing unfamiliar products consumers often rely on information and advice pro vided by representatives of the seller this creates the possibility of misselling the question able practice of a salesperson selling a product that may not match a customer s specific needs 1 this problem is particularly severe in markets for technically complex products such as con sumer electronics auto repairs medical care and retail financial services including securities pensions insurance policies and mortgages an important feature of these markets is that the seller often deals with the customer through an agent rather than directly for example financial brokers typically recommend purchase of a specific product after inquiring about their customers particular circumstances and needs the possibility of abuse has led to regulation in some of these markets most notably for securities transactions the financial industry regulatory authority finra the major self regulatory organization for securities firms operating in the united states mandates that broker dealers make a reasonable effort to obtain information about the individual characteristics of their noninstitutional cus tomers and to ensure that their recommendations are suitable to customers financial situations

variance ratio tests of random walk an overview this paper reviews the recent developments in the field of the variance ratio vr tests of the random walk and martingale hypothesis in particular we present the conventional individual and multiple vr tests as well as their improved modifications based on power transformed statistics rank and sign tests subsampling and bootstrap methods among others we also re examine the weak form efficiency for five emerging equity markets in latin america

can industrial outwork enhance homeworkers capabilities evidence from clusters in south asia summary there has been an increasing informalization and feminization of the labor force in developing countries over the past few decades one aspect of these twin phenomena is the growth of subcontracted homework in manufacturing homework has a dual and contradictory character it can be the source of exploitation of workers but under some conditions it can foster human development and the emergence of microenterprises and promote local development this paper draws on surveys carried out in two low income south asian countries india and pakistan where homework is widespread it examines the social protection needs of these women workers and also argues for public action to promote such work as a possible new labor intensive growth strategy in developing countries

high frequency quoting short term volatility in bids and offers at subsecond horizons bids and offers in u s equity markets are more volatile than what would be implied by long term fundamentals to assess costs and consequences this paper suggests that traders random delays latencies interact with quote volatility to generate execution price risk and relative latency costs analysis of the behavior of quote setters suggests that this volatility is more likely to arise from recurrent cycles of undercutting similar to the edgeworth cycles found in product markets rather than mixed strategies of limit order placement

are us stock index returns predictable evidence from automatic autocorrelation based tests this article re examines the evidence of return predictability for three major us stock indices using two recently developed data driven tests namely the automatic portmanteau box pierce test and the wild bootstrapped automatic variance ratio test in tracking the time variation of return predictability via rolling estimation window we find that those periods with significant return autocorrelations can largely be associated with major exogenous events theoretically the documented time varying nature of predictable patterns is consistent with the adaptive markets hypothesis

algorithmic quoting trading and market quality in agricultural commodity futures markets this paper investigates the effect of algorithmic trading activity as measured by quoting on the corn soybean and live cattle commodity futures market quality using the cme s limit order book

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

collective efficiency growth path for small scale industry this study is concerned with the growth of small local industry in developing countries and explores one particular route for understanding and fostering such growth it focuses on the clustering of firms and the competitive advantage which they derive from local external economies and joint action captured in the concept of collective efficiency following a conceptual discussion the article explores the economic and institutional conditions which enhance or hinder collective efficiency this includes a case study which suggests that responding to opportunity and crisis requires shifting from mere reliance on external economies to joint action and from ascribed to earned trust

defined contribution plans defined benefit plans and the accumulation of retirement wealth abstract the private pension structure in the united states once dominated by defined benefit db plans is currently divided between defined contribution dc and db plans wealth accumulation in dc plans depends on a participant s contribution behavior and on financial market returns while accumulation in db plans is sensitive to a participant s labor market experience and to plan parameters this paper simulates the distribution of retirement wealth under representative db and dc plans it uses data from the health and retirement study hrs to explore how asset returns earnings histories and retirement plan characteristics contribute to the variation in retirement wealth outcomes we simulate dc plan accumulation by randomly assigning individuals a share of wages that they and their employer contribute to the plan we consider several possible asset allocation strategies with asset returns drawn from the historical return distribution our db plan simulations draw earnings histories from the hrs and randomly assign each individual a pension plan drawn from a sample of large private and public defined benefit plans the simulations yield distributions of both dc and db wealth at retirement average retirement wealth accruals under current dc plans exceed average accruals under private sector db plans although dc plans are also more likely to generate very low retirement wealth outcomes the comparison of current dc plans with more generous public sector db plans is less definitive because public sector db plans are more generous on average than their private sector db counterparts

the dynamics of micro and small enterprises in developing countries abstract the number of people engaged in micro and small enterprises increases as a result of new enterprises being started and through an expansion of existing activities as a partial offset to these increases employment declines when existing businesses cease operations this article draws on recent survey work to examine the magnitude and determinants of enterprise births closures and expansions it explores the ways in which these different sources of change are influenced by the state of the macroeconomy and examines policy and project implications

bootstrap inference in econometrics the astonishing increase in computer performance over the past two decades has made it possible for economists to base many statistical inferences on simulated or bootstrap distributions rather than on distributions obtained from asymptotic theory in this paper i review some of the basic ideas of bootstrap inference the paper discusses monte carlo tests several types of bootstrap test and bootstrap confidence intervals although bootstrapping often works well it does not do so in every case

some evidence of random walk behavior of euro exchange rates using ranks and signs abstract this study utilises recently developed tests based on ranks and signs in addition to the traditional variance ratio test to examine the behavior of euro exchange rates we show that adjustments for multiple tests must be employed in order to avoid size distortions overall such adjustments provide evidence consistent with random walk behavior of euro exchange rates

permanent and transitory components in macroeconomic fluctuations fluctuations in real gnp have traditionally been viewed as transitory deviations from a deterministic time trend the purpose of this paper is to review some of the recent developments that have led to a new view of output fluctuations and then to provide some additional evidence using post war quarterly data it is hard to reject the view that real gnp is as persistent as a random walk with drift we also consider the hypothesis that the recent finding of persistence are due to the failure to distinguish the business cycle from other fluctuations in real gnp we use the measured unemployment rate to decompose output fluctuations we find no evidence for the view that business cycle fluctuations are more quickly trend reverting this abstract was borrowed from another version of this item

joint variance ratio tests of the martingale hypothesis for exchange rates there is considerable interest in whether exchange rates behave like martingales liu and he tested the martingale hypothesis for exchange rates using the variance ratio methodology of lo and mackinlay they found that exchange rates have violated the martingale property since the inception of floating rates in 1973 liu and he did not consider the joint implications of their tests however in this article we reassess the martingale hypothesis for exchange rates using the joint tests developed by hochberg and by richardson and smith contrary to the findings of liu and he the joint tests indicate that the martingale model worked quite well for exchange rates in the recent years of the floating rate regime

the price of free advice what factors determine how well consumers make their actual choices with regard to financial products this article empirically evaluates two different choices consumers make when buying deferred annuities one choice concerns the type of insurance policy the other concerns the choice of insurance provider for both choices we will analyse what factors explain the quality of the choice made in particular we will investigate the role of financial advice in the decision making process by combining dutch consumer survey data and data on quotations by dutch life insurance companies we obtain the following results first respondents who buy their policy directly from an insurer attain a significantly better match between their risk preferences and the type of policy chosen than respondents who purchase their policy through an insurance broker second respondents who buy their policy through an insurance broker obtain a significantly lower payout than respondents who purchased their policy directly from

international evidence on the size of the random walk in output this paper contributes three extensions of cochrane s work on measuring the relative stability of long term growth it estimates variance ratios for nine oecd countries over the period 1871 1985 presents an improved approximation to the distribution of the variance ratio and considers the comovements of long growth cycles across countries the evidence indicates that the relative stability of long term growth found by cochrane is unique to the united states relative to the united states most countries have more variable dynamics at low frequencies and smoother dynamics at frequencies traditionally associated with business cycles

do announcements of wto dispute resolution cases matter evidence from the rare earth elements market abstract rare earth elements rees have gained increasing attention recently for several key reasons 1 they are vital to many strategic industries 2 they are relatively scarce 3 they frequently exhibit high price fluctuations 4 china holds a quasi monopoly on their mining and 5 china s ree policy which was overly restrictive and led to a formal complaint from the u s japan and the eu at the world trade organization wto in 2012 this paper investigates whether the announcement of a wto dispute resolution case has the power to fundamentally change market dynamics we find empirical support for this notion because ree prices exhibit a structural break around the announcement of the wto dispute and show lower variance ratios for all tested rees afterward this indicates a tendency toward efficiency although ree prices still do not follow a random walk similarly we find that stock price informativeness of companies in the ree industry increases after the announcement reflecting more firm specific than marketwide information and less governmental influence finally we show that model uncertainty for option pricing models decreases which we measure by the lower pricing differences among them

the decision to seek advice in the self directed retirement fund industry this article examines the influence of investor knowledge and the cognitive bias that arises from overconfidence on the advice seeking behaviour of investors managing their own retirement funds specifically we trace whether overestimating one s own technical and financial abilities can hinder the willingness to seek advice particularly when it would be in the investors best interest to do so we identify a subset of investors who are not knowledgeable and yet do not seek advice these investors exhibit overconfidence in their ability to manage a fund despite holding under diversified and less sophisticated portfolios relative to their peers given the global rise in investors choosing to manage their own retirement funds and the importance of seeking advice in this context there are direct policy implications from these results they suggest a need to identify and target investors who display overconfidence since they are most likely to be managing underperforming retirement investments in the longe

why do people invest in personal pension plans the aim of this article is to identify the variables affecting the decision to make contributions to personal pension plans and the amount of such contributions for this purpose we specify and estimate a tobit model for a sample based on the 1995 personal income taxpayers panel prepared by the institute of fiscal studies spanish ministry of economy and finance formed by 3041 taxpayers of whom 358 made contributions to pension plans our results suggest that individuals decide to invest in pension plans on complex grounds combining the wish to benefit from tax savings and to ensure they will receive supplementary income upon retirement