combined use of foreign debt and currency derivatives under the threat of currency crises the case of latin american firms abstract we investigate the determinants of firms use of foreign currency derivatives in emerging markets exposed to currency crises we develop a model where a firm with international orientation chooses its optimal foreign debt and hedging ratio in the context of highly volatile exchange rate periods in five latin american countries we calibrate the model on adrs we find theoretical and empirical evidence that country specific factors i e aggregate exposure of a country to a crisis explain significantly part of our firms foreign debt and hedging policy as opposed to literature on firms in developed markets we claim that derivative markets have been effective tools for firms in these countries at least in the post crisis era

capital requirements and bank behaviour empirical evidence for switzerland abstract in recent years regulators have increased their focus on the capital adequacy of banking institutions to enhance the stability of the financial system the purpose of the present paper is to shed some light on whether and how swiss banks react to constraints placed by the regulator on their capital building on previous work by shrieves and dahl cf shrieves r e dahl d 1992 the relationship between risk and capital in commercial banks journal of banking and finance 16 439 457 we use a simultaneous equations model to analyse adjustments in capital and risk at swiss banks when those approach the minimum regulatory capital level our results indicate that regulatory pressure induce banks to increase their capital but does not affect the level of risk

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

semiparametric estimation of multi asset portfolio tail risk abstract when correlations between assets turn positive multi asset portfolios can become riskier than single assets this article presents the estimation of tail risk at very high quantiles using a semiparametric estimator which is particularly suitable for portfolios with a large number of assets the estimator captures simultaneously the information contained in each individual asset return that composes the portfolio and the interrelation between assets noticeably the accuracy of the estimates does not deteriorate when the number of assets in the portfolio increases the implementation is as easy for a large number of assets as it is for a small number we estimate the probability distribution of large losses for the american stock market considering portfolios with ten fifty and one hundred assets of stocks with different market capitalization in either case the approximation for the portfolio tail risk is very accurate we compare our results with well known benchmark models

exploring technology diffusion in emerging markets the role of public policy for wind energy abstract this study challenges the implicit assumption of homogeneity in national institutional contexts made in past studies of renewable energy policy we propose that institutional differences matter by focusing on several technology specific and generic policy factors that can foster technology diffusion through private sector activity more specifically we explore perceptions of early adopters in emerging economy contexts using wind park project developers as an example by applying a parsimonious method for our questionnaire as well as qualitative data we make several contributions methodologically we introduce maximum difference scaling to the energy policy domain empirically we identify several public influences on private investment and assess their relative importance this leads to new insights challenging findings from industrialized economies we identified additional institutional barriers to diffusion hence the requirement of a combination of technology specific and generic policy measures

mean var portfolio optimization a nonparametric approach portfolio optimization involves the optimal assignment of limited capital to different available financial assets to achieve a reasonable trade off between profit and risk we consider an alternative markowitz s mean variance model in which the variance is replaced with an industry standard risk measure value at risk var in order to better assess market risk exposure associated with financial and commodity asset price fluctuations realistic portfolio optimization in the mean var framework is a challenging problem since optimizing var leads to a non convex np hard problem which is computationally intractable in this work an efficient learning guided hybrid multi objective evolutionary algorithm mode gl is proposed to solve mean var portfolio optimization problems with real world constraints such as cardinality quantity pre assignment round lot and class constraints a learning guided solution generation strategy is incorporated into the multi objective optimization process to promote efficient convergence by guiding the evolutionary search towards promising regions of the search space the proposed algorithm is compared against the non dominated sorting genetic algorithm nsga ii and the strength pareto evolutionary algorithm spea2 experimental results using historical daily financial market data from s p 100 and s p 500 indices are presented experimental results shows that mode gl outperforms two existing techniques for this important class of portfolio investment problems in terms of solution quality and computational time the results highlight that the proposed algorithm is able to solve the complex portfolio optimization without simplifications while obtaining good solutions in reasonable time and has significant potential for use in practice

portfolio optimization with mental accounts we integrate appealing features of markowitz s mean variance portfolio theory mvt 4 and shefrin and statman s behavioral portfolio theory bpt into a new mental accounting 5 ma framework features of the ma framework include an ma structure of portfolios 6 a definition of risk as the probability of failing to reach the threshold level in each mental 7 account and attitudes toward risk that vary by account we demonstrate a mathematical 8 equivalence between mvt ma and risk management using value at risk var the ag9

understanding china s renewable energy technology exports abstract china became a major player in renewable energy re technology during the 2000s chinese solar pv cell and module makers quickly dominated global sales in that industry while the country s wind turbine producers became poised for significant exports after capturing their rapidly growing home market in countries like the us chinese re technology strength has been met with claims of excessive governmental support of exports this study examines to what extent chinese firms solar pv and wind technology successes have been enabled by policy supports and whether those policies appear to have been driven by broader goals versus re export promotion per se the evidence suggests that governmental policy toward both wind and solar originated in a push for export competitive chinese companies but the specifics differed substantially due to the particular requirements of building technological capabilities in each export readiness necessitated substantial support for domestic installation of wind but not solar pv power the findings also suggest that as the decade of the 2000s progressed environmental goals played an increasing role alongside export promotion in motivating and shaping chinese re technology policies

how bank capital buffers vary across countries the influence of cost of deposits market power and bank regulation abstract this paper analyzes the bank and country determinants of capital buffers using a panel data of 1337 banks in 70 countries between 1992 and 2002 after controlling for adjustment costs and the endogeneity of explanatory variables the results show that capital buffers are positively related to the cost of deposits and bank market power although the relations vary across countries depending on regulation supervision and institutions their impact is the result of two generally opposing effects restrictions on bank activities and official supervision reduce the incentives to hold capital buffers by weakening market discipline but at the same time they promote higher capital buffers by increasing market power institutional quality has the two opposite effects better accounting disclosure and less generous deposit insurance however have a clear positive effect on capital buffers by both strengthening market discipline and making charter value better able to reduce risk taking incentives

does the basle capital accord reduce bank fragility an assessment of the value at risk approach abstract we examine the economic implications arising from a bank using a var constrained mean variance model for the selection of its trading portfolio as a consequence of the basle capital accord surprisingly we show that when a var constraint is imposed it is plausible that certain banks will end up selecting riskier portfolios than they would have chosen in the absence of the constraint accordingly regulators such as the basle committee on banking supervision should be aware that allowing a bank to use var to determine its minimum regulatory capital may increase its fragility alternatives to var based bank capital regulation that mitigate or even preclude its perverse implications are presented

a comparison of var and cvar constraints on portfolio selection with the mean variance model in this paper we analyze the portfolio selection implications arising from imposing a value at risk var constraint on the mean variance model and compare them with those arising from the imposition of a conditional value at risk cvar constraint we show that for a given confidence level a cvar constraint is tighter than a var constraint if the cvar and var bounds coincide consequently a cvar constraint is more effective than a var constraint as a tool to control slightly risk averse agents but in the absence of a risk free security has a perverse effect in that it is more likely to force highly risk averse agents to select portfolios with larger standard deviations however when the cvar bound is appropriately larger than the var bound or when a risk free security is present a cvar constraint dominates a var constraint as a risk management tool

assessing the risk return trade off in loan portfolios abstract this paper proposes a methodology to analyse the risk and return of large loan portfolios in a joint setting i propose a tractable model to obtain the distribution of loan returns from observed interest rates and default frequencies i follow a sectoral approach that captures the heterogeneous cyclical features of different kinds of loans and yields moments in closed form i investigate the validity of mean variance analysis with a value at risk constraint and study its relationship with utility maximisation finally i study the efficiency of corporate and household loan portfolios in an empirical application to the spanish banking system

a new technique for postsample model selection and validation abstract the model selection and granger causality literatures have focused on insample rather than postsample hypothesis testing this is because postsample model validation periods are usually short whereas the correlations in typical postsample forecast errors require large sample methods a resampling based postsample inference procedure is described which explicitly estimates the uncertainty which its large sample approximation induces in the inference significance levels it produces the procedure is applied to postsample forecasting errors from the ashley et al 1980 study examining granger causation between us consumption and advertising expenditures postsample model validation is apparently feasible but requires longer postsample periods than past studies have allocated

on the granger causality between median inflation and price dispersion the granger causal relationship between the size and dispersion of fluctuations in sub components of the us consumer price index cpi is examined using both in sample and out of sample tests and data from january 1968 to december 2008 strong in sample evidence is found for feedback between median inflation and price dispersion the evidence for granger causation from median inflation to price dispersion remains strong in out of sample testing but is less strong for granger causation in the opposite direction the implications of these results for the variety of price level determination models in the literature are discussed

potential cooperation in renewable energy between china and the united states of america abstract china and the united states of america us are developing renewable energy concurrently in this paper we seek the opportunities for potential cooperation between these two countries based on the analysis of annual economic data a mathematical model has been established to characterize correlations among gdp carbon dioxide emissions energy prices and the renewable energy cooperation index based on statistical analyses such cooperation can promote economic development reduce carbon dioxide emissions improve the environment and realize green growth if us monetary and technology resources and chinese markets are combined benefits can be mutually gained

economic implications of using a mean var model for portfolio selection a comparison with mean variance analysis abstract we relate value at risk var to mean variance analysis and examine the economic implications of using a mean var model for portfolio selection when comparing two mean variance efficient portfolios the higher variance portfolio might have less var consequently an efficient portfolio that globally minimizes var may not exist surprisingly we show that it is plausible for certain risk averse agents to end up selecting portfolios with larger standard deviations if they switch from using variance to var as a measure of risk therefore regulators should be aware that var is not an unqualified improvement over variance as a measure of risk

risk based capital requirements and bank portfolio risk abstract we construct a linear programming model and analyze the effectiveness of r b capital adequacy standards when bank deposits are fully insured we derive a set of optimal asset risk weights given a constraint in raising equity and using these weights the r b capital plan is an effective regulation mechanism without a constraint on equity maximum leverage restrictions and r b capital plans are mutually exclusive alternatives as we deviate from the optimal risk weights a combination of a leverage restriction and a r b equity ratio seems to be the more appropriate approach to controlling bank portfolio risk

the economic value of controlling for large losses in portfolio selection abstract research on asset pricing has shown that investor preferences include asymmetry and tail heaviness which affects the composition of optimal portfolios this article investigates the out of sample economic value of introducing the risk of very large losses in portfolio selection we combine mean variance analysis with conditional value at risk using the subadditivity property of conditional value at risk and we introduce a two stage method that preserves diversification while controlling for large losses we find that strategies that account both for variance and the probability of large losses outperform efficient mean variance portfolios during and after the global financial crisis

banks buffer capital how important is risk abstract most banks hold a capital to asset ratio well above the required minimum defined by the present capital adequacy regulation basel i using bank level panel data from norway important hypotheses concerning the determination of this buffer capital are analyzed focus is on the importance of i risk ii the buffer as an insurance iii the competition effect iv supervisory discipline and v economic growth a negative or non significant risk effect is found which suggests that introducing a more risk sensitive capital regulation basel ii is likely to affect norwegian banks support is found for the hypothesis that buffer capital serves as an insurance against failure to meet the capital requirements

the relationship between relative prices and the general price level it is very nearly a truismi amaong neoclassical economists that the public is wont to confuse changes in the general price level with relative price changes correspondingl y one might speak of the independence between the two as one of the central postulates of the neoclassical tradition william stanley jevons was aml ong the first to identify this basic dichotomin economic life as well as to attempt to explain the ordinary citizen s seenming incapacity to understand it

china s 2020 clean energy target consistency pathways and policy implications abstract china has proposed its 2020 clean energy target together with the climate change target of reducing co2 intensity of the economy by 40 45 below the 2005 level this article investigates the feasibility of these targets by testing their consistency under possible economic development scenarios we analyse these targets from two perspectives consistency with the overall economic growth and consistency with the international society s expectation on china s greenhouse gas ghg abatement responsibilities the main findings are under the recently announced 2020 target of gross domestic product gdp that is double the 2010 level the adoption of a 15 clean energy target could result in excessive primary energy demand and then with 40 45 gdp co2 intensity reduction co2 emissions in 2020 could substantially exceed the international energy agency iea 450 ppm scenario for china thus we propose a 17 clean energy target that can reconcile the domestic plan with international expectation our article also outlines the pathways to realise clean energy development into 2020 and proposes policy recommendations

shortfall as a risk measure properties optimization and applications motivated from second order stochastic dominance we introduce a risk measure that we call shortfall we examine shortfall s properties and discuss its relation to such commonly used risk measures as standard deviation var lower partial moments and coherent risk measures we show that the mean shortfall optimization problem unlike mean var can be solved e7ciently as a convex optimization problem while the sample mean shortfall portfolio optimization problem can be solved very e7ciently as a linear optimization problem we provide empirical evidence a in asset allocation and b in a problem of tracking an index using only a limited number of assets that the mean shortfall approach might have advantages over mean variance 2003 elsevier b v all rights reserved

portfolio selection based on predictive joint return distribution a predictive joint return distribution can provide more useful information than moment based risk measures in portfolio selection this article develops a d vine copula caviar method to estimate an

a note on the variability of inflation and the dispersion of relative price changes abstract the relationship between the variance of inflation and the variability of relative price changes is analyzed empirically a strong positive association is found for 1948 1969 and 1948 1975 application of chow s test indicates structural instability and granger s test suggests a feedback effect between these variables

optimal portfolios with minimum capital requirements abstract we propose a novel approach to active risk management based on the recent basel ii regulations to obtain optimal portfolios with minimum capital requirements in order to avoid regulatory penalties due to an excessive number of value at risk var violations capital requirements are minimized subject to a given number of violations over the previous trading year capital requirements are based on the recent basel ii amendments to account for the stressed var that is the downside risk of the portfolio under extreme adverse market conditions an empirical application for two portfolios involving different types of assets and alternative stress scenarios demonstrates that the proposed approach delivers an improved balance between capital requirement levels and the number of var exceedances furthermore the risk adjusted performance of the proposed approach is superior to that of minimum var and minimum stressed var portfolios

expected shortfall spectral risk measures and the aggravating effect of background risk or risk vulnerability and the problem of subadditivity abstract we analyze spectral risk measures srms including its most popular representative expected shortfall es with respect to gollier and pratt 1996 s concept of risk vulnerability we find that srms and risk vulnerability are mutually exclusive owing to the property of subadditivity while subadditivity is commonly regarded as the axiomatic cornerstone of srms risk vulnerability by contrast prevails if and only if superadditivity holds the lack of risk vulnerability yields questionable predictions in portfolio problems srm decision makers who split their wealth between a risk free and a risky asset do constantly opt for an increase in the risky investment when their deterministic background wealth is complemented by some additional background risk the more general setting where background wealth is already random and then becomes more risky is not as clear cut any srm decision maker may both increase or decrease the risky investment depending on the concrete instance of the portfolio problem however when random background wealth and the risky asset are jointly normally distributed srm decision makers will again unambiguously increase their risky investment we further conduct a data analysis and discuss possible implications of the findings for regulatory risk management

portfolio selection with a drawdown constraint abstract when identifying optimal portfolios practitioners often impose a drawdown constraint this constraint is even explicit in some money management contracts such as the one recently involving merrill lynch management of unilever s pension fund in this setting we provide a characterization of optimal portfolios using mean variance analysis in the absence of a benchmark we find that while the constraint typically decreases the optimal portfolio s standard deviation the constrained optimal portfolio can be notably mean variance inefficient in the presence of a benchmark such as in the merrill lynch unilever contract we find that the constraint increases the optimal portfolio s standard deviation and tracking error volatility thus the constraint negatively affects a portfolio manager s ability to track a benchmark

risk in banking and capital regulation this paper investigates the role of bank capital regulation in risk control it is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance bank capital regulation is a way to redress this bias toward risk utilizing the mean variance model the following results are shown a the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks b as a solution to problems of the capital ratio regulation the theoretically correct risk weights under the risk based capital plan are explicitly derived and c the theoretically correct risk weights are restrictions on asset composition which alters the optimal portfolio choice of banking firms the recent increase in bank failures especially after the 1980 and 1982 deregulatory acts has again ignited a controversy over the risk portfolio of the banking industry given the importance of this sector there has been increased scrutiny of the industry s motives for risk taking and possible regulatory changes to improve its stability these investigations have centered around two rather complementary areas the first of these is the role of deposit insurance and how its current pricing procedure encourages risk taking and justifies current bank regulations the works of buser chen and kane 4 kane 9 and benston et al 2 have made substantive contributions the authors demonstrates the way in which our current fixed rate insurance system rewards risk taking by the firm and insulates it through deposit insurance from the market discipline that needs to exist to ensure proper risk evaluation this realization has led these authors to propose a series of regulatory changes to encourage proper portfolio choice within the industry these include a shift to market value accounting risk based deposit insurance premiums and additional capital regulation the last of these serves as a method of coinsurance whereby higher capital levels require the bank to absorb greater losses in the event of failure and encourage additional prudence in management in essense it is one method of risk reduction that may offset the risk preference imposed on the industry due to the inappropriate insurance pricing because the amount of capital influences the probability of bank insolvency and thus the soundness of the entire banking system the regulators ceteris paribus prefer more capital to

robustness of the relationship between price variability and inflation for us manufacturing we study the relationship between relative price variability and inflation in two different ways we first look at product class census unit values for five time periods between 1958 and 1982 and find evidence of a positive relationship between variability and inflation then we directly update the vining and elwertowski 1976 study for the period 1974 91 using individual commodity series from the bureau of labor statistics we conclude by discussing differences across industries in price stickiness

imperfect competition risk taking and regulation in banking abstract we asses the welfare implications of banking competition under various deposit insurance regimes in a model of imperfect competition with social failure costs and where banks are subject to limited liability we study the links between competition for deposits and risk taking incentives and conclude that the welfare performance of the market and the appropriateness of alternative regulatory measures depend on the degree of rivalry and the deposit insurance regime specifically when competition is intense and the social failure costs high deposit rates are excessive both in a free market and with risk based insurance if insurance premiums are insensitive to risk then the same is true even if there is no social cost of failure we find also that in an uninsured market with nonobservable portfolio risk or with flat premium deposit insurance deposit regulation rate regulation or deposit limits and direct asset restrictions are complementary tools to improve welfare in an uninsured market with observable portfolio risk or with risk based insurance deposit regulation may be a sufficient instrument to improve welfare

energy security in china a quantitative analysis and policy implications abstract this study aims to examine how china s energy security has changed over 30 years of reform and the opening period it constructs a 4 as quantitative evaluation framework the availability of energy resources the applicability of technology the acceptability by society and the affordability of energy resources the quantitative results show that china s energy security was at its best during the sixth fyp period 1981 1985 but then deteriorated until it hit higher levels between 1995 and 2005 however it was still lower than the level reached during the sixth fyp period during the eleventh fyp period 2006 2010 the energy security situation deteriorated again differences in policy priority over the study period appear to affect the country s energy security status this study suggests that china needs to develop renewable energy resources on a large scale and pay more attention to emissions control to reverse the downward trend in energy security

the cyclical behaviour of european bank capital buffers using an unbalanced panel of accounting data from 1997 to 2004 and controlling for individual bank costs and risk we find capital buffers of the banks in the eu15 have a significant negative co movement with the cycle for banks in the accession countries there is significant positive co movement capital buffers of commercial and savings banks and of large banks exhibit negative co movement those of co operative and smaller banks exhibit positive co movement speeds of adjustment are fairly slow we interpret these results and discuss policy implications noting that negative co movement of capital buffers will exacerbate the pro cyclical impact of basel ii

active portfolio management with benchmarking adding a value at risk constraint abstract we examine the impact of adding a value at risk var constraint to the problem of an active manager who seeks to outperform a benchmark while minimizing tracking error variance tev by using the model of roll 1992 a mean variance analysis of tracking error journal of portfolio management 18 13 22 we obtain three main results first portfolios on the constrained mean tev boundary still exhibit three fund separation but the weights of the three funds when the constraint binds differ from those in roll s model second the constraint mitigates the problem that when an active manager seeks to outperform a benchmark using the mean tev model he or she selects an inefficient portfolio finally when short sales are disallowed the extent to which the constraint reduces the optimal portfolio s efficiency loss can still be notable but is smaller than when short sales are allowed

public attitudes towards renewable energy technologies in norway the role of party preferences abstract transition to a sustainable society requires large scale conversion of the energy system to new renewable non fossil sources of energy this presupposes public support for new technologies which means the public must deal with challenges in terms of placement area requirements ecological degradation and price developments this paper discusses how citizens view renewable energy technologies it analyses responses to representative surveys of the norwegian population on the desirability of various energy technologies such as hydroelectric dams onshore and offshore wind energy bioenergy plants and for contrast gas plants with and without carbon capture and storage our main focus is on the influence of party political preference on views of renewable energy we find that the sometimes lukewarm enthusiasm for renewable energy technologies cannot be fully explained by existing theories and that political party preference has a larger impact on energy technology attitudes than previously believed

bank capital and equity investment regulations abstract this paper uses an intermediation model to study the efficiency and welfare implications of both banks minimum required capital asset ratio and the regulation that limits and in some countries forbids banks investments in the equity of nonfinancial firms there are two sources of moral hazard in the model one between the bank and the provider of deposit insurance and the other between the bank and an entrepreneur who demands funds to finance an investment project among other things the paper shows that capital regulation improves the bank s stability and can also be pareto improving equity regulation is never pareto improving and does not increase the bank s stability

employment unemployment and the minimum wage a causality model some empirical work concerning the minimum wage tends to confirm the negative impacts of the law on employment but much of that work leaves the existence and size of the fiat s effects uncertain furthermore many of the theoretical and statistical advances of the past 1 decades have yet to be incorporated into the analysis of the law s effects we apply time series and causality testing analysis developed from the transfer function to the minimum wage employment unemployment series we find some evidence that the minimum wage has lowered the employment of white male teenagers age 16 19 and nonwhite males over the age of 20 however these impacts are small no other significant employment impacts are discovered and no significant unemployment impacts are found additional study of the law s impacts using advanced statistical methods is required

inflation and the distribution of price changes across markets a causal analysis recent advances in time series methodology are applied to the investigation of causal relationships between monthly changes in the consumer price index and changes in its dispersion across different consumption categories this dispersion is associated with the degree to which relative prices are changing past inflation rates seem useful in forecasting changes in relative prices but not vice versa there is also a significant contemporaneous correlation between these series hence it is concluded that fluctuations in the inflation rate help cause fluctuations in relative prices but not vice versa unless the entire effect occurs within a month the analysis also serves to illustrate a new way to implement the granger causality concept

intra industry trade with multinational firms recent developments including the analysis of firm level adjustment to falling trade costs have contributed to a revival of interest in intra industry trade iit most empirical work still relies on the standard grubel lloyd measure this however refers only to international trade disregarding income flows stimulated by repatriated profits of multinational firms given the overwhelming importance of the latter this is a major shortcoming this paper provides a guide to measurement and estimation of the determinants of bilateral iit shares from the perspective of new trade theory with multinational firms we develop an analytically solvable general equilibrium model to investigate the impact of investment costs multinational activities and income flows from repatriated profits we also discuss and quantify the bias of the grubel lloyd index associated with repatriated profit flows of multinationals using bias corrected versions of the grubel lloyd index as the dependent variable we demonstrate that the determinants motivated by our theoretical analysis offer important insights into variations in iit shares

optimization of electricity retailer s contract portfolio subject to risk preferences when an electricity retailer faces volume risk in meeting load and spot price risk in purchasing from the wholesale market conventional risk management optimization methods can be quite inefficient for the management of an electricity contract portfolio in this context we develop a multistage stochastic optimization approach which accounts for the uncertainties of both electricity prices and loads and which permits the specification of conditional value at risk requirements to optimize hedging across intermediate stages in the planning horizons our experimental results based on real data from nordpool suggest that the modeling of price and load correlations is particularly important the sensitivity analysis is extended to characterize the behavior of retailers with different risk attitudes thus we observe that a risk neutral retailer is more susceptible to price related than load related uncertainties in terms of the expected cost of satisfying the load and that a risk averse retailer is especially sensitive to the drivers of the forward risk premium

bank resolution a framework for the assessment of regulatory intervention more than ever the current crisis has highlighted the cost of banking crises in budgetary and economic growth terms whether or not to restructure a bank is a key determinant of who bears the costs the present article surveys the main issues concerning banks restructuring by considering the bargaining game that is played between regulators and shareholders when a bank is in distress this revolves around the framework of negotiation that was established by the regulator the fall back position which is determined by bankruptcy legislation and the objective function of the regulator in this context we argue that it is possible to improve upon existing restructuring mechanisms by making banks bail outs less costly to taxpayers and improving the ex ante incentives of banks managers and shareholders the authors 2012 published by oxford university press

systemic risk and bank business models textabstractin this paper we decompose banks systemic risk into two dimensions the risk of a bank bank tail risk and the link of the bank to the system in financial distress systemic linkage based on extreme value theory we estimate a systemic risk measure that can be decomposed into two subcomponents reflecting these dimensions empirically we assess the relationships of bank business models to the two dimensions of systemic risk the observed differences in these relationships partly explain why micro and macroprudential perspectives sometimes have different implications for banking regulation

banks regulatory buffers liquidity networks and monetary policy transmission based on a quarterly regulatory dataset for german banks from 1999 to 2004 this paper analyzes the effects of banks regulatory capital on the transmission of monetary policy in a system of liquidity networks the dynamic panel regression results provide evidence in favor of the bank capital channel theory banks holding less regulatory capital and less interbank liquidity react more restrictively to a monetary tightening than their peers

does collateral fuel moral hazard in banking this paper presents two models in which the fluctuating value of loan collateral real estate generates the problem of moral hazard between a bank and a deposit insurance agent the bank finances risky projects against collateral and relies on the rising collateral value if the collateral value later appreciates the bank enjoys handsome profits otherwise the bank fails the findings are rather consistent with the characteristics of the topical subprime mortgage crisis

on inflation and real price variability this paper studies the consequences of costly price adjustments for the variability of real prices accompanying inflation for constant elasticity demand and cost of production it is shown that a higher demand a lower cost of production or a lower cost of price adjustment leads to less intertemporal variability of real prices if the marginal cost of production does not increase too fast then the average real price is less than the real price that would prevail in the absence of inflation additionally a higher demand a lower cost of production or a lower cost of price adjustment leads to a higher level of real prices

bank size and risk taking under basel ii this paper discusses the relationship between bank size and risk taking under pillar i of the new basel capital accord using a model with imperfect competition and moral hazard we find that small banks and hence small borrowers may profit from the introduction of an internal ratings based irb approach if this approach is applied uniformly across banks however the banks right to choose between the standardized and the irb approaches unambiguously hurts small banks who are pushed towards higher risk taking due to fiercer competition this may even lead to higher aggregate risk in the economy

china s renewable energy law and its impact on renewable power in china progress challenges and recommendations for improving implementation beginning in 2006 china experienced a rapid growth in its renewable energy resources particularly wind power placing it among the world s leading countries in terms of renewable energy installation and generation this growth was greatly enabled by the renewable energy policy framework created by its landmark renewable energy law passed in 2005 and amended in 2009 which established key policies including national renewable energy targets a mandatory connection and purchase policy a national feed in tariff system and arrangements for cost sharing and funding of renewable energy incentives this paper describes the mechanisms established by the renewable energy law and its implementing regulations as well as the challenges china continues to face in improving its renewable energy policy framework to improve integration and utilization of renewable energy sources it also provides a comparison of the chinese renewable energy policy framework with those in the european union and united states finally the paper provides recommendations for improving implementation of the renewable energy law with regard to implementing a renewable power quota system and priority dispatch policy developing technical standards for connection of renewable resources with the grid development of a more advanced feed in tariff system and central local coordination of renewable energy development

variability of inflation and the dispersion of relative prices evidence from the chinese hyperinflation of 1946 1949 abstract this paper uses data from the chinese hyperinflation of 1946 1949 to focus on the relationship between the variability in the general price level and the dispersion in relative prices the issue is important because it bears on the natural rate hypothesis which supports the postulate that these two monetary variables are independent our results reinforce the bulk of previous evidence which suggests a positive correlation between the variation in inflation rate and the dispersion in relative prices during inflationary episodes

accounting for banks capital regulation and risk taking this paper examines risk taking incentives in banks under dierent accounting regimes with capital regulation in the model the bank s decisions of capital issuance and investment policy are jointly determined given exogenous minimum capital requirement the bank is more likely to issue equity capital in excess of the minimum required level and implement less risky investment policy under either lower of cost ormarket accounting or fair value accounting than under historical cost accounting but fair value accounting may induce more risk taking compared to lower of cost or market accounting due to short term interest in the part of the bank however the disciplining role of lower of cost or market accounting may discourage bank s incentive to exert project discovery eort

investigating the causal relationship between quits and wages an exercise in comparative dynamics this paper examines the causal relationship between wages and quits in u s manufacturing industries logit and regression models then relate causality test results to industrial characteristics once these relationships are identified they can be used to predict the causality classification for each industry based on the characteristics of that industry this technique can help the researcher choose the appropriate theoretical model for analysis one finding is that quits respond to wages in most industries but not in industries with highly skilled workforces

risk2 measuring the risk in value at risk the recent derivatives disasters have focused the attention of the finance industry on the need to control financial risks better this search has led to a uniform measure of risk called value at risk var which is the expected worst loss over a given horizon at a given confidence level var numbers however are themselves affected by sampling variation or estimation risk thus the risk in value at risk itself nevertheless given these limitations var is an indispensable tool to control financial risks this article lays out the statistical methodology for analyzing estimation error in var and shows how to improve the accuracy of var estimates

a comparison of the original and revised basel market risk frameworks for regulating bank capital abstract recognizing that many banks suffered trading losses that notably exceeded their minimum capital requirements during the recent crisis the basel committee on banking supervision 2011 revised its regulatory framework for trading portfolios in this paper we compare 1 the relative effectiveness of risk management systems based on the original and revised frameworks in controlling tail risk and 2 the relative adequacy of these frameworks in setting minimum capital requirements our main findings are as follows first both systems allow the selection of portfolios with substantive tail risk but one based on the revised framework tends to be less effective in controlling tail risk second the minimum capital requirements set by the revised framework are much less likely to be wiped out by trading losses than those set by the original framework hence on balance the revised framework improves upon the original framework we also suggest further improvements for consideration by bank regulators

capital requirements and the behaviour of commercial banks abstract i study the consequences of capital regulations on the portfolio choices of commercial banks elaborating on previous work by kareken and wallace 1978 koehn and santomero 1980 and kim and santomero 1988 i obtain the following results if the objective of commercial banks is maximization of the market value of their future profits value maximizing banks capital regulations cannot prevent banks from choosing very specialized and very risky portfolios risk based insurance premia are in fact the relevant instrument for that purpose on the other hand if banks behave as portfolio managers utility maximizing banks capital regulations can be effective but only if the weights used in the computation of the ratio are proportional to the systematic risks of the assets their betas because of limited liability of commercial banks a minimum capital regulation or a closing rule may become necessary as well to prevent failing banks from betting for resurrection

prospect theory and mean variance analysis the experimental results of prospect theory pt reveal suggest that investors make decisions based on change of wealth rather than total wealth that preferences are s shaped with a risk seeking segment and that probabilities are subjectively distorted this article shows that while pt s findings are in sharp contradiction to the foundations of mean variance mv analysis counterintuitively when diversification between assets is allowed the mv and pt efficient sets almost coincide thus one can employ the mv optimization algorithm to construct ptefficient portfolios the markowitz 1952a tobin 1958 mean variance mv rule is probably the most popular investment decision rule under uncertainty in economics and in finance and it is widely employed by both academics and practitioners the strength of the mv analysis is that in the case of normal return distributions the choice of any expected utility maximizing risk averse individual will be according to the mv rule 1 the mv framework is the foundation of the sharpe 1964 lintner 1965 capital asset pricing model capm which is a cornerstone of modern finance moreover the mv framework provides a very important practical procedure for the construction of efficient portfolios while standard economic theory and in particular mv analysis assume expected utility maximization and risk aversion in a breakthrough article kahneman and tversky 1979 show that the actual behavior of individuals systematically and consistently violates these

evaluating the dynamic performance of energy portfolios empirical evidence from the dea directional distance function abstract in recent years the complex global energy commodity market has led to increased uncertainty for energy investment returns and tremendous challenges for investors to design appropriate energy portfolios therefore we employ four popular portfolio methods to determine energy portfolios based on daily fossil fuel futures prices during 2006 2015 moreover we use the dea window analysis method and dea directional distance function to comprehensively evaluate the dynamic performance of these energy portfolios based on the efficiency perspective the empirical results indicate that first to increase investment returns the mean variance method that exclusively emphasizes the maximization of returns shows the best performance however in order to decrease the volatility and risk of investment returns the mean variance method that aims to resist risk more than make profits and the bootstrap historical simulation value at risk var method have the best performance second when the global financial crisis broke out in the second half of 2008 and energy markets experienced a sharp downturn in the second half of 2014 the dea efficiency of energy portfolios appeared relatively lower than those of their neighboring periods regardless of which portfolio method is employed finally the average dea efficiencies of energy portfolios are all higher than those of single energy investment throughout the sample period except when the equally weighted method and the information entropy comprehensive index method are used meanwhile the mean variance method that prefers profit making to risk resisting possesses the highest average dea efficiency among various methods concerned

on the normality of relative price changes abstract the purpose of this paper is to present evidence on the non normality of relative price changes in west germany based on annual data for forty industries krengel et al n d the question of normality is examined only for germany

a reexamination of mean variance analysis of bank capital regulation abstract the mean variance framework has been used to analyze the effects of bank capital regulation on the asset and bankruptcy risk of insured utility maximizing banks this literature claims that more stringent capital regulation will increase asset risk and can increase bankruptcy risk these conclusions are notable because they are opposite to those obtained for insured value maximizing banks in this paper we show that the utility maximization literature does not support its conclusions regarding the effects of bank capital regulation because it has mischaracterized the bank s investment opportunity set by neglecting the option value of deposit insurance

climate policy induced investments in developing countries the implications of investment risks international climate policy has assigned the leading role in emissions abatement to the industrialized countries while developing countries remain uncommitted to binding emission reduction targets however cooperation between the industrialized and the developing world through joint implementation of emission abatement promises substantial economic gains to both parties in this context the policy debate on joint implementation has addressed the question of how investment risks to project based emission crediting between industrialized countries and developing countries affect the magnitude and distribution of such gains in our quantitative analysis we find that the incorporation of country specific investment risks induces rather small changes vis a vis a situation where investment risks are neglected only if investors go for high safety of returns is there a distinct decline in the overall volume of emission crediting and the associated total economic benefits while the welfare effects of risk incorporation for industrialized countries are unequivocally negative the implications across developing countries are ambiguous whereas low risk developing countries attract higher project volumes and benefit from higher effective prices per emission credit compared to a reference scenario without risk the opposite applies to high risk countries sensitivity analysis with respect to higher risk estimates show that shifts in the comparative advantage of emission abatement against high risk countries may become dramatic as only very low cost mitigation projects will be realized driving down the country s benefits from emission crediting to the advantage of low risk developing countries this result is supported by empirical evidence on regional imbalances of activities implemented jointly under the pilot phase of the kyoto protocol

mean variance portfolio selection with at risk constraints and discrete distributions we examine the impact of adding either a var or a cvar constraint to the mean variance model when security returns are assumed to have a discrete distribution with finitely many jump points three main results are obtained first portfolios on the var constrained boundary exhibit k 2 fund separation where k is the number of states for which the portfolios suffer losses equal to the var bound second portfolios on the cvar constrained boundary exhibit k 3 fund separation where k is the number of states for which the portfolios suffer losses equal to their vars third an example illustrates that while the var of the cvar constrained optimal portfolio is close to that of the var constrained optimal portfolio the cvar of the former is notably smaller than that of the latter this result suggests that a cvar constraint is more effective than a var constraint to curtail large losses in the mean variance model 2007 elsevier b v all rights reserved

renewable energy consumption and economic growth evidence from a panel of oecd countries abstract this study examines the relationship between renewable energy consumption and economic growth for a panel of twenty oecd countries over the period 1985 2005 within a multivariate framework given the relatively short span of the time series data a panel cointegration and error correction model is employed to infer the causal relationship the heterogeneous panel cointegration test reveals a long run equilibrium relationship between real gdp renewable energy consumption real gross fixed capital formation and the labor force with the respective coefficients positive and statistically significant the granger causality results indicate bidirectional causality between renewable energy consumption and economic growth in both the short and long run

limiting losses may be injurious to your wealth abstract theory tells us that if return distributions are independent over time an expected utility maximizing logarithmic utility investor will almost surely accumulate the most long run wealth this paper examines the robustness of the result specifically it examines the expected and unexpected long run and short run consequences of imposing value at risk and other loss constraints on power utility investors with a numerical example and empirically in an asset allocation setting covering the 1934 2008 period in addition it examines the expected and unexpected long run consequences of imposing conditional value at risk constraints on power utility and prospect theory kinked linear utility investors

sustainable development renewable resources and technological progress conflicts between optimality and sustainability are typical in the literature on sustainable development using the capital resource growth model pezzey and withagen 1998 scandinavian journal of economics 100 2 513 527 have proved that if natural resources are exhaustible the time path of consumption is single peaked declining from some point in time onwards this paper extends the model to include technical progress resource renewability extraction costs and population growth the main result is that for any constant returns to scale technology optimal paths can be sustainable only if the social discount rate does not exceed the sum of the rates of resource regeneration and augmentation the development of resource saving techniques is crucial for sustaining consumption per capita in the long run whereas capital depreciation and extraction costs are neutral with respect to this sustainability condition

relative prices and money a vector autoregression on brazilian data recent data on brazilian agricultural prices industrial prices and money supply are analyzed in a vector autoregression the empirical findings show strong one way granger type causality from money supply to agricultural prices while feedback is observed between industrial prices and money supply under the usual monetarist ordering of contemporaneous innovation covariance agricultural prices do not adjust faster than industrial prices to a shock in the money supply

conditional value at risk spectral risk measures and non diversification in portfolio selection problems a comparison with mean variance analysis abstract we study portfolio selection under conditional value at risk and as its natural extension spectral risk measures and compare it with traditional mean variance analysis unlike the previous literature that considers an investor s mean spectral risk preferences for the choice of optimal portfolios only implicitly we explicitly model these preferences in the form of a so called spectral utility function within this more general framework spectral risk measures tend towards corner solutions if a risk free asset exists diversification is never optimal similarly without a risk free asset only limited diversification is obtained the reason is that spectral risk measures are based on a regulatory concept of diversification that differs fundamentally from the reward risk tradeoff underlying the mean variance framework

necessary conditions for the capm abstract the general restrictions on all economic primitives i e a endowments b preferences and c asset return distributions that yield the capm under the expected utility paradigm are provided these results are then used to derive the class of restrictions on preferences and the distribution of asset returns alone that provides the capm we also show that the conditions that provide the capm and derived preferences over mean and variance are equivalent consequently this paper also resolves the question of when mean variance maximization is consistent with expected utility maximization journal of economic literatureclassification numbers g12 g11 d50

entropic risk measures and their comparative statics in portfolio selection coherence vs convexity abstract we conduct a decision theoretic analysis of optimal portfolio choices and in particular their comparative statics under two types of entropic risk measures the coherent entropic risk measure cerm and the convex entropic risk measure erm starting with the portfolio selection between a risky and a risk free asset framework of arrow 1965 and pratt 1964 we find a restrictive all or nothing investment decision under the cerm while the erm yields diversification we then address a portfolio problem with two risky assets and provide comparative statics with respect to the investor s risk aversion framework of ross 1981 here both the cerm and the erm exhibit closely interrelated inconsistencies with respect to the interpretation of their risk parameters as a measure of risk aversion for any two investors with different risk parameters it may happen that the investor with the higher risk parameter invests more in the riskier one of the two assets finally we analyze the portfolio problem risky vs risk free in the presence of an independent background risk and analyze the effect of changes in this background risk framework of gollier and pratt 1996 again we find questionable predictions under the cerm the optimal risky investment is always increasing instead of decreasing when a background risk is introduced while under the erm it remains unaffected

impact of inter sectoral trade on national and global co2 emissions an empirical analysis of china and us abstract this paper attempts to discuss the co2 emissions embodied in sino us international trade using a sector approach based on an input output model established in this study we quantify the impact of sino us international trade on national and global co2 emissions our initial findings reveal that in 2005 the us reduced 190 13 mt co2 emissions through the consumption of imported goods from china while increasing global co2 emissions by about 515 25 mt similarly china reduced 178 62 mt co2 emissions through the consumption of us goods while reducing global co2 emissions by 129 93 mt sino us international trade increased global co2 emissions by 385 32 mt as a whole of which the chemical fabricated metal products non metallic mineral products and transportation equipment sectors contributed an 86 71 share therefore we suggest that accelerating the adjustment of china s trade structure and export of us advanced technologies and experience related to clean production and energy efficiency to china as the way to reduce the negative impact of sino us trade on national and global co2 emissions this behavior should take into account the processing and manufacturing industries as a priority especially the chemical fabricated metal products non metallic mineral products and transportation equipment sectors

why basel ii may need a leverage ratio restriction abstract we analyze regulatory capital requirements where the amount of required capital depends on the level of risk reported by the banks it is shown that if the supervisors have a limited ability to identify or to sanction dishonest banks an additional risk independent leverage ratio restriction may be necessary to induce truthful risk reporting the leverage ratio helps to offset the banks potential capital savings of understating their risks by i reducing banks put option value of limited liability ex ante and by ii increasing the banks net worth which in turn enhances the supervisors ability to sanction banks ex post

an experimental exploration of self fulfilling banking panics their occurrence persistence and prevention this article tests the possibility and the degree of persistence of self fulfilling banking panics through an experimental protocol panics are proved to be persistent phenomena that are difficult to prevent however it seems possible to curb them through a learning effect caused by a temporary but sufficient suspension of the deposit availability combined with a narrow banking solution which makes banks more liquid additionally panic prevention requires a full deposit coverage to be effective this suggests that the moral hazard issue should not be tackled through a lower deposit coverage especially in emerging countries banking systems where depositors are likely to lose confidence

when more is less using multiple constraints to reduce tail risk abstract financial institutions suffered large trading losses during the 2007 2009 global financial crisis these losses cast doubt on the effectiveness of regulations and risk management systems based on a single value at risk var constraint while some researchers have recommended using conditional value at risk cvar to control tail risk var remains popular among practitioners and regulators accordingly our paper examines the effectiveness of multiple var constraints in controlling cvar under certain conditions we theoretically show that they are more effective than a single var constraint furthermore we numerically find that the maximum cvar permitted by the constraints is notably smaller than with a single constraint these results suggest that regulations and risk management systems based on multiple var constraints are more effective in reducing tail risk than those based on a single var constraint

going green trade specialisation dynamics in the solar photovoltaic sector abstract the present study aims at providing a comprehensive analysis of trade flows and the domestic value creation of the major solar photovoltaic industry at the world level solar technologies convert light and heat from the sun into useful energy the use of the sun s energy can not only reduce the consumption of conventional fuels thus reducing the emission of detrimental greenhouse gases but it can also enable a gain in enhanced fuel and energy security along with lessening costs in addition green technologies and industries can promote economic growth and international competitiveness and can offer new business and employment opportunities it becomes therefore extremely important to deeply explore the dynamics of the solar photovoltaic sector specifically the present work analyses the main global trends of this sector and sketches the key players on the world market including producers installers and top traders based on an analysis of trade flows at the 6 digit level the international specialisation patterns are investigated and the role of various market and trade drivers including subsidies in the uptake of solar technologies is identified and examined

stochastic dominance and risk measure a decision theoretic foundation for var and c var abstract is it possible to obtain an objective and quantifiable measure of risk backed up by choices made by some specific groups of rational investors to answer this question in this paper we establish some behavior foundations for various types of var models including var and conditional var as measures of downside risk in this paper we will establish some logical connections among vars conditional var stochastic dominance and utility maximization though supported to some extents with unanimous choices by some specific groups of expected or non expected utility investors vars as profiles of risk measures at various levels of risk tolerance are not quantifiable they can only provide partial and incomplete risk assessments for risky prospects we also include in our discussion the relevant vars and several alternative risk measures for investors these alternatives use somewhat weaker assumptions about risk averse behavior by incorporating a mean preserving spread for this latter group of investors we provide arguments for and against the standard deviation versus var and conditional vars as objective and quantifiable measures of risk in the context of portfolio choice

integration of var and expected utility under departures from normality this article identifies the level of the expected utility eu risk aversion and value at risk var confidence level that yield the same choice from a given distribution of outcomes and thus allow for consistent application of the two criteria the result for a given distribution is an explicit mapping between risk aversion under eu and var for both normal and nonnormal distributions the cornish fisher expansion is used to establish adjusted mean deviates for nonnormal outcome distributions and the investor s preference function is expanded to include elements for variance skewness and excess kurtosis a farm level application with nonnormal revenue distribution illustrates these approaches

a new look at forecasting annual corporate earnings in the u s a abstract in this study composite earnings per share models are estimated for 35 chemical food and utility firms during the 1981 1982 period although it is generally held that financial analysts produce superior earnings forecasts when compared to time series model forecasts the results of this study indicate that analysts fared very poorly in 1982 and the average mean square forecasting error of analyst forecasts may be reduced by 74 2 percent by combining analyst and univariate time series model forecasts this reduction is very interesting when one finds that the univariate time series model forecasts do not substantially deviate from those produced by random walk drift models the arima 0 1 1 process moreover despite the high degree of correlation existing among analyst and time series forecasts the ordinary least squares estimation of the composite earnings model is a better forecasting model than the composite earnings models estimated with ridge regression and latent root regression techniques

dynamic linkages among real interest rates in international capital markets abstract short run and long run dynamic linkages among weekly real interest rates for g 10 countries are examined using a variety of time series tests these tests give special attention to the time series properties of nominal interest rates ex ante expected rates of inflation and real interest rates term structure information is used to recover a theoretically consistent measure of ex ante expected inflation in sample and out of sample granger causality tests are also examined to evaluate lead lag relationships among real interest rates the results provide strong support for well integrated markets particularly in the long run the results imply leadership roles for the us in international asset markets