estimation methods in portfolio selection and the effectiveness of short sales restrictions uk evidence forecasting the mean returns vector and the covariance matrix is a key feature in implementing portfolio theory the performance of the bayes stein method for forecasting these parameters for use in the markowitz model with and without short sales was compared with that of seven other estimation methods and three alternative portfolio selection techniques this paper represents the first large scale empirical investigation of the usefulness of the bayes stein approach using historical data this data was drawn from the london stock exchange in contrast to earlier studies the relative performance of bayes stein was mixed while it produced reasonable estimates of the mean returns vector there were superior methods e g overall mean for estimating the covariance matrix when short sales were permitted when short sales were prohibited actual portfolio performance was clearly improved although there was little to choose between the various estimation methods

no price like home global house prices 1870 2012 how have house prices evolved in the long run this paper presents annual house price indices for 14 advanced economies since 1870 based on extensive data collection we are able to show for the first time that house prices in most industrial economies stayed constant in real terms from the 19th to the mid 20th century but rose sharply in recent decades land prices not construction costs hold the key to understanding the trajectory of house prices in the long run residential land prices have surged in the second half of the 20th century but did not increase meaningfully before we argue that before world war ii dramatic reductions in transport costs expanded the supply of land and suppressed land prices since the mid 20th century comparably large land augmenting reductions in transport costs no longer occurred increased regulations on land use further inhibited the utilization of additional land while rising expenditure shares for housing services increased demand

relating life cycle assessment indicators to gross value added for dutch dairy farms sustainable dairy production requires farms that are economically viable environmentally sound and socially acceptable a low environmental impact of milk production is not necessarily associated with an economically viable farm to gain insight into a possible trade off between economic and environmental sustainability the relation between the environmental and economic indicators of dairy farms was quantified and farm characteristics that influence this relation were identified economic and environmental indicators were quantified for 119 specialized dairy farms in 2005 based on data from the dutch farm accountancy data network fadn economic indicators used were gross value added expressed per kg fat and protein corrected milk fpcm or expressed per unit of labour i e labour productivity environmental indicators used were land use per kg fpcm energy use per kg fpcm global warming potential per kg fpcm eutrophication and acidification potential per kg fpcm or per ha of land environmental indicators were deduced from a life cycle assessment high labour productivity on dairy farms was associated with low on farm energy use total and on farm land use total and on farm global warming potential and total and off farm acidification potential per kg fpcm high labour productivity however was associated also with high on farm eutrophication and acidification potential per hectare from partial least squares regression analysis it was concluded that relations between economic and environmental indicators were affected mainly by milk production per ha annual milk production per cow farm size and amount of concentrates per kg fpcm an increase in annual milk production per cow for example not only increased labour productivity reduced energy use and global warming potential per kg fpcm but also in the case of an unchanged stocking density increased eutrophication and acidification per ha to be economically and environmentally sustainable animal production in the netherlands therefore should focus on high animal productivity i e high annual milk production per cow and efficient use of feed per kg milk and moderate stocking density provided that a good animal welfare standard is guaranteed

improved estimates of higher order comoments and implications for portfolio selection in the presence of nonnormally distributed asset returns optimal portfolio selection techniques require estimates for variance covariance parameters along with estimates for higher order moments and comoments of the return distribution this is a formidable challenge that severely exacerbates the dimensionality problem already present with mean variance analysis this article extends the existing literature which has mostly focused on the covariance matrix by introducing improved estimators for the coskewness and cokurtosis parameters we find that the use of these enhanced estimates generates a significant improvement in investors welfare we also find that it is only when improved estimators are used that portfolio selection with higher order moments dominates mean variance analysis from an out of sample perspective the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please email journals permissions oxfordjournals org oxford university press

optimal portfolio of foreign currencies with borrowing and lending until the late sixties most american corporations held their liquid assets in the form of cash short term government notes and other highly liquid marketable securities since the early seventies more and more firms have begun to hold their current assets in foreign currencies beyond what would be required to conduct normal foreign operations in the last few years companies have accumulated and retained much more cash than they held in the past in order to understand the magnitude of this issue realize that at the end of 1977 cash and short term securities held by international business machines amounted to 5 4 billion by exxon 4 2 billion and ford and general motors held well above 3 billion obviously with this cash pile up most companies devote much attention to cash management even a slight improvement in the management of these assets means a substantial profit and firms have responded with highly trained staff in particular people familiar with the international money market and the investment opportunities available the change in attitude toward cash management may be summarized by the following quotation from a senior adviser to the j henry schroder bank and trust company companies are no longer looking at a bank balance they re looking at a

the unequal exchange of dutch cheese and kenyan roses introducing and testing an lca based methodology for estimating ecologically unequal exchange the theory of ecologically unequal exchange eue posits that international trade is structurally organized in a manner that allows a net transfer of resources from peripheral developing to core industrialized countries the consequence it is argued is under development in the periphery and augmented productive capacity in the core eue thus challenges the neoliberal free market argument that exchange at market prices is symmetric and fair an lca based methodology for estimating eue that holds constant the variable market price is introduced and tested on contemporary trade of dutch cheese and kenyan coffee and roses specifically the exchange of embodied land water energy global warming potential and labor is assessed the results confirm the theory s hypothesis at a fixed market price more embodied kenyan resources are exchanged for less dutch resources however kenyan roses give different results from coffee eue between countries can only be conclusively determined by considering the total biophysical trade balance but by calculating quantities of embodied resources per unit of exchange value it is possible to detect unequal exchange even at the level of individual commodities while integration of biophysical metrics alongside monetary valuation is recommended ultimately rethinking the structure policies and politics of international trade is necessary

monetary conditions and international investing we examine the relationship between monetary conditions and global stock returns previous studies established that u s stock returns during expansive u s monetary periods are significantly higher than returns during restrictive periods we found that this pattern prevails in non u s markets furthermore the pattern exists relative to both local and u s monetary conditions by examining several investment strategies we show that investors could have improved portfolio performance in the period studied by using both u s and local monetary conditions to guide their portfolio allocations using monetary conditions to determine portfolio composition would have been consistently beneficial throughout the past 30 years

massaging mean variance inputs returns from alternative global investment strategies in the 1980s this paper explores the impact of adjustments to the inputs on total returns terminal wealth and portfolio turnover in an unconstrained monthly mean variance mv asset allocation over time it is well known that mv allocations are very sensitive to small forecast errors in the means and covariances this sensitivity is especially pronounced for errors in means one way to control this sensitivity to forecast errors is to use stein estimation we examined three naive applications of stein estimation for six individual country stock indexes five country bond indexes and five cash indexes this study has two major conclusions first any of the suggested adjustments to inputs dominate the results of an unadjusted input mv optimization adjusted input portfolios have higher mean return less variance and greater terminal wealth than unadjusted input portfolios second these improvements become even greater with transaction costs

increasing returns migrations and convergence abstract the paper investigates the link between convergence and factor mobility it contrasts the predictions of exogenous growth models where factor mobility is found to promote convergence with endogenous growth models where factor mobility invariably leads to a cumulative process of regional divergence the paper develops a simple model of regional growth with mobile factors increasing returns to scale and diminishing returns to the reproducible factor it also tries to provide more solid microfoundations to the specification of the migration choice because of diminishing returns to the reproducible factor the economy will not be able to generate endogenous self sustaining growth nevertheless the results suggest that even in the context of an exogenous growth model convergence is not warranted however convergence may occur for some particular constellations despite the presence of increasing returns to scale more precisely it is shown that convergence is more likely the greater is the scope for scale economies and somewhat paradoxically the lower is the degree of labor mobility

money bonds and foreign exchange in the theory of finance capital markets provide securities which allow the ownership of productive assets to be allocated among investors according to their willingness to bear risk in exchange for return and independently of their tastes for the productive services provided by the assets this paper uses the theory of finance to study the role of money as a productive asset and the transformation of money into a portfolio asset true to its purpose the capital market provides securities nominal bonds that allow an allocation of the current services of the money supply according to its current productivity and without regard for its future purchasing power risk and an allocation of the future purchasing power risk of the money supply according to the willingness of investors to bear this risk in exchange for return and without regard for investor needs for the future transactions services of money in open

a dynamic globally diversified index neutral synthetic asset allocation strategy an investor with the ability to assess the prospective return and risk structure of the global capital markets can construct portfolios that over time will not only outperform actively or passively managed domestic asset portfolios but will also outperform passively managed global portfolios a bayesian approach to dynamic seemingly unrelated regression dsur is a robust and effective means to forecast the one step ahead conditional distribution of asset returns this approach recognizes the time varying nature of the global capital markets the predictive moments are used to derive a single factor return model once an index portfolio is specified the index portfolio represents an investor s underlying portfolio given the factor model that assesses the relative attractiveness and risk of the assets in relation to the index an index neutral portfolio is constructed as an overlay to enhance the returns of the index portfolio this portfolio is mean variance optimal is notional neutral i e the sum of the asset exposures is zero and has returns that are designed to be uncorrelated with the returns of the index portfolio the implementation of such an index neutral portfolio using derivative securities is simulated over the period january 1988 to december 1993

bayes stein estimation for portfolio analysis in portfolio analysis uncertainty about parameter values leads to suboptimal portfolio choices the resulting loss in the investor s utility is a function of the particular estimator chosen for expected returns so this is a problem of simultaneous estimation of normal means under a well specified loss function in this situation as stein has shown the clas sical sample mean is inadmissible this paper presents a simple empirical bayes estimator that should outperform the sample mean in the context of a portfolio simulation analysis shows that these bayes stein estimators provide significant gains in portfolio selection problems

disagreement portfolio optimization and excess volatility disagreement a key factor inducing trading has been receiving ever increasing attention in recent years most research has focused on disagreement about the expected returns several authors have shown that if the average belief coincides with the true expected return in the portfolio context prices are unaffected by disagreement in this paper we study the pricing effects of disagreement about return variances we show that i disagreement about variances has systematic and significant pricing effects more disagreement leads to higher prices and ii prices are very sensitive to the degree of disagreement even if the average belief about the variance is constant tiny fluctuations in the disagreement about the variance lead to substantial price fluctuations this second result may offer an explanation for the excess volatility puzzle when small changes in the degree of disagreement occur they induce relatively large price changes yet the changes in disagreement may be hard to directly detect empirically leading to apparent excess volatility

the impact of immigration on the british labour market using data from the british labour force survey this article provides an empirical investigation of the way immigration affects labour market outcomes of native born workers in britain set beside a theoretical discussion of the underlying economic mechanisms we discuss problems arising in empirical estimation and how to address them we show that the overall skill distribution of immigrants is remarkably similar to that of the native born workforce we find no strong evidence that immigration has overall effects on aggregate employment participation unemployment and wages but some differences according to education

international migration housing demand and access to homeownership in the uk since the mid 1980s the uk has experienced a prolonged period of net international migration with debate as to its impact on economic benefits and costs a third of projected new households in the next 15 20 years are expected to come from net migration this article examines international migration and housing demand in light of the conventional understanding of british housing markets and the extent to which there are differences in demand and access to homeownership across international migrant groups demographic and socioeconomic factors as well as length of residence are found to be significant determinants of homeownership however there are also differences in homeownership attainment that may be related to ethno cultural differences or unobserved wealth effects and mortgage market institutional factors the role of socioeconomic factors has implications for skills based migration to the uk if a policy concern is house price pressure and migration

diverging patterns with endogenous labor migration abstract the standard neoclassical model cannot explain persistent migration flows and lack of cross country convergence when capital and labor are mobile here we present a model where both phenomena may take place assuming increasing returns and perfect capital mobility the driving forces behind labor migration are the size and the composition of the workforce the size of the workforce produces divergence a larger workforce in one country implies higher wages the wage gap induces in migration and this makes the wage gap even larger in this case migration is only beneficial for the labor importing country the evolution in the composition of the workforce due to migration may have opposite effects in one case in migration keeps the wage of skilled workers high enough to induce people to qualify for skilled jobs this improves the composition of labor in the receiving country only and it makes divergence a likely outcome in another case labor migration keeps the relative wage of unskilled workers in the rich country high enough to induce all migrants to take unskilled jobs and reduce the skilled to unskilled ratio in that country then migration is beneficial to the country which was first exporting labor

immigration and housing rents in american cities is there a local economic impact of immigration immigration pushes up rents and housing values in us destination cities the positive association of rent growth and immigrant inflows is pervasive in time series for all metropolitan areas i use instrumental variables based on a shift share of national levels of immigration into metropolitan areas an immigration inflow equal to 1 of a city s population is associated with increases in average rents and housing values of about 1 the results suggest an economic impact that is an order of magnitude bigger than that found in labor markets

portfolio selection an alternative approach this paper provides a solution to the portfolio diversification problem based on finding optimal weights that will result in maximizing the risk adjusted return of the underlying portfolio subject to the budget constraint contrary to the standard approach that aims at finding the required weights based on minimizing the variance of the portfolio subject to the budget constraint a mathematical proof is given for the suggested solution an application is provided to the portfolio diversification opportunity between all the share market indexes of the two largest economies in the world the results show that the portfolio created by our suggested approach leads to almost one percent increase in the risk adjusted return compared to the portfolio created by the standard method

factor reallocation in eastern germany after reunification fifteen years after reunification the economy of the former east germany is on the mend industrial production excluding construction has expanded by more than 60 percent since 1995 and by 28 percent since 2000 compared with only about 4 percent in west germany for the latter period real gdp has grown 3 5 percent per year since 1991 and 8 2 percent annually in the manufacturing industry alone more than half of the measured labor productivity gap and more than a third of the gdp per capita gap between east and west have been closed in considerably less time than predicted by robert j barro 1991 as table 1 shows convergence has been impressive on a wide array of indicators although it has slowed in recent years and remains most difficult in the labor market despite this positive news net migration continues from east to west about 70 000 or 0 5 percent of the population per annum since 2000 especially concentrated among 18to 25year olds at the same time new physical capital continues to flow into the east 80 to 90 billion euros or about 20 percent of gdp each year the reallocation of production factors is one of the most impressive aspects of german unification since 1991 more than 1 2 trillion euros of new investment in 1995 prices was spent in the east yet the workforce of east germany shrank by roughly 1 2 million or 15 percent over the same period employment rose in the west by 4 1 percent as figure 1 shows the intensity of factor movement was not constant but rather high at first and declining into the 1990s migration was greatest in the early 1990s falling until mid decade rising again until 2001 and declining since in addition a large fraction two thirds of the cumulated investment flow in eastern germany was dedicated to residential and business structures compared with about one third in business equipment the large runup in investment spending on structures is often blamed on distorted investment incentives with possible longer run consequences for the structure of output and factor demands hans werner sinn and gerlinde sinn 1992 this intensive movement of production factors in opposite directions is difficult to explain as a reaction to disturbances in technology preferences or demand to use horst siebert s 1992 terminology germany was hit by a massive integration shock i offer the following definition of economic integration the achievement of the efficient production pattern by two or more geographic regions made possible by their union measured at world market prices the german integration episode presents a unique opportunity to study this form of economic integration and the roles of the relative importance of adjustment costs in determin discussants hans werner sinn ces ifo and university of munich nicola fuchs schundeln harvard university claudia buch university of tubingen

performance of portfolios optimized with estimation error we explain the poor out of sample performance of mean variance optimized portfolios developing theoretical bias adjustments for estimation risk by asymptotically expanding future returns of portfolios formed with estimated weights we provide closed form non bayesian adjustments of classical estimates of portfolio mean and standard deviation the adjustments significantly reduce bias in international equity portfolios increase economic gains and are robust to sample size and to nonnormality dominant terms grow linearly with the number of assets and decline inversely with the number of past time periods under suitable conditions sharpe ratio maximizing tangency portfolios become more diversified using these approximation methods it may be possible to assess before investing the effect of statistical estimation error on portfolio performance

cvar models with selective hedging for international asset allocation abstract we develop an integrated simulation and optimization framework for multicurrency asset allocation problems the simulation applies principal component analysis to generate scenarios depicting the discrete joint distributions of uncertain asset returns and exchange rates we then develop and implement models that optimize the conditional value at risk cvar metric the scenario based optimization models encompass alternative hedging strategies including selective hedging that incorporates currency hedging decisions within the portfolio selection problem thus the selective hedging model determines jointly the portfolio composition and the level of currency hedging for each market via forward exchanges we examine empirically the benefits of international diversification and the impact of hedging policies on risk return profiles of portfolios we assess the effectiveness of the scenario generation procedure and the stability of the model s results by means of out of sample simulations we also compare the performance of the cvar model against that of a model that employs the mean absolute deviation mad risk measure we investigate empirically the ex post performance of the models on international portfolios of stock and bond indices using historical market data selective hedging proves to be the superior hedging strategy that improves the risk return profile of portfolios regardless of the risk measurement metric although in static tests the mad and cvar models often select portfolios that trace practically indistinguishable ex ante risk return efficient frontiers in successive applications over several consecutive time periods the cvar model attains superior ex post results in terms of both higher returns and lower volatility

reversal of migration flows a fresh look at the german reunification we investigate the dynamic effects of interregional labor market integration on migration flows capital formation and the price for housing services the co evolution of these variables depends on initial conditions at the time of labor market integration in an initially capital poor economy there may be a reversal of migration flows during the transition to the steady state while housing costs are increasing over time although capital may accumulate while labor emigrates early in the transition the causal effect of immigration on capital investments and housing costs is positive we present new data on the evolution of net migration flows and rental rates for housing in east germany after 1990 our results are consistent with the presented evidence in the reverse migration scenario

international portfolio diversification the basket peg regime abstract the paper compares and contrasts optimal investment strategies in two alternative monetary arrangements namely in the regime with freely floating bilateral exchange rates and the basket peg system it is shown that in the basket peg arrangement investors can form a domestic currency denominated risk free asset of the foreign risk free assets without entering into the forward currency markets furthermore investors have an incentive to hold fewer assets and the structure of capital flows tends to be more volatile but also more predictable in the basket peg system than in the regime with freely floating bilateral exchange rates

green net value added as a sustainability metric based on life cycle assessment an application to bounty paper towel abstract sustainability measurement in economics includes assessment of environmental and economic effects in an integrated manner in this study system level economic data are integrated with environmental impacts determined from a life cycle assessment lca of a common product we adopt a costing methodology that captures conventional costs but additionally incorporates externality costs to present a convenient easily interpretable metric green net value added gnva is a type of full cost accounting that incorporates total revenue the cost of production depreciation and environmental externalities we present externality costs disaggregated by upstream sectors full cost of production and gnva to evaluate the relative sustainability of bounty paper towels manufactured at two production facilities we found that the longer running more established line had a higher gnva the predominant components contributing to externality costs come from the stationary sources in the supply chain electricity generation 27 35 refineries 20 21 pulp and paper making 15 23 health related externalities from particulate matter pm2 5 and carbon dioxide equivalent co2e emissions are to a great extent driven by electricity usage and emissions by the facilities followed by pulp processing and transport supply chains for other facility purchases product distribution and end of life management contribute the least to the environmental health related costs

organizational culture and performance abstract organizations are all around us culture is trickier to analyze and even to see we consider both the effect of management on culture and the effect of culture on performance we begin by describing an intervention that dramatically improved outcomes and conspicuously included a culture change component we then use details from this intervention to describe potential empirical analyses of the association between organizational culture and performance in this and similar settings finally we describe opportunities for theoretical models to explore how and why organizational culture might influence organizational performance

were the returns from stocks and bonds of different countries really different in the 1980 s we analyzed the total equity returns of indexes from australia canada germany japan the uk and the us and total fixed income returns of indexes from all but australia excluded due to lack of data to see if the returns of stocks and bonds were statistically different across markets during the 1980s at the end of 1989 these countries represented over 87 of the market capitalization of the morgan stanley capital international msci world equity index and over 88 of the salomon brothers world bond index this study used monthly observations from january 1980 through december 1989 and examined returns based in local currency and hedged and unhedged us dollars we found that sample mean stock and bond returns during the 1980s were statistically indistinguishable across countries however because the sample variances were so large relative to the sample means it would have been difficult to detect differences in population means by any test we found evidence of variance heterogeneity which may be

do constraints improve portfolio performance the discrete time dynamic investment model using only historical data in various asset allocation settings often produces significant abnormal returns however the model does not choose the diversified portfolios that theory suggests it should therefore in this paper we compare the investment policies and returns of the model with and without constraints on the mix of risky assets the constraints lead to appreciably more diversification and less realized risk but only at the cost of less realized return visual comparisons of compound return standard deviation plots and statistical comparisons of jensen s alpha suggest that the reduction in return is not worth the reduction in risk for more risk averse investors ex post utility and certainty equivalent returns suggest that it is the results however illustrate the problems associated with using ex post utility to measure performance 2000 elsevier science b v all rights reserved

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

wages rents and the quality of life this study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities the theory demonstrates that if the amenity is also productive then the sign of the wage gradient is unclear while the rent gradient is positive the theory is extended to include the housing market and nontraded goods these extensions require little modification of the conclusion the empirical work on wages shows that the regional wage differences can be explained largely by these local attributes with the use of site price data implicit prices are estimated and quality of life rankings for the cities are computed

measuring farm sustainability and explaining differences in sustainable efficiency abstract a major objective of european agricultural policy is to have a sustainable and efficient farming sector that is applying environmentally friendly production methods policy makers aim to combine a strong economic performance and a sustainable use of natural resources therefore it is important to measure and to assess farm sustainability for a large dataset of flemish dairy farms a valuation method that is based on the concept of opportunity costs is used to calculate and analyze differences among the sample farms with respect to the creation of sustainable value but more important than measuring the creation of sustainable value is to analyze differences in sustainable efficiency therefore sustainable efficiency measures are calculated and differences in sustainable efficiency are explained using panel data an effect model captures the determinants of sustainable efficiency of the studied farms the empirical model shows that in general larger farms have a higher sustainable efficiency also farmer s age and dependency on support payments proved to be determining characteristics for observed differences in sustainable efficiency

the benefits from international diversification for nordic investors abstract in this paper we investigate the magnitude of the benefits from international diversification from the nordic point of view special attention is paid to whether potentially increased co movement of stock markets together with more volatile nordic currencies have resulted in decreased benefits from international diversification towards the end of the 1980s moreover the paper presents evidence on the benefits from international diversification for a currency which has recently started its free float the finnish markka fim we find significant increases in stock market co movement both unhedged ex ante strategies as well as strategies hedged for exchange rate risk are investigated revealing substantial benefits from international diversification for the nordic countries however we obtain mixed results concerning the question of the optimality of hedging

daily exchange rate behaviour and hedging of currency risk textabstractwe construct models which enable a decision maker to analyze the implications of typical time series patterns of daily exchange rates for currency risk management our approach is bayesian where extensive use is made of markov chain monte carlo methods the effects of several model characteristics unit roots garch stochastic volatility heavy tailed disturbance densities are investigated in relation to the hedging strategies consequently we can make a distinction between statistical relevance of model specifications and the economic consequences from a risk management point of view we compute payoffs and utilities from several alternative hedge strategies the results indicate that modelling time varying features of exchange rate returns may lead to improved hedge behaviour within currency overlay management

confidence in the familiar an international perspective one striking feature of intemrnational portfolio investment is the extent to which equity portfolios are concentrated in the domestic equity market of the investor the home bias puzzle i examine the role of investors perception of foreign investment risk on their portfolio choices the expected retumrns and risk of foreign investment are specified through an asset pricing model with the home portfolio being the benchmark asset pastor s 2000 domestic capm the model serves as a reference point around which investors can center their prior beliefs i focus on investors prior beliefs that are consistent with the literature on confidence in the familiar foreign equities in terms of both expected returns and risk being viewed less favorably than domestic equities these prior beliefs are then combined with the data on g7 equities and the revised beliefs are used to obtain the global optimal asset allocation to hold predominantly domestic equities each g7 investor has to believe that the risk of foreign investment is several times higher than the actual risk the home bias is more of a puzzle for a u s investor during the 1970s specifying investors prior beliefs around the world capm does not help resolve the puzzle

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

the impact of mass migration on the israeli labor market mass migration from the former soviet union increased the israeli population by 12 in the first half of the 1990s this exodus was precipitated by the lifting of emigration restrictions in an unstable ussr and by the open immigration policy of israel toward soviet jews who faced more restrictive entry policies elsewhere i use this natural experiment to study the impact of immigration on the labor market outcomes of native israelis ols yields significant reductions in wages and small reductions in employment however ols is biased if the distribution of immigrants across occupations in israel was not exogenous to relative wage and employment conditions i instrument for the entry of russians into an occupation in israel using information on their former occupations in the ussr there is a significant positive correlation between the former presence of the immigrants in an occupation in the ussr and their presence in that occupation in israel but the previous occupational choices of russians abroad were independent of israeli wage and employment growth subsequent to their migration iv estimates indicate that immigration did not have an adverse impact on native israeli labor market outcomes

bayesian and capm estimators of the means implications for portfolio selection abstract this paper compares active investment policies under three alternative models for estimating expected stock returns the historical sample mean a shrinkage or bayesian estimator and a capm based estimator the out of sample performance of actively managed u s industry portfolios is analyzed for these three estimators over the period 1931 to 1987 it is found that the classical method based on historical means and covariances leads to the worst forecasts and out of sample performance and is generally outperformed by shrinkage estimators an active portfolio with expected returns based on the capm produced the best results among all actively managed portfolios this strategy as we show closely matches a simple buy and hold the market rule

dynamic effects of permanent and temporary tax policies in a q model of investment abstract this paper incorporates the tax policy analysis of hall and jorgenson into a dynamic optimizing model with adjustment costs to develop a q model of investment this framework is particularly useful for analyzing the dynamic effects on investment of permanent and temporary changes in tax policy it is shown that contrary to the conventional intertemporal substitution argument a temporary investment tax credit need not be nore expansionary than a permanent investment tax credit the role of depreciation allowances in determining the dynamic response of investment to temporary changes in the tax rate is also investigated

efficient portfolios when housing needs change over the life cycle abstract we address the issue of the efficiency of household portfolios in the presence of housing risk we treat housing stock as an asset and rents as a stochastic liability stream over the life cycle households can be short or long in their net housing position efficient financial portfolios are the sum of a standard markowitz portfolio and a housing risk hedge term that multiplies net housing wealth our empirical results show that net housing plays a key role in determining which household portfolios are inefficient the largest proportion of inefficient portfolios obtains among those with positive net housing who should invest more in stocks

income maximization and the selection and sorting of international migrants abstract two prominent features of international labor movements are that the more educated are more likely to emigrate positive selection and more educated migrants are more likely to settle in destination countries with high rewards to skill positive sorting using data on emigrant stocks by schooling level and source country in oecd destinations we find that a simple model of income maximization can account for both phenomena results on selection show that migrants for a source destination pair are more educated relative to non migrants the larger is the absolute skill related difference in earnings between the destination country and the source results on sorting indicate that the relative stock of more educated migrants in a destination is increasing in the absolute earnings difference between high and low skilled workers we use our framework to compare alternative specifications of international migration estimate the magnitude of migration costs by source destination pair and assess the contribution of wage differences to how migrants sort themselves across destination countries

room in the kitchen for the melting pot immigration and rental prices this paper studies the response of housing markets to immigration shocks following card 1990 i examine the changes in rental prices in miami and three comparison groups after the mariel boatlift this exogenous immigration shock added an extra 9 to miami s renter population in 1980 i find that rents increased from 8 to 11 more in miami than in the comparison groups between 1979 and 1981 by 1983 the rent differential was still 7 rental units of higher quality were not affected by the immigration shock units occupied by low income hispanic residents in 1979 experienced an extra 8 differential hike with respect to other low income units relative housing prices moved in the opposite direction from rents in the short run

the determinants of east west german migration some first results determinants of the propensity to migrate are explored using data collected in a survey of east german residents following german reunification in 1991 the author notes that in the period 1989 1992 some 870000 individuals migrated to west germany representing about 5 of the total east german population and 10 of the work force he suggests that recent developments in the literature on the option value of waiting may yield important insights into these determinants excerpt

on the political economy of immigration the authors study how immigration policies that impose capital and skill requirements would be determined under majority voting when native agents differ in their wealth holdings and vote to maximize their income the results of the model calculations indicate that the native population will be polarized between those who would like an immigration policy to maximize the domestic capital labor ratio and those who would like an immigration policy that would minimize it

a rational explanation for home country bias abstract while modern portfolio theory predicts that investors should diversify across international markets corporate equity is essentially held by domestic investors french and poterba 1991 french k poterba j 1991 investor diversification and international equity markets american economic review 81 222 226 suggest that in order for this bias to be justified investors must hold optimistic expectations about their domestic markets and pessimistic expectations about their foreign markets tesar and werner 1995 tesar l l werner i m 1995 home bias and high turnover journal of international money and finance 14 467 492 find existing explanations for the home equity bias unsatisfactory and conclude that the issue poses a challenge for portfolio theory we develop a model that incorporates both the foregone gains from diversification and the informational constraints of international investing and shows that home equity bias is consistent with rational mean variance portfolio choice specifically we prove that the nature of estimation risk in international markets can be responsible for this phenomenon we show that when the cross market variability in the estimation errors of international markets means far exceeds the cross market variability in the means themselves domestic dedication dominates international diversification an examination of 11 international markets returns over the last 25 years from the perspective of german japanese and us investors provides evidence consistent with this explanation

risk reduction by diversification in the nordic stock markets empirical examination of the ex post potential gains of risk reduction through international portfolio diversification started with grubel 1968 levy and sarnat 1970 solnik 1974 and lessard 1974 in their survey of international finance adler and dumas 1983 p 938 summed up the results the potential for international diversification to reduce risk seems unquestionable in the wake of increasing liberalization for international portfolio investment more recent contributions include jorion 1985 1989 grauer and hakansson 1987 and levy and lerman 1988 the results of the pioneers have been corroborated by contemporary research and according to jorion 1989 p 54 international diversification extolled by grubel as early as 1968 seems to have delivered on its promises despite the long tradition of studies in international portfolio diversification there has been no such work regarding the nordic markets this paper fills the gap through an analysis of potential gains from international diversification for different nordic investors danish finnish norwegian and swedish if they invest in all the nordic equity markets until the beginning of the 1980s nordic investors particularly in finland and sweden faced legal restrictions on investment abroad see nordiska radet 1987 adler and dumas 1983 have pointed out that such restrictions would lead to partially or fully segmented markets and hietala 1989 has shown the existence of premiums in the finnish stock market in our study we do not make any direct test of whether the nordic equity markets have been segmented or integrated but our results might provide some indirect evidence the nordic countries are generally viewed as fairly homogeneous from a social political and economic point of view while international diversifi

international portfolio diversification with estimation risk international portfolio diversification has long been advocated as a way of enhancing average returns while reducing portfolio risk for the investor who considers diversifying into foreign securities this proposition however relies on the assumption that the required inputs to the classical mean variance analysis are known with certainty typically expected returns variances and covariances are simply replaced by their ex post sample values and the optimal portfolio is derived without mentioning the uncertainty inherent in these parameter values but the rational investor should take this uncertainty into account when forming expectations and probably will consider estimators that are less subject to estimation error than the classical sample mean this paper investigates alternative estimators of expected returns and their implications for the alleged gains from diversification an important observation is the crucial influence that errors in estimating expected returns have on portfolio analysis a closer examiprevious studies of international portfolio diversification have relied on ex post meanvariance analysis without considering the problem of estimation risk typically past averages are substituted for expected returns and no allowance is made for the uncertainty inherent in these parameter values first i demonstrate the shortcomings of such an approach and second i investigate another method of estimating expected returns initially proposed by stein by shrinking the sample averages toward a common mean i find that the out of sample performance of the optimal portfolio is substantially increased one of the implications of this method is that the classical conclusions vastly overestimate the possible gains in average returns instead benefits from diversification are more likely to accrue from a reduction in risk this paper draws on part of my dissertation at the university of chicago i am grateful to arnold zellner michael mussa george constantinides and especially john bilson for useful discussions and comments numerous improvements were also suggested by the referee this research received the generous financial support of the college interuniversitaire d etudes doctorales dans les sciences du management

a general equilibrium model of international portfolio choice we investigate in a two country general equilibrium model whether a bias in consumption towards domestic goods will necessarily lead to a preference for domestic securities we develop a model where investors are constrained to consume only from their domestic capital stock and where it is costly to transfer capital across countries in this model investors less risk averse than an investor with log utility bias their portfolios towards domestic assets investors more risk averse than log however prefer foreign assets thus this model suggests that it is unlikely that the portfolios observed empirically can be explained by the high proportion of domestic goods in total consumption we investigate in a two country general equilbrium model whether a bias in consumption toward domestic goods will necessarily lead to a preference for domestic assets in an investor s optimal portfolio we constrain investors to consume only from their domestic capital stock and introduce a proportional cost for transferring goods from one country this cost gives rise to endogenous deviations from the law of one price lop thus the home and foreign investors do not hold identical portfolios we show that an investor s optimal portfolio is biased towards domestic equity only if she is less risk averse than an investor with log utility investors with relative risk aversion greater than one exhibit a preference for the foreign asset this is because the exchange rate derived endogenously is negatively correlated with the return on the foreign asset and therefore the translated return on the foreign stock is less risky than that on the domestic stock thus the results of this model suggest that it is unlikely that the preference for domestic assets that is observed empirically can be explained by the high proportion of domestic goods in total consumption there exists a considerable body of literature documenting the gains from international diversification grubel 1968 was the first to propose that international diversification allows investors to attain lower return variances than those achievable by diversifying domestically this proposition relies on the correlation between stock indices across countries being significantly less

how does labor mobility affect income convergence abstract labor mobility is introduced into the neoclassical growth model for a small open economy with capital intensity below its steady state level outmigration directly contributes to faster income convergence but also creates a disincentive for gross capital investment at low relative income levels the latter disincentive effect tends to dominate so that labor mobility can actually slow the speed of income convergence

credible redistribution policy and skilled migration abstract we analyze the joint determination of income redistribution and migration flows across fiscally independent regions in our model regional governments lack commitment so their policy announcements must be credible and redistribution between skilled and unskilled workers is bounded by informational constraints in any given region the welfare of all workers is increasing in the share of skilled workers as after tax incomes increase for both skilled and unskilled workers when skilled workers are more geographically mobile than unskilled ones the endogenous response of redistribution policy can induce regional agglomeration of skilled workers we also find that the equilibrium features symmetry breaking if migration costs are relatively low and that worker mobility tends to amplify pre existing welfare differences in income and welfare across regions

gains from international diversification 1968 85 returns on portfolios of stocks and bonds this paper applies the multi period investment model to a universe of international securities on the basis of the simple probability assessment approach our principal findings are 1 the gains from including non u s asset categories in the universe were remarkably large in some cases statistically significant especially for the highly risk averse strategies 2 the gains from removing the no leverage constraint were more substantial than they were in the absence of non u s securities and 3 there is strong evidence of market segmentation in that the optimal levels of investment in u s securities were mostly zero in the presence of the non u s asset categories