evidence of nonlinearity in daily stock returns this article applies a newly developed statistical technique to time series of daily rates of return of 15 common stocks the technique involves estimating the bispectrum of the observed time series the bispectrum is defined as the double fourier transform of the third order cumulant function if the process generating rates of return is linear with independent innovations then the skewness of the bispectrum will be constant the article describes a test that can detect nonconstant skewness in the bispectrum hence if the test rejects constant skewness a nonlinear process is implied as a consequence the test can distinguish between white noise and purely random noise the results suggest that daily stock returns are generated by a nonlinear process

claim timing and ex post adverse selection many health care treatments are not urgent and may be delayed if patients so choose because insurance coverage is typically determined by the treatment date individuals may have incentives to strategically delay treatments to minimize out of pocket costs the strategic delay of treatment a particular form of moral hazard can be an important source of subsequent adverse selection in which ex ante identical individuals select insurance coverage based on their differing accumulation of previously delayed treatments this article investigates these forces empirically in the context of the missing market for dental insurance using rich claim level data my analysis reveals that approximately 40 of individuals strategically delay dental treatments when incentivized to do so and this flexibility in delaying treatment can explain why the market for dental insurance has largely unraveled more generally the counterfactual analysis suggests features such as open enrolment periods and contracting on pre existing conditions may be helpful tools in overcoming adverse selection in insurance contexts where the timing of uncertainty is not contractible

models of stock returns a comparison in this paper a discrete mixture of normal distributions is proposed to explain the observed significant kurtosis fat tails and significant positive skewness in the distribution of daily rates of returns for a sample of common stocks and indexes stationarity tests on the parameter estimates of this discrete mixture of normal distributions model revealed significant differences in the mean estimates that can explain the observed skewness and significant differences in the variance estimates that can explain the observed kurtosis an alternative explanation for the observed fat tails is the symmetric student model the result of a comparison between the models is that the discrete mixture of normal distributions model has substantially more descriptive validity than the student model for many years both financial economists and statisticians have been concerned with the description of stock market returns the form of the distribution of stock returns is a crucial assumption for mean variance portfolio theory theoretical models of capital asset prices and the prices of contingent claims for example understanding the behavior of the variance is essential to option pricing models empirical tests of asset pricing models and the efficient markets hypothesis draw statistical inferences that are also conditional on distributional assumptions the most convenient assumption for financial theory and empirical methods is that the distribution of security rates of return be multivariate normal with parameters that are stationary over time since the normal distribution is stable under addition any arbitrary portfolio of stocks will also be normally distributed with the additional assumption of risk aversion mean variance theory follows furthermore the assumptions of normality and parameter stationarity are required for most of the econometric techniques typically used in empirical research tests of the normality hypothesis on the daily returns of the dow jones industrial stocks by fama 121 revealed more kurtosis fatter tails than that predicted from a sample of independent and identically distributed normal variates fama concluded from this evidence that the distribution of price changes conforms better to the stable paretian distribution with characteristic exponent

tests of conditional asset pricing with time varying moments and risk prices this paper tests conditional capital asset pricing models in a multivariate garch framework employing both constant and time varying prices of market and bond risk depending on the interpretation of the market portfolio the icapm with one hedge portfolio or the two factor myopic capm are supported using weekly data from july 1983 to december 1989 in contrast we reject the myopic single factor capm under a constant price of market risk we find that interest rate risk is highly significant which suggests that previous rejections of the conditional capm using only stock market data may be due to omitted hedge terms or an incomplete market factor

international asset pricing and portfolio diversification with time varying risk we test the conditional capital asset pricing model capm for the world s eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity garch parameterization our methodology can be applied simultaneously to many assets and at the same time accommodate general dynamics of the conditional moments the evidence supports most of the pricing restrictions of the model but some of the variation in risk adjusted excess returns remains predictable during periods of high interest rates our estimates indicate that although severe market declines are contagious the expected gains from international diversification for a u s investor average 2 11 percent per year and have not significantly declined over the last two decades

aid donor policies and power sector performance in developing countries abstract this paper reviews the literature on the policies of aid donors towards the performance of the electricity sector in developing countries much of the donor community is currently reassessing its policies in the light of shifting priorities and the difficulties of ensuring the sustainability of individual power sector investments within a difficult macroeconomic environment particular attention is given to examining the policies of the world bank in addition to being the major source of finance for power sector development in the third world the world bank in effect sets the intellectual agenda for thinking about power sector development and is also the most sustained contributor to that agenda the paper describes changes in donor policy from an emphasis on individual capital projects to a concern with the performance of the whole sector it examines how the policy agenda is influenced by competing explanations for the current decline in the performance of many power utilities and how the current emphasis on efficiency is influenced by the current need to respond to acute capital shortages and the growing concern with environmental issues the paper concludes with a discussion of a new focus for aid policies that fully recognizes the role of the power sector in the wider economy and which stresses the development of local human capabilities over the long term rather than the short term expedients of the project cycle which emphasizes the short term the sale of hardware and the use of expatriate staff

normal mixture diffusion with uncertain volatility modelling short and long term smile effects this paper introduces a parameterization of the normal mixture diffusion nmd local volatility model that captures only a short term smile effect and then extends the model so that it also captures a long term smile effect we focus on the binomial nmd parameterization so called because it is based on simple and intuitive assumptions that imply the mixing law for the normal mixture log price density is binomial with more than two possible states for volatility the general parameterization is related to the multinomial mixing law in this parsimonious class of complete market models option pricing and hedging is straightforward since model prices and deltas are simple weighted averages of black scholes prices and deltas but they only capture a short term smile effect where leptokurtosis in the log price density decreases with term in accordance with the stylised facts of econometric analysis on ex post returns of different frequencies and the central limit theorem however the last part of the paper shows that longer term smile effects that arise from uncertainty in the local volatility surface can be modeled by a natural extension of the binomial nmd parameterization results are illustrated by calibrating the model to several euro us dollar currency option smile surfaces

the statistical properties of daily foreign exchange rates 1974 1983 abstract this paper examines the statistical properties of daily rates of change of five foreign currencies from 1974 to 1983 the main purpose is to discriminate between two competing explanations for the observed heavy tails of the distribution that the data are independently drawn from a heavy tail distribution which remains fixed over time and that the data come from distributions which vary over time evidence point to the rejection of the first hypothesis further investigations show that the rejection can be attributed to changing means and variances in the data which can be described by a simple statistical model

var methods for the dynamic impawn rate of steel in inventory financing under autocorrelative return abstract this paper proposes the way of setting the dynamic impawn rate by dividing the impawn periods into different risk windows in an efficient financial market the return is hypothetically independent while in a pledged inventory market where spot transactions predominate the return is auto correlative therefore the key to setting the impawn rate is to predict the long term risk in this experiment using the database of spot steel we established a model with the formula ar 1 garch 1 1 ged forecasting the var of steel during the different risk windows in the impawn period through a method of out of sample and got the impawn rate according with the risk exposure of banks the results of our experiment indicated that the introduction of coefficient k into the model can significantly improve bank risk coverage and reduce its efficiency loss besides the impawn rate obtained by the model correlates positively with the lowest price in the future risk windows

efficient estimation of conditional asset pricing models a semiparametric efficient estimation procedure is developed for the parameters of multivariate generalized autoregressive conditional heteroscedasticity in mean models when the disturbances have a conditional distribution assumed to be elliptically symmetric but otherwise unrestricted under high level assumptions the resulting estimator achieves the asymptotic semiparametric efficiency bound the elliptical symmetry assumption allows us to avert the curse of dimensionality problem that would otherwise arise in estimating the unknown error distribution this framework is suitable for the estimation and testing of conditional asset pricing models such as the conditional capital asset pricing model we apply our procedure in an empirical study of stock prices with monte carlo simulation results also reported

a class of nonlinear arch models a class of nonlinear arch models is suggested the proposed class encompasses several functional forms for arch which have been put forth in the literature a lagrange multiplier test is developed to test engle s arch specification against the wider class of models this test provides an easily computed diagnostic check of the adequacy of an arch model after it has been estimated the theory is applied to a number of weekly exchange rate series and we find strong evidence of nonlinear arch

the financing of electric power projects in developing countries abstract developing countries face a buyers market for power plant but they face a sellers market in negotiations to obtain the related finance the purpose of this paper is to explore these relationships and to highlight the factors that may strengthen or weaken the common interest that the buyers and sellers of power technology have in seeking project finance the paper charts the rise and fall in the flows of capital to developing countries since the 1970s and examines the implications of the current debt crisis and the rise in japanese aid finance estimates are made of the likely shortfall between the finance required to meet developing countries need for electrical energy and the likely availability of funds four strategies are then considered that will be required to meet this shortfall it is concluded that the prospects for developing countries power sectors are extremely bleak and that significant areas of the world will have to build their future development on the assumption that electrical energy will not be available it is considered unlikely that the market mechanism will provide finance on a scale and in a form suitable to the need those funds that are available seem likely to favour power developments that are more rather than less damaging to the global environment

on measuring energy poverty in indian households summary the relationship between energy and poverty is obvious and goes both ways recognizing this this paper provides a short overview of different approaches to measuring energy poverty it then presents a novel two dimensional measure of energy poverty and energy distribution that combines the elements of access to different energy types and quantity of energy consumed an assessment of the extent of energy poverty and changes in energy distribution pattern are analyzed by applying this measure to indian household survey data for 1983 2000 the analysis shows a significant reduction in the level of energy poverty and a rapidly developing subcontinent the new measure is a good complement to conventional monetary measures and is general enough to be applied to other developing countries

the statistical distribution of exchange rates empirical evidence and economic implications the abundant evidence that changes in exchange rates have distributions with fatter tails than the normal distribution has led researchers to consider non normal distributions including the student the stable paretian and mixtures of distributions this paper compares the empirical fits of three non normal candidates and the normal distribution for daily changes in the logarithms of exchange rates using maximum likelihood estimation of the parameters and chi square goodness of fit tests the student and mixture of two normals provide the best fits but there is evidence that the distribution parameters may vary over time

electricity privatization the case of india abstract privatization is resorted to by developing country governments mainly to augment resource mobilization either on their own initiative or under the dictat of the world bank and less as a recipe for efficiency improvement the present paper discusses the electricity privatization in india as a case study and outlines the practical problems faced when the theoretical issues of privatization come up against the messiness of the real world such as high cost of private power compared to the low cost of public power and the goal conflicts of public and private utilities it suggests a different model to make privatization feasible

sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate a garch m model abstract the objective of this paper is to employ the generalized autoregressive conditionally heteroskedastic in the mean garch m methodology to investigate the effect of interest rate and its volatility on the bank stock return generation process this framework discards the restrictive assumptions of linearity independence and constant conditional variance in modeling bank stock returns the model presented here allows for shifts in the volatility equation in response to the changes in monetary policy regime in 1979 and 1982 to be estimated arch garch and volatility feed back effects are found to be significant interest rate and interest rate volatility are found to directly impact the first and the second moments of the bank stock returns distribution respectively the latter also affects the risk premia indirectly the degree of persistence in shocks is substantial for all the three bank portfolios and sensitive to the nature of the bank portfolio and the prevailing monetary policy regime

do macro economic news announcements affect the volatility of foreign exchange rates some evidence from australia this paper investigates the role of australian macro economic announcement news on five major australian dollar aud exchange rates specifically the daily changes of the exchange rates are modelled to ascertain the existence and the nature of the news effects in the conditional mean and variance of the changes it is found that a higher than expected current account deficit and unemployment rate announcements depreciated the aud and an unexpectedly higher gdp growth announcement appreciated it current account deficit cpi and unemployment news announcements significantly raised the conditional volatility of the changes of the aud on the days of their announcements except for the bp aud for the cpi news and there is some evidence of retail sales news reducing it in general the evidence is consistent with a view that a release of new information creates uncertainty in the markets due to a lack of consensus on the effects of the particular news announcement and the necessary course of action in add

risk behavior and rational expectations in the u s broiler market this study examines the empirical implications of extending the rational expectations hypothesis reh to include price uncertainty a general estimation framework that incorporates both the restrictions on structural parameters and the variance covariance terms is developed garch time series processes are used to generate time varying expectations of both the means and the variances of exogenous variables the empirical application is with a quarterly model of the u s broiler industry the results indicate that the rational expectation of price variance is an important determinant of broiler supply a formal test indicates that the restrictions implied by the reh cannot be rejected

modelling the impact of central bank intervention on exchange rate volatility under inflation targeting this article empirically investigates the effect of central bank s foreign exchange interventions on the level and volatility of the uganda shilling us dollar exchange rate ugx usd under an infla

what does a deductible do the impact of cost sharing on health care prices quantities and spending dynamics measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets we study consumer responsiveness to medical care prices leveraging a natural experiment that occurred at a large self insured firm which required all of its employees to switch from an insurance plan that provided free health care to a non linear high deductible plan the switch caused a spending reduction between 11 79 13 80 of total firm wide health spending we decompose this spending reduction into the components of i consumer price shopping ii quantity reductions and iii quantity substitutions finding that spending reductions are entirely due to outright reductions in quantity we find no evidence of consumers learning to price shop after two years in high deductible coverage consumers reduce quantities across the spectrum of health care services including potentially valuable care e g preventive services and potentially wasteful care e g imaging services we then leverage the unique data environment to study how consumers respond to the complex structure of the high deductible contract we find that consumers respond heavily to spot prices at the time of care and reduce their spending by 42 when under the deductible conditional on their true expected end of year shadow price and their prior year end of year marginal price in the first year post plan change 90 of all spending reductions occur in months that consumers began under the deductible with 49 of all reductions coming for the ex ante sickest half of consumers under the deductible despite the fact that these consumers have quite low shadow prices there is no evidence of learning to respond to the true shadow price in the second year post switch

insurance induced moral hazard a dynamic model of within year medical care decision making under uncertainty health insurance may lead individuals to overconsume medical care many studies explore this moral hazard using models that aggregate medical care decisions up to the annual level using employer employee matched data from the medical expenditure panel survey meps i estimate moral hazard using a dynamic model of within year medical care consumption that allows for endogenous health transitions variation in medical care prices and individual uncertainty within a health insurance year i then estimate moral hazard under a second set of conditions that are consistent with the assumptions of most annual decision making models the within year decision making model produces a moral hazard estimate that is 19 2 larger than the alternative model i highlight the importance of controlling for within year dynamics in a model of medical care consumption using a counterfactual policy simulation that implements the individual mandate provision of the 2010 patient protection and aordable care act i nd that full implementation of the policy decreases the percentage of uninsured individuals in the population being analyzed from 11 8 to 6 0 furthermore when all uninsured individuals are forced into coverage their predicted annual medical care expenditure increases by 45 5

macro determinants of volatility and volatility spillover in energy markets abstract we analyze the time varying volatility and spillover effects in crude oil heating oil and natural gas futures markets by incorporating changes in important macroeconomic variables and major political and weather related events into the conditional variance equations we allow asymmetric responses to random disturbances in each market as well as to good and bad economic news related to the overall economy results show the presence of asymmetric effects in both random disturbances and macroeconomic variables a bidirectional volatility spillover effect is found between natural gas and crude oil and between the natural gas and heating oil markets crude oil volatility is found to increase following major political financial and natural events seasonality and day of the week effects are found in the crude oil and heating oil markets

prescription drug use under medicare part d a linear model of nonlinear budget sets abstract medicare part d enrollees face a complicated decision they dynamically choose prescription drug consumption in each period given difficult to find prices and a nonlinear budget set we use part d claims data to estimate a flexible model of consumption that accounts for nonlinear prices dynamic responses and salience we use reduced form price responses from a linear regression of consumption on coverage range prices to compare performance under several models of behavior we find small price elasticities substantial myopia and that salient characteristics impact consumption beyond their effect on prices a hyperbolic discounting model with salience fits the data best

forecasting realized volatility with linear and nonlinear univariate models in this paper we consider a nonlinear model based on neural networks as well as linear models to forecast the daily volatility of the s p 500 and ftse 100 futures as a proxy for daily volatility we consider a consistent and unbiased estimator of the integrated volatility that is computed from high frequency intraday returns we also consider a simple algorithm based on bagging bootstrap aggregation in order to specify the models analysed in this paper

the response of drug expenditure to nonlinear contract design evidence from medicare part d we study the demand response to non linear price schedules using data on insurance contracts and prescription drug purchases in medicare part d we exploit the kink in individuals budget set created by the famous donut hole where insurance becomes discontinuously much less generous on the margin to provide descriptive evidence of the drug purchase response to a price increase we then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire non linear budget set we use the model for counterfactual analysis of the increase in spending from filling the donut hole as will be required by 2020 under the affordable care act in our baseline model which considers spending decisions within a single year we estimate that filling the donut hole will increase annual drug spending by about 150 or about 8 percent about one quarter of this spending increase reflects anticipatory behavior coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole we also present descriptive evidence of cross year substitution of spending by individuals who reach the kink which motivates a simple extension to our baseline model that allows in a highly stylized way for individuals to engage in such cross year substitution our estimates from this extension suggest that a large share of the 150 drug spending increase could be attributed to cross year substitution and the net increase could be as little as 45 per year

sinking swimming or learning to swim in medicare part d under medicare part d senior citizens choose prescription drug insurance offered by numerous private insurers we examine nonpoor enrollees actions in 2006 and 2007 using panel data our sample reduced overspending by 298 on average with gains by 81 percent of them the greatest improvements were by those who overspent most in 2006 and by those who switched plans decisions to switch depended on individuals overspending in 2006 and on individualspecific effects of changes in their current plans the oldest consumers and those initiating medications for alzheimer s disease improved by more than average suggesting that real world institutions help overcome cognitive limitations

demand for differentiated durable products the case of the u s computer printer market i introduction this paper aims to provide a theoretical and empirical description of consumer behavior in a dynamic market for differentiated durable goods the computer hardware industry serves as an example of the type of market we consider markets for computer systems and components as well as for many other high technology products exhibit some striking similarities that are of particular concern for an empirical economist as follows products are differentiated in multiple dimensions in addition to price products are durable yielding consumption services over multiple periods product quality rapidly improves over time empirical work on estimating differentiated product demand systems has been dominated by static discrete choice models with random utility see berry levinsohn and pakes 1995 goldberg 1995 and nevo 2001 among others however markets for durable goods exhibit several features at odds with their assumption of myopic consumer behavior first traditional static discrete choice models implicitly assume that consumers participate in the market every period choosing one of the available products or an outside option thus the fraction of consumers who do not buy any product in a given period could only be explained by the high value they assign to the outside alternative for durable goods however purchases are made infrequently and result in a consumer s exiting the market for a significant period of time hence the model needs to account for consumers outflow from the market arising from their purchase decisions second a static framework may give a misleading picture of the aggregate sales time pattern in a dynamic industry in many markets for durable products it is not uncommon to see rapidly improving product quality and falling prices given any reasonable set of consumer preferences over the product characteristics space static discrete choice models for such an industry will tend to predict an upward trend in aggregate sales this fails to account for a variety of patterns commonly seen in the data third the evolution of product quality leads to the possibility of intertemporal demand substitution by forgoing a current purchase the consumer retains the option to buy a potentially better product in the future hence the decision of when to buy may be just as important for consumers as the decision of what to buy this trade off cannot be accounted for in the static framework the purpose of this paper is to remedy these shortcomings of static discrete choice models in durable goods markets with particular attention paid to technological change and the dynamics of new products adoption the paper presents a dynamic model of consumer demand for differentiated durable products that explicitly accounts for consumers expectations of future product quality and consumers outflow from the market that arises endogenously from their purchase decisions in this model the consumer faces a sequence of static discrete choice problems over a non stationary choice set we show that for a subclass of random utility models which include the multinomial logit and the mcfadden 1978 generalized extreme value gev model there exists a scalar valued sufficient statistic that determines the value of the option to postpone the purchase this allows us to model industry evolution over a vastly reduced state space and to formalize the consumer s decision of when to buy as an optimal stopping problem a solution to that problem defines the hazard rate of product adoptions while the nested discrete choice model determines the alternative specific purchase probabilities integrating individual decisions over the population distribution generates rich dynamics of aggregate and product level sales the paper proceeds to present monte carlo evidence that ignoring the time dimension of consumer choice will induce a downward bias in the estimates of consumer preferences over quality sometimes reversing the sign of the coefficients

asymmetric predictability of conditional variances we show that there is an asymmetry in the predictability of the volatilities of large versus small firms using both univariate and multivariate arma garch m parameterizations we find that volatility surprises to large market value firms are important to the future dynamics of their own returns as well as the returns of smaller firms conversely however shocks to smaller firms have no impact on the behavior of either the mean or the variance of the returns of larger capitalization companies article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a conditional variance model for daily deviations of an exchange rate a model for the distribution of daily deviations of an exchange rate is suggested the distribution is gaussian with a variance that depends on previous deviations the model is applied to the exchange rate of the u s dollar to special drawing rights

equity market neutral hedge funds and the stock market an application of score driven copula models in this article we study the time varying market neutrality of equity market neutral hedge funds we use data from the hedge fund research equity market neutral index hfrx eh which represents

arch models properties estimation and testing abstract the aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity arch model since its inception in a seminal paper by engle 1982 this model takes account of many observed properties of asset prices and therefore various interpretations can be attributed to it we start with the basic arch models and discuss their different interpretations arch models have been generalized in different directions to accommodate more and more features of the real world we provide a comprehensive treatment of many of the extensions of the original arch model next we discuss estimation and testing for arch models and note that these models lead to some interesting and unique problems there have been numerous applications and we mention some of these as we present different models the paper includes a glossary of the acronyms for the models we describe

cellular service demand biased beliefs learning and bill shock by april 2013 the fcc s recent bill shock agreement with cellular carriers requires consumers be notied when exceeding usage allowances will the agreement help or hurt consumers to answer this question we estimate a model of consumer plan choice usage and learning using a panel of cellular bills our model predicts that the agreement will lower average consumer welfare by 2 per year because rms will respond by raising monthly fees our approach is based on novel evidence that consumers are inattentive to past usage meaning that bill shock alerts are informative and advances structural modeling of demand in situations where multipart taris induce marginal price uncertainty additionally our model estimates show that an

achieving a secure energy future environmental and economic issues abstract energy economics and the environment are interdependent land water atmospheric and biological resources are being degraded by current high energy consumption u s energy consumption is the highest in the world and the u s department of energy reports that the united states has only about 10 years of known and potentially discoverable oil reserves the u s should reduce its energy consumption by one half to help restore the quality of the environment while improving the american standard of living by strengthening the economy and increasing the number of jobs because of the interdependence of energy economics and the environment energy efficiency and transition to renewable energy sources are critical an estimated 40 of current energy consumption could be produced employing solar energy technologies but would require about 20 of total u s land area therefore the development of solar energy technologies to substitute for fossil energy is projected to compete for land required for agriculture and forestry as well as have other environmental impacts

renewable resource management with a backstop substitute and nonautonomous prices abstract policies for managing a renewable resource in the presence of a backstop substitute are analyzed conditions for renewable and backstop resources to be relevant are discussed the extinction issue the role of myopic decision rules and the optimality of singular arc policies are examined with nonautonomous prices

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program we evaluate the choices of elders across their insurance options under the medicare part d prescription drug plan using a unique data set of prescription drug claims matched to information on the characteristics of choice sets we document that elders place much more weight on plan premiums than on expected out of pocket costs value plan financial characteristics beyond any impacts on their own financial expenses or risk and place almost no value on variance reducing aspects of plans partial equilibrium welfare analysis implies that welfare would have been 27 higher if patients had all chosen rationally

what to expect when you are expecting are health care consumers forward looking a fundamental question in health insurance markets is how do health care consumers dynamically optimize their medical utilization under non linear insurance contracts our paper tests the neoclassical prediction that a fully forward looking agent only responds to their expected end of year price our unique identification strategy studies families during the year of childbirth who will likely satisfy their annual deductible thereby knowing their expected end of year price we find that during the year of a childbirth fathers increase medical spending by 11 per month after their deductible is satisfied rejecting the null of fully forward looking consumers this behavior cannot be explained by fathers increasing utilization in response to the childbirth itself furthermore this myopia translates to a 21 24 decrease in total annual medical spending relative to the counterfactual of fully forward looking behavior and is concentrated in elective procedures we find no response in low value or urgent care our findings suggest the need for modeling non linear incentives while accounting for myopic behavior when studying the medical utilization responses to health insurance

volatility persistence in crude oil markets financial market participants and policy makers can benefit from a better understanding of how shocks can affect volatility over time this study assesses the impact of structural changes and outliers on volatility persistence of three crude oil markets brent west texas intermediate wti and organization of petroleum exporting countries opec between january 2 1985 and june 17 2011 we identify outliers using a new semi parametric test based on conditional heteroscedasticity models these large shocks can be associated with particular event patterns such as the invasion of kuwait by iraq the operation desert storm the operation desert fox and the global financial crisis as well as opec announcements on production reduction or us announcements on crude inventories we show that outliers can bias i the estimates of the parameters of the equation governing volatility dynamics ii the regularity and non negativity conditions of garch type models garch igarch figarch and hygarch and iii the detection of structural breaks in volatility and thus the estimation of the persistence of the volatility therefore taking into account the outliers on the volatility modelling process may improve the understanding of volatility in crude oil markets

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

patient cost sharing and hospitalization offsets in the elderly in the medicare program increases in cost sharing by a supplemental insurer can exert financial externalities we study a policy change that raised patient cost sharing for the supplemental insurer for retired public employees in california we find that physician visits and prescription drug usage have elasticities that are similar to those of the rand health insurance experiment hie unlike the hie however we find substantial offset effects in terms of increased hospital utilization the savings from increased cost sharing accrue mostly to the supplemental insurer while the costs of increased hospitalization accrue mostly to medicare

adverse selection and inertia in health insurance markets when nudging hurts this paper investigates consumer inertia in health insurance markets where adverse selection is a potential concern we leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia and develop and estimate a choice model that also quantifies risk preferences and ex ante health risk we use these estimates to study the impact of policies that nudge consumers toward better decisions by reducing inertia when aggregated these improved individual level choices substantially exacerbate adverse selection in our setting leading to an overall reduction in welfare that doubles the existing welfare loss from adverse selection jel d82 g22 i13 a number of potential impediments stand in the way of efficient health insur ance markets the most noted of these is adverse selection first studied by akerlof 1970 and rothschild and stiglitz 1976 in insurance markets prices reflect the expected risk costs of the insured pool whether the reason is price regulation or private information when insurers cannot price all risk characteristics riskier consumers choose more comprehensive health plans this causes the equilibrium prices of these plans to rise and healthier enrollees to select less comprehensive coverage than they would otherwise prefer

dynamics of consumer demand for new durable goods most new consumer durable goods experience rapid prices declines and quality improvements suggesting the importance of modeling dynamics this paper specifies a dynamic model of consumer preferences for new durable goods with persistently heterogeneous consumer tastes rational expectations and repeat purchases over time we estimate the model on the digital camcorder industry using panel data on prices sales and characteristics we find that the 1 year elasticity in response to a transitory industrywide price shock is about 25 percent less than the 1 month elasticity standard cost of living indices overstate welfare gain in later periods due to a changing composition of buyers

salience myopia and complex dynamic incentives evidence from medicare part d the standard medicare part d drug insurance contract is non linear with reduced subsidies in a coverage gap resulting in a dynamic purchase problem we consider enrolees who arrived near the gap early in the year and show that they should expect to enter the gap with high probability implying that under a benchmark model with neoclassical preferences the gap should impact them very little we find that these enrolees have flat spending in a period before the doughnut hole and a large spending drop in the gap providing evidence against the benchmark model we structurally estimate behavioural dynamic drug purchase models and find that a price salience model where enrolees do not incorporate future prices into their decision making at all fits the data best for a nationally representative sample full price salience would decrease enrolee spending by 31 entirely eliminating the gap would increase insurer spending 27 compared to 7 for generic drug only gap coverage

bridging the gap between the distribution of realized ecu volatility and arch modelling of the euro the garch nig model summary this paper bridges the gap between traditional arch modelling and recent advances on realized volatilities based on a ten year sample of five minute returns for the ecu basket currencies versus the us dollar we find that the realized volatilities constructed from the summation of the high frequency intraday squared returns conditional on the lagged squared daily returns are approximately inverse gaussian ig distributed while the distribution of the daily returns standardized by their realized volatilities is approximately normal moreover the implied daily garch model with normal inverse gaussian nig errors estimated for the ecu returns results in very accurate out of sample predictions for the three years of actual daily euro us dollar exchange rates copyright 2002 john wiley sons ltd