rethinking the brain drain abstract when productivity is fostered by both the individual s human capital and by the average level of human capital in the economy individuals underinvest in human capital a strictly positive probability of migration to a richer country by raising both the level of human capital formed by optimizing individuals in the home country and the average level of human capital of nonmigrants in the country can enhance welfare and nudge the economy toward the social optimum under a well controlled restrictive migration policy the welfare of all workers is higher than in the absence of this policy

inducing human capital formation migration as a substitute for subsidies abstract when productivity is fostered by an individual s own human capital as well as by the economy wide average level of human capital individuals under invest in human capital the provision of subsidies for the formation of human capital conditional on the subsidy being self financed by tax revenues can bring the economy to its socially optimal level of human capital yet a strictly positive probability of migration to a richer country by raising both the level of human capital formed by optimizing individuals in the home country and the average level of human capital of non migrants in the country can enhance welfare and nudge the economy toward the social optimum indeed under a well controlled restrictive migration policy the welfare of all workers is higher than in the absence of this policy

comparing risks by acceptance and rejection stochastic dominance is a partial order on risky assets gambles that is based on the uniform preference of all decision makers in an appropriate class for one gamble over another we modify this requirement first by taking into account the status quo given by the current wealth and the possibility of rejecting gambles and second by comparing rejections that are substantive i e uniform over wealth levels or over utilities this yields two new stochastic orders wealth uniform dominance and utility uniform dominance unlike stochastic dominance these two orders are complete any two gambles can be compared moreover they are equivalent to the orders induced by respectively the aumann serrano index of riskiness and the foster hart measure of riskiness

an empirical test of a valuation model for american options on futures contracts pricing models for american call and put options on futures contracts are derived herein these models are used to investigate the efficiency of the market for options on standard poor 500 and german mark futures the evidence presented here indicates that market prices for these options deviate substantially from their corresponding model prices in addition it is shown that a hedging strategy originated at prices that indicate a deviation of market from model is successful in translating the observed mispricing into excess profits after transactions costs however these net profits are eliminated if the origination of the strategy is delayed by one trade or if bid ask spreads are accounted for

a brain gain with a brain drain abstract we study human capital depletion and formation in an economy open to out migration as opposed to an economy which is closed under the assumption of asymmetric information the enlarged opportunities and the associated different structure of incentives can give rise to a brain gain in conjunction with a brain drain migration by high skill members of its workforce notwithstanding the home country can end up with a higher average level of human capital per worker

put call parity and expected returns this study examines the hypothesis that in the presence of market frictions relative put and call prices contain information concerning future returns of the underlying asset a measure of relative prices is derived from the put call parity relationship for index options and applied to a three year sample of oex option transactions the results show that the measure of relative index option prices leads the stock market by at least 15 minutes

income taxation and international mobility today millions of people work in countries where they are not citizens income taxation and international mobility addresses the novel theoretical and practical problems that this growing phenomenon of international personal mobility creates for the design of a country s tax system and takes up questions that have grown largely out of the extensive debate over jagdish bhagwati s proposal in the early 1970s to tax the brain drain the contributors who include many of the leading theorists of international economics and public finance look at how the difficult question of how horizontal equity is to be defined between nationals at home and abroad or between nationals abroad and foreign citizens abroad and tackle such questions as should a country exercise income tax jurisdiction over its citizens abroad if so in what way is it practical to do so the issues that these questions raise are complex lying on the interface of politics sociology and economics income taxation and international mobility breaks significant new ground by analyzing these questions and building on the modern theory of optimal income taxation to examine the consequences of the possibility of outmigration on the appropriate exercise and design of income tax jurisdiction on those who live outside their native country theoretical analyses are presented in six chapters by the editors and by james mirrlees william baumol and koichi hamada the well known tax law expert richard pomp examines the philippines experience in taxing citizens abroad the editors provide a substantial introduction that synthesizes the book s major analytical approaches and conclusions and richard musgrave provides an insightful view of the issues in his foreword

on valuing american futures options more than 20 different futures option contracts currently trade on u s exchanges these american options are exercisable at any time up to and including the expiration day in pricing them however investment managers have been forced to rely on principles developed for european options which may be exercised only at expiration this practice can be misleading because the early exercise privilege of american futures options has a significant effect on pricing the early exercise premium of american futures options affects two types of pricing relations the first type are those relations developed by assuming the market is free from costless arbitrage opportunities these relations are often termed rational option pricing restrictions and an important relation within this category is the put call parity relation which simultaneously links the prices of the put and the call in the futures option market with the price of the underlying futures contract the second and perhaps most important type of option pricing relations affected by early exercise are valuation equations valuation equations require an additional assumption about the futures price distribution the most commonly used assumption is a lognormal distribution the widest known model for pricing futures option contracts is the black model but it was developed for european futures options and thereby ignores the value of the early exercise feature of the american options an intuitively appealing approximation method based on the american futures option valuation equation is very accurate and computationally inexpensive

productivity and competitiveness although this article is about much more than uk manufacturing manufacturing is a bell wether for the whole economy because it is the key tradable sector accounting for over 80 per cent of uk non oil trade in 1988 it is also widely believed to be disproportionately important for wage determina tion despite now accounting for only around one quarter of all employment and under a third of full time employment further data availability and accuracy are better than for most of the rest of the economy so this is the sector with which we begin there are three key ways of measuring the inter national competitiveness of uk manufacturing relativ output prices relative export prices and relative unit labour costs where the relativities are taken against a weighted basket of our chief com petitors figures 1 a and 1 6 plot data on the three measures as published by the cso the 1980 or 1981 high points on the graphs indicate the post ar troughs reached by competitiveness in those ea s the combination of the exchange rate appre ciation resulting from the medium term financial stra egy mtfs and the oil revenue boom the eff cts of the recent wage inflation and the cyclical d cline in labour productivity produced

efficient selection of insured currency positions protective puts vs fiduciary calls we examine the empirical results from implementation of portfolio insurance strategies employing currency spot and futures options hypotheses are generated from ogden and tucker s 1988 generalizations concerning the relative values of american spot currency options and currency futures options we find that protective puts using futures options are generally dominated by both protective puts that use options on spot currencies and by fiduciary calls on futures contracts this suggests that the prices of puts on foreign currency futures contracts are too high relative to foreign currency futures calls and to puts on spot currencies

option prices as predictors of equilibrium stock prices the black scholes option pricing model modified for dividend payments is used to calculate jointly implied stock prices and implied standard deviations a comparison of the implied stock prices with observed stock prices reveals that the implied prices contain information regarding equilibrium stock prices that is not fully reflected in observed stock prices the implications of this finding are discussed this study investigates the role of call option prices as predictors of the equilibrium prices of their underlying stocks using the black scholes 3 bs model previous tests of the bs model have shown that the formula is highly successful in explaining the observed market prices of options see black and scholes 2 galai 8 chiras and manaster 6 and macbeth and merville 12 according to the model the option price is a function of the current value of the underlying stock the instantaneous variance of the stock s rate of return the time to maturity of the option the risk free rate of interest and the exercise price of the option 1 given an observed option price and known values of all input parameters to the bs model except the stock price one can determine the price of the underlying stock that equates the observed option price to its calculated value it follows from the underlying logic of the model that the implied price is the value of the underlying stock for which a continuously revised option bond portfolio would be a perfect substitute for the stock hence if options are actually priced according to the model implied stock prices will be the option market s assessment of equilibrium stock values previous empirical studies have assumed that observed stock prices are the relevant stock prices for option valuation however just as stock prices may differ in the short run from one exchange to another i e nyse midwest

search theoretic models of the labor market a survey we survey the literature on search theoretic models of the labor market we show how this approach addresses many issues including the following why do workers sometimes choose to remain unemployed what determines the lengths of employment and unemployment spells how can there simultaneously exist unemployed workers and unfilled vacancies what determines aggregate unemployment and vacancies how can homogeneous workers earn different wages what are the tradeoffs firms face from different wages how do wages and turnover interact what determines efficient turnover we discuss various modeling choices concerning wage determination and the meeting process including recent models of directed search

emigration wage differentials and brain drain the case of suriname in this article we examine two hypotheses concerning emigration the first hypothesis is that emigration is positively correlated with wage differentials the second hypothesis concerns a positive correlation between emigration and higher education in the sending country the so called brain gain hypothesis we analyse unique time series data for suriname for the period 1972 2009 for which we fit error correction models to disentangle short run from long run effects we document moderate support for the first hypothesis but we find strong support for the brain drain and not brain gain hypothesis we conclude with implications of our findings for suriname

no man left behind effects of emigration prospects on educational and labour outcomes of non migrants the development impacts of emigration are largely determined by the education of those who stay behind departure of workers leads to a direct loss of human capital but opportunities for emigration also raise expected returns to education i examine these effects by considering the introduction of education as a selection criterion to recruit nepalese men in the british army this change raised educational investments by 1 15 years and increased the average education of men living in nepal even after allowing for emigration despite not being selected in the british army or emigrating elsewhere these non migrants benefited directly from additional schooling

hedging foreign exchange risk using forward foreign exchange markets an extension this study investigates minimum risk hedging ratios and the hedging effectiveness of forward foreign exchange markets for the british pound and the german mark during the period january 4 1982 april 30 1984 these currencies are selected because of their importance in foreign exchange markets and their use as international currencies evidence is strong that the presence of autocorrelation not only overstates optimal hedge ratios but also overstates hedging effectiveness for these two currencies the lower optimal hedging ratios found in this study than in earlier works is thus largely attributed to the adjustment for autocorrelation

human capital depletion human capital formation and migration a blessing or a curse abstract we specify conditions under which a strictly positive probability of employment in a foreign country raises the level of human capital formed by optimizing workers in the home country while some workers migrate taking along more human capital than if they had migrated without factoring in the possibility of migration a form of brain drain other workers stay at home with more human capital than they would have formed in the absence of the possibility of migration a form of brain gain

efficiency tests of the foreign currency options market based on a new options transactions data base from the philadelphia stock exchange foreign currency options market this paper examines the importance of the effect of nonsynchronous prices and transaction costs on the usual option market efficiency tests the tests conducted are based on the transaction cost adjusted early exercise and put call parity pricing boundaries applicable to the american foreign currency options market the test results show that the put call parity boundary tests are sensitive to both nonsynchronous prices and transaction costs the early exercise boundary tests are sensitive to transaction costs but are not very sensitive to simultaneity of the option price and the underlying spot price under the no transaction costs scenario a large number of early exercise boundary violations is found even when simultaneous spot and option prices are used these violations disappear when actual transaction costs are taken into account

negative moments risk aversion and stochastic dominance a simple moment ordering condition is shown to be necessary for stochastic dominance closely related results on generalizations of the geometric and harmonic means are also provided an ordering of the moment generating functions is shown to be necessary and sufficient for stochastic dominance the results have a straightforward and useful interpretation in terms of constant relative and absolute risk aversion utility functions these results are used to provide necessary and sufficient conditions for optimality of distributions on an important class of utility functions

an empirical analysis of term premiums using stochastic dominance abstract this paper examines term premiums in u s treasury bill monthly holding period returns several techniques are employed to ascertain whether the observed term premiums are economically meaningful no second order stochastic dominance is found in the first five month maturities when a riskless asset is assumed the first two maturities are dominated therefore we conclude that although there are statistically significant term premiums they are not economically meaningful if there is no riskless borrowing and lending the term premiums are economically meaningful in the sense that the longer maturities dominate the shorter maturities when a riskless asset is available

replicating options with positions in stock and cash in most situations of practical relevance the price behavior of a call option is very similar to a combined position involving the underlying stock and borrowing the call price and the stock price will change in the same direction the effect on the call price of a one dollar change in the stock price however will depend on the current price of the stock the number of shares of stock in the replicating portfolio must equal the slope of the call price curve at that price when the call is deep out of the money i e when the stock price is much lower than the striking price a one dollar change in the stock price has little effect on the call price when the stock price is equal to the striking price a one dollar change in the stock price produces roughly a half dollar change in the call price if the stock price rises until the call is deep in the money a one dollar move in the stock price results in nearly a one dollar move in the call price because the call price behaves this way we must revise

market reaction to quarterly earnings announcements a stochastic dominance based test of market efficiency the use of the capm in empirical research is subject to some criticism in light of this criticism the stochastic dominance criteria are offered as an alternative research method for the examination of market efficiency the underlying assumptions of the two frameworks are discussed and the stochastic dominance technique is demonstrated via the examination of market reaction to quarterly earnings announcements during the 24 quarters commencing with october 1962 the findings are compared to those of watts watts r the time series behavior of quarterly earnings unpublished paper university of newcastle newcastle n s w 1975 quoted in watts 1978 who utilized the same data base in contrast to watts conclusion our analysis suggests that the market was efficient during the entire period examined and that no significant differences in market behavior between the first and the second 12 month periods was evident the discord may be attributed to the relative effectiveness of the two analytical tool

incentive fees who wins who loses 1987 incentive fees who wins who loses financial analysts journal vol 43 no 1 pp 27 38

immigrant earnings age at immigration matters a correlation between age at immigration and earnings is observed in canadian census data the evidence supports three underlying sources of the effect first work expe rience in the source country yields virtually no return in the host country second the return to education varies with age at immigration and finally an acculturation effect is observed for immigrants who are visible minorities or whose mother tongue is not english further it is found that educational attainment and relatedly earnings vary systematically across age at immigration with those arriving around age 15 to 18 obtaining fewer years of education

option portfolio strategies measurement and evaluation it is well known that options can increase the flexibility of returns available from investment strategies papers by ross 1976 breeden and litzenberger 1978 and arditti and john 1980 point toward spanning opportunities which increase the efficiency of the financial markets in meeting the investment objectives of investors while these and other studies have demonstrated the potential of option portfolio strategies in molding the return distribution to better fit risk preferences a number of other studies have used simulation techniques to give an empirical view of just what effect particular option stock and option bond strategies will have in altering risk return patterns a major study in this area is that of merton scholes and gladstein 1978 1982 their study presented in two papers one on call option portfolio strategies hereinafter msgl and the other on put option portfolio strategies hereinafter msg2 presents a broad and insightful discussion of many of the implications of combining options with stock portfolios the msg study employs a 12 5 year period for simulations in the first paper on portfolios using call options and a 14 year simulation period in the second paper on portfolios using put options as they are careful to point out their results depend on market trends which may not match ex ante expecta

global influences on uk manufacturing prices 1970 2000 abstract we introduce the first consistent series of domestic product and related import price indices at the industry level for the uk using the data to analyse both domestic and international determinants of uk manufactured product prices foreign influences on uk prices in domestic markets are always present but domestic cost movements dominate we show that the pass through of world price tariff and exchange rate changes into product prices is partial in general and varies markedly between product categories standard tariff and exchange rate theories overstate price responses to global pricing determinants and fail to allow for variation between industrial sectors such theories can mislead when used for policy analysis and prediction

the hedging of an uncertain future foreign currency cash flow this paper derives the optimal hedge of an uncertain unknown quantity future foreign currency cash flow this more general optimal hedge includes the traditional hedge for a certain known quantity future foreign currency cash flow as a special case the optimal hedge is found to be unbounded and determined by firm specific conditions including the variance of the expected cash flow and the correlation of that future cash flow with actual exchange rate movements simulated optimal hedge values are found for u s based multinational firms possessing s dm cash flows using exchange rate data for the 1981 1987 period special cases in which the optimal hedge ratio equals zero and one also are identified and we show that cash flow uncertainty can strongly affect the effectiveness of hedging

is skilled immigration always good for growth in the receiving economy abstract a highly skilled immigration can be growth enhancing if the positive contribution of the imported brains to the host economy s human capital stock outweighs the immigration induced adverse effect on educational incentives for natives or growth depleting if the latter effect dominates

options on the spot and options on futures this paper analyzes and compares the valuation of two types of options that relate to the same asset options on the asset itself and options on the futures on the asset the early exercise privilege plays a central role in explaining the differences between the values of the two options it is shown that in the case of a cash instrument that does not make interim payments such as gold the value of a call option on the spot is smaller than the call option on the futures contract the opposite is true for put options the early exercise boundaries which characterize when it pays to exercise are also compared and analyzed the financial markets have recently witnessed a proliferation of various types of listed options on commodities and on financial assets commencing with call options on individual common stocks recent innovations have included call and put options on treasury bonds metals foreign currencies and stock market

can a brain drain be good for growth in the source economy this paper analyzes the interaction between income distribution human capital accumulation and migration it shows that when migration is not a certainty a brain drain may increase average productivity and equality in the source economy even though average productivity is a positive function of past average levels of human capital in an economy it is also shown how the temporary possibility of emigration may permanently increase the average level of productivity of an economy

empirical tests for stochastic dominance efficiency we derive empirical tests for the stochastic dominance efficiency of a given portfolio with respect to all possible portfolios constructed from a set of assets the tests can be computed using straightforward linear programming bootstrapping techniques and asymptotic distribution theory can approximate the sampling properties of the test results and allow for statistical inference our results could provide a stimulus to the further proliferation of stochastic dominance for the problem of portfolio selection and evaluation using our tests the fama and french market portfolio is significantly inefficient relative to benchmark portfolios formed on market capitalization and book to market equity ratio

exchange rate uncertainty forward contracts and international portfolio selection in this paper ex ante efficient portfolio selection strategies are developed to realize potential gains from international diversification under flexible exchange rates it is shown that exchange rate uncertainty is a largely nondiversiflable factor adversely affecting the performance of international portfolios therefore it is essential to effectively control exchange rate volatility for that purpose two methods of exchange risk reduction are simultaneously employed multicurrency diversification and hedging via forward exchange contracts the empirical findings show that international portfolio selection strategies designed to control both estimation and exchange risks almost consistently outperform the u s domestic portfolio in out of sample periods since grubel 11 applied modern portfolio theory mpt to international investment various authors such as levy and sarnat 17 solnik 20 and lessard 16 have examined the gains from international diversification of investment portfolios for the purpose of establishing the gains from international diversification these studies constructed international portfolios using historical risk and return data from a period of fixed or relatively stable exchange rates and showed that internationally diversified portfolios dominated purely domestic portfolios in terms of mean variance efficiency from the standpoint of today s investors however the previous studies fail to offer operational guidance for international diversification for two important reasons first it is now questionable whether the past findings are still relevant under the current flexible exchange rate regime second by being ex post in nature the past studies ignored the issue of estimation risk or parameter uncertainty and therefore may have overstated the realizable portion of the potential gains from international diversification fluctuating exchange rates are likely to mitigate the potential gains from international diversification by making investment in foreign securities more risky as will be shown later a fluctuating exchange rate contributes to the risk of foreign investment not only through its own variance but also through its positive covariances with the local stock market returns during our sample period of 1980 through 1985 for example exchange rate volatility is found to account for about fifty percent of the volatility of dollar returns from investment in the stock markets of such major countries as germany japan and the u k furthermore the exchange rate changes vis a vis the u s dollar are found to be

a stochastic dominance analysis of yen carry trades abstract yen carry trades have made headline news for over a decade we examine the profitability of such trades for the period 2001 2009 yen carry trades generated high mean returns and sharpe ratios prior to the recent financial crisis they continued to outperform major stock markets for the full sample period given the non normality of carry trade returns we apply non parametric tests based on stochastic dominance sd to evaluate whether the high returns of yen carry trades are compatible with risk as reflected in returns on us and global stock market indices we apply a general test for sd developed recently by linton maasoumi and whang 2005 to six currencies as well as portfolios of these currencies for a large class of risk averse investors profits from yen carry trades cannot be attributed to risks

mean gini portfolio theory and the pricing of risky assets this paper presents the mean gini mg approach to analyze risky prospects and construct optimum portfolios the proposed method has the simplicity of a mean variance model and the main features of stochastic dominance efficiency since mean gini is consistent with investor behavior under uncertainty for a wide class of probability distributions gini s mean difference is shown to be more adequate than the variance for evaluating the variability of a prospect the mg approach is then applied to capital markets and the security valuation theorem is derived as a general relationship between average return and risk this is further extended to include a degree of risk aversion that can be estimated from capital market data the analysis is concluded with the concentration ratio to allow for the classification of different securities with respect to their relative riskiness

agency theory and stochastic dominance recently agency theory has become popular as a means of explaining the structure of contracts between various classes of economic agents oftentimes the contracts of interest represent sharing rules for the payoffs that result from some production activity in the usual two party model of the contracting problem one party designated the principal delegates authority for decisions affecting production to another party designated the agent typically the assumptions made about the consequences of the agent s actions are that they are associated with effort on the part of the agent for which the agent but not the principal has disutility and that greater effort will result in higher payoffs from production in every state of nature moral hazard is then introduced by assuming that the principal is unable to observe the agent s effort or to infer what effort the agent applied through an ex post observation of the payoff that results

third degree stochastic dominance here f x and g x are less than cumulative probability distributionis where x is a continuous or discrete random variable representing the outcome of a prospect the closed interval a b is the sample space of both prospects the integral shown in rule 2 and those shown throughout the paper are stieltjes integrals recall that the stieltjes integral fb f x dg x exists if one of the functions f and g is continuous and the other has finite variation in a b let d1 d2 and d3 be three sets of utility functions x d1 is the set containing all utility functions with 4 x and 1 x continuous and 41 x 0 for all xe a b d2 is the set with x 1 x 2 x continuous and q j x 0 02 x o for all xc a b d3 is the set with x 1 x 2 x 3 x continuous and 1 x 04 2 x o o for all xc a b here 1 x denotes the ith derivative of x hadar and russell proved that rule 1 is valid for all cd1 and rutle 2 is valid for all ed2 the authors point out that the set of probability distributions that can be ordered by means of second degree stochastic dominance is in general larger than that which can be ordered by means of first degree stochastic dominance note that in rule 2 they assume that x is not only an increasing function of x but also exhibits weak global risk aversion a condition guaranteed by requiring the second derivative of x to be nonpositive in this paper a condition which will be called third degree stochastic dominance is considered it is based on the following assumption about the form of the utility function x from a normative point of view one expects the risk premium associated with an uncertain prospect to become smaller the greater is the individual s wealth the plausibility and implications of this assumption h ave been explored by john pratt as well as others the risk premium of an uncertain prospect is that amount by which the certainty equivalent of the prospect differs from its expected value in mathematical terms given the prospect f x with expected value a the corresponding risk premium t is obtained by solving the following equation rb

risk aversion and the propensities for self insurance and self protection for a risk averse individual the methods for reducing the expected financial impact of a loss include reducing the severity of any loss that occurs self insurance and reducing the probability of the occurrence of a loss self protection the literature on this topic has pointed to several anomalies whereby the use of self protection and self insurance yield quite unsimilar results for example ehrlich and becker 5 show that self insurance is always a substitute for market insurance an insurance company s indemnifying a loss whereas self protection and market insurance might be complements dionne and eeckhoudt 4 show that a more risk averse consumer would always invest more in self insurance activities but not necessarily more in self protection activities they argue 4 42 that this result is counterintuitive and provides an exception to the widely accepted result that increased risk aversion reduces risky activities ehrlich and becker 5 639 argue that the incentive to self protect is not so dependent on attitude towards risk both of the above papers seem to take for granted that self protection activities reduce the riskiness of the final wealth distribution however as we argue below this is not the case if riskiness is defined as in rothschild and stiglitz 14 even if we use the variance as our risk measure we do not always reduce risk via self protection dionne and eeckhoudt suggest that these results might not be robust enough to extend to models that incorporate random initial wealth risk and state dependent preferences we show that the model seems to be very robust we also explain why self protection is not at all an exception to the long standing result of arrow 1 whereby more risk averse individuals undertake a lower

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

globalization brain drain and development this paper reviews four decades of economics research on the brain drain with a focus on recent contributions and on development issues we first assess the magnitude intensity and determinants of the brain drain showing that brain drain or high skill migration is becoming a dominant pattern of international migration and a major aspect of globalization we then use a stylized growth model to analyze the various channels through which a brain drain affects the sending countries and review the evidence on these channels the recent empirical literature shows that high skill emigration need not deplete a country s human capital stock and can generate positive network externalities three case studies are also considered the african medical brain drain the exodus of european scientists to the united states and the role of the indian diaspora in the development of india s information technology sector we conclude with a discussion of the implications of the analysis for education immigration and international taxation policies in a global context

pests and pesticides risk and risk aversion abstract theoretical and applied literature on risk in decision making for agricultural pest control is reviewed risk can affect pesticide decision making either because of risk aversion or because of its influence on expected profit it is concluded that risk does not necessarily lead to increased pesticide use by individual farmers uncertainty about some variables such as pest density and pest mortality does lead to higher optimal pesticide use under risk aversion however uncertainty about other important variables such as output price and yield leads to lower optimal levels of pesticide use neglect of these variables in most studies has led to the false assumption that pesticides are always risk reducing inputs furthermore there is evidence that in general the pesticide dosage which maximises expected profit is lower under risk than under certainty depending on the balance of forces to increase and decrease pesticide use under risk in many circumstances the net effect of risk on optimal decision making for pest control may be minimal the effect on risk of information about pest density and other variables as in integrated pest management programmes is discussed evidence on this issue is mixed a range of analytical techniques for analysing risk in pest control is reviewed throughout the paper gaps in the existing literature are identified

valuation of american options on foreign currency abstract pricing models for american call and put options on foreign currency are derived herein these models are used to investigate the efficiency of the market for foreign currency options the evidence presented here indicates that market prices for these options deviate substantially from their corresponding model prices in addition it is shown that a hedging strategy executed at transaction prices can be used to translate an observed deviation of market from model prices into positive excess profits however these profits are eliminated if the strategy is executed at bid and offer prices

the analysis of risky investment the paper extends the stochastic dominance analysis into a state contingent framework unlike the regular stochastic dominance rules in which case the dominance is defined over the states the efficiency analysis is applicable also for prospects that can be diversified between themselves or with other assets the paper presents definitions of the state contingent dominance rules theorems with respect to the properties of these rules comparisons between the regular stochastic dominance rules the state contingent dominance rules and demonstrations of some economic implications and uses of these rules

international migration and educated unemployment this paper provides a novel explanation of educated unemployment which is a salient feature of the labor markets in a number of developing countries in a simple job search framework we show that educated unemployment is caused by the prospect of international migration that is by the possibility of a brain drain in addition the analysis shows that a developing country may end up with more educated workers despite the brain drain and educated unemployment

diversification consistent data envelopment analysis with general deviation measures abstract we propose new efficiency tests which are based on traditional dea models and take into account portfolio diversification the goal is to identify the investment opportunities that perform well without specifying our attitude to risk we use general deviation measures as the inputs and return measures as the outputs we discuss the choice of the set of investment opportunities including portfolios with limited number of assets we compare the optimal values efficiency scores of all proposed tests leading to the relations between the sets of efficient opportunities strength of the tests is then discussed we test the efficiency of 25 world financial indices using new dea models with cvar deviation measures

a back door brain drain abstract the long run effect of migration solely by unskilled workers is that skilled workers in the home country acquire additional human capital yet their share in the country s workforce falls consequently the country s average level of human capital is lowered

the relative valuation of american currency spot and futures options theory and empirical tests this study empirically tests contingent claims pricing models for american currency spot and futures options numerical analysis indicates that the difference in the model prices of spot and futures put call options with the same exercise price and maturity is for a premium discount currency positive and an increasing function of a the absolute dif ference in the prices of the underlying spot and futures contracts and b the maturity of the options tests on british pound deutsche mark and swiss franc options indicate many violations ofthe ordinal pricing relationships noted above additional tests indicate that option prices are inconsistent with functional relationship b above most of the ob served violations are sufficiently large to provide arbitrage profits net of transaction costs assuming interest rates are constant and the interest rate parity theorem holds continu ously alternatively both the violations and the inconsistent functional relationship may be due to violation of the assumption of constant interest rates

a comparative analysis of water price support versus drought compensation scheme abstract this paper examines the preferred governmental intervention towards crops growing methods in semi arid regions these regions are characterized by an average amount of rain which is sufficient to grow the crop but it is also very risky the farmers attitude towards risk motivates the government to encourage them to shift to more profitable and riskier crop rotations the paper analyses two alternatives of which the government can work through drought compensation scheme dcs and water price support wps the semi arid region in israel is analyzed and policy conclusions are derived in particular it is shown that for different sub regions within the semi arid region different mechanisms are preferred by the government and the farmers sometimes these mechanisms coincide and sometimes they do not a welfare analyzes compares the different situations

quality of higher education and the labor market in developing countries evidence from an education reform in senegal summary while many studies examine the effect of primary education quality on labor market outcomes in developing countries little is known about the effects at higher levels we exploit the quasi experiment provided by a large scale education reform launched in senegal in 2000 to investigate how quality improvements at the university level affect employment our difference in difference estimates suggest that young high skilled workers experienced a nine percentage point employment gain relative to older workers they are also more likely to have better jobs in the service industry or government suggesting a reduction in the mismatch between the quality of high skilled labor demanded and supplied

efficient unemployment insurance this paper constructs a tractable general equilibrium model of search with risk aversion an increase in risk aversion reduces wages unemployment and investment unemployment insurance has the opposite effect insured workers seek high wage jobs with high unemployment risk an economy with risk neutral workers achieves maximal output without any unemployment insurance but an economy with risk averse workers requires a positive level of unemployment insurance to maximize output therefore moderate unemployment insurance not only improves risk sharing but also increases output

a note on almost stochastic dominance abstract both the expected utility maximization and the hierarchy property are very important properties in stochastic dominance for almost stochastic dominance leshno and levy 2002 propose a definition and tzeng et al 2013 modified it to give another definition this note provides more information on the two definitions the former has the hierarchy property but not the expected utility maximization whereas the latter has the expected utility maximization but not the hierarchy property

valuation of american futures options theory and empirical tests this paper reviews the theory of futures option pricing and tests the valuation principles on transaction prices from the s p 500 equity futures option market the american futures option valuation equations are shown to generate mispricing errors which are systematically related to the degree the option is in the money and to the option s time to expiration the models are also shown to generate abnormal risk adjusted rates of return after transaction costs the joint hypothesis that the american futures option pricing models are correctly specified and that the s p 500 futures option market is efficient is refuted at least for the sample period january 28 1983 through december 30 1983 futures option contracts now trade on every major futures exchange and on a wide variety of underlying futures contracts the chicago mercantile exchange the chicago board of trade the new york futures exchange and the commodity exchange now collectively have more than twenty options written on futures contracts where the underlying spot commodities are financial assets such as stock portfolios bonds notes and eurodollars foreign currencies such as west german marks swiss francs and british pounds precious metals such as gold and silver livestock commodities such as cattle and hogs and agricultural commodities such as corn and soybeans moreover new contract applications are before the commodity futures trading commission and should be actively trading in the near future with the markets for these new contingent claims becoming increasingly active it is appropriate that the fundamentals of futures option valuation be reviewed and tested black 5 provides a framework for the analysis of commodity futures options although his work is explicitly directed at pricing european options on forward contracts it applies to european futures contracts as well if the riskless rate of interest is constant during the futures option life 1 the options currently

intraday price change and trading volume relations in the stock and stock option markets this study investigates intraday relations between price changes and trading volume of options and stocks for a sample of firms whose options traded on the cboe during the first quarter of 1986 after purging the price change series of the effects of bid ask spreads multivariate time series analysis is used to estimate the lead lag relation between the price changes in the option and stock markets the results indicate that price changes in the stock market lead the option market by as much as fifteen minutes the analysis of trading volume indicates that the stock market lead may be even longer the intense trading activity in and in fact the very existence of organized stock option markets attest to the economic benefits that these financial contracts provide reduced transaction costs and increased financial leverage are two reasons why trading in the stock option market may be more attractive than trading in the market for the underlying stock in addition these cheaper and more flexible trading opportunities attract new and differently informed investors to the marketplace the resulting increase in trading activity together with the inextricable arbitrage linkage between stock and option prices imply an increase in market efficiency this study investigates empirically the intraday price change and trading volume relations between stocks and options for a sample of firms whose options were actively traded on the chicago board options exchange during the first quarter of 1986 in particular intraday call option price changes are translated into implied stock price changes using the american call option pricing model these intraday implied stock price changes are then compared with the actual stock price changes to identify which if either market leads the other in perfectly functioning capital markets there should be complete simultaneity between the series that is new information disseminating into the marketplace should be reflected in the prices and the trading activity of both securities simultaneously institutional factors however may make the stock option market more attractive to information traders this may cause price changes and trading activity due to new information to be observed in the option market first followed by price

price changes of related securities the case of call options and stocks this paper tests the hypothesis that option prices contain information not reflected in con temporaneous stock prices an options transactions data base is used for the purpose the evidence suggests that the magnitude of anticipation of stock prices by option prices is insufficient to overcome the bid ask spread for intra day holding periods implications of the profits in the overnight holding periods are discussed

productivity and income per capita convergence in a peripheral european economy the irish experience birnie j e and hitchens d m w n 1998 productivity and income per capita convergence in a peripheral european economy the irish experience reg studies 32 223 234 gdp per capita in ireland increased from 60 to 90 of the uk average during 1986 95 this extremely rapid convergence begs the question whether increases in comparative productivity were of a similar magnitude industry of origin comparisons were used to benchmark ireland uk labour productivity in 1935 1968 and 1985 dramatic improvement in manufacturing comparative productivity was the immediate explanation of much of the convergence in gdp per capital levels unadjusted manufacturing productivity in the mid 1990s was as high as that in the us this was prima facie evidence of transfer pricing the likely scale of distortion created by transfer pricing is discussed and hence the extent of exaggeration of gdp an agenda for further research was suggested birnie j e et hitchens d m w n 1998 la convergence de la productivite e

stochastic dominance analysis without the independence axiom we characterize the consistency of a large class of nonexpected utility preferences including mean variance preferences and prospect theory preferences with stochastic orders for example stochastic dominances of different degrees our characterization rests on a novel decision theoretic result that provides a behavioral interpretation of the set of all derivatives of the functional representing the decision maker s preferences as an illustration we consider in some detail prospect theory and choice acclimating preferences two popular models of reference dependence under risk and we show the incompatibility of loss aversion with prudence this paper was accepted by james smith decision analysis

performance evaluation of portfolio insurance strategies using stochastic dominance criteria abstract this paper evaluates the performance of the stop loss synthetic put and constant proportion portfolio insurance techniques based on a block bootstrap simulation we consider not only traditional performance measures but also some recently developed measures that capture the non normality of the return distribution value at risk expected shortfall and the omega measure we compare them to the more comprehensive stochastic dominance criteria the impact of changing the rebalancing frequency and level of capital protection is examined we find that even though a buy and hold strategy generates higher average excess returns it does not stochastically dominate the portfolio insurance strategies nor vice versa our results indicate that a 100 floor value should be preferred to lower floor values and that daily rebalanced synthetic put and cppi strategies dominate their counterparts with less frequent rebalancing

stochastic dominance and uncertain price prospects since the seminal and simultaneous publications of hadar and russell 6 and hanoch and levy 8 there has been a virtual explosion of papers investigating implications of stochastic dominance rules for decisions under uncertainty dominance principles have important applications to portfolio choice capital budgeting and financial intermediation stochastic dominance can also be applied to investment and production decision problems under uncertainty in these areas both overall and marginal impacts of uncertainty have received wide attention 2 the emphasis in consumer welfare analysis under uncertainty has been on the ranking of different price prospects ranking of price prospects is more complicated than that of income prospects for two related reasons first due to differences in ordinal preferences among consumers the second degree stochastic dominance rule on price prospects does not yield a unanimous ranking among risk averse consumers thus waugh 17 massell 12 and samuelson 14 have focused on the ranking of price prospects for a single consumer or consumers with identical ordinal preferences second there is no a priori reason for income risk averse consumers to exhibit aversion to fair price risks specifically the indirect utility function of an income risk averse consumer is neither concave nor convex in prices indirect ways of comparing consumer welfare under alternative price prospects via expected consumer surplus expected compensating variation or expected equivalent variation have thus been investigated in the literature expected consumer surplus ecs has been particularly popular for ranking certain and uncertain price prospects 3 however turnovsky shalit and schmitz 16 showed that the ranking

global talent local careers circular migration of top indian engineers and professionals despite heightened interests from policy makers in the notion of brain circulation the discussion around the issue has remained largely theoretical drawing upon unique data of the alumni of a leading indian university this study examines how migration dynamics unfold within a highly educated population whose emigration is considered as a classic example of brain drain we adopt an integrative framework bringing together macro level push and pull influences and individual level selectivity we find that disparity in economic development between countries drives migration flows in both directions while host country demand has a stronger impact on out migration than on return migration we also detect significant selection effects at the individual level top students are more likely to emigrate and less likely to return in out migration flowing out of the country appear to be the best and the brightest amongst the highly educated talent pool in return migration negative selection is manifested in multiple aspects including ability post migration human capital investment and income we also find that the influences of macro forces vary amongst individuals higher ability individuals appear to be less affected by demand changes the findings have important policy implications for both source countries and receiving countries

reducing volatility with financial futures hedging with financial and currency futures contracts can substantially reduce fluctuations in the value of foreign currency corporate bond gnma security and equity positions the authors tested hedges involving a spot position in corporate bonds and a position in gnma or u s treasury bond futures a futures and a spot position in gnmas a futures and a spot position in each of five broadly traded foreign currencies and a futures aznd a spot position in the value line index the s p 500 and the nyse composite in all cases hedged positions proved significantly less risky in terms of standard deviation than unhedged positions use of the interest rate futures to hedge long term bond positions resulted in 50 per cent reductions in the variability of spot price changes hedging reduced the risk of all but one of the foreign currencies and all of the stock market indexes by over 40 per cent

an empirical comparison of stochastic dominance among lognormal prospects l introduct ion the theory of portfolio selection and diversification developed by markowitz 22 and tobin 33 was based primarily on the criterion of meanvariance mv efficiency the objective was to select an efficient set of portfolios from which every risk averter will choose the optimal portfolio which maximizes his expected utility the mv criterion is the appropriate rule either for the case in which the utility function is quadratic or if the returns are normally distributed and risk aversion is assumed two approaches to the choice among risky alternatives that have been developed independently over the past two decades are the geometric mean criterion gm and the stochastic dominance sd decision model both can be justified by the expected utility hypothesis with the geometric mean cri terion following as a result of the assumption that the decision maker has a logarithmic utility function and the stochastic dominance models requiring the less restrictive assumption of signs of the first few derivatives of the decision maker s utility function this paper compares the concept of ordinary stochastic dominance to stochastic dominance of the lognormally distributed prospects from an empirical point of view further 1ight is also shed on the issue of applying the markowitz tobin mean variance rule