investing in a multidimensional market many years ago the authors demonstrated that there is much greater dimensionality to the stock market than is suggested by the one factor capital asset pricing model investors today continue to underestimate the market s dimensionality through their recent embrace of smart beta strategies such strategies assume a market in which a few chosen factors produce persistent returns in reality there are numerous factors that produce returns which vary over time those returns can best be captured by a multidimensional approach that emphasizes diversification across many proprietary factors and continuous adjustment of exposures to those factors

spatial and economic patterns in life expectancy among us states this study investigates the determinants of gender specific life expectancy across us states over the period 1995 2007 we employ a production function specification where life expectancy depends o

do pensions foster education an empirical perspective the paper examines the effect of population ageing on public education spending on the one hand ageing is expected to have a negative effect on education as an increasing number of retirees resu

a median voter model of social security this paper presents a theoretical median voter analysis of the determination of the level of social security the framework for the analysis is a continuous time overlapping generations model with nonaltruistic households facing borrowing constraints in the capital market a majority voting equilibrium is shown to exist in which the median voter is liquidity constrained the desired level of social security for each voter is a declining function of the preexisting level of social security as a consequence in a sequence of votes on social security beginning with a zero level the program initially overshoots its steady state value copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the dynamics of company profits an international comparison 1 profits and the process of competition dennis c mueller 2 modelling persistent profitability paul a geroski 3 the persistence of profits in the united states dennis c mueller 4 the persistence of profits in us manufacturing industries ioannis kessides 5 the persistence of profitability in canada r shyam khemani and d m shapiro 6 persistence of corporate profits in the federal republic of germany joachim schwalbach and talat mahmood 7 the persistence of profits in france frederic jenny and andre paul weber 8 the persistence of profits in japan hiroyuki odagiri and hideki yamawaki 9 the persistence of profits in the uk john cubbin and paul a geroski 10 the persistence of profits international comparison hiroyuki odagiri and hideki yamawaki 11 the persistence of profits in perspective paul a geroski and dennis c mueller

the aging population and the size of the welfare state data for the united states and countries in western europe indicate a negative correlation between the dependency ratio and labor tax rates and the generosity of social transfers after other factors that influence the size of the welfare state are controlled for this occurs despite the increased political clout of the dependent population implied by the aging of the population this paper develops an overlapping generations model of intra and intergenerational transfers including old age social security and human capital formation that addresses this seeming puzzle we show that with democratic voting an increase in the dependency ratio can lead to lower taxes or less generous social transfers

equilibrium pricing and portfolio composition in the presence of uncertain parameters abstract we analyze the effect of parameter uncertainty on equilibrium asset prices for the symmetric case when the amount of estimation risk is the same for all securities the existing literature argues that parameter uncertainty is largely irrelevant for equilibrium our results differ we find that symmetric estimation risk affects equilibrium values of relative asset prices expected returns market weights and betas

the electoral budget cycle on municipal waste collection expenditure abstractthis article analyses the determinants of municipal waste collection expenditure specifically the effects of electoral cycles on municipal waste collection expenditure we use a database with information on spanish municipalities with more than 1000 inhabitants for the period 2002 2011 our results reveal that incumbents adopt an opportunistic behaviour increasing spending on waste in the preelection year and reducing it in the election and post election years therefore we confirm an electoral budget cycle on waste collection expenditures in spain additionally we find that the levels of income unemployment and upper level governments transfers have a positive impact on waste collection spending finally population density level of urbanization average age of the population of the municipality and less fragmented governments negatively influence waste collection spending

information and diversity of analyst opinion this paper examines problems in the use of divergence of analyst opinion as a proxy for estimation risk in empirical studies of security returns and asset pricing models we demonstrate that diversity of opinion can increase even though the amount of private information increases and we show that diversity of opinion may overstate estimation risk if the capital market aggregates the information held by investors we produce empirical results consistent with our conclusions specifically we find that divergence of opinion can produce measures of estimation risk that are inconsistent with a received proxy for estimation risk and with observed common stock returns

rising longevity education savings and growth this paper examines the impact of declines in adult mortality on growth in an overlapping generations model with public education and imperfect annuity markets a decline in mortality affects growth through three channels first it raises the saving rate and thereby increases the rate of physical capital accumulation second it reduces accidental bequests lowers investment and thereby lowers the rate of physical capital accumulation third it may lead the median voter to increase the tax rate for public education initially but lower the tax rate in a later stage starting from a high mortality rate as found in many third world populations the net effect of a decline in mortality is to raise the growth rate however starting from a low mortality rate such as is found in most industrial populations the net effect of a further decline in mortality is to reduce the growth rate the findings appear consistent with recent empirical evidence

the persistence of profit differentials in indian industry the competitive process in a market economy is expected to work to eliminate profit differentials between firms industries in the long run in the indian case we note that quite a large number of industries experience above average profits that persist over time our analysis show that such persistence is higher in fast growing industries with high strategic barriers on the other hand government controls seem to be very effective in discouraging such persistence

the determinants of life expectancy an analysis of the oecd health data 1 introductionthis study is concerned with understanding the determinants of life expectancy in developed countries the level and variability of life expectancy has important implications for individual and aggregate human behavior it affects fertility behavior economic growth human capital investment intergenerational transfers and incentives for pension benefit claims zhang zhang and lee 2001 coile et al 2002 from the social planners perspective it has implications for public finance for example gradstein and kaganovich 2004 conclude that increasing longevity results in increasing public funding of education and economic growth cremer lozachmeur and pestieau 2004 p 2260 argue that early retirement puts pressure on the financing of healthcare and pension schemes and this pressure is made worse by growing longevity while typically assumed strictly exogenous for the purpose of policy analysis it has been argued that life expectancy or more broadly health is predetermined by behavioral and policy variables in what can be loosely described as a production function for health estimating this function is the goal of this study auster leveson and sarachek 1969 were the first economists to study a population production function for health a regression of state level mortality rates on medical care and environmental variables today their research motivations and questions remain compelling indeed given the size and rapid growth of health care related industries and recent public interest in containing medical and insurance costs it could be argued that understanding the socioeconomic determinants of societal health is more important today than ever moreover issues concerning the government s role in sponsoring basic medical and pharmaceutical research in regulating drug alcohol and tobacco consumption and in promoting healthy lifestyles are all particularly newsworthy the research questions related to public health are obvious if societal health can be measured as life expectancy or mortality rates what are the various socioeconomic factors that increase or decrease it can the marginal effects of these factors be disentangled if so which of these factors produces the largest health benefits or costs to society these questions are as important now as when first posed by auster leveson and sarachek in 1969 since auster leveson and sarachek several economic studies have attempted to answer these questions using data from the united states or multiple countries 1 many of these have used aggregate data from the member countries of the oecd to explain cross country mortality rates or life expectancies 2 while the empirical results are mixed the general consensus is that population life expectancy or mortality is a function of environmental measures e g wealth education safety regulation infrastructure lifestyle measures e g tobacco or alcohol consumption and health care consumption measures e g medical or pharmaceutical expenditures however the appropriate econometric methodology for disentangling these effects and its meaning for the relative importance statistical or economic of the estimated effects is more contentious these methodological issues are most vividly illustrated in the few studies that have focused on pharmaceutical expenditures as a separate input to life expectancy these include peltzman 1987 babazono and hillman 1994 lichtenberg 1996 1998 frech and miller 1999 and miller and frech 2000 for example peltzman 1987 examined the effects of wealth and prescription drug laws on infectious disease mortality and on poisoning mortality across middle income countries in a generalized least squares gls framework he found that wealth variables significantly decreased both disease and poisoning mortality rates while prescription drug laws had a significant and positive effect on poisoning mortality only

the persistence of profit a new empirical interpretation abstract inferences are drawn about the true coefficients which correspond to sample estimates of a persistence of profit model fitted over a large number of firms this is done by generating simulated sampling distributions for the estimators over various distributional assumptions profits seem to be stationary for all firms with an average short run persistence coefficient of 0 59 higher than most previous estimates long run profit rates differ between firms although by less than is suggested by direct observation of variations in mean profit rates calculated over time short run persistence appears to be inversely related to unsystematic variation in profit

the persistence of profits a european comparison this paper is concerned with modeling the movements in profits of firms over time at the heart of the emp irical model is a latent variables problem which arises from the fact that entry and imitation do not actually have to occur to have an ef fect on profits a solution to this problem is explored and then emp irical results are presented comparing a sample of firms from the uni ted kingdom france and west germany copyright 1988 by royal economic society

demographic change intergenerational linkages and public education in this brief paper i explore several issues related to u s demographic change and the political economy of public education i describe the existing empirical evidence that suggests that older and childless voters are less likely to support public school spending than younger voters with children i then note several unresolved issues about the degree to which rational self interest should lead older voters to vote for low levels of public school spending excerpt

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

self interest and public funding of education abstract the objective of this paper is to study whether publicly funded education can emerge as a political and economic equilibrium in an overlapping generations economy in which selfish agents vote for public funding of education the presence of complementarities between capital and labor in the production function implies that by improving the skills of next period s workers public funding of education increases the return on capital as a result savers will support a publicly financed education system in order to enhance their future income a version of the model calibrated using u s data generates large shares of gnp allocated to education hence the non altruistic incentive to support public education is quantitatively important

education spending in an aging america abstract in this paper we use a national panel of public school districts to study the impact of an aging population on public education spending in contrast to previous analyses that use state level data we find that the elderly have only a modest overall negative effect on education spending at the district level our results confirm however that a growing share of elderly at the state level tends to depress state spending on education these results are consistent with the hypothesis that the elderly believe only higher local spending is capitalized into house values

ageing government budgets retirement and growth we analyze the short and long run effects of demographic ageing increased longevity and reduced fertility on per capita growth the olg model captures direct effects working through adjustments in the savings rate labor supply and capital deepening and indirect effects working through changes of taxes government spending components and the retirement age in politico economic equilibrium growth is driven by capital accumulation and productivity increases fueled by public investment the closed form solutions of the model predict taxation and the retirement age in oecd economies to increase in response to demographic ageing and per capita growth to accelerate if the retirement age were held constant the growth rate in politico economic equilibrium would essentially remain unchanged due to a surge of social security transfers and crowding out of public investment

persistence of profitability and competition in emerging markets abstract this paper reports on time series analyses of the persistence of profitability of firms in emerging markets its central result is that there is less persistence in developing than in advanced economies the implications for the intensity of competition in emerging markets are examined

consensus expectations and international equity returns numerous studies of u s markets have shown that stock selection models have been able to isolate securities that earn returns above those predicted by a simple market model models examining the relation between analyst expectations and returns have been particularly useful unexpected earnings changes in analysts earnings per share forecasts the number of analysts revising their forecasts all these measures have been found to be useful in predicting abnormal returns in u s equity markets at least two of these measures changes in analysts eps forecasts and the number of analysts changing their forecasts are also related to abnormal returns in several international markets

investor protection and corporate governance recent research has documented large differences among countries in ownership concentration in publicly traded firms in the breadth and depth of capital markets in dividend policies and in the access of firms to external finance a common element to the explanations of these differences is how well investors both shareholders and creditors are protected by law from expropriation by the managers and controlling shareholders of firms we describe the differences in laws and the effectiveness of their enforcement across countries discuss the possible origins of these differences summarize their consequences and assess potential strategies of corporate governance reform we argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank centered and market centered financial systems

empirical estimates of beta when investors face estimation risk we examine empirical implications of models of differential information that formalize the following intuition securities for which there is relatively little information are perceived as relatively more risky because of the greater uncertainty surrounding the exact parameters of their return distributions the implication that beta risk for low information firms should decline as information increases is confirmed with several data sets we find such a decline over the first geveral periods subsequent to initial public offerings and initial listings there is also an abrupt risk decline at the first annual earnings announcement this paper examines several empirical implications of security return models involving differential information these models formalize the following intuition securities for which there is relatively little information are perceived as relatively more risky because of the greater uncertainty surrounding the exact parameters of their return distributions the research relates to two streams of literature the first revolves around the new issues and new listings market it begins with ibbotson 1975 and includes for example ritter 1984 beatty and ritter 1986 mcconnell and sanger 1987 and muscarella and vetsuypens 1989 the second is the literature dealing with the effects of differential information on the risk assessment of low information firms this second literature is exemplified by the work of klein and bawa 1976 1977 and barry and brown 1984 1985 in our examination we focus on how increased risk associated with low information firms henceforth called estimation risk manifests itself in observed return data we explore how observed security returns to low information firms appear to researchers in relation to how they appear ex ante to investors who base their predictive distribution of security returns on incomplete information about the parameters of the return generating process we also examine data on new listings and new issues to exemplify some of the relationships the data support the most obvious and direct implication of the differential information model that the expected systematic risk of low information firms decreases as time passes and information increases our evidence as in ibbotson that risk declines with seasoning rejects a restrictive null hypothesis that information risk is diversifiable and the under

does the persistence of profits persist a study of company profits in japan 1964 97 abstract earlier in a time series study of the profit rates of japanese manufacturing firms odagiri and yamawaki concluded that profits persist with the addition of 15 more years of data up to 1997 this conclusion is shown to stand the test of time in particular those firms estimated to earn higher than average long run profit rates in the early study were again estimated to earn higher than average long run profit rates the force of convergence was also found to be at work for instance the firms most profitable in period 1 1964 82 were most likely to face a decline in estimated long run profit rates from period 1 to period 2 1983 97 with the use of two sets of data the firm s profit performance was found to be positively related to measures of market share first among a smaller sample of firms for which reliable market share data could be matched market share was estimated to have a significant positive effect on long run profit rate in either period secondly among the entire sample of 357 firms the long run profit rate in either period was estimated to be positively associated with firm sales relative to industry sales which presumably is a crude measure of market share

using jump diffusion return models to measure differential information by firm size portfolios of stocks issued by small firms are well known to earn rates of return in excess of those commensurate with their market sensitivities one common explanation for this phenomenon is that small firm stocks are riskier than large firm stocks because less information is available about the former than about the latter a necessary condition for such an explanation to be valid is that the information effect not be eliminated by combining the individual stocks into portfolios this paper uses jump diffusion return models to gauge the impact of information by firm size the results show that portfolios of small firm stocks are no more prone to information surprises than are portfolios of large firm stocks however portfolios of small firm stocks are found to react more severely than portfolios of large firm stocks when surprises do occur

honey i shrunk the kids benefits revisiting intergenerational conflict in oecd countries intergenerational conflict may arise when the interests of different age groups do not align we examine cross country data to find evidence for this conflict in oecd countries we derive our results from a fgls estimation model which is complemented by a system gmm estimation to account for potential endogeneity the data are from a panel of 22 oecd countries over the time period 1985 2005 we find little support for intergenerational conflict in general however those who are close to statutory retirement age dislike public expenditure on families and education because once they retire they will have less income compared to their work income this effect is transitory however implying a change in voting behavior during retirement age

endogenous fiscal policy and capital market transmissions in the presence of demographic shocks abstract previous analyses of population aging mainly focused on the social security implications of the aging trend this paper addresses aging in an open economy framework with two regions that have politically responsive fiscal policy regarding education finance demographic shocks start an economic growth process but results are sensitive to a critical parameter in the model that indicates return to education spending low values of this parameter are associated with less favorable economic outcomes hence a policy implication emerges that enhancing the education system might pay off in terms of easing the negative growth and welfare consequences of expected demographic shocks

two sided intergenerational transfer policy and economic development a politico economic approach we consider an overlapping generations model with public education and social security where the overall size of these policies is determined in a repeated voting game we investigate the interaction between the politically determined policies and economic development in a markov perfect equilibrium the following results are obtained first the level of human capital determines whether these policies are sustained in the markov perfect equilibrium second if the level of initial human capital is sufficiently high human capital grows forever in contrast if the level of initial human capital is low the economy might be caught in a poverty trap

profits persistence and ownership evidence from the italian banking sector the hypothesis that ownership structure affects persistence of profits in the italian banking industry is tested the time invariant components of roa and roe are regressed against ownership concentration and the fraction of shares held by the major shareholders the results show that abnormal profits increase if ownership is concentrated in foundations and banks and decrease if market forces are allowed to operate

differential information and security market equilibrium we propose a simple model of equilibrium asset pricing in which there are differences in the amounts of information available for developing inferences about the returns parame ters of alternative securities in contrast with earlier work we show that parameter uncer tainty or estimation risk can have an effect upon market equilibrium under reasonable conditions securities for which there is relatively little information are shown to have relatively higher systematic risk when that risk is properly measured ceteris paribus the initially very limited model is shown to be robust with respect to relaxation of a number of its principal assumptions we provide theoretical support for the empirical examination of at least three proxies for relative information period of listing number of security returns observations available and divergence of analyst opinion

the persistence of profits in banking an international comparison this article examines the dynamics of bank profitability in the usa germany great britain france italy and switzerland over the period 1993 2014 we find long run bank profit persistence in all six countries in the period before the financial crisis in 2008 banks with large capital ratios are persistently more profitable and there is little evidence of a link between bank size and the persistence of bank profits commercial saving banks are persistently more less profitable in four of the six countries the effects of the financial crisis in 2008 differed dramatically across countries as well as across ownership types while us banks experienced dramatic declines in the immediate aftermath of the crisis they recovered much faster than their european counterparts and essentially retain their long run profit potential by the year 2014

profit persistence in the very long run evidence from survivors and exiters one of the main shortcomings of the profit persistence literature is the fact that it looks only at surviving companies this paper uses a unique dataset to analyse profit persistence in two different samples of stationary series 85 surviving us companies from 1950 1999 and 72 exiters while the exiters perform more competitively than the survivors there is still significant evidence for profit persistence in both samples concentration and growth of the industry as well as size and volatility of profits seem to play an important role in explaining persistence

aging population and education finance abstract conventional wisdom suggests that aging of population will increase political pressure to tilt the composition of social spending in favor of the elderly while potentially sacrificing other publicly provided goods such as education this view seems to be supported by recent empirical findings that per child public education spending tends to be lower in us jurisdictions with higher fraction of elderly residents do these cross sectional findings also carry the dynamic implication that longevity will lead over time to waning political support for funding of public education this paper challenges such implication we present a model that is consistent with the aforementioned cross sectional regressions yet predicts an overall positive impact of increasing longevity on public education funding and economic growth

intergenerational conflict and the political economy of higher education funding abstract we examine how a population s age distribution and a growing divide between the ethnic composition of older and young generations is likely to affect support for higher education funding using detailed survey data on voter preferences for higher education funding and precinct level vote returns from locally funded community college bond referenda in california we find that older voters are significantly less supportive of higher education funding than younger voters and that support among older non hispanic white voters is particularly weak when those voters reside in a jurisdiction where the college age population is more heavily hispanic

calendar anomalies abnormal returns at calendar turning points 1988 calendar anomalies abnormal returns at calendar turning points financial analysts journal vol 44 no 6 pp 28 39

the effect of school district and municipal government financial health information on local tax election outcomes evidence from fiscal stress labels in ohio a key informational asymmetry in local public finance is the lack of information available to local residents regarding the financial status of the school districts and local governments in which they reside given that voters in many states must approve property and income tax increases for these local entities the lack of full information on the financial status of these local entities may lead to sub optimal voting decisions state financial intervention systems have begun to make financial problems more salient to residents potentially alleviating these informational asymmetries this paper examines the effect of the ohio fiscal stress labeling program on voting outcomes and the tax setting behavior of local officials for school district and municipal government tax referendums we use a difference in differences approach to examine data from over 3000 school district and 2300 municipality property tax elections from 2004 to 2012 while we find minimal evidence that the yes vote share changed for school district referendums following fiscal stress label receipt we find very large increases 15 to 23 percentage points in the likelihood of referendum passage for school districts following label receipt we do not find much evidence of changes in the likelihood of passage or the yes vote share following label receipt for municipalities but we do find that these voting outcomes rise following label removal we also find that local officials do not appreciably change their tax setting behavior in response to these labels as the size and likelihood of property tax proposal are largely unchanged following label receipt or removal

the timing of redistribution we investigate whether late redistribution programs that can be targeted toward low income families but that may distort savings decisions can dominate early redistribution programs that cannot be targeted as a result of information constraints we use simple two period overlapping generations models with heterogeneous agents under six policy regimes a model calibrated to the u s economy benchmark two early redistribution lump sum regimes two targeted late redistribution regimes and finally a model without taxes and redistribution redistribution programs are financed by a labor tax on the young generation and a capital tax on the old generation we argue that if the programs are small in size late redistribution can dominate early redistribution in terms of welfare but not in terms of real output better targeting of low income households cannot completely offset savings distortions in addition we find that the optimal transfer and tax policy implies a capital tax of 100 and transfers exclusively to the young generation

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed