learning your earning are labor income shocks really very persistent in this paper we examine the risk situation facing individuals in the labor market the current consensus in the literature is that the labor income process has a large random walk component we argue two points first the estimates of persistence from income data appear to be upward biased due to the omission of heterogeneity in income pro les across the population that would be implied for example by a human capital model with heterogeneity when we allow for dierences in pro les the estimated persistence falls from 0 99 to about 0 8 moreover the main evidence against pro le heterogeneity in the existing literature that the autocorrelations of income changes are small and typically negative is also replicated by the pro le heterogeneity model we estimate casting doubt on the previous interpretation of this evidence second we embed this process in a life cycle model to examine how it alters individuals consumption saving decision we assume that as seems plausible individuals do not know their pro les exactly at the beginning of life but learn in a bayesian way with successive income observations we nd that learning is very slow and aects consumption decision throughout the life cycle the model generates substantial rise in consumption inequality over the life cycle which matches empirical observations deaton and paxson 1994 moreover the shape of the age inequality pro le is non concave as in the data but unlike in a model with very persistent shocks finally the consumption pro les of college graduates are steeper than those of high school graduates in the model consistent with the data because they face a wider dispersion of and hence uncertainty about income growth rates overall this evidence indicates that income shocks may be signi cantly less persistent than what is currently assumed

effectiveness of developed and emerging market fx options in active currency risk management abstract we analyze the effectiveness of developed and emerging market foreign exchange options in international portfolios as a complement to forwards for actively managing portfolio currency risks under the behavioral framework although prior research finds forwards dominate options using the mean variance framework measures using other objectives may prove more insightful we find that foreign exchange options can be useful behavioral complements to forwards for currency risk management from a perspective of regret risk mean skewness and cross asset lower tail dependence we also draw parallels and contrasts between developed and emerging market foreign exchange options from a behavioral perspective

gross substitution in financial markets abstract we develop restrictions on the joint distribution of an individual s risk attitudes and their endowments which guarantee the gross substitution property for market and individual excess demand functions respectively in particular it is shown that under some mild restrictions on the agent s risk aversion gross substitution holds for sufficiently large endowments

is international diversification really beneficial abstract previous research claims that low constant correlations among international stock indices create substantial risk reduction from diversification we contend that only using constant correlations is too simplistic an approach we examine international diversification by 1 using conditional correlations 2 evaluating tail risk including the effect of skewness and kurtosis and 3 examining the possible tradeoffs of standard deviation with correlation skewness and kurtosis we show that conclusions concerning diversification based solely on constant correlations across markets can be misleading since the diversification benefits are time varying are affected by non normality and depend on the benchmark country employed finally tradeoffs do exist between standard deviation and the other risk factors

the gains from self ownership and the expansion of women s rights throughout history wives have been the property of their husbands only in the past two centuries has this institution broken down in the world s most developed regions in america and england the doctrine of coverture restricted women s choices in virtually every aspect of their lives until the beginning of the 20th century a married woman a feme covert could not make contracts buy and sell property sue or be sued or draft wills joel p bishop 1875 john c wells 1878 john f kelly 1882 her husband owned any wages she earned and he controlled any property she brought to the marriage a husband also could control his wife s economic activities outside the home such as limiting a particular shopkeeper from selling to his wife marylynn salmon 1986 even in the rare case of divorce the children of the marriage fell under the father s custody today the doctrine of coverture is extinct in most developed countries women now control rights to themselves and the products of their labor no formal restrictions remain on a woman s ability to own or convey title to land or other forms of real property women are able to contract freely and enforce their contractual rights no formal restrictions remain on a woman s capacity to sue or be sued in tort rape is no longer a crime against a husband s property interest in his wife but a crime in which the woman is the sole victim no formal restrictions limit a woman s ability to alienate her labor and own the wages she earns whether married or single women today have practically all the rights of their male counterparts we use a property rights analysis to explain the demise of coverture in the united states we characterize the modern property rights structure to human beings as a system in which all adults are self owners men and women have essentially equal rights and are able to contract fully inside and outside of marriage so marriage is a share contract douglas w allen 1992 coverture in contrast to self ownership is characterized as a principal agent system in which the man husband legally owned his wife and her flow of value under coverture a wife was an agent severely constrained by the system of property rights which denied her the right to freely choose human capital investments and consumption as well as to capture the full returns from her actions the husband s economic ownership was imperfect however allowing the woman to deviate from the man s directives human ownership regimes are important because they affect incentives to acquire and develop human capital t w schultz 1968 stanley engerman 1973 in particular we argue that economic growth with attendant increases in wealth and specialized markets leads geddes department of policy analysis and management cornell university 107 mvr hall ithaca ny 14853 and hoover institution e mail rrg24 cornell edu lueck montana state university and university of virginia school of law e mail lueck virginia edu geddes was supported by the earhart foundation lueck was supported as john m olin faculty fellow at the yale law school cynthia powell hui ping chao and mary godfrey provided research assistance we have also benefited from comments from doug allen lee alston ian ayres david barker parantap basu gary becker mary beth combs lee craig joe ferrie andy hanssen gillian hamilton shawn kantor dean lillard robin lumsdaine steve margolis joel mokyr bart moore lee redding glen whitman paul zak two anonymous referees and participants in numerous seminars and conferences 1 while married women s property belonged to their husbands most single women were dependents of their male relatives although a single woman legally had the same property rights as a man powerful norms and private restrictions severely limited the rights of divorcees spinsters and widows mary beth norton 1980 2 we recognize a potential divergence between economic and purely legal rights because enforcement costs limit the application of legal doctrine yoram barzel 1977 here however we treat economic and legal rights as virtually synonymous since coverture codified customs and norms and because coverture s restrictions extended beyond the family into markets and society

financial portfolio management through the goal programming model current state of the art abstract since markowitz 1952 formulated the portfolio selection problem many researchers have developed models aggregating simultaneously several conflicting attributes such as the return on investment risk and liquidity the portfolio manager generally seeks the best combination of stocks assets that meets his her investment objectives the goal programming gp model is widely applied to finance and portfolio management the aim of this paper is to present the different variants of the gp model that have been applied to the financial portfolio selection problem from the 1970s to nowadays

egalitarianism and the returns to education during the great transformation of american education secondary school education greatly expanded in the united states from 1910 to 1940 setting its schooling attainment apart from that of all other countries barely 10 percent of youth were high school graduates in 1910 but by the mid 1930s the median youth had a high school diploma in some regions by the 1930s enrollment and graduation rates rose to levels that were as high as they would be two decades later the issue addressed here concerns the economic impact of the large increase in the supply of educated labor evidence is presented concerning the sharp decline in the wage premium to ordinary white collar workers with the expansion of the high school large numbers of americans competed for positions in the coveted white collar sector although the return to a year of high school remained considerable on the eve of world war ii egalitarianism had evened the playing field for a substantial segment of americans

survey measures of risk aversion and prudence this paper utilizes a thought experiment conducted by the bank of italy to estimate absolute and relative risk aversion along with absolute and relative prudence for a broad cross section of italian households upper and lower bounds are calculated for each parameter and comparisons are made across socio demographic groups evidence is found of decreasing absolute risk aversion decreasing absolute prudence increasing relative risk aversion and increasing relative prudence

an impossibility theorem for wealth in heterogeneous agent models with limited heterogeneity abstract it has been conjectured that canonical bewley huggett aiyagari heterogeneous agent models cannot explain the joint distribution of income and wealth the results stated below verify this conjecture and clarify its implications under very general conditions we show in particular that if i agents are infinitely lived ii saving is risk free and iii agents have constant discount factors then the wealth distribution inherits the tail behavior of income shocks e g light tailedness or the pareto exponent our restrictions on utility require only that relative risk aversion is bounded and a large variety of income processes are admitted our results show conclusively that it is necessary to go beyond standard models to explain the empirical fact that wealth is heavier tailed than income we demonstrate through examples that relaxing any of the above three conditions can generate pareto tails

uniqueness of steady states in models with overlapping generations in this paper we examine the likelihood of multiple real steady states in deterministic exchange economies with overlapping generations there is a single good and a single agent per generation with constant relative risk aversion expected utility in order to test for multiple equilibria we employ methods from computational algebraic geometry in our examples we find that multiplicity becomes less likely as the life span of agents increases but becomes more likely as the coefficient of risk aversion increases for moderate values of risk aversion multiplicity is very unlikely when agents live for five or more periods jel c61 c63 d50 d58

risk return and the three moment capital asset pricing model another look abstract most studies on three moment capital asset pricing models have found a strong and consistent relationship between an asset s returns and its higher statistical moments other studies report results which are opposite to what the theory would suggest this paper re examines the empirical evidence of the three moment capital asset pricing model on 43 randomly selected mutual funds from 1970 1986 the results indicate that trade offs of risks for returns on the selected mutual funds are less than predicted and inconsistent

social norms and the law an economic approach by social norm norm for short i shall mean a rule that is neither promulgated by an official source such as a court or a legislature nor enforced by the threat of legal sanctions yet is regularly complied with otherwise it wouldn t be a rule the rules of etiquette including norms of proper dress and table manners the rules of grammar and customary law in prepolitical societies and private associations are all examples of norms in my sense a full understanding of law requires consideration of norms law is older than political society which means that it originates as a set of norms as it remains in the case of public international law because there is no world government even in societies that have strong governments norms are both a source of law and often a cheap and effective substitute for law and sometimes they are an antagonist to law the incentives for obeying law are clear enough but what about the incentives for obeying norms the answer to this question will help toward an understanding of the relation between law and norms there are four incentives for obeying norms i some norms are self enforcing the incentive to obey comes from the fact that obedience confers private benefits because they are constitutive of advantageous transactions if you don t speak the language you can t make yourself understood if you don t play chess by the rules you re not playing it at all so if you enjoy playing chess you will not cheat unless the net expected gain is great 2 this point bears on the norms governing judicial behavior of judges not those norms backed by law such as the rule against taking bribes but those subtler norms that adjure the judge to lay aside personal or partisan sympathies disregard public blame or praise follow precedent rather than his own values in short adhere to the traditional rule of law virtues compliance with these norms is far from uniform because there are incentives to deviate and the costs of deviation are small but why is there any compliance the answer is that the private costs of compliance are low because the law backed rules of judicial behavior make it difficult for the judge to profit from partiality while the private benefits are substantial because the rule of law norms are the constitutive rules of the practice of judging if you don t obey them you re not playing the judicial game law school and the judiciary teach the game to new lawyers while judicial selection procedures select for persons who want to play the judicial game rather than some other game such as partisan politics even when judicial appointments are elective rather than appointive or when appointments are based on patronage or ideology rather than merit self selection is present in the decision to seek or accept appointment ii some norms are enforced by the emotions a point vital to understanding the emergence of law the honor code of the old south see jack k williams 1980 will illustrate the code which required a man to challenge to a duel any man who infringed his dignity was a survival of a revenge based system of law more precisely pre law before there were governments what is now called law was u s court of appeals for the seventh circuit and university of chicago law school 1111 e 60th st chicago il 60637 i thank gary becker dan kahan lawrence lessig martha nussbaum eric posner eric rasmusen cass sunstein and yuval tal for many helpful comments on a previous draft i do not require however that it be internalized as a preference as in the definition of norm in gary becker 1996 p 225 2 these are examples of compensated norm imposed constraints becker 1996 p 228 not only must the judge not take bribes but he must not sit in cases in which he or his relatives might derive a pecuniary benefit from his decision

an equilibrium model of wealth distribution i present an explicitly solved equilibrium model for the distribution of wealth and income in an incomplete markets economy i flrst propose a self insurance model with an inter temporally dependent preference uzawa 1968 lucas and stokey 1984 and obstfeld 1990 i then derive an analytical consumption rule which captures stochastic precautionary saving motive and generates stationary wealth accumulation finally i provide a complete characterization for the equilibrium cross sectional distribution of wealth and income in closed form by developing a recursive formulation for the moments of the distribution of wealth and income using this recursive formulation i show that income persistence and the degree of wealth mean reversion are the main determinants of wealth income correlation and relative dispersions of wealth to income such as skewness and kurtosis ratios between wealth and income

cyclical dynamics in idiosyncratic labor market risk is individual labor income more risky in recessions this is a difficult question to answer because existing panel data sets are so short to address this problem we develop a generalized method of moments estimator that conditions on the macroeconomic history that each member of the panel has experienced variation in the cross sectional variance between households with differing macroeconomic histories allows us to incorporate business cycle information dating back to 1930 even though our data do not begin until 1968 we implement this estimator using household level labor earnings data from the panel study of income dynamics we estimate that idiosyncratic risk is i highly persistent with an annual autocorrelation coefficient of 0 95 and ii strongly countercyclical with a conditional standard deviation that increases by 75 percent from 0 12 to 0 21 as the macroeconomy moves from peak to trough

wealth distribution with random discount factors abstract to explain the pareto tail behavior empirically observed in wealth distributions the quantitative macro literature has occasionally assumed that agents have random discount factors this paper formally proves that the stationary wealth distribution in a simple huggett model with random discounting has power law tails and characterizes the pareto exponents analytically i find that in general there is no clear relationship between the return on wealth and inequality and that the pareto exponent is highly sensitive to the persistence of the discount factor process i also provide a practical guidance for how to characterize the pareto exponents in richer models

productivity gains from geographic concentration of human capital evidence from the cities abstract based on recent theoretical developments the argument is made that the average level of human capital is a local public good cities with higher average levels of human capital should therefore have higher wages and higher land rents after conditioning on the characteristics of individual workers and dwellings this prediction is supported by data for standard metropolitan statistical areas smsas in the united states where the smsa average levels of formal education and work experience are used as proxies for the average level of human capital the alternative explanations of omitted smsa variables and self selection are evaluated an estimate of the effect of an additional year of average education on total factor productivity is computed

portfolio performance evaluation in a mean variance skewness framework abstract astronomical amounts of money are being invested in financial markets consequently the evaluation of portfolio performance has created a great deal of interest among practitioners as well as academic researchers the literature suggests that portfolio efficiency based on mean variance skewness is more desirable than the one based on mean variance however there are no well established procedures to measure efficiency in this framework mainly due to the computational difficulties the aim of this paper is to develop a portfolio performance measure based on mean variance skewness framework by utilizing a non parametric efficiency analysis tool namely data envelopment analysis

life expectancy and human capital investments evidence from maternal mortality declines longer life expectancy should encourage human capital accumulation since a longer time horizon increases the value of investments that pay out over time previous work has been unable to determine the empirical importance of this life expectancy effect due to the difficulty of isolating it from other effects of health on education we examine a sudden drop in maternal mortality risk in sri lanka between 1946 and 1953 which creates a sharp increase in life expectancy for school age girls without contemporaneous effects on health and which also allows for the use of boys as a control group using additional geographic variation we find that the 70 reduction in maternal mortality risk over the sample period increased female life expectancy at age 15 by 4 1 female literacy by 2 5 and female years of education by 4 0 authors

decomposing technical inefficiency using the principle of least action abstract in for profit organizations profit efficiency decomposition is considered important since estimates on profit drivers are of practical use to managers in their decision making profit efficiency is traditionally due to two sources technical efficiency and allocative efficiency the contribution of this paper is a novel decomposition of technical efficiency that could be more practical to use if the firm under evaluation really wants to achieve technical efficiency as soon as possible for this purpose we show how a new version of the measure of inefficiency proportions mip which seeks the minimization of the total technical effort by the assessed firm is a lower bound of the value of technical inefficiency associated with the directional distance function the targets provided by the new mip could be beneficial for firms since it specifies how firms may become technically efficient simply by decreasing one input or increasing one output suggesting that each firm should focus its effort on a specific dimension input or output this approach is operationalized in a data envelopment analysis framework and applied to a dataset of airlines

optimal algorithms and lower partial moment ex post results portofolio management in the finance literature has typically used optimization algorithms to determine security allocations within a portfolio in order to obtain the best trade off between risk and return these algorithms despite some improvements are restrictive in terms of an investor s risk aversion utility function since individual investors have different levels of risk aversion this paper proposes two portfolio optimization algorithms that can be tailored to the specific level of risk aversion of the individual investor and performs ex postevaluation tests of the algorithm performance

alternative measures of environmental technology structure in dea an application abstract the nonparametric data envelopment analysis dea literature on environmental efficiency ee considers handling undesirable outputs in two alternative ways either in their original forms with the assumption that these are weakly disposable or in various translated forms with the assumption that these are strongly disposable choosing a particular approach implies adoption of a particular distinct treatment of undesirable outputs and hence yields a distinct set of ee estimates to explore the effects of the interplay between choice of ee measure and specific treatment of undesirable outputs this paper attempts to generate all possible output oriented ee measures based on these two alternative approaches furthermore guided by the argument that slacks are important in identifying properly the efficiency behavior of firms it proposes two new alternative slacks based formulations of ee one based on the range directional model and the other on the generalized proportional distance function model using a confected data set of ten firms and a real life data set of 22 oecd countries our empirical analysis reveals that first ee scores are influenced not only by the choice of disposability assumption for undesirable outputs but also by the way these are treated in various translated forms second the choice of any particular treatment of undesirable outputs plays no role in influencing the rankings of firms and third our two new alternative ee formulations are at the least viable alternatives to existing ee measures in ranking firms according to their eco efficiency behavior

gender differences in education in a dynamic household bargaining model in this paper we explore the issue of gender differences in education in the context of a two sex overlapping generations model where men and women of each generation bargain over consumpt ion number of children and investment in education of their children conditional on gender and parents are altruistic toward their children we show that the difference in the education levels of boys and girls implied by our model is smaller than the one that would result from a pure investment model also we show that as long as the time cost associated with bearing children is positive women bear the entire time cost associated with child rearing we use our model to estimate the cost to a woman of having a child the estimate we obtain using cross country data suggests that such cost amounts to about 5 of the working lifetime of a woman

trends in the transitory variance of earnings in the united states we decompose the rise in cross sectional variance of male annual earnings in the united states from 1969 to 1996 into permanent and transitory components we find that the variance of permanent earnings began rising in the the late 1970s and has continued to rise in the 1980s the variance of transitory earnings also rose in the 1980s but declined in the 1990s there are lags in the earnings process which require a structural model to pinpoint the exact calendar times at which the changes in trends occurred

do husbands and wives pool their resources evidence from the united kingdom child benefit common preference models of family behavior imply income pooling a restriction on family demand functions such that only the sum of husband s income and wife s income affects the allocation of goods and time testing the pooling hypothesis is difficult because most family income sources are not exogenous to the allocations being analyzed in this paper we present an alternative test based on a natural experiment a policy change in the united kingdom that transferred a substantial child allowance to wives in the late 1970s using family expenditure survey data we find strong evidence that a shift toward greater expenditures on women s clothing and children s clothing relative to men s clothing coincided with this income redistribution

schooling and economic well being the role of nonmarket effects standard estimates of the economic value of additional schooling based on earnings differences associated with differences in the level of schooling attained cover only a portion of the total effects of education that are valued by citizens we first identify a catalog of nonmarketed effects many of which have been recently studied by economists and then propose a procedure for estimating a willingness to pay value for these effects using empirical estimates of the magnitude of a selection of these effects found in the literature we calculate willingness to pay values using our proposed procedure these illustrative calculations suggest that standard estimates of the benefit of incremental schooling substantially understate the full value of such investments

the quiet revolution that transformed women s employment education and family the modern economic role of women emerged in four phases the first three were evolutionary the last was revolutionary phase i occurred from the late nineteenth century to the 1920s phase ii was from 1930 to 1950 phase iii extended from 1950 to the late 1970s and phase iv the quiet revolution began in the late 1970s and is still ongoing three aspects of women s choices distinguish the evolutionary from the revolutionary phases horizon identity and decision making the evolutionary phases are apparent in time series data on labor force participation the revolutionary phase is discernible using time series evidence on women s more predictable attachment to the workplace greater identity with career and better ability to make joint decisions with their spouses each of these series has a sharp break or inflection point signifying social and economic change these changes moreover coincide by birth cohort or period the relationship between the development of modern labor economics and the reality of women s changing economic role is explored the paper concludes by assessing whether the revolution has stalled or is being reversed women who graduated college in the early 1980s did not opt out but recent cohorts are too young to evaluate this abstract was borrowed from another version of this item

frontier based vs traditional mutual fund ratings a first backtesting analysis we explore the potential benefits of a series of existing and new non parametric convex and non convex frontier based fund rating models to summarize the information contained in the moments of the mutual fund price series limiting ourselves to the traditional mean variance portfolio setting we test in a simple backtesting setup whether these efficiency measures fare any better than more traditional financial performance measures in selecting promising investment opportunities the evidence points to a remarkable superior performance of these frontier models compared to most but not all traditional financial performance measures

the demarcation of land and the role of coordinating property institutions we use a natural experiment in nineteenth century ohio to analyze the economic effects of two dominant land demarcation regimes metes and bounds mb and the rectangular system rs mb is decentralized with plot shapes alignment and sizes defined individually rs is a centralized grid of uniform square plots that does not vary with topography we find large initial net benefits in land values from the rs and also that these effects persist into the twenty first century these findings reveal the importance of transaction costs and networks in affecting property rights land values markets and economic growth

correlated income shocks and excess smoothness of consumption abstract in the literature econometricians typically assume that household income is the sum of a random walk permanent component and a transitory component with uncorrelated permanent and transitory shocks using data on realized individual incomes and individual expectations of future incomes from the survey of italian households income and wealth i find that permanent and transitory shocks are negatively correlated relaxing the assumption of no correlation between the shocks i explore the effects of correlated income shocks on the estimated consumption insurance against permanent and transitory shocks and consumption smoothness using a life cycle model with self insurance calibrated to u s data negatively correlated income shocks result in smoother consumption and upward biased estimates of the insurance against transitory and permanent when borrowing constraints are not tight income shocks while the life cycle model with negatively correlated shocks fits well the sensitivity of consumption to current income shocks observed in u s data it falls short of explaining the sensitivity of consumption to income shocks cumulated over a longer horizon

on the existence and uniqueness of stationary equilibrium in bewley economies with production abstract i prove existence of stationary recursive competitive equilibrium in bewley economies with production under specifications in which i the utility function is allowed to be unbounded and ii the underlying discrete idiosyncratic productivity process can take any form aside from mild restrictions some of the intermediate results provide theoretical basis for assumptions often made in the quantitative macroeconomics literature by providing an example i illustrate that the equilibrium is not necessarily unique even under typical specifications of the model and discuss the underlying reasons for multiplicity

solving asset pricing models with stochastic volatility abstract this paper provides a closed form solution for the price dividend ratio in a standard asset pricing model with stochastic volatility the growth rate of the endowment is a first order gaussian autoregression while the stochastic volatility innovations can be drawn from any distribution for which the moment generating function exists the solution is useful in allowing comparisons among numerical methods used to approximate the nontrivial closed form the closed form solution reveals that when using perturbation methods around the deterministic steady state the approximate solution needs to be sixth order accurate in order for the parameter capturing the conditional standard deviation of the stochastic volatility process to be present

huggett economies with multiple stationary equilibria abstract i obtain a closed form solution to a huggett economy with constant absolute risk aversion cara utility when the vector of individual state variables follows a var 1 process with an arbitrary shock distribution the stationary equilibrium is unique if the income process is ar 1 but not necessarily so otherwise with gaussian shocks i provide general sufficient conditions for the existence of at least three equilibria when the income process is either arma 1 1 ar 2 or has a persistent transitory pt representation with negatively correlated shocks the possibility of multiple equilibria calls for caution in comparative statics exercises and policy analyses using heterogeneous agent models as an illustration i provide an example in which the welfare implication of changing the income risk goes in opposite directions depending on the choice of equilibrium

the institutional framework and economic development the compound growth rates of per capita output and farrell type efficiency measures for 115 market economies over the period 1960 80 were compared with measures of political civil and economic liberty it was found that the institutional framework has significant and large effects on the efficiency and growth rate of economies politically open societies which subscribe to the rule of law to private property and to the market allocation of resources grow at three times the rate and are two and one half times as efficient as societies in which these freedoms are abridged

competing premarital investments this paper studies premarital parental investments in children s wealth where spousal wealth is a public good in marriage by investing in their children s wealth parents increase the wealth of their children and the quality of the spouses that their children can marry in large marriage markets the hedonic return to investment internalizes all the external benefits of premarital investment in wealth so that the competitive equilibrium is efficient marriage market competition also increases investments in small marriage markets relative to no competition but equilibrium investments are not efficient

solving asset pricing models with gaussian shocks this paper provides a closed form solution for the price dividend ratio in a standard asset pricing model when the growth rate of the endowment is a first order gaussian autoregression it determines the conditions under which this solution is bounded the findings are useful in allowing comparisons among numerical methods used to approximate the nontrivial closed form the solution method is extended to accommodate multivariate and higher ordered autoregressive processes

skewness persistence with optimal portfolio selection abstract existing studies have found that ex post stock returns are positively skewed but such skewness is only persistent for individual stocks not for portfolios this implies that the ex post knowledge of skewness may not be useful in ex ante portfolio selection however the portfolios in these studies are not optimally formed because preferences for skewness are not taken into consideration when forming these portfolios it is more meaningful to see if the positive skewness would persist in optimally formed mean variance skewness efficient portfolios using stocks from both japanese and us markets and a bootstrap method we find that the portfolios optimally formed by using a polynomial goal programming method which considers preference for skewness greatly enhances skewness persistence over time our results are robust across both japanese and us stocks however the skewness persistence is stronger for portfolios formed with monthly data than that with weekly data these findings have practical implications to investors with skewness preferences

women s liberation what s in it for men the nineteenth century witnessed dramatic improvements in the legal rights of married women given that these changes took place long before women gained the right to vote they amounted to a voluntary renouncement of power by men in this paper we investigate men s incentives for sharing power with women in our model women s legal rights set the marital bargaining power of husbands and wives we show that men face a tradeoff between the rights they want for their own wives namely none and the rights of other women in the economy men prefer other men s wives to have rights because men care about their own daughters and because an expansion of women s rights increases educational investments in children we show that men may agree to relinquish some of their power once technological change increases the importance of human capital we corroborate our argument with historical evidence on the expansion of women s rights in england and the united states

human capital accumulation and the expansion of women s economic rights abstractbetween 1850 and 1920 most u s states enacted laws expanding the rights of married women to own and control their separate property and to own their market earnings the economic approach to property rights implies that as married women gain economic rights the incentive to invest in girls human capital will rise this prediction is tested by examining the impact of these legal changes on girls school attendance rates relative to boys state level census data are used to examine the effects of these changes on school attendance among all school aged children integrated public use microdata series data are used to examine their effect on school attendance among children ages 15 19 who are just beyond compulsory schooling ages consistent with hypothesized effects the empirical analysis shows that expanding women s economic rights resulted in higher relative rates of school attendance by girls and had the largest effect on the 15 19 age group

incomplete markets and volatility abstract this paper shows that the precautionary motive combined with asset incompleteness is a major source of volatility and indeterminacy in financial markets price fluctuations originate from agents efforts to insure themselves through time by borrowing and lending instead of shifting income across states of nature by trading risky assets a high interest rate at a future date reduces the potential for future consumption smoothing via borrowing which leads to a strong precautionary motive and a low interest rate in the current period the negative feedback between future and current rates generates fluctuations this logic is developed in spec a cara normal exchange economy with many periods and endogenous interest rates when there is an intermediate level of market incompleteness and sufficient investor impatience fluctuations in the real interest rate can be large even though the aggregate endowment is constant spec has a unique equilibrium under a finite horizon on the other hand with a finite number of infinitely lived agents there exists a robust continuum of equilibria that are neither bubbles nor sunspots journal of economic literature classification numbers c61 d52 d58 g11 g12

optimal credit swap portfolios this paper formulates and solves the selection problem for a portfolio of credit swaps the problem is cast as a goal program that entails a constrained optimization of preference weighted moments of the portfolio value at the investment horizon the portfolio value takes account of the exact timing of protection premium and default loss payments as well as any mark to market profits and losses realized at the horizon the constraints address collateral and solvency requirements initial capital position limits and other trading constraints that credit swap investors often face in practice the multimoment formulation accommodates the complex distribution of the portfolio value which is a nested expectation under risk neutral and actual probabilities it also generates computational tractability numerical results illustrate the features of optimal portfolios in particular we find that credit swap investment constraints can have a significant impact on optimal portfolios even for simple investment objectives our problem formulation and solution approach extend to corporate bond portfolios and mixed portfolios of corporate bonds and credit derivatives this paper was accepted by wei xiong finance

the effect of interest rates on consumption in an income fluctuation problem abstract we examine the effect of a change in interest rates on an agent s consumption and savings decisions when her income is fluctuating in each period a long lived agent decides how much to save i e invest in a risky bond and how much to consume while her income and the rate of return on her savings are uncertain and depend on the state of the economy we show that under the concavity of the consumption function a condition that ensures that the substitution effect dominates the income effect lower interest rates encourage the agent s consumption across all states

mean variance skewness portfolio performance gauging a general shortage function and dual approach this paper proposes a nonparametric efficiency measurement approach for the static portfolio selection problem in mean variance skewness space a shortage function is defined that looks for possible increases in return and skewness and decreases in variance global optimality is guaranteed for the resulting optimal portfolios we also establish a link to a proper indirect mean variance skewness utility function for computational reasons the optimal portfolios resulting from this dual approach are only locally optimal this framework permits to differentiate between portfolio efficiency and allocative efficiency and a convexity efficiency component related to the difference between the primal nonconvex approach and the dual convex approach furthermore in principle information can be retrieved about the revealed risk aversion and prudence of investors an empirical section on a small sample of assets serves as an illustration

the sources of bank productivity growth in china during 2002 2009 a disaggregation view this study investigates the sources of bank productivity growth in china over the period 2002 2009 in order to perform this research we propose an advanced index input slack based productivity index isp a model that disaggregates total factor productivity growth into each input productivity change funds capital and employees are chosen as the inputs whereas loans and other earning assets are outputs in this study our results show that technological gains transcend the efficiency regressions and result in total factor productivity growth more specifically technical progress in capital productivity reveals the dominant force behind the total factor technical change and productivity improvement in addition this paper uses these disaggregation terms to find out the competitive advantages and disadvantages of input usages for each chinese bank these findings indicate that the isp index provides more insights than traditional total factor productivity indices

on estimating skewness in stock returns in recent years skewness has become a much discussed factor in financial research and many studies models involve the skewness of various financial variables this paper i points out the universal neglect in the finance literature of skewness sampling error and its significant consequences ii presents a simple approach for roughly constructing a confidence interval for skewness estimated from lognormal populations iii points out directions of further research for developing a comprehensive approach for estimating skewness reliably

exact solution of asset pricing models with arbitrary shock distributions abstract the paper provides an exact solution to standard asset pricing models for any distribution of shocks to endowment s growth rate it determines the conditions that guarantee the existence of a stationary bounded equilibrium and examines these conditions for an edgeworth expansion distribution of the shocks the results are extended to the case of multivariate asset pricing models

skewness preference and portfolio choice one of the virtues of parameter preference models presented in general form in rubinstein 23 is their empirical content applied models of financial theory rely heavily on the mean variance mv version of parameter preference as spelled out in samuelson 25 mv models are adequate with compact distributions of returns and when portfolio decisions are made frequently so that the risk parameter becomes sufficiently small

ownership risk investment and the use of natural resources the effect of insecure ownership on ordinary investment and natural resource use is examined insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability the political determinants of economy wide investment are estimated from cross country data and the results are used to form an index of ownership security when introduced into empirical models of natural resource use this index has a significant and quantitatively important effect on the use of forests and petroleum contrary to conventional wisdom ownership risk slows resource use in some circumstances

trade elasticity of substitution and equilibrium dynamics abstract the empirical literature provides a wide range of estimates for trade elasticities at the aggregate level recent contributions in international macroeconomics suggest that low implied values of the trade elasticity may play an important role in understanding the disconnect between international prices and real variables however a standard model of the international business cycle displays multiple locally isolated equilibria if the trade is sufficiently low the main contribution of this paper is to compute and characterize some dynamic properties of these equilibria in simulations the presence of multiple equilibria is shown to imply a volatile and persistent real exchange rate

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

women s liberation as a financial innovation in one of the greatest extensions of property rights in human history common law countries began giving rights to married women in the 1850s before this women s liberation the doctrine of coverture strongly incentivized parents of daughters to hold real estate rather than financial assets such as money stocks or bonds we exploit the staggered nature of coverture s demise across u s states to show that women s rights led to shifts in household portfolios a positive shock to the supply of credit and a reallocation of labor toward nonagriculture and capital intensive industries investor protection thus deepened financial markets aiding industrialization

a robust nonparametric approach to evaluate and explain the performance of mutual funds the topic of the measurement of mutual funds performance is receiving an increasing interest both from an applied and a theoretical perspective beside the traditional financial literature a growing body of studies has started to apply the tools of frontier analysis for benchmarking comparisons in portfolio analysis our paper contributes to this literature proposing a robust nonparametric approach for analysing mutual funds it is based on the concept of order m frontier cazals c florens j p simar l 2002 nonparametric frontier estimation a robust approach journal of econometrics 106 1 25 and on a probabilistic approach daraio c simar l 2005 introducing environmental variables in nonparametric frontier models a probabilistic approach journal of productivity analysis 24 1 93 121 to find out the factors explaining mutual funds performance within this framework a decomposition of conditional efficiency is proposed and its usefulness for economic interpretation analysed our approach is illustrated by using us mutual funds data grouped for category by objective economies of scale slacks and market risks are investigated a comparison of traditional nonparametric and robust performance measures is also offered

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

skewness persistence in common stock returns recent empirical studies have found ex post common stock returns to be consistently positively skewed the frequency of positive skewness in this study is found to be relatively stable over varying time periods from 1961 to 1980 however the skewness of individual stocks and portfolios of stocks does not persist across different time periods positively skewed equity portfolios in one period are not likely to be positively skewed in the next time period past positively skewed returns do not predict future positively skewed returns

an exact discount factor restriction for period three cycles in dynamic optimization models consider a standard aggregative dynamic optimization framework u where is the transition possibility technology set u is a reduced form utility function defined on this set and 0 1 a discount factor can an optimal program in this framework exhibit a period three cycle

the bootstrap approach for testing skewness persistence this study presents a new methodology for testing changes in skewness between time periods or samples using the bootstrap method a monte carlo simulation experiment was conducted to compare the effectiveness of the bootstrap method with the method suggested by lau wingender and lau 1989 to test skewness persistence the results show the bootstrap method to be more powerful than the other method the bootstrap method was also used to determine the persistence of skewness in stock returns the results show that in a large percentage of stocks skewness persists over time

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

idiosyncratic production risk growth and the business cycle we introduce a neoclassical growth economy with idiosyncratic production risk and incomplete markets each agent is an entrepreneur operating her own technology with her own capital stock the general equilibrium is characterized by a closed form recursion in the cara normal case incomplete markets introduce a risk premium on private equity which reduces the demand for investment as compared to complete markets the steady state can thus have both a lower capital stock due to investment risk and a lower interest rate due to precautionary savings furthermore the anticipation of high real interest rates in the future feeds back into high risk premia and low investment in the present thus slowing down convergence to the steady state our results highlight the importance of private risk premia for capital accumulation and business cycles

property rights over marital transfers in developing countries the extent to which women possess property rights is shaped in large part by transfers received at the time of marriage focusing on dowry we develop a simple model of the marriage market with intra household bargaining in order to understand the incentives for brides parents to allocate the rights over the dowry between their daughter and her groom in doing so we clarify and formalize the dual role of dowry as a pre mortem bequest and as a market clearing price identified in the literature we use the model to shed light on the intriguing observation that in contrast to other rights women s rights over the dowry tend to deteriorate with development we show how marriage payments are utilized even when they are inefficient and how the marriage market mitigates changes in other dimensions of women s rights even to the point where women are worse off following a strengthening of such rights we also generate predictions for when marital transfers will disappear and highlight the importance of female human capital for the welfare of women

multiplicity of equilibria and comparative statics conditions that guarantee the uniqueness of equilibrium in models of economic competition are crucial to applications of these models in exercises of comparative statics until now most of the attention given to the uniqueness question has been focused on pure exchange economies in this paper we use a topological index theorem to derive necessary and sufficient conditions for the uniqueness of equilibrium in economies with production unfortunately conditions that imply uniqueness appear to be too restrictive to have much applicability we argue for example that the only economically interpretable restrictions that imply uniqueness are either that the demand side of an economy behaves like a single consumer or that the supply side is an input output system our results suggest a need for reformulation of the comparative statics method

portfolio selection and skewness evidence from international stock markets abstract this paper finds that the returns of the world s 14 major stock markets are not normally distributed and that the correlation matrix of these stock markets was stable during the january 1988 december 1993 time period polynomial goal programming in which investor preferences for skewness can be incorporated is utilized to determine the optimal portfolio consisting of the choices of 14 international stock indexes the empirical findings suggest that the incorporation of skewness into an investor s portfolio decision causes a major change in the construction of the optimal portfolio the evidence also indicate that investors trade expected return of the portfolio for skewness

portfolio selection in multidimensional general and partial moment space abstract this paper develops a general approach for the single period portfolio optimization problem in a multidimensional general and partial moment space a shortage function is defined that looks for possible increases in odd moments and decreases in even moments a main result is that this shortage function ensures sufficient conditions for global optimality it also forms a natural basis for developing tests on the influence of additional moments furthermore a link is made with an approximation of an arbitrary order of a general indirect utility function this non parametric efficiency measurement framework permits to differentiate mainly between portfolio efficiency and allocative efficiency finally information can in principle be inferred about the revealed risk aversion prudence temperance and other higher order risk characteristics of investors

the dynamic black litterman approach to asset allocation abstract we generalize the black litterman bl portfolio management framework to incorporate time variation in the conditional distribution of returns in the asset allocation process we evaluate the performance of the dynamic bl model using both standard performance ratios as well as other measures that are designed to capture tail risk in the presence of non normally distributed asset returns we find that the dynamic bl model outperforms a range of different benchmarks moreover we show that the choice of volatility model has a considerable impact on the performance of the dynamic bl model

income variance dynamics and heterogeneity recent theoretical work has shown the importance of measuring microeconomic uncertainty for models of both general and partial equilibrium under imperfect insurance in this paper the assumption of i i d income innovations used in previous empirical studies is removed and the focus of the analysis is placed on models for the conditional variance of income shocks which is related to the measure of risk emphasized by the theory we first discriminate amongst various models of earnings determination that separate income shocks into idiosyncratic transitory and permanent components we allow for education and time specific differences in the stochastic process for earnings and for measurement error the conditional variance of the income shocks is modelled as a parsimonious arch process with both observable and unobserved heterogeneity the empirical analysis is conducted on data drawn from the 1967 1992 panel study of income dynamics we find strong evidence of sizeable arch effects as well as evidence of unobserved heterogeneity in the variances

geometric representation of the mean variance skewness portfolio frontier based upon the shortage function the literature suggests that investors prefer portfolios based on mean variance and skewness rather than portfolios based on mean variance mv criteria solely furthermore a small variety of methods have been proposed to determine meanvariance skewness mvs optimal portfolios recently the shortage function has been introduced as a measure of e ciency allowing to characterize mvs optimal portfolios using non parametric mathematical programming tools while tracing the mv portfolio frontier has become trivial the geometric representation of the mvs frontier is an open challenge a hitherto unnoticed advantage of the shortage function is that it allows to geometrically represent the mvs portfolio frontier the purpose of this contribution is to systematically develop geometric representations of the mvs portfolio frontier using the shortage function and related approaches

selecting a portfolio with skewness recent evidence from us european and latin american equity markets abstract polynomial goal programming in which investor preferences for skewness can be incorporated is utilized to determine the optimal portfolio from latin american us and european capital markets the empirical findings suggest that the incorporation of skewness into an investor s portfolio decision causes a major change in the resultant optimal portfolio the empirical evidence indicates that investors do trade expected return of the portfolio for skewness