multi objective stochastic programming for portfolio selection abstract generally in the portfolio selection problem the decision maker dm considers simultaneously conflicting objectives such as rate of return liquidity and risk multi objective programming techniques such as goal programming gp and compromise programming cp are used to choose the portfolio best satisfying the dm s aspirations and preferences in this article we assume that the parameters associated with the objectives are random and normally distributed we propose a chance constrained compromise programming model cccp as a deterministic transformation to multi objective stochastic programming portfolio model cccp is based on cp and chance constrained programming ccp models the proposed program is illustrated by means of a portfolio selection problem from the tunisian stock exchange market

competition and corporate performance are people right to think that competition improves corporate performance my investigations indicate first that there are some theoretical reasons for believing this hypothesis to be correct but they are not overwhelming furthermore the existing empirical evidence on this question is weak however the results reported here based on an analysis of around 670 u k companies do provide some support for this view most important i present evidence that competition as measured by increased numbers of competitors or by lower levels of rents is associated with a significantly higher rate of total factor productivity growth

finding a maximum skewness portfolio a general solution to three moments portfolio choice considering the three first moments and allowing short sales the efficient portfolios set for n risky assets and a riskless one is found supposing that agents like odd moments and dislike even ones analytical formulas for the solution surface are obtained and important geometric properties provide insights on its shape in the three dimensional space defined by the moments a special duality result is needed and proved the methodology is general comprising situations in which for instance the investor trades a negative skewness for a higher expected return computation of the optimum portfolio weights is feasible in most cases

international portfolio choice and political instability risk a multi objective approach abstract the benefits derived from international portfolio diversification into foreign nations including the less developed countries are well documented yet this practice is discouraged due to market imperfections such as political instability in practice nations may be differentiated further by many aspects such as border controls or political and social trends which constrain private transactions and financial decisions this paper attempts to examine 1 whether the home asset bias in a portfolio holding is associated with higher political instability risk and 2 to what extent international diversification among stocks in the presence of such risk outperforms domestic stock portfolios using alternative instability risk proxies in the context of a discrete time version of mean variance framework we corroborate the impact of this type of risk on international portfolio investment decisions

technical change and total factor productivity growth for swedish manufacturing and service industries this paper presents alternative specifications of the production functions of a large panel of swedish firms for the period 1992 2000 the period can be characterized as a transition when long run productivity growth in the swedish economy improved from being among the weakest to one of the strongest within the oecd in order to present a detailed exploration of this dramatic change the time trend and general index models are applied to estimate total factor productivity tfp growth rate of technical change and returns to scale the models are extended to allow for firm specific as well as time varying technical change the parametric tfp measures are also compared with the non parametric solow residual and several hypotheses are tested to explain the growth patterns in the swedish economy it is found that the improved growth rate initially starting in large exporting manufacturing firms after a deep economic crisis at the beginning of the 1990s spilled over to the rest of the economy both manufacturing and services

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

comonotonic approximation to periodic investment problems under stochastic drift abstract we investigate periodic investment problems under a black scholes market with stochastic drift the decision maker invests a series of positive amounts at finitely predetermined time spots to maximize the expected terminal wealth while controlling its downside risk as measured by the condition value at risk cvar it turns out that the increment for unit wealth on the whole path can be divided into two parts the increment corresponding to the stochastic drift and that corresponding to the brownian motion a comonotonic approximation is proposed for the second part and an upper bound is provided for the cvar of the first part which construct together a closed form approximation of the terminal wealth under the risk measure of cvar we further decompose the problem into a sequence of sub problems whose optimal solutions are explicit and follow fractional kelly strategy numerical and empirical results illustrate the performance of our methodology

mean var portfolio optimization a nonparametric approach portfolio optimization involves the optimal assignment of limited capital to different available financial assets to achieve a reasonable trade off between profit and risk we consider an alternative markowitz s mean variance model in which the variance is replaced with an industry standard risk measure value at risk var in order to better assess market risk exposure associated with financial and commodity asset price fluctuations realistic portfolio optimization in the mean var framework is a challenging problem since optimizing var leads to a non convex np hard problem which is computationally intractable in this work an efficient learning guided hybrid multi objective evolutionary algorithm mode gl is proposed to solve mean var portfolio optimization problems with real world constraints such as cardinality quantity pre assignment round lot and class constraints a learning guided solution generation strategy is incorporated into the multi objective optimization process to promote efficient convergence by guiding the evolutionary search towards promising regions of the search space the proposed algorithm is compared against the non dominated sorting genetic algorithm nsga ii and the strength pareto evolutionary algorithm spea2 experimental results using historical daily financial market data from s p 100 and s p 500 indices are presented experimental results shows that mode gl outperforms two existing techniques for this important class of portfolio investment problems in terms of solution quality and computational time the results highlight that the proposed algorithm is able to solve the complex portfolio optimization without simplifications while obtaining good solutions in reasonable time and has significant potential for use in practice

racing with uncertainty and strategic interaction between competitors as the race unfolds most of the existing literature examines one or other of these features but not the two combined our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them in our principal model whch is of a one dimensional race it is shown that the leader in the race makes greater efforts than the follower and efforts increase as the gap between competitors decreases under certain conditions the same results hold in our second related model which is of a two dimensional race

growth and trustified capitalism abstract previous models of quality improvements focus on what schumpeter called competitive capitalism innovating firms drive their rivals out of business in this paper a model which captures important aspects of schumpeter s notion of trustified capitalism is developed innovating firms capture market share from their rivals but do not drive them out of business most of the results of earlier models carry over for example the determinants of the growth rate of quality are exactly the same as in previous models however two differences do arise in contrast to previous models quality growth is guaranteed by diminishing returns to scale in r d also in contrast to previous models the laissez faire growth rate is unambiguously below the socially optimal growth rate the lack of ambiguity occurs because the negative profit destruction externality is weakened when innovating firms capture only part of their rivals s market share

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

on the sensitivity of mean variance efficient portfolios to changes in asset means some analytical and computational results tbis paper investigates the sensitivity of meanvariance mv efficientportfolios to changes in the means of individual assets when only a budget constraint is imposed on the investment problem the analytical results indicate that an mv efficient portfolio s weights mean and variance can be extremely sensitive to cbanges in asset means when nonnegativity constraints are also imposed on the problem the computational results confirm that a positively weigbted mv efficient portfolio s weigbts are extremely sensitive to cbanges in asset means but the portfolio s returns are not a surprisingly small increase in the mean of just one asset drives balf the securities from the portfolio yet the portfolio s expected return and standard deviation are virtually uncbanged this paper supersedes should investors hold well diversified portfolios financial support from the natural science and engineering research council of canada is gratefully acknowledged we also acknowledge the most capable assistance of ruth cornale simon ng jean marc potier and frederick shen the paper was presented at simon fraser university and the western finance association meetings in san diego we thank the participants especially stephen brown john herzog john heaney ray koopman and bruce lehmann and the editors jon ingersoll and chester spatt for

testing an hypothesis about differences in poverty estimated from grouped data abstract this paper develops procedures for testing an hypothesis about differences in poverty estimated from grouped data the methodology developed in the paper is applied to analyze changes in poverty in india between 1983 and 1986 1987

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

a perpetual race to stay ahead this paper presents a model of dynamic competition between two firms that repeatedly engage in an innovative activity the state of competition measured by the difference between the number of innovations introduced by the firms evolves stochastically according to their effort level the structure of markov perfect equilibria is identified it is generally not true that competition is fiercest when firms are closest rather firms invest under two distinct circumstances while sufficiently ahead to outstrip their rival and secure a durable leadership while behind to regain leadership and prevent the situation from worsening to the point where their rival outstrips them industry such a market structure cannot be adequately modelled by a repeated game since history obviously affects market opportunities more precisely previous outcomes determine the range of available actions and pay offs economists have thus resorted to the study of races to gain insights into the strategic issues raised by such competition with the notable exceptions of aoki 1991 harris 1991 and budd harris and vickers 1993 most of the literature has analysed formal races displaying exogenous finishing lines or deadlines as well as final prizes and rewards and the corresponding results rely on backward induction however such assumptions do not seem to capture accurately the essential features of many markets often the rivalry only ends if at all when one of the competitors withdraws so that the deadline should be endogenized moreover benefits and losses are continuously collected additionally the emerging empirical literature on races stresses the inadequacy of standard models and the need to model r d as a race with multiple prizes in the words of cockburn and henderson 1994 our finding that the modern game theoretic literature is of only limited usefulness as an empirical guide points to the need to model r d as a race with multiple prizes the model analysed in this paper is an attempt to offer an adequate framework for this type of dynamic competition the stochastic evolution of the state of competition between two firms depends on their respective effort levels the state of competition is measured by the

cross sectoral variation in the volatility of plant level idiosyncratic shocks we estimate the volatility of plant level idiosyncratic shocks in u s manufacturing we measure the variation in revenue total factor productivity not explained by either industry or economy wide factors or by establishments characteristics we find that idiosyncratic shocks are much larger than aggregate shocks accounting for about 80 of the overall uncertainty faced by plants plants in the most volatile sector are subject to about six times as much idiosyncratic uncertainty as plants in the least volatile we provide evidence suggesting that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater

does privatisation of vocational rehabilitation improve labour market opportunities evidence from a field experiment in sweden this paper analyses if privatisation of vocational rehabilitation can improve labour market opportunities for individuals on long term sickness absence we use a field experiment performed by the p

a dynamic model of patent portfolio races abstract we propose a dynamic model of a patent portfolio race in an industry in which innovation is incremental two firms compete in prices and in research we study the markov perfect closed loop equilibrium of the resulting differential game identifying a steady state in which firms compete neck and neck in this equilibrium innovation rates are inefficiently high from the firms viewpoint the firms are caught in a prisoners dilemma and so have an incentive not to enforce their patents aggressively in order to coordinate on a more cooperative equilibrium

socially responsible investment a multicriteria approach to portfolio selection combining ethical and financial objectives abstract in a context of socially responsible investment sri this paper deals with portfolio selection for investors interested in ethical policies in the opportunity set there are ethical assets and other assets which are not characterized as ethical two goals are considered the traditional financial goal in the classical utility theory under uncertainty and an ethical goal in the same utility framework a new financial ethical bi criteria model is proposed with absolute risk aversion coefficients and targets depending on the investor s ethical profile this approach is relevant as an increasing number of mutual funds are becoming interested in sri strategies from the proposed model an actual case on green investment is developed concerning this case without generalizing to other contexts an analysis of the numerical results shows that efficient portfolios obtained by the traditional e v model outperform the strong green portfolios in terms of expected return and risk but this does not significantly occur with weak green investment

intellectual property rights and foreign direct investment abstract this paper develops a product cycle model with endogenous innovation imitation and foreign direct investment fdi we use this model to determine how stronger intellectual property rights ipr protection in the south affects innovation imitation and fdi we find that stronger ipr protection keeps multinationals safer from imitation but no more so than northern firms instead the increased difficulty of imitation generates resource wasting and imitation disincentive effects that reduce both fdi and innovation the greater resources absorbed in imitation crowd out fdi reduced fdi then transmits resource scarcity in the south back to the north and consequently contracts innovation

antitrust in innovative industries we study the effects of antitrust policy in industries with continual innovation antitrust policies that restrict incumbent behavior toward new entrants may have conflicting effects on innovation incentives raising the profits of new entrants but lowering those of continuing incumbents we show that the direction of the net effect can be determined by analyzing shifts in innovation benefit and supply holding the innovation rate fixed we apply this framework to analyze several specific antitrust policies we also show that in some cases the tension does not arise and policies that protect entrants necessarily raise the rate of innovation

collaborative production planning of supply chain under price and demand uncertainty abstract this research is motivated by an automobile manufacturing supply chain network it involves a multi echelon production system with material supply component fabrication manufacturing and final product distribution activities we address the production planning issue by considering bill of materials and the trade offs between inventories production costs and customer service level due to its complexity an integrated solution framework which combines scatter evolutionary algorithm fuzzy programming and stochastic chance constrained programming are combined to jointly take up the issue we conduct a computational study to evaluate the model numerical results using the proposed algorithm confirm the advantage of the integrated planning approach compared with other solution methodologies the supply chain profits from the proposed approach consistently outperform in some cases up to 13 better the impacts of uncertainty in demand material price and other parameters on the performance of the supply chain are studied through sensitivity analysis we found the proposed model is effective in developing robust production plans under various market conditions

dynamic portfolio selection with process control abstract the risk inherent in the accumulation of investment capital depends on the true return distributions of the risky assets the accuracy of estimated returns and the investment strategy this paper considers risk control with value at risk and conditional value at risk using control limits to determine times for portfolio rebalancing optimal strategies and control limits are determined for a geometric brownian motion asset pricing model with random parameters the approaches to risk control are applied to the fundamental problem of investment in stocks bonds and cash over time

stochastic goal programming a mean variance approach abstract we propose a stochastic goal programming gp model leading to a structure of mean variance minimisation the solution to the stochastic problem is obtained from a linkage between the standard expected utility theory and a strictly linear weighted gp model under uncertainty the approach essentially consists in specifying the expected utility equation corresponding to every goal arrow s absolute risk aversion coefficients play their role in the calculation process once the model is defined and justified an illustrative example is developed

multiple criteria decision making combined with finance a categorized bibliographic study abstract this paper provides a categorized bibliography on the application of the techniques of multiple criteria decision making mcdm to problems and issues in finance a total of 265 references have been compiled and classified according to the methodological approaches of goal programming multiple objective programming the analytic hierarchy process etc and to the application areas of capital budgeting working capital management portfolio analysis etc the bibliography provides an overview of the literature on mcdm combined with finance shows how contributions to the area have come from all over the world facilitates access to the entirety of this heretofore fragmented literature and underscores the often multiple criterion nature of many problems in finance

decision support models for sustainable mining networks fundamentals and challenges abstract natural resource endowments have the potential of transforming the prospects of many developing economies however a nation s mineral resources can only generate prosperity if specific technology assets are employed in a way as to effectively develop its resource sector capture value from it and transform that value into long term benefits the roadmap to such an ambitious goal lies in effective management supported by consistent formal decision making methods yet integrating environmental and social goals into strategic tactical and operational decisions is a complex challenge often addressed without adequate analytical rigour we provide a systematic analysis of the literature devoted to the development and application of quantitative decision support methods with sustainability considerations in the mining industry by establishing a framework based on the fundamental elements inherent to decision making processes pertinent to mining operations we identify several opportunities for advancing research and practice in particular we find important gaps in elements such as project portfolio optimization operations and waste management and mine closure and rehabilitation and even more so when social targets and impacts are considered it is our belief that insights from this discussion could be of significant value to both academics and practitioners interested in promoting sustainable socio economic development throughout the mining industry

a linearized value at risk model with transaction costs and short selling abstract though value at risk var has been widely applied by finance industry a possibility of multiple optimums that is caused by the nonlinearity in modeling can challenge its application to deal with this technical issue we propose a linearized var model that employs the mixed 0 1 programing in lin 2009 p4 model we further advance the previous models with considering various transaction costs and the optimization of short selling weights we compare the performance of buy and hold bh strategy the mean variance mv model the original p4 model and our linearized p4 lp4 model by rebalancing a wide scale of international and alternative investments during a period between 2001 and 2012 the results of numerical tests show the superior performance of the var models to the bh and the mv portfolios the lp4 model yields the global optimum and outperforms the corresponding p4 model in both return and risk the stability of portfolio value generated from the lp4 model supports its higher effectiveness in risk management than the p4 model

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

a participatory budget model under uncertainty abstract participatory budgets are becoming increasingly popular in many municipalities all over the world the underlying idea is to allow citizens to participate in the allocation of a fraction of the municipal budget there are many variants of such processes however in most cases they assume a fixed budget based upon a maximum amount of money to be spent this approach seems lacking especially in times of crisis when public funding suffers high volatility and widespread cuts in this paper we propose a model for participatory budgeting under uncertainty based on stochastic programming

growth versus security in dynamic investment analysis this paper concerns the problem of optimal dynamic choice in discrete time for an investor in each period the investor is faced with one or more risky investments the maximization of the expected

safety first portfolio choice based on financial and sustainability returns the aim of this paper is to expand the methodological spectrum of socially responsible investing by introducing stochastic sustainability returns into safety first models for portfolio choice we provide a foundation of the notion of sustainability in portfolio theory and establish a general model for generalized safety first portfolio management with probabilistic constraints and three specifications of it moreover we prove theorems about conditions for unique optimal solutions and for the constraints of one model being more restrictive than those of another in an empirical part we calculate the costs of investing according to our approach in terms of less financial return

employment protection and industry innovation we examine the impact of the strictness of employment protection legislation epl on innovation intensity to this purpose we use a panel of annual data from organisation for economic co operation and development countries and analyze the variation of innovation intensity within country between industries our estimates indicate that stricter epl led to significantly lower innovation intensity in industries with higher job layoff propensity our findings are robust to additional industry covariates and other labor market institutions that may affect innovation performance and industry job layoff propensity

competition and growth with step by step innovation an example this paper develops a simple example to analyse the relationship between product market competition and growth in a model with step by step innovations where laggards can never leapfrog the current industry leaders but instead must first catch up with the leaders before battling for technological leadership in the future unlike in existing schumpeterian models of growth more intense product market competition and or imitations may be growth enhancing

competition innovation and the use of innovations i examine the effect of competition on the production and use of innovations using evidence from a natural experiment of policy reform the introduction of cartel legislation in the uk in the late 1950s i compare manufacturing industries which had been collusive and were therefore affected by the policy with those that had been competitive and were not affected the intensification of competition following the abolition of cartels caused a short run decrease in innovations produced but had no significant effect in the long run in contrast innovations used increased both in the short run and in the long run

on the competitive pressure created by the diffusion of innovations abstract we consider the decision of a dominant firm to adopt a sequence of potential cost reducing innovations where the latest technology adopted diffuses to a competitive fringe at an exogenous rate with price competition on the product market the leader optimally spaces apart the adoption dates of successive innovations so the industry is characterized by schumpetarian cycles of alternating innovation and diffusion an increase in the rate of diffusion has ambiguous effects on innovative activity and up to a point hastens the pace of innovation these results may however be reversed in the case of quantity competition

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

regulation and investment use newly assembled data on regulation in several sectors of many oecd countries to provide evidence that regulatory reform of product markets is associated with an increase in investment a component of reform that plays a very important role is entry liberalization but privatization also has a substantial effect on investment sensitivity analysis suggests that our results are robust jel e22 l5

inverted u relationship between r d intensity and survival evidence on scale and complementarity effects in uk data existing evidence on the relationship between rd ii rd and iii creative destruction as proxied by median r d intensity in the industry and the premium on business lending have negative effects on firm survival other findings concerning age size productivity relative growth pavitt technology classes and the macroeconomic environment are in line with the existing literature the results are strongly or moderately robust to different samples stepwise estimations and controls for frailty and left truncation

foreign aid and poverty in bosnia and herzegovina targeting simulations and policy implications abstract though the current aid program has reached many of the poor it has also excluded a sizable part of the neediest by using simple proxy means tests approach we show that improving targeting accuracy in the aid delivery process can yield improved coverage and reduced leakage and can have a sizable impact in terms of poverty reduction we focus on some variables that are relevant in bosnia and herzegovina the data come from a household survey commissioned by the world bank that covers about 7000 households and is the first of its kind in the country

multivariate dependence and portfolio optimization algorithms under illiquid market scenarios we propose a model for optimizing structured portfolios with liquidity adjusted value at risk lvar constraints whereby linear correlations between assets are replaced by the multivariate nonlinear dependence structure based on dynamic conditional correlation t copula modeling our portfolio optimization algorithm minimizes the lvar function under adverse market circumstances and multiple operational and financial constraints when we consider a diversified portfolio of international stock and commodity market indices under multiple realistic portfolio optimization scenarios the obtained results consistently show the superiority of our approach relative to other competing portfolio strategies including the minimum variance risk parity and equally weighted portfolio allocations

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

tri criterion modeling for constructing more sustainable mutual funds one of the most important factors shaping world outcomes is where investment dollars are placed in this regard there is the rapidly growing area called sustainable investing where environmental social and corporate governance esg measures are taken into account with people interested in this type of investing rarely able to gain exposure to the area other than through a mutual fund we study a cross section of u s mutual funds to assess the extent to which esg measures are embedded in their portfolios our methodology makes heavy use of points on the nondominated surfaces of many tri criterion portfolio selection problems in which sustainability is modeled after risk and return as a third criterion with the mutual funds acting as a filter the question is how effective is the sustainable mutual fund industry in carrying out its charge our findings are that the industry has substantial leeway to increase the sustainability quotients of its portfolios at even no cost to risk and return thus implying that the funds are unnecessarily falling short on the reasons why investors are investing in these funds in the first place

interactive decision system in stochastic multiobjective portfolio selection abstract some investors pursuing a high return at the relatively high risk of losing a part of their money do not always select a preferred portfolio from among the so called mean variance efficient frontier provided by markowitz 1959 portfolio selection wiley new york chue and nagasawa 1996 an investor modeling and interactive method in multiobjective portfolio selection proceedings of the pacific conference on manufacturing 96 constructed their own investor model based on an risk permission maximum return portfolio and proposed an interactive portfolio selection system for selecting a preferred portfolio from the set of candidate portfolios this paper extends the system to the case when the mean and the variance of return of securities have several scenarios with known occurrence probabilities

a note on robustness in merton s model of intertemporal consumption and portfolio choice abstract the paper presents a robust version of a simple two assets merton 1969 review of economics and statistics 51 247 57 model where the optimal choices and the implied shadow market prices of risk for a representative robust decision maker rdm can be easily described with the exception of the log utility case precautionary behaviour is induced in the optimal consumption investment rules through a substitution of investment in risky assets with both current consumption and riskless saving for the log utility case precautionary behaviour arises only through a substitution between risky and riskless assets on the financial side the decomposition of the market price of risk in a standard consumption based component and a further price for model uncertainty risk which is positively related to the robustness parameter is independent of the underlying risk aversion parameter

quality ladders and product cycles we develop a two country model of endogenous innovation and imitation in order to study the interactions between these two processes firms in the north race to bring out the next generation of a set of technology intensive products each product potentially can be improved a countably infinite number of times but quality improvements require the investment of resources and entail uncertain prospects of success in the south entrepreneurs invest resources in order to learn the production processes that have been developed in the north all r d investment decisions are made by forward looking profit maximizing entrepreneurs the steady state equilibrium is characterized by constant aggregate rates of innovation and imitation we study how these rates respond to changes in the sizes of the two regions and to policies in each region to promote learning

dynamic portfolio optimization with transaction costs heuristics and dual bounds we consider the problem of dynamic portfolio optimization in a discrete time finite horizon setting our general model considers risk aversion portfolio constraints e g no short positions return predictability and transaction costs this problem is naturally formulated as a stochastic dynamic program unfortunately with nonzero transaction costs the dimension of the state space is at least as large as the number of assets and the problem is very difficult to solve with more than one or two assets in this paper we consider several easy to compute heuristic trading strategies that are based on optimizing simpler models we complement these heuristics with upper bounds on the performance with an optimal trading strategy these bounds are based on the dual approach developed in brown et al brown d b j e smith p sun 2009 information relaxations and duality in stochastic dynamic programs oper res 58 4 785 801 in this context these bounds are given by considering an investor who has access to perfect information about future returns but is penalized for using this advance information these heuristic strategies and bounds can be evaluated using monte carlo simulation we evaluate these heuristics and bounds in numerical experiments with a risk free asset and 3 or 10 risky assets in many cases the performance of the heuristic strategy is very close to the upper bound indicating that the heuristic strategies are very nearly optimal this paper was accepted by dimitris bertsimas optimization

growth technological change and ict diffusion recent evidence from oecd countries in this paper we present an overview of gdp and productivity growth patterns in oecd countries over the past decade on the basis of harmonized data our evidence suggests that fast growing countries generally shared three characteristics improvements in labour utilization a generalized enhancement in human capital and rapid shifts in the composition of physical capital towards information and communication technology ict equipment particularly we show that technological change embodied in new ict capital goods has been a primary source of output and productivity growth in ict using sectors the international comparison allows relating growth patterns to institutional and policy indicators thereby offering some preliminary insights into the potential sources of growth disparities cross country evidence yields some tentative support to the idea that institutional factors affecting competition in the product market are likely to affect productivity patterns especially in a period of rapid diffusion of a general purpose technology such as ict copyright 2002 oxford university press

competition imitation and growth with step by step innovation is more intense product market competition and imitation good or bad for growth this question is addressed in the context of an endogenous growth model with step by step innovations in which technological laggards must first catch up with the leading edge technology before battling for technological leadership in the future in contrast to earlier schumpeterian models in which innovations are always made by outsider firms who earn no rents if they fail to innovate and become monopolies if they do innovate here we find first that the usual schumpeterian effect of more intense product market competition pmc is almost always outweighed by the increased incentive for firms to innovate in order to escape competition so that pmc has a positive effect on growth second that a little imitation is almost always growth enhancing as it promotes more frequent neck and neck competition but too much imitation is unambiguously growth reducing the model thus points to complementary roles for competition anti trust policy and patent policy

appropriate intellectual property protection and economic growth in countries at different levels of development this paper examines how the role of patents and utility models in innovation and economic growth varies by level of economic development using a panel dataset of over 70 countries we find that patent protection is an important determinant of innovation and that patentable innovations contribute to economic growth in developed countries but not in developing instead in developing economies a minor form of intellectual property rights iprs namely utility models is conducive to innovation and growth controlling for other factors using korean firm level data as a case study we find that utility model innovations contribute to firm performance when firms are technologically lagging and that those minor innovations can be a learning device and thus a stepping stone for developing more patentable inventions later on upon reaching higher levels of technological capabilities firms become more reliant upon patents and less on utility models thus the lesson here is that patent protection enhances innovation and economic growth in countries where the capacity to conduct innovative research exists where this capacity is weaker a system that provides incentives to conduct minor incremental inventions is more conducive to growth the significance of this paper is to emphasize the importance not just of the strength of iprs but of the appropriate type of iprs for economic development

regulation and productivity performance the paper reviews theory and evidence on the ways in which regulation affects productivity outcomes in a context of endogenous growth it is argued that traditional measures of compliance costs miss the potentially most important impacts of regulation on productivity which occur through changes in incentives to invest and to innovate recent attempts to measure cross country variations in the strength of product market and employment regulation are considered and some weaknesses are highlighted nevertheless consistent with endogenous growth models there appears to he quite strong evidence that regulations which inhibit entry into product markets have an adverse effect on tfp growth in oecd countries although there are some discrepancies in the evidence on most measures the uk appears lightly regulated relative to france and germany and this may have contributed to a reduction in the recent past in the uk s tfp gap

the patent paradox revisited an empirical study of patenting in the u s semiconductor industry 1979 1995 we examine the patenting behavior of firms in an industry characterized by rapid technological change and cumulative innovation recent survey evidence suggests that semiconductor firms do not rely heavily on patents to appropriate returns to r d yet the propensity of semiconductor firms to patent has risen dramatically since the mid1980s we explore this apparent paradox by conducting interviews with industry representatives and analyzing the patenting behavior of 95 u s semiconductor firms during 1979 1995 the results suggest that the 1980s strengthening of u s patent rights spawned patent portfolio races among capital intensive firms but it also facilitated entry by specialized design firms

horizontal mergers and product innovation abstract we set up a stylized oligopoly model of uncertain product innovation to analyze the effects of a merger on innovation incentives and on consumer surplus the model incorporates two competitive channels for merger effects the price coordination channel and the internalization of the innovation externality we solve the model numerically and find that price coordination between the two products of the merged firm tends to stimulate innovation while internalization of the innovation externality depresses it the latter effect is stronger in our simulations and as a result the merger leads to lower innovation incentives for the merged entity absent cost efficiencies and knowledge spillovers in our numerical analysis both overall innovation and consumer welfare fall after a merger

product market competition and upstream innovation evidence from the u s electricity market deregulation this paper studies the innovation response of upstream technology suppliers when their downstream buyers transition from regulation to competition by modeling the impact of the 1990s u s electricity deregulation on patenting we find that after deregulation the net competition effect comprising the pure competition and the escape competition effect decreased innovation by 18 3 and the appropriation effect increased innovation by 19 6 other deregulation factors have led to a 20 6 decline in aggregate after deregulation innovation by the upstream technology suppliers has declined by 19 3 and upstream innovation quality and generality have declined as well

entry reputation and intellectual property rights enforcement we examine how reputation concerns induce a multinational to partly withhold its entry into a developing country under weak intellectual property rights ipr enforcement equilibrium ipr violations are shown to arise only in the presence of such concerns holding constant a multinational s incentive to innovate better ipr enforcement encourages entry but reduces social welfare the multinational s incentive to innovate may be inversely u shaped in the strength of ipr enforcement if timed properly however stronger ipr enforcement can foster innovation without compromising social welfare testable implications concerning observable ipr violations are derived

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

markowitz s portfolio selection a fifty year retrospective this year marks the fiftieth anniversary of the publication of harry markowitz s landmark paper portfolio selection which appeared in the march 1952 issue of the journal of finance with the hindsight of many years we can see that this was the moment of the birth of modern financial economics although the baby had a healthy delivery it had to grow into its teenage years before a hint of its full promise became apparent what has always impressed me most about markowitz s 1952 paper is that it seemed to come out of nowhere compared to the work of his 1990 co nobel prize winners sharpe primarily for his paper on the capital asset pricing model and miller for his paper on capital structure markowitz s paper seems to have more of this flavor in 1676 sir isaac newton wrote his friend robert hooke if i have seen further it is by standing on the shoulders of giants newton 1959 and that is true of markowitz as well but like newton he certainly saw a long distance given the height of those shoulders markowitz was hardly the first to consider the desirability of diversification daniel bernoulli in his famous 1738 article about the st petersburg

portfolio constraints and the fundamental law of active management active portfolio management is typically conducted within constraints that do not allow managers to fully exploit their ability to forecast returns constraints on short positions and turnover for example are fairly common and materially restrictive other constraints such as market capitalization and value growth neutrality with respect to the benchmark or economic sector constraints can further restrict an active portfolio s composition we derive ex ante and ex post correlation relationships that facilitate the performance analysis of constrained portfolios the ex ante relationship is a generalized version of a previously developed fundamental law of active management and provides an important strategic perspective on the potential for active management to add value the ex post correlation relationship represents a practical decomposition of performance into the success of the return prediction process and the noise associated with portfolio constraints we verify the accuracy of these relati

robust multiobjective portfolio optimization a minimax regret approach abstract an efficient frontier in the typical portfolio selection problem provides an illustrative way to express the tradeoffs between return and risk following the basic ideas of modern portfolio theory as introduced by markowitz security returns are usually extracted from past data our purpose in this paper is to incorporate future returns scenarios in the investment decision process for representative points on the efficient frontier the minimax regret portfolio is calculated on the basis of the aforementioned scenarios these points correspond to specific weight combinations in this way the areas of the efficient frontier that are more robust than others are identified the underlying key contribution is related to the extension of the conventional minimax regret criterion formulation in multiobjective programming problems the validity of the approach is verified through an illustrative empirical testing application on the eurostoxx 50

market structure and endogenous productivity growth how do r d subsidies affect market structure abstract conclusions about optimal rd 2 distribution of firm sizes and 3 more complex market structures that vary across industries and over time this paper presents the partial equilibrium for a single industry demonstrating how growth promoting r d subsidies alter the endogenously determined market structure subsidies to r d stretch the distribution of market shares with an increased number of firms in the market but a higher variance in the market shares across firms

diversifying portfolios of u s stocks with crude oil and natural gas a regime dependent optimization with several risk measures abstract we build a portfolio encompassing u s crude oil natural gas and stocks to study the diversification power of energy commodities such diversification power depends on the joint dependence structure of the three types of assets according to gatfaoui 2016a the dependence structure is time varying because individual asset returns exhibit several variance regimes we identify the corresponding regime specific multivariate copulas and incorporate them to well chosen risk measures specifically we minimize the portfolio s variance semi variance and tail risk in the presence and the absence of constraints on the portfolio s expected return and or stock investment first the return constraint reduces the performance of the optimal portfolio second the regime specific portfolio optimization implements an enhanced active management strategy over the whole sample period finally the tail risk optimal portfolio offers the most interesting risk return tradeoff however variance and semi variance optimal portfolios can also be considered in the absence of a return constraint

worst case value at risk and robust portfolio optimization a conic programming approach classical formulations of the portfolio optimization problem such as mean variance or value at risk var approaches can result in a portfolio extremely sensitive to errors in the data such as mean and covariance matrix of the returns in this paper we propose a way to alleviate this problem in a tractable manner we assume that the distribution of returns is partially known in the sense that onlybounds on the mean and covariance matrix are available we define the worst case value at risk as the largest var attainable given the partial information on the returns distribution we consider the problem of computing and optimizing the worst case var and we show that these problems can be cast as semidefinite programs we extend our approach to various other partial information on the distribution including uncertainty in factor models support constraints and relative entropy information

credit constraints and the inverted u relationship between competition and innovation empirical studies have uncovered an inverted u relationship between product market competition and innovation this is inconsistent with the original schumpeterian model where greater competition always reduces the profitability of innovation and thus the incentives to innovate we show that the model can predict the inverted u if the innovators talent is heterogeneous and asymmetrically observable when competition is low and profitability is high talented innovators are credit constrained since untalented innovators are eager to mimic them as competition increases and profitability decreases untalented innovators become less eager to mimic and talented innovators can invest more this generates the increasing part of the relationship when competition is high and profitability is low credit constraints disappear and the relationship is decreasing our theory generates additional specific predictions that are well borne out by the existing evidence

to innovate or imitate entry strategy and the role of market research abstract a firm planning market entry can attempt to develop a product that is either similar to the incumbent s existing offering imitation or entirely novel innovation the authors establish that when the incumbent is more aggressive in research and development r d this negatively affects the entrant s marginal return on r d thus if greater profits produce a strong weak desire for the incumbent to increase its r d level the entrant will respond by sharply decreasing increasing its r d level as a result the incumbent s likelihood of retaining the lead position will exhibit an inverse u shaped pattern as a function of monopoly and duopoly profits the authors then examine the impact of uncertainty about the rewards from new products and allow firms to conduct market research to resolve the uncertainty they characterize the conditions for the entrant s innovation versus imitation decision to reveal information about future rewards to the incumbent when duopoly profits are uncertain and ca

asset allocation dynamics and pension fund performance using a data set on more than 300 u k pension funds asset holdings this article provides a systematic investigation of the performance of managed portfolios across multiple asset classes we find evidence of slow mean reversion in the funds portfolio weights toward a common time varying strategic asset allocation we also find surprisingly little cross sectional variation in the average ex post returns arising from the strategic asset allocation market timing and security selection decisions of the fund managers strategic asset allocation accounts for most of the time series variation in portfolio returns while market timing and asset selection appear to have been far less important copyright 1999 by university of chicago press

innovation and competition the role of the product market abstract we study how competition impacts innovation and welfare when firms compete both in the product market and in innovation development this relationship is complex and may lead to scenarios in which a lessening of competition increases r d and consumer welfare in the long run we provide conditions for when competition increases or decreases industry innovation and welfare these conditions are based on properties of the product market payoffs implications for applied work and policy are discussed

cross sectoral variation in the volatility of plant level idiosyncratic shocks the volatility of plant level idiosyncratic shocks we estimate the volatility of plant level idiosyncratic shocks in u s manufacturing we measure the variation in revenue total factor productivity not explained by either industry or economy wide factors or by establishments characteristics we find that idiosyncratic shocks are much larger than aggregate shocks accounting for about 80 of the overall uncertainty faced by plants plants in the most volatile sector are subject to about six times as much idiosyncratic uncertainty as plants in the least volatile we provide evidence suggesting that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater

value of information in portfolio selection with a taiwan stock market application illustration abstract despite many proposed alternatives the predominant model in portfolio selection is still mean variance however the main weakness of the mean variance model is in the specification of the expected returns of the individual securities involved if this process is not accurate the allocations of capital to the different securities will in almost all certainty be incorrect if however this process can be made accurate then correct allocations can be made and the additional expected return following from this is the value of information this paper thus proposes a methodology to calculate the value of information a related idea of a level of disappointment is also shown how value of information calculations can be important in helping a mutual fund settle on how much to set aside for research is discussed in reference to a taiwan stock exchange illustrative application in which the value of information appears to be substantial heavy use is made of parametric quadratic programming to keep computation times down for the methodology

approximate portfolio analysis abstract this paper presents a portfolio selection model based on the idea of approximation the model describes a portfolio by its decumulative distribution curve and a preference structure by a family of convex indifference curves it prescribes the optimal portfolio as the one whose decumulative curve has the highest tangent indifference curve the model extends the mean variance model in the sense that it does not restrict the return distributions of assets to be normal while under the assumption of normality the model simplifies to the mean variance model the model has a measure of risk attitudes that resembles the arrow pratt measure while combining both wealth and probability attitudes using this measure we show that the smaller the curvature of a value function and the larger the curvature of a weighting function the more risk averse an agent

tri criterion inverse portfolio optimization with application to socially responsible mutual funds we present a framework for inverse optimization in a markowitz portfolio model that is extended to include a third criterion the third criterion causes the traditional nondominated frontier to become a surface until recently it had not been possible to compute such a surface but by using a new method that is able to generate the nondominated surfaces of tri criterion portfolio selection problems we are able to compute via inverse optimization the implied risk tolerances of given funds that pursue an additional objective beyond risk and return in applying this capability to a broad sample of conventional and socially responsible sr mutual funds we find that after the screening process there appears to be no significant di erence between how assets are allocated in socially responsible and conventional mutual funds which is likely to be di erent from what most sr investors would expect

on the strategic behavior of large investors a mean variance portfolio approach abstract one key assumption of markowitz s model is that all traders act as price takers in this paper we extend this mean variance approach in a setting where large investors can move prices instead of having an individual optimization problem we find the investors nash equilibrium and redefine the efficient frontier in this new framework we also develop a simplified application of the general model with two assets and two investors to shed light on the potential strategic behavior of large and atomic investors our findings validate the claim that large investors enhance their portfolio performance in relation to perfect market conditions besides we show under which conditions atomic investors can benefit in relation to the standard setting even if they have not total influence on their eventual performance the two investors two assets setting allows us to quantify performance and do sensitivity analysis regarding investors market power risk tolerance and price elasticity of demand finally for a group of well known etfs we empirically show how price variations change depending on the volume traded we also explain how to set up and use our model with real market data

the effect of technological imitation on corporate innovation evidence from us patent data abstract technological imitation may play a crucial role in motivating firms to innovate however theoretical predictions and empirical findings on the role of imitation have not yet reached a consensus one major gap in the previous studies is that the empirical tests are based on samples consisting of only one industry over a short period of time this study uses a novel measure of industry level technological imitation proxied by quick citations by competitors to examine the relationship between imitation and innovation using us patent data for the period 1977 2005 we find that there are inverted u shaped relationships between the degree of industry level technological imitation and industry level innovation activities and between the degree of industry level technological imitation and the value of firm level innovation our results suggest that positive externalities from the interactions among firms during the innovation process outweigh the negative effects of free riding concerns on firms innovation activities and incentives to innovate up to a high degree of technological imitation while free riding concerns outweigh the positive externalities when the level of technological imitation is extremely high the sector by sector analyses show that the relationship between technological imitation and the quantity and market value of innovation are not very different across pavitt sectors a comparative analysis on the role of imitation between agglomerated and non agglomerated industries suggests that the positive effect of a moderate level of imitation and the negative effect of an excessive level of imitation are more pronounced for agglomerated industries the results suggest that creating innovation clusters such as silicon valley in the united states and shenzhen city in china and allowing different innovators to cooperate imitate and compete with each other would be very effective in promoting corporate innovation however an excessively high level of technological imitation is more detrimental for firms in innovation clusters because it lowers those firms incentives to innovate more radically

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

the distribution of sectoral tfp growth rates international evidence abstract this paper investigates the distributional properties of tfp growth rates for countries in the g7 group our findings lend support to the hypothesis that multifactor productivity shocks can be plausibly fitted by a symmetric non gaussian stable distribution model this leads to non negligible implications for business cycle analysis

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

asset allocation with correlation a composite trade off abstract we assess the ability of minimum variance portfolio allocation strategies accounting for time varying correlation between assets to provide performance benefits relative to an equally weighted portfolio prior to transaction costs correlation based strategies emphatically outperform the equally weighted benchmark this finding is strongest for short horizon correlation forecasts and attributed to dynamic correlation as opposed to variance forecasts thus estimation error is not found to be the primary obstacle to successful portfolio optimization rather frequent rebalancing and associated transaction costs pose a significant challenge limiting portfolio turnover through short selling restrictions and greater rebalancing error tolerance results in regular outperformance of the correlation based strategies even for large transaction costs taken together these findings provide evidence of a trade off between optimal portfolio performance forecasting horizon rebalancing frequency and transaction costs