The value of tail risk hedging in defined contribution plans: What does history tell us

Hedging against tail events in equity markets has been forcefully advocated in the aftermath of recent global financial crisis. Whether this is beneficial to long horizon investors like employees enrolled in defined contribution (DC) plans, however, has been subject to criticism. We conduct historical simulation since 1928 to examine the effectiveness of active and passive tail risk hedging using out of money put options for hypothetical equity portfolios of DC plan participants with 20 years to retirement. Our findings show that the cost of tail hedging exceeds the benefits for a majority of the plan participants during the sample period. However, for a significant number of simulations, hedging result in superior outcomes relative to an unhedged position. Active tail hedging is more effective when employees confront several panic-driven periods characterized by short and sharp market swings in the equity markets over the investment horizon. Passive hedging, on the other hand, proves beneficial when they encounter an extremely rare event like the Great Depression as equity markets go into deep and prolonged decline.

Three essays on banks trading activities

With a fair share of the blame for the subprime crisis pointing to banks' extensive involvement in trading, this thesis examines three closely related issues. The first essay shows that regulatory capital arbitrage, insolvency risk, and non-interest income are all important motivations for banks to become involved in trading. The second essay support the widely held perception that trading activities such as off-balance sheet derivatives, securitization, and assets sales all are making banks more opaque. With banks' business model changing from ''originate and hold'' to ''originate, repackage, and sell'', the last essay show that trading channel exist and it has weakened the effectiveness of monetary policy transmission through banks' capital and lending channel.

Modeling conditional correlations of asset returns : a smooth transition approach

In this paper we propose a new multivariate GARCH model with time-varying conditional correlation structure. The time-varying conditional correlations change smoothly between two extreme states of constant correlations according to a predetermined or exogenous transition variable. An LM–test is derived to test the constancy of correlations and LM- and Wald tests to test the hypothesis of partially constant correlations. Analytical expressions for the test statistics and the required derivatives are provided to make computations feasible. An empirical example based on daily return series of five frequently traded stocks in the S&P 500 stock index completes the paper.

Subprime agriculture, and Australia?

Today, Australian agriculture is not where we hoped it would be. Despite being highly productive and the nation's only 'strongly competitive industry', it is struggling across the country. There are successes, as there always will be, but the bulk of our food and fibre production is from enterprises with minimal profitability and unstable or unsound finances. A debt-deflation spiral and subprime mortgage crisis are now being fuelled by property fire sales while leading bankers proclaim no problem and governments dance at the edges. However, it is not just the bush that has problems. National economic conditions are deteriorating with per capita incomes falling and real interest rates still high. Well-informed policy strategies and effective responses are needed quickly if Australians are to avoid needless losses of capacity and wealth destruction in the cities and the bush.

Alliances in the shadow of conflict

Victorious alliances often fight about the spoils of war. This article presents an experiment on the determinants of whether alliances break up and fight internally after having defeated a joint enemy. First, if peaceful sharing yields an asymmetric rent distribution, this increases the likelihood of fighting. In turn, anticipation of the higher likelihood of internal fight reduces the alliance’s ability to succeed against the outside enemy. Second, the option to make nonbinding nonaggression declarations between alliance members does not make peaceful settlement within the alliance more likely. Third, higher differences in the alliance players’ contributions to alliance effort lead to more internal conflict and more intense fighting.

Are empowered women more likely to deliver in facilities? An explorative study using the Nepal Demographic and Health Survey 2011

Development literature has argued that empowering women can effectively increase the utilisation of maternal health care. This study examines this hypothesis in the context of Nepal where only 28% of women delivered in facilities. The two-level random intercept logit models were fitted for data from the Nepal Demographic and Health Surveys 2011. Women‟s empowerment was quantified with a single index constructed from many variables. These variables captured different aspects of women‟s lives and decision-making in their households, and were combined using the principal component analysis method. The results confirmed a positive relationship between women‟s as an inevitable product of the economic development process.

Awards before and after the Nobel Prize : a Matthew effect and/or a ticket to one's own funeral?

The primary aim of this descriptive exploration of scientists’ life cycle award patterns is to evaluate whether awards breed further awards and identify researcher experiences after reception of the Nobel Prize. To achieve this goal, we collected data on the number of awards received each year for 50 years before and after Nobel Prize reception by all 1901–2000 Nobel laureates in physics, chemistry, and medicine or physiology. Our results indicate an increasing rate of awards before Nobel reception, reaching the summit precisely in the year of the Nobel Prize. After this pinnacle year, awards drop sharply. This result is confirmed by separate analyses of three different disciplines and by a random-effects negative binomial regression model. Such an effect, however, does not emerge for more recent Nobel laureates (1971–2000). In addition, Nobelists in medicine or physiology generate more awards shortly before and after prize reception, whereas laureates in chemistry attract more awards as time progresses.

Effects of supervision on tax compliance : evidence from a field experiment in Austria

We conduct a field experiment on tax compliance, focusing on newly founded firms. As a novelty the effect of tax authorities’ supervision on timely tax payments is examined. Interestingly, results show no positive overall effect of close supervision on tax compliance.

Theory and practice of automotive modal lock-in – an Indonesian case

This thesis examines the question why the automotive mode and the large technological system it creates, continues to dominate urban transport systems despite the availability of more cost-efficient alternatives. A number of theoretical insights are developed into the way these losses evolve from path dependent growth, and lead to market failure and lock-in. The important role of asymmetries of influence is highlighted. A survey of commuters in Jakarta Indonesia is used to provide a measure of transport modal lock-in (TML) in a developing country conurbation. A discrete choice experiment is used to provide evidence for the thesis central hypothesis that in such conurbations there is a high level of commuter awareness of the negative externalities generated by TML which can produce a strong level of support for its reversal. Why TML nevertheless remains a strong and durable feature of the transport system is examined with reference to the role of asymmetries of influence.

Suicide and religion : new evidence on the differences between Protestantism and Catholicism

Suicide has remained a persistent social phenomenon and now accounts for more deaths than motor vehicle accidents. There has been much debate, however, over which religious constructs might best explain the variation in suicide rates. Our empirical analysis reveals that even though theological and social differences between Catholicism and Protestantism have decreased, Catholics are still less likely than Protestants to commit or accept suicide. This difference holds even after we control for such confounding factors as social and religious networks. In addition, although religious networks do mitigate suicides among Protestants, the influence of church attendance is more dominant among Catholics. Our analysis also indicates that alternative concepts such as religious commitment and religiosity strongly reduce suicide acceptance.

Co-movements in commodity prices : a note based on network analysis

This article analyses co-movements in a wide group of commodity prices during the time period 1992–2010. Our methodological approach is based on the correlation matrix and the networks inside. Through this approach we are able to summarize global interaction and interdependence, capturing the existing heterogeneity in the degrees of synchronization between commodity prices. Our results produce two main findings: (a) we do not observe a persistent increase in the degree of co-movement of the commodity prices in our time sample, however from mid-2008 to the end of 2009 co-movements almost doubled when compared with the average correlation; (b) we observe three groups of commodities which have exhibited similar price dynamics (metals, oil and grains, and oilseeds) and which have increased their degree of co-movement during the sampled period.

Superstars as drivers of organizational identification : empirical findings from professional soccer

This paper examines the effect of superstars on external stakeholders’ organizational identification through the lens of sport. Drawing on social identity theory and the concept of organizational identification, as well as on role model theories and superstar economics, several hypotheses are developed regarding the influence of soccer stars on their fans’ degree of team identification. Using a proprietary data set that combines archival data on professional German soccer players and clubs with survey data on more than 1,400 soccer fans, this study finds evidence for a positive effect of superstar characteristics and role model perception. Moreover, it is found that players who qualify for the definition of a superstar are more important to fans of established teams than to fans of unsuccessful teams. The player's club tenure, however, seems to have no influence on fans’ team identification. It is further argued that the effect of soccer stars on their fans is comparable to that of executives on external stakeholders, and hence, the results are applied to the business domain. The results of this study contribute to existing research by extending the list of personnel-related determinants of organizational identification.

Superstars and disloyal football fans : factors influencing attraction to competition

Purpose – The purpose of this paper is to examine the effect of superstars (and other factors) on football fans’ attraction to competition (i.e. disloyal behavior). Design/methodology/approach – A proprietary data set including archival data on professional German football players and clubs as well as survey data of more than 900 football fans is used. The hypotheses are tested with two-sample mean-comparison t-tests and multivariate probit models. Findings – This study provides evidence that superstars both attract new fans and contribute to the retention of existing fans. While the presence of superstars, team loyalty and team identification prevent football fans from being attracted to competition, the team's recent performance seems to have no effect. Fans who select their favorite player from a competing team rather choose superstars, young players, players who are known for exemplary behavior and defenders. Originality/value – This paper contributes to existing research by expanding the list of antecedents of disloyalty and by being the first to employ independent, quantitative data for the assessment of superstar characteristics in the context of team loyalty.

Heartbeat and economic decisions : observing mental stress among proposers and responders in the ultimatum bargaining game

The ultimatum bargaining game (UBG), a widely used method in experimental economics, clearly demonstrates that motives other than pure monetary reward play a role in human economic decision making. In this study, we explore the behaviour and physiological reactions of both responders and proposers in an ultimatum bargaining game using heart rate variability (HRV), a small and nonintrusive technology that allows observation of both sides of an interaction in a normal experimental economics laboratory environment. We find that low offers by a proposer cause signs of mental stress in both the proposer and the responder; that is, both exhibit high ratios of low to high frequency activity in the HRV spectrum.

Do the best scholars attract the highest speaking fees? An exploration of internal and external influence

This study investigates whether academics can capitalize on their external prominence (measured by the number of pages indexed on Google, TED talk invitations or New York Times bestselling book successes) and internal success within academia (measured by publication and citation performance) in the speakers’ market. The results indicate that the larger the number of web pages indexing a particular scholar, the higher the minimum speaking fee. Invitations to speak at a TED event, or making the New York Times Best Seller list is also positively correlated with speaking fees. Scholars with a stronger internal impact or success also achieve higher speaking fees. However, once external impact is controlled, most metrics used to measure internal impact are no longer statistically significant.