Risk exposures and international diversification: Evidence from iShares

We examine the newly developed international diversification instruments–iShares traded on the American Stock Exchange. Given the fact that iShares can be created and redeemed at will, the daily price of an iShare is expected to be equal to the daily portfolio value of the underlying assets in the home-country market. Therefore, theoretically, iShare pricing should be influenced by the risk from the iShare's home-country market and not the risk from the US market, per se. We evaluate the risk exposure of iShare prices to the US market (non-fundamental effect) as well as the home-country market (the fundamental effect). We find that most iShare returns are significantly influenced by and sensitive to the US market risk. Moreover, the US market appears to be the key permanent driving factor and the home-country market is a pronounced transitory driving force for iShare prices. These findings indicate the presence of limits of international arbitrage for iShares. As a result, the international diversification benefits of iShares become questionable.

Using extreme value theory to measure value-at-risk for daily electricity spot prices

The recent deregulation in electricity markets worldwide has heightened the importance of risk management in energy markets. Assessing Value-at-Risk (VaR) in electricity markets is arguably more difficult than in traditional financial markets because the distinctive features of the former result in a highly unusual distribution of returns-electricity returns are highly volatile, display seasonalities in both their mean and volatility, exhibit leverage effects and clustering in volatility, and feature extreme levels of skewness and kurtosis. With electricity applications in mind, this paper proposes a model that accommodates autoregression and weekly seasonals in both the conditional mean and conditional volatility of returns, as well as leverage effects via an EGARCH specification. In addition, extreme value theory (EVT) is adopted to explicitly model the tails of the return distribution. Compared to a number of other parametric models and simple historical simulation based approaches, the proposed EVT-based model performs well in forecasting out-of-sample VaR. In addition, statistical tests show that the proposed model provides appropriate interval coverage in both unconditional and, more importantly, conditional contexts. Overall, the results are encouraging in suggesting that the proposed EVT-based model is a useful technique in forecasting VaR in electricity markets. (c) 2005 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.

Noise trader risk and the welfare effects of privatization

Excessive volatility of asset prices like that generated in the 'noise trader' model of De Long et al. is one factor that plausibly might contribute to an explanation of the equity premium. We extend the De Long et al. model to allow for privatization of publicly-owned assets and assess the welfare effects of such privatization in the presence of excess volatility arising from noise traders' mistaken beliefs.

Prevalence of injecting drug use and associated risk behavior among regular ecstasy users in Australia

Background: The aim of the study was to investigate the prevalence of injecting drug use and associated risk behaviour among a sentinel sample of ecstasy users. Methods: Cross-sectional surveys were conducted with regular ecstasy users as part of an annual monitoring study of ecstasy and related drug markets in all Australian capital cities. Results: Twenty-three percent of the sample reported having ever injected a drug and 15% reported injecting in the 6 months preceding interview. Independent predictors of lifetime injection were older age, unemployment and having ever been in prison. Completion of secondary school and identifying as heterosexual was associated with a lower likelihood of having ever injected. Participants who had recently injected typically did so infrequently; only 9% reported daily injecting. Methamphetamine was the most commonly injected drug. Prevalence of needle sharing was low (6%), although half (47%) reported sharing other injecting equipment in the preceding 6 months. Conclusions: Ecstasy users who report having injected a drug at some time appear to be demographically different to ecstasy users who have not injected although neither are they typical of other drug injectors. The current investigation suggests that ongoing monitoring of injecting among regular ecstasy users is warranted. (c) 2005 Elsevier Ireland Ltd. All rights reserved.

HLA and Genomewide Allele Sharing in Dizygotic Twins

Gametic selection during fertilization or the effects of specific genotypes on the viability of embryos may cause a skewed transmission of chromosomes to surviving offspring. A recent analysis of transmission distortion in humans reported significant excess sharing among full siblings. Dizygotic (DZ) twin pairs are a special case of the simultaneous survival of two genotypes, and there have been reports of DZ pairs with excess allele sharing around the HLA locus, a candidate locus for embryo survival. We performed an allele-sharing study of 1,592 DZ twin pairs from two independent Australian cohorts, of which 1,561 pairs were informative for linkage on chromosome 6. We also analyzed allele sharing in 336 DZ twin pairs from The Netherlands. We found no evidence of excess allele sharing, either at the HLA locus or in the rest of the genome. In contrast, we found evidence of a small but significant (P = .003 for the Australian sample) genomewide deficit in the proportion of two alleles shared identical by descent among DZ twin pairs. We reconciled conflicting evidence in the literature for excess genomewide allele sharing by performing a simulation study that shows how undetected genotyping errors can lead to an apparent deficit or excess of allele sharing among sibling pairs, dependent on whether parental genotypes are known. Our results imply that gene-mapping studies based on affected sibling pairs that include DZ pairs will not suffer from false-positive results due to loci involved in embryo survival.

The management of interdependence and the sharing of vision by micro-finance agencies for new and emerging SMEs

The purpose of this paper is to conceptualise a theoretical model that clarifies the variations in both processes for sharing vision and interdependence of the lender and the SME owner in micro-finance. Processes for sharing vision and interdependence are possible predictors of the effective tacit and explicit knowledge generation/utilization of a micro-finance agency – SME owner relationship. For new and emerging SMEs the micro-finance agency can provide a critical role in their development. Micro-finance agencies can provide a mechanism in economic development that enables SMEs to have greater speed to markets. The focus of this paper is on the relationship between the micro-finance lending officer and the SME owner. Specifically, the model developed in this paper informs understanding the nature of knowledge generation/utilization between micro-finance agencies and SMEs. Effective generation/utilization facilitates the assessment of the risk for investment. The model clarifies the variations between interdependence and the development of processes for sharing of vision. When you have high interdependence (characterised by good cooperation) and effective processes for sharing of vision, an environment of effective knowledge generation/utilization is likely to be created between the micro-finance agency and the SME owner. The model proposes that the effective management of both tacit and explicit knowledge between the micro-finance agency and SMEs supports them to reach their markets. Implications of this research for SMEs and micro-finance agencies include the increase of knowledge and understanding of SME processes.