Diversification and value-at-risk

A pervasive and puzzling feature of banks’ Value-at-Risk (VaR) is its abnormally high level, which leads to excessive regulatory capital. A possible explanation for the tendency of commercial banks to overstate their VaR is that they incompletely account for the diversification effect among broad risk categories (e.g., equity, interest rate, commodity, credit spread, and foreign exchange). By underestimating the diversification effect, bank’s proprietary VaR models produce overly prudent market risk assessments. In this paper, we examine empirically the validity of this hypothesis using actual VaR data from major US commercial banks. In contrast to the VaR diversification hypothesis, we find that US banks show no sign of systematic underestimation of the diversification effect. In particular, diversification effects used by banks is very close to (and quite often larger than) our empirical diversification estimates. A direct implication of this finding is that individual VaRs for each broad risk category, just like aggregate VaRs, are biased risk assessments.

The level and quality of Value-at-Risk disclosure by commercial banks

In this paper we study both the level of Value-at-Risk (VaR) disclosure and the accuracy of the disclosed VaR figures for a sample of US and international commercial banks. To measure the level of VaR disclosures, we develop a VaR Disclosure Index that captures many different facets of market risk disclosure. Using panel data over the period 1996–2005, we find an overall upward trend in the quantity of information released to the public. We also find that Historical Simulation is by far the most popular VaR method. We assess the accuracy of VaR figures by studying the number of VaR exceedances and whether actual daily VaRs contain information about the volatility of subsequent trading revenues. Unlike the level of VaR disclosure, the quality of VaR disclosure shows no sign of improvement over time. We find that VaR computed using Historical Simulation contains very little information about future volatility.

A sociolinguistic approach to applied epistemology : examining technocratic values in global 'Knowledge' policy

This special issue presents an excellent opportunity to study applied epistemology in public policy. This is an important task because the arena of public policy is the social domain in which macro conditions for ‘knowledge work’ and ‘knowledge industries’ are defined and created. We argue that knowledge-related public policy has become overly concerned with creating the politico-economic parameters for the commodification of knowledge. Our policy scope is broader than that of Fuller (1988), who emphasizes the need for a social epistemology of science policy. We extend our focus to a range of policy documents that include communications, science, education and innovation policy (collectively called knowledge-related public policy in acknowledgement of the fact that there is no defined policy silo called ‘knowledge policy’), all of which are central to policy concerned with the ‘knowledge economy’ (Rooney and Mandeville, 1998). However, what we will show here is that, as Fuller (1995) argues, ‘knowledge societies’ are not industrial societies permeated by knowledge, but that knowledge societies are permeated by industrial values. Our analysis is informed by an autopoietic perspective. Methodologically, we approach it from a sociolinguistic position that acknowledges the centrality of language to human societies (Graham, 2000). Here, what we call ‘knowledge’ is posited as a social and cognitive relationship between persons operating on and within multiple social and non-social (or, crudely, ‘physical’) environments. Moreover, knowing, we argue, is a sociolinguistically constituted process. Further, we emphasize that the evaluative dimension of language is most salient for analysing contemporary policy discourses about the commercialization of epistemology (Graham, in press). Finally, we provide a discourse analysis of a sample of exemplary texts drawn from a 1.3 million-word corpus of knowledge-related public policy documents that we compiled from local, state, national and supranational legislatures throughout the industrialized world. Our analysis exemplifies a propensity in policy for resorting to technocratic, instrumentalist and anti-intellectual views of knowledge in policy. We argue that what underpins these patterns is a commodity-based conceptualization of knowledge, which is underpinned by an axiology of narrowly economic imperatives at odds with the very nature of knowledge. The commodity view of knowledge, therefore, is flawed in its ignorance of the social systemic properties of knowing’.

Urban maze : A typological investigation in porous morphology and dynamic pedestrian networks

Mixed use typologies and pedestrian networks are two strategies commonly applied in design of the contemporary city. These approaches, aimed towards the creation of a more sustainalble urban environment, have their roots in the traditional, pre-industrial towns; they characterize urban form, articulating the tension between privaate and public realms through a series of typological variations as well as stimulating commercial activity in the city centre. Arcades, loggias and verandas are just some of the elements which can mediate this tension. Historically they have defined physical and social spaces with particular character; in the contemporary city these features are applied to deform the urban form and create a porous, dynamic morphology. This paper, comparing case studies from Italy, Japan and Australia, investigates how the design of the transition zone can define hybrid pedestrian networks, where a clear distinction between the public and private realms is no longer applicable. Pedestrians use the city in a dynamic way, combining trajectories on the public street with ones on the fringe or inside of the private built environment. In some cases, cities offer different pedestrian network possibilities at different times, as the commercial precints are subject to variations in accessibility across various timeframes. These walkable systems have an impact on the urban form and identity of places, redefining typologies and requiring an in depth analysis through plan, section and elevation diagrams.

The Relative Efficiency of International, Domestic, and Budget Airlines : Nonparametric Evidence

This study determines whether the inclusion of low-cost airlines in a dataset of international and domestic airlines has an impact on the efficiency scores of so-called ‘prestigious’ purportedly ‘efficient’ airlines. This is because while many airline studies concern efficiency, none has truly included a combination of international, domestic and budget airlines. The present study employs the nonparametric technique of data envelopment analysis (DEA) to investigate the technical efficiency of 53 airlines in 2006. The findings reveal that the majority of budget airlines are efficient relative to their more prestigious counterparts. Moreover, most airlines identified as inefficient are so largely because of the overutilization of non-flight assets.

Productivity, Technical and Efficiency Change in Singapore’s Services Sector, 2005 to 2008

The current study was motivated by statements made by the Economic Strategies Committee that Singapore’s recent productivity levels in services were well below countries such as the US, Japan and Hong Kong. Massive employment of foreign workers was cited as the reason for poor productivity levels. To shed more light on Singapore’s falling productivity, a nonparametric Malmquist productivity index was employed which provides measures of productivity change, technical change and efficiency change. The findings reveal that growth in total factor productivity was attributed to technical change with no improvement in efficiency change. Such results suggest that gains from TFP were input-driven rather than from a ‘best-practice’ approach such as improvements in operations or better resource allocation.