Essays in macroeconometrics

The knowledge of the current state of the economy is crucial for policy makers, economists and analysts. However, a key economic variable, the gross domestic product (GDP), are typically colected on a quartely basis and released with substancial delays by the national statistical agencies. The first aim of this paper is to use a dynamic factor model to forecast the current russian GDP, using a set of timely monthly information. This approach can cope with the typical data flow problems of non-synchronous releases, mixed frequency and the curse of dimensionality. Given that Russian economy is largely dependent on the commodity market, our second motivation relates to study the effects of innovations in the russian macroeconomic fundamentals on commodity price predictability. We identify these innovations through a news index which summarizes deviations of offical data releases from the expectations generated by the DFM and perform a forecasting exercise comparing the performance of different models.

(Table 1) Boron concentration and d11B ratios of ODP Hole 130-803D

The pH of the surface ocean is a sensitive function of its alkalinity and total inorganic carbon concentration, properties which also control the partial pressure of atmospheric carbon dioxide (Broecker and Peng, 1982). Thus, an accurate proxy for past ocean pH could yield information about variations in atmospheric CO2. Recently, it has been suggested that the boron isotopic composition of foraminiferal tests depends on the pH of sea water as well as its isotopic composition (Vengosh et al., 1991, doi:10.1016/0016-7037(91)90139-V; Hemming and Hanson, 1992, doi:10.1016/0016-7037(92)90151-8). Here we present boron isotope and elemental data for sedimentary pore fluids and isotope data for bulk foraminiferal samples from a deep-sea sediment core. The composition of the pore waters implies that sea water boron concentrations and isotopic composition have been constant during the past 21 Myr, allowing us to reconstruct past ocean pH directly from the foraminiferal isotope data. We find that 21 Myr ago, surface ocean pH was only 7.4 ±0.2, but it then increased to 8.2 ±0.2 (roughly the present value) about 7.5 Myr ago. This is consistent with suggestions (Popp et al., 1989; Cerling, 1991; Arthur et al., 1991) that atmospheric CO2 concentrations may have been much higher 21 Myr ago than today.

Government privatization : history, examples and issues /

Tables include: 1) Risk distribution in various delivery systems; 2) Net present value examples; 3) Internal rate of return example ; 4) Illinois Tollway revenues and expenses ; 5) Prisoners held in private facilities.

Managing woodlands for income maximisation in western Queensland, Australia: clearing for grazing versus timber production

Queensland, Australia, has a proud pastoral history; however, the private and social benefits of continued woodland clearing for pasture development are unlikely to be as pronounced as they had been in the past. The environmental benefits of tree retention in and regions of the State are now better appreciated and market opportunities have arisen for the unique timbers of western Queensland. A financial model is developed to facilitate a comparison of the private profitability of small-scale timber production from remnant Acacia woodlands against clearing for pasture development in the Mulga Lands and Desert Uplands bioregions of western Queensland. Four small-scale timber production scenarios, which differ in target markets and the extent of processing (value-adding), are explored within the model. Each scenario is examined for the cases where property rights to the timber are vested with the timber processor, and where royalties are payable. For both cases of resource ownership, at least one scenario generates positive returns from timber production, and exceeds the net farm income per hectare for an average grazing property in the study regions over the period 1989-1990 to 2000-2001. The net present value per hectare of selectively harvesting and processing high-value clearwood from remnant western Queensland woodlands is found to be greater than clearing for grazing. (C) 2003 Elsevier B.V. All rights reserved.

A real options based method for power system planning

A deregulated electricity market is characterized with uncertainties, with both long and short terms. As one of the major long term planning issues, the transmission expansion planning (TEP) is aiming at implementing reliable and secure network support to the market participants. The TEP covers two major issues: technical assessment and financial evaluations. Traditionally, the net present value (NPV) method is the most accepted for financial evaluations, it is simple to conduct and easy to understand. Nevertheless, TEP in a deregulated market needs a more dynamic approach to incorporate a project's management flexibility, or the managerial ability to adapt in response to unpredictable market developments. The real options approach (ROA) is introduced here, which has clear advantage on counting the future course of actions that investors may take, with understandable results in monetary terms. In the case study, a Nordic test system has been testified and several scenarios are given for network expansion planning. Both the technical assessment and financial evaluation have been conducted in the case study.

On the solution of a class of capital investment problems

In this work the solution of a class of capital investment problems is considered within the framework of mathematical programming. Upon the basis of the net present value criterion, the problems in question are mainly characterized by the fact that the cost of capital is defined as a non-decreasing function of the investment requirements. Capital rationing and some cases of technological dependence are also included, this approach leading to zero-one non-linear programming problems, for which specifically designed solution procedures supported by a general branch and bound development are presented. In the context of both this development and the relevant mathematical properties of the previously mentioned zero-one programs, a generalized zero-one model is also discussed. Finally,a variant of the scheme, connected with the search sequencing of optimal solutions, is presented as an alternative in which reduced storage limitations are encountered.

Energy saving and solar electricity in fan-ventilated greenhouses

Greenhouse cultivation is an energy intensive process therefore it is worthwhile to introduce energy saving measures and alternative energy sources. Here we show that there is scope for energy saving in fan ventilated greenhouses. Measurements of electricity usage as a function of fan speed have been performed for two models of 1.25 m diameter greenhouse fans and compared to theoretical values. Reducing the speed can cut the energy usage per volume of air moved by more than 70%. To minimize the capital cost of low-speed operation, a cooled greenhouse has been built in which the fan speed responds to sunlight such that full speed is reached only around noon. The energy saving is about 40% compared to constant speed operation. Direct operation of fans from solar-photovoltaic modules is also viable as shown from experiments with a fan driven by a brushless DC motor. On comparing the Net Present Value costs of the different systems over a 10 year amortization period (with and without a carbon tax to represent environmental costs) we find that sunlight-controlled system saves money under all assumptions about taxation and discount rates. The solar-powered system, however, is only profitable for very low discount rates, due to the high initial capital costs. Nonetheless this system could be of interest for its reliability in developing countries where mains electricity is intermittent. We recommend that greenhouse fan manufacturers improve the availability of energy-saving designs such as those described here.

Accommodating energy price volatility in life cycle cost analysis of asphalt pavements

Energy price is related to more than half of the total life cycle cost of asphalt pavements. Furthermore, the fluctuation related to price of energy has been much higher than the general inflation and interest rate. This makes the energy price inflation an important variable that should be addressed when performing life cycle cost (LCC) studies re- garding asphalt pavements. The present value of future costs is highly sensitive to the selected discount rate. Therefore, the choice of the discount rate is the most critical element in LCC analysis during the life time of a project. The objective of the paper is to present a discount rate for asphalt pavement projects as a function of interest rate, general inflation and energy price inflation. The discount rate is defined based on the portion of the energy related costs during the life time of the pavement. Consequently, it can reflect the financial risks related to the energy price in asphalt pavement projects. It is suggested that a discount rate sensitivity analysis for asphalt pavements in Sweden should range between –20 and 30%.

A nettó jelenérték maximalizálása erőforrás-korlátos projektekben - egy új harmóniakereső metaheurisztika (A harmony search metaheuristic for the resourceconstrained project scheduling problem with discounted cash flows)

Ebben a tanulmányban a szerző egy új harmóniakereső metaheurisztikát mutat be, amely a minimális időtartamú erőforrás-korlátos ütemezések halmazán a projekt nettó jelenértékét maximalizálja. Az optimális ütemezés elméletileg két egész értékű (nulla-egy típusú) programozási feladat megoldását jelenti, ahol az első lépésben meghatározzuk a minimális időtartamú erőforrás-korlátos ütemezések időtartamát, majd a második lépésben az optimális időtartamot feltételként kezelve megoldjuk a nettó jelenérték maximalizálási problémát minimális időtartamú erőforrás-korlátos ütemezések halmazán. A probléma NP-hard jellege miatt az egzakt megoldás elfogadható idő alatt csak kisméretű projektek esetében képzelhető el. A bemutatandó metaheurisztika a Csébfalvi (2007) által a minimális időtartamú erőforrás-korlátos ütemezések időtartamának meghatározására és a tevékenységek ennek megfelelő ütemezésére kifejlesztett harmóniakereső metaheurisztika továbbfejlesztése, amely az erőforrás-felhasználási konfliktusokat elsőbbségi kapcsolatok beépítésével oldja fel. Az ajánlott metaheurisztika hatékonyságának és életképességének szemléltetésére számítási eredményeket adunk a jól ismert és népszerű PSPLIB tesztkönyvtár J30 részhalmazán futtatva. Az egzakt megoldás generálásához egy korszerű MILP-szoftvert (CPLEX) alkalmaztunk. _______________ This paper presents a harmony search metaheuristic for the resource-constrained project scheduling problem with discounted cash flows. In the proposed approach, a resource-constrained project is characterized by its „best” schedule, where best means a makespan minimal resource constrained schedule for which the net present value (NPV) measure is maximal. Theoretically the optimal schedule searching process is formulated as a twophase mixed integer linear programming (MILP) problem, which can be solved for small-scale projects in reasonable time. The applied metaheuristic is based on the "conflict repairing" version of the "Sounds of Silence" harmony search metaheuristic developed by Csébfalvi (2007) for the resource-constrained project scheduling problem (RCPSP). In order to illustrate the essence and viability of the proposed harmony search metaheuristic, we present computational results for a J30 subset from the well-known and popular PSPLIB. To generate the exact solutions a state-of-the-art MILP solver (CPLEX) was used.

A beruházási projektek aggregált tőkeigénye = The Aggregate Capital Needs of Investment Projects

A tanulmány abból indul ki, hogy a beruházási projektek értékelése során egyidejűleg szükséges figyelembe venni a projektben lekötött tőkét és a lekötési időt mint jövedelemtermelési lehetőséget. Definiálja a projekt aggregált tőkeigényének fogalmát és megszerkeszti a vonatkozó mérőszámot. Az aggregált tőkeigény új vállalatgazdasági kategória, mely a beruházási projektek értékelésének egy új megközelítését teszi lehetővé. A projekt aggregált tőkeigénye azt a tőkeösszeget jelenti, mely a projekt működtetéséhez annak teljes élettartama alatt szükséges. A három meghatározó tényező: a kezdőtőke, a megtérülési idő (illetőleg az élettartam) és a megtérülés gyorsasága. A számszerűsítéshez minden évre vonatkozóan meg kell határozni az adott évben lekötött tőkét, ami az adott évig még meg nem térült tőkerészt jelenti, majd ezek összegzése révén adódik az aggregált tőkeigény. A mértékegység egységnyi tőke egyévi lekötése. A tanulmány az összefüggések modellszerű levezetése mellett gazdag példaanyagot is tartalmaz. Az elemzés bővíti a nettó jelenérték tartalmára vonatkozó ismereteket, rávilágít az aggregált tőkeigény ismeretének fontosságára mind a nettó jelenérték, mind a belső kamatláb esetében. _____ The starting point of this paper is that in the evaluation process of investment projects necessary to take into account simultaneously the tied-up capital and tiedup time as the income-generating potential. For this, it defines a special content of aggregate capital needs of investment projects, and elaborates an index. The aggregate capital needs is a new business economics category, which provides a new aspect to evaluate investment projects. This means the amount of capital needed for the operation of the project during its full duration. Three factors determine the aggregate capital needs for investments projects. These are the amount of initial investment, the payback period (or the duration) and the rapidity of capital payback. The solution is to sum up the yearly tied-up capital, that is, the notreturned parts of the capital for each year. The measurement unit is one unit tied-up capital for one year. The paper formulates the main relationships as models and by way of explanation presents some examples. The analysis highlights the importance of considering the aggregate capital needs furthermore widens knowledge regarding the net present value and internal rate of return.

Essays on the impact of stakeholders' sentiment on the financial decision making process

The most important factor that affects the decision making process in finance is the risk which is usually measured by variance (total risk) or systematic risk (beta). Since investors’ sentiment (whether she is an optimist or pessimist) plays a very important role in the choice of beta measure, any decision made for the same asset within the same time horizon will be different for different individuals. In other words, there will neither be homogeneity of beliefs nor the rational expectation prevalent in the market due to behavioral traits. This dissertation consists of three essays. In the first essay, “ Investor Sentiment and Intrinsic Stock Prices”, a new technical trading strategy was developed using a firm specific individual sentiment measure. This behavioral based trading strategy forecasts a range within which a stock price moves in a particular period and can be used for stock trading. Results indicate that sample firms trade within a range and give signals as to when to buy or sell. In the second essay, “Managerial Sentiment and the Value of the Firm”, examined the effect of managerial sentiment on the project selection process using net present value criterion and also effect of managerial sentiment on the value of firm. Final analysis reported that high sentiment and low sentiment managers obtain different values for the same firm before and after the acceptance of a project. Changes in the cost of capital, weighted cost of average capital were found due to managerial sentiment. In the last essay, “Investor Sentiment and Optimal Portfolio Selection”, analyzed how the investor sentiment affects the nature and composition of the optimal portfolio as well as the portfolio performance. Results suggested that the choice of the investor sentiment completely changes the portfolio composition, i.e., the high sentiment investor will have a completely different choice of assets in the portfolio in comparison with the low sentiment investor. The results indicated the practical application of behavioral model based technical indicator for stock trading. Additional insights developed include the valuation of firms with a behavioral component and the importance of distinguishing portfolio performance based on sentiment factors.

A study of stock market fluctuations and their relation to business conditions

Most research on stock prices is based on the present value model or the more general consumption-based model. When applied to real economic data, both of them are found unable to account for both the stock price level and its volatility. Three essays here attempt to both build a more realistic model, and to check whether there is still room for bubbles in explaining fluctuations in stock prices. In the second chapter, several innovations are simultaneously incorporated into the traditional present value model in order to produce more accurate model-based fundamental prices. These innovations comprise replacing with broad dividends the more narrow traditional dividends that are more commonly used, a nonlinear artificial neural network (ANN) forecasting procedure for these broad dividends instead of the more common linear forecasting models for narrow traditional dividends, and a stochastic discount rate in place of the constant discount rate. Empirical results show that the model described above predicts fundamental prices better, compared with alternative models using linear forecasting process, narrow dividends, or a constant discount factor. Nonetheless, actual prices are still largely detached from fundamental prices. The bubblelike deviations are found to coincide with business cycles. The third chapter examines possible cointegration of stock prices with fundamentals and non-fundamentals. The output gap is introduced to form the nonfundamental part of stock prices. I use a trivariate Vector Autoregression (TVAR) model and a single equation model to run cointegration tests between these three variables. Neither of the cointegration tests shows strong evidence of explosive behavior in the DJIA and S&P 500 data. Then, I applied a sup augmented Dickey-Fuller test to check for the existence of periodically collapsing bubbles in stock prices. Such bubbles are found in S&P data during the late 1990s. Employing econometric tests from the third chapter, I continue in the fourth chapter to examine whether bubbles exist in stock prices of conventional economic sectors on the New York Stock Exchange. The ‘old economy’ as a whole is not found to have bubbles. But, periodically collapsing bubbles are found in Material and Telecommunication Services sectors, and the Real Estate industry group.

Essays on the Impact of Stakeholders' Sentiment on the Financial Decision Making Process

The most important factor that affects the decision making process in finance is the risk which is usually measured by variance (total risk) or systematic risk (beta). Since investors' sentiment (whether she is an optimist or pessimist) plays a very important role in the choice of beta measure, any decision made for the same asset within the same time horizon will be different for different individuals. In other words, there will neither be homogeneity of beliefs nor the rational expectation prevalent in the market due to behavioral traits. This dissertation consists of three essays. In the first essay, Investor Sentiment and Intrinsic Stock Prices, a new technical trading strategy is developed using a firm specific individual sentiment measure. This behavioral based trading strategy forecasts a range within which a stock price moves in a particular period and can be used for stock trading. Results show that sample firms trade within a range and show signals as to when to buy or sell. The second essay, Managerial Sentiment and the Value of the Firm, examines the effect of managerial sentiment on the project selection process using net present value criterion and also effect of managerial sentiment on the value of firm. Findings show that high sentiment and low sentiment managers obtain different values for the same firm before and after the acceptance of a project. The last essay, Investor Sentiment and Optimal Portfolio Selection, analyzes how the investor sentiment affects the nature and composition of the optimal portfolio as well as the performance measures. Results suggest that the choice of the investor sentiment completely changes the portfolio composition, i.e., the high sentiment investor will have a completely different choice of assets in the portfolio in comparison with the low sentiment investor. The results indicate the practical application of behavioral model based technical indicators for stock trading. Additional insights developed include the valuation of firms with a behavioral component and the importance of distinguishing portfolio performance based on sentiment factors.

The Foodservice Industry's Social Responsibility Regarding the Obesity Epidemic, Part II: Incorporating Strategic Corporate Social Responsibility into Foodservice Operations

Just as all types of business firms are now expected to go beyond their profit-oriented activities in boosting the well-being of the community, so, too, is corporate social responsibility (CSR) expected from foodservice firms. The significance of the obesity epidemic, combined with the foodservice industry's role in the development of this epidemic, suggests that the industry has an ethical responsibility to implement CSR activities that will help reduce obesity, particularly among children. CSR should be seen as an efficient management strategy through which a firm voluntarily integrates social and environmental concerns into its business operations and its interactions with stakeholders. Although costs are associated with CSR initiatives, benefits accrue to the firm. Decisions regarding alternative CSR activities should be based on a cost-benefit analysis and calculation of the present value of the revenue stream that can be identified as resulting from the specific CSR activities. CSR initiatives should be viewed as long-term investments that will enhance the firms’ value. Key areas for foodservice firms' CSR activities include marketing practices, particularly practices impacting advertising to children and marketing that will enhance the firms’ visibility; portion-size modification; new-product development; and consistent nutrition labeling on menus.

A Study of Stock Market Fluctuations and their Relations to Business Conditions

Most research on stock prices is based on the present value model or the more general consumption-based model. When applied to real economic data, both of them are found unable to account for both the stock price level and its volatility. Three essays here attempt to both build a more realistic model, and to check whether there is still room for bubbles in explaining fluctuations in stock prices. In the second chapter, several innovations are simultaneously incorporated into the traditional present value model in order to produce more accurate model-based fundamental prices. These innovations comprise replacing with broad dividends the more narrow traditional dividends that are more commonly used, a nonlinear artificial neural network (ANN) forecasting procedure for these broad dividends instead of the more common linear forecasting models for narrow traditional dividends, and a stochastic discount rate in place of the constant discount rate. Empirical results show that the model described above predicts fundamental prices better, compared with alternative models using linear forecasting process, narrow dividends, or a constant discount factor. Nonetheless, actual prices are still largely detached from fundamental prices. The bubble-like deviations are found to coincide with business cycles. The third chapter examines possible cointegration of stock prices with fundamentals and non-fundamentals. The output gap is introduced to form the non-fundamental part of stock prices. I use a trivariate Vector Autoregression (TVAR) model and a single equation model to run cointegration tests between these three variables. Neither of the cointegration tests shows strong evidence of explosive behavior in the DJIA and S&P 500 data. Then, I applied a sup augmented Dickey-Fuller test to check for the existence of periodically collapsing bubbles in stock prices. Such bubbles are found in S&P data during the late 1990s. Employing econometric tests from the third chapter, I continue in the fourth chapter to examine whether bubbles exist in stock prices of conventional economic sectors on the New York Stock Exchange. The ‘old economy’ as a whole is not found to have bubbles. But, periodically collapsing bubbles are found in Material and Telecommunication Services sectors, and the Real Estate industry group.