Measuring time-varying economic fears with consumption-based stochastic discount factors

This paper analyzes empirically the volatility of consumption-based stochastic discount factors as a measure of implicit economic fears by studying its relationship with future economic and stock market cycles. Time-varying economic fears seem to be well captured by the volatility of stochastic discount factors. In particular, the volatility of recursive utility-based stochastic discount factor with contemporaneous growth explains between 9 and 34 percent of future changes in industrial production at short and long horizons respectively. They also explain ex-ante uncertainty and risk aversion. However, future stock market cycles are better explained by a similar stochastic discount factor with long-run consumption growth. This specification of the stochastic discount factor presents higher volatility and lower pricing errors than the specification with contemporaneous consumption growth.

Portfolio delegation under short-selling constraints

In this paper we study delegated portfolio management when themanager's ability to short-sell is restricted. Contrary to previousresults, we show that under moral hazard, linear performance-adjustedcontracts do provide portfolio managers with incentives to gatherinformation. The risk-averse manager's optimal effort is an increasingfunction of her share in the portfolio's return. This result affectsthe risk-averse investor's optimal contract decision. The first best,purely risk-sharing contract is proved to be suboptimal. Usingnumerical methods we show that the manager's share in the portfolioreturn is higher than the rst best share. Additionally, this deviationis shown to be: (i) increasing in the manager's risk aversion and (ii)larger for tighter short-selling restrictions. When the constraint isrelaxed the optimal contract converges towards the first best risksharing contract.

Measuring strategic uncertainty in coordination games

This paper explores three aspects of strategic uncertainty: its relation to risk, predictability of behavior and subjective beliefs of players. In a laboratory experiment we measure subjects certainty equivalents for three coordination games and one lottery. Behavior in coordination games is related to risk aversion, experience seeking, and age.From the distribution of certainty equivalents we estimate probabilities for successful coordination in a wide range of games. For many games, success of coordination is predictable with a reasonable error rate. The best response to observed behavior is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Estimating probabilistic decision models, we show that the quality of predictions can be improved when individual characteristics are taken into account. Subjects behavior is consistent with probabilistic beliefs about the aggregate outcome, but inconsistent with probabilistic beliefs about individual behavior.

Short-term investment and equilibrium multiplicity

I study the effects of the heterogeneity of traders'horizon in the context of a 2-period NREE model whereall traders are risk averse. Owing to inventory effects,myopic trading behavior generates multiplicity ofequilibria. In particular, two distinct patterns arise.Along the first equilibrium, short term tradersanticipate higher second period price reaction toinformation arrival and, owing to risk aversion,scale back their trading intensity. This, in turn,reduces both risk sharing and information impoundinginto prices enforcing a high returns' volatility-lowprice informativeness equilibrium. In the second one,the opposite happens and a low volatility-high priceinformativeness equilibrium arises.

To use it or not to use it: differences between adolescent males carrying a weapon and those using it in a fight

Purpose Data indicate that 19% of male adolescents living in Switzerland carried a weapon in the last 12 months. The main objective of this research is to compare the characteristics of male adolescents carrying a weapon and having used it in a fight from those who have carried but not used it in the previous 12 months. Methods Data were drawn from the 2002 Swiss Multicenter Adolescent Survey on Health (SMASH02) data base, a survey including 7,548[3,710 males] in-school adolescents aged 16-20 years in Switzerland. Only males declaring having carried a weapon (N = 711; 19.2% of the sample) were included in the analysis. Three groups were created: those not having used a weapon (WO; N = 538 subjects), those having used a weapon in a fight once or twice (W12; N = 127), and those having used a weapon in a fight 3 or more times (W3+; N = 46). Multinomial logistic regression was performed to compare the 3 groups on individual, family, school, and social factors using WO as the reference category. Analyses were performed with STATA9. Results are presented as relative risk ratios (RRR). Results W12 males were significantly more likely to perceive their puberty as advanced compared to their peers (RRR: 2.1), to be foreign born (RRR: 2.6), to live in an urban environment (RRR: 1.9), to be in vocational school (RRR: 4.7), to have a poor school connectedness (RRR: 1.8), to skip classes (RRR: 2.1) and to quarrel while intoxicated (RRR: 5.3). W3+ males were significantly more likely to be foreign born (RRR: 3.6) and to live in an urban environment (RRR: 2.4), to be current users of illegal drugs other than cannabis (RRR: 3.8) and to quarrel while intoxicated (RRR: 4.1). No differences were found between groups for tobacco, alcohol, or cannabis use. Conclusions Within a national sample of Swiss youth aged 16-20 years, almost one fifth of male adolescents have carried a weapon in the previous 12 months. Nevertheless, most of them (75.7%) have never used a weapon in a fight. Whether they carry a weapon for defense purposes or as a manly behavior remains to be elucidated. However, urban foreign-born adolescents who quarrel while intoxicated are the most at risk of using a weapon in a fight, and therefore culturally-sensitive prevention approaches need to be developed to decrease violence in this specific population of youth. Having school problems or using illegal drugs other than cannabis seem to differentiate between those who use it in a fight occasionally (once or twice) and those who do it more often.

The gain-loss asymmetry and single-self preferences

Kahneman and Tversky asserted a fundamental asymmetry between gains and losses, namely a reflection effect which occurs when an individual prefers a sure gain of $ pz to anuncertain gain of $ z with probability p, while preferring an uncertain loss of $z with probability p to a certain loss of $ pz.We focus on this class of choices (actuarially fair), and explore the extent to which thereflection effect, understood as occurring at a range of wealth levels, is compatible with single-self preferences.We decompose the reflection effect into two components, a probability switch effect,which is compatible with single-self preferences, and a translation effect, which is not. To argue the first point, we analyze two classes of single-self, nonexpected utility preferences, which we label homothetic and weakly homothetic. In both cases, we characterize the switch effect as well as the dependence of risk attitudes on wealth.We also discuss two types of utility functions of a form reminiscent of expected utility but with distorted probabilities. Type I always distorts the probability of the worst outcome downwards, yielding attraction to small risks for all probabilities. Type II distorts low probabilities upwards, and high probabilities downwards, implying risk aversion when the probability of the worst outcome is low. By combining homothetic or weak homothetic preferences with Type I or Type II distortion functions, we present four explicit examples: All four display a switch effect and, hence, a form of reflection effect consistent a single self preferences.

Increasing prevalence of gastroschisis in Europe 1980-2002: a phenomenon restricted to younger mothers?

Gastroschisis is an abdominal wall defect more prevalent in offspring of young mothers. It is known to be increasing in prevalence despite the general decrease in the proportion of births to young European women. We investigated whether the increase in prevalence was restricted to the high-risk younger mothers. We analysed 936 cases of gastroschisis from 25 population-based registries in 15 European countries, 1980-2002. We fitted a Bayesian Hierarchical Model which allowed us to estimate trend, to estimate which registries were significantly different from the common distribution, and to adjust simultaneously for maternal age, time (in grouped years) and the random variation between registries. The maternal age-standardised prevalence (standardised to the year 2000 European maternal age structure) increased almost fourfold from 0.54 [95% Credible Interval (CrI) 0.37, 0.75] per 10,000 births in 1980-84 to 2.12 [95% CrI 1.85, 2.40] per 10,000 births in 2000-02. The relative risk of gastroschisis for mothers <20 years of age in 1995-2002 was 7.0 [95% CrI 5.6, 8.7]. There were geographical differences within Europe, with higher rates of gastroschisis in the UK, and lower rates in Italy after adjusting for maternal age. After standardising for regional variation, our results showed that the increase in risk over time was the same for mothers of all ages--the increase for mothers <20 years was 3.96-fold compared with an increase of 3.95-fold for mothers in the other age groups. These findings indicate that the phenomenon of increasing gastroschisis prevalence is not restricted to younger mothers only.

Estimating uncertainty of alcohol-attributable fractions for infectious and chronic diseases.

Background: Alcohol is a major risk factor for burden of disease and injuries globally. This paper presents a systematic method to compute the 95% confidence intervals of alcohol-attributable fractions (AAFs) with exposure and risk relations stemming from different sources.Methods: The computation was based on previous work done on modelling drinking prevalence using the gamma distribution and the inherent properties of this distribution. The Monte Carlo approach was applied to derive the variance for each AAF by generating random sets of all the parameters. A large number of random samples were thus created for each AAF to estimate variances. The derivation of the distributions of the different parameters is presented as well as sensitivity analyses which give an estimation of the number of samples required to determine the variance with predetermined precision, and to determine which parameter had the most impact on the variance of the AAFs.Results: The analysis of the five Asian regions showed that 150 000 samples gave a sufficiently accurate estimation of the 95% confidence intervals for each disease. The relative risk functions accounted for most of the variance in the majority of cases.Conclusions: Within reasonable computation time, the method yielded very accurate values for variances of AAFs.

KIT mutations and dose selection for imatinib in patients with advanced gastrointestinal stromal tumours.

A recent randomized EORTC phase III trial, comparing two doses of imatinib in patients with advanced gastrointestinal stromal tumours (GISTs), reported dose dependency for progression-free survival. The current analysis of that study aimed to assess if tumour mutational status correlates with clinical response to imatinib. Pre-treatment samples of GISTs from 377 patients enrolled in phase III study were analyzed for mutations of KIT or PDGFRA by combination of D-HPLC and direct sequencing of tumour genomic DNA. Mutation types were correlated with patients' survival data. The presence of exon 9-activating mutations in KIT was the strongest adverse prognostic factor for response to imatinib, increasing the relative risk of progression by 171% (P&lt;0.0001) and the relative risk of death by 190% (P&lt;0.0001) when compared with KIT exon 11 mutants. Similarly, the relative risk of progression was increased by 108% (P&lt;0.0001) and the relative risk of death by 76% (P=0.028) in patients without detectable KIT or PDGFRA mutations. In patients whose tumours expressed an exon 9 KIT oncoprotein, treatment with the high-dose regimen resulted in a significantly superior progression-free survival (P=0.0013), with a reduction of the relative risk of 61%. We conclude that tumour genotype is of major prognostic significance for progression-free survival and overall survival in patients treated with imatinib for advanced GISTs. Our findings suggest the need for differential treatment of patients with GISTs, with KIT exon 9 mutant patients benefiting the most from the 800 mg daily dose of the drug.

Why do emerging economies borrow short term?

We argue that one reason why emerging economies borrow short term is that it is cheaperthan borrowing long term. This is especially the case during crises, as in these episodes therelative cost of long-term borrowing increases. We construct a unique database of sovereignbond prices, returns, and issuances at di¤erent maturities for 11 emerging economies from 1990to 2009 and present a set of new stylized facts. On average, these countries pay a higher riskpremium on long-term than on short-term bonds. During crises, the di¤erence between the tworisk premia increases and issuance shifts towards shorter maturities. To illustrate our argument,we present a simple model in which the maturity structure is the outcome of a risk sharingproblem between an emerging economy subject to rollover crises and risk averse internationalinvestors.

When in peril, retrench: Testing the portfolio channel of contagion

One plausible mechanism through which financial market shocks may propagate across countriesis through the impact that past gains and losses may have on investors risk aversion and behavior. This paper presents a stylized model illustrating how heterogeneous changes in investors risk aversion affect portfolio allocation decisions and stock prices. Our empirical findings suggest that when funds returns are below average, they adjust their holdings toward the average (or benchmark) portfolio. In so doing, funds tend to sell the assets of countries in which they were overweight , increasing their exposure to countries in which they were underweight. Based on this insight, the paper constructs an index of financial interdependence which reflects the extent to which countries share overexposed funds. The index helps in explain the pattern of stock market comovement across countries. Moreover, a comparison of this interdependence measure to indices of trade or commercial bank linkages indicates that our index can improve predictions about which countries are more likely to be affected by contagion from crisis centers.

Prevention of preterm delivery with vaginal progesterone in women with preterm labour (4P): randomised double-blind placebo-controlled trial.

OBJECTIVE: To evaluate the effectiveness of 200 mg of daily vaginal natural progesterone to prevent preterm birth in women with preterm labour. DESIGN: Multicentre, randomised, double-blind, placebo-controlled trial. SETTING: Twenty-nine centres in Switzerland and Argentina. POPULATION: A total of 385 women with preterm labour (24(0/7) to 33(6/7)  weeks of gestation) treated with acute tocolysis. METHODS: Participants were randomly allocated to either 200 mg daily of self-administered vaginal progesterone or placebo within 48 hours of starting acute tocolysis. MAIN OUTCOME MEASURES: Primary outcome was delivery before 37 weeks of gestation. Secondary outcomes were delivery before 32 and 34 weeks, adverse effects, duration of tocolysis, re-admissions for preterm labour, length of hospital stay, and neonatal morbidity and mortality. The study was ended prematurely based on results of the intermediate analysis. RESULTS: Preterm birth occurred in 42.5% of women in the progesterone group versus 35.5% in the placebo group (relative risk [RR] 1.2; 95% confidence interval [95% CI] 0.93-1.5). Delivery at <32 and <34 weeks did not differ between the two groups (12.9 versus 9.7%; [RR 1.3; 95% CI 0.7-2.5] and 19.7 versus 12.9% [RR 1.5; 95% CI 0.9-2.4], respectively). The duration of tocolysis, hospitalisation, and recurrence of preterm labour were comparable between groups. Neonatal morbidity occurred in 44 (22.8%) cases on progesterone versus 35 (18.8%) cases on placebo (RR: 1.2; 95% CI 0.82-1.8), whereas there were 4 (2%) neonatal deaths in each study group. CONCLUSION: There is no evidence that the daily administration of 200 mg vaginal progesterone decreases preterm birth or improves neonatal outcome in women with preterm labour.

Reflections on gains and losses: A 2x2x7 experiment

We test whether risk attitudes change when losses instead of gains areinvolved. The study of gain-loss asymmetries has been largely confinedto reflected choices, where all the money amounts of a positiveprospect are multiplied by minus one. We define the decomposition reflection = translation + probability switch, and experimentally findboth a translation effect (risk attraction becomes more frequent whengains are translated into losses) and a probability switch effect (riskattraction becomes more frequent when the probability of the best outcomedecreases). Surprisingly, the switch effect is somewhat stronger than thetranslation effect, negating a conventional reflection effect when onestarts with choices between gains with a low probability of the bestoutcome. We conclude by arguing that, while both the translation effectand the switch effect contradict the expected utility hypothesis, thetranslation effect implies a deeper violation of standard preference theory.

Unemployment insurance with endogenous search intensity and precautionary saving

A welfare analysis of unemployment insurance (UI) is performed in a generalequilibrium job search model. Finitely-lived, risk-averse workers smooth consumption over time by accumulating assets, choose search effort whenunemployed, and suffer disutility from work. Firms hire workers, purchasecapital, and pay taxes to finance worker benefits; their equity is the assetaccumulated by workers. A matching function relates unemployment, hiringexpenditure, and search effort to the formation of jobs. The model is calibrated to US data; the parameters relating job search effort to the probability of job finding are chosen to match microeconomic studies ofunemployment spells. Under logarithmic utility, numerical simulation shows rather small welfaregains from UI. Even without UI, workers smooth consumption effectivelythrough asset accumulation. Greater risk aversion leads to substantiallylarger welfare gains from UI; however, even in this case much of its welfareimpact is due not to consumption smoothing effects, but rather to decreased work disutility, or to a variety of externalities.

Canakinumab for the treatment of acute flares in difficult-to-treat gouty arthritis: Results of a multicenter, phase II, dose-ranging study.

OBJECTIVE: To assess the efficacy and tolerability of canakinumab, a fully human anti-interleukin-1β monoclonal antibody, for the treatment of acute gouty arthritis. METHODS: In this 8-week, single-blind, double-dummy, dose-ranging study, patients with acute gouty arthritis whose disease was refractory to or who had contraindications to nonsteroidal antiinflammatory drugs and/or colchicine were randomized to receive a single subcutaneous dose of canakinumab (10, 25, 50, 90, or 150 mg; n = 143) or an intramuscular dose of triamcinolone acetonide (40 mg; n = 57). Patients assessed pain using a 100-mm visual analog scale. RESULTS: Seventy-two hours after treatment, a statistically significant dose response was observed for canakinumab. All canakinumab doses were associated with numerically less pain than triamcinolone acetonide; thus, a dose with equivalent efficacy to triamcinolone acetonide 72 hours after treatment could not be determined. The reduction from baseline in pain intensity with canakinumab 150 mg was greater than with triamcinolone acetonide 24, 48, and 72 hours after treatment (differences of -11.5 mm [P = 0.04], -18.2 mm [P = 0.002], and -19.2 mm [P < 0.001], respectively), and 4, 5, and 7 days after treatment (all P < 0.05). Canakinumab significantly reduced the risk of recurrent flares versus triamcinolone acetonide (P ≤ 0.01 for all doses) (relative risk reduction 94% for canakinumab 150 mg versus triamcinolone acetonide). The overall incidence of adverse events was similar for canakinumab (41%) and triamcinolone acetonide (42%); most were mild or moderate in severity. CONCLUSION: Our findings indicate that canakinumab 150 mg provides rapid and sustained pain relief in patients with acute gouty arthritis, and significantly reduces the risk of recurrent flares compared with triamcinolone acetonide.