Speculative bubbles and the cross-sectional variation in stock returns

Evidence suggests that rational, periodically collapsing speculative bubbles may be pervasive in stock markets globally, but there is no research that considers them at the individual stock level. In this study we develop and test an empirical asset pricing model that allows for speculative bubbles to affect stock returns. We show that stocks incorporating larger bubbles yield higher returns. The bubble deviation, at the stock level as opposed to the industry or market level, is a priced source of risk that is separate from the standard market risk, size and value factors. We demonstrate that much of the common variation in stock returns that can be attributable to market risk is due to the co-movement of bubbles rather than being driven by fundamentals.

Liquidity effects and FFA returns in the international shipping derivatives market

The study examines the impact of liquidity risk on freight derivatives returns. The Amihud liquidity ratio and bid–ask spreads are utilized to assess the existence of liquidity risk in the freight derivatives market. Other macroeconomic variables are used to control for market risk. Results indicate that liquidity risk is priced and both liquidity measures have a significant role in determining freight derivatives returns. Consistent with expectations, both liquidity measures are found to have positive and significant effects on the returns of freight derivatives. The results have important implications for modeling freight derivatives, and consequently, for trading and risk management purposes.

Climatic impacts of land-use change due to crop yield increases and a universal carbon tax from a scenario model*

Future land cover will have a significant impact on climate and is strongly influenced by the extent of agricultural land use. Differing assumptions of crop yield increase and carbon pricing mitigation strategies affect projected expansion of agricultural land in future scenarios. In the representative concentration pathway 4.5 (RCP4.5) from phase 5 of the Coupled Model Intercomparison Project (CMIP5), the carbon effects of these land cover changes are included, although the biogeophysical effects are not. The afforestation in RCP4.5 has important biogeophysical impacts on climate, in addition to the land carbon changes, which are directly related to the assumption of crop yield increase and the universal carbon tax. To investigate the biogeophysical climatic impact of combinations of agricultural crop yield increases and carbon pricing mitigation, five scenarios of land-use change based on RCP4.5 are used as inputs to an earth system model [Hadley Centre Global Environment Model, version 2-Earth System (HadGEM2-ES)]. In the scenario with the greatest increase in agricultural land (as a result of no increase in crop yield and no climate mitigation) there is a significant -0.49 K worldwide cooling by 2100 compared to a control scenario with no land-use change. Regional cooling is up to -2.2 K annually in northeastern Asia. Including carbon feedbacks from the land-use change gives a small global cooling of -0.067 K. This work shows that there are significant impacts from biogeophysical land-use changes caused by assumptions of crop yield and carbon mitigation, which mean that land carbon is not the whole story. It also elucidates the potential conflict between cooling from biogeophysical climate effects of land-use change and wider environmental aims.

Influence of individual ethical orientation on tax compliance: evidence among Ghanaian taxpayers

Even though Africa has constantly emphasized the need to reduce deficit financing through mobilization of more internal revenues, this has not been achieved. Perhaps encouraging voluntary tax compliance can improve internal revenue mobilization. This study explores the relationship between ethical orientation and tax compliance and finds that ethical persons are generally more tax compliant than unethical persons but are more influenced by considerations of tax rate and withholding positions compared to unethical persons. The findings of this study differ from Reckers et al. in a number of ways and contribute to the literature by providing a possible explanation of the cause(s) of tax non- compliance.

Collusion in a Bertrand duopoly model with decreasing returns and product differentiation

We study cartel stability in a differentiated price-setting duopoly with returns to scale. We show that a cartel may be equally stable in the presence of lower differentiation, provided that the decreasing returns parameter is high. In addition we demonstrate that for a given factor of discount, there are technologies that can have decreasing returns to scale where the cartel always is stable independent of the differentiation degree.

The Golden Age returns: Virgil's fourth Eclogue in the political panegyric of the Italian courts

E. H. Gombrich and others have analysed the uses made of language and imagery from Virgil's famous fourth Eclogue in panegyrical writing by partisans of the Medici dynasty in Florence. This study examines the appropriation of the theme of the returning Golden Age and related motifs from the fourth Eclogue in other Italian courts during the same period, by supporters of the Visconti and Sforza of Milan, the Gonzaga of Mantua, Leonello d'Este and his successors in Ferrara, and the Bentivoglio of Bologna, among others. The deployment of this Virgilian material in political panegyric is seen to be a central element in the self-definition and self-promotion of dynastic rulers throughout the peninsula.

Simulating the impact on health of internalising the cost of carbon in food prices combined with a tax on sugar-sweetened beverages

Rising greenhouse gas emissions (GHGEs) have implications for health and up to 30 % of emissions globally are thought to arise from agriculture. Synergies exist between diets low in GHGEs and health however some foods have the opposite relationship, such as sugar production being a relatively low source of GHGEs. In order to address this and to further characterise a healthy sustainable diet, we model the effect on UK non-communicable disease mortality and GHGEs of internalising the social cost of carbon into the price of food alongside a 20 % tax on sugar sweetened beverages (SSBs). Developing previously published work, we simulate four tax scenarios: (A) a GHGEs tax of £2.86/tonne of CO2 equivalents (tCO2e)/100 g product on all products with emissions greater than the mean across all food groups (0.36 kgCO2e/100 g); (B) scenario A but with subsidies on foods with emissions lower than 0.36 kgCO2e/100 g such that the effect is revenue neutral; (C) scenario A but with a 20 % sales tax on SSBs; (D) scenario B but with a 20 % sales tax on SSBs. An almost ideal demand system is used to estimate price elasticities and a comparative risk assessment model is used to estimate changes to non-communicable disease mortality. We estimate that scenario A would lead to 300 deaths delayed or averted, 18,900 ktCO2e fewer GHGEs, and £3.0 billion tax revenue; scenario B, 90 deaths delayed or averted and 17,100 ktCO2e fewer GHGEs; scenario C, 1,200 deaths delayed or averted, 18,500 ktCO2e fewer GHGEs, and £3.4 billion revenue; and scenario D, 2,000 deaths delayed or averted and 16,500 ktCO2e fewer GHGEs. Deaths averted are mainly due to increased fibre and reduced fat consumption; a SSB tax reduces SSB and sugar consumption. Incorporating the social cost of carbon into the price of food has the potential to improve health, reduce GHGEs, and raise revenue. The simple addition of a tax on SSBs can mitigate negative health consequences arising from sugar being low in GHGEs. Further conflicts remain, including increased consumption of unhealthy foods such as cakes and nutrients such as salt.

Commodity risks and the cross-section of equity returns

The article examines whether commodity risk is priced in the cross-section of global equity returns. We employ a long-only equally-weighted portfolio of commodity futures and a term structure portfolio that captures phases of backwardation and contango as mimicking portfolios for commodity risk. We find that equity-sorted portfolios with greater sensitivities to the excess returns of the backwardation and contango portfolio command higher average excess returns, suggesting that when measured appropriately, commodity risk is pervasive in stocks. Our conclusions are robust to the addition to the pricing model of financial, macroeconomic and business cycle-based risk factors.

February 2009: Tax Time

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Education, preferences for leisure, and the optimal income tax schedule

Recent advances in dynamic Mirrlees economies have incorporated the treatment of human capital investments as an important dimension of government policy. This paper adds to this literature by considering a two period economy where agents are di erentiated by their preferences for leisure and their productivity, both private information. The fact that productivity is only learnt later in an agent's life introduces uncertainty to agent's savings and human capital choices and makes optimal the use of multi-period tie-ins in the mechanism that characterizes the government policy. We show that optimal policies are often interim ine cient and that the introduction of these ine ciencies may take the form of marginal tax rates on labor income of varying sign and educational policies that include the discouragement of human capital acquisition. With regards to implementation, state-dependent linear taxes implement optimal savings, while human capital policies may require labor income taxes that depend directly on agents' schooling.

Yet another reason to tax goods

The optimal taxation of goods, labor and capital income is considered in a two period model where: i) private information changes through time; ii) savings are not observed, and; iii) savings a§ect preferences conditional on the realization of types. The simultaneous appearance of these three elements cause optimal commodity taxes to depend on o§-equilibrium savings. As a consequence, separability no longer su¢ ces for the uniform taxation prescription of Atkinson and Stiglitz (AS) to obtain. If preferences are homothetic AS is partially restored: taxes are uniform within periods, however, future consumption is taxed at a higher rate than current consumption.

Growth, increasing returns, and public infrastructure : time series evidence

Initial endogenous growth models emphasized the importance of external effects and increasing retums in explaining growth. Empirically, this hypothesis can be confumed if the coefficient of physical capital per hour is unity in the aggregate production function. Previous estimates using time series data rejected this hypothesis, although cross-country estimates did nol The problem lies with the techniques employed, which are unable to capture low-frequency movements of high-frequency data. Using cointegration, new time series evidence confum the theory and conform to cross-country evidence. The implied Solow residual, which takes into account externaI effects to aggregate capital, has its behavior analyzed. The hypothesis that it is explained by government expenditures on infrasttucture is confIrmed. This suggests a supply-side role for government affecting productivity.

Essays on competition and returns of inside money

In an early paper, Cavalcanti and Wallace (2001) showed, using a computable version of Cavalcanti-Wallace model (CW-1999), that optimal regulation induces banks to pay interests, instead of contracting the money supply in an inside money allocation. Here, we generalize CW in two fashions, assuming inside money allocations, so that banks are supposed to issue money as they find a potential producer wishing to produce. The first generalization allows for seasonality due to real shocks on preferences with persistence and for monetary policy improvement. We found an asymmetric path for interest rates when constraints matter, even when shocks are independent. The second generalization allows for bank competition, in the sense that banks can choose between two different banking nets. We proof the existence of simple stable and unstable equilibria and also verify the existence of multiple equilibria.