Empirical Analysis of Credit Risk Regime Switching and Temporal Conditional Default Correlation in Credit Default Swap Valuation: The Market liquidity effect

In this paper, we extend the debate concerning Credit Default Swap valuation to include time varying correlation and co-variances. Traditional multi-variate techniques treat the correlations between covariates as constant over time; however, this view is not supported by the data. Secondly, since financial data does not follow a normal distribution because of its heavy tails, modeling the data using a Generalized Linear model (GLM) incorporating copulas emerge as a more robust technique over traditional approaches. This paper also includes an empirical analysis of the regime switching dynamics of credit risk in the presence of liquidity by following the general practice of assuming that credit and market risk follow a Markov process. The study was based on Credit Default Swap data obtained from Bloomberg that spanned the period January 1st 2004 to August 08th 2006. The empirical examination of the regime switching tendencies provided quantitative support to the anecdotal view that liquidity decreases as credit quality deteriorates. The analysis also examined the joint probability distribution of the credit risk determinants across credit quality through the use of a copula function which disaggregates the behavior embedded in the marginal gamma distributions, so as to isolate the level of dependence which is captured in the copula function. The results suggest that the time varying joint correlation matrix performed far superior as compared to the constant correlation matrix; the centerpiece of linear regression models.

Mixed Public-Private Enterprises in Europe: Economic Theory and an Empirical Analysis of Italian Water Utilities. Bruges European Economic Research (BEER) Papers 4/July 2006

Mixed enterprises, which are entities jointly owned by the public and private sector, are spreading all over Europe in local utilities. Well aware that in the vast majority of cases the preference of local authorities towards such governance structure is determined by practical reasons rather than by the ambition to implement new regulatory designs (an alternative to the typical “external” regulation), our purpose is to confer some scientific value to this phenomenon which has not been sufficiently investigated in the economic literature. This paper aims at proposing an economic analysis of mixed enterprises, especially of the specific configuration in which the public partner acts as controller and the private one (or “industrial” partner) as service provider. We suggest that the public service concession to mixed enterprises could embody, under certain conditions, a noteworthy substitute to the traditional public provision and the concession to totally private enterprises, as it can push regulated operators to outperform and limit the risk of private opportunism. The starting point of the entire analysis is that ownership allows the (public) owner to gather more information about the actual management of the firm, according to property rights theory. Following this stream of research, we conclude that under certain conditions mixed enterprises could significantly reduce asymmetric information between regulators and regulated firms by implementing a sort of “internal” regulation. With more information, in effect, the public authority (as owner/controller of the regulated firm, but also as member of the regulatory agency) can stimulate the private operator to be more efficient and can monitor it more effectively with respect to the fulfilment of contractual obligations (i.e., public service obligations, quality standards, etc.). Moreover, concerning the latter function, the board of directors of the mixed enterprise can be the suitable place where public and private representatives (respectively, welfare and profit maximisers) can meet to solve all disputes arising from incomplete contracts, without recourse to third parties. Finally, taking into account that a disproportionate public intervention in the “private” administration (or an ineffective protection of the general interest) would imply too many drawbacks, we draw some policy implications that make an equitable debate on the board of the firm feasible. Some empirical evidence is taken from the Italian water sector.

Essays on firm behavior and firm performance

This dissertation comprises three individual chapters in an effort to examine different explanatory variables that affect firm performance. Chapter Two proposes an additional determinant of firm survival. Based on a detailed examination of firm survival in the British automobile industry between 1895 and 1970, we conclude that a firm's selection of submarket (defined by quality level) influenced survival. In contrast to findings for the US automobile industry, there is no evidence of first-mover advantage in the market as a whole. However, we do find evidence of first-mover advantage after conditioning on submarket choice. Chapter Three examines the effects of product line expansion on firm performance in terms of survival time. Based on a detailed examination of firm survival time in the British automobile industry between 1895 and 1970, we find that diversification exerts a positive effect on firm survival. Furthermore, our findings support the literature with respect to the impacts of submarket types, pre-entry experience, and timing of entry on firm survival time. Chapter Four examines corporate diversification in U.S. manufacturing and service firms. We develop measures of how related a firm's diverse activities are using input-output data and the NAILS classification to construct indexes of "vertical relatedness" and "complementarity". Strong relationships between these two measures are found. We utilize profitability and excess value as the measure for firm performance. Econometric analysis reveals that there is no relationship between the degree of relatedness of diversification and firm performance for the study period.

Sales tax enforcement: An empirical analysis of compliance enforcement methodologies and pathologies

Most research on tax evasion has focused on the income tax. Sales tax evasion has been largely ignored and dismissed as immaterial. This paper explored the differences between income tax and sales tax evasion and demonstrated that sales tax enforcement is deserving of and requires the use of different tools to achieve compliance. Specifically, the major enforcement problem with sales tax is not evasion: it is theft perpetrated by companies that act as collection agents for the state. Companies engage in a principal-agent relationship with the state and many retain funds collected as an agent of the state for private use. As such, the act of sales tax theft bears more resemblance to embezzlement than to income tax evasion. It has long been assumed that the sales tax is nearly evasion free, and state revenue departments report voluntary compliance in a manner that perpetuates this myth. Current sales tax compliance enforcement methodologies are similar in form to income tax compliance enforcement methodologies and are based largely on trust. The primary focus is on delinquent filers with a very small percentage of businesses subject to audit. As a result, there is a very large group of noncompliant businesses who file on time and fly below the radar while stealing millions of taxpayer dollars. ^ The author utilized a variety of statistical methods with actual field data derived from operations of the Southern Region Criminal Investigations Unit of the Florida Department of Revenue to evaluate current and proposed sales tax compliance enforcement methodologies in a quasi-experimental, time series research design and to set forth a typology of sales tax evaders. This study showed that current estimates of voluntary compliance in sales tax systems are seriously and significantly overstated and that current enforcement methodologies are inadequate to identify the majority of violators and enforce compliance. Sales tax evasion is modeled using the theory of planned behavior and Cressey’s fraud triangle and it is demonstrated that proactive enforcement activities, characterized by substantial contact with non-delinquent taxpayers, results in superior ability to identify noncompliance and provides a structure through which noncompliant businesses can be rehabilitated.^

An Empirical Analysis of Continuing Improvements Following the Implementation of a Performance-Based Compensation Plan

Performance improvements subsequent to the implementation of a pay-for-performance plan can result because more productive employees self-select into the firm (selection effect) and/or because employees allocate effort to become more effective (effort effect). We analyze individual performance data for 3,776 sales employees of a retail firm to evaluate these alternative sources of continuing performance improvement. The incentive plan helps the firm attract and retain more productive sales employees, and motivates these employees to further improve their productivity. In contrast, the less productive sales employees’ performance declines before they leave the firm.

Calculation of habitable dwelling surfaces : an empirical analysis for the agglomerations of Munich and Sydney

In many countries the calculation of habitable dwelling surface is characterised by a chaotic variety of calculation variants hardly comprehensible for the end user - sometimes not even reproducible for the expert. Therefore dossiers were analysed on the basis of a random choice in order to determine the method according to which the habitable dwelling surface was measured and to find out wether customers can scrutinize the calculations. The paper compares Sydney and Munich, where in both cases property prices are situated at the high end of the market

The Impact of Globalization and Corruption on Extraordinary Wealth: An Empirical Analysis

The billionaires of the world attract significant attention from the media and the public. The popular press is full of books selling formulas on how to become rich. Surprisingly, only a limited number of studies have explored empirically the determinants of extraordinary wealth. Using a large data set we explore whether globalization and corruption affect extreme wealth accumulation. We find evidence that an increase in globalization increases super-richness. In addition, we also find that an increase in corruption leads to an increase in the creation of super fortune. This supports the argument that in kleptocracies large sums are transferred into the hands of a small group of individuals.

Survival Power: An Empirical Analysis of Power in a Life and Death Situation

This paper seeks to identify what antecedents of power make it more or less likely for people to survive in a life-threatening situation.In particular, we look at the Titanic disaster as the life or death situation. Maritime disasters can be interpreted as quasi-natural experiments because every person is affected by the shock. True human nature becomes apparent in such a dangerous situation. Five antecedents of power are distinguished: physical strength, economic resources, nationality, social and moral factors. This empirical analysis supports the notion that power is a key determinant in extreme situations of life or death.

Determinants of health costs due to farmers’ exposure to pesticides : an empirical analysis

It is now well known that pesticide spraying by farmers has an adverse impact on their health. This is especially so in developing countries where pesticide spraying is undertaken manually. The estimated health costs are large. Studies to date have examined farmers’ exposure to pesticides, the costs of ill-health and their determinants based on information provided by farmers. Hence, some doubt has been cast on the reliability of such studies. In this study, we rectify this situation by conducting surveys among two groups of farmers. Farmers who perceive that their ill-health is due to exposure to pesticides and obtained treatment and farmers whose ill-health have been diagnosed by doctors and who have been treated in hospital for exposure to pesticides. In the paper, cost comparisons between the two groups of farmers are made. Furthermore, regression analysis of the determinants of health costs show that the quantity of pesticides used per acre per month, frequency of pesticide use and number of pesticides used per hour per day are the most important determinants of medical costs for both samples. The results have important policy implications.

Empirical analysis of freeway traffic oscillation : its safety impact and evolution

Traffic oscillations are typical features of congested traffic flow that are characterized by recurring decelerations followed by accelerations. However, people have limited knowledge on this complex topic. In this research, 1) the impact of traffic oscillations on freeway crash occurrences has been measured using the matched case-control design. The results consistently reveal that oscillations have a more significant impact on freeway safety than the average traffic states. 2) Wavelet Transform has been adopted to locate oscillations' origins and measure their characteristics along their propagation paths using vehicle trajectory data. 3) Lane changing maneuver's impact on the immediate follower is measured and modeled. The knowledge and the new models generated from this study could provide better understanding on fundamentals of congested traffic; enable improvements to existing traffic control strategies and freeway crash countermeasures; and instigate people to develop new operational strategies with the objective of reducing the negative effects of oscillatory driving.

Empirical analysis on relationship between traffic conditions and crash occurrences

This paper investigates relationship between traffic conditions and the crash occurrence likelihood (COL) using the I-880 data. To remedy the data limitations and the methodological shortcomings suffered by previous studies, a multiresolution data processing method is proposed and implemented, upon which binary logistic models were developed. The major findings of this paper are: 1) traffic conditions have significant impacts on COL at the study site; Specifically, COL in a congested (transitioning) traffic flow is about 6 (1.6) times of that in a free flow condition; 2)Speed variance alone is not sufficient to capture traffic dynamics’ impact on COL; a traffic chaos indicator that integrates speed, speed variance, and flow is proposed and shows a promising performance; 3) Models based on aggregated data shall be interpreted with caution. Generally, conclusions obtained from such models shall not be generalized to individual vehicles (drivers) without further evidences using high-resolution data and it is dubious to either claim or disclaim speed kills based on aggregated data.