Operations Research
http://lists.repec.org/mailman/listinfo/nep-ore
Operations Research
2020-05-25
Bayesian dynamic variable selection in high dimensions
http://d.repec.org/n?u=RePEc:gla:glaewp:2020_11&r=ore
This paper proposes a variational Bayes algorithm for computationally efficient posterior and predictive inference in time-varying parameter (TVP) models. Within this context we specify a new dynamic variable/model selection strategy for TVP dynamic regression models in the presence of a large number of predictors. This strategy allows for assessing in individual time periods which predictors are relevant (or not) for forecasting the dependent variable. The new algorithm is evaluated numerically using synthetic data and its computational advantages are established. Using macroeconomic data for the US we find that regression models that combine time-varying parameters with the information in many predictors have the potential to improve forecasts of price inflation over a number of alternative forecasting models.
Gary Koop
Dimitris Korobilis
dynamic linear model; approximate posterior inference; dynamic variable selection; forecasting
2020-05
Smooth marginalized particle filters for dynamic network effect models
http://d.repec.org/n?u=RePEc:tin:wpaper:20200023&r=ore
We propose a dynamic network model for the study of high-dimensional panel data. Crosssectional dependencies between units are captured via one or multiple observed networks and a low-dimensional vector of latent stochastic network intensity parameters. The parameterdriven, nonlinear structure of the model requires simulation-based filtering and estimation, for which we suggest to use the smooth marginalized particle filter (SMPF). In a Monte Carlo simulation study, we demonstrate the SMPFâ€™s good performance relative to benchmarks, particularly when the cross-section dimension is large and the network is dense. An empirical application on the propagation of COVID-19 through international travel networks illustrates the usefulness of our method.
Dieter Wang
Julia Schaumburg
Dynamic network effects, Multiple networks, Nonlinear state-space model, Smooth marginalized particle filter, COVID-19
2020-05-10
Risk Matters: Breaking Certainty Equivalence
http://d.repec.org/n?u=RePEc:aah:create:2020-02&r=ore
In this paper we use the property that certainty equivalence, as implied by a first-order approximation to the solution of stochastic discrete-time models, breaks in its equivalent continuous-time version. We study the extent to which a first-order approximated solution built by perturbation methods accounts for risk. We show that risk matters economically in a real business cycle (RBC) model with habit formation and capital adjustment costs and that neglecting risk leads to substantial pricing errors. A first-order approximation in continuous time reduces pricing errors by 90 percent relative to the certainty equivalent linear solution.
Juan Carlos Parra-Alvarez
Hamza Polattimur
Olaf Posch
Certainty equivalence, Perturbation methods, Pricing errors
2020-03-16
Risk Matters: Breaking Certainty Equivalence
http://d.repec.org/n?u=RePEc:ces:ceswps:_8250&r=ore
In this paper we use the property that certainty equivalence, as implied by a first-order approximation to the solution of stochastic discrete-time models, breaks in its equivalent continuous-time version. We study the extent to which a first-order approximated solution built by perturbation methods accounts for risk. We show that risk matters economically in a real business cycle (RBC) model with habit formation and capital adjustment costs and that neglecting risk leads to substantial pricing errors. A first-order approximation in continuous time reduces pricing errors by 90 percent relative to the certainty equivalent linear solution.
Juan Carlos Parra-Alvarez
Hamza Polattimur
Olaf Posch
certainty equivalence, perturbation methods, pricing errors
2020
Machine Learning Econometrics: Bayesian algorithms and methods
http://d.repec.org/n?u=RePEc:gla:glaewp:2020_09&r=ore
As the amount of economic and other data generated worldwide increases vastly, a challenge for future generations of econometricians will be to master efficient algorithms for inference in empirical models with large information sets. This Chapter provides a review of popular estimation algorithms for Bayesian inference in econometrics and surveys alternative algorithms developed in machine learning and computing science that allow for efficient computation in high-dimensional settings. The focus is on scalability and parallelizability of each algorithm, as well as their ability to be adopted in various empirical settings in economics and finance.
Dimitris Korobilis
Davide Pettenuzzo
MCMC, approximate inference, scalability, parallel computation
2020-04
Arbitrage Pricing, Weak Beta, Strong Beta: Identification-Robust and Simultaneous Inference
http://d.repec.org/n?u=RePEc:cir:cirwor:2020s-30&r=ore
Factor models based on Arbitrage Pricing Theory (APT) characterize key parameters jointly and nonlinearly, which complicates identification. We propose simultaneous inference methods which preserve equilibrium relations between all model parameters including ex-post sample-dependent ones, without assuming identification. Confidence sets based on inverting joint tests are derived, and tractable analytical solutions are supplied. These allow one to assess whether traded and nontraded factors are priced risk-drivers, and to take account of cross-sectional intercepts. A formal test for traded factor assumptions is proposed. Simulation and empirical analyses are conducted with Fama-French factors. Simulation results underscore the information content of cross-sectional intercept and traded factor restrictions. Three empirical results are especially noteworthy: (1) the Fama-French three factors are priced before 1970; thereafter, we find no evidence favoring any factor relative to the market; (2) heterogeneity is not sufficient to distinguish priced momentum from profitability or investment risk; (3) after the 1970s, factors are rejected or appear to be weak, depending on intercept restrictions or test portfolios.
Marie-Claude Beaulieu
Jean-Marie Dufour
Lynda Khalaf
Capital Asset Pricing Model,CAPM,Arbitrage Pricing Theory,Black,Fama-French Factors,Meanvariance Efficiency,Non-Normality,Weak Identification,Identification-Robust,Projection,Fieller,Multivariate Linear Regression,Uniform Linear Hypothesis,Exact Test,Monte Carlo Test,Bootstrap,Nuisance Parameters,
2020-05-08
How Reliable are Bootstrap-based Heteroskedasticity Robust Tests?
http://d.repec.org/n?u=RePEc:pra:mprapa:100234&r=ore
We develop theoretical finite-sample results concerning the size of wild bootstrap-based heteroskedasticity robust tests in linear regression models. In particular, these results provide an efficient diagnostic check, which can be used to weed out tests that are unreliable for a given testing problem in the sense that they overreject substantially. This allows us to assess the reliability of a large variety of wild bootstrap-based tests in an extensive numerical study.
Pötscher, Benedikt M.
Preinerstorfer, David
wild bootstrap-based heteroskedasticity robust tests, size distortions
2020-04
All Symmetric Equilibria in Differential Games with Public Goods
http://d.repec.org/n?u=RePEc:ces:ceswps:_8246&r=ore
We characterise the entire set of symmetric stationary Markov-perfect Nash equilibria (MPE) in a differential game of public good investment, using the canonical problem of climate change as an example. We provide a sufficient and necessary condition for MPE and show how the entire set of MPE is constructed. The equilibrium in continuous strategies, unique in our context, is Pareto-dominated by any other equilibrium. If a Pareto-undominated steady state exists, it is sustained by trigger-like strategies, with deviations above and below the steady state leading to different responses. We extend the theory of differential games to deal with payoffs under discontinuous strategies. Our methods work under general functional forms.
Niko Jaakkola
Florian Wagener
Florian O.O. Wagener
differential games, Markov-perfect Nash equilibrium, dynamic investment games, dynamic public goods, climate change
2020
Diffusion Copulas: Identification and Estimation
http://d.repec.org/n?u=RePEc:arx:papers:2005.03513&r=ore
We propose a new semiparametric approach for modelling nonlinear univariate diffusions, where the observed process is a nonparametric transformation of an underlying parametric diffusion (UPD). This modelling strategy yields a general class of semiparametric Markov diffusion models with parametric dynamic copulas and nonparametric marginal distributions. We provide primitive conditions for the identification of the UPD parameters together with the unknown transformations from discrete samples. Likelihood-based estimators of both parametric and nonparametric components are developed and we analyze the asymptotic properties of these. Kernel-based drift and diffusion estimators are also proposed and shown to be normally distributed in large samples. A simulation study investigates the finite sample performance of our estimators in the context of modelling US short-term interest rates. We also present a simple application of the proposed method for modelling the CBOE volatility index data.
Ruijun Bu
Kaddour Hadri
Dennis Kristensen
2020-05
Estimation of Threshold Distributions for Market Participation
http://d.repec.org/n?u=RePEc:gre:wpaper:2020-21&r=ore
We develop a new method to estimate the parameters of threshold distributions for market participation based upon an agent-specific attribute and its decision outcome. This method requires few behavioral assumptions, is not data demanding, and can adapt to various parametric distributions. Monte Carlo simulations show that the algorithm successfully recovers three different parametric distributions and is resilient to assumption violations. An application to export decisions by French firms shows that threshold distributions are generally right-skewed. We then reveal the asymmetric effects of past policies over different quantiles of the threshold distributions.
Mattia Guerini
Patrick Musso
Lionel Nesta
Parametric Distributions of Thresholds, Maximum Likelihood Estimation, Fixed Costs, Export Decision
2020-05
Estimation of Threshold Distributions for Market Participation
http://d.repec.org/n?u=RePEc:fce:doctra:2015&r=ore
We develop a new method to estimate the parameters of threshold distributions for market participation based upon an agent-specific attribute and its decision outcome. This method requires few behavioral assumptions, is not data demanding, and can adapt to various parametric distributions. Monte Carlo simulations show that the algorithm successfully recovers three different parametric distributions and is resilient to assumption violations. An application to export decisions by French firms shows that threshold distributions are generally right-skewed. We then reveal the asymmetric effects of past policies over different quantiles of the threshold distributions.
Mattia Guerini
Patrick Musso
Lionel Nesta
Parametric Distributions of Thresholds, Maximum Likelihood Estimation, Fixed Costs, Export Decision.
2020-05
Tree-based Synthetic Control Methods: Consequences of moving the US Embassy
http://d.repec.org/n?u=RePEc:aah:create:2020-04&r=ore
We recast the synthetic controls for evaluating policies as a counterfactual prediction problem and replace its linear regression with a nonparametric model inspired by machine learning. The proposed method enables us to achieve more accurate counterfactual predictions. We apply our method to a highly-debated policy: the move of the US embassy to Jerusalem. In Israel and Palestine, we find that the average number of weekly conflicts has increased by roughly 103% over 48 weeks since the move was announced on December 6, 2017. Using conformal inference and placebo tests, we justify our model and find the increase to be statistically significant.
Nicolaj N. Mühlbach
Treatment effects, Program evaluation, Synthetic control, Machine learning, US embassy move
2020-05-19
The return on everything and the business cycle in production economies
http://d.repec.org/n?u=RePEc:aug:augsbe:0338&r=ore
A The risk premium puzzle is even worse than previously reported if housing is also taken into consideration next to equity. While housing premia are only moderately smaller than equity premia, they are significantly less volatile and the Sharpe ratio of housing is significantly larger. Hence, three question arise: i) are existing approaches to explain the equity premium puzzle also capable of explaining even larger Sharpe ratios than previously required, ii) can return rates and volatilities of various assets be differentiated, and iii) can different Sharpe ratios between the two risky assets be matched. We analyze these questions, next to business cycle statistics, by including housing into seminal approaches to solve the risk premium puzzle in production economies. Non-disaster economies with habit formation, capital adjustment costs and limited factor mobility fail to generate a Sharpe ratio of housing of the empirically observed size and do not explain co-moving economic activity. A basic model with time-varying disaster risk can reproduce the large Sharpe ratio of housing. Moreover, the model can explain different means and volatilities of the risky assets, economic activity comoves and the model explains the volatility ratio of business investments, residential investments and house prices. However, the model does not allow to disentangle the Sharpe ratios of the risky assets and premia on equity remain too involatile.
Christopher Heiberger
Daniel Fehrle
equity premium puzzle, housing, rare disasters, production CAPM, real business cycle literature
2020-05
Energy Markets and Global Economic Conditions
http://d.repec.org/n?u=RePEc:gla:glaewp:2020_08&r=ore
This paper evaluates alternative indicators of global economic activity and other market fundamentals in terms of their usefulness for forecasting real oil prices and global petroleum consumption. We find that world industrial production is one of the most useful indicators that has been proposed in the literature. However, by combining measures from a number of different sources we can do even better. Our analysis results in a new index of global economic conditions and new measures for assessing future tightness of energy demand and expected oil price pressures.
Christiane Baumeister
Dimitris Korobilis
Thomas K. Lee
Energy demand, forecasting, stochastic volatility, oil price pressures, petroleum consumption, state of the world economy
2020-02
Inefficient Collective Households: Cooperation and Consumption
http://d.repec.org/n?u=RePEc:boc:bocoec:1000&r=ore
We propose a model of inefficiency in collective households. Inefficiency depends on a "cooperation factor," which can also affect both the allocation of resources within a household and the utility of household members. Households are conditionally efficient, conditioning on the value of the cooperation factor. This lets us exploit convenient modeling features of efficient households (like not needing to specify the bargaining process), while still accounting for, and measuring the dollar cost of, inefficiency. An example of a cooperation factor is domestic violence, which we found, in Bangladeshi data, reduces consumption efficiency by 5%, and shifts 1.5% of household resources towards men.
Arthur Lewbel
Krishna Pendakur
Collective Household Model, Inefficiency, Bargaining Power, Sharing Rule, Demand Systems, Engel Curve
2020-02-15
A Machine Learning Approach for Flagging Incomplete Bid-rigging Cartels
http://d.repec.org/n?u=RePEc:fri:fribow:fribow00513&r=ore
We propose a new method for flagging bid rigging, which is particularly useful for detecting incomplete bid-rigging cartels. Our approach combines screens, i.e. statistics derived from the distribution of bids in a tender, with machine learning to predict the probability of collusion. As a methodological innovation, we calculate such screens for all possible subgroups of three or four bids within a tender and use summary statistics like the mean, median, maximum, and minimum of each screen as predictors in the machine learning algorithm. This approach tackles the issue that competitive bids in incomplete cartels distort the statistical signals produced by bid rigging. We demonstrate that our algorithm outperforms previously suggested methods in applications to incomplete cartels based on empirical data from Switzerland.
Wallimann, Hannes
Imhof, David
Huber, Martin
Bid rigging detection; screening methods; descriptive statistics; machine learning; random forest; lasso; ensemble methods
2020-04-01
The Balanced Scorecard – Dinosaur or Giant?
http://d.repec.org/n?u=RePEc:zbw:iubhbm:62020&r=ore
No concept of corporate management has spread as quickly in global business practice as the Balanced Scorecard (BSC) by Robert S. Kaplan and David P. Norton. This discussion paper examines its origins, theoretical foundation, practical distribution and key points of criticism in the literature a quarter of a century after its inception. The paper is based on a former publication by the same author in the German WISU journal.
Schulke, Arne
Management Accounting,Controlling,Balanced Scorecard,Management Control
2020
Reference-Dependent Preferences, Time Inconsistency, and Unfunded Pensions
http://d.repec.org/n?u=RePEc:ces:ceswps:_8260&r=ore
In the real world, public pay-as-you-go pension (PAYG) schemes are popular and co-exist with private, retirement-saving schemes. This is true even in dynamically efficient economies where such pensions offer a lower return. The classic Aaron-Samuelson result argues that, in theory, this is impossible. Later work has shown that it may be possible if agents, left on their own, undersave due to myopia or time-inconsistency. In that case, if the government is paternalistic, a welfare rationale for PAYG pensions arises but only if voluntary retirement saving is fully crowded out because of a binding borrowing constraint. This paper generalizes the Aaron-Samuelson discussion to the reference-dependent utility setup of Kőszegi and Rabin (2009) where undersaving happens naturally. No borrowing constraint is imposed. In this case, it is possible to offer a non-paternalistic, welfare rationale for return-dominated, PAYG pensions to coexist with private retirement saving.
Torben M. Andersen
Joydeep Bhattacharya
Qing Liu
reference-dependence, crowding-out, pensions, dynamic efficiency
2020
Investing in VIX futures based on rolling GARCH models forecasts
http://d.repec.org/n?u=RePEc:war:wpaper:2020-10&r=ore
The aim of this work is to compare the performance of VIX futures trading strategies built across different GARCH model volatility forecasting techniques. Long and short signals for VIX futures are produced by comparing one-day ahead volatility forecasts with current historical volatility. We found out that using the daily data over the seven-year period (2013-2019), strategy based on the fGARCH-TGARCH and GJR-GARCH specifications outperformed those of the GARCH and EGARCH models, and performed slightly below the “buy-and-hold” S&P 500 strategy. For the base GARCH(1,1) model, the training window size and the type gave stable results, whereas the performance across refit frequency, conditional distribution of returns, and historical volatility estimators varies significantly. Despite non-robustness of some investment strategies and some space for improvements, the presented strategies show their potential in competing with the equity and volatility benchmarks.
Oleh Bilyk
Paweł Sakowski
Robert Ślepaczuk
GARCH, VIX index, volatility futures, rolling forecasting, volatility, investment strategies, volatility exposure
2020
Energy, uncertainty, and entrepreneurship: John D Rockefeller’s sequential approach to transaction costs management in the early oil industry
http://d.repec.org/n?u=RePEc:ehl:lserod:100852&r=ore
This article delves into the challenge of successful entrepreneurship in the energy industry under conditions of uncertainty by examining the case of John D Rockefeller’s Standard Oil Company, which rapidly seized control of an initially-uncertain industry. It finds that Rockefeller cemented control through a willingness to internalise contextual uncertainty (related to the nature of the energy business) as a stepping stone to managing contractual uncertainty (related to transactions with other parties). This finding suggests that thinking sequentially about the management of contextual and contractual uncertainty aids entrepreneurial success in the field of energy. This suggestion accords with standing calls in the transaction costs literature, which means that findings may generalise to some extent. However, the exploratory nature of the analysis implies the need for further research about the argument’s compatibility with modern energy practices and its generalisability.
Bolanos, Jose A.
Uncertainty; Rockefeller; Standard Oil Company; Entrepreneurship; Transaction costs
2019-09-01
Optimization of an Information Diffusion Model of Influencer Marketing -Evaluation of Speed- and Cost-oriented Marketing based on Influencer-Market Elasticity-
http://d.repec.org/n?u=RePEc:sek:iacpro:10012455&r=ore
Owing to its high degree of credibility, influencer marketing is incorporated into the advertising activities of many companies. However, it is often unclear for the company which market initiator (defined as the consumer to whom a company should first provide information) should be given information for marketing purposes. A company?s choice of market initiators in social networking services influences advertising speed as well as marketing cost.In this study, market initiator candidates were identified to determine the most suitable market initiator in the information diffusion simulation. The cost effectiveness of each candidate was evaluated in terms of influencer-market elasticity. First, we optimized the information diffusion model in influencer marketing and considered whether this or mass marketing is best for companies. Influencer-market elasticity was then determined based on the information obtained from the simulation. Using such elasticity, we clarified whether companies should request advertising from influential users, with an emphasis on speed of advertising, or from insensitive users, with emphasis on advertising costs. The proposed methods were applied to actual companies, and the most suitable market initiator was identified for the maximum and minimum values of influencer-market elasticity in a certain period.
Taisuke Ehara
Kaoru Kuramoto
Yosuke Kurihara
Toshiyuki Matsumoto
Satoshi Kumagai
information diffusion modelsocial networking servicecentrality index
2020-02
Biased Health Perceptions and Risky Health Behaviors: Theory and Evidence
http://d.repec.org/n?u=RePEc:bol:bodewp:wp1146&r=ore
This paper investigates the role of biased health perceptions as driving forces of risky health behavior. We define absolute and relative health perception biases, illustrate their measurement in surveys and provide evidence on their relevance. Next, we decompose the theoretical effect into its extensive and intensive margin: when the extensive margin dominates, people (wrongly) believe they are healthy enough to “afford” unhealthy behavior. Finally, using three population surveys, we provide robust empirical evidence that respondents who overestimate their health are less likely to exercise and sleep enough, but more likely to eat unhealthily and drink alcohol daily.
Patrick Arni
Davide Dragone
Lorenz Goette
Nicolas R. Ziebarth
2020-04
Can heterogeneous agent models explain the alleged mispricing of the S&P 500?
http://d.repec.org/n?u=RePEc:zbw:cauewp:202003&r=ore
Tests of excessive volatility along the lines of Shiller (1981) and Leroy and Porter (1981) count among the most convincing pieces of evidence against the validity of the time-honored efficient market hypothesis. Recently, using Shillers distinction between ex-ante rational (fundamental) price and ex-post rational price, Schmitt and Westerhoff (2017) have demonstrated that the difference between S&P 500 market prices and their ex-post counterparts exhibits a bi-modal distribution speaking for the prevalence of long periods of either undervaluation or overvaluation. Schmitt and Westerhoff (2017) also show that this new stylized fact is shared by a large set of nonlinear behavioral models of speculative interactions between heterogeneous market participants. Most of these models allow some form of chartist or fundamentalist strategy, and the more recent members of this family of models also allow for agents switching between both alternatives according to some fitness criterion. Here I go one step further exploring which (if any) of this legacy of behavioral models fits best the data. I discuss econometric issues in the estimation of these highly complex nonlinear models, and estimate the parameters of different versions of seven canonical models. As it turns out, most of these models perform not better than a linear chartist-fundamentalist model, and often their fit is worse than the fit of this benchmark. Among the models considered here, the one proposed by Franke and Westerhoff (2012) is the only exception. Estimation of the model confidence set indicates that this model is not outperformed by other candidates, and depending on the setting and the confidence level, it is often found to be the single member of the model confidence set.
Lux, Thomas
Stock market dynamics,bubbles and crashes,nonlinear dynamics,chartists and fundamentalists,model confidence set
2020
Climate change, Inequality and Human Migration
http://d.repec.org/n?u=RePEc:avg:wpaper:en10273&r=ore
This paper investigates the long-term implications of climate change on local, interregional, and international migration of workers. For nearly all of the world's countries, our micro-founded model jointly endogenizes the effects of changing temperature and sea level on income distribution and individual decisions about fertility, education, and mobility. Climate change intensifies poverty and income inequality creating favorable conditions for urbanization and migration from low- to high-latitude countries. Encompassing slow- and fast-onset mechanisms, our projections suggest that climate change will induce the voluntary and forced displacement of 100 to 160 million workers (200 to 300 million climate migrants of all ages) over the course of the 21st century. However, under current migration laws and policies, forcibly displaced people predominantly relocate within their country and merely 20% of climate migrants opt for long-haul migration to OECD countries. If climate change induces generalized and persistent conflicts over resources in regions at risk, we project significantly larger cross-border flows in the future.
Michal BURZYNSKI
2019-10-03
Estimating and Simulating a SIRD Model of COVID-19 for Many Countries, States, and Cities
http://d.repec.org/n?u=RePEc:nbr:nberwo:27128&r=ore
We use data on deaths in New York City, various U.S. states, and various countries around the world to estimate a standard epidemiological model of COVID-19. We allow for a time-varying contact rate in order to capture behavioral and policy-induced changes associated with social distancing. We simulate the model forward to consider possible futures for various countries, states, and cities, including the potential impact of herd immunity on re-opening. Our current baseline mortality rate (IFR) is assumed to be 0.8% but we recognize there is substantial uncertainty about this number. Our model fits the death data equally well with alternative mortality rates of 0.3% or 1.0%, so this parameter is unidentified in our data. However, its value matters enormously for the extent to which various places can relax social distancing without spurring a resurgence of deaths.
Jesús Fernández-Villaverde
Charles I. Jones
2020-05
Job Search during the COVID-19 Crisis
http://d.repec.org/n?u=RePEc:wrk:warwec:1267&r=ore
This paper measures the job-search responses to the COVID-19 pandemic using realtime data on vacancy postings and ad views on Sweden’s largest online job board. First, the labour demand shock in Sweden is as large as in the US, and affects industries and occupations heterogeneously. Second, the scope and direction of search change. Job seekers respond to the shock by searching less intensively and by redirecting their search towards less severely hit occupations, beyond what changes in labour demand would predict. The redirection of job search changes relative hiring costs, and has the potential to amplify labour demand shifts
Hensvik, Lena
Le Barbanchon, Thomas
Rathelot, Roland
coronavirus ; search intensity ; search direction ; labour demand shock ; job vacancies ; online job board ; JEL codes: J22 ; J23 ; J21 ; J62 ; J63 ; J64; E24
2020
Size does matter. A study on the required window size for optimal quality market risk models
http://d.repec.org/n?u=RePEc:war:wpaper:2020-09&r=ore
When it comes to market risk models, should we use full data that we possess or rather find a sufficient subsample? We have conducted a study of different fixed moving window’s lengths (from 300 to 2000 observations) for three Value-at-Risk models: historical simulation, GARCH and CAViaR model for three different indexes: WIG20, S&P500 and FTSE100. Testing samples contained 250 observations, each ending with the end of years 2015-2019. We have also addressed the subjectivity of choosing the window’s size by testing change points detection algorithms: binary segmentation and Pelt; to find the best matching cut-off point. Results indicate that the size of the training sample greater than 900-1000 observations doesn’t increase the quality of the model, while the lengths lower than such cut-off provide unsatisfactory results and decrease model’s conservatism. Change point detection methods provide more accurate models. Applying the algorithms with every model’s recalculation provides results better by on average 1 exceedance. Our recommendation is to use GARCH or CAViaR model with recalculated window size.
Mateusz Buczyński
Marcin Chlebus
Value at Risk; historical simulation; CAViaR; GARCH; forecast comparison; sample size
2020
Rationalist Explanations for Two-Front War
http://d.repec.org/n?u=RePEc:pra:mprapa:100426&r=ore
By extending the extant costly-lottery models of war to three-party bargaining scenarios, we offer rationalist explanations for two-front war, where a state at the center is fought by two enemies at opposing peripheries. We found that even though private information exists only in one front, war can break out in both fronts. Because the war outcome in one front can affect the outcome in the other through the shift of military balance, the central state may preemptively initiate war in one front to establish its preponderance in the other (e.g., World War I), or a peripheral state may preventively join the war waging in the other front to leverage its power (e.g., Napoleonic Wars). These findings echo Waltz's neorealism concern that a multi-polar system may not be so stable as the bipolar system that bargaining models of dyadic war commonly presume.
Nakao, Keisuke
costly-lottery models, rationalist explanations for war, three-party bargaining, two-front war.
2020-05-15
Zone of Possible Agreement in Negotiation: Impact of Gender and Personality
http://d.repec.org/n?u=RePEc:sek:iacpro:10012557&r=ore
To date, impact of gender differences and different personality types on negotiation [specially Zone of Possible Agreements (ZOPA)] have received little theoretical and practical attention. This paper aims to explore the effects that gender and personality have over negotiation style and decision making in order to find the connection and create new knowledge in understanding the behavior of the negotiators. We conducted a survey both on buyers and sellers and collected data on their personality and negotiation style. Big Five factors were considered for understanding the personality of the buyers and sellers. Afterwards the data was subjected to statistical analysis through correlation and paired sample t-test. We found that for female buyers the frequency of indulging into negotiations has a correlation with personality trait of openness to experience. For sellers, the frequency of negotiation correlates negatively with personality trait of agreeableness.
Devjani Chatterjee
Akhil Pratap Singh
Gender, Negotiation, Zone of possible Agreement (ZOPA), Big-Five Model, Negotiation
2020-02
Scenario Analysis and the Economic and Financial Risks from Climate Change
http://d.repec.org/n?u=RePEc:bca:bocadp:20-3&r=ore
This paper adapts climate-economy models that have been applied in other contexts for use in climate-related scenario analysis. We consider illustrative scenarios for the global economy that could generate economic and financial risks. Our results suggest there are significant economic risks from climate change and the move to a low-carbon economy.
Erik Ens
Craig Johnston
Climate change; Economic models; Financial stability; International topics
2020-05
Al\`os type decomposition formula for Barndorff-Nielsen and Shephard model
http://d.repec.org/n?u=RePEc:arx:papers:2005.07393&r=ore
The objective is to provide an Al\`os type decomposition formula and an approximate option pricing formula for the Barndorff-Nielsen and Shephard model: an Ornstein-Uhlenbeck type stochastic volatility model driven by a subordinator without drift. Al\`os (2012) introduced a decomposition expression of the call option prices for the Heston model by using Ito's formula. In this paper, we extend it to the Barndorff-Nielsen and Shephard model. As far as we know, this is the first result on the Al\`os type decomposition formula for models with infinite active jumps. Moreover, investigating the rate of convergence as the time to maturity tends to 0 for each term in the obtained decomposition formula, we shall present an approximate option pricing formula, and implement numerical experiments, which show that our approximation formula is effective for in-the-money options.
Takuji Arai
2020-05
Mirakhor on uncertainty and Islamic finance: Comment
http://d.repec.org/n?u=RePEc:pra:mprapa:100157&r=ore
This note summarizes the formulations of Abbas Mirakhor on purported uncertainty contextual to Islamic finance in a World Bank (2013) publication and shows its in-efficacious character.
Hasan, Zubair
Risk, Uncertainty, Profit, Islamic finance
2020-04
The Variance Risk Premium in Equilibrium Models
http://d.repec.org/n?u=RePEc:nbr:nberwo:27108&r=ore
The equity variance risk premium is the expected compensation earned for selling variance risk in equity markets. The variance risk premium is positive and shows moderate persistence. High variance risk premiums coincide with the left tail of the consumption growth distribution shifting down. These facts, together with a positive, yet moderate, difference between the risk-neutral entropy and variance of the aggregate market return, refute the bulk of the extant consumption-based asset pricing models. We introduce a tractable habit model that does fit the data. In the model, the variance risk premium depends positively (negatively) on “bad” (“good”) consumption growth uncertainty.
Geert Bekaert
Eric Engstrom
Andrey Ermolov
2020-05
Changes in Black-White Inequality: Evidence from the Boll Weevil
http://d.repec.org/n?u=RePEc:nbr:nberwo:27101&r=ore
This paper investigates the effect of a large negative agricultural shock, the boll weevil, on black-white inequality in the first half of the twentieth century. To do this we use complete count census data to generate a linked sample of fathers and their sons. We find that the boll weevil induced enormous labor market and social disruption as more than half of black and white fathers moved to other counties following the arrival of the weevil. The shock impacted black and white sons differently. We compare sons whose fathers initially resided in the same county and find that white sons born after the boll weevil had similar wages and schooling outcomes to white sons born prior to its arrival. In contrast, black sons born after the boll weevil had significantly higher wages and years of schooling, narrowing the black-white wage and schooling gaps. This decrease appears to have been driven by relative improvements in early life conditions and access to schooling both for sons of black fathers that migrated out of the South and sons of black fathers that stayed in the South.
Karen Clay
Ethan J. Schmick
Werner Troesken
2020-05
Dynamic shrinkage in time-varying parameter stochastic volatility in mean models
http://d.repec.org/n?u=RePEc:arx:papers:2005.06851&r=ore
Successful forecasting models strike a balance between parsimony and flexibility. This is often achieved by employing suitable shrinkage priors that penalize model complexity but also reward model fit. In this note, we modify the stochastic volatility in mean (SVM) model proposed in Chan (2017) by introducing state-of-the-art shrinkage techniques that allow for time-variation in the degree of shrinkage. Using a real-time inflation forecast exercise, we show that employing more flexible prior distributions on several key parameters slightly improves forecast performance for the United States (US), the United Kingdom (UK) and the Euro Area (EA). Comparing in-sample results reveals that our proposed model yields qualitatively similar insights to the original version of the model.
Florian Huber
Michael Pfarrhofer
2020-05
Unconstrained Cardiac Sound Measurement Method Utilizing a Pneumatic Sensing Method
http://d.repec.org/n?u=RePEc:sek:iacpro:10012622&r=ore
Diagnoses based on the cardiac sound by auscultation that require doctors to obtain cardiac sound in front of a patient is the de facto standard at medical institutions. From the viewpoint of home health management, the burden of the daily monitoring of cardiac sound could be reduced if we could obtain cardiac sounds without applying a stethoscope to the patient?s body. However, prior studies of unconstrained bio-signal measurement methods mainly focused on the detection of low-frequency cardiac movements. We have also proposed an unconstrained cardiac movement measurement method utilizing a pneumatic sensing device. Hence, in this paper we aimed to evaluate whether our pneumatic method also shows sensitivity in the cardiac sound domain. In the proposed method, to measure cardiac sound without restraint, we designed a sheet-shaped device with a high-sensitivity pressure sensor, a rubber tube, an expanded polystyrene spacer, and two polyvinyl chlorides boards. One end of the tube is sealed with glue and the pressure sensor is attached to the other end. The tube with pressure sensor is installed in a groove on the spacer, which is sandwiched between two polyvinyl chlorides boards. When a person lies on the device, cardiac sound changes the pressure in the tube through the upper polyvinyl chloride boards. The pressure sensor then measures the pressure changes. The output signal from the sensor contains noise components as well as the cardiac sound. To extract the cardiac sound, the output signal from the pressure sensor is passed through an analog band-pass filter with a pass frequency of 0.008 Hz to 1 kHz and a non-inverting amplifier with the gain of 2. We evaluated our proposed method in a validity experiment involving a 24-year-old healthy male. The subject was asked to lie on the sensing device, and a stethoscope was applied to his thoracic wall. The correlation coefficient between the frequency spectra calculated by the proposed method and phonocardiogram in the frequency band of 50 Hz to 1 kHz was used as the evaluation index. A correlation coefficient was found of 0.80, showing that the proposed unconstrained measurement method has promising sensitivity in the cardiac sound domain.
Keita Nishio
Takashi Kaburagi
Satoshi Kumagai
Toshiyuki Matsumoto
Yosuke Kurihara
cardiac sound; pneumatic method; unconstrained sensing
2020-02
A Game-Theoretic Model of Sexual Harassment
http://d.repec.org/n?u=RePEc:pra:mprapa:100181&r=ore
We focus on the interaction between a male employee and his supervisor and analyze a game-theoretic model of sexual harassment in the workplace. The male employee is accused of sexually harassing a female employee and the supervisor's task is to gather evidence and then determine whether to legally charge the male employee with sexual harassment. The evidence gathering process is random and concrete evidence is available to the supervisor with probability one-half. Our analysis of this strategic interaction leads to four results. First, we delineate the game in extensive form. Second, we specify the matrix that represents the normal form of the extensive form. Third, we show that there is no pure-strategy Nash equilibrium in the game between the male employee and his supervisor. Finally, we show that there exists a mixed-strategy Nash equilibrium in the same male employee-supervisor game.
Batabyal, Amitrajeet
Beladi, Hamid
Evidence, Mixed-Strategy Nash Equilibrium, Sexual Harassment, Supervisor
2020-02-15
Bootstrapping Quasi Likelihood Ratio Tests under Misspecification
http://d.repec.org/n?u=RePEc:tse:wpaper:124273&r=ore
We consider quasi likelihood ratio (QLR) tests for restrictions on parameters under potential model misspecification. For convex M-estimation, including quantile regression, we propose a general and simple nonparametric bootstrap procedure that yields asymptotically valid critical values. The method modifies the bootstrap objective function to mimic what happens under the null hypothesis. When testing for an univariate restriction, we show how the test statistic can be made asymptotically pivotal. Our bootstrap can then provide asymptotic refinements as illustrated for a linear regression model. A Monte-Carlo study and an empirical application illustrate that double bootstrap of the QLR test controls level well and is powerful.
Lavergne, Pascal
Bertail, Patrice
2020-05
The 2018 Reform of EU ETS: Consequences for Project Appraisal
http://d.repec.org/n?u=RePEc:hhs:slucer:2020_011&r=ore
The European Union's Emissions Trading System is the largest system in the world for trade in greenhouse gases. It used to be a cap-and-trade scheme with a fixed supply of permits. However, a recent reform of the system "punctures the waterbed" by making the supply of permits endogenous. The current paper discusses how to handle permits in economic evaluations. It considers both schemes with a fixed cap and schemes with an endogenous cap. The paper also derives a rule when the project causes an induced intertemporal change in the supply of permits under an endogenous cap. An induced reduction in emissions, what we term a "permit multiplier", is associated with benefits but comes at a cost as production is displaced when the number of available permits decreases. The permit multiplier implies that emissions within the EU ETS are valued differently from emissions occurring elsewhere even under an endogenous cap. A further novel result is that an endogenous cap could increase the social profitability of abatement efforts. By replacing purchases of permits, abatement could cause a reduction in the endogenous supply of permits and hence emissions.
Johansson, Per-Olov
Cost-benefit analysis; permits; waterbed puncture; endogenous cap; ETS; climate gases; social cost of carbon
2020-05-11
General Doubly Robust Identification and Estimation
http://d.repec.org/n?u=RePEc:boc:bocoec:1003&r=ore
Consider two parametric models. At least one is correctly specified, but we donít know which. Both models include a common vector of parameters. An estimator for this common parameter vector is called Doubly Robust (DR) if it's consistent no matter which model is correct. We provide a general technique for constructing DR estimators. Our General Doubly Robust (GDR) technique is a simple extension of the Generalized Method of Moments. We illustrate our GDR with a variety of models, including average treatment effect estimation. Our empirical application is instrumental variables estimation, where either one of two instrument vectors might be invalid.
Arthur Lewbel
Jin-Young Choi
Zhuzhu Zhou
Doubly Robust Estimation, Generalized Method of Moments, Instrumental Variables, Average Treatment E§ects, Parametric Models
2019-12-15
Voluntary "donations" versus reward-oriented "contributions": Two experiments on framing in funding mechanisms
http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2016308r&r=ore
In an artefactual field experiment we implement a crowdfunding campaign for a club good-an institute's summer party with free food, drinks, and music-and compare "donation" and "contribution" framings. We find that the "donation" frame generates higher income than the "contribution" frame. While individuals in the "donation" frame give substantially larger amounts, the individuals in the "contribution" frame respond more strongly to reward thresholds and suggestions. An additional survey experiment on M-Turk indicates that the term "donation" triggers more positive emotional responses, and that emotions are highly correlated with giving. It appears that making a "donation" is perceived as a more voluntary act and is, thus, more successful at generating warm glow than making a "contribution". We conjecture that this extends to other funding mechanisms.
Adena, Maja
Huck, Steffen
crowdfunding,field experiment,framing,suggestions
2020
Relocation of capital city: contemporary research on impact on Borneo’s economy
http://d.repec.org/n?u=RePEc:pra:mprapa:100379&r=ore
economy refers to the economy in the island of Borneo. Borneo island politically administered by three countries which are Malaysia, Indonesia and Brunei. There are two states of Malaysia located in Borneo and they are Sabah and Sarawak. For the Indonesian side, there are five provinces in Kalimantan, Borneo. They are North Kalimantan (KALTARA), East Kalimantan (KALTIM), Central Kalimantan, South Kalimantan and West Kalimantan. The market size is reported to be over 20 million population for the whole of Borneo. Economy of Borneo has a huge potential if being fully utilized and integrated. Good road, sea and air connectivity within Borneo has the potential to stimulate and enhance economic interaction within Borneo. Recent announcement made by Indonesian government to shift capital city to Kalimantan indeed gives a lot of hope to Kalimantan and neighboring countries. A preliminary survey involving 50 individuals in North Kalimantan was undertaken to understand the view of various stakeholders. The findings in general find that the capital city relocation has the potential to benefit North Kalimantan at least in the long run. It also has the potential to produce positive effects on neighboring provinces and nearby states.
Kurnia, Arif
relocation of capital city, Kalimantan, Sabah, Borneo, economy, impact
2020-04-30
Price and network dynamics in the European carbon market
http://d.repec.org/n?u=RePEc:hal:pseptp:halshs-01905985&r=ore
This paper presents an analysis of the European Emission Trading System as a transaction network. It is shown that, given the lack of well-identified trading institutions, industrial actors had to resort to local connections and financial intermediaries to participate in the market. This gave rise to a hierarchical structure in the transaction network. It is then shown that the asymmetries in the network induced market inefficiencies (e.g., increased bid-ask spread) and informational asymmetries, that have been exploited by central agents at the expense of less central ones. Albeit the efficiency of the market has improved from the beginning of Phase II, the asymmetry persists, imposing unnecessary additional costs on agents and reducing the effectiveness of the market as a mitigation instrument.
Andreas Karpf
Antoine Mandel
Stefano Battiston
Network,Carbon market,Climate change,Microstructure
2018-09
Misclassification-Errors-Adjusted Sahm Rule for Early Identification of Economic Recession
http://d.repec.org/n?u=RePEc:hka:wpaper:2020-029&r=ore
Accurate identification of economic recessions in a timely fashion is a major macroeconomic challenge. The most successful early detector of recessions, the Sahm rule, relies on changes in unemployment rates, and is thus subject to measurement errors in the U.S. labor force statuses based on survey data. We propose a novel misclassification-error-adjusted Sahm recession indicator and provide empirically-based optimal threshold values. Using historical data, we show that the adjusted Sahm rule offers earlier identification of economic recessions. Based on the newly released U.S. unemployment rate in March 2020, our adjusted Sahm rule diagnoses the U.S. economy is already in recession, while the original Sahm rule does not.
Shuaizhang Feng
Jiandong Sun
economic recession, Sahm rule, misclassification, unemployment rate
2020-05
When to release the lockdown: a wellbeing framework for analysing costs and benefits
http://d.repec.org/n?u=RePEc:ehl:lserod:104276&r=ore
In choosing when to end the lockdown, policy-makers have to balance the impact of the decision upon incomes, unemployment, mental health, public confidence and many other factors, as well as (of course) upon the number of deaths from COVID-19. To facilitate the decision it is helpful to forecast each factor using a single metric. We use as our metric the number of Wellbeing-Years resulting from each date of ending the lockdown. This new metric makes it possible to compare the impact of each factor in a way that is relevant to all public policy decisions.
Layard, Richard
Clark, Andrew E.
De Neve, Jan-Emmanuel
Krekel, Christian
Fancourt, Daisy
Hey, Nancy
O'Donnell, Gus
Covid-19; coronavirus; Wellbeing Economics; Cost-Benefit Analysis; Health Policy
2020-04
Migration Costs and Observational Returns to Migration in the Developing World
http://d.repec.org/n?u=RePEc:wrk:warwec:1265&r=ore
Recent studies find that observational returns to rural-urban migration are near zero in three developing countries. We revisit this result using panel tracking surveys from six countries, finding higher returns on average. We then interpret these returns in a multi-region Roy model with heterogeneity in migration costs. In the model, the observational return to migration confounds the urban premium and the individual benefits of migrants, and is not directly informative about the welfare gain from lowering migration costs. Patterns of regional heterogeneity in returns, and a comparison of experimental to observational returns, are consistent with the model’s predictions.
Lagakos, David
Marshall, Samuel
Mobarak, Ahmed Mushfiq
Vernot, Corey
Waugh, Michael E.
rural-urban migration ; observational returns to migration ; migration costs ; rural-urban gaps ; gains from lowering migration costs JEL codes: O11 ; O18 ; R23
2020