nep-bec New Economics Papers
on Business Economics
Issue of 2010‒01‒23
twenty-six papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. An Anatomy of Firm Level Job Creation Rates over the Business Cycle By Werner Hölzl; Peter Huber
  2. Strategic Vertical Separation By Igor Sloev
  3. Firms' heterogeneity, endogenous entry, and exit decisions By Totzek, Alexander
  4. Risk Premiums and Macroeconomic Dynamics in a Heterogeneous Agent Model By Ferre de Graeve; Maarten Dossche; Marina Emiris; Henri Sneessens; Raf Wouters
  5. Consolidation in banking and financial stability in Europe: empirical evidence By Uhde, André; Heimeshoff, Ulrich
  6. Has the Globalisation really generated more competition in OECD economies By Jambu, Marc-Antoine
  7. Expectations-Driven Cycles in the Housing Market By Luisa Lambertini; Caterina Mendicino; Maria Teresa Punzi
  8. The Valuation Effect of Listing Requirements: An Analysis of Venture Capital-Backed IPOs By Cécile Carpentier; Douglas Cumming; Jean-Marc Suret
  9. Regulation of Systemic Liquidity Risk By Cao, Jin; Illing, Gerhard
  10. Precautionary savings under liquidity constraints: evidence from Italy By M. Deidda
  11. Sector-Specific Productivity Shocks in a Matching Model By Dennis Wesselbaum
  12. Precautionary corporate liquidity By Kaiji Chen; Zheng Song; Yikai Wang
  13. Employee Capitalism or Corporate Socialism? Broad-Based Employee Stock Ownership By E. Han Kim; Paige Ouimet
  14. Financial Volatility and Economic Activity By Antonio Mele
  15. Is there tunneling in Small Business Groups? Evidence from French SMEs. By Anaïs Hamelin
  16. Screening, Competition, and Job Design Economic Origins of Good Jobs By Björn Bartling; Ernst Fehr; Klaus M. Schmidt
  17. Markups, production, and income distribution under segmented asset markets By Zeno Enders
  18. Strategic Budget Constraints of Public Firm under Bertrand Competition of Unionized Mixed Duopoly By Choi, Kangsik
  19. Worker directors: a German product that didn't export? By Addison, John T.; Schnabel, Claus
  20. Business R&D expenditure and capital in Europe By Helmers, Christian; Schulte, Christian; Strauss, Hubert
  21. A general model of oligopoly endogenizing Cournot, Bertrand, Stackelberg, and Allaz-Vila By Breitmoser, Yves
  22. Outsourcing and Technological Change By Bartel, Ann P.; Lach, Saul; Sicherman, Nachum
  23. Savings, Investment and Current Account Surplus in Asia By Raghav Gaiha; Katsushi S. Imai; Ganesh Thapa; Woojin Kang
  24. Financial Constraints in China: Firm-Level Evidence By Sandra Poncet; Walter Steingress; Hylke Vandenbussche
  25. On the Descriptive Value of Loss Aversion in Decisions under Risk By Eyal Ert; Ido Erev
  26. Better to Give than to Receive: Predictive Directional Measurement of Volatility Spillovers By Francis X. Diebold; Kamil Yilmaz

  1. By: Werner Hölzl (WIFO); Peter Huber (WIFO)
    Abstract: We study the evolution and cyclical dependency of the cross sectional distribution ofrm level job creation rates from 1975 to 2004 for the Austrian private sector. We find that the share of firms that does not adjust has declined over time, but that the share of entries, exits, growing and declining firms increased. The share of firms adjusting is higher in upswings than in downturns and the higher order moments of the job creation distribution follow distinct cyclical patterns. The smallest firms and firms at the extremes of the growth rate distribution are largely unaffected by the business cycle.
    Keywords: Employment Adjustment, Business Cycle, Firm growth
    Date: 2009–10–20
  2. By: Igor Sloev (Humboldt University Berlin)
    Abstract: The paper explores incentives for strategic vertical separation of firms in a framework of a simple duopoly model. Each firm chooses either to be a retailer of its own good (vertical integration) or to sell its good through an independent exclusive retailer (vertical separation). In the latter case a two-part tariff is applied. Retailers compete in quantities, goods are perfect substitutes and firms' cost functions are quadratic. I show that the equilibrium outcome crucially depends on the degree of (dis)economies of scale and asymmetry of costs. Two asymmetric equilibria arise, in which one firm separates while another integrates, under conditions that both firms' cost functions exhibit a sufficiently high diseconomies of scale, or extreme asymmetry of costs. Under a moderate asymmetry of costs a unique equilibrium exists in which the firm with the lower degree of diseconomies of scale separates, while its rival integrates. With the degree of diseconomies of scale low for both firms in the unique equilibrium both firms separate.
    Keywords: Vertical oligopoly; Vertical Separation; Vertical Integration, Delegation
    JEL: L22 L42
    Date: 2009–09
  3. By: Totzek, Alexander
    Abstract: As GDP is highly correlated with both entering and exiting firms, we develop a totally microfounded DSGE model with endogenous firms entry as well as exit decisions. We show that the simplifying assumption of a constant firms' death rate made by the recent literature on DSGE modelling can lead to counterfactual implications of the resulting dynamics. We further demonstrate that the feature of endogenous exits significantly improves the performance of the resulting model when comparing the generated second moments with those of existing models assuming exogenous exits and with the data. Moreover, we estimate the resulting Phillips curve which turns out to be also a function of the change in the mass of producers using the generalized method of moments. --
    Keywords: Heterogeneity,Producer entry and exit,Business cycles,GMM
    JEL: E32 E31
    Date: 2009
  4. By: Ferre de Graeve; Maarten Dossche; Marina Emiris; Henri Sneessens; Raf Wouters (CREA, University of Luxembourg)
    Abstract: We analyze financial risk premiums and real economic dynamics in a DSGE model with three types of agents - shareholders, bondholders and workers - that differ in participation in the capital market and in attitude towards risk and intertemporal sub- stitution. Aggregate productivity and distribution risks are transferred across these agents via the bond market and via an efficient labor contract. The result is a combi- nation of volatile returns to capital and a highly cyclical consumption process for the shareholders, which are two important ingredients for generating high and counter- cyclical risk premiums. These risk premiums are consistent with a strong propagation mechanism through an elastic supply of labor, rigid real wages and a countercyclical la- bor share. Based on the empirical estimates for the two sources of real macroeconomic risk, the model generates significant and plausible time variation in both bond and equity risk premiums. Interestingly, the single largest jump in both the risk premium and the price of risk is observed during the current recession.
    JEL: E32 E44 G12
    Date: 2009
  5. By: Uhde, André; Heimeshoff, Ulrich
    Abstract: Using aggregate balance sheet data from banks across the EU-25 over the period from 1997 to 2005 this paper provides empirical evidence that national banking market concentration has a negative impact on European banks' financial soundness as measured by the Z-score technique while controlling for macroeconomic, bank-specific, regulatory, and institutional factors. Furthermore, we find that Eastern European banking markets exhibiting a lower level of competitive pressure, fewer diversification opportunities and a higher fraction of government-owned banks are more prone to financial fragility whereas capital regulations have supported financial stability across the entire European Union. --
    Keywords: Market structure,Financial stability,Banking regulation
    JEL: G21 G28 G34 L16
    Date: 2009
  6. By: Jambu, Marc-Antoine
    Abstract: Globalisation have generated a more or less competetive market according to the kind of rms. The Great moderation has structural causes such as market power, which is possible to study through the reduced form of the NKPC obtained with the Calvo and Rotemberg price setting assumptions. The Calvo model fails to predict the increase of price volatility on Business to Business (BotB) product markets where competition has denitively increased. By using a model with upstream and downstream rms, according to the Theory of rm Literature, where both are constraint by the Rotemberg price setting assumption, the model predicts the Great Moderation in OECD economies only if the hypothesis of an increase in the global markup is kept. Simulations replicate NKPC slope empirical estimations. This unusual hypothesis is supported by the increasing share of prot in value added, by the development of credit market in OECD countries and by the american increasing revenues inequalities. The model produces endogeneous incentives to a more exible labor market and the development of credit market. A global decreased competetive market gives an explanation of the barely growth of median wage, compare to the growth of global productivity during the period of the Great Moderation.
    Keywords: Great Moderation; New keynesian model; Market structure
    JEL: E32 F23 E23 F01 E20
    Date: 2010–01–07
  7. By: Luisa Lambertini (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland); Caterina Mendicino; Maria Teresa Punzi
    Abstract: This paper analyzes housing market boom-bust cycles driven by changes in households' expectations. We introduce expectations-driven fluctuations into the housing-market model developed by Iacoviello and Neri (2009). We find that changes in expectations about the future state of productivity, investment cost, housing supply, inflation, the policy rate and the central bank's inflation target can generate macroeconomic boom-bust cycles in accordance with the data. Contrary to previous literature, we show that a strong anti-inflationary stance is detrimental both in terms of macroeconomic volatility and welfare. We also document that economies subject to a lower degree of credit friction experience higher volatility in both consumption household indebtedness.
    Date: 2010–01
  8. By: Cécile Carpentier; Douglas Cumming; Jean-Marc Suret
    Abstract: This paper examines the impact of securities regulation and exchange listing standards on the valuation of venture capital-backed IPOs in Canada and the United States. We use a sample of IPOs in both countries matched by size and sector over the 1986-2007 period. The data strongly indicate Canadian IPO valuations are 48% to 66% lower than their matched American counterparts, depending on the matched sample and control variables. We carefully control for several alternative explanations that might account for this difference, including issuer and VC quality, mispricing and liquidity effects. The data highlight the costs associated with low listing standards in Canada. <P>Ce papier examine l’impact de la réglementation des valeurs mobilières et des normes minimales d’inscription en bourse sur la valorisation des premiers appels publics à l’épargne (PAPEs) effectués au Canada et aux États-Unis par des émetteurs financés par des investisseurs en capital de risque. Nous utilisons un échantillon de PAPEs dans chacun des pays sur la période 1986 à 2007. Chaque émission canadienne est pairée avec une émission américaine de taille et de secteur similaires. Nous montrons que les valorisations des émissions canadiennes sont de 48 % à 66 % plus basses que celles des émissions correspondantes américaines, en fonction de l’échantillon retenu et des variables de contrôle. Cette différence subsiste à la prise en compte de plusieurs variables de contrôle, notamment la qualité des émetteurs et des investisseurs en capital de risque, ainsi que la liquidité. Les résultats montrent que les normes réglementaires permissives appliquées aux entreprises émergentes au Canada ont un effet perceptible sur la valeur que leur attribuent les investisseurs.
    Keywords: Securities Regulation, Listing Standards, Valuation, Initial Public Offerings, réglementation des valeurs mobilières, normes minimales d’inscription en bourse, valorisation, introduction en bourse
    JEL: G24 G32 G14 G15
    Date: 2010–01–01
  9. By: Cao, Jin; Illing, Gerhard
    Abstract: The paper provides a baseline model for regulatory analysis of systemic liquidity shocks. We show that banks may have an incentive to invest excessively in illiquid long term projects. In the prevailing mixed strategy equilibrium the allocation is inferior from the investor’s point of view since some banks free-ride on the liquidity provision as a result of limited liability. The paper compares different regulatory mechanisms to cope with the externalities. It is shown that the combination of liquidity regulation ex ante and lender of last resort policy ex post is able to implement the outcome maximizing investor’s payoff. In contrast, both “narrow banking” and imposing equity requirements as buffer are inferior mechanisms for coping with systemic liquidity risk.
    Keywords: Liquidity Regulation; Systemic risk; Lender of last resort; Financial Stability
    JEL: E5 G21 G28
    Date: 2010–01
  10. By: M. Deidda
    Abstract: In this paper, I empirically investigate precautionary savings under liquidity constraints in Italy using household panel data. Following Jappelli and Pistaferri (2000) I analyze a 3- year (1989-1993) rotating panel of the Bank of Italy Survey of Household Income and Wealth (SHIW). I exploit a unique indicator of subjective variance of income growth, which allows to measure the strength of the precautionary motive for saving, and a variety of survey-based indicators of liquidity constraints. However, my analysis deviates from Jappelli and Pistaferri’s in three aspects. First of all, I attempt to differentiate between the standard precautionary motive for saving caused by uncertainty from the one due to liquidity constraints. I address this issue by using an endogenous switching regression approach, which allows me to cope with endogeneity issues associated with sample splitting techniques. Secondly, I try to capture changes in consumption behaviour of households who are not constrained at present , but expect binding constraints in the future. Finally,I cope with the downward bias in the estimation of the parameter associated to the subjective variance of income growth, using a direct measure of risk aversion. I eventually found the precautionary motive for savings to be stronger for those households who face binding constraints, or expect constraints to be binding in the future. Indeed, a complementarity relation exists between precautionary savings and liquidity constraints. Moreover, the introduction of a survey-based measure of risk aversion allows a better identification of the coefficient associated with the subjective measure of variance of income growth.
    Keywords: precautionary motive; liquidity constraints; switching regression.
    JEL: C21 E21
    Date: 2009
  11. By: Dennis Wesselbaum
    Abstract: Shocks driving the business cycle have different effects on low-skilled and high-skilled workers. This paper studies the effects of temporary and permanent sector-specific shocks in a New Keynesian matching model. We show that temporary sector-specific shocks have reallaction and aggregate effects. Permanent shocks explain wedges in real wages and different performances in labor markets. Furthermore, the model is able to replicate an aggregate Beveridge curve
    Keywords: Beveridge Curve, Matching, Sectoral Productivity Shock
    JEL: E24 J24 J41
    Date: 2010–01
  12. By: Kaiji Chen; Zheng Song; Yikai Wang
    Abstract: We develop a theory of corporate liquidity demand, capturing the fact that a firm's borrowing capacity depends on news on future investment profitability. In our model, bad news on future investment profitability reduces a firm's borrowing capacity and therefore increases the need for internal finance. Consequently, the firm's cash savings respond negatively to news on future profitability. This negative correlation is strongly supported by our empirical evidence using a combined data set of Compustat and IBES. Moreover, both our simulation and empirical results show that the sensitivity of cash savings to news on future profitability is a reliable indicator of the presence of financial constraints at firm level.
    Keywords: News, financial constraint, corporate savings
    JEL: G3
    Date: 2010–01
  13. By: E. Han Kim; Paige Ouimet
    Abstract: How employee share ownership plans (ESOPs) affect employee compensation and shareholder value depends on the size. Small ESOPs, defined as those controlling less than 5% of outstanding shares, benefit both workers and shareholders, implying positive productivity gains. However, the effects of large ESOPs on worker compensation and shareholder value are more or less neutral, suggesting little productivity gains. These differential effects appear to be due to two non-value-creating motives specific to large ESOPS: (1) To form management-worker alliances ala Pagano and Volpin (2005), wherein management bribes workers to garner worker support in thwarting hostile takeover threats and (2) To substitute wages with ESOP shares by cash constrained firms. Worker compensation increases when firms under takeover threats adopt large ESOPs, but only if the firm operates in a non-competitive industry. The effects on firm valuation also depend on the strength of product market competition: When the competition is strong (weak), most of the productivity gains accrue to employees (shareholders). Competitive industry also implies greater job mobility within the industry, enabling workers to take a greater portion of productivity gains.
    Keywords: ESOPs, Employee Incentives, Worker Wages and Compensation, Product Market Competition
    JEL: G32 M52 J54 J33
    Date: 2009–12
  14. By: Antonio Mele
    Abstract: Does capital markets uncertainty affect the business cycle? We find that financial volatility predicts 30% of post-war economic activity in the United States, and that during the Great Moderation, aggregate stock market volatility explains, alone, up to 55% of real growth. In out-of-sample tests, we find that stock volatility helps predict turning points over and above traditional financial variables such as credit or term spreads, and other leading indicators. Combining stock volatility and the term spread leads to a proxy for (i) aggregate risk, (ii) risk-premiums and (iii) monetary policy, which is found to track, and anticipate, the business cycle. At the heart of our analysis is a notion of volatility based on a slowly changing measure of return variability. This volatility is designed to capture long-run uncertainty in capital markets, and is particularly successful at explaining trends in the economic activity at horizons of six months and one year.
    Date: 2009–11
  15. By: Anaïs Hamelin (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and LaRGE, Institut d’Etudes Politiques, Université de Strasbourg, France.)
    Abstract: This paper investigates the influence of firm control structure on firm individual economic performance using a unique firm level data set of ownership and balance sheet information. This study fills a gap in the empirical governance literature by investigating whether or not there is expropriation of minority shareholders in small business groups. Contrary to what is usually observed for large business groups’ results show a positive relationship between the separation of control from ownership and firm performance. Results also underline that tunneling, in small business groups, seems motivated by controlling shareholders’ profit stability rather than profit maximization.
    Keywords: Ownership, Control, Tunneling, Small Business.
    JEL: G32 G34
    Date: 2010–01
  16. By: Björn Bartling (University of Zurich); Ernst Fehr (University of Zurich); Klaus M. Schmidt (University of Munich)
    Abstract: In recent decades, many firms offered more discretion to their employees, often increasing the productivity of effort but also leaving more opportunities for shirking. These “high-performance work systems” are difficult to understand in terms of standard moral hazard models. We show experimentally that complementarities between high effort discretion, rent-sharing, screening opportunities, and competition are important driving forces behind these new forms of work organization. We document in particular the endogenous emergence of two fundamentally distinct types of employment strategies. Employers either implement a control strategy, which consists of low effort discretion and little or no rent-sharing, or they implement a trust strategy, which stipulates high effort discretion and substantial rent-sharing. If employers cannot screen employees, the control strategy prevails, while the possibility of screening renders the trust strategy profitable. The introduction of competition substantially fosters the trust strategy, reduces market segmentation, and leads to large welfare gains for both employers and employees.
    Keywords: job design, high-performance work systems, screening, reputation, competition, trust, control, social preferences, complementarities
    JEL: C91 D86
    Date: 2009–01
  17. By: Zeno Enders
    Abstract: A model of segmented asset markets is developed, in which varieties of consumption bundles are purchased sequentially. By this, a non-degenerate heterogeneity in wealth and the effective elasticity of substitution across households arises, affecting optimal markups chosen by firms. Furthermore, the model features an internal propagation mechanism that stems from the slow dissemination of newly injected money via second-round effects. These mechanisms generate a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, procyclical profits and wages after monetary shocks. Furthermore, the responses of output, inflation, hours worked, velocity, and profits are quantitatively in line with VAR evidence.
    Keywords: Limited Participation, Countercyclical Markups, Liquidity Effect, Segmented Asset Markets
    JEL: E31 E32 E51
    Date: 2009–12
  18. By: Choi, Kangsik
    Abstract: This paper investigates Bertrand competition of unionized mixed duopoly when the public firm is less efficient than the private firm, including endogenous imposition of the budget constraint on the public firm. Thus, we show that if the public firm's inefficiency is sufficiently small, no imposition of budget constraint is more likely to improve welfare and vice versa. Moreover, we suggest that in either budget constraint or non-budget constraint, the wages of the public firm can be smaller or larger than those of private firm depending upon the degree of inefficiency, which draws contrast to the finding of the previous literature. These results means that both the public firm and its union may or may not have different preferences with regard to the imposition of budget constraint depending upon both the degree of inefficiency and imperfect substitutability.
    Keywords: Mixed Duopoly; Bertrand; Union; Budget Constraint; Inefficiency; Social Welfare.
    JEL: J51 L13 D43 H44
    Date: 2010–01–12
  19. By: Addison, John T.; Schnabel, Claus
    Abstract: Despite its lack of attractiveness to other countries, the German system of quasiparity codetermination at company level has held up remarkably well. We recount the theoretical arguments for and against codetermination and survey the empirical evidence on the effects of the institution, tracing the three phases of a still sparse literature. Recent findings hold out the prospect that good corporate governance might include employee representation by virtue of the monitoring function and the reduction in agency costs, while yet cautioning that the optimal level of representation is likely below parity. And although the German system may be better than its reputation among foreigners, it might have to adapt to globalization and the availability of alternative forms of corporate governance in the EU. --
    Keywords: codetermination,worker directors,board-level employee representation,firm performance,Germany
    JEL: J50
    Date: 2009
  20. By: Helmers, Christian (University of Oxford); Schulte, Christian (Ludwig-Maximilians-Universität München); Strauss, Hubert (European Investment Bank, Economic and Financial Studies)
    Abstract: This study presents new estimates of business R&D capital stocks for 22 countries at the aggregate and industry levels. At 9 percent of GDP, the EU business R&D capital stock falls short of its US and Japanese counterparts. Within the EU, R&D capital stocks are much lower in the southern and the new member states, reflecting large and persistent disparities in R&D expenditure. There was hardly any convergence over the past decade. The R&D capital stock is concentrated on three technologyintensive manufacturing industries and is positively correlated with growth in total factor productivity across countries and industries. Finally, the ratios between the stocks of R&D capital and tangible capital suggest marked differences in how R&D and tangible capital are combined in production.
    Keywords: R&D capital stock; R&D expenditure; tangible capital stock; R&D intensity; high-tech manufacturing
    JEL: E22 L60 O30 O47
    Date: 2009–12–23
  21. By: Breitmoser, Yves
    Abstract: This paper analyzes a T-stage model of oligopoly where firms build up capacity and conclude forward sales in stages t<T, and they choose production quantities in t=T. We consider the case of n firms with asymmetric marginal costs. In the two-stage game, the set of outcomes is a quasi-hyperrectangle including Cournot, Allaz-Vila, and all two-stage Stackelberg outcomes. In general, it consists of T-1 such hyperrectangles where the lower bound approaches the Bertrand outcome as T tends to infinity. In the limit, a range of outcomes stretching from Cournot via Stackelberg to Bertrand can result in equilibrium, i.e. the mode of competition is entirely endogenous.
    Keywords: forward sales; capacity precommitment; Cournot; Stackelberg; Bertrand
    JEL: D43 C72
    Date: 2010–01–13
  22. By: Bartel, Ann P. (Columbia University); Lach, Saul (Hebrew University, Jerusalem); Sicherman, Nachum (Columbia University)
    Abstract: We present a dynamic model where the probability of outsourcing production is increasing in the firm’s expectation of technological change. As the pace of innovations in production technologies increases, the less time the firm has to amortize the sunk costs associated with purchasing and adopting new technologies to produce in-house. Therefore, purchasing from market suppliers, who can afford to use the latest technology, becomes relatively cheaper. The predictions of the model are tested using a panel dataset on Spanish firms for the time period 1990 through 2002. In order to address potential endogeneity problems, we use an exogenous proxy for technological change, namely the number of patents granted by the U.S. patent office classified by technological class. We map the technological classes to the Spanish industrial sectors in which the patents are used and provide causal evidence of the impact of expected technological change on the likelihood and extent of production outsourcing. No prior study has been able to provide such causal evidence. Our results are robust to the inclusion of detailed characteristics of the firms as well as firm fixed effects.
    Keywords: outsourcing, technological change
    JEL: J21 L23 L24 O33
    Date: 2009–12
  23. By: Raghav Gaiha; Katsushi S. Imai; Ganesh Thapa; Woojin Kang
    Date: 2010
  24. By: Sandra Poncet; Walter Steingress; Hylke Vandenbussche
    Abstract: This paper uses a unique micro-level data-set over the period 1998-2005 on Chinese firms to test for the existence of a "political-pecking order" in the allocation of credit. Our findings are threefold. Firstly, private Chinese firms are credit constrained while State-owned firms and foreign-owned firms in China are not; Secondly, the geographical and sectoral presence of foreign capital alleviates credit constraints faced by private Chinese firms. Thirdly, geographical and sectoral presence of state firms aggravates financial constraints for private Chinese firms (“crowding out”). Therefore it seems that ongoing restructuring of the state-owned sector and further liberalization of foreign capital inflows in China can help to circumvent financial constraints and can boost the investment of private firms.
    Keywords: Investment-cashflow sensitivity; China; firm level data; foreign direct investment
    JEL: E22 G32
    Date: 2009–11
  25. By: Eyal Ert (Harvard Business School); Ido Erev (Faculty of Industrial Engineering and Management, Technion - Israel Institute of Technology.)
    Abstract: Five studies are presented that explore the assertion that losses loom larger than gains. The first two studies reveal equal sensitivity to gains and losses. For example, half of the participants preferred the gamble "1000 with probability 0.5; -1000 otherwise" over "0 with certainty." Studies 3, 4, and 5 address the apparent discrepancy between these results and the evidence for loss aversion documented in previous research. The results reveal that only under very specific conditions does the pattern predicted by the loss aversion assertion emerge. This pattern does not emerge in short experiments or in the first 10 trials of long experiments. Nor does it emerge in long experiments with two-outcome symmetric gambles, or in long experiments with asymmetric multi-outcome gambles. The observed behavior, in these settings, reflects risk neutrality in choice among low-magnitude mixed gambles.
    JEL: C91 D01
    Date: 2010–01
  26. By: Francis X. Diebold (University of Pennsylvania and NBER); Kamil Yilmaz (Koc University)
    Abstract: Using a generalized vector autoregressive framework in which forecast-error variance decompositions are invariant to variable ordering, we propose measures of both total and directional volatility spillovers. We use our methods to characterize daily volatility spillovers across U.S. stock, bond, foreign exchange and commodities markets, from January 1999 through September 2009. We show that despite significant volatility fluctuations in all four markets during the sample, cross-market volatility spillovers were quite limited until the global financial crisis that began in 2007. As the crisis intensified so too did the volatility spillovers, with particularly important spillovers from the bond market to other markets taking place after the collapse of Lehman Brothers in September 2008.
    Keywords: Asset Market, Asset Return, Stock Market, Market Linkage, Financial Crisis, Contagion, Vector Autoregression, Variance Decomposition
    JEL: G1 F3
    Date: 2010–01

This nep-bec issue is ©2010 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.