Journal of Finance and Economics Journal of Finance and Economics aims to address the latest research in finance and economics and to contribute to the development of finance and economics and its applications. The JFE seeks to publish original research papers in all fields of the economics and finance. The scopes of JFE include, but not limited to, the following topic areas: Microeconomics, Macroeconomics, Econometrics, Economic History, Economic Systems, Monetary Economics, Business Economics, Economic Development, Environmental and Ecological Economics, Financial Economics, International Economics, Labor and Demographic Economics, Law and Economics, Public Economics, Agricultural and Natural Resource Economics, Urban, Rural and Regional Economics, Spatial Economics, Sociology Economics, International Finance, Financial Theories, Corporate Finance, Financial Analysis, Policy Making, and relevant subjects. Both theoretical and empirical contributions are welcome. Oil Price Shocks: Bank Size and Firm Size Effects This paper uses regional variation to study the propagation of oil price shocks from vector autoregressions. Using data from the lower 48 states, we find strong and distinct asymmetrical patterns in the impulse responses of personal income and housing prices from an oil price shock. Specifically, impulse responses are amplified or dampened depending on the size distributions of banks and firms within a state. More importantly, the small bank and small firm size effects normally associated with the propagation of monetary policy shocks, are shown to propagate oil price shocks. Overall, our results are indicative of multiple transmission channels. Volume 10, Issue 1, 2018 Post Brexit Transatlantic Trade: A Monetary Approach It is indispensable to assess how trade and FDI among the UK and the rest of world would be affected post-Brexit. This paper investigates how Brexit will affect exports and FDI from China, EU, and the US to the UK economy. Using econometric models with time series quarterly data for the period of 2001 through 2017 the results of this quantitative study indicate that Brexit will have significant impacts on trade and FDI from China, the United States, and EU to the UK. The topic is of great importance because it has severe consequences not only for the UK economy but also for the rest of the world. The quantitative results of this study suggest that Brexit has a negative statistically significant impact on trade and FDI from the EU and the US to the UK; however, trade and FDI from China will increase post-Brexit since China is highly integrated into the UK economy and has already established close trade relationships with the UK through mergers and acquisitions in recent years. Volume 10, Issue 1, 2018 Country-of-Origin and Brand Image in Global Outsourcing Adjustment A global firm may need to adjust its outsourced functions when it competes in the global market place. The outsourcing adjustment will product two effects, brands image effect and the country of origin effect. The paper considers a setting of two global firms, where each has a manufacturing facility in one of the two developing countries but sell their differentiated products in a developed country. The product differentiation is solely based on differences in brand image (BI), country of origin (COO) and their interaction. We demonstrate how firms make location choices in equilibrium as driven by these effects and their inner working relations. We then look at the optimal behaviors of the firms to consider moving, when they receive outside shocks to the demand structure. We show that a firm’s moving decision is not only driven by the COO sensitivity to its own product by the COO sensitivity to its rival’s product as well. Our location choice model based on COO and BI considerations also has strong policy implications for host countries, particularly developing countries which are often times the receiving end of FDI. From the firm’s perspective, the important factors driving the decision to move are the country’s COO value and consumers’ sensitivity towards COO. In that regard, it is in the host government’s interest to maintain and strive for a higher COO value. This is because an adverse incident coming from one exporter or an entity catering to the outsourcing market that tarnishes the COO image tends to have a contagious effect that spreads to other industries. Volume 10, Issue 1, 2018 Do Payment Systems Matter: A New Look In this paper, we consider two alternative pure payments systems—the trade of goods for goods, or barter, and trade using intrinsically valueless fiat money. Here, the term payment system refers to the method of executing mutually beneficial trades, and ‘pure’ means that each method of exchange is considered exclusively. Each payment system is examined in an economy with location-specific commodities, and households consist of vendor-shopper pairs. The household’s decision problem includes a distance-related transaction cost; that is, the cost of trading with anyone from another location increases as the distance from the home location increases. We then ask, is the equilibrium set of consumption goods—and the quantity of each type—invariant to whether the vendor or the shopper pays the transaction cost? The answer is that in economies with monetary settlements, invariance fails. Volume 9, Issue 1, 2018 The Influence of Financial Status on the Safety Performance of Regulated Companies: The Role of Enforcement A better understanding of the link between a firm’s financial status and its regulated performance can help to improve the design of regulatory regimes and lead to more efficient regulatory structures. To date, however, the literature investigating this link has not considered the role that regulatory enforcement plays in determining how financial status affects performance. This paper analyzes how regulatory enforcement affects the relationship between financial status and the safety performance of regulated firms. It examines a particular form of safety performance, namely, the environmental performance of companies regulated under environmental protection laws. In particular, our study explores this effect in the context of the regulation of water pollution using data on wastewater discharges from U.S. chemical manufacturing facilities for the years 1995 to 2001. The results suggest that enforcement in general can play an important role in shaping the effects of financial status on safety performance. Volume 9, Issue 1, 2018 European Market Factors and Macroeconomic Fundamentals: Trend at Firm Level Including the IT Bubble and Sovereign Debt Crisis We analyse the trend in global, country and industry effects at firm level based on an extensive database of 2048 equities spread over 17 European economies and 10 industry groups, running from 1974 to 2013. We find significant increasing market integration and decreasing country effects for most countries and industries since the advent of the EMU. However, these effects are now reversing in the wake of the sovereign debt crises. Industrial factor effects have decreased in technological sectors and increased in “old economy” sectors since the bursting of the IT bubble, and are larger than country effects in most countries and industries. From a macroeconomic point of view, we report evidence of a link between the percentage of variance that can be attributed to the country effect and government budget deficits/surpluses and sovereign risks. More strikingly, we find that global common factor effects anticipate changes in GDP by one to three terms. These results support the notion of market integration having macroeconomic predictive power. Volume 8, Issue 1, 2018 A Dynamically Engaged University, Knowledge Spillovers, and the Local Economy An engaged university is deeply embedded in its local community, entwined in various economic, social, and professional networks over which creative and innovative ideas circulate. In keeping with its core mission of education, an engaged university can leverage these networks by implementing a research agenda designed to gain a better understanding of the propagation and exchange of ideas over the networks in which it operates. We refer to a university that has adopted such an agenda as a dynamically engaged university. Guided by a strategic plan that recognizes and supports the study of networks, a dynamically engaged university is then positioned to effectively differentiate itself from online education, local community colleges, and less community-oriented universities. By promoting education focused on networks, the dynamically engaged university spurs local economic growth in ways not previously explored. Volume 8, Issue 1, 2018 A Short Note on the Potential for a Momentum Based Investment Strategy in Sector ETFs The focus of this research is on the enhanced one-year average annual return performance of Select Sector SDPR EFFs with the highest average annual realized return over the previous five-year period [MaxRet strategy]. From 2004 through 2015, the MaxRet strategy generates a higher average annual total return than an equal weight portfolio [EW strategy] of the same sector funds. The average annual return for the MaxRet strategy is 14.13% compared to 9.75% for the EW strategy. In addition, the coefficient of variation [CV] for the MaxRet and EW strategies are 1.52 and 1.59 respectively. The MaxRet strategy, therefore, is a more efficient strategy in that it generates less standard deviation risk per unit of average annual return than the EW strategy over the study period. Measures of downside risk further support the enhanced out-of-sample performance of the MaxRet strategy. Volume 8, Issue 1, 2018 Shareholder Value and Industry Decline We examine, from the point of view of shareholders’ value, different strategies adopted by integrated steel firms in response to severe industry decline. We calculate the annual return generated from investing in integrated steel firms during the decline, assuming that all dividends paid out by a firm as well as any residual value left if the firm exited were invested in the S&P 500, and compare those cumulative annual growth rates to growth of an investment in the S&P over the same period. We find that firms that maintained or increased their investment in steel mostly generated lower returns, although conglomerate mergers in some cases cushioned the loss to shareholders. On average, corporations able to exit from steel entirely did best, particularly if they sold out earlier or if the steel assets were not the core business of the corporation. Volume 7, Issue 1, 2018 Consumer Perceptions of Price Reframing in an In-Store Decision Context This article compares consumer responses to price reframing methods in an in-store decision context where price comparisons among brands can be conducted. The methods examined are measure-based unit pricing, usage-based unit pricing, and temporal reframing of price. They differ in the unit used for calculating reframed prices: measure-based unit pricing uses weight or volume, usage-based unit pricing uses usage account, and temporal reframing of price uses time. This area of research has not been fully explored. Results from a laboratory experiment showed that measure-based and usage-based unit pricings were evaluated better than temporal reframing of price on usability, likeability, and comprehensibility. Also, measure-based unit pricing was the best at making the choice perceived easier, whereas usage-based unit pricing was the best at increasing the attractiveness of retail prices. Moreover, consumers who chose the brand with the lowest reframed price generated favorable price and quality perceptions for the chosen brand when usage-based unit pricing or temporal reframing of price was used but generated only favorable price perception when measure-based unit pricing was used. Volume 7, Issue 1, 2018 Addressing Longevity’ Heterogeneity in Pension Scheme Design This paper demonstrates that the link between heterogeneity in longevity and lifetime income across countries is mostly high and often increasing; that it translates into an implicit tax/subsidy, with rates reaching 20 percent and higher in some countries; that such rates risk perverting redistributive objectives of pension schemes and distorting individual lifecycle labor supply and savings decisions; and that this in turn risks invalidating current reform approaches of a closer contribution-benefit link and life expectancy-indexed retirement age. The paper suggests and explores a number of interventions in the accumulation, benefit determination, and disbursement stages to address longevity’ heterogeneity. Volume 6, Issue 1, 2017 Unemployment Orthodoxy: Fiscal or Monetary Policy? Case Study of France France's economy has suffered from an unprecedented unemployment rate of above 10% over the past decade. The topic is widely debated among economists; while monetary economists argue contractionary monetary policy and austerity plans are the roots of high unemployment rate, New Keynesians believe fiscal policy and high corporate tax rates are the roots of problem. Lucas critique conjectures that monetary policy has only short term effects on real variables including unemployment. This study tests the hypothesis whether fiscal policy plays a more important role than monetary policy in shaping unemployment in France. The paper implements several econometric models to find out which group of policy variables is more effective in combating unemployment. Indeed, the study tests the hypothesis whether New Keynesian models have a better prediction power in explaining unemployment rate than New Classical models. Implementing quarterly data for the period of 1980-2015 and using OLS and GMM techniques the study finds out fiscal policy variables are the most important factors in shaping unemployment rate in France, supporting New Keynesian proposition. Volume 6, Issue 1, 2017 Modelling Alpha in a CAPM with Heterogenous Beliefs The alpha is one of the most used terms in finance. Yet, the alpha is mystical since it has no theory. It is, for example, in contradiction to the standard CAPM with homogenous beliefs. The purpose of this paper is to show that the alpha naturally arises in a financial market equilibrium when the CAPM is extended to heterogenous beliefs. We show that the hunt for alpha-opportunities is a zero-sum game and that alpha-opportunities erode with the assets under management. Moreover, it is shown that a positive alpha is not necessarily a good criterion for the choice between active and passive investment. Finally, we argue that the standard CAPM with homogenous beliefs can be seen as the long run outcome of our model when investors' expectations are linked to the trading success. Volume 5, Issue 2, 2017 Spillover Effects among the Main Stock Markets in China’s Capital Market Opening Process With the opening and development of China’s capital market, mainland China and the world’s stock market is increasingly close. This paper explores the volatility spillover effect between China’s stock market and the world’s major ones to study the transmission path of stock market risk and provides policy suggestions for promoting development of China’s stock market. We selected daily returns of four large indices from December 26, 1996 to March 1, 2016 as the main object to study and analyze Shanghai Composite Index, Hong Kong Hang Seng Index, American Dow Jones Index, and British Financial Times Index. According to the different degree of openness of China’s capital market, the samples are divided into five sub-stages. Granger test and DCC-MGARCH model are used to analyze the causal relationship and dynamic correlation of the mainland stock market and the major ones in the world. To avoid the volatility and risks, we found corresponding measures. The empirical results show that the implementation of WTO and the QFII system cannot effectively promote the internationalization of the stock market in China. However, the exchange rate reform of RMB and Shanghai-Hong Kong Stock Connect Program have greatly improved the linkage between Chinese and international stock markets. Volume 5, Issue 2, 2017 Impacts of US Monetary Normalisation on Corporate Bond Market in Emerging Asia This paper studies the potential impacts of US monetary normalisation on the emerging Asian corporate bond market, which has experienced explosive growth in recent years and become a crucial source of financing for the regional corporate sector. After controlling for global and economy-specific variables, we find that increase in US Treasury yields has the effects of reducing issuance, though only moderately, and shortening tenor in the corporate bond markets in emerging Asia. While no direct impact of US Treasury on corporate bond pricing is found, there is likely to be an indirect impact through domestic sovereign bond yields, in light of the significant pass-through from domestic sovereign to corporate bond yields, as well as evidence found on the pass-through from US Treasury yields to sovereign yields in the region in previous studies. Volume 5, Issue 2, 2017 Monetary Transmission: The Federal Funds Rate and the London Interbank Offered Rate (LIBOR) This paper examines the effectiveness of a monetary transmission mechanism from the federal funds rate to the London Interbank Offered Rate (LIBOR). In particular, the paper employs a co-integration and vector error correction models to examine the degree and the direction of pass-through from the federal funds rate to the LIBOR. Two sub-periods are selected, 1987:02-1994:01 and 1994:02-2002:05, in order to examine this relationship. Results indicate a significant co-integration relationship between the federal funds rate and the LIBOR for the first and second periods. However, in the second period, the two variables adjust differently to a deviation from equilibrium. Volume 5, Issue 1, 2017 Determinants of Credit Default Swap Spreads: A Four-Market Panel Data Analysis This paper attempts to elucidate whether firm performance and macroeconomic conditions play a significant role in explaining credit default swap (CDS) spreads. Our panel dataset covers 112 reference entities in four markets (South Korea, Hong Kong, France, and Germany) for the period 2001-12. Overall, our results suggest that market value indicators (Tobin’s Q, stock market returns, and the interest rate) appear to be more important than book value indicators (i.e., ROA, ROE, and the GDP growth rate) in determining CDS spreads. Moreover, Asian CDS markets are shown to be more sensitive to both GDP and stock market volatility, than the two European markets. Finally, the 2007-09 global financial crisis may have significantly affected the CDS market as a whole, but it generally did not affect the individual markets. These results are robust to various model specifications. This paper contributes to the understanding of CDS determinants at firm-, economy-, and market-level. Volume 5, Issue 1, 2017 Individual Risk Preferences and Better Car Replacement We conduct a survey to examine the impact of individual risk preferences on better car replacement decision in the insurance market. The survey consists of a lottery choice task and an insurance questionnaire. Our results strongly support contentions that consumers are significantly influenced by their risk attitudes and the insurance premium. Further, we find that female consumers are more influenced by their degree of risk aversion than male consumers when making such insurance decision. Moreover, our results show that when the level of risk aversion is controlled, the individual risk preferences have different magnitudes of impact on insurance decision making. Volume 4, Issue 4, 2016 Monetary Union Dynamics with Unsustainable Public Debt The goal of this paper is to model the dynamics of an economy belonging to a monetary union, when the possibility of leaving that union arises. For this, we extend the Drazen-Helpman (1990) model, introducing a new component of the interest rate, i.e. the "spread", that allows for bridging the interest rates’ dynamics inside the union with the anticipated future outside the union. In the context of the neoclassical Ramsey infinite horizon model, with optimizing individuals and competitive markets, the spread, differently from inflation, affects the real side of the economy as a sort of distortionary taxation on investments. This implies that a country belonging to the monetary union but characterized by weak public finances will suffer from lower capital accumulation, lower output, and lower consumption levels than the ones achievable by the steady state "golden rule". In reality, we will show that Pareto-optimality requires either to embrace the path to a fiscal union or to break-up. In this paper the focus is on the break-up option, when public debt becomes unsustainable. We analyse the dynamics of the economy before and after the break-up, with specific attention to interest rates, capital accumulation and exchange rate. We derive that the nominal interest rate will not change around the break-up event, thanks to the “bridging” property of the spread. The real interest rate instead will decrease, and consumption will jump down, allowing for higher investments necessary to reconstitute the optimal stock of capital. The exchange rate will overshoot initially and then will appreciate, converging toward the new equilibrium level. Volume 4, Issue 4, 2016 Targeting Asset Bubbles: Evolution of Policies Before the Great Recession the policy was not to interfere with increases in asset values, and if any resulting asset bubble crashes led to financial instability, then policies would be enacted to help the recovery. The crash that led to the recent financial crisis changed the mind of many researchers as they more thoroughly investigated the present and the past crises concluding that more attention needs to be paid to financial stability. This involved microprudential policies, meaning policies that would stabilize financial firms, as well as experimentation with macroprudential policies whose purpose is to stabilize a specific sector. By stabilizing a sector, the hope is that no spill over would take place to destabilize the financial system. Volume 4, Issue 4, 2016 An Examination of Foreign Exchange Reserve and Inflation Relationship of Four West African Countries: Evidence from ADRL Model The objective is to provide the empirical evidence regarding the relationships between foreign exchange reserves and inflation for four West African countries namely Cote d’Ivoire, Senegal, Ghana and Nigeria. A comparison of empirical evidence is obtained from the Autoregressive distributive lag model (ARDL) proposed by Pesaran, Shin and Smith (2001) using annual data running the period of 1972 to 2014. The empirical result shows that the relationship between the change in foreign exchange reserves and inflation rate is positive for the countries cited above in long run but the overall short run estimation of our model is insignificant at the conventional level. This means that rise in foreign exchange reserves leads to increase the rate of inflation. Regarding our investigation results, the study suggests that governments of these countries cited above should pay more attention to foreign exchange system management by enlarging open market operations. Moreover, they can use sterilization or other policy instruments to reduce foreign exchange reserves to stabilize domestic economy. According our overall empirical results, we propose the following suggestions. First, the central bank expands the base money supply channels and offers a variety of sterilization methods. Second, reinforce coordination of monetary and fiscal policy, and adopt comprehensive measures to promote the international payments balance. As West African countries’ economy is growing rapidly, exchange reserves will still growth and the inflation is an urgent issue too. Therefore, it’s still very important for these countries to reduce the negative effect of the excessive foreign exchange reserves. Volume 4, Issue 4, 2016 Cost-Benefit Analysis of Disaster Mitigation Infrastructure: The Case of Seawalls in Otsuchi, Japan Disaster management problems often pose the same types of challenges that environmental governance problems do; they involve decision-makers at various levels and can transcend political boundaries. We conduct a benefit-cost analysis of a disaster adaptation strategy in Otsuchi, which was undertaken shortly after the 2011 Tohoku earthquake and tsunami devastated the region. Results indicate that present value net benefits from the planned seawall are positive, even if expected damages are low, provided that the wall is capable of reducing damage by at least 50%. A hybrid method of governance may, however, be effective at increasing the benefit-cost ratio. Volume 4, Issue 3, 2016 Remittances, Household Investment and Poverty in Indonesia This paper analyzes the impact of international remittances on household investment and poverty using panel data (2000 and 2007) from the Indonesian Family Life Survey (IFLS). Using a three-stage conditional logit model with instrumental variables to control for selection and endogeneity, it finds that households receiving remittances in 2007 spend more at the margin on one key consumption good (food) and more at the margin on one important investment good (education) compared to what they would have spent on these goods without the receipt of remittances. Using a bivariate probit model with random effects to control for selection and simultaneity, the paper also finds that households receiving remittances are less likely to be poor compared to a situation in which they did not receive remittances. These findings are important because they show that households can use remittances to help build human capital and to reduce poverty in remittance-receiving countries. Volume 4, Issue 3, 2016 Creaming and Dumping: Who on Whom? In several countries, some healthcare providers combine public service with practice in their own facilities (dual-job practitioners). According to the existing literature, they are viewed as cream-skimming profitable (low-severity) public patients to the benefit of private practice, causing cost of treatment in the public sector to increase. If true, this is particularly problematic when public provider payment is prospective. However, two facts seem to be neglected. First, cream skimming involves effort and thus does not occur in all circumstances. Second, public providers might have an incentive to select patients too, resulting in dumping of the least profitable (high-severity) patients on the private sector. Thus, average cost of treatment in public hospitals does not have to increase, and might even decrease. This paper derives the conditions under which both creaming and dumping are predicted to occur. Volume 4, Issue 3, 2016 The Impact of Globalization on Subnational Expenditures: Efficiency and Compensation Effects The aim of this paper is to study the effects of economic openness and globalization on the structure of provincial government expenditures in Argentina. In particular, we are interested in the effects on social expenditures and its components, as an expression of the welfare state. Much of the existing literature has examined this relationship at the country level. This work contributes to this literature by extending analysis to the subnational sector. A dynamic panel data model is estimated using GMM – both in Differences and in Systems for the 24 jurisdictions of Argentina (23 provinces and the city of Buenos Aires) over the period 1993-2010. The paper includes a measure of globalization adapted from the KOF index proposed by Dreher (2006) which is estimated at the level of sub-national governments. Results indicate that economic openness and globalization have a negative impact on the participation of social expenditures. This is the expected result taking into account the “efficiency” effect versus the “compensation” effect. Volume 4, Issue 2, 2016 Evidence on the Co-Integration of the Determinants of Foreign Direct Investment in Ghana The mining industry has traditionally been a major recipient of foreign direct investment in sub-Saharan Africa and has commonly been an important foreign exchange earner for the region. The purpose of this study is to empirically determine the factors that have influence FDI flows in Ghana from 1983 to 2012, using co-integration analysis. The major empirical and methodological contribution of this study is the use of co-integration approach to determine FDI inflows to the mining sector in Ghana. The results of the study registered exchange rate, inflation and openness of trade to be significant in the long run. Natural resources were designated to have a negative long-run relationship between FDI inflows. GDP was used as a proxy for market size and economic liberalization were also registered to be insignificant. In the short run all the variables were found to be insignificant except natural resources which contributed negatively and significant to the mining sector. One economic task facing Ghana, therefore, is how to articulate the necessary policies that can attract the right kind of FDI in the mining sector. Volume 4, Issue 2, 2016 A Comparative Study with Quantile Regression and Back Propagation Neural Network for Credit Rating In this study, we use the quantile regression and the back propagation neural network to construct a credit rating model for companies listed in Taiwan Stock Exchange and Over-The-Counter. The data we use is from 1997 to 2013 in Taiwan. The data in the period from 1997 to 2005 is in sample and the data in the period from 2006 to 2013 is out of sample. TCRI established by TEJ is used as a dependent variable to analyze the relationship between 12 financial ratios and credit rating. Our results show that the average forecasting correction rate based on the propagation neural network, which is about 70%, is higher than that based on the quantile regression, which is about 60%. However, investors and financial institution are mainly concerned about the companies facing bankruptcy so they are more interested in which companies bear higher risk. In this case, the quantile regression can provide higher forecasting correction rate for low-credit-ranking companies, which is about 80%, than that provided by the back propagation neural network, which is about 55%. Volume 4, Issue 2, 2016 Financial Assurance versus Liability as Solutions to the Judgment-Proof Problem A firm is said to be judgment-proof if it can cause an accident and then skirt its environmental liabilities by pleading bankruptcy. Judgment-proofness is a public-policy problem because it saddles society with uncompensated liability and stifles the firm’s incentive to undertake due care. We employ a simple lending model that incorporates moral hazard to compare three instruments designed to remedy the judgment-proof problem; namely, environmental bonds, mandatory liability insurance and liability. Incentives are unambiguously stronger under liability than they are under either bonds or mandatory insurance. Credit is more rationed and the span of potentially damaging projects is lower under bonds and mandatory insurance than they are under liability. The relative impact of these instruments on social welfare ambiguously depends on entrepreneurial wealth. Volume 4, Issue 1, 2016 Remittances and Savings in Asia: Some Empirical Evidence Based on the Life-Cycle Model This study empirically examines the effect of remittances on private real savings for a sample of Asian economies using cross-country time-series data. Our findings consistently show that remittance inflows in Asian countries are positively and statistically significantly correlated with their private real savings. Our findings also reveal economic growth, real deposit interest rate and credit provided by the banking sector as other significant determinants of private real savings. Some policy implications are drawn. Volume 4, Issue 1, 2016 The Effects of Global and Regional Shocks on Asian Business Cycle Synchronization This paper studies the evolution of the degree of Asian business cycle synchronization and assesses the impact of global and regional shocks on output interdependence across Asia since the 1990s. We employ a dynamic factor model to decompose output fluctuations into a global factor common to all countries in our sample, regional factors that capture any remaining common fluctuations across countries within each region, and an idiosyncratic component that captures country-specific characteristics. In particular, we categorize the 19 countries in our sample into four groups -- non-Asia, East Asia, South Asia and Southeast Asia, thereby accounting for heterogeneous dynamics of sub-regional co-movement. Results show that, over the past two decades, global shocks and regional shocks are playing a critical role in determining Asian output synchronization. As the process of globalization has picked up, both shocks increasingly explain the co-movement of output, which leads to a higher degree of business cycle synchronicity across Asia. Volume 4, Issue 1, 2016 Profits, Firm Size, Growth Opportunities and Capital Structure: An Empirical Test This study aims to answer three very basic questions regarding the capital structure of firms by testing the predictions made by the trade-off theory of capital structure. It employs a variety of data specification to test the relationship of financial leverage with profits, growth and firm size and takes help from existing literature for and against the trade-off model. It aims at testing the relatively aged literature, which widely disregarded the trade-off model with later studies that suggested that adequate data structure does report this theory to be empirically valid. The variety of specifications of data does lead the author to the general result that although most of the predictions of the trade-off model hold true empirically, the results of estimation on profits and leverage still hold that the model only had limited validity empirically. Volume 4, Issue 1, 2016 Post Keynesian Theory and Evidence of Money Supply Endogeneity: A Review Essay Money is the life-blood of any modern market-oriented economy. The level of money supply - the quantity and velocity of money circulated in such an economy would determine its health. The central issue in managing the economy is to understand how money supply is determined. The history of modern monetary economics actually has witnessed the emergence of two opposing views pertaining to the role of central bank in controlling the supply of money in an economy. A group of economists, known as monetarists, under the influence of Milton Friedman, contended that money supply in an economy is exogenously determined. Post Keynesian however holds the view that money supply is endogenously rather than exogenously determined. Examining the theory of endogenous money as well as empirical work, the present paper has found that money supply in several countries is endogenously determined. Volume 3, Issue 4, 2015 The Impact of Political Events Related to European Fiscal Governance on the Volatility of a Time-Varying Risk Premium in Euro Foreign Exchange Markets: The Early Years of European Fiscal Governance This article examines whether and to what extent non-scheduled and scheduled political events concerning the European fiscal governance have influenced the volatility of the euro risk premium. In particular, this study estimates how political behavior by the European Commission, the Economic and Financial Affairs Council, and the European Council has impacted the volatility of a time-varying risk premium of the euro vis-à-vis the US dollar and the Swiss franc. Analyzing daily data, the empirical results point to crucial shortcomings of the legal framework of European fiscal governance, which are detectable even in this legal framework’s early years. Volume 3, Issue 4, 2015 The Association between Earnings Persistence and Internal Control Quality: Evidence from China We investigated the association between internal control quality (ICQ) and earnings persistence (EP) in the Chinese capital market. Specifically, we examined how ICQ exerts an influence on EP, using data from listed A-share corporations in the Shanghai Stock Exchange and the Shenzhen Stock Exchange, from 2008 to 2011. We assumed that a more favorable internal control environment could prevent managers and employees from exploiting company resources or embezzling company property, preventing managers from using opportunistic earnings management (accrual-based or real earnings management) and motivating them to strive for the corporation. The company would thus be more likely to operate efficiently and effectively, resulting in higher EP. Consistent with this assumption, our findings suggest that firms with better ICQ have less real activities manipulation, and that a lesser extent of real earnings management results in higher EP. Volume 3, Issue 4, 2015 More Manipulation, Less Risk Taking? Executive stock options are a dominant component of managers pay in the United States. This common compensation feature entails two perverse side effects: driving managers to engage in manipulative practices, and generating excessive risk-taking. Tellingly, some scholars blame the first side effect for the wave of Enron-style fraud in 2001-2002 and the second for the 2007-2010 financial crisis. To date, however, no one has investigated the interaction between these two types of adverse incentives, for manipulation and risk-taking. In this paper, we study the effects of manipulation practices on risk-taking decisions of managers holding large amounts of stock options. We first show that sufficient manipulation restrains excessive risk-taking but it does not impede managers from taking beneficially risky projects. We then show that mild levels of manipulation have complex effects on managers’ preference for risk taking, but they too tend to decrease risk taking. Our analysis suggests that when regulation improves disclosure and impedes manipulative practices, excessive risk taking may erupt. Policy-wise, we recommend that anti-manipulative regulatory policies be accompanied by measures designed to prevent excessive risk taking. Volume 3, Issue 3, 2015 The Changing Influence of Underwriter Prestige on Initial Public Offerings Existing research finds that underwriter prestige is related to underpricing among initial public offerings. However, the relation is not stable through time. This study finds that the relation changed from negative to positive in 1993. When the sample is divided by level of underwriter prestige, underpricing by high-prestige underwriters exceeded underpricing by low-prestige underwriters for 18 of 20 years following 1993. The difference in underpricing between high- and low-prestige underwriters peaked in 1999 but continued after the market correction in 2000. High-prestige underwriters are responsible for the shift in underpricing that occurred in 1993. Volume 3, Issue 3, 2015 Has the Stock Market Become More Efficient in the Long-Run? Evidence from U.S Corporations Using the cointegration model to deal with nonstationary time series, we estimate the long-run relationship between the average stock price and the average dividend. The results from U.S. time series data of 141 years show that the discount rate is lower in the second half of this period, which indicates that stock market becomes more efficient and capital cost becomes lower in the long run. Along with well-documented narrowing of the bid-ask spreads of stocks over time and the growing speed of stock market order fulfillment, market efficiency is further exemplified by lower dividend yields. Volume 3, Issue 3, 2015 Trading Tasks and Skill Premia The 2x2x2 Heckscher-Ohlin model predicts that trade openness causes the skill premium to increase in the skill abundant developed countries, and to decrease in the skill scarce developing countries, after trade openness. Empirical evidence, however, shows that the skill premium declined in some developing countries, while others experienced an increase in wage inequality. This paper develops a North-South model, where firms produce a low-skilled and a high-skilled intensive good. The production of a unit of either good involves a continuum of L-tasks and H-tasks. The L-tasks can be performed by low-skilled workers only, and the H-tasks can be performed by high-skilled workers only. The Northern firms can produce the task in their headquarters, or offshore the task to the South. The results suggest there is a threshold skill abundance level in the South, above which countries experience an increase in the skill premium after an improvement in the offshoring technology, and below which countries experience a decrease in the skill premium. In this context, the North offshores the H-tasks to countries that are relatively more abundant in high-skilled labor, and L-tasks to countries that are relatively more abundant in low-skilled labor. Therefore, countries that become the hosts of L-tasks experience a decrease in the skill premium, because there will be higher demand for their low-skilled workers, while those that become the hosts of the H-tasks will experience an increase in the skill premium, because there will be higher demand for their high-skilled workers. This accounts for the asymmetric patterns of skill premia in the South. Volume 3, Issue 3, 2015 Lessons and Implications from the European Sovereign Debt Crisis The European sovereign debt crisis entered into the stage of contagion in the late 2010 as it spread first from Greece to Ireland, and then to Portugal and Spain. The European sovereign debt crisis truly resulted from a combination of various factors, some as more precipitating causes while others as more fundamental or deep-rooted causes. They include easy credit expansion during the 2003-2007 period, the global financial crisis and subsequent global recession of 2008-2012, fiscal and trade imbalances of the European countries involved in the crisis, and inherent structural problem of the EMU. From the experience of the European sovereign debt crisis, we could confirm some early warning indicators of a crisis such growth of domestic private credit and public borrowing, worsening government balances as well as external balances. Long-term interest rate spreads and an increase in fees charged by investment banks for bond issuance would be precipitating or concurrent warning indicators for a crisis. Implication from the European sovereign debt crisis for the euro area or potential economic and financial integration of East Asia is not necessarily to disband, break up or abandon a monetary union. Instead, a better alternative is to remedy problems and shortcomings exposed by the current crisis and to move toward a deeper integration. Volume 3, Issue 3, 2015 Stress Testing the Greek Banking System The financial stability and smooth function of the financial system constitute issues of high interest, particularly after the outbreak of financial crises. The current crisis generally proved that dysfunctions in the banking system cause systemic risk and turbulence in the economic environment and vice versa; the deterioration of the macroeconomic environment affects financial institutions. Our study has two objectives: the first is to identifying the effects of the macroeconomic environment on the smooth functioning of the Greek banking system and, specifically, to what extent the deterioration of economic conditions affects the credit risk of Greek banks. The second objective is to developing a macro stress-testing framework to assess the stability of the Greek banking system and the credit risk of Greek banks in particular in the context of a hypothetical deterioration of the macroeconomic environment. Volume 3, Issue 3, 2015 Investigating Robust Estimation and Forecasting of Volatilities of Futures with Interquartile Range Models A robust proxy of volatility, interquartile range is investigated with the estimation and forecasting of volatility of five American futures using GARCH-type models. With utilizing realized volatility as the yardstick of true underlying volatility, the Mincer-Zarnowitz (MZ) regression and four loss functions in Hansen and Lunde (2005) are employed as criterions for assessing the forecasting ability of competitive volatility models, both in sample and out of sample. It is found that, in samples of NY Light Crude (CL) and NY Natural Gas (NG) which are more volatile and have more extreme outliers than the other three, interquartile range models outperforms those standard models. But in samples of Dow Futures (DJ), Nasdaq 100 Futures (ND) and S&P 500 Futures (SP) which are relatively stable, the results are, however, opposite. Volume 3, Issue 2, 2015 An Econometric Study of the Long-Run Determinants of CO2 Emissions in Cote d'Ivoire This study investigates the long-run determinants of CO2 emissions in Cote d’Ivoire. It makes use of the bounds testing approach to cointegration and data covering the period 1970 to 2010. The main variables driving CO2 emissions are per capita income, the share of industrial sector in GDP and trade openness. The results also give support to the environmental Kuznets curve. More interestingly, the results show that the effect of trade openness on CO2 emissions depends on the structure of the economy and increases as the country industrializes. Additionally, trade openness and industrialization are complementary in worsening environmental quality in Cote d’Ivoire. Volume 3, Issue 2, 2015 Why do Firms Repurchase Shares? Evidence from Actual Share Repurchases In practice, the share repurchase announcement is not a commitment to managers. To this end, the large difference between the actual and announced share repurchases is often observed in markets. In this paper, we explore the implications from actual share repurchase activities, different from the existing methods which focus on the announcements of share repurchases and hence largely ignore the managers’ actual repurchasing activities. By considering actual share repurchases and controlling variables, the new empirical evidence found in this paper clearly supports the agency and investor divergence of opinion hypotheses, but not for the information asymmetry hypothesis. Volume 3, Issue 2, 2015 Heavy Tails in Foreign Exchange Markets: Evidence from Asian Countries In recent years, Extreme Value Theory (EVT) has been proposed to deal with the heavy tailed distributions. This paper introduces L-moments and L-moment ratios based on EVT to analyze the distributional characteristics of exchange rates, and furthermore introduce the Kappa (κ) distribution to analyze the effects of globalization by understanding differences and similarities among Asian countries and developed countries before and after the crisis. We classify the behavior of exchange rates of East Asian countries and several financially developed countries into groups: the EURO zone, UK, Japan and some Asian countries. These entire groups have experienced the same or similar shocks during credit crunch in 2008; however the responses to the event for each group are different. We take extreme value point of view to analyze the effects of globalization by examining the exchange rates. For this purpose, we calculate the so called L-moments and L-moment ratios. Based on these estimates, we implement structural break test based on Kappa distribution showing the different aspects of the analyses. The most striking features are the different shape of L-moments and the coefficients of κ distribution among each group, and a closer examination of the L-moments diagram and parameters before and after the credit crunch in 2008 will reveal the different responses on the crisis and implications of the globalization. The results obtained by examining the behavior of exchange rate returns may be pertinent to economic policy making and macroeconomic forecasting. The finding that exchange rates of several Asian countries are typically more heavy-tailed than those of developed counterparts may reflect their susceptibility to more frequent and extreme external and internal shocks. The empirical results may also indicate that behavior of the distribution of extremes in Asian countries is time variant with a tendency to become fatter tailed during turbulent periods. Analysis on currency markets based on Kappa distribution shows that before financial crisis, South Korea, Taiwan and UK have relatively low second shape parameter than other countries. However, after the mortgage crisis, the parameters of all countries are close to 2. Therefore, we may say that after 2008, the distribution of all countries converge. From this we may conclude that before crisis, South Korea and Taiwan may not manage exchange rate market as others does, but after crisis, South Korea and Taiwan have sufficient power to manage exchange rate. Through the efforts to overcome global crisis, East Asian countries start to share the common feature of exchange rates with financially well developed countries around financial crisis. Volume 3, Issue 1, 2015 Credit Portfolio Risk Evaluation based on the Pair Copula VaR Models Aiming to solve the difficulty in describing the high dimensional dependency structure of credit assets, we construct pair copula VaR model to evaluate the credit portfolio risk. The empirical study which takes the publicly traded companies in Shanghai stock exchanges and Shenzhen stock exchanges shows that the Clayton copula with Canonical vine structure is the most appropriate function to describe the high dimensional low tail dependency structure. Meanwhile, the Monte Carlo simulation result proves that the pair copula VaR model can accurately measure the credit portfolio risk both in calm period and crisis period. Additionally, we acquired the optimal weights of the different credit assets in portfolio according to the simulation results of pair copula VaR models. Based on the research results, the commercial banks can dynamically adjust their credit asset allocation, so as to alleviate the credit portfolio risk and conduct more efficient credit risk management. Volume 3, Issue 1, 2015 How Credit Affects the Poor Household’s Expenditure?: A Case Study of Vietnam This paper aims to clarify the impact of the credit for the expenditure of poor households in Vietnam. We have used Difference in Difference (DID) methods to estimate the panel data from Vietnam Living Standard Survey (VLSS) for the period of 2010-2012. The results showed that the credit has a positive influence to the average expenditure of the poor households, whether in formal credit or informal credit. However, informal credit is still a very important source of credit for poor households in Vietnam because it increases expenditure of poor households higher than formal credit. In addition, research also found significant effects of some factors such as regional, ethnicity, education level, household size to expenditures. Volume 3, Issue 1, 2015 The Effect of Policy Rate Changes on Bank Stock Returns in Pakistan Objective of this study is to analyze the impact of policy rate changes on bank stock returns in Pakistan by using daily stock returns from 1998 to 2011. We used event study approach by constructing the estimation window of 250 days and an event window of 31 days (15 pre-event days, event day and 15 post event days. The daily stock returns from 1998 to 2011 have been used to analyze the impact of policy rate changes by State Bank of Pakistan (SBP) on banking stock returns. The study used ARIMA model to estimate the normal returns by using estimation window of 250 days. Since Monetary Policy committee decides changes in policy rate, we have used date of MP Committee meeting as an event. Reportedly, 35 meetings were conducted during study period from Jan 1998 to Dec 2011. Abnormal returns are calculated by taking the difference of actual daily stock returns and estimated daily stock returns. Abnormal daily stock returns are aggregated as cumulative abnormal returns (CAR). The CAR at 0.6340 showed a significant impact of policy rate changes on banks stock returns. The study finds 31 out of all 35 events have significant impact on banks stock returns and returns were normal at 4th day of MP announcement. Further, we analyzed the impact with respect to expansionary and contractionary monetary policy and observed that the highest positive impact on banks stock returns was due to expansionary monetary policy. Volume 2, Issue 4, 2014 Global Warming: An Econometric Analysis An econometric analysis is provided of the system of relationships involving global CO2 emissions, atmospheric concentration of anthropogenic CO2, and global surface temperature increase since the preindustrial era. Empirical methods used are feasible generalized least squares and generalized method of moments. It is found that global surface temperature increase is estimated to have a positive effect on the CO2 absorption capacity of the environment. Volume 2, Issue 4, 2014 Has the Financial Crisis Changed the Business Cycle Characteristics of the GIIPS Countries? Since the financial crisis erupted in 2008, the governments of Portugal, Ireland, Italy Greece and Spain (GIIPS) find themselves in a position where financing their debts has become increasingly difficult. As a result, these governments reduced government expenditure and/or increased taxes in order to reduce their deficits. Hence, whilst other countries in the Eurozone – notably Germany - enjoyed a recovery from the financial crisis, the GIIPS countries only just started to recover. It is therefore no surprise that the business cycles of the northern and southern European countries diverged, and there was and still is a real fear of deflation. This poses a risk for the Eurozone, as it makes the common monetary policy less effective. In this paper we analyse these business cycles in detail. We ask whether the financial crisis has changed the characteristics of the business cycles of the GIIPS countries. For example, the austerity measures in Greece may lead to a convergence of government spending between Germany and Greece and to greater convergence of business cycles in both countries. If it does, then there is some hope that the common monetary policy will return to being effective in the future. But it may not. The austerity measures could also lead to greater divergence between Greece and Germany, in which case leaving the monetary Union would not only be beneficial for Greece. It might be unavoidable. Volume 2, Issue 4, 2014 Social Capital and Willingness to Pay for Community Based Health Insurance: Empirical Evidence from Rural Tanzania This study examines the effect of social capital on willingness to pay (WTP) for health services provided through community based health insurance schemes (Community Health Fund) in Tanzania. The study covered 274 household heads. We use probit regression analysis to model the relationship between the predictors and our outcome variable. Our results have shown that with the exception of religion, all other social capital variables have a positive and significant impact on the WTP for the Community Health Fund (CHF). Specifically, membership in social organisations and networks, trust among community members and trust of community members on scheme management are positively and significantly related to WTP. On the other hand, the age, education level, household size and number of children and participation in health insurance are not predicting WTP for CHF. Taken together, these results suggest that enhancing access to health care services in the rural areas and the sustainability of CHF would require building appropriate forms of social capital at individual and community levels. Specifically, CHF may increase enrolment through the existing social organisations and associations. Similarly, CHFs may well increase their membership if the avenues for trust building are created and nurtured. Volume 2, Issue 4, 2014 The Characteristics of Alternative Mutual Funds This study investigated the portfolio characteristics and investment performance of alternative mutual funds from April 1993 to March 2013, focusing on Bear Market mutual funds, Market Neutral mutual funds, and a sampling of traditional stock mutual funds. The results indicate that alternative mutual funds are, on average, younger and smaller in size than the average traditional fund. Alternative funds, however, have significantly larger expense ratios, larger portfolio turnover, and fewer portfolio holdings. Bear Market fund returns generally move in the opposite direction of the stock market, whereas Market Neutral funds and the average traditional fund returns rise and fall with the stock market. The two categories of alternative funds underperformed the traditional funds, with substantially greater variability of returns and larger tracking errors. Furthermore, Bear Market funds had a negative beta and were more volatile than the stock market, whereas Market Neutral funds had a near-zero beta, making them less volatile than the stock market. The performance of the average traditional fund was not significantly different from zero, and its beta did not differ significantly from unity. Volume 2, Issue 4, 2014 The Significance of Bank Capital and Liquidity on Business Cycles: Empirical Evidence from the UK Banking Sector Stable financial system and liquidity creation are fundamental to economic growth. As a result of recent financial crisis, there has been huge debate on the minimum capital level that is able to absorb credit risk especially during downturn. The Basel III capital proposals have some very useful elements, notably a leverage ratio, a capital buffer and the proposal to deal with pro-cyclicality through dynamic provisioning based on expected losses. Using 10 largest banks in the UK, with the annual data from 2004 to 2013, this research examines the link between bank capital, liquidity and business cycle. Employing both dynamic and static model which is devoid other previous work, the result shows that adequate capital level will mitigate the extent of the financial shocks. The positive association between loan to deposit and changes in the gross domestic product implies that credit extension falls as the economy contract. Volume 2, Issue 3, 2014 Separating Monetary and Structural Causes of Inflation The paper employs a structural vector autoregression (SVAR) to model inflation so as to identify the relative importance of shocks to real output growth, monetary growth and exchange rate depreciation in inflation dynamics in developing countries using data from Ghana. The results show that either monetary growth or structural factors alone do not explain the inflation experience and that the structural factors dominate monetary growth in the inflation dynamics. There is a fairly strong feedback between inflation and exchange rate depreciation both of which have weak relationship with monetary growth. These suggest that policies that boost domestic supply and therefore reduce import demand will be more potent than direct monetary management to curb inflation in Ghana. Volume 2, Issue 3, 2014 A Model for the Roles of FDI in Shaping Productivity Growth: With Empirical Evidence from China This paper presents an analytic framework with empirical evidence aiming to improve our understanding of the roles of foreign direct investment (FDI) in shaping productivity growth. Specifically, the study empirically examines the effects of FDI on China’s regional productivity growth. Our analyses based on two versions of our model, one excluding and one including human capital, show that FDI has both a general growth effect and a convergence effect on productivity in the Chinese provinces over the period 1996–2012. Our findings imply, at least in the case of the Chinese provinces, that apart from its direct, static level effect on output as an accumulable factor of production, FDI also exerts indirect, dynamic impacts on output through its growth and convergence effects on productivity. Volume 2, Issue 3, 2014 Assessing Supply Chain Risk with Few Compulsory Subcontractors In this study we propose a supply chain risk analytical model that incorporates three compulsory subcontractors, which are structured in a two-layer formation, while fault recognition by the monitoring chief manufacturer might be delayed. We analyze this precise production line since it simultaneously covers both a sole mandatory supplier and a second production layer, which includes two subcontractors that can partially back up each other throughout the production. This specific configuration not only can assist future investigations in building different quantitative schemes, but this formation also is rather widespread across the semiconductor industry. We therefore present a current illustrative example from this sector. In addition, we authenticate the validity of the proposed model and examine several sensitivities within through multiple numerical simulations. We find that the expected time to the next production failure is mostly sensitive to output variations within the sole supplier, and least sensitive to temporary pauses in the information flow across the supply network. Volume 2, Issue 2, 2014 Securitization under Asymmetric Information and Risk Retention Requirement We address a three-period model of financial intermediaries that involves securitization of risky loan assets and asymmetric information. We show that the risk retention requirement with a fixed ratio, stipulated by the Dodd-Frank Act, might induce losses of social welfare in the sense that a bank might not utilize profitable investment opportunities due to the regulation, which leads to a downward jump in social welfare. We present various structures of social welfare with respect to the level of ‘skin in the game’, and clarify the necessity of countercyclical regulation by verifying that the social losses caused by current regulation become more severe during a recession. Furthermore, we verify how the financial market becomes volatile through securitization and leverage. Volume 2, Issue 2, 2014 Portfolio Optimization via Generalized Multivariate Shrinkage The shrinkage method of Ledoit and Wolf (2003; 2004a; 2004b) has shown certain success in estimating a well-conditioned covariance matrix for high dimensional portfolios. This paper generalizes the shrinkage method of Ledoit and Wolf to a multivariate shrinkage setting, by which the well-conditioned covariance matrix is estimated using the weighted averaging of multiple priors, instead of single ones. In fact, it can be argued that the generalized multivariate shrinkage approach reduces estimation errors and uncertainty when projecting the true covariance matrix onto the line, spanned by priors joining to the sample covariance matrix. Hence, the generalized multivariate shrinkage is less subjected to sampling variation. Empirically, I use the U.S. firms to form portfolios for out-of-sample forecast. Using Ledoit and Wolf's approach as benchmark, out-of-sample portfolios constructed from the proposed method gain significant variance reductions and sizable improvement of information ratios. Volume 2, Issue 2, 2014 Has Zero Interest Rate Policy of the Bank of Japan Influenced Financial Markets? This article empirically examines the effect of zero interest rate policy of the Bank of Japan on financial markets. Zero interest rate policy was first introduced in Japan and has been adopted to combat deflation and to promote the economy. This policy was later implemented by other developed countries, including the United States and United Kingdom. Empirical results show that this policy has effectively influenced the expectation of markets, namely, over one-year future interest rates. The zero interest rate policy has been effective in lowering and stabilizing interest rates to boost the economy in Japan. Volume 2, Issue 2, 2014 Foreign Direct Investment and Economic Growth: The Experience of CEMAC Countries This paper estimates the impact of foreign direct investment (FDI) on economic growth in CEMAC countries. The basic theory is that of endogenous growth. The econometrical study is based on the work of Alaya, Nicet-Chenaf, and Rougier (2009) and Borensztein, De Gregorio, and Lee (1998). This model also includes the channels through which FDI influences growth. The study covers the period 1980-2010. All CEMAC countries are considered. To estimate the model, the author has used the method of double least squares and the generalised method moment. The results show that FDI affect growth in all CEMAC countries except Congo. The mean by which the realisation of their influence differs from one country to another. The main recommendation of the study is to promote economic and structural policies to modernise the economies of CEMAC. Volume 2, Issue 1, 2014 The Stochastic Discount Factor and Liquidity in Mexico and Chile The stochastic discount factor differs whether it is estimated with only the most liquid stocks from the one estimated with the whole sample in some years in Mexico and Chile in the period 2006 to 2012. This is evidence that there is a liquidity premium associated with stocks in these countries, which is not permanent. The liquidity premium is more permanent in Mexico than in Chile in the period of study. Volume 2, Issue 1, 2014 The Constitutionality of Prescription Periods in the South African Law The Constitution protects the right to equality and access to courts. There it manifests unfairness in according public institutions special protection, which is not extended to private persons with claims against the state. This may imply an absence of equal protection and benefit of the law. Some prescription periods contained in statute create inequalities between people with civil claims against public institutions and those against other defendants. By not affording the plaintiff with condonation for failure to institute a claim within the prescribed period, claimants with genuine claims may not have the opportunity to institute their cases even where there is a just cause for not instituting such a claim on time. Since the Presciption Act does not provide for condonation after the lapse of the prescribed period for three years (the period prescribed for ordinary claims in terms of section 11(d) of the Prescription Act 68 of 1969), this creates the problem with genuine claims, which for reasons beyond their control, would be deprived of redress. In conclusion those courts should be granted the power to condone, on good cause shown, the late institution of a claim, where the debt has prescribed in terms of section 11(d) of the Prescription Act. Volume 2, Issue 1, 2014 Numerical Aspects to Estimate the Generalized Hyperbolic Probability Distribution In this paper we present numerical aspects of a modified EM algorithm of maximum likelihood to estimate the generalized hyperbolic probability distribution. The estimation is considering the parameter λ of the modified Bessel function of third order as a no constrained parameter. A suitable starting point for the numerical method is proposed to reduce the number of iterations. The goodness of fit is valuated with the log-likelihood function through an empirical test for multivariate distributions. Volume 1, Issue 4, 2013 The Impact of Earnings Management on Liquidity: Case of the Tunisian Stock Market The aim of this paper is to study the relationship between earnings management and the liquidity of the Tunisian market. Our study was conducted on a sample of 19 companies listed on the Tunis Stock Exchange over the 1999 - 2011 periods. Our results corroborate the existence of a positive and significant relationship between the earnings’ management achieved by the Tunisian companies and the market liquidity. Our study shows that the practice of earnings’ management makes the market more liquid. This result can be accounted for by the lack of awareness among the liquidity- providers of this practice, especially as the level of earnings’ management and the level of disclosure carried out the by companies that constitute our sample are not very high. Besides, this result confirms the theory stating that the investors buy the earnings. Volume 1, Issue 4, 2013 Taylor Rule and Monetary Policy in Tunisia This paper estimates the forward-looking monetary policy reaction function of the Central Bank of Tunisia (CBT) using quarterly data from 1993:Q2 to 2011:Q4. Policies which the CBT applied are analyzed according to the Taylor rule. The empirical results indicate that the CBT followed the Taylor rule in its interest setting behaviour. In forward-looking models, the response coefficient of expected inflation is greater than the output gap, which is consistent with the fact that inflation is the primary objective of monetary policy. The results of forward-looking models reflect the policies conducted in Tunisia. Volume 1, Issue 4, 2013 International Applicability of Corporate Failure Risk Models Based on Financial Statement Information: Comparisons across European Countries The objective of the study is, firstly, to analyse the predictability of financial distress in different European countries. Secondly, the objective is to compare predictability across countries. Thirdly, the objective is to investigate possibilities to develop a generic uniform model to predict distress in each country over Europe. The sample includes over one million active and tens of thousands financially distressed firms from 30 European countries. For each country, a prediction model of its own is estimated. The models and their performance in prediction accuracy are compared across countries. Finally, a uniform generic model is estimated for the sample including all countries and its prediction accuracy is assessed by country. The results show that there are differences in the form and strength of prediction models across different European countries. However, it is possible to develop a uniform generic model resulting in a reasonably high rate of classification accuracy for most countries. Volume 1, Issue 3, 2013 Could Monetary Base Rule Have Achieved Economic Growth? Recent Japanese Case Japan introduced unprecedented financial policy in April 2013. The Bank of Japan (the Japanese central bank) will double the monetary base to promote economic growth. The effectiveness of this large and unprecedented monetary-base rule, which is effective in recovering the economy, has received much attention not only in Japan but also all over the world. This article empirically examines whether or not this monetary-base rule would have achieved economic growth in Japan if it had been introduced in the past. The article builds a macroeconomic model that keeps the inflation rate at 2% and an empirical analysis is conducted for the past. The results show that there would be no large difference in economic growth would result from the introduction of this new rule; however, stronger monetary easing policy should have been conducted around 2008 and 2011 during the world financial crisis. Volume 1, Issue 3, 2013 Budget Target Setting and Effective Performance Measurement in Nigerian Hospitality Industry This paper assessed roles budget target setting plays in effective performance measurement in Nigerian hotel industry. The survey research method was adopted for this study. The study population consisted of all the managers, Accountants, Account and Finance, personnel and other hoteliers of hotels located in Kaduna state. The sample size consisted of fifty respondents drawn from ten selected hotels using convenient sampling method whereby only those hotels whose managements were willing to participate in the study were chosen. The primary method of data collection used for this study was the questionnaire administration. A total of fifty (50) sets of questionnaire were distributed to the respondents out of which only forty six (46) were completed and returned. The method of data analysis used was the simple percentages while the research hypotheses were tested using chi-square statistic. The paper found that the budget target setting procedure in the hotel industry in Kaduna state is not well articulated and focused whereas budget target setting is an effective tool for effective performance evaluation of individuals and units in the hospitality industry. It is, therefore, recommended that hotels management should make the necessary efforts to strengthen their budget formulation process viz- a- viz target setting to meet achievable set goals Volume 1, Issue 3, 2013 Credit Frictions and the Bank Lending Channel: Evidence from a Group of European Banks Monetary policy decisions are transmitted into the economy through many channels, one of which is the bank lending channel. It is based on the central bank’s actions that affect loan supply and real spending. This paper examines, spanning the period 1999-2010, whether for the case of European banks the operation of the bank lending channel can be modeled in a manner that better conforms to current institutional realities, such as credit frictions. The recent literature on monetary policy takes into account credit frictions and investigates monetary implications. We use interest rate spreads, that is, the difference between the interest rate available to savers and borrowers, as an indicator of the disruptions in the financial situation and incorporate them into the model for the estimation of the bank lending channel across eurozone countries. The results indicate that these credit frictions have an impact on the lending growth process. Volume 1, Issue 2, 2013 An Analysis of the Relationship between Public Spending Components and Private investments in Nigeria This paper examined the relationship between components of public spending and private investments in Nigeria for the period 1981 to 2010. Utilizing an error correction modeling procedure, the study revealed that components of public spending have different impact on private investment both in the long run and the short run. Specifically, recurrent and government final consumption expenditure had positive (crowd-in) effect on private investment while capital expenditure had negative (crowd-out) effect on private investment. Thus, the study recommended that greater emphasis should be placed on capital expenditure. Volume 1, Issue 2, 2013 Assessing the Effect of the Cameroon's Investment Charters on Private Investment The Cameroon government has implemented a series of investment legislations, the latest of them being that of 2002 with the aim of boosting investments and stimulating economic growth. This paper while focusing on the latest investment code contends that the various investment legislations have had a positive effect on private investments. Data for the study is collected from the World Bank Development Indicators, covering a period of 31 years from 1980 to 2010. The estimation technique used for this study is the Generalized Methods of Moments (GMM) estimation technique. The analyses (both descriptive and empirical) showed that the institution of the investment charter between 1991 and 2002 did not improve the level of private investment. However, we did obtain results indicating that the introduction of the investment charter in April 2002 resulted to an improvement in the level of private investment. Other results obtained showed that domestic credit to the private sector, GDP growth and electricity production play a positive and statistical significant influence on the level of private investment in the country. An important conclusion is that the policy structures of the 2002 investment charter should be fully implemented so as to encourage and enhanced private investment in the country. Volume 1, Issue 2, 2013 Has Stock Market Efficiency Improved? Evidence from China Stock market has been associated with economic growth through its role as a source of new private capital. On the other hand, economic growth may be the catalyst for stock market growth. The purpose of this paper is to investigate the efficiency of the two official stock markets in China. The sample includes the daily closing prices of A-share and B-share indexes in both the Shanghai and Shenzhen stock exchanges for the period of January 1st, 2006 to December 31st, 2010. Three different approaches are employed; namely, serial correlation test, runs test and variance ratio test. Statistical evidence from serial correlation test shows that returns are correlated in both Shanghai and Shenzhen indexes and therefore the markets are weak-form efficiency. Volume 1, Issue 1, 2013 Pure Portfolio Approach to Money Supply Determination in Nigeria: A Generalized Method of Moments Approach This study analyses broad money supply in Nigeria using a pure portfolio approach in order to establish an econometric framework which forecasts the Nigerian money multiplier with great precision. Methodologically, the Generalized Method of Moments (GMM) model was modeled to analysis the nature of the framework, where broad money supply is presumed to depend upon changes in various indicators of supply of money and a list of instrumental variables (IV) which were estimated over the period 1970-2010. Integral to this process is to determine if there exist a stable relationship between various measures of money supply, the monetary base and the instrumental variables, given a switch by the Central Bank from a direct to an indirect policy regime. In the results, it was found that there exist partial stable relations between these measures of money supply: the broad money and base money despite regime shifts over the sample period. However, a stable money multiplier was not found. This approach produced a scientific framework that could be used to predict the money multiplier derived from the broad money and could be used to forecast on an annual basis with reasonable accuracy at least in the medium term and projections in the monetary programme. Volume 1, Issue 1, 2013 The Effects of English Proficiency on Earnings of U.S. Foreign-Born Immigrants: Does Gender Matter? This paper compares the effects of English proficiency on foreign-born male and female immigrants in the U.S. by using data from the 2001 American Community Survey. The analysis demonstrates the importance of English proficiency on earnings for foreign-born immigrants. The results indicate that male immigrants suffer increasing penalties with decreasing levels of English proficiency. However, female immigrants who speak intermediate English suffer the greatest earnings penalty. Moreover, male immigrants may benefit more from well-spoken English than female immigrants. The Quantile Regression approach is adopted to examine the effects of English proficiency’s effects across the entire earnings distribution. The relative importance of English proficiency is greater at the upper tier of the earnings distribution for immigrants as a whole. A similar pattern remains for both gender groups, although slight differences exist for either group. Volume 1, Issue 1, 2013 Implementing Total Quality Management (TQM) on the Higher Education Institutions – A Conceptual Model Higher education can play a crucial role in the economic and cultural reconstruction and development of the nations. For hundreds of years, the universities and effective educational systems are development factors and agents of change in their communities. Jordan is one of the pioneer countries in higher education due to its credibility; so many students from Arab and foreign countries come to study in. Over the last ten years, a lot of innovative experiments are being done to improve the performance and introduced several laws and constitutions for both academic and educational standards aimed to further develop and improve its ability to compete consistently by successive Jordanian governments, realizing the importance of this sector for socio-economic and cultural development and this requires an ideal governance and service delivery, but the system of higher education in Jordan must be reshaped, the strength must be maintained, but the weaknesses must be addressed and developed, to serve a new social order, to meet the pressing national needs, and to respond to a context of new realities and opportunities. Through this piece of work, this research paper is a theoretical attempt to explain the implementation of TQM in higher education institutions in Jordan, and deals with issues related to quality in higher education, and identify variables influencing quality in this sector. Volume 1, Issue 1, 2013 Does Agriculture Matter for Economic Development? Empirical Evidence from Nigeria In this study we aimed at answering the question, ‘Does agriculture matter for economic development in Nigeria?’ Life expectancy is modeled against agricultural output and agricultural expenditure, amongst other variables. Agricultural output is also modeled against a host of socio-economic, natural and human factors, which influence agricultural productivity. Applying Augmented Dickey-Fuller unit root test, Ordinary Least Squares, and the Newey-West method on secondary data and dummy variable used in the study, it was found that agricultural output has negative and significant impact on life expectancy in Nigeria. The impact of agricultural expenditure was found to be positive but nonsignificant. Real gross domestic product and industrial output were also found to influence life expectancy. Careful examination of the hypothesized socio-economic factors (political instability and industrial output), natural factor (rainfall), and human factor (carbon emission) showed that only industrial output and rainfall matter for agricultural output in the country: both variables have positive impacts on agricultural output. The study submits that as much as agriculture may matter for economic development, reliance on the sector alone without corresponding and simultaneous development of other crucial sectors such as education, health, and industry will not yield positive fruits for economic development in Nigeria. Volume 1, Issue 1, 2013