International equity flows and returns: a quantitative equilibrium approach

This paper considers the role of foreign investors in developed-country equity markets. It presents a quantitative model of trading that is built around two new assumptions: (i) both the foreign and domestic investor populations contain investors of different sophistication, and (ii) investor sophistication matters for performance in both public equity and private investment opportunities. The model delivers a unified explanation for three stylized facts about US investors’ international equity trades: (i ) trading by US investors occurs in bursts of simultaneous buying and selling, (ii ) Americans build and unwind foreign equity positions gradually and (iii ) US investors increase their market share in a country when stock prices there have recently been rising. The results suggest that heterogeneity within the foreign investor population is much more important than heterogeneity of investors across countries.Asymmetric information, heterogenous investors, asset pricing, international equity flows, international equity returns

Capitalism With Capital: A Suggested Remedy for the Absence of Investment Decision Making in Basic Microeconomics Teaching

'[U]nder competition, the rate of return on investment tends toward equality in all industries.' Introductory and intermediate microeconomics textbooks are sketchy in explaining how capital is allocated by financial markets. Capital budgeting techniques, primarily net present value, deserve a more prominent role. This article suggests ways in which financial economics can be integrated into undergraduate courses to illuminate entry into (and exit from) industries in response to profit opportunities, as an essential part of economists' narration of resource allocation in a capitalistic and dynamic market economy.

The Value of Information in Multi-Objective Missions

In many multi-objective missions there are situations when actions based on maximum information gain may not be the `best' given the overall mission objectives. In addition to properties such as entropy, information also has value, which is situationally dependent. This thesis examines the concept of information value in a multi-objective mission from an information theory perspective. A derivation of information value is presented that considers both the context of information, via a fused world belief state, and a system mission. The derived information value is used as part of the objective function for control of autonomous platforms within a framework developed for human robot cooperative control. A simulated security operation in a structured environment is implemented to test both the framework, and information value based control. The simulation involves a system of heterogeneous, sensor equipped Unmanned Aerial Vehicles (UAVs), tasked with gathering information regarding ground vehicles. The UAVs support an e ort to protect a number of important buildings in the area of operation. Thus, the purpose of the information is to aid the security operation by ensuring that security forces can deploy e ciently to counter any threat. A number of di erent local controllers using information based control are implemented and compared to a task based control scheme. The relative performance of each is examined with respect to a number of performance metrics with conclusions drawn regarding the performance and exibility of information value based control

Are Defined Contribution Pension Plans Fit For Purpose In Retirement?

This Article considers the historical basis for the shift from defined benefit plans to defined contribution plans, the structural and practical shortcomings of defined contribution plans, alternate pension models, and adjustments to existing retirement plan models that may offer a degree of protection to plan contributors. Like the United States, Australia is now realizing the limitations of a defined contribution retirement system insofar as it relates the provision of reliable retirement income for a population with increasing life expectancy. Unlike defined contribution plans, defined benefit plans provide a benefit based typically on time served and a predetermined proportion of either career average or final salary. A successful and sustainable defined contribution system must address the short-comings of defined contribution plans. A properly integrated retirement plan should seek to protect contributors from three key financial risks: inflation, deviation from expected outcome, and longevity

Are Defined Contribution Pension Plans Fit For Purpose In Retirement?

This Article considers the historical basis for the shift from defined benefit plans to defined contribution plans, the structural and practical shortcomings of defined contribution plans, alternate pension models, and adjustments to existing retirement plan models that may offer a degree of protection to plan contributors. Like the United States, Australia is now realizing the limitations of a defined contribution retirement system insofar as it relates the provision of reliable retirement income for a population with increasing life expectancy. Unlike defined contribution plans, defined benefit plans provide a benefit based typically on time served and a predetermined proportion of either career average or final salary. A successful and sustainable defined contribution system must address the short-comings of defined contribution plans. A properly integrated retirement plan should seek to protect contributors from three key financial risks: inflation, deviation from expected outcome, and longevity

Chasing a Moving Target: Exploitation and Exploration in Dynamic Environments

A common justification for organizational change is that the circumstances in which the organization finds itself have changed, thereby eroding the value of utilizing existing knowledge. On the surface, the claim that organizations should adapt by generating new knowledge seems obvious and compelling. However, this standard wisdom overlooks the possibility that the reward to generating new knowledge may itself be eroded if change is an ongoing property of the environment. This observation in turn suggests that environmental change is not a self-evident call for strategies of greater exploration. Indeed, under some conditions the appropriate response to environmental change is a renewed focus on exploiting existing knowledge and opportunities. We develop a computational model based on the canonical multiarmed bandit formulation of exploration and exploitation. We endeavor to understand the mechanisms by which environmental change acts to make purposeful efforts at organizational adaptation less (or more) valuable

Estimating Behavioural Heterogeneity Under Regime Switching

Financial markets are typically characterized by high (low) price level and low (high) volatility during boom (bust) periods, suggesting that price and volatility tend to move together with different market conditions/states. By proposing a simple heterogeneous agent model of fundamentalists and chartists with Markov chain regime-dependent expectations and applying S&P500 data from January 2000 to June 2010, we show that the estimation of the model matches well with the boom and bust periods in the US stock market. In addition, we find evidence of time-varying behavioural heterogeneity within-group and that the model exhibits good forecasting accuracy.estimation; heterogeneity; regime switching; boom and bust

The Impact of Capital Inflows on Emerging East Asian Economies: Is Too Much Money Chasing Too Little Good?

In recent years, emerging East Asian economies have experienced large capital inflows-especially a surge in portfolio inflows-and an appreciation of asset prices such as equities, land, and both nominal and real exchange rates. The paper reviews why a surge in capital inflows can increase asset prices, and then empirically investigates the effects by employing a panel vector autoregression (VAR) model. The empirical results suggest that capital inflows have indeed contributed to the asset price appreciation in this region, although capital inflow shocks explain a relatively small part of asset price fluctuations. How to manage these capital inflows is also discussed.Capital inflows; portfolio inflows; asset prices