International Risk Sharing and the Choice of Exchange-Rate Regime

This paper examines the argument that the fixed exchange rate regime should be preferred to the flexible rate regime because the former allows risk sharing across countries while the latter does not. The analysis is performed in a two-country overlapping generations model, where markets are incomplete under either exchange regime. In this second best world, it is demonstrated that the ability to share risk across countries in the fixed rate regime does not necessarily lead to higher welfare than the inability to share risk in the flexible rate regime.

Hedge fund replication strategies: implications for investors and regulators.

Over the past decade, academic research has identified a number of replication strategies capable of capturing between 40% to 80% of the average return of many popular hedge fund strategies. Investors are beginning to take notice of these replication strategies, especially because of their rule based, transparent features and the fact that they can be executed at low cost. Armed with this alternative way of accessing passive hedge fund returns, investors can effectively structure incentive fee contracts to reward skill-based returns (i.e., alternative alpha) differently from passive index-liked returns (i.e., alternative beta). This can raise the barrier to entry for new funds to the industry in that hedge fund managers must demonstrate skill in order to participate in profi t sharing. This should reduce the risk of herding by hedge fund managers who may otherwise be enticed by incentive fee contracts that rewards them for taking popular factor bets.

Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom

This paper argues that taxation of retained profits is particularly distortionary in an economy with good growth prospects and poorly developed financial markets because it primarily reduces the investment of financially constrained firms, investment that has marginal product greater than the after-tax market real interest rate. Contrarily, taxes on distributed profits or capital gains primarily reduce the investment of financially unconstrained firms. Chile experienced a banking crisis over the period from 1982 to 1986 and in 1984 reduced its tax rate on retained profits from 50 percent to 10 percent. We show that, consistent with our theory, there was a large increase in aggregate investment after the reform which was entirely funded by an increase in retained profits. Further, we show that investment grew by more in industries that depend more on external financing, according to the Rajan and Zingales (1998) measure. Finally, we present some weak evidence from comparisons of investment rates across firms for several different measures of their likelihood of being financially constrained.

Entanglement-Assisted Quantum Quasi-Cyclic Low-Density Parity-Check Codes

We investigate the construction of quantum low-density parity-check (LDPC) codes from classical quasi-cyclic (QC) LDPC codes with girth greater than or equal to 6. We have shown that the classical codes in the generalized Calderbank-Shor-Steane (CSS) construction do not need to satisfy the dual-containing property as long as pre-shared entanglement is available to both sender and receiver. We can use this to avoid the many 4-cycles which typically arise in dual-containing LDPC codes. The advantage of such quantum codes comes from the use of efficient decoding algorithms such as sum-product algorithm (SPA). It is well known that in the SPA, cycles of length 4 make successive decoding iterations highly correlated and hence limit the decoding performance. We show the principle of constructing quantum QC-LDPC codes which require only small amounts of initial shared entanglement.Comment: 8 pages, 1 figure. Final version that will show up on PRA. Minor changes in contents and Titl

Hedge funds: an industry in its adolescence

The dramatic increase in the number of hedge funds and the "institutionalization" of the industry over the past decade have spurred rigorous research into hedge fund performance. This research has tended to uncover more questions than answers about the dynamic and multifaceted hedge fund industry. ; This article presents a simple hedge fund business model in which fund returns are a function of three key elements -- how the funds trade, where they trade, and how the positions are financed. The article also provides methods to help investors, intermediaries, and regulators identify systemic risk factors inherent in hedge fund strategies. ; Estimating these risk factors requires having an accurate history of hedge fund performance. The authors examine recent statistics from three commercial hedge fund databases and discuss the problems with database biases that must be recognized to obtain accurate measures of returns. ; While the data show that today's hedge funds use myriad strategies that have no uniform definition, the proposed business model implies that hedge fund managers are diversifying in order to maximize the enterprise value of their firms. But this diversification does not preclude the risk of leveraged opinions converging onto the same set of bets. Preventing convergence risk will require action by investors, intermediaries, regulators, and fund managers to improve industry-level disclosure and transparency while preserving the privacy of individual hedge funds' positions.Hedge funds

How Do You Want That Insulator?

A normal insulator is turned into an exotic topological insulator by tuning its elemental composition.Comment: Science Perspective article on arXiv:1104.463

Analytical technique for simplification of the encoder-decoder circuit for a perfect five-qubit error correction

Simpler encoding and decoding networks are necessary for more reliable quantum error correcting codes (QECCs). The simplification of the encoder-decoder circuit for a perfect five-qubit QECC can be derived analytically if the QECC is converted from its equivalent one-way entanglement purification protocol (1-EPP). In this work, the analytical method to simplify the encoder-decoder circuit is introduced and a circuit that is as simple as the existent simplest circuits is presented as an example. The encoder-decoder circuit presented here involves nine single- and two-qubit unitary operations, only six of which are controlled-NOT (CNOT) gates