The Cost of Capital for Alternative Investments

This paper studies the cost of capital for alternative investments. We document that the risk profile of the aggregate hedge fund universe can be accurately matched by a simple index put option writing strategy that offers monthly liquidity and complete transparency over its state-contingent payoffs. The contractual nature of the put options in the benchmark portfolio allows us to evaluate appropriate required rates of return as a function of investor risk preferences and the underlying distribution of market returns. This simple framework produces a number of distinct predictions about the cost of capital for alternatives relative to traditional mean-variance analysis.

The Cost of Capital for Alternative Investments

Traditional risk factor models indicate that hedge funds capture pre-fee alphas of 6% to 10% per annum over the period from 1996 to 2012. At the same time, the hedge fund return series is not reliably distinguishable from the returns of mechanical S&P 500 put-writing strategies. We show that the high excess returns to hedge funds and put-writing are consistent with an equilibrium in which a small subset of investors specialize in bearing downside market risks. Required rates of return in such an equilibrium can dramatically exceed those suggested by traditional models, affecting inference about the attractiveness of these investments

Crashes and Collateralized Lending

This paper develops a parsimonious static model for characterizing financing terms in collateralized lending markets. We characterize the systematic risk exposures for a variety of securities and develop a simple indifference-pricing framework to value the systematic crash risk exposure of the collateral. We then apply Modigliani and Miller's (1958) Proposition Two (MM) to split the cost of bearing this risk between the borrower and lender, resulting in a schedule of haircuts and financing rates. The model produces comparative statics and time-series dynamics that are consistent with the empirical features of repo market data, including the dramatic change in financing terms for structured products during the credit crisis of 2007-2008.

Diminishing Margins: Housing Market Declines and Family Financial Responses

Working Paper: WP 2012-276We utilize data from the Panel Study of Income Dynamics (PSID) to study borrowing decisions and other factors related to the run-up in housing prices in 1999-2007, their precipitous decline in 2007-2009, and how they contributed to mortgage distress and foreclosures as of 2009-2011. Difficulties were concentrated in selected real estate markets where the Case Shiller home index declined more than 35% from 2007 to 2009. Often expecting further price appreciation or responding to a positive family labor market and income circumstance, homeowners, supported by their lenders, allocated too much of their family income to support house payments and put themselves in a risky position. The year of taking the original mortgage, the rate of decrease in the Case-Shiller home price index, household wealth, and labor market and disability status are substantial predictors of mortgage payment distress and foreclosure.Social Security Administrationhttp://deepblue.lib.umich.edu/bitstream/2027.42/95903/1/wp276.pd

Pharmaceutical pollution: Prediction of environmental concentrations from national wholesales data

The regulation and monitoring of pharmaceutical pollution in Europe lag behind that of more prominent groups. However, the repurposing of sales data to predict surface water environmental concentrations is a promising supplement to more commonly used market-based risk assessment and measurement approaches. The Norwegian Institute of Public Health (NIPH) has since the 1980s compiled the Drug Wholesale Statistics database - covering all sales of both human and veterinary pharmaceuticals to retailers, pharmacies, and healthcare providers. To date, most similar works have focused either on a small subset of Active Pharmaceutical Ingredients (APIs) or used only prescription data, often more readily available than wholesale data, but necessarily more limited. By using the NIPH’s product wholesale records, with additional information on API concentrations per product from, we have been able to calculate sales weights per year for almost 900 human and veterinary APIs for the period 2016–2019. In this paper, we present our methodology for converting the provided NIPH data from a public health to an ecotoxicological resource. From our derived dataset, we have used an equation to calculate Predicted Environmental Concentration per API for inland surface waters, a key component of environmental risk assessment. We further describe our filtering to remove ecotoxicological-exempt and data deficient APIs. Lastly, we provide a limited comparison between our dataset and similar publicly available datasets for a subset of APIs, as a validation of our approach and a demonstration of the added value of wholesale data. This dataset will provide the best coverage yet of pharmaceutical sales weights for an entire nation. Moreover, our developed routines for processing 2016–2019 data can be expanded to older Norwegian wholesales data (1974–present). Consequently, our work with this dataset can contribute to narrowing the gap between desk-based predictions of exposure from consumption, and empirical but expensive environmental measurement.publishedVersio

The ancestry and affiliations of Kennewick Man

Kennewick Man, referred to as the Ancient One by Native Americans, is a male human skeleton discovered in Washington state (USA) in 1996 and initially radiocarbon dated to 8,340-9,200 calibrated years before present (BP). His population affinities have been the subject of scientific debate and legal controversy. Based on an initial study of cranial morphology it was asserted that Kennewick Man was neither Native American nor closely related to the claimant Plateau tribes of the Pacific Northwest, who claimed ancestral relationship and requested repatriation under the Native American Graves Protection and Repatriation Act (NAGPRA). The morphological analysis was important to judicial decisions that Kennewick Man was not Native American and that therefore NAGPRA did not apply. Instead of repatriation, additional studies of the remains were permitted. Subsequent craniometric analysis affirmed Kennewick Man to be more closely related to circumpacific groups such as the Ainu and Polynesians than he is to modern Native Americans. In order to resolve Kennewick Man's ancestry and affiliations, we have sequenced his genome to ∼1× coverage and compared it to worldwide genomic data including for the Ainu and Polynesians. We find that Kennewick Man is closer to modern Native Americans than to any other population worldwide. Among the Native American groups for whom genome-wide data are available for comparison, several seem to be descended from a population closely related to that of Kennewick Man, including the Confederated Tribes of the Colville Reservation (Colville), one of the five tribes claiming Kennewick Man. We revisit the cranial analyses and find that, as opposed to genome-wide comparisons, it is not possible on that basis to affiliate Kennewick Man to specific contemporary groups. We therefore conclude based on genetic comparisons that Kennewick Man shows continuity with Native North Americans over at least the last eight millennia

A comparative-advantage approach to government debt maturity’,

Abstract We study optimal government debt maturity in a model where investors derive monetary services from holding riskless short-term securities. In a setting where the government is the only issuer of such riskless paper, it trades off the monetary premium associated with short-term debt against the refinancing risk implied by the need to roll over its debt more often. We then extend the model to allow private financial intermediaries to compete with the government in the provision of short-term, money-like claims. We argue that if there are negative externalities associated with private money creation, the government should tilt its issuance more towards short maturities. The idea is that the government may have a comparative advantage relative to the private sector in bearing refinancing risk, and hence should aim to partially crowd out the private sector's use of short-term debt

Decision making in child protection:An international comparative study on maltreatment substantiation, risk assessment and interventions recommendations, and the role of professionals’ child welfare attitudes

Item does not contain fulltextChild welfare professionals regularly make crucial decisions that have a significant impact on children and their families. The present study presents the Judgments and Decision Processes in Context model (JUDPIC) and uses it to examine the relationships between three independent domains: case characteristic (mother's wish with regard to removal), practitioner characteristic (child welfare attitudes), and protective system context (four countries: Israel, the Netherlands, Northern Ireland and Spain); and three dependent factors: substantiation of maltreatment, risk assessment, and intervention recommendation. The sample consisted of 828 practitioners from four countries. Participants were presented with a vignette of a case of alleged child maltreatment and were asked to determine whether maltreatment was substantiated, assess risk and recommend an intervention using structured instruments. Participants’ child welfare attitudes were assessed. The case characteristic of mother's wish with regard to removal had no impact on judgments and decisions. In contrast, practitioners’ child welfare attitudes were associated with substantiation, risk assessments and recommendations. There were significant country differences on most measures. The findings support most of the predictions derived from the JUDPIC model. The significant differences between practitioners from different countries underscore the importance of context in child protection decision making. Training should enhance practitioners’ awareness of the impact that their attitudes and the context in which they are embedded have on their judgments and decisions