Two Trees: Asset Price Dynamics Induced by Market Clearing

If stocks go up, investors may want to rebalance their portfolios. But investors cannot all rebalance. Expected returns may need to change so that the average investor is still happy to hold the market portfolio despite its changed composition. In this way, simple market clearing can give rise to complex asset market dynamics. We study this phenomenon in a very simple model. Our model has two Lucas trees.' Each tree has i.i.d.dividend growth, and the representative investor has log utility. We are able to give analytical solutions to the model. Despite this simple setup, price-dividend ratios, expected returns, and return variances vary through time. A dividend shock leads to underreaction' in some states, as expected returns rise and prices slowly adjust, and overreaction' in others. Expected returns and excess returns are predictable by price-dividend ratios in the time series and in the cross section, roughly matching value effects and return forecasting regressions. Returns generally display positive serial correlation and negative cross-serial correlation, leading to 'momentuem,' but the opposite signs are possible as well. A shock to one asset's dividend a.ects the price and expected return of the other asset, leading to substantial correlation of returns even when there is no correlation of cash flows and giving the appearance of contagion.' Market clearing allows the inverse portfolio' problem to be solved, in which the weights of the assets in the market portfolio are inverted' to solve for the parameters of the assets' return generating process.

How Sovereign is Sovereign Credit Risk?

We study the nature of sovereign credit risk using an extensive sample of CDS spreads for 26 developed and emerging-market countries. Sovereign credit spreads are surprisingly highly correlated, with just three principal components accounting for more than 50 percent of their variation. Sovereign credit spreads are generally more related to the U.S. stock and high-yield bond markets, global risk premia, and capital flows than they are to their own local economic measures. We find that the excess returns from investing in sovereign credit are largely compensation for bearing global risk, and that there is little or no country-specific credit risk premium. A significant amount of the variation in sovereign credit returns can be forecast using U.S. equity, volatility, and bond market risk premia.

Communication Management and Trust: Their Role in Building Resilience to “Surprises” Such as Natural Disasters, Pandemic Flu, and Terrorism

In times of public danger such as natural disasters and health emergencies, a country’s communication systems will be some of its most important assets because access to information will make individuals and groups more resilient. Communication by those charged with dealing with the situation is often critical. We analyzed reports from a wide variety of crisis incidents and found a direct correlation between trust and an organization’s preparedness and internal coordination of crisis communication and the effectiveness of its leadership. Thus, trust is one of the most important variables in effective communication management in times of “surprise.

Characterizing acoustic emission signals for the online monitoring of a fluid magnetic abrasives finishing process

To implement an automated fluid magnetic abrasive finishing process, an online monitoring scheme is proposed based on characterizing acoustic emission signals in this paper. According to the material removal mechanisms during the fluid magnetic abrasive finishing process, the acoustic emission generation and characteristics are predicted analytically to be dominated by the interactions between the surface asperities and the abrasive particles. Moreover, the interactions and corresponding acoustic emission events will become weaker as the finishing process progresses and the surface becomes smoother. Experimental studies show that the amplitude and the occurrence rate of continuous acoustic emission waves and intermediate bursts reduce gradually with the progression of the finishing process. Based on these features, root mean squared values and burst occurrence rates, being of the lowest computational requirements, are suggested as online monitoring parameters for an automated and intelligent finishing in fluid magnetic abrasive manufacturing. The proposed method is verified experimentally, showing that the root mean squared values are highly consistent with the measured surface roughness values, which confirms the dynamic mechanisms between the fluid magnetic abrasive finishing and acoustic emission generation sources examined

Readiness to change drinking behaviour among heavy-drinking university students in England

There is growing literature on possible ways of reducing alcohol consumption and alcohol-related harm among university students (Larimer and Cronce, 2002; Siegers and Carey, 2010). However, interventions with this aim might be made more effective by information on students’ readiness to change their drinking behaviour (Carey et al., 2007a), where an assessment of readiness to change might influence the kind of approach that is thought most likely to be successful. For example, it has been found that readiness to change moderated the effects of a brief intervention among heavy-drinking students (either brief motivational intervention or alcohol expectancy challenge) such that high readiness to change made an expectancy challenge relatively more effective in reducing drinking (Capone and Wood, 2009). This study also reported an association between higher readiness to change and greater reductions in alcohol consumption in the overall sample, thus supporting previous findings (Fromme and Corbin, 2004; Carey et al., 2007b). Although high readiness to change may increase the chances of successful brief intervention among heavy-drinking students, it has been found that, even among individuals referred to a university-based alcohol intervention programme, there was limited acknowledgement of a drinking problem or interest in changing behaviour (Caldwell, 2002; Vik et al., 2000). Such research has been conducted mainly in the USA and, with the exception of one study (Hosier, 2001), it is unknown whether a comparable lack of concern about heavy drinking is true of students in England. Moreover, there is limited understanding of the different factors associated with, and predictive of, readiness to change in heavy-drinking students. The aims of this paper are therefore (i) to assess levels of readiness to change among heavy-drinking students at universities in England, (ii) to identify variables predictive of readiness to change among heavy-drinking students and (iii) to generate hypotheses that could be tested in further research

Note and Comment

Carriers - Second Cummins Amendment - It was seven years after the Carmack Amendment of the Hepburn Act of i9o6 before the Supreme Court began that series of decisions, extending from Adams Express Co. v. Croninger, 226 U. S. 491 (1913), to George N. Pierce Co. v. Wells, Fargo & Co., 236 U. S. 278 (1915), which directly resulted in the First Cummins Amendment of March, 1915. One has only to read those cases, reviewed in 13 Micn. L. REv. 59o, and other notes referred to in 17 MICH. L. Rzv. 183, to see that the language of the Cummins Amendment was framed expressly to undo the interpretations of the court on the Carmack Amendment, and make the liability of the car\u27-ier just what during the years 19o6-1912 it had generally been understood the Carmack Amendment intended it to be. Indeed, from the decision of New Jersey Steam Navigation Co. v. Merchants Bank, 6 How. (U. S.) 344 (1848), to the present day there has been a contest between the courts and legislatures as to what should be the law of liability of common carriers, the courts through one device or another opening a way of escape for the carrier from the strict common law liability, and the legislatures, state and federal, passing statute after statute to bring the law back to its pristine simplicity and strictness

Bleeding related to disturbed fibrinolysis

The components and reactions of the fibrinolysis system are well understood. The pathway has fewer reactants and interactions than coagulation, but the generation of a complete quantitative model is complicated by the need to work at the solid‐liquid interface of fibrin. Diagnostic tools to detect disease states due to malfunctions in the fibrinolysis pathway are also not so well developed as is the case with coagulation. However, there are clearly a number of inherited or acquired pathologies where hyperfibrinolysis is a serious, potentially life‐threatening problem and a number of antifibrinolytc drugs are available to treat hyperfibrinolysis. These topics will be covered in the following review

A Hedged Monte Carlo Approach to Real Option Pricing

In this work we are concerned with valuing optionalities associated to invest or to delay investment in a project when the available information provided to the manager comes from simulated data of cash flows under historical (or subjective) measure in a possibly incomplete market. Our approach is suitable also to incorporating subjective views from management or market experts and to stochastic investment costs. It is based on the Hedged Monte Carlo strategy proposed by Potters et al (2001) where options are priced simultaneously with the determination of the corresponding hedging. The approach is particularly well-suited to the evaluation of commodity related projects whereby the availability of pricing formulae is very rare, the scenario simulations are usually available only in the historical measure, and the cash flows can be highly nonlinear functions of the prices.Comment: 25 pages, 14 figure