Do Asset-Demand Functions Optimize over the Mean and Variance of Real Returns? A Six-Currency Test

International asset demands are functions of expected returns.Optimal portfolio theory tells us that the coefficients in this relationship depend on the variance-covariance matrix of real returns.But previous estimates of the optimal portfolio (1) assume expected returns constant and (2) are not set up to test the hypothesis of mean-variance optimization. We use maximum likelihood estimation to impose a constraint between the coefficients and the error variance-covariance matrix. For a portfolio of six currencies, we are able statistically to reject the constraint. Evidently investors are either not sophisticated enough to maximize a function of the mean and variance of end-of-period wealth, or else are too sophisticated to do so.

Why Money Announcements Move Interest Rates: An Answer from the Foreign Exchange Market

On a Friday that the Fed announces a money supply greater than had been anticipated, interest rates move up in response. Why? One explanation is that the market perceives the fluctuation in the moneystock as an unintended deviation from the Fed's target growth rate that will be reversed in subsequent periods. The anticipation of this future tightening drives up interest rates today. A second explanation is that the market perceives the increase in the money supply as signalling a higher target growth rate. The expected future inflation rate rises,which is reflected in a higher nominal Interest rate.This paper offers grounds for choosing between the two possible explanations: evidence from the exchange market. Under the first explanation, anticipated future tightening, one would expect the dollar to appreciate against foreign currencies. Under the second explanation,expected inflation, one would expect it to depreciate. We render these claims more concrete by a formal model, a generalization of the Dornbusch overshooting model. Then we use the mark/dollar rate toanswer the question. We find a statistically significant tendency for the dollar to appreciate following positive money supply surprises.This supports the first explanation.

A Real Options Analysis of Automatic Milking Systems

Automatic, or robotic, milking systems have the potential to significantly change the way milk is produced on U.S. dairy farms. However, there is a high degree of uncertainty associated with adoption of this new technology. A real options approach is used to analyze the decision to replace an operational milking system with an automatic milking system. The most important source of uncertainty is shown to be the length of the technology's useful life. Under our assumptions, the automatic system is always an optimal investment if it is certain that it will last longer than the operational system being replaced.Livestock Production/Industries,

A REAL OPTIONS APPROACH TO INVESTMENT ANALYSIS OF AUTOMATIC MILKING SYSTEMS

Automatic, or robotic, milking systems are beginning to be introduced to U.S. dairy farmers. This paper employs an ex ante approach to real options investment analysis of automatic milking systems.Livestock Production/Industries,

Conditional Mean-Variance Efficiency of the U.S. Stock Market

We apply the method of constrained asset share estimation (CASE) to test the mean-variance efficiency (MVE) of the stock market. This method allows conditional expected returns to vary in unrestricted ways, given investor preferences. We also allow conditional variances to follow an ARCH process. The data estimate reasonably the coefficient of relative risk aversion, though are unable to reject investor risk neutrality. We reject the restrictions implied by MVE, although changing conditional variances improve statistically upon measured market efficiency. We find that unrestricted asset-share and ARCH models help forecast excess returns. Once MVE is imposed, however, this forecasting ability disappears.

Roundtable Discussion

Welcome to the Roundtable panel discussion. Each of the speakers is going to open with a few minutes statement. And then we\u27re going to pose some questions to open discussion, so it will take people through the whole asset protection route from beginning to end, hopefully. And then, any questions you may have we believe we\u27ll have sufficient time to ask those questions and have them answered. You may get very different views. And then we\u27ve just decided that the jury will decide whether asset protection trusts are a good thing or a bad thing. Okay. So pay attention

Diffusion of wave packets in a Markov random potential

We consider the evolution of a tight binding wave packet propagating in a time dependent potential. If the potential evolves according to a stationary Markov process, we show that the square amplitude of the wave packet converges, after diffusive rescaling, to a solution of a heat equation.Comment: 19 pages, acknowledgments added and typos correcte

Involving Motor Capabilities in the Formation of Sensory Space Representations

A goal of sensory coding is to capture features of sensory input that are behaviorally relevant. Therefore, a generic principle of sensory coding should take into account the motor capabilities of an agent. Up to now, unsupervised learning of sensory representations with respect to generic coding principles has been limited to passively received sensory input. Here we propose an algorithm that reorganizes an agent's representation of sensory space by maximizing the predictability of sensory state transitions given a motor action. We applied the algorithm to the sensory spaces of a number of simple, simulated agents with different motor parameters, moving in two-dimensional mazes. We find that the optimization algorithm generates compact, isotropic representations of space, comparable to hippocampal place fields. As expected, the size and spatial distribution of these place fields-like representations adapt to the motor parameters of the agent as well as to its environment. The representations prove to be well suited as a basis for path planning and navigation. They not only possess a high degree of state-transition predictability, but also are temporally stable. We conclude that the coding principle of predictability is a promising candidate for understanding place field formation as the result of sensorimotor reorganization