The 2017 Tax Act and Settlement Trusts

By any measure, the enactment of the Alaska Native provisions of the 2017 Tax Act was an extraordinary achievement by the Alaska congressional delegation. Although the ANCSA Amendments Act of 1987 first permitted Alaska Native Corporations to establish “settlement trusts” to benefit their shareholders, relatively few settlement trusts have been established to date due to various obstacles posed by the Internal Revenue Code. The 2017 Tax Act removed a significant hurdle by permitting Alaska Native Corporations to claim a tax deduction for transfers to a settlement trust, thereby allowing such transfers to occur on a pre-tax basis rather than on the after-tax basis as was the rule prior to the new legislation. The 2017 Tax Act also provides tax certainty with regard to assignments to a settlement trust of certain payments required by ANCSA such as those under section 7(j), which should encourage Alaska Native Corporations to use such assignments to fund settlement trusts in convenient annual installments. To the extent that ambiguities exist as to the Alaska Native provisions of the Act, those provisions should be interpreted in favor of the Alaska Native entities and individuals that seek to utilize those provisions in accordance with canons of statutory construction for Indian Law and ANCSA

The Fix: A Global Warming Policy Practitioner's Handbook

In the last few years there has been a substantial restating of the global warming 'problem.' According to Bruce Stram, these new conclusions have quite different policy implications than those currently driving the global policy debate. In this paper, Stram outlines a plan that could be turned into concrete, practical, and inexpensive steps, which are intended to put us on a path to resolving the global warming problem. The global warming problem, if it is that, cannot be very usefully addressed with substantial greenhouse gas emissions reduction now. However, other, more strategic, actions to prepare for possible future reductions should be taken now. The initial action suggested here is to develop a formal international program of energy research and development that is 'permanently' funded by a small tax (on carbon) to support energy R&D on a multilateral basis.Environment, Other Topics

Notes for a Contingent Claims Theory of Limit Order Markets

This paper provides a road map for building a contingent claims theory of limit order markets grounded in a simple observation: limit orders are equivalent to a portfolio of cash-or-nothing and asset-or-nothing digital options on market order flow. However, limit orders are not conventional derivative securities: order flow is an endogenous, non-price state variable; the underlying asset value is a construct, the value of the security in different order flow states; and arbitrage trading or hedging of limit orders is not feasible. Fortunately, none of these problems is fatal since options on order flow can be conceptualized as bets implicit in limit orders, arbitrage trading can be replaced by limit order substitution, and plausible assumptions can be made about the endogeneity of order flow states and their associated asset values. The analysis yields two main results: Arrow-Debreu prices for order flow %u2018%u2018states%u2019%u2019 are proportional to the slope of the limit order book and the limit order book at one time proves to be identical to that at an earlier time adjusted for the net order flow since that time when all information arrives via trades.

Corporate governance and hedge fund management

Conventional thinking about governance issues for hedge funds is to view them as mutual funds or money managers. This article proposes an alternative view -- that hedge fund governance is best understood by looking at limited partnerships or public firms that are similar in terms of either their assets or liabilities. This reasoning suggests that most hedge funds can be classified into only two groups for the purpose of understanding governance issues: funds that engage in proprietary trading and those that are more like private equity partnerships. ; The analysis implicitly explains why proprietary-trading-like hedge funds replaced the unlimited liability partnerships of the Wall Street investment houses that preceded them: Unlimited liability partnerships require higher opportunity costs of capital than hedge funds with strong incentive contracts. ; Similarly, the separation of ownership and control associated with proprietary trading in a public firm suggests that this organizational form is viable only for those entities that have substantial franchise values based on reputation. From this perspective, private-equity-like hedge funds are much like niche firms in the larger private equity universe ; The analysis in this article provides the scaffolding for assessing the net burden of regulation, the author concludes, but the real heavy lifting requires a more detailed explication of the nature of and limits to contractibility in these markets.Hedge funds ; Corporate governance

Residual Risk Revisited

The Capital Asset Pricing Model in conjunction with the usual market model assumptions implies that well-diversified portfolios should be mean variance efficient and ,hence, betas computed with respect to such indices should completely explain expected returns on individual assets. In fact, there is now a large body of evidence indicating that the market proxies usually employed in empirical tests are not mean variance efficient. Moreover, there is considerable evidence suggesting that these rejections are in part a consequence of the presence of omitted risk factors which are associated with nonzero risk premia in the residuals from the single index market model. Consequently, the idiosyncratic variances from the one factor model should partially reflect exposure to these omitted sources of systematic risk and,hence, should help explain expected returns. There are two plausible explanations for the inability to obtain statistically reliable estimates of a linear residual risk effect in the previous literature:(1) nonlinearity of the residual risk effect and (2) the inadequacy of the statistical procedures employed to measure it.The results presented below indicate that the econometric methods employed previously are the culprits. Pronounced residual risk effects are found in the whole fifty-four year sample and in numerous five year subperiods as well when weighted least squares estimation is coupled with the appropriate corrections for sampling error in the betas and residual variances of individual security returns. In addition, the evidence suggests that it is important to take account of the nonnormality and heteroskedasticity of security returns when making the appropriate measurement error corrections in cross-sectional regressions. Finally, the results are sensitive to the specification of the model for expected returns.

Earnings, Dividend Policy, and Present Value Relations: Building Blocks of Dividend Policy Invariant Cash Flows

In a Modigliani-Miller world, price equals the risk-adjusted present value of future dividends and dividend policy is irrelevant for asset pricing. This paper searches for cash flows with two characteristics: asset prices can be calculated from their present values and they are invariant with respect to dividend policy. Residual income measures with these features are identified under two assumptions: dividend policy does not alter risk premiums and income earned from investments associated with dividend policy includes capital gains and losses. These results hold for otherwise arbitrary risk premiums in the general no-arbitrage approach to the valuation of uncertain income streams.

The Role of Beliefs in Inference for Rational Expectations Models

This paper discusses inference for rational expectations models estimated via minimum distance methods by characterizing the probability beliefs regarding the data generating process (DGP) that are compatible with given moment conditions. The null hypothesis is taken to be rational expectations and the alternative hypothesis to be distorted beliefs. This distorted beliefs alternative is analyzed from the perspective of a hypothetical semiparametric Bayesian who believes the model and uses it to learn about the DGP. This interpretation provides a different perspective on estimates, test statistics, and confidence regions in large samples, particularly regarding the economic significance of rejections in rational expectations models.

The inflammatory process of gout and its treatment.

Gouty arthritis is a characteristically intense acute inflammatory reaction that erupts in response to articular deposits of monosodium urate (MSU) crystals. Important recent molecular biologic advances in this field have given us a clear picture of the mechanistic basis of gouty inflammation. The innate immune inflammatory response is critically involved in the pathology of gout. Specifically, MSU crystals promote inflammation directly by stimulating cells via Toll-like receptor signaling and by providing a surface for cleavage of C5 and formation of complement membrane attack complex (C5b-9), culminating in secretion of cytokines, chemokines, and other inflammatory mediators with a dramatic influx of neutrophils into the joint. Despite the detailed mechanistic picture for gouty inflammation, there are no placebo-controlled, randomized clinical studies for any of the therapies commonly used, although comparative studies have demonstrated that many nonsteroidal anti-inflammatory drugs are equivalent to indomethacin with respect to controlling acute gouty attacks. In general, the first line of anti-inflammatory therapy for acute gout is nonsteroidal anti-inflammatory drugs, and the selective cyclo-oxygenase-2 inhibitor celecoxib can be used where appropriate. The second line of treatment is glucocorticosteroids, given systemically (oral, intravenous, or intramuscular) or intra-articularly. Alternatively, synthetic adrenocorticotropic hormone is effective, partly via induction of adrenal glucocorticosteroids and partly via rapid peripheral suppression of leukocyte activation by melatonin receptor 3 signaling. The third line of treatment is oral colchicine, which is highly effective when given early in an acute gouty attack, but it is poorly tolerated because of predictable gastrointestinal side effects

Lyapunov spectra of Coulombic and gravitational periodic systems

We compute Lyapunov spectra for Coulombic and gravitational versions of the one-dimensional systems of parallel sheets with periodic boundary conditions. Exact time evolution of tangent-space vectors are derived and are utilized toward computing Lypaunov characteristic exponents using an event-driven algorithm. The results indicate that the energy dependence of the largest Lyapunov exponent emulates that of Kolmogorov-entropy density for each system at different degrees of freedom. Our approach forms an effective and approximation-free tool toward studying the dynamical properties exhibited by the Coulombic and gravitational systems and finds applications in investigating indications of thermodynamic transitions in large versions of the spatially periodic systems.Comment: 9 pages, 4 figures (8 total subfigures