The economic cost of mandatory CO2 emission cuts: A reduced-form approach with panel data: Working paper series--12-04

We follow Schmalensee, Stoker, and Judson (1998) to forecast CO2 emissions based on the Environmental Kuznets Curve (EKC). Our findings suggest that the EKC will not lead to significant decreases in CO2 emissions by 2050 for countries with the highest incomes. Therefore, mandatory emissions cuts may be required to limit climate change. Consistent with Horowitz (2009) and Ng and Zhao (2010), we use a reduced-form approach to estimate the economic costs of mandatory emission cuts. Based on our parameter estimates, we find that a 25% mandatory reduction in CO2 emissions from 1990 will lead to a 5.63% decrease in the combined GDP of 19 high-income OECD countries, and a 40% reduction will result in a 12.92% loss in income (holding other relevant variables constant)! Our estimates are substantially higher than those in Paltsev, Reillya, Jacobya, and Morris (2009) and Dellink, Briner and Clapp (2010), and suggest that the economic cost to limit climate change as envisioned in the Copenhagen Accord may be substantial. More research should be done before mandatory emission cuts are implemented

Real aggregate activity and stock returns: Working paper series--12-07

The notion that real aggregate activity exerts important influence on stock returns has strong theoretical appeal but weak empirical support. We argue in this paper that the lack of empirical reaction to macro news might be at least partly due to the usual focus on macro variables, which are noisy measures of real aggregate activity or the common factor. To test our conjecture, we focus on the Chicago Fed National Activity Index (CFNAI-MA3), a single summary measure of the common factor in 85 macro variables. Our main finding is that the news component of this index does affect stock returns. The effects show up at the market level as well as at the portfolio level

Macroeconomic announcements and foreign exchange risk: Working paper series--14-05

Savor and Wilson (2013a, 2013b) suggest that the tradeoff between state variable risk and asset returns underlying standard asset-pricing theories should be particularly strong on prescheduled macroeconomic announcement days, because important information about the state of the economy is revealed at such times. We apply this insight to foreign-exchange risk, and find robust evidence that foreign-exchange risk is priced on prescheduled macroeconomic announcement days. Our results make important contributions to both international finance and empirical asset-pricing literature

Stock reaction to market-wide information: Working paper series--08-14

An anomaly within the behavioral literature is that as yet there is no evidence suggesting that stocks mis-react to common information as they do to firm-specific information. We demonstrate the limitations of the previous research and revisit the issue of stock reaction to common information in this manuscript. We find a statistically and economically significant reaction pattern to common information as the behavioral models suggest we should. This finding thus complements the findings of stock mis-reaction to firm-specific information, and should benefit researchers attempting to understand investor behavior. Furthermore, we find that the size factor may not only proxy future economic growth as suggested by Vassalou (2003), but also the delayed reaction to the news related to future economic growth

What do financial markets reveal about global warming? Working paper series--09-13

Global warming and its importance are controversial. While a variety of estimates exists of the likelihood of global warming and its economic cost, financial market information can provide an objective assessment of expected losses due to global warming. We consider a Merton-type asset pricing model in which asset prices are affected by the changes in investment opportunities caused by global warming. In this setting, global warming would imply a negative risk premium, with most assets loading negatively on the global warming factor, and financial assets in sectors that are more sensitive to global warming exhibiting stronger negative loadings. Utilizing a variant of Campbell and Diebold's (2005) weather forecasting model in conjunction with Lamont's (2001) and Vassalou's (2003) approach for extracting financial market "news", we empirically uncover the global warming factor. We find that the risk premium is indeed significantly negative and becoming more so over time, that loadings for most assets are negative, and that asset portfolios in industries considered to be more vulnerable to global warming (see IPCC, 2007, and Quiggin and Horowitz, 2003) have significantly stronger negative loadings on the global warming factor. We estimate that required returns on average are 0.11 percentage points higher due to the global warming factor, translating to a present value loss of 4.18 percent of wealth. The industry loadings appear to be unrelated to potential vulnerability to emissions regulation. Rather, the loss in wealth represents a general cost from increased systematic risk due to uncertainty in the extent and impact of warming and the increased incidence of extreme weather events, thus complementing existing estimates of the cost of global warming

Time and regime dependence of foreign exchange exposure: Working paper series--10-11

In this paper, we extend Francis, Hasan, and Hunter (2008) and Stacks and Wei (2005) by simultaneously taking into account the time and the regime dependence of foreign exchange exposure in a reduced-form framework. Specifically, we use a random coefficient model and the quantile regression technique invented by Koenker and Bassett (1978) to examine the currency exposure of 30 US industry portfolios. We find that all 30 industry portfolios exhibit significant foreign exchange exposure. Therefore, our results support Francis, Hasan, and Hunter (2008) and Stacks and Wei (2005), and suggest that the methodological weakness, not hedging, explains the insignificance of currency risk in previous studies

An econometric analysis of the impact of forest restoration on agriculture in the Verde River Watershed, Arizona: Working paper series--14-04

Known as the Four Forest Restoration Initiative (4FRI), the US Forest Service is planning a large-scale restoration of ponderosa pine forests in the Verde River watershed in central Arizona. This paper uses a reduced-form econometric regression model with 1969-2010 time-series data to estimate the economic benefits of the increased water yield due to planned forest restoration of the first phase of 4FRI. We split data sample into 1969-1989 and 1990-2010 time periods, and conclude that during the second time period, water use is statistically and economically significant. This is consistent with the reality that the Verde River watershed has been in drought since the early 1990s. Our central finding is that, if water use increases by 1%, the farm income will increase by 1.33%. If a 5-10% increase in water yield caused by the first phase of the 4FRI is all used by agriculture, agricultural income will increase by 6.65-13.3% annually

An efficient approach to acoustic emission source identification based on harmonic wavelet packet and hierarchy support vector machine

A new approach for acoustic emission (AE) source type identification based on harmonic wavelet packet (HWPT) feature extraction and hierarchy support vector machine (H-SVM) classifier is proposed for solving the fatigue damage identification problem of helicopter moving component. In this approach, HWPT is employed to extract the energy feature of AE signals on different frequency bands, as well as to reduce the dimensionality of original data features. We trained the H-SVM classifier on a subset of the experimental data for known AE source type, and then tested on the remaining set of data. Also, the pressure off experiment on specimen of carbon fiber materials is investigated. The experimental results indicate that the proposed approach can implement AE source type identification effectively, and achieves better performance on computational efficiency and identification accuracy than wavelet packet (WPT) feature extraction and RBF neural network classification

Towards graphane field emitters.

We report on the improved field emission performance of graphene foam (GF) following transient exposure to hydrogen plasma. The enhanced field emission mechanism associated with hydrogenation has been investigated using Fourier transform infrared spectroscopy, plasma spectrophotometry, Raman spectroscopy, and scanning electron microscopy. The observed enhanced electron emissionhas been attributed to an increase in the areal density of lattice defects and the formation of a partially hydrogenated, graphane-like material. The treated GF emitter demonstrated a much reduced macroscopic turn-on field (2.5 V μm-1), with an increased maximum current density from 0.21 mA cm-2 (pristine) to 8.27 mA cm-2 (treated). The treated GFs vertically orientated protrusions, after plasma etching, effectively increased the local electric field resulting in a 2.2-fold reduction in the turn-on electric field. The observed enhancement is further attributed to hydrogenation and the subsequent formation of a partially hydrogenated structured 2D material, which advantageously shifts the emitter work function. Alongside augmentation of the nominal crystallite size of the graphitic superstructure, surface bound species are believed to play a key role in the enhanced emission. The hydrogen plasma treatment was also noted to increase the emission spatial uniformity, with an approximate four times reduction in the per unit area variation in emission current density. Our findings suggest that plasma treatments, and particularly hydrogen and hydrogen-containing precursors, may provide an efficient, simple, and low cost means of realizing enhanced nanocarbon-based field emission devices via the engineered degradation of the nascent lattice, and adjustment of the surface work function.For assistance in ATR FTIR and EDXRF measurements we thank Dr Bob Keighley and Dr Ralph Vokes of Shimadzu Corp; and for plasma optical spectrophotometry analysis, Dr Thomas Schűtte of PLASUS GmbH. This work is supported by National Key Basic Research Program 973(2010CB327705), National Natural Science Foundation Project (51120125001, 51002031, 61101023, 51202028), Foundation of Doctoral Program of Ministry of Education (20100092110015), an EPSRC Impact Acceleration grant, and the Research Fund for International Young Scientists from NSFC (510501101 42, 51350110232). MT Cole thanks the Oppenheimer Trust for their generous financial support.This is the author accepted manuscript. The final version is available from the Royal Society of Chemistry via http://dx.doi.org/10.1039/C5RA20771