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The purpose of this paper is to analyse regulatory reform in the wake of the financial crisis of 2007‐2008.
Abstract
Purpose
The purpose of this paper is to analyse regulatory reform in the wake of the financial crisis of 2007‐2008.
Design/methodology/approach
The paper proposes a framework for regulatory reform that begins with the observation that financial manias and panics cannot be legislated away, and may be an unavoidable aspect of modern capitalism.
Findings
Financial crises are unavoidable when hardwired human behavior – fear and greed, or “animal spirits” – is combined with free enterprise, and cannot be legislated or regulated away. Like hurricanes and other forces of nature, market bubbles, and crashes cannot be entirely eliminated, but their most destructive consequences can be greatly mitigated with proper preparation. In fact, the most damaging effects of financial crisis come not from loss of wealth, but rather from those who are unprepared for such losses and panic in response. This perspective has several implications for the types of regulatory reform needed in the wake of the financial crisis of 2007‐2008, all centered around the need for greater transparency, improved measures of systemic risk, more adaptive regulations, including counter‐cyclical leverage constraints, and more emphasis on financial literacy starting in high school, including certifications for expertise in financial engineering for the senior management and directors of all financial institutions.
Originality/value
The paper stresses how we must resist the temptation to react too hastily to market events, and deliberate thoughtfully and broadly, instead, craft new regulations for the financial system of the twenty‐first century. Financial markets do not need more regulation; they need smarter and more effective regulation.
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Nuno Crato and Pedro J.F. de Lima
This paper is focused on two particular issues related to the stochastic structure of stock prices: linear long‐memory and nonlinearity.
Kausik Chaudhuri and Yangru Wu
This paper investigates whether stock‐price indexes of emerging markets can be characterized as random walk (unit root) or mean reversion processes. We implement a panelbased test…
Abstract
This paper investigates whether stock‐price indexes of emerging markets can be characterized as random walk (unit root) or mean reversion processes. We implement a panelbased test that exploits cross‐sectional information from seventeen emerging equity markets during the period January 1985 to April 2002. The gain in power allows us to reject the null hypothesis of random walk in favor of mean reversion at the 5 percent significance level. We find a positive speed of reversion with a half‐life of about 30 months. These results are similar to those documented for developed markets. Our findings provide an interesting comparison to existing studies on more matured markets and reduce the likelihood of earlier mean reversion findings as attributable to data mining.
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Abstract
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H.J. Smoluk and E. Tylor Claggett
Like many industrial nations over the last four decades, the Japanese economy has undergone a number of regime shifts, making parameter estimations difficult. One of the most…
Abstract
Like many industrial nations over the last four decades, the Japanese economy has undergone a number of regime shifts, making parameter estimations difficult. One of the most significant shifts occurred in inflation in the mid 1970s as OPEC suddenly raised oil prices. This abrupt change likely caused consumers' expectations of future inflation to deviate significantly from realized (ex‐post) inflation. Using a Markov chain model, inflation forecasts that take into consideration changing regimes are employed to derive a unique set of real stationary variables that are likely to better represent consumers' expectations and are an alternative to the standard approach of adjusting nominal variables with ex‐post inflation. We employ these real variables in the consumption‐based capital asset pricing model (CCAPM). Estimates of the representative investor's coefficient of relative risk aversion (CRRA) are derived within the framework typically used to examine the equity premium puzzle. Our tests confirm that the equity premium puzzle, if it exists in Japan, is not as significant as previously thought.
Steven J. Cochran and Robert H. DeFina
Several recent studies have indicated the existence of a predictable component in stock prices. This study examines the sources of this serial correlation using error‐correction…
Abstract
Several recent studies have indicated the existence of a predictable component in stock prices. This study examines the sources of this serial correlation using error‐correction models. The results show that autocorrelated economic variables can generate serial correlation in stock returns. After these effects are accounted for, however, significant serial correlation in stock prices remains. The activities of noise traders and inefficiencies in the pricing of securities, within the context of limitations to the arbitrage process, are suggested as additional sources of serial correlation in stock prices.
Emel Kahya, Arav S. Ouandlous and Panayiotis Theodossiou
Outlines previous research on business failure prediction models and investigates the impact of serial correlation and non‐stationarity in financial variables on models based on…
Abstract
Outlines previous research on business failure prediction models and investigates the impact of serial correlation and non‐stationarity in financial variables on models based on linear discriminant analysis, logit and cumulative sums using 1974‐1991 data from a sample of failed and non‐failed US firms, plus a similar 1992 sample. Presents and discusses the time series behaviour of the explanatory variables, the estimation of the three types of models and their error rates over time. Concludes that models based on variables with strong positive serial correlation deteriorate over time in their forecasting power; and calls for research to develop stationary models.
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The purpose of this paper is to assess the usefulness of financial ratios derived from working capital‐based funds flow information to predict the failure of US industrial firms…
Abstract
The purpose of this paper is to assess the usefulness of financial ratios derived from working capital‐based funds flow information to predict the failure of US industrial firms. Unlike cash‐based funds flow ratios, used in the previous papers, capital‐based funds ratios are less volatile, therefore they are expected to be better predictors of business failure. Moreover, the paper utilizes a more general definition of business failure than the legal definition. The analysis is carried out using a stepwise logit procedure. The results indicate that working capital‐based funds flow measures are superior to cash‐based funds flow measures in business failure prediction models.
Danielle Mihram and G. Arthur Mihram
The 2013 meeting's theme, The Beauty and Benefits of Science, aimed at highlighting the rich and complicated connections between basic and applied research, and, just as…
Abstract
Purpose
The 2013 meeting's theme, The Beauty and Benefits of Science, aimed at highlighting the rich and complicated connections between basic and applied research, and, just as importantly, providing examples of case studies where the “pull” of environmental or societal problems drives fundamentally new basic research. This article aims to focus on symposia that highlighted the “pull” of social media in the communications in science and how the reach of fundamental computing research has affected the daily lives. This report will be of interest to librarians, information specialists, scientists and social scientists, and policy makers.
Design/methodology/approach
This report includes selected presentations and discussions (as well as direct internet links to presentations) within one of the 14 symposium tracks: communications and public programs. In many cases the authors provide additional references to further document the scope of the presenters' work and research.
Findings
The symposium offered an array of the most recent and innovative approaches in the way science is conducted and communicated in a digital world. Two themes centered on the following questions: “In a constantly changing online landscape, what is the best way for scientists and engineers to engage the public through social media?” and, “What new tools do we have to engage the public and to assess the impact of science communication?”
Originality/value
This is an important topic that touches on the way science is conducted and communicated in a digital world.
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