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1 – 10 of 317The challenge of predicting changes in aggregate income and stock prices is one that has occupied the research agendas of economists. This paper aims to use the consumption–income…
Abstract
Purpose
The challenge of predicting changes in aggregate income and stock prices is one that has occupied the research agendas of economists. This paper aims to use the consumption–income ratio and the dividend–price ratio to predict future income and stock prices.
Design/methodology/approach
To examine the stability of the consumption–income ratio and the dividend–price ratio, the authors run a two-variable, two-lag reduced-form VAR in the vein of Cochrane (1994), using a lag of each respective ratio as exogenous to the VAR. Additionally, the authors estimate an AR(4) model for income and prices.
Findings
The consumption–income ratio and the dividend–price ratio remain key to understanding future movements in income and stock prices. The consumption–income ratio significantly predicts future income in the USA, and aggregate income is easier to predict than consumption in the VAR model. The dividend–price ratio does not significantly predict future price growth. Consumption and dividend shocks have lasting impacts on income and prices.
Originality/value
The consumption–income ratio and the dividend–price ratio are still key to understanding future movements in income and stock prices. The consumption–income ratio significantly predicts future income in the USA, and aggregate income is easier to predict than consumption in the VAR model. However, the dividend–price ratio does not significantly predict future price growth, a change from previous research from the 1990s, despite the increasing complexity of stock markets. Consumption and dividend shocks have lasting impacts on income and prices and appear to be significant drivers in both the short- and long-run variance in income and prices.
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Joshua C. Hall, Donald J. Lacombe and Shree B. Pokharel
While many studies find a positive relationship between economic freedom and entrepreneurship, very few of these studies account for possible spatial autocorrelation. Moreover…
Abstract
Purpose
While many studies find a positive relationship between economic freedom and entrepreneurship, very few of these studies account for possible spatial autocorrelation. Moreover, the development of an overall freedom measure has allowed researchers to test the relationship between overall freedom (personal plus economic) and entrepreneurship. The literature, however, does not account for spatial dependence in entrepreneurial activity. The purpose of this paper is to test for possible spatial dependence in entrepreneurial activity.
Design/methodology/approach
The authors employ a spatial autoregressive model to account for possible spatial dependence in entrepreneurial activity across states. The authors have data for entrepreneurial activity and overall freedom for a cross-section of data on the 48 contiguous US states for 2009.
Findings
The authors find no evidence of spatial dependence in entrepreneurial activity.
Research limitations/implications
The authors are limited to a cross-section. Combined with the spatial lag of the dependent variable, the authors might have too few observations to find statistical significance on either the spatial lag or other explanatory variables.
Practical implications
Future research should continue to account for possible spatial dependence.
Social implications
Entrepreneurship is key to economic growth. Freedom has been shown to lead to more entrepreneurship at the state level in other research.
Originality/value
This brief research note is the first paper to account for spatial dependence in the relationship between overall freedom and entrepreneurial activity.
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Serkan Karadas, Minh Tam Tammy Schlosky and Joshua C. Hall
What information do members of Congress (politicians) use when they trade stocks? The purpose of this paper is to attempt to answer this question by investigating the relationship…
Abstract
Purpose
What information do members of Congress (politicians) use when they trade stocks? The purpose of this paper is to attempt to answer this question by investigating the relationship between an aggregate measure of trading by members of Congress (aggregate congressional trading) and future stock market returns.
Design/methodology/approach
The authors follow the empirical framework used in academic work on corporate insiders. In particular, they aggregate 61,998 common stock transactions by politicians over the 2004–2010 period and estimate time series regressions at a monthly frequency with heteroskedasticity and autocorrelation robust t-statistics.
Findings
The authors find that aggregate congressional trading predicts future stock market returns, suggesting that politicians use economy-wide (i.e. macroeconomic) information in their stock trades. The authors also present evidence that aggregate congressional trading is related to the growth rate of industrial production, suggesting that industrial production serves as a potential channel through which aggregate congressional trading predicts future stock market returns.
Originality/value
To the best of the authors’ knowledge, this study is the first to document a relationship between aggregate congressional trading and stock market returns. The media and scholarly attention on politicians’ trades have mostly focused on the question of whether politicians have superior information on individual firms. The results from this study suggest that politicians’ informational advantage may go beyond individual firms such that they potentially have superior information on the overall trajectory of the economy as well.
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Joshua C. Hall, Serkan Karadas and Minh Tam Tammy Schlosky
Congress passed the Stop Trading on Congressional Knowledge (STOCK) Act of 2012, vesting the Securities and Exchange Commission with the clear legal authority to prosecute members…
Abstract
Purpose
Congress passed the Stop Trading on Congressional Knowledge (STOCK) Act of 2012, vesting the Securities and Exchange Commission with the clear legal authority to prosecute members of Congress (politicians) if they engage in insider trading. This paper aims to investigate whether members of Congress are informed traders even before they get elected to Congress, and thus helps assess whether the STOCK Act was a necessary piece of legislation.
Design/methodology/approach
This study compares the performance of politicians’ portfolios before and after they are elected to Congress using data from the 2004-2010 period. The authors use an event-study method to construct transactions-based calendar-time portfolios and use standard asset pricing models including capital asset pricing model (CAPM) to determine whether these portfolios earn abnormal returns (i.e. outperform the market).
Findings
The authors find weak and inconsistent evidence of abnormal returns in politicians’ portfolios that precede their election. They also find that it takes two consecutive terms in Congress for members to start making informed trades that earn themselves abnormal returns. However, these abnormal returns only accrue to those who serve on powerful committees.
Research limitations/implications
The results in this paper provide support for the STOCK Act of 2012 by showing that members of Congress become informed traders while they serve in Congress. However, these results do not imply any wrongdoing for members of Congress, because the paper uses the pre-STOCK Act data (2004-2010 period).
Originality/value
This study is the first academic work that compares politicians’ portfolios before and after they get elected.
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Recreational use of MP3 players, cell phones, computers and/or video game units is on the rise among today’s students. This article helps teachers integrating economics into their…
Abstract
Recreational use of MP3 players, cell phones, computers and/or video game units is on the rise among today’s students. This article helps teachers integrating economics into their classrooms plug into this M2 frenzy. It identifies numerous high-quality resources with economic content that are readily available in the media at relatively low costs to Kindergarten-12 teachers and their students. Student preferences for different types of media guide the choices of content in economic education described here. By using the revealed preferences of the students, teachers can be more successful at engaging students in advancing along the economics learning curve. Hopefully, their engagement will spill over and entice students to learn more outside the classroom.
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Because economics is increasing in importance in the high school curriculum, it is critically important that it is taught well by well-trained teachers. We offer suggestions for…
Abstract
Because economics is increasing in importance in the high school curriculum, it is critically important that it is taught well by well-trained teachers. We offer suggestions for teaching high school economics in the areas of content, methodology, materials, and professional development. We address what content to include, the use of textbooks and supplementary materials, and innovative approaches for teaching economics. The use of literature, film, music, and activity-based lessons are discussed. Teachers are encouraged to seek out professional development opportunities through the Council for Economic Education and networking opportunities through the Global Association of Teachers of Economics. Although teaching high school economics can be challenging, there are many helpful materials and resources available.
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