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No. 254 (Download full text) (accepted)
Wasantha Athukorala and Clevo Wilson: Estimating short and long-term residential demand for electricity: New evidence from Sri Lanka
This study investigates the short-run dynamics and long-run equilibrium relationship between residential electricity demand and factors influencing demand - per capita income, price of electricity, price of kerosene oil and price of liquefied petroleum gas - using annual data for Sri Lanka for the period, 1960-2007. The study uses unit root, cointegration and error correction models. The long-run demand elasticities of income, own price and price of kerosene oil (substitute) were estimated to be 0.78, - 0.62, and 0.14 respectively. The short-run elasticities for the same variables were estimated to be 0.32, -0.16 and 0.10 respectively. Liquefied petroleum (LP) gas is a substitute for electricity only in the short-run with an elasticity of 0.09. The main findings of the paper support the following (1) increasing the price of electricity is not the most effective tool to reduce electricity consumption (2) existing subsidies on electricity consumption can be removed without reducing government revenue (3) the long-run income elasticity of demand shows that any future increase in household incomes is likely to significantly increase the demand for electricity (4) any power generation plans which consider only current per capita consumption and population growth should be revised taking into account the potential future income increases in order to avoid power shortages in the country.; JEL-Codes: Q40;Q41; Q48; Q50; Q56; Keywords: Electricity demand, Price and income elasticities, Cointegration analysis

No. 253 (Download full text)
Martin Gachter, David A. Savage and Benno Torgler: Retaining the Thin Blue Line: What shapes workers’ willingness not to quit the current work environment?
The purpose of this study is to investigate the determinants of police officers‘ willingness to quit their current department. For this purpose, we work with US survey data that covers a large set of police officers for the Baltimore Police Department in Maryland. Our results indicate that more effective cooperation between units, a higher trust in the work partner, a higher level of interactional justice and a higher level of work-life-balance reduces police officers‘ willingness to quit the department substantially. On the other hand, higher physical and psychological stress and the expereicene of traumatic events are not, ceteris paribus, correlated with the willingness to leave the department. It might be that police officers accept stress as an acceptable factor in their job description.; JEL-Codes: I10; I12; I31; J24; J81; Z130; Keywords: Willingness to Quit the Job; Turnover Rates: Job Satisfaction; Stress; Police Officers; Work-Life Balance; Fairness; Acceptance.

No. 252 (Download full text)
Martin Gächter, David A. Savage and Benno Torgler: Gender Variations of Physiological and Psychological Stress among Police Officers
This paper analyses the effect of gender on reported and perceived levels of stress through examination of both the physical and psychological indicators. It may be interesting to work with police data due to high stress levels among police officers and the fact that the work environment is male dominant (females are a minority). In our study we not only explore gender differences, but also whether job and private environmental factors such as effective cooperation between units, a higher trust in the work partner, a higher level of work-life-balance and home stability, and a higher level of interactional fairness, affect female and male officers differently. Using multivariate regression analysis of police officers we find that female officers are significantly more likely to report suffering from physical stress indicators than their male counterparts while no gender differences are observable in regards to psychological stress. Moreover, a higher level of trust and cooperation, and a higher level of interactional fairness at work are not able to absorb physical stress among female, while these factors have a strong impact on male officers. On the other hand, for both, female and male officers, work-life balance and stability at home have the tendency of reducing physical stress.; JEL-Codes: I10; I12; I31; J24; J81; Z130; Keywords: Gender, Stress, Police Officers, Burnout, Work-life Balance, Justice

No. 251 (Download full text)
David A. Savage and Benno Torgler: Nerves of Steel? Stress, Work Performance and Elite Athletes
There is a notable shortage of empirical research directed at measuring the magnitude and direction of stress effects on performance in a controlled environment. One reason for this is the inherent difficulties in identifying and isolating direct performance measures for individuals. Additionally most traditional work environments contain a multitude of exogenous factors impacting individual performance, but controlling for all such factors is generally unfeasible (omitted variable bias). Moreover, instead of asking individuals about their self-reported stress levels we observe workers’ behavior in situations that can be classified as stressful. For this reason we have stepped outside the traditional workplace in an attempt to gain greater controllability of these factors using the sports environment as our experimental space. We empirically investigate the relationship between stress and performance, in an extreme pressure situation (football penalty kicks) in a winner take all sporting environment (FIFA World Cup and UEFA European Cup competitions). Specifically, we examine all the penalty shootouts between 1976 and 2008 covering in total 16 events. The results indicate that extreme stressors can have a positive or negative impact on individuals’ performance. On the other hand, more commonly experienced stressors do not affect professionals’ performances.; JEL-Codes: D80; D81; J81; Z130; Keywords: Performance, Stressors, Sport, Behavioural Economics, Work-related stress

No. 250 (Download full text)
Martin Gächter, David Savage and Benno Torgler: The Relationship between Stress and Social Capital among Police Officers
This paper analyzes the effectiveness of social capital in reducing the negative externalities associated with stress, as well as the physical and psychological indicators of stress among police officers. Despite the fact that there is a large multidisciplinary literature on stress or on social capital, the link between both factors is still underexplored. In this empirical paper we therefore aim at reducing such a shortcoming. We focus on a strategically important work environment, namely law enforcement agents, that is not only characterized as physically and emotionally demanding, but also as an essential part for a well-functioning society due to the fact that inefficiencies in the police force can induce large negative externalities. Using a multivariate regression analysis focusing on nine different proxies for stress and two proxies for social capital and conducting several robustness checks, we find strong evidence that an increased level of social capital is correlated with a lower level of stress. From a policy perspective, our findings suggest that stress reduction programs should actively engage employees to build stronger social networks.; JEL-Codes: I1, I310, J24, J81, Z130; Keywords: Social Capital, Trust, Stress, Police Officers

No. 249 (Download full text) (Working Paper)
David A.Savage, Benno Torgler and Marco Piatti: The Red Mist? Red Shirts, Aggression and Team Sports
Baron von Richthofen (aka the Red Baron) arguably the greatest fighter pilot of all time painted his plane in the vividest of red hues, making him visible and identifiable at great distance. An aggressive pronouncement of dominance to other pilots, but is it the colour that inspires greater performance or coincidence that red appears to perform better? This study explores the effect of the colour red on sporting performances in a team sport, through empirical analysis of match results from the Australian Rugby League spanning a period of 30 years. The results do not provide empirical evidence that teams with predominately red jerseys enjoy a ceteris paribus advantage over those wearing other colours. On the contrary, our multivariate analysis shows that teams wearing red experience a large negative relationship with victories.; JEL-Codes: L83; D03; Keywords: IMPACT OF TEAM COLOURS; RED; (AUSTRALIAN) FOOTBALL; TEAM SPORTS

No. 248 (Download full text)
Christoph A. Schaltegger and Benno Torgler: Was Weber Wrong? A Human Capital Theory of Protestant Economic History: A Comment on Becker and Woessmann
This comment makes a contribution to Becker and Woessmann’s paper on a human capital theory of Protestant economic history eventually challenging the famous thesis by Max Weber who attributed economic success to a specific Protestant work ethic (Quarterly Journal of Economics 124 (2) (2009) forthcoming). The authors argue for a human capital approach: higher literacy among Protestants of the 19th century (and not a Protestant work ethic) contributed to higher economic prosperity at that point in history. However, the paper leaves the question open as to whether a Protestant specific work ethic existed or exists at all. Are there observable denomination-based differences in work ethic or is Protestantism only a veil hiding the underlying role of education? We use recent data to explore the role of Protestantism on work ethic. The results indicate that today’s work ethic in fact is influenced by denomination-based religiosity and also education.; JEL-Codes: Z120, I200, J240; Keywords: Religion, Work Ethic, Protestantism, Education

No. 247 (Download full text)
Benno Torgler and Marco Piatti: Extraordinary Wealth, Globalization, and Corruption
The billionaires of the world attract significant attention from the media and the public. The popular press is full of books selling formulas on how to become rich. Surprisingly, only a limited number of studies have explored empirically the determinants of extraordinary wealth. Using a large data set we explore whether globalization and corruption affect extreme wealth accumulation. We find evidence that an increase in globalization increases super-richness. In addition, we also find that an increase in corruption leads to an increase in the creation of super fortune. This supports the argument that in kleptocracies large sums are transferred into the hands of a small group of individuals.; Keywords: Globalization, Extraordinary Wealth, Corruption, Superstars

No. 246 (Download full text)
Christoph A. Schaltegger , Benno Torgler and Simon Zemp: Central City Exploitation by Urban Sprawl? Evidence from Swiss Local Communities
This paper investigates spatial spillovers in local spending decisions between the center and the surrounding local communities by using panel data of the canton of Lucerne during the 1990s. Due to the geographical fragmentation with a major central city and some 100 small suburban local communities within a distance from 4 to 55 kilometers to the center this area represents a particularly useful database in order to test the relevance of spatial interactions in a small metropolitan area. The empirical evidence confirms strategic interactions among suburban governments and the central city only for public education, health and environmental spending. There are no spatial interactions with the central city for overall government spending.; JEL-Codes: D72, H72; Keywords: spatial spillovers, strategic interaction, central city exploitation

No. 245 (Download full text)
Bruno S. Frey, David A. Savage and Benno Torgler: Surviving the Titanic Disaster: Economic, Natural and Social Determinants
The sinking of the Titanic in April 1912 took the lives of 68 percent of the people aboard. Who survived? It was women and children who had a higher probability of being saved, not men. Likewise, people traveling in first class had a better chance of survival than those in second and third class. British passengers were more likely to perish than members of other nations. This extreme event represents a rare case of a well-documented life and death situation where social norms were enforced. This paper shows that economic analysis can account for human behavior in such situations.; JEL-Codes: D63; D64; D71; D81; Keywords: Decision under Pressure, Tragic Events and Disasters, Survival, Quasi-Natural Experiment, Altruism

No. 244 (Download full text)
Robert J Bianchi, Adam E Clements and Michael E Drew: HACking at Non-linearity: Evidence from Stocks and Bonds
The implicit assumption of linearity is an important element in empirical finance. This study presents a hypothesis testing approach which examines the linear behaviour of the conditional mean between stock and bond returns. Conventional tests detect spurious non-linearity in the conditional mean caused by heteroskedasticity and/or autocorrelation. This study re-states these tests in a heteroskedasticity and autocorrelation consistent (HAC) framework and we find that stock and bond returns are indeed linear-in-the-mean in both univariate and bivariate settings. This study contends that previous research may have detected spurious non-linearity due to size distortions caused by heteroskedasticity and autocorrelation, rather than the presence of genuine non-linearity.; JEL-Codes: G00, G12, G14; Keywords: linearity, nonlinear, heteroskedasticity-robust tests, autocorrelation-robust tests

No. 243 (Download full text) (working paper)
Benno Torgler, Friedrich Schneider and Christoph A. Schaltegger: Local Autonomy, Tax Morale and the Shadow Economy
Policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale. However, there is also a bottom-up approach such as, for example, decentralizing the political power to those who are close to the problems. Thus, this paper analyses the relationship between local autonomy and tax morale or the size of the shadow economy. We use data on tax morale at the individual level and macro data of the size of the shadow economy to systematically analyse the relevance of local autonomy and compliance in Switzerland, a country where the degree of federalism varies across different cantons. The findings suggest that there is a positive (negative) relationship between local autonomy and tax morale (size of the shadow economy).; JEL-Codes: H260; H730; D700; Keywords: Tax Morale; Shadow Economy; Tax Compliance; Tax Evasion; Local Autonomy; Federalism; Institution

No. 242 (Download full text) (working paper)
Bruno S. Frey and Benno Torgler: Politicians: Be Killed or Survive
In the course of history, a large number of politicians have been assassinated. Rational choice hypotheses are developed and tested using panel data covering more than 100 countries over a period of 20 years. Several strategies, in addition to security measures, are shown to significantly reduce the probability of politicians being attacked or killed: extended institutional and governance quality, democracy, voice and accountability, a well functioning system of law and order, decentralization via the division of power and federalism, larger cabinet size and strengthened civil society. There is also support for a contagion effect.; JEL-Codes: D01; D70; K14; K42; Z10; Keywords: Assassinations; rational choice; governance; democracy; dictatorship; deterrence; protection.

No. 241 (Download full text) (working paper)
Bin Dong, Uwe Dulleck and Benno Torgler: Conditional Corruption
We argue that the decision to bribe bureaucrats depends on the frequency of corruption within a society. We provide a behavioral model to explain this conduct: engaging in corruption results in a disutility of guilt. This implies that people observe a lower probability to be involved in corruption if on average the guilt level of others within a country is higher. We also explore whether - and to what extent - group dynamics or socialization and past experiences affect corruption. In other words, we explore theoretically and empirically whether corruption is contagious and whether conditional cooperation matters. We use the notion of “conditional corruption” for these effects. The empirical section presents evidence using two data sets at the micro level and a large macro level international panel data set covering almost 20 years. The results indicate that the willingness to engage in corruption is influenced by the perceived activities of peers and other individuals. Moreover, the panel data set at the macro level indicates that the past level of corruption has a strong impact on the current corruption level.; JEL-Codes: K420; D720; D640; O170; J240; Keywords: corruption; contagion effect; conditional cooperation; interdependent preferences

No. 240 (Download full text) (working paper)
Radhika Lahiri and Elizabeth Richardson: Public and Private Expenditures on Health in the Presence of Inequality and Endogenous Mortality: A Political Economy Perspective
In this paper we study an overlapping-generations model in which agents’ mortality risks, and consequently impatience, are endogenously determined by private and public investment in health care. The proportion of revenues allocated for public health care is also endogenous, determined as the outcome of a voting process. Higher substitutability between public and private health is associated with a “crowding-out” effect which leads to lower public expenditures on health care in the political equilibrium. This in turn impacts on mortality risks and impatience leading to a greater persistence in inequality and long run distributions of wealth that are bimodal.; JEL-Codes: I12; I20; O5; Keywords: health; inequality; political economy; income distribution dynamics

No. 239 (Download full text) (Working Paper)
William Wild: A New Structure for Regulated Bank Lending in a Cyclical Downturn
This paper outlines a new structure for lending by regulated banks, under which the Tier 1 capital required to support a new loan is provided by the borrower’s own equity-holders. In a downturn cyclical environment this would secure a new, motivated and informed class of bank capital provider to counter the pro-cyclicality of bank lending. The new structure would be competitive in terms of cost to borrowers, nondilutive of existing bank capital and credit risk neutral. It also has the potential to be an effective instrument of market discipline in economic upcycles and regulators might consider adopting it as a pillar in any revised bank capital regime.

No. 238 (Download full text) (Working Paper)
Benno Torgler, Maria A. Garcia-Valinas and Alison Macintyre: Environmental Participation and Environmental Motivation
We explore whether environmental motivation affects environmental behavior by focusing on volunteering. The paper first introduces a theoretical model of volunteering in environmental organizations. In a next step, it tests the hypothesis working a large micro data set covering 32 countries from both Western and Eastern Europe using several different proxies to measure environmental motivation. As a robustness test we also explore the relationship at the macro level extending the number of countries investigated. Our results indicate a strong positive relationship between environmental motivation and individuals’ voluntary engagement in environmental organizations.; JEL-Codes: D11, H41, H26, H73, D64; Keywords: environmental participation, environmental motivation, environmental morale, pro-environmental attitudes, social capital

No. 237 (Download full text) (Working Paper)
Bruno S. Frey, David A. Savage and Benno Torgler: Noblesse Oblige? Determinants of Survival in a Life and Death Situation
This paper explored the determinants of survival in a life and death situation created by an external and unpredictable shock. We are interested to see whether pro-social behaviour matters in such extreme situations. We therefore focus on the sinking of the RMS Titanic as a quasi-natural experiment do provide behavioural evidence which is rare in such a controlled and life threatening event. The empirical results support that social norm such as “women and children first” survive in such an environment. We also observe that women of reproductive age have a higher probability of surviving among women. On the other hand, we observe that crew members used their information advantage and their better access to resources (e.g. lifeboats) to generate a higher probability of surviving. The paper also finds that passenger class, fitness, group size, and cultural background matter.; JEL-Codes: D63; D64; D71; D81; Keywords: Decision under Pressure, Altruism, Social Norms, Interdependent Preferences, Excess of Demand

No. 236 (Download full text) (Working Paper)
Benno Torgler, Bruno S.Frey, Markus Schaffner and Sascha L.Schmidt: A Crowding-Out Effect for Relative Income
The risk of external interventions crowding-out intrinsic motivation has long been established in economics. This paper introduces a new dimension by arguing that a crowding-out effect does become possible if individuals receive higher relative compensation. Using a unique, large data set that focuses on 26 seasons in basketball (NBA) we find empirical support for a relative crowding-out effect. Performance is reduced as a reaction to a relative income advantage.; JEL-Codes: D000, D600, L830; Keywords: Crowding-out, relative income, positional concerns, motivation

No. 234 (Download full text) (Working Paper)
Markus Schaffner and Benno Torgler: Meet the Joneses: An Empirical Investigation of Reference Groups in Relative Income Position Comparisons
It is generally understood that people care about their absolute income position, and several studies have in fact moved beyond this, showing that people also place considerable significance on their relative income position. However, empirical evidence about the behavioural consequences is scarce. We address this shortcoming by exploring the relative income effect in a (controlled) sporting contest environment. Specifically, we look at the pay-performance relationship by working with a large panel data set consisting of 26 NBA seasons. We explore how closeness affects positional concerns exploring in detail several potential reference groups. This allows checking of their relevance and of the scope of comparisons, a critical aspect in the literature that requires further investigation.

No. 233 (Download full text) (Working Paper)
Benno Torgler, Maria A. Garcia-Valinas and Alison Macintyre: Justifiability of Littering: An Empirical Investigation
The paper investigates the relationship between environmental participation and littering. Previous empirical work in the area of littering is scarce as is evidence regarding the determinants of littering behavior. We address these deficiencies, demonstrating a strong empirical link between environmental participation and reduced public littering using European Values Survey (EVS) data for 30 Western and Eastern European countries. The results suggest that membership in environmental organizations strengthens commitment to anti-littering behaviour, thereby supporting improved environmental quality.; JEL-Codes: H260, H730, D640; Keywords: littering, environmental participation, environmental preferences, environmental outcomes

No. 232 (Download full text) (Working Paper)
Lars P. Feld, Benno Torgler and Bin Ding: Coming Closer? Tax Morale, Deterrence and Social Learning after German Unification
The paper explores whether a social learning model helps explain the observed conformity and compliance with social norms after the unification of Germany. We compare tax morale, (the willingness to pay taxes), between inhabitants of East and West Germany during the post-unification period, using three World Values Survey/European Values Survey waves between 1990 and 1999. German unification is of particular interest in analysing tax morale since it is close to a quasi-natural experiment. Factors such as a common language, similar education systems and a shared cultural and political history prior to the separation after the Second World War can be controlled because they are similar. Our findings indicate that the social learning model employed in this study helps to predict the development of tax morale over time. It is clear that tax morale values converged within a mere nine years after unification, due largely to a strong change in the level of tax morale in the East. Thus, the paper contributes to the literature that attempts to explain how norms arise, how they are maintained and how they are changed.; JEL-Codes: H26, H73, D78, C93; Keywords: Tax Morale, Social Learning, Conformity, Convergence Process, Deterrence, Quasi-Natural Experiment

No. 231 (Download full text) (Working Paper)
Benno Torgler, Markus Schaffner, Sascha L. Schmidt and Bruno S.Frey: Do Employees Care About Their Relative Position? Behavioural Evidence Focusing on Performance.
Do employees care about their relative (economic) position among co-workers in an organization? And if so, does it raise or lower their performance? Behavioral evidence on these important questions is rare. This paper takes a novel approach to answering these questions, working with sports data from two different disciplines, basketball and soccer. These sports tournaments take place in a controlled environment defined by the rules of the game. We find considerable support that positional concerns and envy reduce individual performance. In contrast, there does not seem to be any tolerance for income disparity, based on the hope that such differences signal that better times are under way. Positive behavioral consequences are observed for those who are experiencing better times.; JEL-Codes: D000, D600, L830; Keywords: Relative income, positional concerns, envy, social comparison, relative derivation, performance

No. 230 (Download full text) (Working Paper)
Benno Torgler, Markus Schaffner, Bruno S.Frey and Sascha L. Schmidt: Looking Awkward When Winning and Foolish When Losing: Inequity Aversion and Performance in the Field
The experimental literature and studies using survey data have established that people care a great deal about their relative economic position and not solely, as standard economic theory assumes, about their absolute economic position. Individuals are concerned about social comparisons. However, behavioral evidence in the field is rare. This paper provides an empirical analysis, testing the model of inequity aversion using two unique panel data sets for basketball and soccer players. We find support that the concept of inequity aversion helps to understand how the relative income situation affects performance in a real competitive environment with real tasks and real incentives.; JEL-Codes: D000, D600, 8222, 9210, L830; Keywords: Inequity aversion, relative income, positional concerns, envy, social comparison, performance, interdependent preferences

No. 229 (Download full text)
Benno Torgler and Bin Dong: Corruption and Political Interest: Empirical Evidence at the Micro Level
The topic of corruption has recently attracted a great deal of attention, yet there is still a lack of micro level empirical evidence regarding the determinants of corruption. Furthermore, the present literature has not investigated the effects of political interest on corruption despite the interesting potential of this link. We address these deficiencies by analyzing a cross-section of individuals, using the World Values Survey. We explore the determinants of corruption through two dependent variables (perceived corruption and the justifiability of corruption). The impact of political interest on corruption is explored through three different proxies, presenting empirical evidence at both the cross-country level and the within-country level. The results of the multivariate analysis suggest that political interest has an impact on corruption controlling for a large number of factors.; JEL-Codes: K420, D720, O170, J240; Keywords: Corruption; Political Interest, Social Norms

No. 228 (Download full text) (Working Paper)
Boon L. Lee, Andrew C. Worthington and Wai Ho Leong: Malmquist Indices of Pre and Post-Deregulation Productivity, Efficiency and Technological Change in the Singaporean Banking Sector
By the end of the 1990s, the Singaporean government had recognised the need to open up its banking sector so as to remain competitive in the global economy. The Monetary Authority of Singapore thus began deregulation of the banking sector in 1999 to strengthening the competitiveness of local banks relative to their foreign competition through mergers. This paper employs a nonparametric Malmquist productivity index to provide measure of productivity, technological change and efficiency gains over the period 1995-2005. The findings reveal some total factor productivity growth associated with deregulation and scale efficiency improvement largely from mergers amongst the local banks.; JEL-Codes: G21, D24; Keywords: Efficiency, productivity; deregulation; Malmquist indices; banking

No. 227 (Download full text) (Working Paper)
Benno Torgler, María A.García-Valiñas and Alison Macintyre: Differences in Preferences Towards the Environment: The Impact of a Gender, Age and Parental Effect
The paper investigates empirically the differences in preferences towards protection of the environment. Using seven different dependent variables to focus on the impact of age, gender and children we use a large micro data set covering data from 33 Western and Eastern European countries. The results indicate that women have both a stronger preference towards the environment and a stronger willingness to contribute. Moreover, we observe the tendency of a negative correlation between age and environmental preferences. However, a positive effect is visible once we focus on the impact of age on social norms (environmental morale). Finally, we were not able to observe that having children is positively correlated with a stronger preference towards the environment.; JEL-Codes: H260, H730, D640; Keywords: environmental preferences, environmental morale, gender, age, children

No. 226 (Download full text) (Working Paper)
María A. García-Valiñas, Roberto Fernández Llera and Benno Torgler: More Income Equality or Not? An Empirical Analysis of Individuals’ Preferences for Redistribution
Do people prefer a society with an extensive social welfare system with high taxes, or low taxes but lax redistributive policies? Although economists have for a long time investigated the trade-off mechanism between equity and efficiency, surprisingly little information is available about citizens’ preferences over the distribution of income in a society. The aim of this paper is reduce this shortcoming, investigating in an empirical study working with World Values Survey, what shapes individuals’ preferences for income equality in Spain. We present evidence that not only traditional economic variables are relevant to be considered, but also factors such as ideology, political interest, fairness perception about others or trust in institutions, are key determinants to understand preferences towards redistribution and equality. Furthermore, we also find that regional conditions affect the citizens’ preferences for income equality. Higher income inequality leads to stronger preferences for equality. On the other hand, there is the tendency that higher social expenditures reduce the preferences for income equality.; JEL-Codes: H230, H530, I310; Keywords: redistribution, inequality, welfare state, social capital, regional conditions

No. 225 (Download full text)
Benno Torgler, Markus Schaffner and Alison Macintyre: Tax Compliance, Tax Morale And Governance Quality
Taxpayers are more compliant than the traditional economic models predict. Why? The literature calls it the “puzzle of tax compliance”. In this paper we use field, experimental and survey data to investigate the empirical evidence on whether presence of tax morale helps to resolve this puzzle. The results reveal a strong correlation between tax morale and tax evasion/compliance which confirms the value of taking the research a step further by looking at the determinants of tax morale. We explore this question with a particular focus on the importance of governance quality.; JEL-Codes: H260; Keywords: tax morale, tax compliance, tax evasion, institutional and governance quality, social capital.

No. 224 (Download full text) (Published)
Jorge Martinez-Vazquez and Benno Torgler: The Evolution of Tax Morale in Modern Spain
This paper studies the evolution of tax morale in Spain in the post-Franco era. In contrast to the previous tax compliance literature, the current paper investigates tax morale as the dependent variable and attempts to answer what actually shapes tax morale. The analysis uses survey data from two sources: the World Values Survey and the European Values Survey, allowing us to observe tax morale in Spain for the years 1981, 1990, 1995, and 1999/2000. The study of the evolution of tax morale in Spain over nearly a 20-year span is particularly interesting because the political and fiscal system evolved very rapidly during that period.; JEL-Codes: H260; H730; K420; O170; Z130; Keywords: Spain, Tax morale, Tax compliance, Constitutional and political changes, fiscal system, endogenous preferences.

No. 223 (Download full text)
Richard Bird, Jorge Martinez-Vazquez and Benno Torgler: Tax Effort: The Impact of Corruption, Voice and Accountability
In this paper we argue that a more legitimate and responsive state is an essential factor for a more adequate level of tax effort in developing countries. While at first glance giving such advice to poor countries seeking to increase their tax ratios may not seem more helpful than telling them to find oil, it is presumably more feasible for people to improve their governing institutions than to rearrange nature’s bounty. Improving corruption, voice and accountability may not take longer nor be necessarily more difficult than changing the opportunities for tax handles and economic structure. The key contribution of this paper is to extend the conventional model of tax effort by showing that not only do supply factors matter, but that demand factors such as corruption, voice and accountability also determine tax effort to a significant extent.; JEL-Codes: H110; H200; O170; Keywords: Tax effort, tax reforms, developing countries, Latin America, corruption, voice and accountability.

No. 222 (Download full text) (Submitted)
Benno Torgler and Markus Schaffner: Causes and Consequences of Tax Morale: An Empirical Investigation
Many taxpayers truthfully declare their income to the tax administration. Why? In this paper we have found a significant correlation between tax morale and tax evasion, controlling a variety of factors. Furthermore we have analysed tax morale as dependent variable and studied the determinants that shape it. The results indicate that factors such as the tax administration, tax system, tax awareness, compliance perceptions, trust in officials and others, and the willingness to obey have a relatively strong impact on tax morale.; JEL-Codes: H260; Keywords: tax morale, tax compliance, tax evasion, tax system, tax administration, social capital

No. 221 (Download full text) (Submitted)
Theocharis N. Grigoriadis and Benno Torgler: Market Reform, Regional Energy and Popular Representation: Evidence from Post-Soviet Russia
This article investigates the relative impact of regional energy production on the energy voting choices of State Duma deputies between 1994 and 2003, controlling for other factors such as party affiliation, electoral mandate, committee membership and socio-demographic parameters. We apply Poole’s optimal classification method of roll call votes using an ordered probit model to explain energy market reform in the first decade of Russia’s democratic transition. Our main finding is that the gas production factor is inter temporally important in the formation of the deputies’ legislative choices and shows Gazprom’s strategic position in the post-Soviet Russian economy. The oil production factor is variably significant in the two first Dumas, when the main legislative debates on oil privatization occur. The energy committee membership tends to consistently explain pro-reform voting choices. The pro-and anti-reform poles observed in our Poole-based single dimensional scale are not necessarily connected with liberal and state-oriented policies respectively.; JEL-Codes: Q400, D720, K230, P270, P370, P310, R110; Keywords: energy regulation, market reform, energy resources, roll call votes, legislative politics, State Duma, Russia

No. 220 (Download full text) (Submitted)
Benno Torgler, Bruno S. Frey and Clevo Wilson: Environmental and Pro-Social Norms: Evidence from 30 Countries
The paper investigates the relationship between pro-social norms and its implications for improved environmental outcomes, an area which has been neglected in the environmental economics literature. We provide empirical evidence, demonstrating a strong link between perceived environmental cooperation (reduced public littering) and increased voluntary environmental morale, using European Values Survey (EVS) data for 30 Western and Eastern European countries. The robust results suggest that environmental morale and perceived environmental cooperation, as well as identifying the factors that strengthen these relationships, potentially bring about better environmental outcomes.; JEL-Codes: H260, H730, D640; Keywords: environmental preferences, environmental morale, conditional cooperation, pro-social behaviour

No. 219 (Download full text) (Submitted)
Adam Clements, Michael E. Drew and Evan M. Reedman: The Death of the Overreaction Anomaly? A Multifactor Explanation of Contrarian Returns
Are the returns accruing to De Bondt and Thaler’s (1985) (DT) much celebrated overreaction anomaly pervasive? Using the CRSP data set used by for the period 1926 through 1982, and, for the first time, an additional two decades of data (1983 through 2003), we provide preliminary support for the original work of DT, reporting that the overreaction anomaly has not only persisted over the past twenty years but has increased, on a risk-unadjusted basis. However, using the three factor model of Fama and French (1993) (FF), we find no statistically significant alpha can be garnered via the overreaction anomaly, with contrarian returns driven by the factors of size and value, not the behavioral biases of investors. It is our conjecture that the anomaly is not robust under the FF framework, with ‘contrarian’ investors following such a scheme simply compensated for the inherent portfolio risk held.; JEL-Codes: G11, G12, G14; Keywords: Overreaction, anomaly, multifactor asset pricing model

No. 218 (Download full text) (Submitted)
Adam Clements and Michael E. Drew: Institutional Homogeneity and Choice in Superannuation
In this analysis of institutional investor performance, two questions are addressed. First, what degree of similarity is observed within the market place for retail superannuation funds? Second, what are the implications of homogenous behaviour for member choice policy? The answers from this study are as follows: as an industry, institutional investors destroyed value for superannuation investors for the period 1991 through 2003, under-performing passive portfolio returns by around 60 basis points per annum. Moreover, we find there is a great deal of clustering around this average underperformance. It also appears as though funds have similar risk characteristics which are, on average, defensive. The findings suggest that the products offered by those competing in this market are very similar in nature, hence limiting the potency of choice policy in Australia.

No. 217 (Download full text)
Adam Clements, Gemma Dale and Michael E. Drew: Australia’s Retail Superannuation Fund Industry: Structure, Conduct and Performance
In this analysis of Australia’s superannuation arrangements it is our conjecture that the structure and conduct of the retail superannuation industry in Australia directly impacts performance, resulting in the delivery of costly funds management products which add minimal value for investors over the long term. In this study, we take the perspective of an investor faced with selecting a retail superannuation fund, and explore the extent to which various differentiating characteristics (such as style, rating and cost) provide insights into fund quality which uses a variety of asset pricing models for the period 1991 through 2003. The results of this study, suggest that investors cannot garner superior risk-adjusted returns through reliance on such characteristics.; JEL-Codes: G23, G15; Keywords: Superannuation funds, Australia; Performance evaluation

No. 216 (Download full text) (Submitted)
Michael E. Drew: Superannuation: Switching and Roulette Wheels
The introduction of choice has resulted in Australia’s superannuation system providing unprecedented flexibility (through increased investment options and the timing choices) for members to optimise their expected benefits. This paper examines the impact of switching between investment options using a normalised ranked return or “roulette wheel” approach developed by Bauer and Dahlquist (2001) for the Australian setting. The paper tests various switching strategies for both single-sector and blended options, for the period 1985–2005, finding that members require forecast accuracy of around 70% to be successful at market timing. Finally, the paper considers the impact of switching strategies on accumulated balances.

No. 215 (Download full text) (Submitted)
Radhika Lahiri and Shyama Ratnasiri: Concerning Technology Adoption and Inequality
Empirical evidence suggests that there has been a divergence over time in income distributions across countries and within countries. Furthermore, developing economies show a great deal of diversity in their growth patterns during the process of economic development. For example, some of these countries converge rapidly on the leaders, while others stagnate, or even experience reversals and declines in their growth processes. In this paper we study a simple dynamic general equilibrium model with household specific costs of technology adoption which is consistent with these stylized facts. In our model, growth is endogenous, and there are two-period lived overlapping generations of agents, assumed to be heterogeneous in their initial holdings of wealth and capital. We find that in a special case of our model, with costs associated with the adoption of more productive technologies fixed across households, inequalities in wealth and income may increase over time, tending to delay the convergence in international income differences. The model is also capable of explaining some of the observed diversity in the growth pattern of transitional economies. According to the model, this diversity may be the result of variability in adoption costs over time, or the relative position of a transitional economy in the world income distribution. In the more general case of the model with household specific adoption costs, negative growth rates during the transitional process are also possible. The model’s prediction that inequality has negative impact on technology adoption is supported by empirical evidence based on a cross country data set.; Keywords: inequality, technology adoption, international income differences, altruism, negative growth rates.

No. 214 (Download full text) (Submitted)
Benno Torgler and Neven T. Valev: Public Attitudes Toward Corruption and Tax Evasion: Investigating the Role of Gender Over Time
In recent years the topics of illegal activities such as corruption or tax evasion have attracted a great deal of attention. However, there is still a lack of substantial empirical evidence about the determinants of compliance. The aim of this paper is to investigate empirically whether women are more willing to be compliant than men focusing on corruption and tax evasion and whether we observe (among women and in general) differences in attitudes among similar age groups in different time periods (cohort effect) or changing attitudes of the same cohorts over time (age effect). Method. Thus, this paper will use data from eight Western European countries from the World Values Survey and the European Values Survey that span the period from 1981 to 1999. Results. The results reveal higher willingness to comply among women and an age rather than a cohort effect. Conclusions. Thus, our results are in line with previous studies that found strong gender differences but are not in line with the equality and role theory that would suggest a decrease of gender differences with greater equality of status between men and women over time.

No. 213 (Download full text) (Submitted)
Benno Torgler: Trust in International Organizations: An Empirical Investigation Focusing on the United Nations
The literature on social capital has strongly increased in the last two decades, but there still is a lack of substantial empirical evidence about the determinants of international trust. This empirical study analyses a cross-section of individuals, using micro-data from the World Values Survey, covering 38 countries, to investigate trust in international organizations, specifically in the United Nations. In line with previous studies on international trust we find that political trust matters. We also find that social trust is relevant, but contrary to previous studies the results are less robust. Moreover, the paper goes beyond previous studies investigating also the impact of geographic identification, corruption and globalization. We find that a higher level of (perceived) corruption reduces the trust in the UN in developed countries, but increases trust in developing and transition countries. A stronger identification with the world as a whole also leads to a higher trust in the UN and a stronger capacity to act globally in economic and political environment increases trust in the UN.; JEL-Codes: Z130, D730, O190; Keywords: International Organizations, United Nations, International Trust, Political Trust,

No. 212 (Download full text) (Published)
Benno Torgler, Sascha L. Schmidt and Bruno S. Frey: The Power of Positional Concerns: A Panel Analysis
Many studies have established that people care a great deal about their relative economic position and not solely, as standard economic theory assumes, about their absolute economic position. However, behavioral evidence is rare. This paper provides an empirical analysis on how individuals’ relative income position affects their performance. Using a unique data set for 1040 soccer players over a period of eight seasons, our analysis suggests that if a player’s salary is below the average and this difference increases, his performance worsens and the productivity decreasing effects of positional concerns are stronger. Moreover, the larger the income differences within a team, the stronger positional concern effects are observable. We also find that the more the players are integrated in a particular social environment (their team), the more evident a relative income effect is. Finally, we find that positional effects are stronger among high performing teams.; JEL-Codes: D000, D600, 8222, 9210, L830; Keywords: Relative income, positional concerns, envy, performance, social integration

No. 211 (Download full text) (Submitted)
Benno Torgler, Friedrich Schneider and Christoph A. Schaltegger: With or Against the People? The Impact of a Bottom-Up Approach on Tax Morale and the Shadow Economy
Policymakers often propose strict enforcement strategies to fight the shadow economy and to increase tax morale. However, there is also a bottom-up approach: decentralizing the political power to those who are close to the problems and give them a direct political say. This paper analyses the impact of direct democracy and local autonomy on tax morale and the size of the shadow economy. We use two different data sets on tax morale at the individual level (World Values Survey and International Social Survey Programme), and macro data of the size of the shadow economy to systematically analyse the effects of institutions in Switzerland, a country where participation rights and the degree of federalism vary across different cantons. The findings suggest that direct democratic rights and local autonomy, have a significantly positive effect on tax morale and the size of the shadow economy.; JEL-Codes: H260; H730; D700; Keywords: Tax Morale, Shadow Economy, Tax Compliance, Tax Evasion, Direct Democracy, Local Autonomy

No. 210 (Download full text) (Submitted)
Benno Torgler and Friedrich Schneider: Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis
This paper analyses how governance or institutional quality and tax morale affect the shadow economy, using an international country panel and also within country data. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. However, the limited number of investigations use cross-sectional country data with a relatively small number of observations, and hardly any paper has investigated tax morale and provides evidence using within country data. Using more than 25 proxies that measure governance and institutional quality we find strong support that its increase leads to a smaller shadow economy. Moreover, an increase in tax morale reduces the size of the shadow economy.; JEL-Codes: D73, D78, H2, H26, O17, O5; Keywords: Shadow economy, tax morale, governance quality, government intervention, corruption

No. 209 (Download full text) (Submitted)
Lars P. Feld and Benno Torgler: Tax Morale after the Reunification of Germany: Results from a Quasi-Natural Experiment
This paper provides a comparison of tax morale between inhabitants of East and West Ger¬many in its post-reunification period, using three World Values Survey/European Values Sur¬vey waves between 1990 and 1999. German reunification is particularly inter¬esting for the ana¬¬ly¬sis of tax morale as it is close to a natural experiment. Many factors can be controlled be¬¬cause they are similar, as, e.g., a common language, similar education systems and a shared cultural and political history prior to the separation after the Second World War. As a conse¬quence, an East-West comparison has a methodological advantage compared to cross-country studies. Our findings show higher tax morale in East than in West Germany. However, in only 9 years after reunification, tax morale values strongly converged, especially due to a strong change in the level of tax morale in the East. We suggest that this convergence in tax morale between East and West Germany, despite efforts of the federal government to increase de¬terrence, indicates that tax morale is more strongly driven by other factors than deterrence.; JEL-Codes: H26, H73, D78, C93; Keywords: Tax Morale, Tax Evasion, Deterrence, Quasi-Natural Experiment

No. 208 (Download full text) (Submitted)
Boon Lee and William Shepherd: Output and Productivity Performance of Hong Kong and Singapore’s Transport and Communications Sector, 1990 to 2005
This paper examines the output and productivity performance of the Transport and Communication sector in Hong Kong and Singapore, from 1990 to 2005. The aim of the paper is two-fold. First, the paper introduces a method for derivation of appropriate currency converters or purchasing power parities (PPPs) to enable quantification of output and productivity at various disaggregated levels of the transport and communications sector. This method is based on the industry-of-origin approach as refined by the International Comparisons of Output and Productivity (ICOP) project based at the University of Groningen. Second, the paper will attempt to address differences in output and productivity levels between these two countries with regard to their current policies in transport and communications. It will also examine the impact of events such as the Asian financial crisis, the global downturn in 2001, the events of September 11, as well as the outbreak of the Severe Acute Respiratory Syndrome (SARS) in 2003 on the transport and communication sector.; JEL-Codes: C430; D290; L910; L960; O570; Keywords: Purchasing Power Parity; Comparative Price Level

No. 207 (Download full text) (Submitted)
Radhika Lahiri and Shyama Ratnasiri: Concerning Inequality, Technology Adoption, and Structural Change
Empirical evidence suggests that there has been a divergence over time in income distributions across countries and within countries. In this paper we study a simple dynamic general equilibrium model of technology adoption which is consistent with these stylized facts. In our model, growth is endogenous, and agents are assumed to be heterogeneous in their initial holdings of wealth and capital. We find that in the presence of barriers or costs associated with the adoption of more productive technologies, inequalities in wealth and income may increase over time tending to delay the convergence in international income differences. The model is also capable of explaining the observed diversity in the growth pattern of transitional economies. According to the model, this diversity may be the result of variability in adoption costs, or the relative position of a transitional economy in the world income distribution.

No. 206 (Download full text)
William Wild: Total Market Equilibria
The total market containing all assets is in equilibrium where all investors have the same utility functions and hold the same fully diversifed total market portfolio. This is not an equilibrium, however, where they have different utility functions, even if they are all risk averse. Then investors can all increase their utility by reallocating the market returns among themselves on a non pro-rata basis. Even in a perfect market the utility maximizing investment strategy for risk averse investors with different utility functions requires them to bear idiosyncratic risk, providing a role for asset transformation. The maximum or minimum asset prices at which an investor will transact in pursuance of greater portfolio utility are unique to that investor and the existing market state.

No. 205 (Download full text)
Radhika Lahiri and Elisabetta Magnani: On Skill Heterogeneity, Human Capital, and Inflation
This paper examines the welfare costs of inflation within a monetary dynamic general equilibrium framework with human capital that incorporates endogenous, ex ante skill heterogeneity among workers. Numerical experiments indicate that, overall, welfare costs are more likely to decrease with increases in skill heterogeneity. An implication of this feature is that a greater degree of skill heterogeneity may be associated with a higher tolerance for inflation, consequently implying a positive correlation between agent heterogeneity and inflation. Using a panel of several countries we empirically test this proposition. Our evidence lends some support to this hypothesis.

No. 204 (Download full text)
Langnan Chen, Steven Li and Yijia Chen: Corporate Governance and Corporate Performance: Some Evidence from Newly Listed Firms on Chinese Stock Markets
This paper is concerned with some corporate governance issues related to newly listed firms in China based on a sample of 329 firms commencing listing on Shanghai Stock Exchange (SHSE) and Shenzhen Stock exchange (SZSE) during the period from 1998 to 2000. We first investigate the impact of ownership change due to stock market listing on corporate performance. We consider four aspects of corporate performance: profitability, sales, leverage and employee productivity. Our research results indicate that, on average, profitability, sales and employee productivity have improved from pre-listing to post-listing. We further investigate the impacts of state majority control, foreign ownership and regulation effects on corporate performance. Overall, this paper provides some new evidence on the listing effect, ownership structure and regulation effect on Chinese firms which will be valuable to the future reform of state owned enterprises in China.; Keywords: State owned enterprise, corporate governance, and corporate performance

No. 203 (Download full text)
Zdravetz Lazarov: Assesing the Economic Significance of the Intra-daily Volatility Seasonalities
It is a well established empirical fact that volatility follows approxi- mately an inverted U-shaped pattern during the day. It is high in the morning, gradually decreasing, reaching a minimum at lunch time and then starting to increase again until the end of the trading day. In this paper we investigate the dynamic properties of these intra-daily volatility seasonalities. More specifically, we divide daily volatility into several parts and model them separately. Our analysis shows that morning/afternoon volatility has a different time-series behaviour in comparison to lunch time volatility. Also, a substantial improvement in forecasting performance can be obtained by partitioning daily volatility into parts which correspond to the observed intra-daily seasonalities.

No. 202 (Download full text)
Morrison Handley-Schachler and Steven Li: International Effects of the Andersen Accounting and Auditing Scandals: Some Evidence from the US, UK and Australian Stock Markets
In this paper, we use event study methodology to examine the effect of two highly publicized accounting failures, at Enron and WorldCom both audited by Arthur Andersen, on the total stock returns of some companies in the UK also audited by Arthur Andersen. The results vary substantially between countries. We find no evidence of a significant impact in the UK or US. There is some evidence of negative abnormal returns at the time of the Enron scandal in Australia. However, this reaction was very short-lived and the negative abnormal returns on the stocks of Andersen-audited companies had been fully recovered within a week. Our results suggest that sharing an auditor with a firm that has issued corrections to accounts which have previously received an unqualified audit opinion does not significantly affect market perceptions of firms’ value, which suggests that the choice of auditor has little, if any, impact on market perceptions of the reliability of published financial information. Key words: Accounting scandals, Enron, WorldCom, Event study, International Stock Markets.

No. 201 (Download full text)
Andrew Worthington and Helen Higgs: Market Risk in Demutualised Self-Listed Stock Exchanges: An International Analysis of Selected Time-Varying Betas
This paper examines market risk in four demutualised and self-listed stock exchanges: the Australian Stock Exchange, the Deutsche Börse, the London Stock Exchange and the Singapore Stock Exchange. Daily company and MSCI index returns provide the respective asset and market portfolio data. A bivariate MA-GARCH model is used to estimate time-varying betas for each exchange from listing until 7 June 2005. While the results indicate significant beta volatility, unit root tests show the betas to be mean-reverting. These findings are used to suggest that despite concerns that demutualised and self-listed exchanges entail new market risks that merit regulatory intervention, the betas of the exchange companies have not changed significantly since listing. However, market risk does vary considerable across the exchanges, with mean time-varying betas of 0.56 for the Deutsche Börse, 0.66 for the London Stock Exchange, 0.78 for the Singapore Stock Exchange, and 0.95 for the Australian Stock Exchange. Key words: Accounting scandals, Enron, WorldCom, Event study, International Stock Markets.; Keywords: Time-varying betas; moving average; bivariate GARCH; demutualization and self-listing, exchanges

No. 200 (Download full text)
Allan Layton and Daniel R. Smith: Testing the Power of Leading Indicators to Predict Business Cycle Phase Changes
In the business cycle literature researchers often want to determine the extent to which models of the business cycle reproduce broad characteristics of the real world business cycle they purport to represent. Of considerable interest is whether a model’s implied cycle chronology is consistent with the actual business cycle chronology. In the US, a very widely accepted business cycle chronology is that compiled by the National Bureau of Economic research (NBER) and the vast majority of US business cycle scholars have, for many years, proceeded to test their models for their consistency with the NBER dates. In doing this, one of the most prevalent metrics in use since its introduction into the business cycle literature by Diebold and Rudebusch (1989) is the so-called quadratic probability score, or QPS. However, an important limitation to the use of the QPS statistic is that its sampling distribution is unknown so that rigorous statistical inference is not feasible. We suggest circumventing this by bootstrapping the distribution. This analysis yields some interesting insights into the relationship between statistical measures of goodness of fit of a model and the ability of the model to predict some underlying set of regimes of interest. Furthermore, in modeling the business cycle, a popular approach in recent years has been to use some variant of the so-called Markov regime switching (MRS) model first introduced by Hamilton (1989) and we therefore use MRS models as the framework for the paper. Of course, the approach could be applied to any US business cycle model.; Keywords: Markov Regime Switching, Business Cycle, Quadratic Probability Score

No. 199 (Download full text)
Grant Pollard: The Cost Decision: A New Discount Approach for Net Cost Projects
This discussion paper proposes a new decision rule for economic investment theory, the Cost Decision, and describes a new discount approach for Net Cost Projects and the Net Present Cost Formula. The paper illustrates the problems faced internationally, at all levels of government, of assessing Net Cost Projects from a finance perspective. The paper discusses the Cost Decision in the controversial context of public-private partnerships and compares the four main alternative approaches to the Cost Decision currently used in practice. The paper is also relevant when analysing Net Cost Projects undertaken by private sector entities and individuals.; Keywords: Corporate Finance; Investment; Economic Investment; Finance Investment; Discount Rate; Net Present Cost Formula; Cost Decision; Net Cost Projects; Social Projects; Net Present Cost; Net Present Value;

No. 198 (Download full text)
Clevo Wilson and Clem Tisdell: GLOBALISATION, CONCENTRATION OF GENETIC MATERIAL AND THEIR IMPLICATIONS FOR SUSTAINABLE DEVELOPMENT
This paper examines impacts, both positive and negative, of globalisation on the selection of a limited gene pool in livestock and agricultural production. This concentration has increased yields at high rates. It is associated with modern forms of production that are an integral part of a globalised economic system. Such strategies, at least in the short run, reduce production costs and cater for the demands of an increasing population and the needs of modern societies. As will be demonstrated, the ascribed economic benefits of such forms of production also lead to the promotion of such production by donor agencies and are linked to overseas aid, in some instances. On the other hand, specialised systems of production are not without their drawbacks. Such systems of production make many breeds (eg. ‘all-round’ breeds) obsolete for commercial use. This often leads to their gradual extinction because of the low economic values placed on them. When concentration of production relies on a few breeds it inevitably leads to several lock-in dimensions in the use of some production inputs. The lock-in aspects of this form of production, processes involved in the disappearance of breeds and their implications for sustainable development are amongst the issues discussed in this paper.

No. 197 (Download full text)
Clevo Wilson: Exposure to pesticides, ill-health and averting behaviour: Costs and determining the relationships
Farmers' exposure to pesticides is high in developing countries. As a result they suffer from ill-health, both short and long term. Deaths are not uncommon. The paper examines the cause of this high exposure by estimating farmers’ expenditure on precautions taken using the avertive behaviour approach. The data show that the expenditures on defensive behaviour are low. The paper then uses tobit regression analysis to determine factors that influence defensive behaviour. The results are useful, not only for Sri Lanka, but for many countries in South Asia, Africa and Latin America in reducing the current high levels of direct exposure to pesticides among farmers and farm workers using hand sprayers. Farmers' exposure to pesticides is a major occupational health hazard in these countries.; Keywords: Exposure to pesticides, ill-health, defensive behaviour, influencing factors, developing countries

No. 196 (Download full text)
Mark Hoffman, Andrew Worthington and Helen Higgs: Modelling residential water demand with fixed volumetric charging in a large urban municipality: The case of Brisbane, Australia
This paper uses household level data to model residential water demand in Brisbane, Australia from 1998 to 2004. In this system, residential consumption is charged using a fixed annual service fee with no free entitlement and a fixed volumetric charge per kilolitre. Water demand is specified as quarterly household water consumption and demand characteristics include the contemporaneous and lagged marginal price of water, household income and size, and the number of rainy (with at least some precipitation) and warm (greater than 19.5°C) days. The findings not only confirm residential water as price and income inelastic, but also that the price and income elasticity of demand in owner-occupied households is higher than in renter households. However, the results also show that weather, especially the number of warm days, is likely to exert a much greater influence on residential water consumption than any factors subject to the usual demand management strategies.; Keywords: Residential water demand, two-part tariffs, fixed volumetric charge, demand management strategies

No. 195 (Download full text)
Andrew Worthington and Boon L. Lee: Efficiency, technology and productivity change in Australian universities, 1998-2003
In this study, productivity growth in thirty-five Australian universities is investigated using nonparametric frontier techniques over the period 1998 to 2003. The inputs included in the analysis are full-time equivalent academic and non-academic staff, non-labour expenditure and undergraduate and postgraduate student load and the outputs are undergraduate, postgraduate and PhD completions, national competitive and industry grants and publications. Using Malmquist indices, productivity growth is decomposed into technical efficiency and technological change. The results indicate that annual productivity growth averaged 3.3 percent across all universities, with a range between -1.8 percent and 13.0 percent, and was largely attributable to technological progress. However, separate analyses of research-only and teaching-only productivity indicate that most of this gain was attributable to improvements in research-only productivity associated with pure technical and some scale efficiency improvements. While teaching-only productivity also contributed, the largest source of gain in that instance was technological progress offset by a slight fall in technical efficiency.; Keywords: Productivity; technical and scale efficiency; technological progress; Malmquist indices; universities.

No. 194 (Download full text)
Steven Li and Elia Alfay: Evidence on the arbitrage efficiency of SPI index futures and options markets
This paper investigates arbitrage opportunities from the Australian market using the futures and futures option contracts traded on the Sydney Futures Exchange (SFE) within a put-call-futures-parity (PCFP) framework. A thorough ex post analysis is first carried out. Tick-by-tick transaction price data allow the futures contracts, the call futures options and the put futures options to be matched within a one minute interval. This paper take into account the realistic transaction costs that an arbitrager has to incur, including the implicit bid-ask spread. The results reveal a significant number of violations with 25.40% of the sample breaching the PCFP equation with an average profit of 6.733 index points for SFE member firms. Ex ante tests are also conducted whereby the trios that signified an ex post profit for members were lagged up to 3 minutes before being executed. The results were similar to the ex post results casting doubt on the efficiency and integration between these two derivative markets in Australia.

No. 193 (Download full text)
Boon L. Lee: Significance of Employing a Multilateral Index Formula for Interstate Comparisons: A Case Study of the Australian Farm Sector
The paper demonstrates the drawbacks on using official data and binary indices when attempting an interstate comparison of output and productivity growth. The use of official data in one’s national currency still requires a numerary currency due to price variations across states. Even with the use of index number formulas, some indices have shown to fail the transitivity property when more than 2 states are concerned. Hence the paper aims to demonstrate the significance of using a multilateral index formula like the Geary-Khamis (GK) method, EKS method and CCD method for derivation of appropriate currency converters or purchasing power parities (PPPs) to enable proper quantification of real output at the multilateral level. Subsequently, the paper demonstrates the variations in results between official aggregates and multilateral aggregates based on the GK method.

No. 192 (Download full text)
Adam Clements and Scott White: Nonlinear Filtering for Stochastic Volatility Models with Heavy Tails and Leverage
This paper develops a computationally efficient filtering based procedure for the estimation of the heavy tailed SV model with leverage. While there are many accepted techniques for the estimation of standard SV models, incorporating these effects into an SV framework is difficult. Simulation evidence provided in this paper indicates that the proposed procedure outperforms competing approaches in terms of the accuracy of parameter estimation. In an empirical setting, it is shown how the individual effects of heavy tails and leverage can be isolated using standard likelihood ratio tests.

No. 191 (Download full text)
Adam Clements and Scott White: Non-linear filtering with state dependant transition probabilities: A threshold (size effect) SV model
This paper considers the size effect, where volatility dynamics are dependant upon the current level of volatility within an stochastic volatility framework. A non-linear filtering algorithm is proposed where the dynamics of the latent variable is conditioned on its current level. This allows for the estimation of a stochastic volatility model where dynamics are dependant on the level of volatility. Empirical results suggest that volatility dynamics are in fact influenced by the level of prevailing volatility. When volatility is relatively low (high), volatility is extremely (not) persistent with little (a great deal of) noise.; Keywords: Non-linear filtering, stochastic volatility, size effect, threshold

No. 190 (Download full text)
Collet J.J. and Fadili J.M.: Simulation of Gegenbauer processes using wavelet packets
In this paper, we propose to study the synthesis of Gegenbauer processes using the wavelet packets transform. In order to simulate 1-factor Gegenbauer process, we introduce an original algorithm, inspired by the one proposed by Coifman and Wickerhauser [CW92], to adaptively search for the best-ortho-basis in the wavelet packet library where the covariance matrix of the transformed process is nearly diagonal. Our method clearly outperforms the one recently proposed by [Whi01], is very fast, does not depend on the wavelet choice, and is not very sensitive to the length of the time series. From these first results we propose an algorithm to build bases to simulate k-factor Gegenbauer processes. Given the simplicity of programming and running, we feel the general practitioner will be attracted to our simulator. Finally we evaluate the approximation due to the fact that we consider the wavelet packet coeficients as uncorrelated. An empirical study is carried out which supports our results.; Keywords: Gegenbauer process, Wavelet packet transform, Best-basis, Autocovariance

No. 189 (Download full text)
Shulian Zhang: Consumption Behaviour Under Institutional Transitions in China
The study on Chinese consumption behaviour under institutional transitions is significant from a theoretical as well as a policy perspective. Ignoring heterogeneity in consumption behaviour across regions may lead to a bias in estimation results when modelling a consumption function. This paper attempts to provide an alternative empirical study on Chinese consumption behaviour where panel data estimation approaches are employed to capture heterogeneities across regions. Our findings suggest that there are significant changes in both urban and rural households’ consumption behaviour during 1990s and rural households’ consumption is more volatile and sensitive to the changes in economic variables than their counterparts in China.

No. 188 (Download full text)
Clevo Wilson and Clem Tisdell: What Role Does Knowledge of Wildlife Play in Providing Support for Species' Conservation?
Conservation of biodiversity is a complex issue. Apart from the creation of nature reserves, there is a plethora of other factors that are part of this complex web. One such factor is the public knowledge of species. Since public funding is imperative for the conservation of species and creation of reserves for them, it is important to determine the public’s awareness of species and their knowledge about them. In the absence of such awareness and knowledge, it is possible that the public will misallocate their support. In other words, resources may be provided for species that do not need support urgently. We show how availability of balanced information about species helps the public to make rational decisions and to allocate support (e.g. monetary) to species that need it most. Other implications of a ‘wildlife knowledgeable’ public are also discussed.; Keywords: Biodiversity, conservation, Australia’s tropical wildlife, public knowledge, balanced information.

No. 187 (Download full text)
Petra Behrens: Economic Development Strategies: Examples from Europe and Australia
By looking at very different aspects of regional economic development theory and policy as well as geographical areas, this paper provides a foundation of economic strategies applicable to many regions. The focus is set on a flexible and holistic approach to be able to include a wide range of economic development and wellbeing indictor and to offer an alternative to the neoclassical development framework. The European regional policy is used as an example to analyse policy in a theoretical economic development framework. The Australian example is a practical case study of a small rural shire showing the issues individual regions are facing when they are dealing with regional development on a local level.

No. 186 (Download full text)
Helen Higgs and Andrew C Worthington: Systematic Features of High-Frequency Volatility in Australian Electricity Markets: Intraday Patterns, Information Arrival and Calendar Effects
This paper investigates the intraday price volatility process in four Australian wholesale electricity markets; namely New South Wales, Queensland, South Australia and Victoria. The data set consists of half-hourly electricity prices and demand volumes over the period 1 January 2002 to 1 June 2003. A range of processes including GARCH, Risk Metrics, normal Asymmetric Power ARCH or APARCH, Student APARCH and skewed Student APARCH are used to model the time-varying variance in prices and the inclusion of news arrival as proxied by the contemporaneous volume of demand, time-of-day, day-of-week and month-of-year effects as exogenous explanatory variables. The skewed Student APARCH model, which takes account of right skewed and fat tailed characteristics, produces the best results in three of the markets with the Student APARCH model performing better in the fourth. The results indicate significant innovation spillovers (ARCH effects) and volatility spillovers (GARCH effects) in the conditional standard deviation equation, even with market and calendar effects included. Intraday prices also exhibit significant asymmetric responses of volatility to the flow of information.

No. 185 (Download full text)
Andrew C. Worthington: The Distribution of Financial Literacy in Australia
Ordered logit models are used to predict financial literacy on the basis of individual demographic, socioeconomic and financial characteristics. The data is drawn from the 2003 ANZ Survey of Adult Financial Literacy in Australia and relates to 3,548 respondents. Financial literacy is defined, amongst other things, in terms of standard mathematical ability and understanding of basic and advanced financial terms. Factors examined include gender, age, ethnicity, occupation, educational level and family structure, along with household income, savings (including superannuation), and mortgage and non-mortgage debt. The evidence suggests that financial literacy is highest for respondents aged between 50 and 60 years, professionals, executives, business and farm owners, and those who have completed university or college with higher levels of income, savings and debt. Financial literacy is lowest for females, the unemployed and other non-workers, those from a non-English speaking background, and those with only the lowest levels of secondary education. The models best predict the highest and lowest levels of financial literacy.; Keywords: Financial literacy; ordered logit; demographic, socioeconomic and financial characteristics.

No. 184 (Download full text)
Helen Higgs and Andrew C Worthington: Financial returns and price determinants in the Australian art market, 1973-2003
In this study, 37,605 paintings by sixty well-known Australian artists sold at auction over the period 1973-2003 are used to construct a hedonic price index. The attributes included in the hedonic regression model include the name and living status of the artist, the size and medium of the painting, and the auction house and year in which the painting was sold. The resulting index indicates that returns on Australian fine-art averaged seven percent in nominal terms over the period with a standard deviation of sixteen percent. As a result, the risk-adjusted return of 0.42 in the Australian art market is only slightly less than the risk-adjusted return of 0.44 in the Australian stock market over the same period. The hedonic regression model also captures the willingness to pay for perceived attributes in the artwork, and this shows that works by McCubbin, Gascoigne, Thomas and Preston and other artists deceased at the time of auction, works executed in oils or acrylic, and those auctioned by Sotheby's or Christie's are associated with higher prices.

No. 183 (Download full text)
Shakila Jeisman: Exchange Market Pressure in Australia
This paper measures the exchange market pressure (EMP) on the Australian dollar over the post-float period using the model-dependent approach proposed by Weymark (1995, 1998) and the model-independent approach developed by Eichengreen, Rose and Wyplosz (1996). Although there are some concerns over the estimation of the model-dependent index, the resulting EMP indices both appear to provide relatively plausible descriptions of the pressure on the Australian dollar. The role of foreign exchange intervention is examined through the construction of degree of intervention (DI) indices. The results reveal that intervention by the Reserve Bank of Australia contributed to the large depreciation of the Australian dollar between 1997 and 2001.; JEL-Codes: C22; F31; G15; Keywords: exchange rate; exchange market pressure; foreign exchange intervention

No. 182 (Download full text)
Rob Bianchi, Michael E. Drew and John Polichronis: A Test of Momentum Trading Strategies in Foreign Exchange Markets: Evidence from the G7
In this trading strategy study, we ask three questions. First, does momentum exist in foreign exchange markets? Second, what is the impact of transactions costs on excess returns? And, third, can a consolidated trading signal garner excess returns and, if so, what is the source of such returns? Using total return momentum strategies in the foreign exchange markets of the G7 for the period 1980 through 2004, the answers from this study are as follows: we find evidence of momentum; however, such momentum appears transitory, particularly for longer look back periods. As expected, transaction costs have a material negative impact on excess returns. Finally, a consolidated signal garners excess returns; however, a bootstrap simulation finds the source of these returns is a function of autocorrelation.; JEL-Codes: F31; G14; Keywords: Foreign exchange, momentum, trading rules

No. 181 (Download full text)
Radhika Lahiri and Elisabetta Magnani: On Skill Heterogeneity and Inflation
This paper examines the welfare costs of inflation within a dynamic general equilibrium framework that incorporates ex ante skill heterogeneity among workers. Money is introduced via a cash-in-advance constraint on the purchases of consumption. Numerical experiments based on a plausible parameterization of the model indicate that welfare costs of inflation relative to an optimal monetary policy decrease as skill heterogeneity increases. An implication of this feature is that a greater degree of skill heterogeneity would be associated with a greater tolerance for inflation, consequently implying a positive correlation between agent heterogeneity and inflation. We also conduct an empirical study based on a panel of several countries that lends some support to this hypothesis. If we focus on the experience of industrialized economies, the data finds supports a positive inflation-heterogeneity correlation. However, this is not true of less developed economies, in which the inflation heterogeneity correlation if found to be negative.

No. 180 (Download full text)
Scott McCarthy and Adelina Ispriani: An Operating/Economic Exposure Australian Case Study: Foster’s Group Limited Beer
This paper uses a large Australian multinational corporation as a case study examining foreign exchange operating exposure. We firstly review the importance of operating exposure for a business and then examine in detail the company’s exposure and policies to manage the exposure. A sensitivity analysis is also conducted to examine how movements in the value of exchange rates affect the company. We conclude with some suggestions as to how the company could further protect itself from adverse movements.; JEL-Codes: F31; Keywords: operating exposure; hedging

No. 178 (Download full text)
Guégan D.: How Can We Define The Concept of Long Memory? An Econometric Survey
In this paper we discuss different aspects of long mzmory behavior and specify what kinds of parametric models follow them. We discuss the confusion which can arise when empirical autocorrelation function of a short memory process decreases in an hyperbolic way.; JEL-Codes: C32; C51; G12; Keywords: Long-memory, Switching, Estimation theory, Spectral

No. 177 (Download full text)
Michael Drew, Alastair Marsden and Madhu Veeraraghavan: Idiosyncratic Volatility Matter? New Zealand Evidence
Standard asset pricing models ignore idiosyncratic risk. In this study we examine if stock idiosyncratic or unique risk affects returns for New Zealand stocks using the factor portfolio mimicking approach of Fama and French (1993, 1996). We find evidence of a negative relationship between firm size and a stock’s idiosyncratic volatility. Small firms and firms with high idiosyncratic risk also generate positive risk premia after controlling for market returns. We find no evidence of seasonal effects that can explain our findings. Our study provides support for an asset-pricing model with multiple risk factors.; JEL-Codes: G120; G150; Keywords: Idiosyncratic volatility, Asset Pricing, Unique risk

No. 176 (Download full text)
Steven Li and Andrew C. Worthington: The relationship between the adoption of Internet banking and electronic connectivity: - An international comparison
This paper is concerned with the relationship between the adoption rate of Internet banking and electronic connectivity. Electronic connectivity is measured using three components: personal computer connectivity, Internet connectivity and mobile phone connectivity. Regression is used to analyse these relationships for a sample of developed and developing economies. The results indicate that changes in electronic connectivity, however defined, have a significant impact on the adoption rate of Internet banking. The most significant influence on the adoption rate of Internet banking would appear to be the increase in the percentage of the population owning personal computers.; Keywords: Internet banking; Electronic connectivity; Information technology

No. 175 (Download full text)
Abbas Valadkhani, Andrew C. Worthington and Allan P. Layton: An Analysis of the Rising Cost of Education in Australia
Human capital, or a better educated labour force, is a major determinant of economic growth and productivity. However, recent trends in the cost of education in Australia may cause growth and productivity to suffer. For example, during the period 1982-2003 inflation rose on average by 4.4 per cent per annum, whereas the cost of education grew overall on average by 7.8 per cent. This has made education a relatively expensive item among Australian households. This paper compares and contrasts the cost of education in Australia and comparable economies with the cost of other goods and services embedded in the CPI (Consumer Price Index) basket using the latest available quarterly data. Finally, the major determinants of the rising cost of education in Australia are examined. It is found, inter alia, that over the period 1986-2003 the increasing number of students enrolled at non-governmental primary and secondary schools and the introduction of the Higher Education Contribution Scheme (HECS) were major influences on the rising cost of education, explaining some 98 per cent of variation in the cost of education in Australia over time.

No. 174 (Download full text)
Michael E. Drew, Tony Naughton and Madhu Veeraraghavan: Pricing of Equities in China: Evidence from the Shanghai Stock Exchange
In this paper we compare the performance of the traditional CAPM with the multifactor model of Fama and French (1996) for equities listed in the Shanghai Stock Exchange. We also investigate the explanatory power of idiosyncratic volatility and respond to the claim that multifactor model findings can be explained by the turn of the year effect. Our results show that firm size, book to market equity and idiosyncratic volatility are priced risk factors in addition to the theoretically well specified market factor. As far as the turn of the year effect is concerned we reject the claim that the findings are driven by seasonal factors. Our findings have implications for both academic researchers and practitioners. This is because we demonstrate that by following the investment strategies investigated in this paper superior returns could be generated – returns in addition to those offered by the market. Of course this is only applicable to those investors who are willing to take additional risks in order to generate additional returns. In summary, our results show that a broader asset pricing model such as the one investigated in this paper does a much better job than the single index CAPM.; JEL-Codes: G110; G120; G150; Keywords: Asset Pricing, CAPM, China, Small Firm Effect, Turn of the Year Effect.

No. 173 (Download full text)
Michael Drew and Jon Stanford: Portability of Superannuation Balances

No. 172 (Download full text)
Michael E. Drew, Alastair Marsden and Madhu Veeraraghavan: Small Firm Effect, Liquidity and Security Returns: Australian Evidence
Standard asset pricing models ignore the costs of liquidity. In this study we advance the ongoing debate on empirical asset pricing and test if liquidity costs (as proxied by turnover rate, turnover ratio and bid-ask spread) affect stock returns for Australian stocks. Our tests use the factor portfolio mimicking approach of Fama and French (1993, 1996). We find small and less liquid firms generate positive risk premia after controlling for market returns and firm size. We find no evidence of any seasonal effects that can explain our multifactor asset pricing model findings. In summary, our study provides support for a broader asset-pricing model with multiple risk factors.; JEL-Codes: G120; G150; Keywords: Liquidity, Turnover, Asset Pricing, and Closing Bid-Ask Spread

No. 171 (Download full text)
Allan P. Layton and Abbas Valadkhani: Measures of National Export Price Volatility Based on the Capital Asset Pricing Model
As is the case with most small open economies, volatility in Australia’s export prices is an important source of national macroeconomic disturbance largely out of its control given its choice of export bundle. The Capital Asset Pricing Model of portfolio theory is employed as a useful framework for distinguishing the extent to which export price volatility consists of global versus country-specific risk for the set of 14 OECD countries investigated. We find that global (systematic) risk is evidently becoming more important for many of the countries in the OECD sample over the last 25 years as compared with the previous 25 year period. The paper also finds that, by a number of different measures, whilst Australia’s export price growth has apparently become more highly associated with World export prices in recent years, it nonetheless continues to have one of the more volatile set of export prices among OECD countries.; JEL-Codes: E30; O56; F41

No. 170 (Download full text)
Michael E. Drew, Mirela Mallin, Tony Naughton and Madhu Veeraraghavan: Equity Premium: - Does it exist? Evidence from Germany and United Kingdom
Malkiel and Xu (1997) state that idiosyncratic volatility is highly correlated with size and that it plays a powerful role in explaining expected returns. In this paper we ask (a) whether idiosyncratic volatility is useful in explaining the variation in expected returns; and, (b) whether our findings can be explained by the turn of the year effect. We find that (a) our three-factor model provides a better description of expected returns than the CAPM. That is, we find that firm size and idiosyncratic volatility are related to security returns. In addition, we also find that our findings are robust throughout the sample period. We show that the CAPM beta alone is not sufficient to explain the variation in stock returns.; JEL-Codes: G110; G120; G150; Keywords: Idiosyncratic Volatility, Size Effect, CAPM, Risk Premia

No. 169 (Download full text)
Michael E. Drew, Madhu Veeraraghavan and Min Ye: Do Momentum Strategies Work?: - Australian Evidence
This paper investigates the profitability of momentum investment strategy and the predictive power of trading volume for equities listed in the Australian Stock Exchange. Recent research finds that momentum and trading volume appear to predict subsequent returns in U.S. market and past volume helps to reconcile intermediate-horizon “under reaction” and long-horizon “overreaction” effects. However, bulk of the evidence on this important relationship between past returns and future returns is limited to U.S. portfolios. This study provides an out of sample evidence by examining the relationship between “trading volume” (measured by the turnover ratio) and “momentum” strategies in an Australian setting. We document a strong momentum effect for the Australian market during the period 1988 through 2002 and find that momentum plays an important role in providing information about stocks. We also find that past trading volume predicts both the magnitude and persistence of price momentum. In summary, our findings are consistent with the U.S. evidence.

No. 168 (Download full text)
Adrian G Barnett and Rodney Wolff: A Time-Domain Test for Some Types of Non-Linearity
The bispectrum and third-order moment can be viewed as equivalent tools for testing for the presence of non-linearity in stationary time series. This is because the bispectrum is the Fourier transform of the third order moment. An advantage of the bispectrum is that its estimator comprises terms which are asymptotically independent at distinct bifrequencies under the null hypothesis of linearity. An advantage of the third order moment is that its values at any subset of joint lags can be used in the test, whereas when using the bispectrum the entire (or truncated) third order moment is required to construct the Fourier transform. In this paper we propose a test for non-linearity based upon the estimated third order moment. We use the phase scrambling bootstrap method to give a non-parametric estimate of the variance of our test statistic under the null hypothesis. Using a simulation study we demonstrate that the test obtains its target significance level, with large power, when compared to an existing standard parametric test that uses the bispectrum. Further we show how the proposed test can be used to identify the source of non-linearity due to interactions at specific frequencies. We also investigate implications for heuristic diagnosis of non-stationarity.; Keywords: Third-order moment, bispectrum, non-linear, nonstationary,

No. 167 (Download full text)
Rodney Wolff, Qiwei Yao and Howell Tong: Statistical Tests for Lyapunov Exponents of Deterministic Systems
In order to develop statistical tests for the Lyapunov exponents of deterministic dynamical systems, we develop bootstrap tests based on empirical likelihood for percentiles and expectiles of strictly stationary processes. The percentiles and expectiles are estimated in terms of asymmetric least deviations and asymmetric least squares methods. Asymptotic distributional properties of the estimators are established.; Keywords: Bootstrap, chaos, empirical likelihood, expectile, percentile.

No. 166 (Download full text)
Radhika Lahiri: Cooperation v/s Non-cooperation in R&D Competition with Spillovers
This paper seeks to analyse a case in which firms choose to divide their R&D expenditures into two components: competitive R&D and Joint-Venture R&D. The analysis is motivated by the fact that R&D outputs can have different degrees of non-excludability. It is therefore reasonable to expect that a firm will allocate a part of its funds to competitive R&D; this is the case in areas in which research is non-excludable to a smaller degree, and part of it to Joint-Venture R&D, in cases where R&D output is highly non-excludable. This issue is addressed in a three-stage model of a duopoly, in which joint-venture R&D and competitive R&D are chosen in the first and second stages while the quantity of the product is chosen in the third stage. The results confirm that allocation of expenditure to the joint-venture component increases as the spillover rate on the competitive component increases. Furthermore, if firms are able to coordinate their joint-venture R&D levels, there is greater incentive to increase this allocation. However, for these results to obtain, it is crucial that the two types of R&D are chosen sequentially; a simultaneous choice would lead to a corner solution in which only competitive R&D is chosen.

No. 165 (Download full text)
Marc Robinson: The Australian Budgeting System: On the Cusp of Change
Australia in the late 1990 adopted a purchaser-provider model of performance budgeting – so-called “accrual output budgeting” – which attracted considerable international interest. By 2003, however, the system was in headlong retreat. This paper examines the key difficulties experienced by this system, and links these to the system changes now being made. It speculates on the possible future of performance budgeting in Australia. It draws on extensive interviews and examination of budgetary process documentation in a number of Australian jurisdictions.

No. 164 (Download full text)
Andrew C. Worthington: Debt as a source of financial stress in Australian households
This paper examines the role of demographic, socioeconomic and debt portfolio characteristics as contributors to financial stress in Australian households. The data is drawn from the most-recent Household Expenditure Survey Confidentialised Unit Record Files (CURF) and relate to 3,268 probability-weighted households. Financial stress is defined, amongst other things, in terms of financial reasons for being unable to have a holiday, have meals with family and friends, and engage in hobbies and other leisure activities and overall financial management. Characteristics examined included family structure and composition, source and level of household income, age, sex and marital status, ethic background, housing value, debt repayments and credit card usage. Binary logit models are used to identify the source and magnitude of factors associated with financial stress. The evidence provided suggests that financial stress is higher in families with more children or other dependents and from ethnic minorities, especially those more reliant on government pensions and benefits, and negatively related to disposable income and housing value. There is little evidence to suggest that Australia’s historically high levels of household debt are currently the cause of significant amounts of financial stress in these households.; JEL-Codes: C25; D12; G18; R20; Keywords: Household and consumer debt, owner-occupied and investor housing, financial stress.

No. 163 (Download full text)
Andrew C. Worthington: Emergency finance in Australian households An empirical analysis of capacity and sources
This paper examines demographic and socioeconomic characteristics as predictors of emergency finance in Australian households. The data is drawn from the most recent Household Expenditure Survey Confidentialised Unit Record Files (CURF) and relate to 6,892 probability-weighted households. Emergency finance is defined in terms of the ability to raise $2,000 within one week and its potential sources include own savings and loans from deposit-taking institutions, finance companies, credit cards, family and friends and welfare or community organisations. Characteristics examined included family structure and composition, source and level of household income, age, sex and marital status, ethnic background and housing value. Binary logistic models are used to identify the source and magnitude of factors associated with the ability to raise emergency finance and the likelihood of choosing each method of raising finance. The results indicate that the presence of children, the number of dependents and income-earning units, the age, sex and ethnicity of the household head, dependency upon government pensions and benefits, homeownership and disposable income are significant determinants of the capacity to raise emergency finance. However, the demographic and socioeconomic factors examined are generally better at predicting mainstay sources of finance such as own savings and loans from deposit-taking institutions and credit card usage than loans from family and friends and welfare or community organisations.; Keywords: Emergency funds, financial planning, economic and financial wellbeing.

No. 162 (Download full text)
Scott McCarthy: Hedging versus not hedging: strategies for managing foreign exchange transaction exposure
This paper compares a number of strategies for managing foreign exchange exposures. The strategies are never hedging, hedging every exposure using a forward exchange contract, and hedging on selective occasions using a forward exchange contract. With regard to the selective hedging, the decision as to whether to hedge or not depends on the future spot exchange rate as determined by a number of forecasting techniques. The techniques include the random walk, the large premia model and a volatility model. The paper considers the USD vis a vis the AUD, SGD and JPY. The results are mixed and show that for the period 1992 to 2003 the Australian exporter is better off always hedging while the Singapore and Japanese exporters are better off never hedging. The various management strategies are compared using Sharpe’s model and the minimum variance model though it seems the results are not sensitive to use of either.; JEL-Codes: F31; Keywords: Selective foreign exchange currency hedging; random walk; large premia model;

No. 161 (Download full text)
Dr. Boon Lee: Interstate Comparison of Output and Productivity in the Australian Agricultural Sector, 1991 to 1999
The paper examines the output and productivity performance of the Australian Agriculture sector by state from 1991 to 1999. The aim of the paper is two-fold. First, the paper is a pioneer in a series which compares the performance of each Australian state by sector starting with the Agriculture sector. Second, it introduces the Geary-Khamis (GK) method for derivation of appropriate currency converters or purchasing power parities (PPPs) to enable proper quantification of real output and productivity at the multilateral level. It is essential to use appropriate PPPs as the differences in prices of farm commodities across states pose the problem of aggregation of real output. For the benchmark year 1996-97, gross value of agricultural production reveal that Victoria was 73% of NSW level, based on Australian Bureau of Statistics data when price differentials are not taken into consideration. However, when appropriate PPPs were used, results showed that Victoria’s level had gone up to 88% of NSW level. In terms of value added, Victoria’s level with respect to NSW was 89% based on actual values and 106% based on Geary-Khamis PPPs.; JEL-Codes: C43; O47

No. 160 (Download full text)
Tracey West and Andrew C. Worthington: Macroeconomic risk factors in Australian commercial real estate, listed property trust and property sector stock returns: A comparative analysis using GARCH-M
This paper employs a Generalised Autoregressive Conditional Heteroskedasticity in Mean (GARCH-M) model to consider the effect of macroeconomic factors on Australian property returns over the period 1985 to 2002. Three direct (office, retail and industrial property) and two indirect (listed property trust and property stock) returns are included in the analysis, along with market returns, short, medium and long-term interest rates, expected and unexpected inflation, construction activity and industrial employment and production. In general, the macroeconomic factors examined are found to be significant risk factors in Australian commercial property returns. However, the results also indicate that forecast accuracy in these models is higher for direct office, listed property trust and property stock returns and that the persistence of volatility shocks varies across the different markets, with volatility half lives of between five and seven months for direct retail and industrial property, two and three months for direct office property and less than two months with both forms of indirect property investment.; Keywords: Property returns; listed property trust, property stocks, market risk; interest rate risk; industrial

No. 159 (Download full text)
Andrew C. Worthington and Helen Higgs: Weak-form market efficiency in European emerging and developed stock markets
This paper tests for random walks and weak-form market efficiency in European equity markets. Daily returns for sixteen developed markets (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom) and four emerging markets (Czech Republic, Hungary, Poland and Russia) are examined for random walks using a combination of serial correlation coefficient and runs tests, Augmented Dickey-Fuller (ADF), Phillips-Perron (PP) and Kwiatkowski, Phillips, Schmidt and Shin (KPSS) unit root tests and multiple variance ratio (MVR) tests. The results, which are in broad agreement across the approaches employed, indicate that of the emerging markets only Hungary is characterized by a random walk and hence is weak-form efficient, while in the developed markets only Germany, Ireland, Portugal, Sweden and the United Kingdom comply with the most stringent random walk criteria.; JEL-Codes: C12; C14; G14; G15.; Keywords: Developed and emerging markets, random walk hypothesis, market efficiency

No. 158 (Download full text)
Abbas Valadkhani and Mohammad Alauddin: Demand for M2 in Developing Countries: An Empirical Panel Investigation
A significant body of literature on developed countries support the view that disequilibrium in the money market can affect the future output gap and/or inflation. This paper examines the major determinants of the demand for real money balances in eight developing countries for which consistent annual time series data are available. Pooling cross-country and time series data for the 1979-1999 periods and employing the seemingly unrelated regression (SUR) estimation technique, this paper models a standard money demand function. Various country-specific coefficients are allowed to capture inter-country heterogeneities. Consistent with theoretical postulates, this paper finds that the demand for money positively responds to an increase in real income and negatively to a rise in the interest rate spread, the rate of inflation and the US long-term interest rate. This study supports the hypothesis that disequilibrium in the money market can exacerbate inflation and widen the output gap.; JEL-Codes: E41; E52; C33; O11; Keywords: Demand for Money, Money and Interest Rate Spread, Panel Data,

No. 157 (Download full text)
Andrew C. Worthington and Helen Higgs: Tests of random walks and market efficiency in Latin American stock markets: An empirical note
This note examines the weak-form market efficiency of Latin American equity markets. Daily returns for Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela are examined for random walks using serial correlation coefficient and runs tests, Augmented Dickey-Fuller (ADF), Phillips-Perron (PP) and Kwiatkowski, Phillips, Schmidt and Shin (KPSS) unit root tests and multiple variance ratio (MVR) tests. The results, which are in broad agreement across the approaches employed, indicate that none of the markets are characterised by random walks and hence are not weak-form efficient, even under some less stringent random walk criteria.; JEL-Codes: C12; C14; G14; G15; Keywords: Emerging markets, random walk hypothesis, market efficiency

No. 156 (Download full text)
Andrew C. Worthington, Kerry Brown, Mary Crawford and David Pickernell: SOCIOECONOMIC AND DEMOGRAPHIC DETERMINANTS OF HOUSEHOLD GAMBLING IN AUSTRALIA
Regression modelling is used to predict gambling patterns in Australia on the basis of the unit record files underlying the Australian Bureau of Statistics’ Household Expenditure Survey of 6,892 households. Eight categories of gambling expenditure are examined, namely: lottery tickets, lotto type games and instant lottery (scratch cards), TAB and related on course betting, poker machines and ticket machines, blackjack, roulette and other casino-type games, TAB-betting (excluding animal racing), club and casino broadcast gaming and gambling not elsewhere classified. Determining factors analysed include the source and level of household income, family composition and structure, welfare status, gender, age, ethnicity and geographic location. Apart from the determinants of expenditure varying widely across the different types of gambling activity, the results generally indicate that the source of household income is more important than the level of income and that household composition and regional location are likewise significant in determining gambling expenditure.; JEL-Codes: C31; C35; D12; H22; Keywords: Gambling expenditure, socioeconomic and demographic characteristics, cross-sectional analysis.

No. 155 (Download full text)
Marc Robinson: THE OUTPUT CONCEPT AND PUBLIC SECTOR SERVICES
Units of output are sometimes defined in terms of the achievement of some pre-defined outcome (for example, a specified level of educational achievement), or alternatively in terms of some quality standard interpreted as a ‘conformance to specifications’ activity test. For most public-sector outputs, these definitions of a unit of output are flawed and may have undesirable behavioral consequences. Output measures cannot, in general, do double duty as outcome measures. Outcomes need to be measured separately. Moreover, the activity content of many types of outputs may legitimately vary both over time (as a result of qualitative rationing arising from the budget constraint), and also between clients (as a result of tailoring to varying client needs). Only for a sub-set of services is it appropriate to define a unit of output as complete only when either a specified proximate outcome has been achieved, or alternatively when a pre-defined minimum set of activities has been carried out.

No. 154 (Download full text)
Andrew Worthington and Abbas Valadkhani: Measuring the impact of natural disasters on capital markets: An empirical application using intervention analysis
This paper examines the impact of natural disasters on the Australian equity market. The data set employed consists of daily price and accumulation returns over the period 31 December 1982 to 1 January 2002 for the All Ordinaries Index (AOI) and a record of forty-two severe storms, floods, cyclones, earthquakes and bushfires (wildfires) during this period with an insured loss in excess of AUD5 mil. and/or total loss in excess of AUD100 mil. Autoregressive moving average (ARMA) models are used to model the returns and the inclusion of news arrival in the form of the natural disasters is specified using intervention analysis. The results indicate bushfires, cyclones and earthquakes have a major effect on market returns, unlike severe storms and floods. The net effects can be positive and/or negative with most effects being felt on the day of the event and with some adjustment in the days that follow.; JEL-Codes: C22; G12; G14; G22; Keywords: Natural events, disasters and catastrophes, market returns, intervention analysis, ARMA

No. 153 (Download full text)
Abbas Valadkhani and Allan P. Layton: Quantifying the Effect of GST on Inflation in Australia’s Capital Cities: An Intervention Analysis
This paper examines the magnitude and duration of the GST effect on inflation in Australia’s eight major capital cities using the Box and Tiao intervention analysis and quarterly data spanning from 1948:4 to 2003:1. We found that GST had a significant but transitory impact on inflation only in the September quarter of 2000 when this new tax system was implemented. In this quarter inflation showed an additional increase of 2.6 per cent in Sydney (minimum effect) and 2.8 per cent in Australia as a whole, the same figure for Hobart was 3.3 per cent (maximum effect). Based on the Wald test results, we have also found some evidence that there is no significant (or substantial) difference in the average price changes among major capital cities. We could not reject the null hypothesis that GST increased the CPI by 2.8 per cent across the board in various cities. These results are also consistent with previous studies/surveys.; JEL-Codes: C22; E31; H71; C22; Keywords: Intervention Analysis; State and Local Taxation; Australia.

No. 152 (Download full text)
Allan P. Layton and Daniel R. Smith: DURATION DEPENDENCE IN THE US BUSINESS CYCLE
Durland and McCurdy (1994) investigated the issue of duration dependence in US business cycle phases using a Markov regime switching approach, introduced by Hamilton (1989) and extended to the case of variable transition parameters by Filardo (1994). In Durland and McCurdy’s model duration alone was used as an explanatory of the transition probabilities. They found that recessions were duration dependent whilst expansions were not. In this paper, we explicitly incorporate the widely-accepted US business cycle phase change dates as determined by the NBER, and use a state-dependent multinomial Logit (and Probit) modelling framework. The model incorporates both duration and movements in two leading indexes - one designed to have a short lead (SLI) and the other designed to have a longer lead (LLI) - as potential explanators. We find that doing so suggests that current duration is not only a significant determinant of transition out of recessions, but that there is some evidence that it is also weakly significant in the case of expansions. Furthermore, we find that SLI has more informational content for the termination of recessions whilst LLI does so for expansions.

No. 151 (Download full text)
Radhika Lahiri: Tax Distortions in a Neoclassical Monetary Economy in the Presence of Administration Costs
This paper uses the neoclassical growth model to evaluate the size of distortions associated with different monetary and fiscal policies designed to finance government expenditures in the presence of administration costs. The model is calibrated to match important features of U.S. data, and used to evaluate welfare costs of monetary and fiscal policies. We find that the presence of administration costs increases the welfare costs of government policies involving different combinations of taxes on capital and labour income, consumption and money holdings. In addition, the welfare implications of tax reforms designed to replace the taxes on labor or capital income with less distorting forms of taxation are altered. Another implication of the results is that in economies with larger costs of administration, revenue replacement through seigniorage would be a more attractive option than other feasible forms of taxation.

No. 150 (Download full text)
Andrew C. Worthington and Helen Higgs: Modelling the Intraday Return Volatility Process In The Australian Equity Market: An Examination Of The Role Of Information Arrival In S&P/Asx 50 Stocks
This paper examines the intraday return volatility process in Australian company stocks. The data set employed consists of five-minute returns, trading volumes and bid-ask spreads over the period 31 December 2002 to 4 March 2003 for the fifty national and multinational stocks comprising the S&P/ASX 50 index. GARCH is used to model the time-varying variance in the intraday return series and the inclusion of news arrival as proxied by the contemporaneous and lagged volume of trade and bid-ask spread is used as an exogenous explanatory variable. The results indicate strong persistence in volatility for the fifty stocks even with the contemporaneous and lagged volume of trade and bid-ask spread included as explanatory variables in the models. Overall, while there is much variation among the stocks included in terms of the role of the irregular arrival of new information in generating GARCH effects and the degree of persistence, all of the volatility processes are mean reverting.; JEL-Codes: C22; G12; G14; Keywords: return volatility; trading volume; bid-ask spread; GARCH

No. 149 (Download full text)
Abbas Valadkhani and Mohammad Alauddin: Demand for M2 in Developing Countries: An Empirical Panel Investigation
A significant body of literature on developed countries support the view that disequilibrium in the money market can affect the future output gap and/or inflation. This paper examines the major determinants of the demand for real money balances in eight developing countries for which consistent annual time series data are available. Pooling cross-country and time series data for the 1979-1999 period and employing the seemingly unrelated regression (SUR) estimation technique, this paper models a standard money demand function. Various country-specific coefficients are allowed to capture inter-country heterogeneities. Consistent with theoretical postulates, this paper finds that the demand for money positively responds to an increase in real income and negatively to a rise in the interest rate spread, the rate of inflation and the US long-term interest rate. This study supports the hypothesis that disequilibrium in the money market can exacerbate inflation and widen the output gap.; JEL-Codes: E41; E52; C33; O11; Keywords: Demand for Money, Money and Interest Rate Spread, Panel Data,

No. 148 (Download full text)
Andrew C. Worthington and Helen Higgs: Risk, return and portfolio diversification in major painting markets: The application of conventional financial analysis to unconventional investments
This paper examines risk, return and the prospects for portfolio diversification among major painting and financial markets over the period 1976-2001. The art markets examined are Contemporary Masters, French Impressionists, Modern European, 19th Century European, Old Masters, Surrealists, 20th Century English and Modern US paintings. The financial markets comprise US Treasury bills, corporate and government bonds and small and large company stocks. In common with the literature in this area, the study finds that the returns on paintings are much lower and the risks much higher than conventional investment markets. Moreover, while low correlations of returns suggest that opportunities for portfolio diversification in art works alone and in conjunction with equity markets exist, the construction of Markowitz mean-variance efficient portfolios indicates that no diversification gains are provided by art in financial asset portfolios. However, diversification benefits in portfolios comprised solely of art works are possible, with Contemporary Masters, 19th Century European, Old Masters and 20th Century English paintings dominating the efficient frontier during the period in question.; JEL-Codes: C61; D81; G11; Keywords: Art and collectibles; Risk and return; Markowitz efficient frontier; Portfolio

No. 147 (Download full text)
Marc Robinson: Tightening the Results/Funding Link in Performance Budgeting Systems
Influential contemporary performance budgeting models have sought to tighten the link between results and budgets. This paper considers three approaches – budget-linked performance targets, budgeting based upon output or outcome costs, and budgetary performance incentives – and assesses their potential to enhance the results/funding link. It is possible to develop real links between performance targets and budgets, although generally not of a formularized nature. Criticisms of performance targets, based particularly on the imperfections nature of performance indicators, tend to be somewhat exaggerated. Considerably more use can be made of output cost information in budgeting – although there are important imitations arising from the nature of some outputs, and from the prevalence of qualitative rationing. Initiatives designed to ensure that agency performance is systematically considered when deciding agency budget allocations are highly desirable. The idea of additional funding as a reward for good performance needs, however, to be approached cautiously and selectively.

No. 146 (Download full text)
Andrew Worthington: Losing sleep at the market: An empirical note on the daylight saving anomaly in Australia
The ‘daylight saving effect’ predicts that the mean weekend return following the spring and fall/autumn changes in daylight saving time is less than the mean weekend return throughout the rest of the year. With this market anomaly, the change in market participants’ behaviour is linked with sleep desynchronosis and the change in circadian rhythm and its negative impact on sleep patterns. This study investigates the purported daylight saving effect in Australian equity market returns over the period 1979/80-2002/03 using parametric testing and regression analysis. After adjustments are made for heteroskedasticity and autocorrelation in the data, neither the transition to nor the movement from daylight saving is associated with returns that differ from other days. The results also show the absence of any significant weekend effect in the Australian equity market.; Keywords: Daylight saving time, daylight saving effect, weekend effect, market anomalies.

No. 145 (Download full text)
Andrew Worthington: Business expectations and preferences regarding the introduction of daylight saving in Queensland
This paper examines the role of organisational, industry and regional characteristics in determining business support for the introduction of daylight saving in Queensland, Australia. The data employed is drawn from a survey of seven hundred and eight businesspersons in 2002 that assayed support for the statewide introduction of daylight saving in Queensland and an alternative policy where daylight saving would be restricted to the more urbanised southeast regions of Brisbane and/or the Gold Coast. Organisational characteristics examined include assessment of current and future business conditions, expectations of the impact of daylight saving on profits, sales, administration costs and staffing and the number of employees. Industry and region identifiers were also specified. Binary logit models are used to identify the source and magnitude of factors associated with business support for the introduction of daylight saving. The evidence provided suggests that support for the introduction of daylight saving is a function of positive expectations regarding staffing, sales and administration costs and is primarily associated with businesses providing electricity, gas, water and communications, finance and insurance and cultural and recreational services. There also appears to be strong rural and regional resistance to the introduction of daylight saving in Queensland, even among the business community.; Keywords: daylight saving time; organisational, industry and regional characteristics

No. 144 (Download full text)
Abbas Valadkhani: AN EMPIRICAL ANALYSIS OF THE BLACK MARKET EXCHANGE RATE IN IRAN
The Iranian rial has been depreciated on average about 12 per cent per annum during the last four decades. This paper examines the long- and short-run determinants of the black market exchange rate employing the cointegration techniques and the annual time series data from 1960 to 2000. Broadly consistent with previous studies, it is found that the black market exchange rate is cointegrated with inflation, real GDP and the import price index. However, in the short run only high inflation and a meagre real growth in GDP are responsible for the depreciation of Iranian currency.

No. 143 (Download full text)
Steven Li: A single-period model and some empirical evidences for optimal asset allocation with value-at-risk constraints
In this paper, we consider the optimal asset allocation problems under VaR constraints. It is shown that the separation property holds to a certain extent. The optimal allocation of funds in risky assets is dependent on the distribution of the returns of risky assets and the VaR level, but independent of the acceptable loss ratio; the amount to be borrowed or lent at the risk free rate depends on the acceptable loss ratio. A general asset allocation model under VaR constraints is derived. As an application of our model, we address the optimal asset allocation between two categories of assets—bonds and stocks. Interesting empirical results are obtained for the US, Australia and the UK. The empirical results show that the mechanism of asset allocation under VaR constraints is fundamentally different from the classical mean-variance approach. The empirical results appear to support our model and demonstrate the potential usefulness of our approach.; Keywords: Value at Risk, optimal asset allocation, separation property, empirical

No. 142 (Download full text)
Michael E. Drew and Jon D. Stanford: Principal and Agent Problems in Superannuation Funds

No. 141 (Download full text)
Steven Li: The estimation of implied volatility from the Black-Scholes model: some new formulas and their applications
This paper provides a more accurate formula for estimating the implied volatilities for at-the-money calls than the existing formula as developed previously by Brenner and Subrahmanyam (1988). New formulas are also given for estimating the implied volatilities of in- or out-of-the-money calls. These formulas are derived mathematically and assessed by using numerical tests. All the new formulas are easy to use and accurate for a wide range of option moneyness and time to expiration.; JEL-Codes: G13; Keywords: options, implied volatility, implied standard deviation

No. 140 (Download full text)
Andrew C. Worthington and Helen Higgs: A multivariate GARCH analysis of the domestic transmission of energy commodity prices and volatility: A comparison of the peak and off-peak periods in the Australian electricity spot market
This paper examines the transmission of spot electricity prices and price volatility among the five Australian electricity markets in the National Electricity Market (NEM): namely, New South Wales (NSW), Queensland (QLD), South Australia (SA), Snowy Mountains Hydroelectric Scheme (SNO) and Victoria (VIC). A multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model is used to identify the source and magnitude of innovations and spillovers. The results indicate the inability of the existing network of interconnectors to create a substantially integrated national electricity market and that, for the most part, the sizeable differences in peak and off-peak spot prices between most of the regions will remain, at least in the short term. However, own-volatility and cross-volatility spillovers are significant for nearly all markets, indicating the presence of strong ARCH and GARCH effects. Strong own and cross-persistent volatility are also evident in all Australian regional electricity markets. This indicates that while the limited nature of the interconnectors between the separate regional spot markets prevents full integration of these markets, shocks or innovations in particular markets still exert an influence on price volatility.; JEL-Codes: C51; G15; Keywords: Market integration; spot electricity prices; mean and volatility spillovers; multivariate GARCH

No. 139 (Download full text)
Abbas Valadkhani: DOES THE TERM STRUCTURE PREDICT AUSTRALIA’S FUTURE OUTPUT GROWTH?
This paper examines whether the term structure of interest rates provides predictive power for real output growth using quarterly time series data from 1980:1 to 2002:2. The empirical results are consistent with previous studies undertaken for France, Germany and the UK as well as earlier Australian works. It is found that a 10 per cent increase in the interest rate spread between the 10-year Treasury bond and the 90-day bank bill results in approximately 4 per cent rise in GDP growth over the succeeding seven-nine quarters. This result is robust to the inclusion of two other relevant predictors in the accumulated future growth equation, namely the growth rate of M1, and the growth rate of the S&P/ASX 200 share price index. It is also argued that after the US, the interest rate spread possesses relatively more predictive power for Australian GDP growth than those for France, Germany and the UK.

No. 138 (Download full text)
Michael E. Drew, Tony Naughton and Madhu Veeraraghavan: Is Idiosyncratic Volatility Priced? Evidence from the Shanghai Stock Exchange
This paper employs the mimicking portfolio approach of Fama and French (1996) and asks whether idiosyncratic volatility is priced. This paper also provides evidence on whether returns on small stocks are higher in January than in remaining months. Our findings reveal that (a) idiosyncratic volatility is priced; and, (b) the multifactor model provides a better description of average returns than the traditional CAPM. We also find that the absolute pricing errors of the CAPM are large when compared with the multifactor model. We argue that firm size and idiosyncratic volatility may serve as proxies for systematic risk. We also dismiss the claim that returns on small stocks are on average higher in January than in remaining months. In summary, investors interested in taking additional risks should invest in small and low idiosyncratic volatility firms in addition to the market portfolio. This is because our findings indicate that investors can generate substantial returns by investing in strategies unrelated to market movements.; JEL-Codes: G110; G120; G150; Keywords: Idiosyncratic Volatility, Firm Size, Asset Pricing, China.

No. 137 (Download full text)
Abbas Valadkhani: How Many Jobs Were Lost With the Collapse of Ansett?
The objective of this paper is to determine the adverse impact of the collapse of Ansett on employment using the latest Australian input-output table. The indirect contribution of the collapse of Ansett to the creation of unemployment in various industries is quantified by adopting the “shut-down of industry” approach. Ansett operated within the air and space transport industry which possesses strong backward and forward linkages. It is found that due to sectoral multiplier and flow-on effects each job lost in such an important sector leads to a loss of approximately 3 extra jobs in the economy as a whole. The empirical results are broadly consistent with previous studies. Overall, the Ansett collapse brought about an indirect loss of 54880 jobs in 105 sectors of the Australian economy. Losses were particularly marked in the following industries which were the fastest growing industries in terms of employment during the 1985-2000 period: Retail trade; Business services; Education; Health services; Accommodation, cafes and restaurants.

No. 136 (Download full text)
Radhika Lahiri: A Further Exploration of Some Computational Issues in Equilibrium Business Cycle Theory
This paper revisits some of the issues involved in the comparison of alternative computational procedures within the context of a dynamic stochastic general equilibrium model. The framework in question is a more general one, in which a “standard” or relatively simple model is nested as a special case. Results of numerical experiments suggest that different computational methods may be used interchangeably in the case of the standard model, but not in the case of the more general model. Varying a preference parameter allows us to compare what happens to solutions using alternative procedures as one moves away from the special case to the more general framework. On the basis of the numerical experiments conducted, we find that not only do differences in solutions become larger, but answers to several economic issues of interest can yield qualitatively different answers depending on the solution method used. Examples of such issues include how second moment features change as one varies the parameters of a model, and the relative contribution of different types of stochastic shocks to fluctuations in variables.

No. 135 (Download full text)
Shakila Aruman: The Effectiveness of Foreign Exchange Intervention in Australia: A Factor Model Approach with GARCH Specifications
This paper analyses the effectiveness of foreign exchange intervention by the Reserve Bank of Australia (RBA). Initially, a latent factor model is used to decompose the volatility of exchange rates into three unobserved factors - world, numeraire and idiosyncratic. Subsequently, the impact of foreign exchange rate intervention is examined by further decomposing the numeraire (Australian) factor into an intervention component and an unobserved component. An indirect estimation approach is employed to facilitate the imposition of GARCH structures on some of the unobserved factors. The empirical results suggest that less than three percent of observed exchange rate volatility is explained by RBA intervention.; JEL-Codes: C22; F31; G15; Keywords: exchange rate, latent factor model, indirect estimation

No. 134 (Download full text)
John Anderson: A Test of Weak-Form Market Efficiency in Australian Bank Bill Futures Calendar Spreads
This paper demonstrates how the presence of a lower interest rate expectations detected in short-term interest rate futures during the 1990’s allowed arbitrage profits when trading intra-commodity spread differentials on the Sydney Futures Exchange’s 90 Day Bank Accepted Bill futures contract. Fama’s (1970) hypothesis on market efficiency cannot be accepted for the test period as statistically significant gross profits were generated by a naïve strategy. The EMH had greater predictive power once transactions costs were deducted. Furthermore, the EMH remained unable to be accepted after the allowance of generous transaction costs.

No. 133 (Download full text)
John Anderson and Robert W Faff: Optimal f and Portfolio Return Optimisation in US Futures Markets
While considerable evidence has been produced concerning the efficacy of trading rules in futures markets, the results have generally not allowed for the reinvestment of profits as might be observed for real traders. Similarly, the determination of the appropriate capital allocation required per futures contract traded has been largely unstructured so making reported percentage returns questionable. This paper provides evidence of the profitability of a simple and publicly available trading rule in five futures markets but more importantly incorporates the ability to reinvest any profits via the ‘Optimal f’ technique described by Vince (1990). The results indicate that money management in speculative futures trading plays a more important role in trading rule profitability than previously considered by providing dramatic differences in profitability depending on how aggressively the trader capitalises each futures contract.; JEL-Codes: G11; C52; C53; Keywords: Futures, Optimal f, Money Management, Trading Rules, Technical Analysis.

No. 132 (Download full text)
Abbas Valadkhani: Long and Short-Run Determinants of Money Demand in New Zealand: Evidence from Cointegration Analysis
The existence of a stable demand for money is very important for the conduct of monetary policy even in this new era of inflation targeting. It is argued that previous work on the demand for money in New Zealand has been either not very satisfactory in a number of ways or outdated. This paper examines the long-run determinants of the demand for M3 employing the Johansen cointegration technique and quarterly data for the period 1988:1-2002:2. This paper finds, inter alia, that the demand for money is cointegrated with real income, the spread between interest on money and on non-money assets, the expected rate of inflation, and the real effective (trade weighted index) exchange rate.; JEL-Codes: E41; E52; C32; Keywords: Demand for Money, Money and Interest Rates, Cointegration, New Zealand.

No. 131 (Download full text)
Abbas Valadkhani: History Of Macroeconometric Modelling: Lessons From Past Experience
This paper reviews briefly the general literature on macroeconometric modelling and highlights some important lessons from more than half a century of model-building. It appears that from the late 1940s to the 1960s this field has contributed to the expanding knowledge of both economists and econometricians. However, from the early 1970s, several issues invalidated macroeconometric models. These issues are: theoretical contrasts with rational expectations theory, structural instability, the arbitrary division of endo-exogenous variables of the model, the existence of the problem of unit roots (spurious regressions) and insufficient amount of econometric "know-how". It is argued that with advancement of econometric "know-how", the disparity of opinions between advocates and critics of macroeconometric modelling can be narrowed.

No. 130 (Download full text)
Michael E. Drew: Superannuation Funds: The Fees and Performance Debate

No. 129 (Download full text)
Adam Clements and Michael E. Drew: Investor Expectations and Systematic Risk
This study refines the estimation of beta risk within the Capital Asset Pricing Model (CAPM) framework. Evidence is provided that the link between ex-ante risk and ex-post returns is strengthened by more accurately reflecting the formation of investor expectations. An adaptive expectations approach is employed as an estimation technique consistent with the behavioural patterns of investors. Finally, the study compares the capability of risk estimates from both the standard CAPM and adaptive expectation methods to account for future asset returns in Australia.; JEL-Codes: G120; G150; Keywords: Asset Pricing; Adaptive Expectations; Australia.

No. 128 (Download full text)
Michael E. Drew, Tony Naughton and Madhu Veeraraghavan: Asset Pricing in China: Evidence from the Shanghai Stock Exchange
Capital market theory is concerned with the equilibrium relationship between risk and expected return on financial claims. Within this framework, this paper seeks to extend the mounting evidence against the view that the beta coefficient of the Capital Asset Pricing Model is the sole measure of risk. In this paper we test the multifactor approach to asset pricing in one of the most challenging international markets, the Shanghai Stock Exchange, China. Firstly, we seek to determine whether size and value premia exist in China. Secondly, we address the challenge that size and value premia are largely determined by seasonal factors (such as the January and/or Chinese New Year effect). Our findings suggest that mean-variance efficient investors in China can select some combination of small and low book-to-market equity firms in addition to the market portfolio to generate superior risk-adjusted returns. Moreover, we find no evidence to support the view that seasonal effects explain the findings of the multifactor model. In summary, we suggest the market factor alone is not sufficient to describe the cross-section of average stock returns in China.; JEL-Codes: G120; G150; Keywords: Asset Pricing; Seasonal Effects; China.

No. 127 (Download full text)
Michael E. Drew and Jon D. Stanford: A Review of Australia’s Compulsory Superannuation Scheme After a Decade

No. 126 (Download full text)
Michael E. Drew and Jon D. Stanford: Retail Superannuation Management in Australia: Risk, Cost and Alpha
In this performance evaluation study, two questions are addressed. First, does Australia’s superannuation management industry deliver returns commensurate with the risk taken? Second, what is the relationship between cost (specifically, the management expense ratio) and performance? The answers from this study are as follows: as an industry, managers failed to achieve returns proportionate to the market portfolio for the period 1991 through 1999 on a risk-adjusted basis. The study provides evidence that an inverse relationship between cost and return exists, with funds levying the lowest management expense ratios delivering the highest within sample returns.; JEL-Codes: G23; G21; G10; Keywords: Performance Evaluation; Superannuation Funds; Australia.

No. 125 (Download full text)
Boon Lee: Output and Productivity Comparisons of the Wholesale and Retail Trade Sector: US and Australia, 1991 to 1999
Australia’s value added contribution of the Wholesale and Retail trade has strengthened against sectors such as agriculture, mining and manufacturing. At 1997-98 prices, its value added contribution to GDP during the 1990s was around 10-11%. Agriculture was 3% and mining 7-8%. Manufacturing’s value added contribution fell from 15% to 12%. While performance at the domestic level may seem significant, there is still need to compare this performance with other countries. Hence, this paper will examine the output and productivity performance of the Australian Wholesale and Retail Trade sector with the leading economy, the United States, from 1991 to 1999. The aim of the paper is two-fold. First, the paper is a pioneer in a series which compares the performance of various industries within the service sector between the US and Australia. Second, it introduces a method for derivation of appropriate currency converters or purchasing power parities (PPPs) for quantification of output and productivity at various disaggregated levels. This method is based on the industry-of-origin approach as refined by the International Comparisons of Output and Productivity (ICOP) project based at the University of Groningen.; JEL-Codes: C43; L81; O47; O57

No. 124 (Download full text)
Marc Robinson: Best Practice in Performance Budgeting
This paper seeks to identify the best practice principles for performance budgeting. It describes and analyses the principle mechanisms by which performance budgeting systems attempt to link results and resources. These mechanisms are evaluated, drawing amongst other things upon analysis of the underlying relationship between results and resources. The potential scope for the integration of performance management and budgeting is considered.

No. 123 (Download full text)
Helen Higgs and Andrew C. Worthington: Tests of the Random Walk Hypothesis for Australian Electricity Spot Prices: An Application Employing Multiple Variance Ratio Tests
This paper examines whether Australian electricity spot prices follow a random walk. Daily peak and off-peak (base load) prices for New South Wales, Victoria, Queensland and South Australia are sampled over the period July 1999 to June 2001 and analysed using multiple variance ratio tests. The results indicate that the null hypothesis of a random walk can be rejected in all peak period and most off-period markets because of the autocorrelation of returns. For the Victorian market, the off-peak period electricity spot price follows a random walk. One implication of the study is that in most instances, stochastic autoregressive modelling techniques may be adequate for forecasting electricity prices.

No. 122 (Download full text)
Steven Li: A valuation model for firms with stochastic earnings
In this paper, a model is set up for valuing a firm with stochastic earnings. It is assumed that the earnings of the considered firm follow a time-varying mean reverting stochastic process. It is shown that the value of the firm satisfies a boundary value problem of a second-order partial differential equation, which can be solved numerically. Special cases are discussed. Analytic solution is found for one special case. Moreover it is shown that the analytic solution is consistent with a previous result obtained by other researchers.; Keywords: stochastic earnings, firm valuation, debt valuation

No. 121 (Download full text)
Andrew C. Worthington and Helen Higgs: The Relationship Between Energy Spot and Futures Prices: Evidence from the Australian Electricity Market
This paper examines the relationship between futures and spot electricity prices for two of the Australian electricity regions in the National Electricity Market (NEM): namely, New South Wales and Victoria. A generalised autoregressive conditional heteroskedasticity (GARCH) model is used to identify the magnitude and significance of mean and volatility spillovers from the futures market to the spot market. The results indicate the presence of positive mean spillovers in the NSW market for peak and off-peak (base load) futures contracts and mean spillovers for the offpeak Victorian futures market. The large number of significant innovation and volatility spillovers between the futures and spot markets indicates the presence of strong ARCH and GARCH effects. Contrary to evidence from studies in North American electricity markets, the results also indicate that Australian electricity spot and futures prices are stationary.

No. 120 (Download full text)
Abbas Valadkhani: Modelling Demand for Broad Money in Australia
The existence of a stable demand for money is very important for the conduct of monetary policy. It is argued that previous work on the demand for money in Australia has not been very satisfactory in a number of ways. This paper examines the long- and short-run determinants of the demand for broad money employing the Johansen cointegration technique and a short-run dynamic model. Using quarterly data for the period 1976:3-2002:2, this paper finds, inter alia, that the demand for broad money is cointegrated with real income, the rate of return on 10-year Treasury bonds, the cash rate and the rate of inflation.; JEL-Codes: E41; E52; C32; Keywords: Demand for Money, Money and Interest Rates, Cointegration, Australia.

No. 119 (Download full text)
Abbas Valadkhani: Identifying Australia’s High Employment Generating Industries
Using the latest Australian input-output (IO) table, this paper aims to identify the high employment generating industries. First, the direct and indirect contribution of the tradeable industries to employment are quantified by adopting the “loss of the industry” or “Shut-down of industry” approach. Second, the sectoral employment elasticities are calculated to determine the leading employment generating sectors. The empirical analysis and rankings undertaken in this study shed some light on the sectoral potentials in relation to the creation of jobs in the economy. Further, this study provides some inputs for setting the effective rate of assistance for import competing industries.

No. 118 (Download full text)
Radhika Lahiri: On Optimal Monetary Policy in a Liquidity Effect Model
This paper examines the implications of introducing a variable rate of time preference on the role of monetary policy in a dynamic general equilibrium framework explicitly designed to capture liquidity effects. Variable time preference is incorporated by allowing the discount factor applied to future utility to be decreasing in contemporaneous utility. The model is a more general one, in the sense that the fixed discount factor economy is nested as a special case. Numerical simulations of the more general model indicate that for a range of parameters optimal monetary policy can be qualitatively different. This is in spite of the fact that there are very small quantitative differences in the magnitude of monetary non-neutralities, such as liquidity effects, in the fixed and flexible discount factor environments. Furthermore, within this range, monetary policy is less activist, in the sense that it is procyclical to productivity shocks, as opposed to being countercyclical as in the fixed time preference model.

No. 117 (Download full text)
Kathleen Goffey and Andrew Worthington: Motor Vehicle Usage Patterns in Australia: A Comparative Analysis of Driver, Vehicle & Purpose Characteristics for Household & Freight Travel
An ordered probit model is used to predict motor vehicle usage in Australia on the basis of the unit record files underlying the Australian Bureau of Statistics’ Survey of Motor Vehicle Use. Both household and freight transport are analysed. The paper examines the statistical significance of a number of driver, vehicle and travel purpose variables on the level of motor vehicle usage. Factors analysed include driver age and gender, vehicle and fuel type, age of the vehicle, purpose of trip, place of registration, type of freight and number of drivers. The results indicate that the cut-off points between very low, low, medium, high and very high vehicle usages are significant and that the factors associated with differences in usage include driver age, engine size and age of vehicle for household vehicles and the type of freight, type of vehicle, gender and number of drivers for freight usage.; JEL-Codes: D12; C21; C25; L92; Keywords: Motor vehicle usage, driver, vehicle and purpose characteristics, ordered probit.

No. 116 (Download full text)
Siv Heng Taing and Andrew C. Worthington: Comovements among European equity sectors: Selected evidence from the consumer discretionary, consumer staples, financial, industrial and materials sectors
This paper examines comovements between equity sectors across European markets during the post-euro adoption period 1999-2002. The markets comprise six selected Member States of the European Union (EU): namely, Belgium, Finland, France, Germany, Ireland and Italy. The five sectors selected are classified according to the Global Industry Classification Standard (GICS). They include the consumer discretionary, consumer staples, financial, industrials and materials sectors. Multivariate cointegration procedures, Granger-causality tests and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to examine long and short-run relationships among these markets. The results indicate that there are few stationary long-run relationships between sectors in different markets, but many significant short-run causal linkages between these sectors. Variance decomposition indicates that the consumer discretionary, financial and materials sectors in the EU are relatively more integrated than the consumer staples and industrials sectors. However, irrespective of the sector examined the large equity markets of France, Germany and Italy remain the most influential in terms of causality and the proportion of variance accounted for by innovations in these same markets.; JEL-Codes: C32; F36; G15; Keywords: Financial integration, sectors and industries, portfolio diversification, market efficiency.

No. 115 (Download full text)
Javier Hernandez and Allan Layton: The Regional Appropriateness of Monetary Policy: An Application of Taylor’s Rule to Australian States and Territories
In recent years Taylor’s rule has become a widely used tool for assessing the stance of monetary policy. Not only has it been used to evaluate the U.S. Federal Reserve’s monetary policy, but also, for example, to evaluate the appropriateness of the European Central Bank’s monetary policy for each individual member nation of the European Monetary Union. This paper builds on this work and uses Taylor’s rule to evaluate the degree of appropriateness of Australia’s national monetary policy to each of Australia’s states and territories. National monetary policy is represented by the overnight cash rate and this is compared to a notional cash rate calculated for each individual state and territory. The aim is to illustrate the extent to which national monetary policy historically may have deviated from what might have been most appropriate for the economic conditions of each state and territory. To this end, three different recent monetary policy episodes are analysed from a regional perspective. Moreover, an analysis of the disparities between the Australian states’ and territories’ notional cash rates with the actual national cash rate suggests – perhaps not too surprisingly - that the Reserve Bank of Australia implicitly sets national cash rates in close accordance with the economic conditions of Australia’s two most populous states.; Keywords: Taylor’s rule, monetary policy, Reserve Bank of Australia, regional

No. 114 (Download full text)
Andrew C. Worthington, Adam Kay-Spratley and Helen Higgs: Transmission of prices and price volatility in Australian electricity spot markets: A multivariate GARCH analysis
This paper examines the transmission of spot electricity prices and price volatility among the five Australian electricity markets in the National Electricity Market (NEM): namely, New South Wales (NSW), Queensland (QLD), South Australia (SA), the Snowy Mountains Hydroelectric Scheme (SNO) and Victoria (VIC). A multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model is used to identify the source and magnitude of spillovers. The results indicate the presence of positive own mean spillovers in only a small number of markets and no mean spillovers between any of the markets. This appears to be directly related to the limitations of the present system of regional interconnectors. Nevertheless, the large number of significant ownvolatility and cross-volatility spillovers in all five markets indicates the presence of strong ARCH and GARCH effects. Contrary to evidence from studies in North American electricity markets, the results also indicate that Australian electricity spot prices are stationary.; JEL-Codes: C51; G15; Keywords: spot electricity price markets; mean and volatility spillovers; multivariate GARCH

No. 113 (Download full text)
Michael E. Drew, Nava Subramaniam and Kim Clowes-Doolan: Students’ Experience of The Honours’ Supervisory Relationship: A Preliminary Investigation
This study considers the role and intervention strategies adopted by supervisors at the Honours level from the student perspective, and their implications for student learning. Using an adaptation of the presage-process-product model for the supervisory setting and interview data from eight students enrolled in a Bachelor of Business Honours programme, we report two key findings. First, the largest gaps observed related predominantly to academic and validation roles. More specifically, students reported the need for supervisors to take on a greater mentoring, innovative and judgemental roles. Second, students preferred more facilitative interventions (e.g. more supportive and catalytic strategies) rather than authoritative interventions (such as prescriptive or confronting) as they promote confidence building and independence. The study concludes with a discussion of implications of the research for stakeholders in the supervisory process.

No. 112 (Download full text)
Susan Ryan and Andrew C. Worthington: Time-Varying Market, Interest Rate and Exchange Rate Risk in Australian Bank Portfolio Stock Returns: A Garch-M Approach
This study employs an extended version of the Generalised Autoregressive Conditional Heteroskedasticity in Mean (GARCH-M) model to consider the time-series sensitivity of Australian bank stock returns to market, interest rate and foreign exchange rate risks. Daily Australian bank portfolio returns, a market wide accumulation index, short, medium and long-term interest rates, and a trade-weighted foreign exchange index are used to model these risks over the period 1996 to 2001. The results suggest that market risk is an important determinant of bank stock returns, along with short and medium term interest rate levels and their volatility. However, long-term interest rates and the foreign exchange rate do not appear to be significant to the Australian bank return generating process over the period considered.; JEL-Codes: C32; C52; G12; G21; Keywords: Bank stock returns; GARCH; market risk; interest rate risk; foreign exchange risk

No. 111 (Download full text)
Helen Higgs and Andrew C. Worthington: The Prospects for Geographic Diversification in UK Regional Property Investment: Implications Derived from Multivariate Cointegration Analysis
This paper examines the short and long-term comovements among UK regional property markets over the period 1976-2001. The markets examined are London, Outer South-East, East Anglia, South West, East Midlands, West Midlands, Yorkshire and Humberside, North and North West. Multivariate cointegration procedures, Granger non-causality tests, level VAR and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to analyse short and long-run relationships among these markets. The results indicate that there is a stationary long-run relationship and significant long-run causal linkages between the various UK property markets. In terms of the percentage of variance explained other regional markets are generally more important than innovations in a given region, though this is not the case for the Outer South-East which is extremely segmented from the remaining markets, as is, to a lesser extent, the North and North West. This suggests that opportunities exist for portfolio diversification in UK regional property market.; Keywords: Regional property markets, Portfolio diversification, Short and long-run relationships

No. 110 (Download full text)
Abbas Valadkhani: An Empirical Analysis of Australian Labour Productivity
This study presents a model capturing sources of Australian aggregate labour productivity using annual time series data from 1970 to 2001. Labour productivity, or real output per hour worked, in this model is determined by real net capital stock in information technology and telecommunications (ITT), real net capital stock in the non-ITT sector, trade openness, human capital, the wage rate, international competitiveness, and the union membership rate. Given the lack of long and consistent time series data, multivariate cointegration techniques are inappropriate as the cointegration results will be sensitive to the lag length, the inclusion or exclusion of the intercept term or a trend in the cointegration equation and/or the vector autoregression (VAR) specification. Therefore, the Engle-Granger representation theorem and the Hausman weak exogeneity test have been employed to determine the short and long-term drivers of Australian productivity. Empirical estimates indicate that, in the long-term, policies aimed at promoting various types of investment, trade openness, international competitiveness, and the use of wage as an stimulant in a decentralised wage negotiation system, will improve labour productivity. In the short term, all the above variables except for human capital and labour reforms, which both need more time to evolve, determine productivity performance.

No. 109 (Download full text)
Renee Fry: International SVAR Factor Modelling
Models of Australia proxy international linkages using the US, despite Japan being an equivalent trading partner. This paper uses a Kahnan filter to extract US and Japanese reference cycles which are then used in an SVAR model of the Australian economy. The US and Japanese shocks are interpreted to be aggregate demand and interest rate shocks respectively. The results show that US shocks axe dominant for Australian outcomes, but the model is misspecified if Japan is excluded. The role of Japan is to dampen expansionary US shocks. Further, Australian monetary policy responds to domestic conditions, rather than international monetary policy.; JEL-Codes: C51; E32; C82; Keywords: Structural VAR, latent factors, Kalman filter.

No. 108 (Download full text)
D.P. Doessel and Abbas Valadkhani: Public Finance and The Size of Government: A Literature Review and Econometric Results for Fiji
This paper analyses current government expenditure in Fiji using annual time series data for the period 1969-1999. Alternative theories of government expenditure are reviewed and a distinction is made between economic/apolitical determinants and institutional/political determinants. Categorising the literature in this way suggests the application of non-nested tests in empirical work. The first step is to estimate the two models separately. All four test statistics for non-nested hypotheses lead to the conclusion of double rejection. A parsimonious comprehensive model, encompassing both economic and institutional variables, is preferred as it passes all diagnostic tests and involves the acceptance conclusion from pairwise non-nested tests.

No. 107 (Download full text)
Michael Drew and Madhu Veeraraghavan: Idiosyncratic Volatility: Evidence from Asia
The traditional Capital Asset Pricing Model states that assets can earn only higher returns if they have a high beta. However, evidence shows that the single risk factor is not quite adequate for describing the cross-section of stock returns. The current consensus is that firm size and book-to-market equity factors are pervasive risk factors besides the overall market factor. Malkiel and Xu (1997 and 2000) further the debate in empirical asset pricing by stating that idiosyncratic volatility is useful in explaining the cross-sectional expected returns. In this paper we provide international evidence on the relationship between expected stock returns, overall market factor, firm size and idiosyncratic volatility. Our findings suggest that size and idiosyncratic volatility premium are real and pervasive. We find that small and high idiosyncratic volatility stocks generate superior returns and hence suggest that such firms carry risk premia. Our findings also suggest that idiosyncratic volatility is more powerful than the CAPM beta and the firm size effect. Our findings challenge the portfolio theory of Markowitz (1952) and the CAPM of Sharpe (1964), which advances the notion that it is rational for a utility maximizing investor to hold a well-diversified portfolio of investments to eliminate idiosyncratic risks.; JEL-Codes: G110; G120; G150; Keywords: Idiosyncratic risk, Portfolio Theory, Capital Asset Pricing Model, Size effect and Beta.

No. 106 (Download full text)
Michael E. Drew and Leonard Chong: Stock Market Interdependence: Evidence from Australia
This study examines the relationship between Australia’s stock market and the five largest international markets for the period 1991 through 2001. Preliminary findings, using correlation statistics, indicated potential benefits to international diversification for the Australian investor. Further analysis, conducted in the VAR framework using the Johansen co-integration method, found that the Australian market has short and long run linkages with the United States, while tests with other markets found little evidence of interdependence. Moreover, only the US market was found to Grangercause the Australian market.; Keywords: Interdependence, price linkages, internationalisation.

No. 105 (Download full text)
Michael E. Drew, Madhu Veeraraghavan and Vanessa Wilson: Market Timing and Selectivity: Evidence from Australian Equity Superannuation Funds
In this performance evaluation study, two questions are addressed. First, do active fund managers possess macro and micro forecasting skills that deliver superior risk-adjusted returns? Second, what is the nature of market timing/stock selectivity trade off in the generation of alpha? The answers from this study are as follows: as an industry, managers delivered inferior returns for superannuation investors for the period 1991 through 1999. The study provides little evidence that the Australian funds management industry holds sufficient macro and/or micro forecasting abilities to generate positive alpha. While previous research has found that inferior market timing decisions are compensated for by superior stock selection skills, this study finds no substantive inverse relationship between timing and selectivity.; JEL-Codes: G23; G21; G10; Keywords: Performance evaluation; Timing; Selectivity.

No. 104 (Download full text)
Luke Connelly: Welfarist and Non-Welfarist Conceptions of "Health Promotion”
Although "health promotion" programs account for only a small proportion of health spending in OECD countries (OECD, 2000), their components (anti-smoking, pro-exercise and vaccination campaigns, for example) are often highly visible instruments of health policy. Furthermore, the case for increased spending on such programs is likely to intensify if evidence of (i) their effectiveness; and (ii) diminishing returns to spending on other categories of health services (e.g., curative and acute medical services), grows. Economists' contributions to the literatures on, inter alia, (i) rational addiction; (ii) (licit and illicit) drug use; (iii) health production; and (iv) health sector economic evaluation; are pertinent to this health sub-sector. However, no integrated economic conception of the field of health promotion has been produced. This paper provides such an account: the instruments and targets of health promotion are analysed in an integrated framework by drawing on concepts from the public economics and health economics literatures. The analyses emphasise the material differences in welfare outcomes that can arise, depending on whether the objective of a health promotion program is to maximise welfare, or to pursue another, e.g. health-stock, objective.; Keywords: economic analysis, health promotion, welfare.

No. 103 (Download full text)
Marc Robinson: Accrual Output Budgeting in Australia
This paper examines the system of ‘accrual output budgeting’ which was introduced by most Australian governments at the end of the 1990s. It explains the key features of the system, and its roots in ‘market’ models. Key difficulties with the model are identified: including the unsuitability of many publicly-funded outputs to funding on a rice-per-unit-of-output basis and the information problems which arise in determining the ‘efficient’ price of outputs.; Keywords: budgeting, market, price, output heterogeneity

No. 102 (Download full text)
Michael E. Drew and Jon D. Stanford: The Economics of Choice of Superannuation Fund

No. 101 (Download full text)
Marc Robinson: Output-Driven Funding and Budgeting Systems in the Public Sector
Output-driven funding systems are systems in which payments made to service-delivery agencies by government are an explicit function of quantities of outputs delivered by those agencies. This paper considers the feasibility of such systems for the funding tax-financed public services. It focuses upon the implications of key characteristics of public sector outputs, and specifically upon the prevalence of heterogeneous outputs, the predominance of services (as opposed to physical goods), and the presence of many ‘contingent capacity services’.

No. 100 (Download full text)
Andrew C. Worthington and Helen Higgs: Short and Long-Term Price Linkages Among Asia-Pacific Economic Cooperation (APEC) Equity Markets
This paper examines the short and long-term price linkages among Asia-Pacific Economic Cooperation (APEC) equity markets over the period 1995 to 2000. Seven developed markets (Australia, Canada, Hong Kong, Japan, New Zealand, Singapore and the United States) and eleven emerging markets (China, Chile, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Russia, Taiwan and Thailand) are included in the analysis. Multivariate cointegration procedures, Granger-causality tests, level VAR and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to examine long and short-run relationships among these markets. The results indicate that there is a stationary long-run relationship and significant short-run causal linkages among the APEC equity markets. The results also indicate that the degree of comovement and codependencies among APEC’s domestic and sub-regional markets varies considerably. In general, Australasian, Northern Asian and South American markets are relatively more influenced by domestic market conditions, North American markets relatively more by regional factors and Southern Asian markets more strongly influenced by markets outside either their own or geographical close domestic markets.; JEL-Codes: C32; F36; G15; Keywords: Cointegration; regional equity markets; APEC

No. 099 (Download full text)
Michael E. Drew, Jon D. Stanford and Madhu Veeraraghavan: TESTING THE INCOMPLETE ARBITRATE HYPOTHESIS: EVIDENCE FROM AUSTRALIAN WHOLESALE SUPERANNUATION FUNDS
This paper tests the efficiency of capital markets when information is costly to obtain by analysing the performance of Australian wholesale superannuation funds specialising in the management of domestic equity portfolios from 1991 through 1999. Using a fund regression approach, the paper finds evidence that is consistent with an incomplete arbitrage function, with investment managers generating returns sufficiently high to compensate them for the increased costs of active asset selection. Risk-adjusted returns in the Australian superannuation fund industry, net of management fees and expenses, are comparable to the returns from a passive asset selection policy.; JEL-Codes: G230; G150; Keywords: Superannuation funds, Australia

No. 098 (Download full text)
Gary Wong: TOWARDS A MORE GENERAL APPROACH TO TESTING THE TIME ADDITIVITY HYPOTHESIS
A new procedure is proposed for re-examining the assumption of additivity of preferences over time which, although untenable, is usually maintained in intertemporal analyses of consumption and labour supply. The method is an extension of a famous work by Browning (1991). However, it is more general in permitting the estimation of Frisch demands, which are explicit in an unobservable variable (price of utility), but may lack a closed form representation in terms of observable variables such as prices and total outlay. It also makes an extensive use of duality theory to solve the endogeneity problem encountered in Browning's study. Applying this method with an appropriate estimator to the Australian disaggregate data, we find that the intertemporal additivity hypothesis is decisively rejected, which is consistent with Browning's conclusion. Results also indicate that the effects of lagged and future prices in determining current consumption decisions are insubstantial.; JEL-Codes: D11; D12; D91; Keywords: Frisch Demands; The SNAP Structure; Intertemporal Additivity Hypothesis;

No. 097 (Download full text)
Gary Wong and Qiao Yu: Inverse Demand Systems for Composite Liquid Assets: Evidence from China
This paper applies the concept of inverse demands and its related scale and substitution effects to model the demand for liquid assets in China. We also propose a new model, termed the Modified Almost Ideal Inverse Demand System (MAIIDS), which nests the Almost Ideal Inverse Demand System (AIIDS) as a special case. We estimate this new model and its special case by using Chinese panel data and find it statistically superior to the AIIDS. Results also reveal the improved regularity features of the MAIIDS, and show that demand patterns of liquid assets across different income groups in China are distinctive.; JEL-Codes: D11; D12; E41; Keywords: AIIDS; MAIIDS; Regularity; Liquid assets.

No. 096 (Download full text)
Mike Dempsey, Michael E. Drew and Madhu Veeraraghavan: IDIOSYNCRATIC RISK AND AUSTRALIAN EQUITY RETURNS
In this paper we investigate the relationship between portfolio returns and idiosyncratic risk for Australian stocks. We report that the portfolio with highest idiosyncratic volatility generates an average annual return of over 45%. We observe additionally that the outcome is consistent with an exponential growth process for stock prices. Further, consistent with Malkiel and Xu, we observe that a stock’s idiosyncratic volatility is inversely correlated with the size of the underlying firm. Thus, our model advances an interpretation of the Fama and French finding that portfolios of stocks of small firms offer superior risk-adjusted returns. Moreover, our findings challenge the portfolio theory of Markowitz (1959) and the asset-pricing model of Sharpe (1964).; Keywords: Idiosyncratic risk, Capital Asset Pricing Model, Size effect

No. 095 (Download full text)
Allan P. Layton and Anirvan Banerji: WHAT IS A RECESSION?: A REPRISE.
This paper draws its title from a paper written over 30 years ago by Geoffrey H. Moore (1967). Why the need for a reprise? First, there would appear currently to be somewhat diverging views – particularly in Australia – as to what properly constitutes a recession. Second, largely as a result of this, in Australia and many other countries other than the US, there is no single widely-accepted business cycle chronology for the country in question. This paper will argue that in addition to an output dimension, there are other important dimensions to aggregate economic activity which need to be taken into account in determining the business cycle, viz., income, sales and employment. As such, our perspective would seem to be at odds with the apparent position taken by other recent Australian commentators on this issue who argue that GDP is all that is needed to represent Australia’s business cycle. We will also argue strongly against using the currently popular ‘two negative quarterly growth rate’ rule in dating the onset of a recession.

No. 094 (Download full text)
Michael E. Drew and Madhu Veeraraghavan: ASSET PRICING IN THE ASIAN REGION
In this asset pricing study, three questions are addressed. First, does the multifactor model of Fama and French (1993) capture returns in Asian stock markets in a meaningful manner? Second, do small firms and high book-to-market equity firms carry a risk premia? Third, can competing hypotheses (such as survivorship bias, data-snooping and irrationality) explain the multifactor model results? The answers from this study are as follows: The multifactor model of Fama and French (1993) provides a parsimonious description of the cross-section of returns, with the relationship between firm size, book-to-market equity and average stock returns being robust for Asian markets over the 1990s. We find that small firms and high book-to-market equity firms carry a risk premia, providing opportunities for mean-variance efficient investors. Finally, our findings reject the claim that the results of multifactor model can be explained by competing hypotheses for the Asian experience.; JEL-Codes: G120; G150; Keywords: Multifactor asset pricing models, Asian region, size effect, book-to-market equity effect.

No. 093 (Download full text)
Andrew C. Worthington and Helen Higgs: Art as an Investment: Risk, Return and Comovements in Major Painting Markets
This paper examines the short and long-term price linkages among major art and equity markets over the period 1976-2001. The art markets examined are Contemporary Masters, French Impressionists, Modern European, 19th Century European, Old Masters, Surrealists, 20th Century English and Modern US paintings. A global equity index (with dividends and capitalisation changes) is also included. Multivariate cointegration procedures, Granger non-causality tests, level VAR and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to analyse short and long-run relationships among these markets. The results indicate that there is a stationary long-run relationship and significant short and long-run causal linkages between the various painting markets and between the equity market and painting markets. However, in terms of the percentage of variance explained most painting markets are relatively isolated, and other painting markets are generally more important than the equity market in explaining the variance that is not caused by innovations in the market itself. This suggests that opportunities for portfolio diversification in art works alone and in conjunction with equity markets exist, though in common with the literature in this area the study finds that the returns on paintings are much lower and the risks much higher than in conventional financial markets.; Keywords: Art and collectibles, portfolio diversification, market efficiency, risk and return.

No. 092 (Download full text)
Michael E. Drew and Madhu Veeraraghavan: On the Value Premium in Malaysia
Davis, Fama and French (2000) report that the value premium in United States’ stocks is robust. Herein, we present out-of-sample evidence for Malaysia, finding that value stocks outperform growth stocks and document an arbitrage opportunity. We observe that the mean monthly returns are substantially higher for the two mimic portfolios (SMB and HML) when compared with the market portfolio. For the period 1991 through 1999, an investor generated 1.92% (annually) holding the market portfolio in Malaysia, compared with the two mimic portfolios, SMB and HML with returns of 17.70% and 17.69% respectively. We also observe that the standard deviations for the two mimic portfolios are significantly lower than the standard deviation of the market portfolio. Moreover, the findings presented in this study reject the notion of survivorship bias advanced by Kothari, Shanken and Sloan (1995) and the data-snooping hypothesis attributed to Black (1993) and Mackinlay (1995) as an explanation for the value premium.; JEL-Codes: G120; G150; Keywords: Asset pricing, multifactor models, value premium, arbitrage

No. 091 (Download full text)
Andrew C. Worthington and Helen Higgs: A Statistical Note on Australian Banking and Finance Enrolments, Student Load and Composition, 1989-1999
This statistical note examines trends in Australian banking and finance enrolments and student load, along with the composition of enrolments and course completions, over the 1990s. Unpublished higher education statistics from the Department of Employment, Training and Youth Affairs (DETYA) is extracted at the specific and broad field of study level for the purposes of the analysis. Three main trends are noted. First, banking and finance courses are among the fastest growing business-related fields in Australia. On average, enrolments in banking and finance courses increased annually by some 17.94 percent over the period, with postgraduate enrolments growing at an annual rate of 32.34 percent, and undergraduate enrolments at 15.25 percent. Second, while the composition of banking and finance enrolments has changed markedly during the last decade, female participation rates are lower than other business-related fields. Female enrolments currently make up less than one third of all research students in banking and finance. Finally, the share of enrolments by overseas and domestic fee-paying students has also increased. In 1998 only some 37.30 percent of banking and finance course completions were by non-fee-paying students, whereas in all business-related programs this figure is slightly more than 60 percent.

No. 090 (Download full text)
Andrew Worthington and Helen Higgs: Recent Changes in Accounting Enrolments, 1989–1999
This statistical note examines trends in Australian accounting enrolments and student load, together with the composition of enrolments and course completions, over the 1990s. Unpublished higher education statistics from the Department of Employment, Training and Youth Affairs (DETYA) is extracted at the specific and broad field of study level for the purposes of the analysis. Three main trends are noted. First, in spite of moderate growth rates in most Australian states, the relative position of the accounting discipline in terms of all business-related enrolments and student load has declined over the last decade. Second, Australian growth in accounting enrolments and student load is not evenly distributed across all States and Territories with annual growth rates higher in Queensland, Tasmania and Western Australia and lower in Victoria and the ACT. Finally, the composition of accounting enrolments and course completions has changed markedly during the last decade. Female participation rates have increased, with the exception of doctoral programs and masters by coursework, and the share of enrolments by overseas fee-paying undergraduates/postgraduates and domestic fee-paying postgraduates has also increased.

No. 089 (Download full text)
Andrew Worthington and Helen Higgs: A multivariate GARCH analysis of equity returns and volatility in Asian equity markets
This paper examines the transmission of equity returns and volatility among Asian equity markets and investigates the differences that exist in this regard between the developed and emerging markets. Three developed markets (Hong Kong, Japan and Singapore) and six emerging markets (Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand) are included in the analysis. A multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model is used to identify the source and magnitude of spillovers. The results generally indicate the presence of large and predominantly positive mean and volatility spillovers. Nevertheless, mean spillovers from the developed to the emerging markets are not homogenous across the emerging markets, and own-volatility spillovers are generally higher than cross-volatility spillovers for all markets, but especially for the emerging markets.; JEL-Codes: C51; G15; Keywords: Emerging equity markets; mean and volatility spillovers; multivariate GARCH

No. 088 (Download full text)
Andrew Worthington and Helen Higgs: Factors Explaining the Choice of a Finance Major: The Role of Student Characteristics, Personality and Perceptions of the Profession
This paper examines the role of student characteristics, personality, and perceptions of the banking and finance profession in determining the choice of an undergraduate finance major. The data employed is drawn from a survey of first-year business students at a large Australian university. Student characteristics examined include gender, secondary school studies in accounting, business and economics, grade point average and attendance mode. Perceptions of the banking and finance profession revolve around questions of overall interest, relationships of persons working within the profession, the manner in which the profession deals with problems and tasks, and the nature of these problems. A binary probit model is used to identify the source and magnitude of factors associated with a student’s choice of major. The evidence provided suggests that the choice of a finance major is a function of students’ overall interest in the profession, perceptions of how the profession deals with problems and tasks, mode of attendance, and to a lesser extent, gender. The study emphasises the need to incorporate factors associated with students’ personality and perceptions in analyses of this type.

No. 087 (Download full text)
Marc Robinson: FINANCIAL CONTROL IN AUSTRALIAN GOVERNMENT BUDGETING
With the arrival of accrual accounting and a performance budgeting system known as "accrual output budgeting", there have been huge changes in the mechanism of central financial control in the budget-dependent Australian public sector. This article outlines and evaluates these changes. The new parliamentary appropriations arrangements are discussed, as is the increased role played by non-appropriated departmental "own-source" funding. The commercialisation rationale of these changes is outlined. Consideration is given to their implications for fiscal transparency and democratic accountability.

No. 086 (Download full text)
Marc Robinson: ACCRUAL ACCOUNTING AND THE PUBLIC SECTOR

No. 085 (Download full text)
Andrew C. Worthington and Helen Higgs: Student Perceptions of the Profession and the Decision to Major in Economics

No. 084 (Download full text)
Marc Robinson: Accrual Financial Reporting and Australian Fiscal Policy
Australian governments have recently moved from cash accounting to accrual accounting. In doing so they have made simultaneous use of two rival accrual accounting frameworks: AAS 31 and GFS. AAS 31 and GFS operating result measures differ significantly. To date, the AAS 31 framework has enjoyed primacy. This paper evaluates these two frameworks, and suggests that GFS is superior. Accrual accounting has been accompanied at the national government level by the introduction of a new key fiscal policy measure: the ‘fiscal balance’. This paper explains and evaluates this new fiscal measure. It concludes that, given the present fiscal policy of the Australian government, fiscal balance is a superior fiscal policy measure to the 'cash' budget balance measure which it replaced. However, from the alternative ‘golden rule’ policy standpoint, fiscal balance is not a 1meaningful fiscal policy measurealthough its stock counterpart, net financial liabilities, is.

No. 083 (Download full text)
Michael E. Drew and Madhu Veeraraghavan: Multifactor Models are Alive and Well
A large number of studies have investigated the cross-section of average returns on common stocks in the United States and have found little relationship with the estimated beta of the single-factor model. This paper tests the joint roles of an overall market factor, and factors related to firm size (market equity) and style (book equity to market equity) in the cross-section of average stock returns in Australia, as there is little evidence available on the asset pricing theory in markets outside the United States. This paper also tests the claim that the size and style effect is the result of seasonal phenomena. We report that the three-factor model largely explains the variation in stock returns in a meaningful pattern. We also observe that size and style factors do a good job throughout the sample period and reject the claim that these effects are due to seasonal phenomena. Our results document that the explanatory power of the three-factor model is not restricted to a limited set of portfolios. Moreover, our findings do not support the data-snooping hypothesis.; JEL-Codes: G120; G150; Keywords: Asset Pricing, Multifactor Models, Seasonality Premium, Size and Book-to-Market

No. 082 (Download full text)
Terry Boulter and Celeste Ping Fern Tan: The Short Run Impact of Scheduled Macroeconomic Announcements on the Australian Dollar during 1998
This study examines the high frequency reaction of the Australian Dollar (AUD) to new information contained in scheduled macroeconomic news releases in Australia for 1998 using Money Market Services trader expectations data. By using exchange rate data sampled at 10-second intervals, major price adjustments are found to begin almost immediately following the initial release of information and are complete within one minute of the announcement. There is some evidence of over-reaction after the initial release but returns in the first minute do not seem to have any meaningful structure that would enable prediction of returns in the second minute. The AUD appears to trade efficiently and the market absorbs new information quickly.

No. 081 (Download full text)
Boon Lee and William Shepherd: Output and Productivity Comparisons of the Transport and Communication Sectors of South Korea and Australia, 1990 to 1998
This paper examines the output and productivity performance of the Transport and Communication sector in South Korea and Australia, from 1990 to 1998. The aim of the paper is two-fold. First, the paper is the first in a series which compares the performance of various industries within the service sector. Second, it introduces a method for derivation of appropriate currency converters or purchasing power parities (PPPs) to enable quantification of output and productivity at various disaggregated levels. This method is based on the industry-of-origin approach as refined by the International Comparisons of Output and Productivity (ICOP) project based at the University of Groningen.

No. 080 (Download full text)
Tommy Tang and Jeremy B Williams: Conceptualisation of Misunderstanding and Understanding – a phenomenographic study of students’ conceptions of allocative efficiency in Economics
It is not uncommon for lecturer to assume student understanding key concepts in her/his organisation and presentation of a topic, when these concepts, in fact, can be quite problematic for the students. This creates barriers to knowledge development in students. To overcome this barrier, it is important that we obtain students’ knowledge prior to and following instructions to inform teaching. A number of studies (Voss et al, 1986, Pong, 1999, Marton, 1988) have found that the student might have learnt a concept and utilised it in one context, but were not capable of transferring it for use in another, most notably in the context of everyday life. This raises two related questions: (1) When a student is taught an economic concept but chooses not to use it to make sense of an economic phenomenon, what is it about the economic concept that they have learnt (or mis-learnt)? (2) If the student possesses misunderstanding, how is it acquired? The paper reports on the preliminary findings of a study conducted at an Australian university, exploring the various ways commencing economics students understand the concept of allocative efficiency. In this study, written responses taken from 90 exam scripts to a structured final exam question are subject to rigorous phenomenographic analysis (Marton, 1981). Six conceptions of allocative efficiency are identified, and insights into these qualitatively different, commonly shared perceptions of this fundamental economic concept, which emerge from students’ written responses, allow us to better understand how they develop various misconceptions. The paper also discusses the implications of these findings and argues for a relational perspective of effective teaching.

No. 079 (Download full text)
Tommy Tang and Jeremy Williams: Misalignment of Learning Contexts - an explanation of the Chinese Learner Paradox.
There is considerable research evidence (e.g. Biggs 1991, Watkins et al 1990, Kember et al 1991) to suggest that East Asian learners exhibit superior learning styles and academic performance to their western counterparts at secondary and tertiary levels. This is a surprising outcome given the less favourable educational environment of most East Asian societies (such as large class size, expository teaching methodology, highly competitive exam system and exam-oriented curriculum) which, according to educational literature, is more conducive to surface learning and atomistic learning outcome. This seemingly contradictory situation, known as the Chinese Learner Paradox (Marton et al, 1993), has been the subject of quantitative and qualitative educational researches since the late 1980s. However, existing research has tended not to examine the impacts of different assessment regimes (i.e. exam essay, short answer question, MCQ test, term essay, reflective journal, practicum etc) on the learning process. More specifically, they did not investigate the interaction of learning approaches with assessment types in influencing learning outcomes in cross-cultural studies. In this study intensive semi-structured interviews were conducted with 10 tertiary students, consisting of 5 East Asian and 5 local Australian students in Brisbane, the overriding aim being to investigate their ideas of learning, and their approaches to learning for written assignments and for exams, to establish whether cultural difference is a determining influence on the learning process. Preliminary results suggest a different way of interpreting and explaining the paradox.

No. 078 (Download full text)
Andrew Worthington and Brian Dollery: Efficiency Measurement in the Local Public Sector: Econometric and Mathematical Programming Frontier Techniques
Local government in advanced economies is undergoing a period of rapid reform aimed at enhancing its efficiency and effectiveness. Accordingly, the definition, measurement and improvement of organisational performance is crucial. Despite the importance of efficiency measurement in local government it is only relatively recently that econometric and mathematical frontier techniques have been applied to local public services. This paper attempts to provide a synoptic survey of the comparatively few empirical analyses of efficiency measurement in local government. We examine both the measurement of inefficiency in local public services and the determinants of local public sector efficiency. The implications of efficiency measurement for practitioners in local government are examined by way of conclusion.

No. 077 (Download full text)
Andrew Worthington, Helen Higgs and Masaki Katsuura: Price Linkages in Asian Equity Markets and the Asian Economic, Currency and Financial Crises
This paper examines the short and long-term price linkages among Asian equity markets in the period surrounding the recent Asian economic, financial and currency crises. Three developed markets (Hong Kong, Japan and Singapore) and six emerging markets (Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand) are included in the analysis. Multivariate cointegration procedures, Granger-causality tests and generalised variance decomposition analyses based on error-correction and vector autoregressive models are conducted to examine long and short-run relationships among these markets. The results indicate that there is a stationary long-run relationship and significant short-run causal linkages between the Asian equity markets. Furthermore, the long-run interrelationships have strengthened since the onset of the Asian crises. Nevertheless, lower causal relationships that exist between the developed and emerging equity markets suggest that opportunities for international portfolio diversification in Asian equity markets still exist.; JEL-Codes: C32; F36; G15; Keywords: Financial integration, international portfolio diversification, market efficiency.

No. 076 (Download full text)
Toivo Zoete and Timothy J. C. Robinson: Cost-Benefit Studies use scarce resources too: some lessons from a study of forested wetlands in the Moreton region
Although proposed developments which may adversely affect environmental assets are increasingly subjected to scrutiny through the application of an environmental assessment technique such as cost-benefit analysis, little consideration has been given to the question of the optimal allocation of resources to the actual cost-benefit study itself. It is argued here that significant resource savings may be made if the allocation of resources to cost-benefit analyses is commensurate with the importance of the decisions being informed by the analyses. Using a study of the Melaleuca quinquenervia dominated forested wetlands of the Moreton Region, it is demonstrated that the decisions about their future use may be accompanied by significant resource savings as a result of the development of rules of thumb linking the characteristics of wetland vegetation with the functions which wetlands perform.; Keywords: Cost-benefit, environmental assessment, wetlands, vegetation characteristics,

No. 075 (Download full text)
Andrew Worthington and Tracey West: A Review and Synthesis of the Economic Value-Added Literature
With increasing pressure on firms to deliver shareholder value, there has been a renewed emphasis on devising measures of corporate financial performance and incentive compensation plans that encourage managers to increase shareholder wealth. One professedly recent innovation in the field of internal and external performance measurement is a trade-marked variant of residual income known as economic value-added (EVA). This paper attempts to provide a synoptic survey of EVA’s conceptual underpinnings and the comparatively few empirical analyses of value-added performance measures. Special attention is given to the GAAP-related accounting adjustments involved in EVA-type calculations.

No. 074 (Download full text)
Andrew C. Worthington and Emily V. Hurley: Technical, allocative and cost efficiency in the Australian general insurance industry
Data envelopment analysis is used to calculate technical, allocative and cost efficiency indices for a sample of fifty-three Australian general insurers. The inputs used are labour, physical capital (in the form of both information technology and plant and equipment) and financial capital. The outputs are net premium revenues for housing-related insurance, transport-related insurance, indemnity-related insurance and other insurance, along with investment revenue. The results indicate that the major source of overall cost inefficiency would appear to be allocative inefficiency, rather than technical inefficiency, and that the largest twenty percent of insurers are significantly more efficient than the remaining firms. A second-stage analysis uses limited dependent variable regression techniques to relate efficiency scores to financial and non-financial information. Cost efficiency appears to be closely related to asset size, the proportion of non-premium income, and participation in compulsory third party (CTP) markets, but not to stock exchange listing or product range.; JEL-Codes: C24; C61; D24; G22; Keywords: Data envelopment analysis; Technical, allocative and cost efficiency; general

No. 073 (Download full text)
Terry Boulter: Asymmetric Information Arrival and the Short-Run Dynamics of Australian Dollar Volatility: a Mixture of Distributions Approach
Contemporary commentators point to excess volatility within the FX market as an indicator of market inefficiency. It is thought that the excessive volatility is being driven by speculation. Policy options have emerged which focus on bounding volatility via government regulation of speculation. These options make implicit assumptions; one, that volatility is excessive and two, that it is speculation which is driving volatility. What is not sufficiently understood is the role public information arrival plays in terms of explaining returns and its volatility impact. It is the purpose of this paper to simply model Australian Dollar returns and volatility with public information arrival, which has been classified into categories so as to ascertain whether total information arrival or the arrival of specific types of information is related to changes in returns and volatility. We use an EGARCH model so as to pick up the asymmetric impacts of good and bad news. We find evidence from both a GARCH and EGARCH model that public information plays an important role in the determination of AUD returns and volatility and that good news impacts are less then negative ones. We also find that economic information in relation to full information set has a greater relationship to volatility. This has some interesting implications in terms of the volatility debate. Rather then regulating speculation, it may be more relevant to clarify information.

No. 071 (Download full text)
Spencer Thompson and Nathan Lead: Modelling Share Price Behaviour Across Time
The Efficient Markets Hypothesis (EMH) is currently the dominant paradigm in Finance. This paper reviews the theoretical development of the hypothesis and the empirical testing which has occurred to determine its validity. Furthermore, empirical anomalies found by researchers in the Weak Form of the EMH are discussed and their theoretical interpretation critiqued. This paper also provides an overview of the Hamilton (1989) model and its extensions, one of the many econometric models developed in order to model the non-linearity in time-series such as stock prices.

No. 070 (Download full text)
Allan Layton: Prospects and Policies for Employment Growth in Australia and Queensland: A Macroeconomic Perspective

No. 067 (Download full text)
Andrew Worthington: AN EMPIRICAL SURVEY OF FRONTIER EFFICIENCY MEASUREMENT TECHNIQUES IN HEALTHCARE SERVICES
Healthcare institutions worldwide are increasingly the subject of analyses aimed at defining, measuring and improving organisational efficiency. However, despite the importance of efficiency measurement in healthcare services, it is only relatively recently that the more advanced econometric and mathematical frontier techniques have been applied to hospitals, nursing homes, health management organisations and physician practices. This paper attempts to provide a synoptic survey of the comparatively few empirical analyses of frontier efficiency measurement in healthcare services. Both the measurement of inefficiency in healthcare services and the determinants of healthcare efficiency are examined.; Keywords: data envelopment analysis; stochastic frontiers; technical, allocative and productive efficiency

No. 066 (Download full text)
Tracey West and Andrew Worthington: The information content of economic value-added: A comparative analysis with earnings, cash flow and residual income
Pooled time-series, cross-sectional data on 110 Australian companies over the period 1992-1998 is employed to examine whether the trademarked variant of residual income known as economic value-added (EVA®) is more highly associated with stock returns than more conventional accounting-based measures. These other measures of internal and external performance include earnings, net cash flow and residual income. Relative information content tests reveal returns to be more closely associated with earnings than net cash flow, residual income and EVA® respectively. However, consistent with the construction of EVA®, incremental information content tests suggest that EVA® adds more explanatory power to earnings than either net cash flow or residual income. An analysis of the components of EVA® confirms that the capital charges and GAAP-related adjustments most closely associated with EVA® are significant at the margin in explaining market returns.; JEL-Codes: C23; G14; M41; Keywords: Value-relevance; relative and incremental information content; economic-value added; residual income.

No. 065 (Download full text)
Marc Robinson: Accrual Financial Reporting In the Australian Public Sector: An Economic Perspective
Australian governments have recently moved from cash accounting to accrual accounting. This paper discusses a number of issues pertaining to key accrual fiscal measures. Governments have adopted Australian Accounting Standard 31 as their principle accounting framework, relegating the Australian Bureau of Statistics’ alternative GFS accrual framework to a secondary role. AAS and GFS differ in key respects in the derivation of the operating result. This paper suggests that the ABS framework is superior, and should have been adopted by government. Rather than welcoming the shift to accrual accounting as a good opportunity to shift the focus of medium-term fiscal policy away a narrow preoccupation with ‘cash’ balanced budgets and debt, governments have chosen to maintain policy continuity. This has led them to define new ‘headline’ fiscal measures which are either identical, or quite close, to the cash budget balance. This Commonwealth’s new ‘fiscal balance’ headline measure is discussed.

No. 062 (Download full text)
Masaki Katsuura and Allan P. Layton: Is the 1990’s US Expansion Similar to the 1960’s?
Statistical similarities among the latest long expansion in the U.S. and some other past expansions, in particular that of the 1960s, are examined. Corresponding to the definition of statistical similarity, a test based on the covariance matrices of business cycle component variables for the different expansions is proposed. Among available tests, the test based on partial common principal component analysis is argued to be most appropriate. The test is applied to the components of both GDP and the composite coincident index. As a result, the 1990s expansion is concluded to be statistically similar to that of the 1960s.; Keywords: Business Cycle; Statistical Similarity; Covariance Matrix Structure;

No. 058 (Download full text)
Andrew Worthington and Brian Dollery: MEASURING PERFORMANCE IN AUSTRALIAN LOCAL GOVERNMENT: AN ANALYSIS OF NATIONAL AND STATE-BASED FRAMEWORKS

No. 057 (Download full text)
L B Connelly and D P Doessel: A TEMPORAL AND SPATIAL ANALYSIS OF THE PRICES OF GENERAL PRACTITIONER SERVICES UNDER MEDICARE, 1984-1996

No. 056 (Download full text)
Marc Robinson: RECENT AUSTRALIAN EXPERIENCE WITH THE PRIVATISATION OF GOVERNMENT SERVICES
In the 1990s, the privatisation of government service provision has become increasingly common in Australia. The approach taken by Australian policy-makers to the privatisation of government services has been dominated by the ‘pure market’ model of competitive tendering, with little recognition that this model may be inappropriate under circumstances, such as severe performance specification and measurement difficulties, which are quite commonplace in the public sector. Competitive tendering for the delivery of outcomes rather than outputs enjoys some favour in this context. A case study of government service privatisation based upon contracting for outcomes is considered. This case study (of employment assistance) helps to clarify some of the problems of outcome-based contracting. Please note that this paper was prepared and presented in August 1998, and that the employment assistance case study represented a preliminary review of issues arising from a scheme which was at that stage very new. Since that time, the Government has made major changes to the system, in part along the lines suggested by the analysis in the paper. For example, a ‘floor’ or minimum bid price has been introduced, so as to prevent the lodging of unsustainably cheap bids. However, it is also the case that considerable further data on the performance of the new system has become available, and it should be noted that no attempt has been made here to analyse that data.


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