Realized Stock Volatility

Using intradaily high-frequency returns on the Dow Jones Industrial Average portfolio over the January 1993 to May 1996 period, we document the properties of interdaily 'realized' volatility and fit a fractionally integrated model that accounts for the leverage effect directly to logarithmic realized variances. On the basis of ex ante one-day-ahead prediction criteria we find that this model yields unbiased and accurate variance, standard deviation and logarithmic variance predictions and that these predictions clearly improve upon the ones obtained by a GARCH, FIGARCH, EGARCH and FIEGARCH model.

Progressive Ambition, Electoral Selection, and the Creation of Ideologues

The process by which high-level office-holder are selected is shown to result in pure office-seeking politicians looking like ideologues.

Decentralized Business Strategies in a Multi-Unit Firm

In a multi-unit firm, such as a retail chain or a multi-plant manufacturer, we compare the business strategies developed by unit managers with the strategies that maximize corporate profit. The setting is one in which units face different markets and where learning spillovers between two units are enhanced if their strategies are more similar. When there is a small number of units, we find a tendency for managers' strategies to be excessively tailored to their local market. When the firm has many units, unit strategies can be either excessively or insufficiently standardized.

A Simple Game-Theoretic Explanation for the Relationship Between Group Size and Helping

Consistent with evidence from some psychological studies, this paper shows that as there are more people who can help someone in need, the lower is the probability that help is forthcoming.

Unemployment Risk and Precautionary Wealth: Evidence from Households' Balance Sheets

Recent empirical work on the strength of precautionary saving has yielded widely varying conclusions. The mixed findings may reflect a number of difficulties in proxying uncertainty, executing instrumental variables estimation, and incorporating theoretical restrictions into empirical models. For each of these problems, this paper uses existing best-practice techniques and some new strategies to relate unemployment probabilities from the Current Population Survey to net worth data from the Survey of Consumer Finances. We find that increases in unemployment risk do not boost saving by households with relatively low permanent income, but that a statistically significant precautionary effect emerges for households at a moderate level of income. This finding is robust to certain restrictions on the sample, but not robust across measures of wealth: We generally find a significant precautionary motive in broad measures of wealth that include home equity, but not in narrower subaggregates comprising only financial assets and liabilities.

Social Employment of Welfare Recipients in Belgium: An Evaluation

In Belgium welfare agencies receive a subsidy to employ welfare recipients for a period sufficiently long to entitle them to benefits of the contributory social insurance program. This work experience program without any training content is called Social Employment (SE). This paper investigates the effect of SE on the exit rate from welfare. We argue that the funding of the program induces exogenous variation in the SE-participation rates between regions. We propose a grouping/IV estimator of the SE effect that exploits this variation. The estimator is consistent, even if the selection into SE depends on the average unobserved characteristics of welfare recipients in a region and with the welfare spell of a specific length. The empirical analysis shows that there is creaming in the selaction process. Without correction for selectivity we find that SE reduces welfare dependency. After correction this conclusion is reversed. These results are in line with the diagnosis of the causes of unemployment persistence in Belgium and with the incentives faced by the welfare agencies that administer the program.

Taxation and the Labor Supply - Decisions of the Affluent

We examine the effect of the 1986 Tax Reform Act on the labor supply of affluent men. The Act reduced marginal tax rates for the affluent more than for other taxpayers. Using instrumental-variables methods with a variety of identifying variables, we find essentially no responsiveness of the hours of work of high-income-men to the tax reduction. However, we do fond that hourly wage rates of such men increased over the period.

Discrete Choice and Stochastic Utility Maximization

Discrete choice models are usually derived from the assumption of random utility maximization. We consider the reverse problem, whether choice probablities are consistent with maximization of random utilities. This leads to tests that consider the variation in these choice probabilities with the average utilities of the alternatives. By restricting the range of the average utilities we obtain a sequence of tests with fewer maintained hypotheses. In an empirical application, even the weakest test rejects the hypothesis of random utility maximization.