On testing for independence between the innovations of several time series

Test statistics for checking the independence between the innovations of several time series are developed. The time series models considered allow for general specifications for the conditional mean and variance functions that could depend on common explanatory variables. In testing for independence between more than two time series, checking pairwise independence does not lead to consistent procedures. Thus a finite family of empirical processes relying on multivariate lagged residuals are constructed, and we derive their asymptotic distributions. In order to obtain simple asymptotic covariance structures, Möbius transformations of the empirical processes are studied, and simplifications occur. Under the null hypothesis of independence, we show that these transformed processes are asymptotically Gaussian, independent, and with tractable covariance functions not depending on the estimated parameters. Various procedures are discussed, including Cramér–von Mises test statistics and tests based on non‐parametric measures. The ranks of the residuals are considered in the new methods, giving test statistics which are asymptotically margin‐free. Generalized cross‐correlations are introduced, extending the concept of cross‐correlation to an arbitrary number of time series; portmanteau procedures based on them are discussed. In order to detect the dependence visually, graphical devices are proposed. Simulations are conducted to explore the finite sample properties of the methodology, which is found to be powerful against various types of alternatives when the independence is tested between two and three time series. An application is considered, using the daily log‐returns of Apple, Intel and Hewlett‐Packard traded on the Nasdaq financial market. The Canadian Journal of Statistics 40: 447–479; 2012 © 2012 Statistical Society of Canada     

Large Risks,Limited Liability,and Dynamic Moral Hazard

We study a continuous‐time principal–agent model in which a risk‐neutral agent with limited liability must exert unobservable effort to reduce the likelihood of large but relatively infrequent losses. Firm size can be decreased at no cost or increased subject to adjustment costs. In the optimal contract, investment takes place only if a long enough period of time elapses with no losses occurring. Then, if good performance continues, the agent is paid. As soon as a loss occurs, payments to the agent are suspended, and so is investment if further losses occur. Accumulated bad performance leads to downsizing. We derive explicit formulae for the dynamics of firm size and its asymptotic growth rate, and we provide conditions under which firm size eventually goes to zero or grows without bounds.     

CSR and Accounting: Drawing on Weber and Aristotle to Rethink Generally Accepted Accounting Principles

The purpose of this article is to discuss and provide an alternative, less materialist–individualist approach to interpret the four assumptions of generally accepted accounting principles: economic entity, unit measure, periodic reporting, and going concern. The article draws from and builds on arguments first developed by Weber and Aristotle to demonstrate how a materialist–individualist moral point of view influences the conventional interpretation of the four basic assumptions for generally accepted accounting principles. We then propose an ideal‐type conceptual framework upon which to critique mainstream accounting theory and to develop alternative accounting theory that balances multiple forms of well‐being (including financial, but also social, physical, spiritual, and ecological well‐being) for multiple stakeholders (including owners, employees, customers, suppliers, competitors, neighbors, future generations, and so forth).     

THE LENDER OF LAST RESORT: A TWENTY‐FIRST CENTURY APPROACH

The classical Bagehot conception of a Lender of Last Resort (LOLR) that lends to illiquid banks has been criticized on two grounds: On the one hand, the distinction between insolvency and illiquidity is not clear‐cut; on the other, a fully collateralized repo market allows central banks to provide the adequate aggregate amount of liquidity and leave to the banks the responsibility of lending uncollateralized. The object of this paper is to analyze these issues rigorously by providing a framework in which liquidity shocks cannot be distinguished from solvency ones and then asking whether there is a need for a LOLR and how it should operate in the absence of systemic threats. Determining the optimal LOLR policy requires a careful modeling of the structure of the interbank market and of the closure policy. In our setup, the results depend upon the existence of moral hazard. If the main source of moral hazard is the banks' lack of incentives to screen loans, then the LOLR may have to intervene to improve the efficiency of an unsecured interbank market in crisis periods; if instead the main source of moral hazard is loan monitoring, then the interbank market should be secured and the LOLR should never intervene. (JEL: E58, 628)     

The Differentiation of Social Demands in Europe. The Social Basis of the European Models of Capitalism

This paper tests the impact of various determinants of the preference for two key elements of the European social models: redistribution and trade unions, using individual data from the first round of the European Social Survey. The basic hypothesis is that the main determinant of an individual’s support for these elements of the European models is the social position of the individual in terms of income, status and risks attached to their labour market insertion. The paper also considers the relative importance of less ‘materialist’ influences such as religion or other cultural determinants. The estimations show that ‘materialist’ determinants are by far the most important influences on individual preferences, contrary to what most social theories of modernisation contend.

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A Note on the Dimensionality of Quality of Life Scales: An Illustration with the Satisfaction with Life Scale (SWLS)

A case is made that measures used in quality of life and happiness research will be essentially unidimensional: inherently tapping minor dimensions. This is illustrated using Diener’s Satisfaction with Life Scale (SWLS). It is shown that the SWLS does not meet the standard of strict unidimensionality, but that the interpretation of the total scale score is not compromised because the additional dimensions are relatively minor. In the context of the example, a multi-step strategy is described that allows researchers to test for essential unidimensionality. Throughout the article, essential unidimensionality is contrasted with the received view of strict unidimensionality and confirmatory factor analysis methods.