Template-Type: ReDIF-Article 1.0
Author-Name: Giuseppe Galloppo 
Title: HIGHER ORDER MOMENTS RESAMPLING 
Abstract: This paper develops a set of portfolio optimization models that involve a resampling approach of the higher order moments of financial assets return distributions. Specifically, the first four moments are examined. The Resampled Efficiency (RE) techniques introduce Monte Carlo methods to properly represent investment information uncertainty in computing minimum variance (MV) portfolio optimality. Notwithstanding the central limit theorem, for both the academic and financial communities it is a well known fact that stock market returns exhibit latent higher moment risk in the form of negative skewness and high kurtosis. Taking cue from these considerations we have added higher-order moments to the resampling rule. We discuss the solution of the higher order moments resampling approach by replaying an investment game. The game compares the performance of a player using four portfolio schemes for determining portfolio weights using a Monte Carlo based resampling approach. Extensive computational results are obtained on a real-world dataset with two different resampling approaches. Surprisingly, when higher moments of stock return distributions are accounted for in the resampling optimisation algorithm success is mixed. 
Classification-JEL: G11 
Keywords: higher-order moments, resampled efficiency (RE), Monte Carlo, MV portfolio optimality 
Journal: Accounting & Taxation
Pages: 1-14
Volume: 3
Issue: 1
Year: 2011
File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v3n1-2011/AT-V3N1-2011-1.pdf
File-Format: Application/pdf
Handle: RePEc:ibf:acttax:v:3:y:2011:i:1:p:1-14

Template-Type: ReDIF-Article 1.0
Author-Name: ZhengXiong Chen
Author-Name: Ayse Yuce
Title:OPTIMAL INVESTMENT FOR INSTITUTIONAL INVESTORS UNDER VALUE-AT-RISK CONSTRAINTS IN CHINESE STOCK MARKETS 
Abstract: Value at Risk (VaR) is defined as the worst expected loss under normal market conditions over a specific time interval at a given confidence level. Given the widespread usage of VaR, it becomes increasingly important to study the effects of the portfolio optimization subject to the VaR constraint set by the fund manager. In this paper, we examine the classical portfolio optimization models and the most popular VaR methodologies. We show that the portfolio optimization models under VaR constraint provide the clear insight to the mean-variance decision. We also consider the problem with the extra tracking error constraint. Furthermore, we provide an empirical analysis on the model by using China’s market data. VaR estimates are produced via Monte Carlo simulations.
Classification-JEL: G11; G15; G32
Keywords: Portfolio optimization, mean-variance, VaR, Monte Carlo
Journal: Accounting & Taxation
Pages: 15-32
Volume: 3
Issue: 1
Year: 2011
File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v3n1-2011/AT-V3N1-2011-2.pdf
File-Format: Application/pdf
Handle: RePEc:ibf:acttax:v:3:y:2011:i:1:p:15-32

Template-Type: ReDIF-Article 1.0
Author-Name: Gerard D. Valle
Title: A SIMULATION OF THE U.S. ECONOMY TO DETERMINE THE EFFECT OF MANDATORY EXPENSES AND INTEREST ON THE U.S. DEBT
Abstract: Cost for the three major mandatory social programs; Social Security, Medicare and Medicaid have increased at a rate much higher than the Gross Domestic Product (GDP), and thus revenue. As a result, these programs account for a larger portion of the U.S. budget. As projections continue to rise relative to available revenue, a lower level of funds will be available for other programs or the U.S. debt will continue to increase further exacerbating the problem. As the total U.S. debt approaches the yearly GDP (in 2010 the total U.S. debt is projected to be 97% of the GDP), the risk of rising interest rates becomes a larger concern. This paper shows that even a small increase in the interest rate has a big impact on the overall budget. This paper shows that the practice of continuing to increase the U.S. debt at a rate higher than the GDP/revenue increases is simply unsustainable. 
Classification-JEL: H51, H55, H68
Keywords: Projections, Interest on U.S. Debt, Social Security, Medicare, Medicaid
Journal: Accounting & Taxation
Pages: 33-43
Volume: 3
Issue: 1
Year: 2011
File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v3n1-2011/AT-V3N1-2011-3.pdf
File-Format: Application/pdf
Handle: RePEc:ibf:acttax:v:3:y:2011:i:1:p:33-43

Template-Type: ReDIF-Article 1.0
Author-Name: Alan Reichert
Author-Name: Raymond Posey
Title: USING FINANCIAL RATIOS AND LENDER
RELATIONSHIP THEORY TO ASSESS FARM
CREDITWORTHINESS
Abstract: This study examines the determinants of farm loan delinquencies, and in particular, the influence of
multiple loans and multiple lenders on delinquency. The number of lenders used by a borrower, the
number of loans outstanding, and the interaction of the two factors are all positively related to loan
delinquency rates. In fact, these factors are at least as significant as standard financial ratios in
explaining farm loan delinquency. The most consistent finding is that borrowers who have been denied
credit in the past five years are more likely to be delinquent. Furthermore, borrowers using multiple
lenders appear to be able to bargain for lower interest rates. 
Classification-JEL: G2; M1; M4
Keywords: Credit scoring, lending relationships, farm credit
Journal: Accounting & Taxation
Pages: 45-56
Volume: 3
Issue: 1
Year: 2011
File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v3n1-2011/AT-V3N1-2011-4.pdf
File-Format: Application/pdf
Handle: RePEc:ibf:acttax:v:3:y:2011:i:1:p:45-56

Template-Type: ReDIF-Article 1.0
Author-Name: Jacek Welc
Title: DO FUNDAMENTALLY-ADJUSTED VALUATION MULTIPLES IMPROVE VALUATION ACCURACY? THE CASE OF THE POLISH STOCK MARKET
Abstract: A series of popular stock investment strategies are based on buying stocks with low valuation multiples. These strategies assume that low multiples signal undervaluation. However, the low multiples can be justified by fundamentals. In such cases even stocks with very low multiples can be overvalued. In this paper regression analysis is used to identify the impact of fundamentals on multiples. The multiples are the dependent variable and the accounting ratios are the explanatory variables. Such a regression enables the estimation of the fundamentally-adjusted multiple. The regression residuals measure the scope of undervaluation / overvaluation. Using this approach, the most undervalued (overvalued) stocks are those with the most negative (positive) residuals (and not the stocks with the lowest actual multiples). We compared the profitability of strategies based on low actual multiples with the profitability of strategies based on actual and fundamentally-adjusted multiples. Data from the Polish stock market from 1998-2010 are examined. The research found that allowing for the impact of accounting fundamentals on multiples can increase the accuracy of valuation in the case of P/S multiple but not in the case of P/E and P/BV multiples.
Classification-JEL: G11, C21
Keywords: corporate valuation, relative valuation, investment strategies, valuation multiples
Journal: Accounting & Taxation
Pages: 57-70
Volume: 3
Issue: 1
Year: 2011
File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v3n1-2011/AT-V3N1-2011-5.pdf
File-Format: Application/pdf
Handle: RePEc:ibf:acttax:v:3:y:2011:i:1:p:57-70

Template-Type: ReDIF-Article 1.0
Author-Name: Karen C. Castro-González, 
Title: DO CHANGES IN PENSION PLAN ACCOUNTING STANDARDS RESULT IN BETTER MARKET VALUATION?
Abstract: This study investigates if changes in U.S. accounting standards result in a better assessment of firms’ pension commitments as reflected in stock prices. Fama and French three factor (1993) model results reveal that the market inefficiently incorporates defined benefit pension plan information for the three accounting standard related periods. In contrast to Franzoni and Marín (2006), and Fama and French (1993), the returns were estimated starting the fourth month after the end of fiscal year t. The results suggest that investors are not paying enough attention to the implications of the underfunding for future earnings and cash flows. Apparently, the changes in accounting standards do not alter the way investors evaluate this type of obligation. Hedge-portfolio tests are performed to verify if there is an opportunity to outperform the market by identifying weaknesses in the incorporation of information. Tests’ results corroborate that the market overprices firms that have severely negative funding status.
Classification-JEL: G14; G23; M48
Keywords: Pension plans, accounting standards, information content
Journal: Accounting & Taxation
Pages: 71-80
Volume: 3
Issue: 1
Year: 2011
File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v3n1-2011/AT-V3N1-2011-6.pdf
File-Format: Application/pdf
Handle: RePEc:ibf:acttax:v:3:y:2011:i:1:p:71-80

Template-Type: ReDIF-Article 1.0
Author-Name: Susan Rhame
Author-Name: Robert Walsh
Title: THE SENSITIVITY OF COMMON HORIZONTAL EQUITY MEASURES TO VARIATIONS IN OMITTED INCOME
Abstract: This paper examines the sensitivity of horizontal equity measures (coefficient of variation (CV) and coefficient of residual variation (CRV)) to a common assumption in horizontal equity studies – that changes in level of omitted income do not change horizontal equity experienced by taxpayers in similarly situated income groups. It have been assumed in many prior studies that certain income exclusions or deductions allowed from taxable income have no effect on the resulting horizontal equity measurements.
This paper examines whether the CV and CRV remain low within each income group when the mortgage interest deduction and the charitable contribution deduction are disallowed. In general, the omission of certain income does create a wider variation of effective tax rates within income groups. The results of this study indicate that future horizontal equity studies should consider that omitted income, either through income exclusions or deductions allowed, may affect horizontal equity measures. In addition, for policy makers, taking steps to decrease the tax gap also increases horizontal equity.
Classification-JEL: M41
Keywords: taxation, horizontal equity, coefficient of variation, coefficient of residual variation
Journal: Accounting & Taxation
Pages: 81-89
Volume: 3
Issue: 1
Year: 2011
File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v3n1-2011/AT-V3N1-2011-7.pdf
File-Format: Application/pdf
Handle: RePEc:ibf:acttax:v:3:y:2011:i:1:p:81-89

Template-Type: ReDIF-Article 1.0
Author-Name: Wei Zhou
Author-Name: Hui Zhou
Title: FINANCIAL ACCOUNTING REGULATION AND EXECUTIVE COMPENSATION DESIGN
Abstract: We examine the economic consequences of the recent adoption of SFAS 123(R) in the United States. Consistent with the conjectures of prior research, our results show that the removal of favorable accounting treatment for stock options post SFAS 123(R) results in a switch from stock options to restricted stock. Further analysis shows that this shift is more prominent for high-volatility firms than for low-volatility firms and for low-growth firms than for high-growth firms, a pattern consistent with the implications of the agency theory. This study extends the literature on the economic consequences of financial reporting standards by providing evidence that the leveling of accounting treatment for different forms of equity compensation causes the design of executive compensation to converge to the economically optimal form. By empirically examining the actual consequences of a heavily debated accounting standard change, this study also provides important policy implications that can be helpful in the consideration of future regulatory accounting changes in the United States as well in other accounting jurisdictions.
Classification-JEL: J33, M41, M40, M52
Keywords: Executive compensation, financial reporting, SFAS 123(R)
Journal: Accounting & Taxation
Pages: 91-101
Volume: 3
Issue: 1
Year: 2011
File-URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v3n1-2011/AT-V3N1-2011-8.pdf
File-Format: Application/pdf
Handle: RePEc:ibf:acttax:v:3:y:2011:i:1:p:91-101