Economics and Finance

“Financial Asset Pricing Theory” offers a comprehensive overview of the classic and the current research in theoretical asset pricing. Asset pricing is developed around the concept of a state-price deflator which relates the price of any asset to its future (risky) dividends and thus incorporates how to adjust for both time and risk in asset valuation. The willingness of any utility-maximizing investor to shift consumption over time defines a state-price deflator which provides a link between optimal consumption and asset prices that leads to the Consumption-based Capital Asset Pricing Model (CCAPM). A simple version of the CCAPM cannot explain various stylized asset pricing facts, but these asset pricing “puzzles” can be resolved by a number of recent extensions involving habit formation, recursive utility, multiple consumption goods, and long-run consumption risks. Other valuation techniques and modelling approaches (such as factor models, term structure models, risk-neutral valuation, and option pricing models) are explained and related to state-price deflators. The book will serve as a textbook for an advanced course in theoretical financial economics in a PhD or a quantitative Master of Science program. It will also be a useful reference book for researchers and finance professionals. The presentation in the book balances formal mathematical modelling and economic intuition and understanding. Both discrete-time and continuous-time models are covered. The necessary concepts and techniques concerning stochastic processes are carefully explained in a separate chapter so that only limited previous exposure to dynamic finance models is required.

This book presents a comprehensive and unified treatment of finite sample theory, and its application to estimators and test statistics used in various econometric models. Time series, cross section, and panel data models are considered. The results are explored for linear and nonlinear models, as well as models with normal and nonnormal errors. The book contains seven chapters. Chapter 1 presents an introduction to finite sample econometrics. Chapter 2 gives methods of obtaining the moments of econometric statistics. Chapter 3 provides methods for analysing distributions. Finite sample results for various econometric models are discussed in Chapters 4-7.

This book provides a comprehensive description of the state-of-the-art in macroeconometric modelling and describes the ‘long-run structural modelling approach’ applied to the modelling of national economies in a global context. The first part of the book discusses the ways in which economic theory and econometric analysis can be brought together to construct a macroeconometric model, in which the long-run relationships are consistent with economic theory and where the short-run dynamics have an interpretation. The discussion considers theoretical as well as practical considerations involved in the model building process, and gives an overview of the econometric methods covering cointegrating VAR analysis and probability forecasting. The second part of the book is devoted to the practical detail of estimating a long-run structural macroeconometric model and is illustrated through various global and national examples, including a step-by-step description of the development of a model of the UK economy. The third part discusses the interpretation and use of long-run structural macroeconometric models, describing the use of the UK model along with illustrations of the modelling approach in investigating regional interdependencies in a global macroeconometric model and other specified issues in a global or national macroeconometric context. Throughout, the book emphasizes the use of macroeconometric modelling in the real world and provides sufficient detail, including discussion of data collection and computer programmes employed, for the techniques that are introduced to be replicated or applied in new contexts.

This book is an update of the 1993 publication of The Measurement of Productive Efficiency: Techniques and Applications. The same editors have here compiled over ten years of the most recent research in this changing field, and expanded on those seminal chapters and written this new edition. The book guides from the basic models to the latest, cutting-edge extensions, and is reinforced by references to classic and current theoretical and applied research. The book focuses on measuring and explaining producer performance. It views performance as a function of the state of technology and economic efficiency. It shows that insights can be gained by allowing for the possibility of a divergence between the economic objective and actual performance, and by associating this inefficiency with causal variables subject to managerial or policy influence.

The U.S. government is the world's largest financial institution, providing credit and assuming risk through diverse activities. But the potential cost and risk of these actions and obligations remain poorly understood and only partially measured. Government budgetary and financial accounting rules, which largely determine the information available to federal decision makers, have only just begun to address these issues. However, recently there has been a push to rethink how these programs are valued and accounted for, and some progress has been made in applying modern valuation methods—such as options pricing, risk-adjusted discount rates, and value at risk—to these types of obligation. This book contains new research, both empirical and methodological, on the measurement and management of these costs and risks. The analyses encompass a broad spectrum of federal programs, including housing, catastrophe insurance, student loans, social security, and environmental liabilities. Collectively, the chapters here demonstrate that the logic of financial economics can be a useful tool for studying a range of federal activities.

As the accelerated technological advances of the past two decades continue to reshape the United States' economy, intangible assets and high-technology investments are taking larger roles. These developments have raised a number of concerns, such as: how do we measure intangible assets? Are we accurately appraising newer, high-technology capital? The answers to these questions have broad implications for the assessment of the economy's growth over the long term, for the pace of technological advancement in the economy, and for estimates of the nation's wealth. This book offers new approaches for measuring capital in an economy that is increasingly dominated by high-technology capital and intangible assets. As the chapters show, high-tech capital and intangible assets affect the economy in ways that are notoriously difficult to appraise. In this detailed analysis of the problem and its solutions, the chapters study the nature of these relationships and provide guidance as to what factors should be included in calculations of different types of capital for economists, policymakers, and the financial and accounting communities alike.

In 1998, health expenditures in the United States accounted for 12.9 percent of national income—the highest share of income devoted to health in the developed world. The United States also spends more on medical research than any other country—in 2000, the federal government dedicated $18.4 billion to it, compared with only $3.7 billion for the entire European Union. In this book, health economists ask whether we are getting our money's worth. From an economic perspective, they find, the answer is a resounding “yes”: in fact, considering the extraordinary value of improvements to health, we may even be spending too little on medical research. The evidence these chapters present and the conclusions they reach are surprising: that growth in longevity since 1950 has been as valuable as growth in all other forms of consumption combined; that medical advances producing 10 percent reductions in mortality from cancer and heart disease alone would add roughly $10 trillion—a year's GDP—to the national wealth; and that the average new drug approved by the FDA yields benefits worth many times its cost of development. The chapters in this book are packed with these and many other revelations, their analysis demonstrating the massive economic benefits we can gain from investments in medical research.

Surely everyone wants to know the source of happiness, and indeed, economists and social scientists are increasingly interested in the study and effects of subjective well-being. Putting forward a rigorous method and new data for measuring, comparing, and analyzing the relationship between well-being and the way people spend their time—across countries, demographic groups, and history—this book aims to help set the agenda of research and policy for decades to come. It does so by introducing a system of National Time Accounting (NTA), which relies on individuals' own evaluations of their emotional experiences during various uses of time, a distinct departure from subjective measures such as life satisfaction and objective measures such as the Gross Domestic Product. The chapters here summarize the NTA method, provide illustrative findings about well-being based on NTA, and subject the approach to a rigorous conceptual and methodological critique that advances the field.