The Journal of American Academy of Business, Cambridge

Vol.  22 * Num.. 1 * September 2016

The Library of Congress, Washington, DC   *   ISSN: 1540 – 7780

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Analytics for Investment Decision: An Empirical Study of Less Diversified Portfolios

Dr. Mohamad Sepehri, University of the District of Columbia, Washington, DC

Dr. Biqing Huang, Angelo State University, TX



The objective of this paper is to utilize maximization method to construct an optimal portfolio for small business investors who may be holding less-diversified portfolios due to high transaction costs.  The empirical results and the efficient frontier both show that the performance of the constructed portfolio outperforms the three major U.S. indices.  The traditional Capital Asset Pricing Model (CAPM) argues that only the systematic (market) risk, but not the total risk, should be incorporated into asset prices (Berk 1997). Accordingly, the firm specific risk or idiosyncratic risk would not be considered because it is presumed to be diversified once investors hold a large portfolio. Alternatively, Malkiel and Xu (2006) find that idiosyncratic risk will be priced, unless investors hold the market portfolio that has incorporated all stocks in the market and thereby it is the most diversified portfolio.  Figure 1 shows the relationships between the total number of assets in a portfolio and the total risk of the portfolio. As suggested in Figure 1, adding more stocks to a portfolio can help investors remove idiosyncratic risk.  Number of studies address the persistence of idiosyncratic risk and analyze its impact on asset prices (Lehmann (1990); Goyal and Santa-Clara (2003)). While some studies imply a positive relation between the idiosyncratic risk and the stock returns (Brown and Ferreira (2004), Malkiel and Xu (2006), and Fu (2009)), others point out a negative relation instead (Ang et al. (2006, 2009)). However, in contrast, several researches find no robust relation between the idiosyncratic risk and the returns (Wei and Zhang, 2005; Bali et al., 2005; Jiang and Lee, 2006; Guo et al., 2010; Fink et al., 2010).  In general, the literature reviews do not agree upon whether or not the investors should diversify in order to completely eliminate the unnecessary idiosyncratic risk. Indeed, some studies even suggest that investors should under-diversify. Stoddard (2012) finds that a big portfolio with 20 to 40 stocks brings low returns, suggesting that investor are better off with specially constructed portfolios that are consisted with less risky but better rewarding stocks. The strategy to focus on several stocks can generate higher returns than those emphasizing on diversification. Liu (2009) find that investors would under-diversify when their wealth level is low. However, a group of investors may under-diversify regardless of their holding of assets. Less wealthy investors are more likely to under-diversify, and a less diversified portfolio is less risky than the one that is more diversified. Sophisticated investors select stocks solely by expected returns and the pair-wise correlations among stocks. Uppal and Wang (2003) suggest that investors may under-diversify due to differential ambiguity aversion across stocks.  As noted, prior studies are still grappling with the question of whether a portfolio with only several securities is indeed worse than a broadly diversified portfolio. Some studies suggest that investors must diversify to eliminate the impact of idiosyncratic risk, while others claim that it should just be the opposite.  This paper does not adhere to any particular points of view as stated above.  The objective is to construct an unbiased experiment to provide solid findings and evidence to help to understand the diversification theory. In this study, the authors assume that there is a small investor with a total of $10,000 to invest. He/she can be a “naïve” investor by holding the three major U.S. indices only.  Alternatively, he/she can act like a sophisticated investor by establishing an optimal portfolio holding several stocks from the global markets.  The study compares the portfolio’s performance to that of the three major U.S. indices before, during, and after the financial crisis. The experiment reveals that a sophisticated investor can indeed outperform a naïve investor.  This research is appealing because many small investors cannot afford to hold a large-diversified portfolio due to the high tractions costs.  This experiment assumes that the investors will hold the portfolio passively for at least six months but no longer than one year. It means that the investor would not trade too frequent, such as daily, weekly, monthly, as to minimize the transactions costs.  The data was obtained from for each company as well as the three major U.S. indices (Nasdaq, Dow Jones Industrial Average, and S&P 500). Based on the adjusted stock prices at the end of each month, the monthly stock returns were calculated for the period of 2005 to 2013.   The financial crisis of 2008-2009 is manifested in this time frame. To determine the impact of financial crisis on the performance of the stock market, this time frame of nine years were divided into three phases, following Federal Reserve Bank of St. Louis Crisis Time Line: from December 31, 2004 to Aug 1 2008 as pre crisis period, from September 1, 2008 to March 2, 2009 as the crisis period, and from April 1, 2009 to December 1, 2013 as post financial crisis period.


Adolf Berle and the New Modern Corporation

Dr. Donald G. Margotta, Northeastern University, Boston, MA



The formal study of corporate governance begins with the publication in 1932 of “The Modern Corporation and Private Property” by Adolf Berle and Gardiner Means. Berle’s work continues to be influential today but this paper suggests that he has been misunderstood on several key issues and that greater understanding of his work may provide better insight into the public corporation as it existed in 1930 and also as it exists today. Such understanding is critical since today’s public corporation is under intense scrutiny. That scrutiny is fueled by recent substantial changes in stock ownership and this paper examines new questions on corporate governance raised by these ownership changes.  The expression “The New Modern Corporation” in the title of this paper is used to describe today’s mature public corporation and to distinguish it from the “Modern Corporation” described by Berle and Means in their seminal book, “The Modern Corporation and Private Property," (Berle and Means, 1932), perhaps the most cited work in the economics and legal literature on corporate governance, and a book that has been called “the most important business book of all time” (Eccles and Youmans, 2015). One often cited phrase from the book, "the separation of ownership and control," describes a key change the authors observed in the modern corporation of the late 1920's, which was that ownership of large mature corporations had become so widely dispersed that owners of these corporations no longer controlled them and that managers who owned relatively little stock in the companies controlled them. The implications of that observation have influenced academic research on corporate governance for more than eight decades, and continue to do so.  As Berle’s work derived from his observation of the changed ownership of corporate stock in the early 1900’s, so too this paper derives from the observation today of another major change in stock ownership and motivates us here to reevaluate our views on this new modern corporation in light of these changes. The change Berle observed was from concentrated, powerful, founder-owners to dispersed, powerless, individual owners.1 Today the change in ownership is essentially opposite to that; i.e. from dispersed, powerless, individual owners back to concentrated ownership, but this time the concentrated ownership is by large financial institutions rather than founders. This reversal from what Berle observed in 1932 raises entirely new questions of governance in the new modern corporation. The paper begins with a brief description of the pre-Berle “old” corporation. Next, it reviews Berle’s original thinking on the modern corporation of the early to mid-20th century and shows how some of his views are misunderstood in current discourse. It then describes today’s new modern corporation and how it differs from the one Berle observed. Finally, it discusses how managements of the new modern corporation are being affected by the changes taking place within and around the corporation and how Berle can help us understand these changes.  Simply to establish a reference point, we start with brief comments about the “old corporation,” the type that was characteristic of many large corporations before the ownership changes described by Berle took place. It is important to emphasize here that Berle’s observations related to large mature corporations. Certainly there were smaller corporations at the time, as there are now, where the owner-founder still managed his company and where the conflicts between ownership and control described by Berle did not exist.  The pre-Berle old corporation was characterized by having a founder-owner still running the company, providing management, capital, and labor. John D. Rockefeller of Standard Oil, and Andrew Carnegie of U.S. Steel are examples. Such corporations did not have the conflicts of interest between owners and managers noted by Berle because the owners were also the managers. The “Modern Corporation” described by Berle was one where the founder-owners had departed from the companies they founded and their stock ownership was dispersed over time by various means; selling stock, willing stock to relatives, creating charitable foundations, and so on. The result was that these giant corporations were now controlled by managers who owned relatively little stock, and owned by dispersed stockholders who no longer controlled them and who were usually not connected to them except through their stock ownership, thereby giving rise to the “separation of ownership and control.” Berle’s observation of this phenomenon marks the beginning of the formal study of corporate governance (Wells, 2010).Discussion of Berle’s early views on the “separation of ownership and control” in the modern corporation of his time begins with tc "The Separation of Ownership and Control" \l 0the following quote from "The Modern Corporation" which contains his first use of this phrase, a phrase which helped launch more than eighty years of subsequent research in economics, finance, and political science (Berle and Means, 1932, at 7): Though the American law makes no distinction between the private corporation and the quasi-public, the economics of the two are essentially different.  The separation of ownership from control produces a condition where the interests of owner and of ultimate manager may, and often do, diverge, and where many of the checks which formerly operated to limit the use of power disappear.  In addition to his observation on the separation of ownership and control, Berle also alludes here to a common perception of the corporate manager as one who has unchecked power, whose interests may diverge from those of shareholders, and who may use his power to usurp the wealth of dispersed and powerless owners. This is still how his views on managers are typically portrayed but it is one area where his views are somewhat misunderstood, partly because he articulates them differently in different parts of the book, and partly because some of his views changed over time.


Cost Analysis – A Case Study of Participating in Groupon Sales

Dr. Frank Badua, Lamar University, TX

Dr. Bruce Dehning, Chapman University, CA



Daily deal websites such as Groupon have become ubiquitous in recent years. However, many companies using them to boost sales have discovered they are not a panacea. There are many factors related to marketing and competitive strategy to consider when assessing if a particular business will benefit from a Groupon promotion. But one crucial aspect of this decision, the company’s cost structure, is most familiar to CPAs and accounting professionals. Businesses with a high proportion of fixed costs to variable costs are more likely to profit from Groupon, especially if they can use it to attract new customers. One of the unique functions of managerial accounting is to gather and process data to provide frameworks for users to make good decisions. As business models evolve, new decision making frameworks must be developed. This paper analyzes the decision environment managers must confront when considering the use of collective buying contracts, such as those offered by the web-based deal-of-the-day company, Groupon, and most importantly, how managerial accounting can play an important role in that decision. Groupon provides retailers the opportunity to generate a high volume of sales by featuring deeply discounted gift certificates for those that shop on Groupon’s website. Initially, customers could avail of these discounts (which are usually for more than 50%) only if a minimum number of customers also accept the deal, hence the name Groupon (group + coupon), but this policy has been relaxed and there are no required minima. In return, Groupon typically takes half of the revenue for each customer transaction. While it is potentially a good deal for the customer because of large discounts available, the retailer for which Groupon facilitates the deal may not necessarily benefit from the arrangement. As we demonstrate, a retailer will maximize its profit from “doing a Groupon” if the sales generated by Groupon do not cannibalize regular sales and if a higher proportion of the retailer’s costs are fixed rather than variable. We also explain further the business model pioneered by Groupon, describe the advantages to customers and retailers participating in Groupon deals, analyze the risks and disadvantages to the retailer, discuss how accounting professionals can help businesses decide whether or not to do a Groupon, and demonstrate through a series of examples how Groupon may or may not benefit a hypothetical firm, depending on cost structure and the nature of Groupon generated customer traffic. Groupon was founded in 2008 and went public in 2011. In the past few years it has spawned many similar businesses, while having disappointing financial results. It has not had a profitable year since it began operations, and as of October 2015, has been trading at around $4 per share, well below its IPO price of $20 per share. This disappointing performance is in part due to controversy regarding the underlying viability of its business model. Groupon’s revenue is derived from retailers that are willing to share their proceeds with Groupon in exchange for web-hosting offers for those retailers’ discounted products or services. However, many retailers are hesitant to do a Groupon because the deep discounts and the proceeds-sharing cut into revenues and profits. To understand which firms would profit from doing a Groupon, it is necessary to investigate how its business model works. Groupon provides a web presence for coupon offers. A coupon is an example of a loss leader pricing strategy. A loss leader is a promotion that is designed to entice customers to walk in the door with the discounted items, in the hope that they will also spend money on other items, and become a regular customer. Coupons typically have an expiration date and offer modest discounts (1). The difference with Groupon lies in scale and scope. The discounts enjoyed by customers are large, starting at half-price, and often larger. In exchange for running this promotion on its website, Groupon receives fifty percent of the proceeds (2). One can easily see the advantages that Groupon provides to both the customer and retailer. The customer is able to enjoy a deeply discounted product or service, and because of Groupon’s web presence, searching for those deals is much easier than pounding the pavement looking for bargains. The retailer enjoys high volumes of customer traffic attracted by these and because of the wide-reaching online advertisement provided by Groupon.  There are disadvantages and risks, however. They result from the large discount involved and the type of customer Groupon attracts. Originally, when customer minima were enforced, the conditional nature of the discount means that there was no guarantee the customer would get the bargain just by showing up at the store, though this risk was mitigated to a great extent by the fact that the outcome is at least partially under the customer’s control, and by the high interpersonal trust, high group conformity environment in some technologically mediated social networks. This risk has now disappeared since Groupon no longer requires a minimum number of participants for a deal to be enforced. On the other hand, the disadvantages that the retailer must confront are great. These result from the extent of the discount that is entailed in doing a Groupon and from the nature of the customer that buys into a Groupon deal.


The Road to Biculturalism within United States Businesses

Dr. Maja Zelihic, The Forbes School of Business at Ashford University, CA

Dr. Crystal Makowski, University of North Florida, FL



This study aims to explore how U.S. immigrant employees view their journey to biculturalism through employment. The literature does acknowledge that some immigrants may be innately resistant to biculturalism due to strongly being culturally independent; therefore, this research also investigates how being culturally independent within the U.S. workforce affects such individuals’ employment experiences and satisfaction. Study’s results provide researchers and organizational leaders preliminary insight in facilitating biculturalism within the workplace through diversity initiatives. Within the past 30 years, expanded international business ventures and increased number of multinational companies have led U.S. organizations to shift away from promoting a homogeneous workplace to one where multiculturalism and other workplace diversity factors are valued (e.g., age, gender, ethnicity, disability, etc.) (Cole & Salimath, 2013). According to the 2013 American Community Survey (ACS), individuals born in a foreign country that reside in the United States (U.S.) accounted for 13 percent of the U.S. population of 316.1 million (N=41.3 million), where a 1.3 percent increase in immigrants occurred between 2012 and 2013. The immigration demographics within the U.S. has an undeniably significant impact on U.S.’ educational system, politics, businesses, economy, and how the country adapts to increased cultural diversity. Just as businesses transform and adapt to organizational cultural changes due to influxes of foreign-born employees, immigrants undergo an inevitable transformative process of acculturation to their adopted country. Despite a wealth of literature dedicated to the benefits, desirability, and initial implementation plans to enhance diversity within the place, Cole and Salimath (2013) argue research has not adequately addressed diversity identity issues of an organization, such as the effects on the individual employee. It is suggested that diversity management programs and initiatives should strive to ensure employees have a confident sense of “inclusion, fairness, and equality” regarding their individual identities within the organization (p. 157).  However, the impact of one’s culture in the work environment is a powerful force to be considered, especially in light of the globalization of the majority of businesses. The concept of an immigrant employee’s acculturation is the main focus by organizations through initiatives to get any employee (regardless of country of origin) to acclimate and fully adopt the businesses’ organizational culture through policies, procedures, mission, vision, etc. rather than the holistic and internal adaptation of another culture. Although acculturation is inevitable for all immigrants regardless of their adopted country, research indicates that true functional biculturalism is a more desirable result for businesses with foreign-born employees. True biculturalism is defined as fully accepting and adopting a different culture, while the individual maintains their native culture. According to Fitzsimmons (2013), prior research on multiculturalism or biculturalism (used interchangeably) within organizations expected such employees to “either suffer from inadequately defined selves or feel torn between their multiple and sometimes incompatible selves as well as feel marginalized and confused (p. 536). Fitzsimmon (2013) purports that the shift towards promoting the benefits and value of multiculturalism in literature has ignored the significant challenges employees experience, such as identity stress or identity uncertainty due to political correctness. Research that focuses on immigrant employees’ acculturation and factors that may impede/facilitate successful bicultural outcomes within the workplace needs to be explored from the immigrant employee’s individualized experience. While current body of research agrees that biculturalism is an important milestone of employee integration and efficiency within the US workplace the specific variables impacting and enhancing bicultural processes have not been clearly defined.  Researchers view biculturalism as being one of the means to achieve acculturation (Nguyen & Benet-Martinez, 2012). According to Nguyen & Benet-Martinez (2012), acculturation “is the process of learning and adapting to a new culture” (p. 123; Berry, 2003). Gillespie, McBride, and Riddle (2010) view acculturation, a psychological phenomenon, in two dichotomizing dimensions with four distinct statuses: a) primacultural (individuals maintain their original culture, but do not adopt the new culture), b) assimilated (individuals adopt the new culture, but forego their original one), c) bicultural (individuals adopt both cultures), and d) culturally independent (individuals do not identify with either culture). Gillespie, McBride, and Riddle (2010) assert Western (Anglo-Saxon) or American culture are becoming globalized in markets within foreign cultures, thus creating “cultural crossvergence” (p. 39) among non-Western organizational managers. Despite this growing trend, Gillespie, McBride, and Riddle question whether true American-cultural adoption actually occurs in these non-Western cultures or if values deemed to provide a competitive edge are only utilized. To determine the efficacy of the four statuses of acculturation within a cultural encroachment environment, Gillespie, McBride, and Riddle conducted a study in Mexico (deemed to have high influx of U.S. culture in businesses) utilizing the Acculturation Index (Kosic, 2002), where respondents rated their similarity to Mexican and Americans. The study results demonstrated that Mexican management respondents who rated as bicultural or culturally independent were most likely to be in upper management.


An Analysis on the Factors Affecting the World Gold Prices

Dr. Erisah Arıcan, Professor, Marmara University, Istanbul

Dr. Basak Tanınmıs Yucememiş, Associate Professor, Marmara University, Istanbul

Dr. Guclu Okay, Assistant Professor, Marmara University, Istanbul



Gold is known to enjoy increasingly growing demand and importance in global finance markets due to the roles it assumes as a precious metal and the multiplicity of its usage cases. This study aims to identify and analyze the factors that can make world gold prices change. To this end, the factors which are claimed in literature to have an effect on the change in gold prices were tested using the method of least squares for the period between January 1995 and June 2014. The independent factors studies include world Brent oil prices ($/bbl.), global monetary supply, the US inflation rate (%), the US dollar index, Dow Jones Industrial Average, the US Stock Market Index, and the US interest rate. The effects of these factors on gold prices were examined, bearing the global crisis environment in mind. The changes in these factors in recent years were taken into account and their current effectiveness was studied. Gold can be considered a medium of exchange as it is used raw material for a number of sectors, particularly including jewelry, and as a substitute for money in the past. As a reliable investment tool that preserves its value for extended periods and a store of value, gold has also become a globally traded commodity, and, most importantly, a reserve item in the balance sheets of central banks. Furthermore, gold has superior physical and chemical characteristics such as malleability, good electrical and thermal conductivity and acid resistance, and it still maintains its place and importance in the global financial system. Gold has been a precious mineral and medium of exchange despite changing economic system since the first ages. Gold served as the basis of the global monetary system, particularly between 1870 and 1930, and then, turned into a key reserve tool with full convertibility to the dollar in the Bretton Woods system. Over time, gold lost its quality as a medium of exchange, but emerged as a substitution tool for individual savings and currencies. Since then, it has become a major reserve item for a number of central banks. By 2000s, the lack of confidence, increased uncertainty and escalating risk perceptions which are attributable to worldwide financial crises have boosted the demand for gold, and, in this connection, researchers started to study the volatility in gold prices. The purpose of this study is to identify the factors which play a role in the changes in global gold prices. To this end, a conceptual framework was given in the first section and the place of gold in the global financial system was discussed with a historical perspective and literature on the change in gold prices was given. The second part of the study focused on the variables which are claimed to lead to changes in gold prices as these variables were tested using the time-series analysis and the least squares method. The method, data set and variables in the study were explained and findings were presented. In the conclusion section, the relationship between gold prices and the related factors was interpreted.  Gold is a precious mineral which has historically been used in manufacturing ornaments and jewelry and storing value (savings); it has been accepted as a reliable instrument for investment; it has been used in place of money and become a reserve item for countries. Gold is possibly the first pure metal known to humankind and it is a stable element which does not easily react with other elements and it has a high resistance to chemical effects. As air or water makes no effect on gold, it never corrodes or darkens or tarnishes. Thanks to its extreme malleability when it is pure, anti-corrosive resistant structure, good electric and thermal conductivity and reflective qualities, gold has come to enjoy increased industrial use and increasingly become a popular asset around the world (Aslan, 1999, 3).  In nature, gold is generally found in the form of an element and rarely as a compound. Gold can be alloyed with other metals like silver and copper, and the weight of gold in such an alloy is described as the purity of gold, generally expressed in terms of per thousand. Accordingly, pure gold refers to the rate of 1000/1000, but internationally traded gold generally has a purity of 995/1000 (Çetinel, 1992, 154). The gold with that purity is referred to as 24-carat gold, and its purity changes between 24-carat and 14-carat. In 24-carat gold, 24 grams of a 24-gram gold bullion are pure gold while in 14-carat gold of 24 grams bracelet only 14-gram gold bullion are pure gold. This means that 14-carat gold has a purity of 58.5% (Çetinel, 1992, 154).  Today, gold is mainly used as jewelry and enjoys demand in industrial field and for investment purposes. Gold is used mainly in jewelry and it finds use in many other areas including coating, decoration, electric and electronic application, dentistry, decorative use, medal production, official money and bullion stocks. Moreover, it is in high demand in the aerospace industry, in the textile industry, for the production of golden wire and thread and for the manufacturing of anti-corrosive tools in the chemical industry. Gold supply consists of mined gold, gold sales from central banks, loans given in the form of gold and scrap gold. Gold enjoys a major place in the world economy due to the multiplicity of its uses, its limited production, its inflexible supply structure, lack of another mineral with the same or similar characteristics, and its use as a reserve item (VOBAŞ, 2013, 5).


A Case Study: The Economy Index as a Metric of Success of Eighteen Arkansas Cities

Dr. Zhi Tao, Arkansas Tech University, AR

Dr. Marc Anthony Fusaro, Arkansas Tech University, AR



The economy is measured by a variety of economic indicators. These economic indicators may give mixed information at any given time.  In our study labor force, unemployment rate, home sales, home price, commercial construction, residential construction, and retail sales are selected as component level indices to construct sector indices.  Labor market, construction, housing, and retail sales are selected as sector indices to construct the Economy Index (EI). The proposed Economy Index (EI) is used to monitor the overall performance of eighteen cities across Arkansas on a monthly frequency.  Labor markets, construction, housing, and retail are commonly followed economic indicators. Together they show the performance of the economy, they are available at a city level, on a monthly frequency, and in a timely manner. At a particular time and city, different economic indicators may move in different directions sending mixed signals about the health of the economy. An overall economic index is needed to synthesize these disparate indicators and gauge the performance of the economy. Particularly we are interested in the case of the state of Arkansas economy. The Arkansas economy is behind, below, and more stable than the national economy.  Arkansas economy usually lags the nation in most trends.  For example, while the nation hit its unemployment rate peak in October 2009, Arkansas hit its peak in early 2011. Arkansas is more insulated from the large swings of the rest of the nation. For example, while the national unemployment rate peaked at 10%, Arkansas’s peak was 8.4%.   The economy relies heavily on Agriculture with rice and poultry being prevalent.  Logistics is also important with several large trucking companies and Wal-Mart.  The state consists of a strong economic engine in the northwest, an urban core with weak growth and white flight in the center, and many small cities around them.  Only one city (Little Rock) has a population above 100,000 people. This study uses Arkansas city level data to test the proposed economy index model, which is different from commercial models like those by HIS Global Insights or Moody’s Analytics in that the latter predict future economic growth.  Instead, our proposed model is used to monitor the current economic performance of eighteen cities across Arkansas and shed light on what drives or pulls economic performance for a particular city and particular month. The proposed Economy Index (EI) model consists of the four sector indices which are the Labor Market Index, the Housing Index, the Construction Index, and the Retail Sales Index. Each of the four sector indices are derived from the component indices of unemployment rate, labor force, home sales, home price, commercial construction permits, residential construction permits, and sales collections as described by Figure 1.  The unemployment rate is a good measure of the economy overall ( Freeman, 2001).  However, since the financial crisis it is widely recognized (Dagsvik, Kornstad, and Skjerpen, 2013) that the unemployment rate is not the whole picture, that discouraged workers escape notice when only the unemployment rate is viewed.  Thus we used the labor force as a measure to capture this discouraged worker effect in addition to the unemployment rate. Housing markets are seen as another microcosm of fluctuations in the economy.  Frame (2004) notices that employment prospects are a primary driver of housing prices.  Mendicino and Punzi (2010) support the connection between the economy and the entire housing market as summarized by both price and quantity sold.  And Erdem, Oruc, and Varli (2013) cite the connection between the economy and fluctuations in housing price and quantity.  Thus we use fluctuations in housing prices and housing sales as another indicator of fluctuations in Arkansas economic activity. It has been known for a long time that building permits are a good measure of future construction activity (Cover 1932).  More recently, Hancock and Wilcox (1997) finds that economic conditions get reflected in commercial and residential real estate activity including construction permits. Some economic forecasters (Gruben and Hayes, 1991) of local economic conditions use some of the same variables that we use including the labor force, housing permits, and sales tax revenue as a measure of the retail sector. To develop the model, the first step is to construct component indices. The second step is to construct sector indices. To construct component indices, we run regression analysis (seven) to isolate the movement in a variable independent from population, state level economic activity, and the other indicators. To construct sector indices, we use weighted average of component indices. The following notation is used throughout the article: labor force (Ll), unemployment rate (Lu), labor market (L), number of housing units sold (Hq), average sale price of homes (Hp), housing market (H), commercial construction (Cc), residential construction (Cr), construction (C), retail sales (S), weight of index (W), standard deviation (σ), regression coefficient (α), regression residual (ε).  City is indexed by c, and time is indexed by t. We run regression as below to isolate labor force on city level from state population, state labor force, and unemployment rate, housing price, housing sales, commercial permits, residential permits, and sales tax. We run regression as below to isolate unemployment rate on city level from state population, state unemployment rate, city labor force, housing price, housing sales, commercial permits, residential permits, and sales tax.


An Evolutionary Game Theoretical Analysis of Trade Environmental Negotiations Among World Trade Organization

Dr. Chen-Kuo Lee, Ling Tung University, Taiwan, R.O.C.

Li-Ru Chen, Da-Yeh University, Taiwan, R.O.C.



WTO member nations were unable to make any concrete progress for the key topics, such as reduction of subsidy for agricultural products, reduction of tariffs for non-agricultural products, and liberation of service industries, since the inception of Doha Round in November 2010. Apparently, the negotiation procedures required by WTO are imposing more and more difficulties as time passed by. The impasse faced by Doha Round seems to be inevitable. All member nations need more time and patience in order to eliminate their differences and to adjust their standpoints before they can reach agreement. Therefore, this study adopts evolutionary games to analyze the benefit allocation between the developed nations and the developing nations under WTO framework and thereby presents the feasible solutions in this connection.  World Trade Organization (WTO), a multilateral trade mechanism, governs the multilateral trade negotiations among its member nations. As soon as its member nations conclude negotiations and sign on the agreements, their agreements are construed as legal documents with binding power. All member nations are obligated to enforce all stipulations stated in the agreements accordingly. Furthermore, all member nations are entitled to the rights and subject to the obligations stated in the articles set forth by their multilateral covenants and agreements. As time passed by, more and more nations have joined WTO. With more and more topics being included into agenda, the negotiation’s outcomes are virtually impossible to be accepted by all member nations. Consequently, the negotiations are rarely making any progress. This study has reviewed all literatures related to the negotiations presided over by WTO and its predecessor GATT (The General Agreement on Tariff and Trade) and has thereby concluded that the negotiations are hardly making any progress in the last few decades.  According to Table 1, the eight multilateral trade negotiations presided over by GATT had become time-consuming as more and more members were joining the negotiations and more and more topics were included into agenda. For example, the first six rounds of negotiations concentrated on the topics related to tariff reductions and had reach agreements efficiently. Each round lasted for a few months only. Kennedy Round only took three years to reach its agreement and was considered the most time-consuming round. In the seventh round, the Tokyo Round, a series of topics related to the elimination of non-tariff trade barrier and GATT legal framework revision were discussed; besides, a large number of complicated topics related to tariff reduction were argued over the negotiation tables. As a result, the negotiation lasted for nearly six years. In the eighth round, the Uruguay Round, 128 member nations/districts negotiated over 15 topics including tariff barriers, non-tariff barriers, intellectual properties related to trade, investment policies related to trade, and service trade. The negotiations started from September 1986 and ended in April 1994 – almost eight years.  The Doha Round began with a ministerial-level meeting in Doha, Qatar in November 2001. This round has finalized 19 topics including permission for entrance into agricultural product market, non-agricultural product market, intellectual properties related to service industries, rules, dispute settlement, trade, and environments as well as 8 topics related to the negotiations for the issues related to the development. Doha Round was scheduled to be ended on January 1, 2005. In the ministerial-level meeting of September 2003 in Cancún, Mexico, however, the member nations were unable to reach any agreement for a number of issues, such as agriculture. Consequently, the meeting was ended unsuccessfully and the Doha Round reached an impasse. A number of member nations strived diligently to resolve the deadlock. On August 1, 2004, WTO member nations eventually reached an agreement on the framework of Doha Round’s topics. In December 2005, the member nations reached their preliminary agreement on a number of topics, such as cancellation of subsidy for exports of agricultural products, in Hong Kong. Nonetheless, WTO member nations were unable to make any concrete progress for the key topics, such as reduction of subsidy for agricultural products, reduction of tariffs for non-agricultural products, and liberation of service industries, since the inception of Doha Round in November 2010. Apparently, the negotiation procedures required by WTO are imposing more and more difficulties as time passed by. The impasse faced by Doha Round seems to be inevitable. All member nations need more time and patience in order to eliminate their differences and to adjust their standpoints before they can reach agreement. Therefore, this study adopts evolutionary games to analyze the benefit allocation between the developed nations and the developing nations under WTO framework and thereby presents the feasible solutions in this connection.  Evolutionary game theory, an analytical method developed in the recent decades, was adopted by Lewontin (1960) to interpret ecological phenomenon. Later on, Maynard Smith, Price (1973) and Maynard Smith (1974) presented a basic equilibrium concept, Evolutionary Stable Strategy (ESS), based upon the evolutionary game theory.


The Role of Intuition in Strategic Decision Making in Croatian Companies

Dr. Ivana Bulog, University of Split, Croatia

Elva Eglite, Riga Technical University, Latvia



Today’s companies operate in a complex and changing environment in which business conditions are changing very rapidly, preventing managers (decision makers) to properly estimate the probabilities the occurrence of certain situations in which they can make decisions through rational process of collecting data and their detailed analysis. Therefore, managers – decision makers - which have the ability to make effective decisions in an alternative way are of the greatest value. One alternative way of making decisions is the intuitive decision making approach which nowadays takes on an increasingly important role and is becoming more prevalent in the business world. Researchers agree that the intuitive way of decision making is critical for effective strategic decision making. This study examines the role of intuition in strategic decision making in Croatian companies, aiming to emphasize the importance of intuition in today’s business world. The use of intuition is found to be positively associated with strategic decision making outcomes. Moreover, results showed that the intuitive decision making approach is more effective in an unstable environment than in a stable environment.  When business related internet sites and magazines are opened, more often titles such as “How to improve your business intuition”, “How to use your gut to make better decisions” can be seen. The increasing popularity of using intuition in decision making can be confirmed by the fact that many of today’s successful individuals attribute their success just to their intuition. In that manner, La Pira (2011, p. 2) quotes Bill Gates, who says: "you cannot ignore your intuition.", Oprah, who states: "My business skills have come from being guided by my intuition." and Donald Trump, who admits, "I've built a multi-billion dollar empire by using my intuition”. For a long time many researchers have ignored the intuitive way of decision making approving only the existence of the analytical (rational) one, but nowadays the situation has changed. Namely, organizations and its management are faced with business environments that are increasingly complex and unpredictable which requires new ways and tools in decision making. One of these is the intuitive decision making approach. So, today, in a world which is changing so fast, decisions have to be made more quickly. The question that rises here is - how to make business decisions effectively? The aim of this paper is to get to know what exactly intuition is, how it is different from rationality, what its role is in managerial decision making and is intuitive decision making at strategic management level an effective decision making approach? The perception of the term "intuition" varies among individuals, so it is not surprising that it is possible to find numerous and distinct definitions. Although the academic literature has generally accepted that intuition is an irrational concept, Agor (1984) points out that there is very little agreement on what intuition really is. The concept of intuition has been studied from many different perspectives, including psychology, philosophy, management, epistemology, art, neuro science etc. As a result, “intuition has been given so many different meanings…that it makes one wonder whether the term has any meaning at all” (Baldacchino et al., 2015, p. 213). Nevertheless, it is possible to see and define some similarities among so many definitions of intuition. On this pathway, Parikh (1995) concludes that the concept of intuition has several characteristics (Adiandari, 2014, p.3): Directly associated to thinking process; Occur unconsciously/subconsciously; Come up quickly, even in sudden; Underpinned from experience as one of the sources; Affect the decision that is going to be taken. Broadly speaking, intuition is a source of knowledge diverse from a more logical, analytical or rational mode of reasoning (Baldacchino et al., 2015).  Intuitive processes operate autonomously and automatically, that is, they function without conscious control and cannot be easily accessed by introspection (Betsch and Glockner, 2010). Studies have shown that intuition, as a concept, is valuable as rationality. Both are often described as two distinct but equal sides of the same coin. Intuition is difficult to describe, but easy to recognize emphasize Sadler-Smith and Shefy (2004, p. 78). Four aspects were identified pertaining to intuition or to the intuitive experience; these can be seen as non-rational, holistic, and enhanced by experience and associated with affect or emotion (Robson and Miller, 2006, p. 7). Kotler (2003), Hayashi (2001), and Hornby (2005) define intuition by some terms such as premonition, gut instinct, invert voice, hunch, natural feeling or conscience (Adiandari, 2014,  p.1) Hammond et al. (1987) define intuition with all that does not fit into the category of analysis or rationality. Isenbergs (1984) defines it as the unconscious form of prompt recognition and synthesis of past experiences.


Family Business Definitions and Differentiation from Entrepreneurship

Markus Baur, University of Latvia, Riga



Literature on family businesses does not reveal a comprehensive and clear definition on what constitutes a family business. This paper provides a comprehensive list of definitions of the family business based on a literature research until 2011. With intention to advance the discussion about defining the family business, the collection is structured by indicating the focus (definitional dimensions) that each definition is providing. To further support the academic discussion of the family business definition, the work will explain how family business research can be differentiated from entrepreneurship research. Scholars have not been able to conclude on a consistent and accepted standard definition of family businesses (Litz, 1995; Lansberg, Perrow, & Rogolsky, 1988; Sharma, Chrisman, & Chua, 1996; Mandl, 2008). The term ‘family business’ is relatively new, as it was introduced in the 1940s.  Felden and Zumholz (2009) argued that this is understandable when considering that almost all companies were family businesses. A probable reason why the academic body has had such a slow pace may be due to the definitional problem in family business research.  Various definitional dimensions that attempt to categorize the definitional propositions are mentioned in the works of diverse authors (K. File, 1995; W. Handler, 1989; Flören, 2002). Handler for example has identified the following four dimensions: degree of ownership and management by family members, interdependent sub-systems, generational transfer, and multiple conditions. In their wide-ranging literature review, Sharma, Chrisman, & Chua (1996) have taken inventory of the work that has been done until 1995 on family business studies and have consolidated the knowledge in an attempt to provide directions for future research. Concerning the definition of a family business, the authors have found thirty-four different definitions. Flören (2002) provides an overview with over 40 definitions by the year of 2002. The following contribution tries to differentiate family business from entrepreneurship. Furthermore, a comprehensive list of structured definitions is provided. The table below is a summary of all definitions the author found in literature (until 2011) including the above mentioned contributions. This collection of definitions is further based on the previous highly valued work from various authors that have been greatly influencing the academic body of family business research. These are namely and amongst others: Astrachan, Klein, & Smyrnios, 2002; Beckhard & Dyer, 1983a, 1983b; Carlock & Ward, 2001; James J. Chrisman et al., 1998; Chua, Chrisman, & Sharma, 1999; K. M. File & Prince, 1996; Gersick, Davis, McCollom Hampton, & Lansberg, 1997; Gibb Dyer, 2006; W. C. Handler, 1991; Sharma, Chrisman, & Chua, 1996; Swagger, 1991; J. Ward, 1987; T. Zellweger & Fueglistaller, 2005.  The collection is structured by indicating the focus that each definition is providing. These are ownership, management and transfer focus on the one side and on the other side it is stated whether the multiple conditions are exclusive or inclusive and whether the definition provides a quantifiable assessment. Furthermore, the structure tries to assign each definition to a theoretical perspective (e.g. systems theory).  For a deeper understanding of the family business, a distinction between entrepreneurship and family business may support. Entrepreneurship is concerned with the foundation of businesses and focuses on the first phase of a business in the organizational life cycles. Similar to the field of family business research, entrepreneurship is a young discipline (i.a. Edmond & Wiklund, 2010, p. 142; Landström & Persson, 2010, p. 54) and definitions are undergoing intense debate (i.a. Zimmerman & Education, 2008, p. 142; Davidsson, 2005, p. 1 ff.). However, there are some distinguishing aspects that delimitate the two fields from each other. Although there are differences, family business research as a field of study has – being closely related to the entrepreneurship research field – contributed much from entrepreneurship research. Entrepreneurship research asks (in the sense of Schumpeter) who is an entrepreneur and what does an entrepreneur have to do to begin a successful business. Family business research is concerned with the entrepreneur who wants to hand over the business to the next generation. Entrepreneurship focuses on the starting phase of a business whereas family business research focuses the years after the business’ foundation - that is, the maturity stage in a business life cycle approach - where the next generation is involved. Thereby, family business research tries to unify business and family considerations.  The wish to hand over the business is vital to many entrepreneurs and also second generation successors. The resource-based view as well as the F-PEC scale mention the rising influence of the family through experience which is the umbrella term for gaining experience through generational transfer. If a family business is only a family business when intending to hand over the business to the next generation, it should be measured whether there are actions following this intention.  Various authors (see above) propose to limit the definitional framework to the question whether the business family plans to hand over the business to the next generation. This intention automatically leads to long-term goals – an idiosyncrasy that family firms are commonly known for. For example, a firm that is owned by an entrepreneur or family in the first instance, but does not plan to hand over the firm to the next generation could eventually aim to sell the firm at a highest possible price. Such a setting does certainly come up with the definitional constraint that an entrepreneur or family holds the shares and does influence the company’s strategy. However, such a proposition need not imply that the owners are long-term oriented.


How to Developed Online Trust Relationships with Customers through Social Skill in Airline Service

Dr. Yi Ming Tseng, Tamkang University, Taiwan



Trust is the basic element in harmonious business relationship. This research explores the developing process and elements of trust between firms and customers in airline service. Five antecedents are proposed from literatures and include the contemporary social media application as a major variable. We hope these can help to explain the trust relationship of buyer-seller in transaction. Through the data collected from airline service users, research finding show that social media contact, direct favorable offering, exclusive treatment for membership, preferential service are effective tactics in developing trust and can become long term relationship. Nijssen et al.(2003) propose that relationship marketing has critical impact on modern industry including manufacturing and service industry. Since the technological development on internet, social media, and community website, marketing practitioners has changed their focus on how to establish mutual trust in cyber space. From marketing theory, retaining an existing customer is more efficient than attracting a new one especially in economic recession. The concept of “customer share” also support the possibility of retaining customer for creating further value fot the firms.  Berry and Parasuraman (1991) propose that the “relationship development” is to establish, maintain, and enhance customer relationships. Developing relationship is a complex process and not easy to be understood because of its implicit nature. Scholars have tried to find effective and definite methods for decades. These methods can be actually executed step by step and then developing deep relationship with customers. In this research, we propose and discuss some tactics for developing these relationships and try to construct a conceptual framework for clarifying the casualty between them. This framework also help practitioners to establish their ways for shorten the distance with customer. The objectives of this research are twofold.  First, exploring the social skills from literature and practitioners in service industry. Second, how significant are the effects of social skills on constructing trust relationship?  Trust and relationship theory has received much attention and is seen as a expanding area in academy and practice. In contrast to product market, the relationship between service providers and consumers are more closed than in product market, and the corporation is also obviously because of the characteristics of service. The most important issue the sellers face is no longer to provide excellent, good quality products or services, but also to keep loyal customers who will contribute long-term profit to organizations. Keeping sustainable relationship has been seen as the mainstream of thought in programming a marketing strategy both in service marketing and consumer product marketing.  Becerra and Korgaonkar (2011) examine the simultaneous effects of the product, brand, and vendor trust beliefs on consumers' online intentions. The influence of vendor trust beliefs on online intentions varies with brand trust, beliefs for products and for services is augmented by brand trust beliefs Brand trust beliefs affect online intentions, and may be needed to increase online sales. Grayson, Johnson, and Chen, 2008) argue that customers are influenced not only by how much they trust a company and its representatives but also by how much they trust the broader context in which the market exchange is taking place. Trust in firms and their representatives is a necessary mediator of trust in the broader context. Because of the positive influence on marketing success, Sichtmann (2007) propose that managers should focus on trust-building activities that center on competence and credibility primarily with current customers. Competence and credibility are the primary antecedents of customer trust. Zhou and Tian (2010) explore the issue of what factors contribute to which dimensions of consumers' initial trust in online vendors in a relatively low-trust environment such as the People's Republic of China. Coulter and Coulter(2002) posits a contingency model of trust, suggesting that the effects of customization, competence, and reliability have an impact on trust. The effects are moderated by length of the customer/service provider relationship. Kananukul, Jung, and Watchravesringkan (2015) encourages companies to strengthen consumers' trust by enhancing perceived practical and social benefits. In addition, companies need to closely monitor information/conversations about the product/brand being presented brand community because the quality of information and conversation can affect consumer trust. Customer relationship can be effectively implemented through the applications of computer database techniques and internet social community (Kananukul, Jung, and Watchravesringkan, 2015). These techniques and traditional promotion tools ( promotion mix) provide incentives and brand meaning to customers. Past research studies propose that the trust relationship keep the customer-firm/brand longer. The final purpose of trust relationship is to gain the maximal value of a customer, who can contribute to the corporation’s long-term profit.  Customers involving in a service process will feel highly uncertainty because of some service characteristics such as intangibility and heterogeneity.


Housing Finance Based On Lease Certificates and The Case of Turkey

Dr. Feyzullah Yetgin, Associate Professor, Calık Emlak ve Gayrimenkul Yatırımları A.S., Istanbul

Dr. Guclu Okay, Assistant Professor, Marmara University, Istanbul



Real estate investments --which have recently enjoyed increased growth in our country-- particularly in housing projects-- have been financed using traditional build-and-sell method, but as this method had proved to be insufficient to provide for the necessary finance, housing loans from banks used to a certain extent. However, the ratio of housing loans to the GDP is still considerably below the EU average. In addition, Sukuk (lease certificates) has emerged as an important alternative for the financing of big projects recently launched or to be launched, and the use of the Sukuk instrument has enjoyed gradual increase, albeit lower levels compared to the world. This study furnishes a general discussion concerning Sukuk as well as details about how it is implemented. For further clarification on the matter, it examines in detail the Sukuk instrument issued by the Aktif Bank participation for the project the "Revenue Sharing with Land Sale for Istanbul International Finance Center Special Project and Recreation Area" as an example.  The increased product diversity of financial markets and emerging securities markets in recent years have brought to the agenda the need for interest-free bonds and bills known as "Sukuk" in Turkey as a new source of financing for many sectors, particularly including the housing sector. Investors willing to lend their savings, but opting for interest-free returns preferred such securitization and obtain profits from a method that is alternative to interest. The first part of this study offers a conceptual framework about lease certificates and their functioning. Then, we move on to the discussion of a proposed project which is likely to be implemented in Turkey and the contribution such projects may potentially make to the country's economy. Sukuk, etymologically derived from the Arabic word "Sak," is today used to refer to Islamic financing bills and it has various types (Khan, 2003, 129). Sukuk has emerged as a new investment alternative for investors on a global scale, including Arab markets in particular, and it is generally based on leasing. Such certificates, similar in nature to the asset backed securities (ABS), are generally defined as "lease certificates" and are basically issued based on a tangible asset (Durmuş, 2010, 143). Unlike the ABS-like securitizations, this system does not rely on deposits/loans. In this system, the portfolio from the source company (originator) is sold a special purpose vehicle (SPV), which, in turn, issues a security based on this portfolio. As noted above, the securities issues are sold to investors based on the cash inflow generally in connection with the financing of a physical investment project. In Turkey, a bill was passed to allow the issuance of lease certificates. Under this law, "asset lease companies" which are defined as special purpose vehicles (SPVs) may issue lease certificate mainly based on property, but also on management contracts, purchase and sale, partnership and  contracts of work (Gökyüz, 2012, 151). In terms of functioning, there are salient differences between lease certificates and interest-based bills (Büyükakın and Önyılmaz, 2012, 3). First of all, while classical bills have only interest-based or interest-sensitive cash flow, lease certificates have the property rights of the asset which forms the basis of securitization in question as well. Thus, investors have the right to benefit both from the balance from the sale of the asset and other revenues belong to that asset and, therefore, can enjoy completely interest-free income returns (Testa, 2008, 117).  Lease certificates based securitization has consecutive stages. In the first stage, the company which was designated as the originator sells any asset to an asset lease company on condition that it buys it back at a later date. Then, the asset lease company which buys the asset starts to issue securities which have the nature of negotiable instruments based on this asset. The asset lease company transfers the funds obtained from the lease certificates over time to the originator. Meanwhile the securitized asset is leased to the originator and rent is collected from the originator in connection with this leasing. The asset lease company pays to leasing certificate investors their shares in this rent, and at the mature date, sells asset back to the originator to get back its capital. Thus, the originator obtains financing without the burden of interest while the asset lease company generates incomes in return for its brokerage services. Moreover, lease certificate investors are entitled to regular rental income (Gökgöz, 2012, 154). The housing problem today emerges in the form of failure to provide for housing needs of nuclear families as building blocks of modern societies both qualitatively and quantitatively. Due to the qualitative and quantitative shortcomings of the houses in the existing housing stock, nuclear families are forced to live in poor quality houses with unhealthy living conditions (Ertürk, 1996, 191). In addition, the existing housing stock is increasingly becoming less functional over time. Therefore, the housing problem is not a static problem, but a dynamic one which increases over time. At the end of their economic lives, existing houses should be demolished and new houses should be built in their place. Financing is another aspect of the housing problem, as such, it constitutes a common problem for developing countries. Accordingly, for virtually all developing countries, the housing problem mainly equals to the lack of sources used for housing finance. At this point, the scarcity of funds, which in indicative of a capacity problem, represents an economic as well as social problem for countries. In combating this problem --which is less prevalent in developed countries-- institutional infrastructure and long-term fund supply are definitely of special importance. Moreover, the presence of various finance tools and finance markets that integrate with the real estate market via these tools are considered as primary routes to be followed by the developing countries in tackling with their housing problem. Today, a brief examination of the housing problem in our country reveals that in addition to producing housing stock in sufficient quantity and quality, finance alternatives suitable for procuring these houses (or renovating the existing ones) should developed.


Momentum Strategy in Commodity Market

Dr. Han-Ching Huang, Chung Yuan Christian University, Taiwan R.O.C.

Yen-chih Lin, Fuji University, Taiwan R.O.C.



In this study, we use the raw material commodity to examine performance of various momentum investment strategies. We combine the price and trading volume to construct the momentum life cycle to explore the profit performance based on the early-stage and late-stage momentum strategy. In addition to aforementioned strategies, we also construct the two-dimensional momentum strategy. We find that 52-weeks high momentum strategy in the ranking period has the best performance. On the other hand, contrarian strategy in the holding period has the best performance. Moreover, the investment period should be as short as possible. In the two-dimensional momentum life cycle strategy, we argue that the profit performance of early-stage is smaller than the late-stage strategy. Nonetheless, regardless of the length of the period or the early and late-stage, this strategy does not suitable for raw material commodities. We show that adopting the early-stage strategy with longer ranking & holding period can obtain excess higher profit. In 52-weeks high momentum strategy & turnover momentum life cycle strategy, we should choose the ranking period with six months and adopt the late-stage strategy simultaneously to get the high profit. In sum, the performance evaluation of one-dimensional strategy is superior to that of the two-dimensional strategy.  Raw material commodity is the international high-profile topic in recently. International raw materials have been in a bull market since 2002. Although after the 2008 financial crisis, various financial asset values fall sharply, the gold is considered as a tool of natural hedge, making investors have more reliance on it. Moreover, oil prices are the main international economic variables which affect the overall economy. Due to the problem of abnormal climate, crop futures prices change significantly. Therefore, if we use the appropriate investment strategy in the raw materials portfolio, we can make considerable profits. Many researcher use different investment strategies to confirm that past stock price can predict future stock price movements. For example, DeBondt and Thaler (1985) point out that the market has overreaction for new information, and investors can use the contrarian strategy to get excess returns. Jegadeesh and Titman (1993) argue that the market exists in the inadequate response situation. Thus, investors may earn excess returns by momentum strategy. Lee and Swaminathan (2000) combine the previous research of momentum effects. They take into the volume factor (turnover) and put forward the momentum life cycle hypothesis. The empirical results show that stocks has underreaction in the mid-term and overreaction in the long period, and investors may carry out the early-stage or late-stage strategy to obtain abnormal returns. George and Hwang (2004) find that the 52-week high price–largely explains the profits from momentum investing. A stock whose price is at or near its 52-week high is a stock for which good news has recently arrived. They find that nearness to the 52-week high is a better predictor of future returns than are past returns. Wang (2004) use the momentum and contrarian strategies to analyze many kinds of U.S futures contracts and find that using a contrarian strategy can make a profit. After dismantling the source of profit structure, he attributes it to the market overreaction. The aforementioned investment strategies focus on stocks and mutual funds for empirical discussion, and pay little attention to raw materials. Therefore, this paper intends to fit the gap. We base on 64 kinds of raw material commodities in International Monetary Fund to examine the momentum strategy, the contrarian strategy, and the 52-weeks high momentum strategy. On the other hand, in order to comparing the early-stage and late-stage strategy performance, we also explore the momentum life cycle strategy in Lee and Swaminathan (2000) to construct a two-dimensional momentum, which combined the price return and trading volume. The findings are as follows. Momentum strategy applied to raw materials commodity futures. For example, for the six-month ranking period, 52-weeks high momentum is the best, and price momentum strategy is the worst. When we compare the performance of various investment strategies, turnover momentum is the best, and 52-weeks high momentum is the worst. In momentum life cycle strategy, the profits in early-stage is worse than those in late-stage, since early-stage strategy have more significant negative effects than late-stage strategy. Overall, for the performance of two-dimensional momentum strategy, the 52-weeks high and price momentum strategy is the best, and the momentum life cycle is the worst. If we compare the performances of one-dimensional and two-dimensional momentum strategy, the one-dimensional momentum strategy is better than the two-dimensional momentum strategy.


The Association between Corporate Social Responsibilities Disclosure and Ownership Structure: An Empirical Study on Companies listed in ASE

Dr. Mahmoud Alkhalaileh, Professor, University of Jordan & Zarqa University, Jordan

Bisan Almasri, The Central Bank, Amman, Jordan



The study aims to examine the association between corporate social responsibility disclosures (CSRD) and ownership structure for 82 non-financial companies listed in ASE over the 5-years period (2008-2012). The study employed correlation and multiple regression analyses to test the study's predictions. Consistent with the study predictions, and most prior studies' findings, empirical results indicate that both foreign ownership and government ownership are significantly positively  associated with firm's CSR activities, while managerial ownership is negatively significantly associated firm's CSR activities. However, contrary to the study's predictions institutional holding is negatively associated with CSR disclosures. In addition, the study's results confirms prior studies' findings which report positive association between firm's age and size with CSR disclosures.  However, the study did not detect evidence in support of significant association of CSR disclosure with ownership concentration. The purpose of this study is to examine the association between corporate social responsibility disclosures and ownership structure for non-financial companies listed in ASE over the 5-years period (2008-2012). Five ownership structure variables (Institutional ownership, foreign ownership, Managerial ownership, Government ownership and Ownership concentration) are hypothesized to be associated with the level of corporate responsibility disclosures.  CSR disclosures have been the focus of substantial theoretical and empirical researches in developed and developing economies. The issues of social responsibility disclosures and factors affecting or associated with the corporate social responsibility practices have attracted the attention of accounting researchers since 1980's (Shoji Y. et al., 2011). Many empirical studies have examined the CSR disclosure and practices and how they are related to several firm specific variables. Early studies in this line of research focused on the impact of CSR practices and CSR disclosure on firm's financial performance (i.e. Waddock & Graves, 1997; Ehsan and Kaleem , 2012). Although the results of the prior studies were mixed, most of the prior studies findings are supporting positive association between CSR disclosures and firm's financial performance. Aguilera et al. (2007) contented that the evidences on the positive associations between the CSRD and corporate performance are overwhelming and call for closure of debate on this issue. In this line of research, little research has examined the association between CSR disclosure and ownership structure, and even most of them focused on developed economies, such as USA and Western Europe (Won et al., 2011). However, little attention has been given to this issue in emerging economies. The purpose of this study is to examine the association between firm's ownership structure and the extent of social responsibility disclosure (SRD) by non-financial companies listed in ASE over the 5-years period (2008-2012), in attempt to obtain empirical evidence on the hypothesized association between CSR disclosure and ownership structure variables.  Although a considerable attention has been given to this issue in well developed economies, only few studies have examined this issue in emerging markets. This study attempts to complement prior studies by first, investigating the status of social and environmental disclosure by non-financial corporations listed in ASE. Secondly trying to obtain empirical evidences on the relation between the level CSR disclosure by Jordanian companies and five ownership structure dimensions (Institutional Foreign ownership, Managerial ownership, Government ownership and Ownership concentration). Few studies had examined this issue in emerging markets. To the best of our knowledge, the relation between these ownership structure variables & CSRD has not been investigated for Jordanian companies. Given that firms in emerging economies are embodied in different business systems from those of western firms system (Aguiera et al. 2007: Campbell, 2006) reexamining this issue in emerging market is warranted.   The study is expected to contribute to the literature by providing empirical evidence on the relation between CSRD and ownership structure from a small emerging market. The conclusion of prior studies which carried out in developed capital markets may not be considered applicable to emerging capital markets, due to differences in corporate governance system, business systems, social and economic systems and managerial value and attitude toward corporate social responsibility. The findings of this study may help researchers and other interested parties in understanding the relation between firm's engagement in CSR activities and ownership structure variables. In addition, the study's findings could also be helpful to policy makers and regulators interested in enhancing CSR engagement by Jordanian firms. The remainder of the paper is organized as follows. The next section provides summary of prior related studies and study's hypotheses.  The third section presents methodology and research design. Section four presents empirical results and discussions. The last section concludes the study. .


Features and Impact of Foreign Demand on Real Estate Market: The Case of Croatia

Dr. Ana Rimac Smiljanic, University of Split

Katarina Matkovic, University of Split



The aim of this paper is to clarify the role of foreign demand on the specific, geographically limited real estate market of islands. Namely, in the last decade the Croatian islands have become extremely popular among foreigners and they have become an important factor in the creation of demand for real estate and consequently the market price. Their effects are manifested in two ways. After financial liberalization the number of foreign investors in second homes on Croatian islands increased rapidly. At the same time, the number of foreign tourist visits increased greatly and therefore profitability of investment in touristic real estate become high. All of that resulted in a rapid increase in real estate prices on islands. That changed traditional life on Croatian islands. Therefore, we conducted primary and secondary research with the aim of capturing the features and impacts on real estate markets that foreigners have brought to the island economy. The results show that foreigners have brought a positive effect on the local economy. However, indirectly these changes have brought negative effects on the traditional way of life on Croatian islands.  There is general acknowledgment that financial liberalization and EU accession increase real estate prices in a country (Kovačević, Čveljo, 2008). Further, the development of tourism increase earnings from real estate connected to this sector and therefore additionally puts up the pressure on the demand and rise of real estate prices. The majority of foreign interest in tourism visits and investments in real estate have been on Croatian islands in the Adriatic Sea. This assertion raises two questions. First, do foreign investors have an impact on island economy, both directly and indirectly? Second, have these changes brought positive or negative effects on life on Croatian islands? To answer these questions the research presented in this paper takes the case of the Croatian island of Hvar, the most popular touristic island in Croatia. In our analysis, we have concentrated on islands because by their nature the supply of real estate is limited and therefore the effects of foreigner demand presence is the most visible. Namely, in situations where the supply of real estate is limited, the major factor on market price formation is demand (Glickman, 2014). Additionally, increased earnings from the touristic sector have changed the domestic demand for real estate but have also changed the demand for labour forces, public and private services and products and the traditional way of living on islands. The literature about this problem is rare and mostly limited to the touristic sector (Družić, Čavrak, Tica, 2007, Datzira-Masip, J., Juliá-Eggert, M., 2008). The expansion of second homes on Croatian islands has been largely ignored by the scientific community which has left room for increasing xenophobia amongst the local population. Therefore, with this research we want to capture the perception of the local population about the effects that foreigners have brought to the island. Hence, we have formulated two hypotheses listed below: H1: Arrival of foreigners has a significant impact on the growth of real estate prices on the island. H2: Local population and local government have direct and indirect benefits from the arrival of foreigners to the island. By finding an empirical answer to these research questions and accepting or rejecting these hypotheses we are hoping to clarify the role that foreigners are having on the island economy and traditional way of life.   Rising real estate prices and unaffordable homes for local population are problems closely associated to the foreign investment in second homes and increased earnings from the touristic sector on Hvar Island. Since the year 2000, the island of Hvar has been living its touristic renaissance. Every year new touristic records are achieved, both in the number of touristic visits and in the total earnings from tourism. It is estimated that more that 30% of the total labour force on the island is directly employed in the touristic sector. However, it is considered that the number is much higher when other services and products are taken into account, which are consumed by tourists to the island. This touristic growth changed demand for products, services and real estate on the Island. Table 1 presents estimated consumption of foreign tourists of the accommodation facilities on the Island of Hvar according to the type of accommodation. Table 2 presents the estimated average revenue per bed according to type of accommodation in different cities on Island of Hvar.  As it is shown in Tables 1 and 2 the hotels are leaders in estimated earning and their guests have a higher level of consumption during their touristic visit. Touristic accommodations facilities in other types of real estate have a smaller estimated income. Nevertheless, taking into account the needed level of initial investment, comparing other investment in touristic accommodation facilities to the hotel investment, it can be concluded that they are a very attractive investment alternative. In addition, if we compare the ratio of overnight stays, as a measure of possible income from real estate and the average asking price of real estate, we can state that there is a high correlation between them. Figure 1 presents these values for the largest towns of Hvar Island. The exception to this trend is the town of Sućuraj. The high real estate prices probably reflect the higher expectation of touristic expansion in the future of that infrastructurally undeveloped part of the Island, but with beautiful natural surroundings.  The touristic take-off of Hvar was followed up with the expansion of foreign demand for second homes.


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