Showing papers on "Negative relationship published in 1981"

Inflation and the Valuation of Corporate Equities

Abstract: This paper examines the relationship between inflation and the return on individual corporate securities. This question is of substantial importance in light of the puzzling behavior of the stock market over the last decade. Conventional financial theory holds that equity should be a good inflation hedge since it represents a claim of real rather than nominal assets. Yet a negative relationship between both expected and unexpected inflation and stock market returns has been widely documented. This relationship, which appears to antedate the surge in inflation over the last 15 years. might provide an explanation for the market's surprising recent performance. This paper studies differences across firms in the response of stock market values to changes in expected inflation in an effort to explore the reasons for the aggregate negative relationship between inflation and stock market values. Two opposing hypotheses about the impact of inflation on market valuation are contrasted. The "inflation illusion" hypothesis holds that investors are not able to see through nominal accounting statements and respond to reported rather than real profits. The opposing "tax effects" hypothesis holds that firms which report spuriously high profits due to inflation are penalized because the extra tax burden incurred reduces real profits. The results from the 1970's strongly bear out the predictions of the tax effects hypothesis. Aggregate calculations suggest that the interaction of inflation and taxation can account for a large part of the decline in the stock market which has been observed over the past decade. A significant part of the remainder appears to be due to increasing investor awareness of the need to adjust for historic cost depreciation.

Causal Relationships in Australian Wage Inflation and Minimum Award Rates

Abstract: When variables are correlated in time-series studies, it is often difficult to determine which is cause and effect, and in what sense. This paper applies multivariate time-series tests of causality to Australian wage, price, minimum wage award, labour demand and strike (working days lost) variables for 1953-76. The results provide tentative support for a model in which strikes are exogenous:the size of Arbitration Commission awards is determined by strikes (suggesting that a trade union capture theory of Arbitration Commission regulation may apply):money wages are determined by minimum wage awards; and the demand for labour variable (measured in this paper by the ratio of actual to potential output) is determined (in a negative relationship) by money wages.

Farm Size and Productivity Revisited

Abstract: The negative relationship between farm size and output per acre has been tested for Pakistan and it is concluded that the observed negative or positive correlations between land productivity and the farm size in the case of Pakistan are the result of over -aggregation. Land productivity curve is U-shaped; the productivity is high on desperately small farms due to intensive labour and irrigation use and on largest farms due to capital-intensive inputs. The middle- level efficient entrepreneur farmer has so far failed to emerge.

Women's work, fertility, and competing time use in Mexico City.

Abstract: This study suggests that the degree to which work and childcare are competing uses of time is an important determinant of the female labor force participation (FLFP) fertility relationships in less developed countries. A negative relationship may be found where work and childcare are competing uses of time and no relationship (or even a positive relationship) where they are not. Several measures of competing time use are developed. The competing time use hypothesis is tested using sample survey data from Mexico City. Focus is on correlation not causation. A basic assumption is that FLFP and fertility decisions are made jointly and depend on income prices tastes wages employment opportunities and current family size. The empirical work deals with the direction and significance of partial correlations between FLFP and fertility and whether these correlations vary predictably according to the degree to which work and childcare are competing uses of time. The data were drawn from a multistage stratified clustered probability sample of married Mexican women living in the Mexico City Metropolitan Area. All women were living with their husbands at the time of the interview in early 1971. Sample size was 798. The empirical results provide strong support for the hypothesis that a negative FLFP fertility relationship will exist only if work and childcare are competing uses of time. When no distinction was made regarding competing time use there was no significant FLFP fertility relationship. Women who had worked at some time since marriage had very similar levels of fertility to women who had not. When distinctions regarding competing time use were made large fertility differences were evident. Workers for whom market work and childcare cannot be performed simultaneously had significantly lower fertility than nonworkers; workers for whom market work and childcare could be performed simultaneously had similar or higher fertility than nonworkers. Full time workers had significantly lower fertility than nonworkers but part-time workers did not. The modern sector workers had significantly lower fertility than nonworkers but traditional sector workers did not. Policies that deal with female employment in developing countries need to focus on both levels of employment and the nature of that employment.

Inflation and the Valuation of Corporate Equities

Abstract: This paper examines the relationship between inflation and the return on individual corporate securities This question is of substantial importance in light of the puzzling behavior of the stock market over the last decade Conventional financial theory holds that equity should be a good inflation hedge since it represents a claim of real rather than nominal assets Yet a negative relationship between both expected and unexpected inflation and stock market returns has been widely documented This relationship, which appears to antedate the surge in inflation over the last 15 years might provide an explanation for the market's surprising recent performance This paper studies differences across firms in the response of stock market values to changes in expected inflation in an effort to explore the reasons for the aggregate negative relationship between inflation and stock market values Two opposing hypotheses about the impact of inflation on market valuation are contrasted The "inflation illusion" hypothesis holds that investors are not able to see through nominal accounting statements and respond to reported rather than real profits The opposing "tax effects" hypothesis holds that firms which report spuriously high profits due to inflation are penalized because the extra tax burden incurred reduces real profits The results from the 1970's strongly bear out the predictions of the tax effects hypothesis Aggregate calculations suggest that the interaction of inflation and taxation can account for a large part of the decline in the stock market which has been observed over the past decade A significant part of the remainder appears to be due to increasing investor awareness of the need to adjust for historic cost depreciation

Author's Reply: Underwriting Risk and Return: Some Additional Comments

Abstract: In a recent paper, the author suggested that one would expect to find an inverse relationship between mean loss ratios and standard deviations of the associated annual loss ratios by state for automobile insurance if this coverage were properly priced.1 In other words, one would expect lower underwriting profits to be associated with higher loss ratios, and therefore, a company would have to anticipate lower underwriting risk in order to have an economic incentive to sell automobile insurance in such states. Accordingly, one would expect that the average loss ratios and standard deviations for a given coverage in the various states would vary inversely with each other if underwriting risk were properly reflected in the insurance rates for the coverage, other things being equal. In order to test this economic hypothesis for various automobile insurance coverages, the correlation coefficient between the mean loss ratios and standard deviations for the various states was calculated to determine if an inverse or negative relationship existed. However, a positive rather than a negative relationship was found between these variables. The author found this empirical relationship to be somewhat surprising.

Real Wages, Business Cycles and the Speed of Adjustment of Employment in Manufacturing Sectors of Industrialized Countries

Abstract: In a recent paper, Otani (1978) presents empirical evidence on the relationship between real wages and output in the manufacturing sectors of fourteen industrialized countries. He estimates his coefficient 13 by regressing the percentage change in real wages on the percentage change in real output, finding a negative relationship that is significant at the 5% level for six countries, a non-significant negative relationship for five countries and a positive relationship for three countries (Germany, the Netherlands and the United States). Otani puts forward, but does not test, a hypothesis concerning the inter-country differences in the estimated values of 18. The present paper provides such a test and rejects Otani's hypothesis. Otani offers a tentative explanation of the positive correlation between real wages and business cycles in Germany, the Netherlands and the United States. He hypothesizes that, in these countries, it is "too costly for firms to fire the existing employees during a recession and hire new ones during a boom period" (Otani, 1978, p. 303). Otani does not test this hypothesis. If we had data on the costs of adjusting employment levels in the different countries, then we could provide a direct test of the hypothesis; but such data are not available. However, an indirect test is possible. Following work by Brechling (1965), Brechling and O'Brien (1967), Solow (1968), Ireland and Smyth (1970) and others, there is a substantial body of literature concerned with the short-run adjustment of labor demand to cyclical fluctuations-the short-run employment function literature. This may be used to test Otani's hypothesis. Otani's hypothesis involves the existence of a possible disequilibrium condition, such that a firm may be producing at points off its long-run labor demand schedule. The short-run employment function model is a model specifically designed to handle disequilibrium. It has, as its basic equation, Et E,-, = X(E*t Et__) where E is the natural logarithm of employment, E* is the natural logarithm of desired or optimal employment (which is a function of output and other variables), and subscripts involving t indicate the time period. The proportion of the logarithmic difference between the optimal and actual employment levels eliminated in any period is X (where 0 < X < 1). Employment is only on the long-run labor demand schedule if the system is in equilibrium, otherwise E*t * E,-, and Et Et-, * 0; thus the model does specifically allow for labor inputs off the demand for labor schedule in disequilibrium. The smaller is X, the slower is the speed of adjustment; that is, the less responsive is employment to output variations. Solow (1968) has shown that the speed of adjustment is slower, the more costly it is to adjust employment. Otani's hypothesis is that countries with positive ,Bs, Germany, the Netherlands and the United States, have high costs of adjustment, relative to countries with negative 8s. It follows directly, therefore, that the Otani hypothesis implies that the countries with positive f3s will have low values of X relative to those countries with negative f3 coefficients. It is thus possible to use the short-run employment function evidence to test the Otani hypothesis. Table 1 gives Otani's estimates of / together with two sets of estimates of X: XB is from Brechling and O'Brien (1967); XS is from a set of results prepared as

Fertility and female work status in the USSR

Abstract: A very high proportion of women in the USSR are gainfully employed. A question of major concern to Soviet demographers is the effect of such high female employment rates on fertility. Soviet empirical studies of the relation between the number of children a woman has borne and the number of years she has worked reveals a rather clear-cut negative relationship but these studies can be criticized because they fail to hold constant other relevant variables such as educational attainment and marital status. It is clear that the relatively high enrollments of Soviet children in preschool and extended day school facilities help to ease the overload brought about by the double burden of work and domestic responsibilities. The American demographer Mazur challenges the belief that a high rate of female labor force participation leads to a low level of fertility. Mazur is correct in his finding that variations in female-labor force participation in local areas of the Soviet Union in 1959 can explain practically none of the variations in fertility in these areas. Yet the reason is not so much that the relationship between fertility level and female work participation level is less strong in the USSR than in other countries but rather that in the Soviet Union there is so little regional variation in the level of female work participation. An important feature of the relationship between these 2 variables in the USSR was that the relationship between female work participation and fertility in 1959 was more pronounced in the rural than in the urban portions of the local areas. The period from 1959-1970 was noteworthy for a substantial increase in female work activity as well as a substantial reduction in the birth rate. A multivariate analysis of change in fertility from 1959-1970 among the 15 Soviet Union Republics showed that increase in the female work-participation rate was negatively related to fertility increase.