Notes on "Investment Decision Making and Risk" (Virlics, Agnes)

Investment Decision Making and Risk

Virlics, Agnes

Procedia Economics and Finance, 2013, Vol.6, pp.169-177

Avram et al. (2009) define the universal investment as expenditure made now to make gains in future. 

Harcourt et al., 1967:

The decision, whether to make an investment or not, depends upon the investor’s profit expectation, the cost of the asset and availability to finance the investment, and how to finance that.

the paper shows how investment decision is approached by the economic theory, what role has the risk and uncertainty in the decision making process

decision making process is based on:

objective, punctual analysis of the investment and its possible outcomes and its calculated payoff

subjective perspective of they investor 

Notes on "The Puzzle of Persistently Negative Interest Rate-Growth Differentials; Financial Repression or Income Catch-Up?" (Shabunina, Anna ; Escolano, Julio ; Woo, Jaejoon)

The Puzzle of Persistently Negative Interest Rate-Growth Differentials; Financial Repression or Income Catch-Up?

Shabunina, Anna ; Escolano, Julio ; Woo, Jaejoon

Working Paper Series from RePEc, 2011

The interest rate-growth differential (IRGD) shows a marked correlation with GDP per capita.

The differential between the average interest rate paid on government debt and the growth rate of the economy is a key parameter in assessing the sustainability of government debt. This is founded in the logic of debt dynamics: the higher the IRGD, the larger the fiscal effort necessary to place the debt-to-GDP ratio (henceforth the debt ratio) on a downward path, or even to stabilise it.

The actual behaviour of IRGDs in a historical cross-country context encompassing economies of a broad range of income levels has received little attention in the literature.

Negative IRGDs constitute a powerful debt-stabilising force in many non-advanced economies, driving down debt ratios or keeping them stable even in the presence of persistent primary deficits.

non-advanced economies may see their IRGDs increase markedly in the not so distant future - well before their GDP per capita catches up with advanced economies. Rising IRGDs in EMEs could be a relatively fast process, a side effect of financial development and global integration.

Notes on "Fiscal policy and financial market movements" (Tagkalakis, Athanasios)

Fiscal policy and financial market movements

Tagkalakis, Athanasios

Journal of Banking and Finance, 2011, Vol.35(1), pp.231-251 [Peer Reviewed Journal]

examine the impact of changes in aggregate asset prices, residential, commercial property and equity prices, as well as the effect of the difference between long and short term nominal interest rates on fiscal balances

literature:

Gali and Perotti, 2003

Celasun et al., 2006

Golinelli and Monigliano, 2009

findings:

primary balances respond conutercyclically over the cycle, reflecting a pro cyclical current revenue and counter cyclical current spending behaviour

the discretionary response of fiscal policy makers to cyclical economic conditions is not so pronounced

the automatic and the discretionary fiscal policy responses work in the same direction in the first part of the sample; therefore, in the period 1991-2005, a fall in the output gap variable generates a negative automatic response in fiscal balances which is countered by a positive discretionary response

the steepening of the slope of the yield curve contributes to fiscal discipline, it improves fiscal balances by inducing expenditure cuts

there is evidence that an increase in asset prices affects in a positive and significant manner primary balances

the importance of commercial property prices has diminished

residential property and equity prices have become more important determinants of primary balances

Notes on "Understanding and knowledge of credit cost and duration: Effects on credit judgements and decisions" (McHugh, Sandie ; Ranyard, Rob ; Lewis, Alan)

Understanding and knowledge of credit cost and duration: Effects on credit judgements and decisions

McHugh, Sandie ; Ranyard, Rob ; Lewis, Alan

Journal of Economic Psychology, 2011, Vol.32(4), pp.609-620 [Peer Reviewed Journal]

measures of consumer credit cost and using them appropriately in credit judgements and decisions

UK adults’ understanding of the relation between two key measures of credit cost, APR and TC:

participants consistently overestimated TC, can be understood in terms of estimation strategies

participants had an appropriate understanding of the relation between APR and TC

The common error we found in understanding the relationship between APR and FC or TC could lead people to make poorer credit decisions

the effect of APR and TC information on credit decisions:

APR information would influence credit decisions. This was broadly confirmed

TC information would moderate the effect of APR information

Notes on "Asymmetric Information and Consumer Demand" (Ismagilova G. N. ; Danilina E. I. ; Gafurov I. R. ; Ismagilov R. I. ; Safiullin L. N.)

Asymmetric Information and Consumer Demand

Ismagilova G. N. ; Danilina E. I. ; Gafurov I. R. ; Ismagilov R. I. ; Safiullin L. N.

8300 defect for UNSW Asian Social Science, 01 November 2014, Vol.10(24) [Peer Reviewed Journal]

“study the peculiarities of the formation the consumer demand for durable goods, the so-called experience goods in markets with asymmetric information”

“Conclusion

 The nature of information asymmetry in the markets of durable goods is that in addition to the well-known

nature of the uneven distribution of information of the quality, it’s found out an uneven distribution of

information between producers and consumers of the market share of high-quality goods and low-quality goods.

A direction of reducing information asymmetry is proposed to the market shares of goods of high quality and

low quality based on distinguishing producers of high-quality goods and low-quality goods by consumers and by

sharing of price and advertising signals of quality. In this case, it is determined that with increasing information

asymmetry there is a reduction of the consumer share of high-quality goods compared with low-quality goods,

which is accompanied by a shift of the resulting curve asymmetric demand towards the demand curve of

low-quality goods and on the contrary. Furthermore, it is found out that the resulting curve of asymmetric

demand intersects the curves of the supply of high-goods and low-quality goods in the points causing the two

equilibriums:

Dаи(p) = Sk(p) , Dаи(p) = Sн(p)  (5)

the equilibrium at the level of prices p1  and volumes Qk  of high-quality goods and the equilibrium at the level of

prices p2  and volumes Qн  of low-quality goods. This explains the differentiation of goods by quality in markets

with incomplete information.”