Bong-Soo Lee

Simulation estimation of time-series models

Abstract A formal econometric treatment of the estimation of the parameters of a fully specified stochastic equilibrium model is proposed. The method, estimation by simulation, yields an estimator which is shown to have an asymptotic normal distribution. A goodness-of-fit test based on a chi-square statistic is also derived.

The dynamic relationship between stock returns and trading volume: Domestic and cross-country evidence

Abstract This paper examines the dynamic relations – causal relations and the sign and magnitude of dynamic effects – between stock market trading volume and returns (and volatility) for both domestic and cross-country markets by using the daily data of the three largest stock markets: New York, Tokyo, and London. Major findings are as follows: First, trading volume does not Granger-cause stock market returns on each of three stock markets. Second, there exists a positive feedback relationship between trading volume and return volatility in all three markets. Third, regarding the cross-country relationships, US financial market variables, in particular US trading volume, contains an extensive predictive power for UK and Japanese financial market variables. Fourth, sub-sample analyses show evidence of stronger spillover effects after the 1987 market crash and an increased importance of trading volume as an information variable after the introduction of options in the US and Japan.

Current Account and Budget Deficits: Twins or Distant Cousins?

This paper develops a two-country micro-theoretic model consistent with the Ricardian equivalence hypothesis. Specifically, tax increases used to retire government debt will not affect private spending or the current account balance. However, increases in government spending, regardless of the means of finance, can be expected to induce a current account deficit. An unconstrained vector autoregression shows some patterns in the recent U.S. data that appear to be inconsistent with the Ricardian equivalence hypothesis. Rigorous testing of the model, however, does not allow the authors to reject the independence of the record federal government budget and current account deficits. Copyright 1990 by MIT Press.

Permanent, Temporary, and Non-Fundamental Components of Stock Prices

This paper identifies various components of stock prices and examines the response of stock prices to different types of shocks: permanent and temporary changes in earnings and dividends, changes in discount factors, and non-fundamental factors. The analysis is conducted in a log-linear structural VAR framework. I find that about half of the yearly variation in prices is not related to either earnings or dividend changes. Time-varying interest rates do not help explain the remaining price movements. However, time-varying excess stock returns (i.e., risk premiums) account for much of the remaining variation in stock prices, in particular, in the postwar period. As a result, the deviation of stock prices from these fundamentals reduces to about 10% of stock price movements and tends to persist for a while before it declines eventually. This finding seems more compatible with a fad rather than a bubble interpretation.

The Response of Stock Prices to Permanent and Temporary Shocks to Dividends

This paper investigates the response of stock prices to dividend shocks in a bivariate model of stock prices and price-dividend spreads. Dividend process is modeled as the sum of a permanent component and a temporary component. By using the stock price valuation (present value) model, the two components are related to stock prices. The stock market responds significantly not only to permanent shocks to dividends, but also to temporary shocks to dividends. Furthermore, initial responses of stock prices to the temporary shocks are as strong as those to the permanent shocks. As a result, substantial variation in stock prices is due to the temporary shocks. This finding provides empirical support for the imperfect information hypothesis that emphasizes the failure of investors to clearly distinguish between the two components of dividends, and also suggests that the observed mean-reverting behavior of stock returns should be explained by incorporating a significant temporary component into stockprices. The price-dividend spreads are primarily accounted for by the temporary shocks to dividends, and respond strongly to them, suggesting that, in response to the temporary shocks to dividends, stock prices respond excessively relative to dividends.

Accounting for real and nominal exchange rate movements in the post-Bretton Woods period

Abstract Using the technique developed by Blanchard and Quah, we decompose real and nominal exchange rate movements into the components induced by real and nominal factors. Nominal shocks have had a minor effect on the real and nominal bilateral exchange rates between the US and Canada, Japan and Germany. There is little evidence of exchange rate overshooting. Real demand, rather than supply, shocks have been responsible for volatile exchange rate movements; structural models of exchange rate determination need to consider such shocks as an important ‘fundamental’ determinant.

The Dynamic Relation Between Returns and Idiosyncratic Volatility

We claim that regressing excess returns on one-lagged volatility provides only a limited picture of the dynamic effect of idiosyncratic risk, which tends to be persistent over time. By correcting for the serial correlation in idiosyncratic volatility, we find that idiosyncratic volatility has a significant positive effect. This finding seems robust for various firm size portfolios, sample periods, and measures of idiosyncratic risk. Our findings suggest stock markets mis-price idiosyncratic risk. There may be some measurement problems with idiosyncratic risk that could be related to nondiversifiable risk.

CRISPR/Cas9-induced knockout and knock-in mutations in Chlamydomonas reinhardtii

Genome editing is crucial for genetic engineering of organisms for improved traits, particularly in microalgae due to the urgent necessity for the next generation biofuel production. The most advanced CRISPR/Cas9 system is simple, efficient and accurate in some organisms; however, it has proven extremely difficult in microalgae including the model alga Chlamydomonas. We solved this problem by delivering Cas9 ribonucleoproteins (RNPs) comprising the Cas9 protein and sgRNAs to avoid cytotoxicity and off-targeting associated with vector-driven expression of Cas9. We obtained CRISPR/Cas9-induced mutations at three loci including MAA7, CpSRP43 and ChlM, and targeted mutagenic efficiency was improved up to 100 fold compared to the first report of transgenic Cas9-induced mutagenesis. Interestingly, we found that unrelated vectors used for the selection purpose were predominantly integrated at the Cas9 cut site, indicative of NHEJ-mediated knock-in events. As expected with Cas9 RNPs, no off-targeting was found in one of the mutagenic screens. In conclusion, we improved the knockout efficiency by using Cas9 RNPs, which opens great opportunities not only for biological research but also industrial applications in Chlamydomonas and other microalgae. Findings of the NHEJ-mediated knock-in events will allow applications of the CRISPR/Cas9 system in microalgae, including “safe harboring” techniques shown in other organisms.

Discrete Dividend Policy with Permanent Earnings

We develop an empirically tractable dynamic model of discrete dividend policy based on an inter-temporal coarse signaling framework in which dividend adjustments signal only substantial variations in the permanent earnings of the firm. Our theoretical framework relates the extent of dividend smoothing to the information content of dividends and also generates refutable predictions on the determinants of high or low smoothing by firms. Using an empirical methodology developed to test our predictions, we show that dividend smoothing is positively associated with factors that adversely impact the investor demand for the firms shares. These factors include risk factors such as earnings variance, low liquidity, and high probability of bankruptcy, as well as the expected return on capital investment by the firm.

Korean bank governance reform after the Asian financial crisis

Abstract We discuss corporate governance reforms in the Korean banking sector, which include reforms in board composition and executive compensation, implemented after the Asian financial crisis in 1997 and examine the stock markets response to the reforms. We find that the banking returns and volatilities became more Granger-causally prior to both KOSPI and finance sector returns after 1998. The announcements of banking governance reforms are generally associated with significant increases in banking sector stock returns. The KIF survey finds that board governance is considered essential in assessing the value of the firm. The participants in the McKinsey survey indicate that they are willing to pay a premium of 24% on average for firms with outstanding corporate governance systems.