Hiroaki Suenaga

Measuring bias in a term-structure model of commodity prices through the comparison of simultaneous and sequential estimation

This study examines bias in a term-structure model of commodity prices in specifying the true stochastic dynamics of underlying spot price. The bias is quantified by comparing the model estimated by the conventional method of estimating all model parameters simultaneously with a panel of futures prices and the model estimated by an alternative method of estimating model parameters in two steps. In this alternative approach, a subset of model parameters is first estimated on the first difference of observed futures prices so that these parameters are free from bias in specifying deterministic price variation and the dynamics of the underlying state variables. In the second step, the remaining model parameters are estimated on the futures price equations, while holding the parameters estimated in the first step. Empirical applications to four commodities (gold, crude oil, natural gas, and corn) reveal that the two-factor model widely considered in the literature is subject to a misspecification bias of substantial size. Out-of-sample forecast test indicates that, for three of the four commodities considered, the model estimated by the sequential method yields a considerably more accurate price forecast than the model estimated by the simultaneous method.

E-commerce transactions, the installed base of credit cards, and the potential mobile E-commerce adoption

ABSTRACT Mobile e-commerce (m-commerce) relaxes consumers’ temporal and geographic purchasing constraints and encourage the establishment of omnichannel markets. It is often argued that rapid increase in smartphone penetration is the primary driver of m-commerce adoption, whereas others contend that early adoption of m-commerce applications are mostly by “relatively heavy” Internet commerce users. Brynjolfsson et al. (2013) argue that rapid increase in smartphone penetration is the primary driver of m-commerce adoption, whereas Einav et al. (2014) contend that early adoption of m-commerce applications are mostly by ‘relatively heavy’ Internet commerce users. This article explores strength of the influences within a nested multiple-service framework, where the reduced-form econometric analysis allows for interdependency between m-commerce and e-commerce services, and the installed base of credit cards. The results reveal a complex situation in which credit cards facilitate e-commerce services, whereas m-commerce adoptions are driven by prior e-commerce and online transaction activity. Also, higher respondent incomes are negatively associated with proposed m-commerce adoption. Surprisingly, privacy concerns do not affect proposed adoption independently; however, an interaction term suggests privacy remains an adoption barrier for the older persons.

Understanding the equilibrium dynamics of European broadband diffusion

ABSTRACT This study examines the equilibrium dynamics of European broadband markets within a simultaneous demand and supply model. Unlike alternative reduced-form approaches, our model explicitly incorporates key features of the demand for network services: a bell-shaped distribution of heterogeneous consumers and presence of network effects. Our empirical analysis of European countries reveals that although the demand for broadband services exhibits strong network effects they are not ‘strong enough’ to archive critical mass in these markets. Furthermore, the systems equilibrium dynamics show that even though the technology is introduced at very high prices initially, the expansion of suppliers’ infrastructure investment reduces the equilibrium prices rapidly in the first few years. This price reduction, combined with strong network effects, stimulates expansion of the subscription base until consumers at the peak of the distribution enter the market. Convergence to the steady state happens at around 8 years for service price and 15 years for subscription. Comparative static analysis illustrates that steady state equilibrium subscription relates positively to national population density, inter-platform concentration, and the share of unbundled local loop, while the equilibrium price relates inversely to these factors. Other supply and demand factors (viz. intra-platform concentration, income and education) have minimal impact on the steady state equilibrium.

The determinants of price in 3G spectrum auctions

ABSTRACT This article examined the empirical relationship between prices paid for national 3G wireless licenses when spectrums were sold by auction. The reduced-form modelling approach was based on the premise that auction design features can, and do, affect both final (revenue) and intermediate (viz., auction competitiveness and license assignment) auction outcomes. Importantly, the analysis recognizes, and explicitly allows for, the endogeneity of bidder entry and sample selection arising from an absence of bidding. Generally, these key features have only received attention in isolation. In particular, the study addressed the principal question of: which regulator chosen auction design variables determine prices paid in spectrum auctions? The analysis showed that flexible-package formats increased prices paid, and that higher reserve prices had a dampening effect. The article also showed that longer license terms and more competitive auctions (as measured by the bidders-to-licenses ratio) enhance prices paid.

Do economic, institutional or political variables explain regulated wholesale unbundled local loop rate setting?

ABSTRACT This study examines OECD fully unbundled and line-sharing monthly wholesale prices for 2002–2008. Although both series are well explained by the models, the principal contribution of the research is that economic, institutional and political factors explain mandated wholesale rate settings. The study finds evidence of both regulatory capture (to benefit incumbents) and retail margin setting to encourage entry (to benefit entrants).

A flexible model of term-structure dynamics of commodity prices: a comparative analysis with a two-factor Gaussian model

This study compares two approaches to modeling a term structure of commodity prices. The first approach specifies the stochastic process of the underlying spot price and derives from the stipulated spot price dynamics valuation formulas of futures and other derivative contracts through no arbitrage. The second approach, as introduced by Smith [J. Appl. Econometr., 2005, 20, 405–422], is to model the dynamics of the entire futures curve directly by a set of common stochastic factors and to specify factor loadings by flexible functions of time-to-maturity and contract delivery month. Empirical applications of the models to four commodities (gold, crude oil, natural gas, and corn) reveal that the volatility of futures prices exhibits more complex dynamics than the pattern implied by the model stipulating a two-factor Gaussian process of the underlying spot price. Specifically, the flexible model of futures returns depicts the maturity effect and, particularly for the three consumption commodities, strong seasonal and cross-sectional variations in variance and covariance of concurrently traded contracts. Incorporating the depicted variance and covariance dynamics leads the flexible model of futures returns to suggest hedging strategies that are more effective than the strategies based on the conventional two-factor Gaussian model.