Omar A. Esqueda

Income Inequality and Obesity Prevalence Among OECD Countries

Using recent pooled data from the World Health Organization Global Infobase and the World Factbook compiled by the Central Intelligence Agency of the United States, this study assesses the relation between income inequality and obesity prevalence among 31 OECD countries through a series of bivariate and multivariate linear regressions. The United States and Mexico well lead OECD countries in both obesity prevalence and income inequality. A sensitivity analysis suggests that the inclusion or exclusion of these two extreme cases can fundamentally change the findings. When the two countries are included, the results reveal a positive correlation between income inequality and obesity prevalence. This correlation is more salient among females than among males. Income inequality alone is associated with 16% and 35% of the variations in male and female obesity rates, respectively, across OECD countries in 2010. Higher levels of income inequality in the 2005-2010 period were associated with a more rapid increase in obesity prevalence from 2002 to 2010. These associations, however, virtually disappear when the US and Mexico have been excluded from the analysis. Findings from this study underscore the importance of assessing the impact of extreme cases on the relation between income inequality and health outcomes. The potential pathways from income inequality to the alarmingly high rates of obesity in the cases of the US and Mexico warrant further research.

Overreaction Evidence from Large-Cap Stocks

Purpose - – The purpose of this paper is to assess the performance of a contrarian investment strategy focusing on frequently traded large-cap US stocks. Previous criticisms that losers’ gains are not due to overreaction but due to their tendency to be thinly traded and smaller-sized firms than winners are addressed. Design/methodology/approach - – Portfolios based on past performance are constructed and it is examined whether contrarian returns exist. The Capital Asset Pricing Model (CAPM), Fama and French three-factor model and the Carhart’s (1997) momentum portfolio are used to test whether excess returns are feasible in a contrarian strategy. Findings - – The results show an asymmetric performance following portfolio formation. Although both, winners and losers portfolios, have gains during holding periods, losers outperform winners at all times, and with a differential of up to 29.2 per cent 36 months after portfolio formation. Furthermore, the loser and the winner portfolios’ alphas are significant, suggesting that the CAPM and the multifactor models are unable to explain return differentials between winners and losers. Our evidence supports two main conclusions. First, stock market overreaction still holds for a sample of large firms. Second, this is robust to the Fama and French’s (1993, 1996) three-factor model and Carhart’s (1997) momentum portfolio. Findings emphasize the relevance of a contrarian strategy when rebalancing investment portfolios. Practical implications - – Portfolio managers can improve stock returns by selling past winners and buying previous loser large-cap US stocks. Originality/value - – This paper is the first, to the authors’ knowledge, to examine frequently traded large-cap US stocks to avoid infrequent trading and size concerns.