Robert F. Mulligan

Fractal Analysis of Highly Volatile Markets: An Application to Technology Equities

This paper examines technology equity price series using five self-affine fractal analysis techniques for estimating the Hurst exponent, Mandelbrot-Levy characteristic exponent, and fractal dimension. Techniques employed are rescaled-range analysis, power-spectral density analysis, roughness-length analysis, the variogram or structure function method, and wavelet analysis. Evidence against efficient valuation supports the multifractal model of asset returns (MMAR) and disconfirms the weak form of the efficient market hypothesis (EMH). Strong evidence is presented for antipersistence of many technology equities, suggesting markets do not price all technology securities efficiently, or equally efficiently.

Short Sea Shipping: Alleviating the Environmental Impact of Economic Growth

This paper quantifies the potential environmental benefit of short sea shipping. Critical strategic issues relevant to formulating public policy are developed. Coastal shipping has traditionally been a major sector of the maritime industry. This continues to be the case in the European Union, but the sector has diminished in relative importance in North America as the transport industry has become increasingly dominated by less environmentally-friendly interstate trucking and railroads. Congestion threatens to overwhelm overland carriage and limit economic growth. An alternative strategy is to revitalize coastal shipping as short sea shipping to alleviate traffic congestion and enhance economic development by maintaining freight flow efficiency. Because ship transport offers higher fuel economy and lower emission of harmful pollutants, the environmental benefits of short sea shipping over land transportation can be quantified and used to inform public policy.

A Fractal Analysis of Foreign Exchange Markets

Long memory in foreign exchange markets is examined for the post-Bretton Woods period using Los [1991] modified rescaled range (R/S). Conventional R/S techniques are presented for comparison. Unlike conventional techniques, Los analysis is robust to short-term dependence and conditional heteroskedasticity. Significant long memory and fractal structure are conclusively demonstrated for all 22 countries studied, indicating that traditional econometric methods are inadequate for analyzing foreign exchange markets. However, short-term dependence and conditional heteroskedasticity are also present, making it difficult to describe the nature of the long memory process or processes in foreign exchange markets. The average nonperiodic cycle ranges from 7 months for Canada and the United Kingdom, to approximately 20 months for Austria, Finland, France, Germany, Ireland, Japan, Malaysia, Netherlands, Sweden, and Switzerland. No support is found for the efficient market hypothesis. Results broadly agree with those provided by less sophisticated, less robust R/S methodologies and suggest the possibility that traditional technical analysis should be able to achieve systematic positive returns.

Maritime businesses: volatile stock prices and market valuation inefficiencies

This paper examines twelve maritime equity price series for behavioral stability and efficient market pricing for the 1989-2002 period. Five self-affine fractal analysis techniques for estimating the Hurst exponent, Mandelbrot-Levy characteristic exponent, and fractal dimension are employed to explore the price series fractal properties. Techniques employed are rescaled-range analysis, power-spectral density analysis, roughness-length analysis, the variogram or structure function method, and wavelet analysis. Formal hypothesis tests provide evidence of a change in market behavior between the 1989-1994 and 1995-2002 periods. Hypothesis tests also provide evidence against efficient valuation of the maritime businesses sampled, supporting the multifractal model of asset returns (MMAR) and disconfirming the weak form of the Efficient Market Hypothesis (EMH). Strong evidence is presented for antipersistence of some maritime equities in the sample, suggesting market participants habitually overreact to new information, and never learn not to. An important implication of this finding is that financial derivatives based on the sampled equities cannot be efficiently priced.

Shortage and Currency Substitution in Transition Economies: Bulgaria, Hungary, Poland, and Romania

This paper examines currency substitution in Bulgaria, Hungary, Poland, and Romania during the end of central planning and transition to market economies. Before liberalization, central European economies faced increasing shortage and repressed inflation in the official sector. Households held substantial wealth in real assets and foreign currency. Furthermore, part of their savings was held as hunting money against potential opportunities to buy in bulk at bargain prices in official stores or pay a premium price on the black market. The shift from centrally-planned to market economies is modeled with a shortage variable. Foreign currency demand and consumption functions are estimated by the Johansen procedure. Environmental constraints play a key role in interpreting estimates. The official sector shortage is an important determinant of foreign currency demand in each country.

Transactional Economics: John Dewey's Ways of Knowing and the Radical Subjectivism of the Austrian School

The radical subjectivism of the Austrian school of economics is a special case of Deweys ways of knowing. Austrian economists adopted an Aristotelian deductive approach to economic issues such as social behavior and exchange. In Deweys contrasting view, the scientist commends new, alternative ways of knowing to the scientific community, offering more profound insight or more efficacious practical applications. Alternative ways of knowing which do not offer practical or intellectual benefits are to be rejected. Deweys transactional strategy, asserting knowledge as ways of knowing, suggests a broader and more fundamental critique of the socialist position in the calculation debate. The arguments presented by the Austrian school can be reformulated in terms of Deweys transactional philosophy.

An Empirical Examination of Minsky’s Financial Instability Hypothesis: From Market Process to Austrian Business Cycle

Abstract Minsky proposed classifying firms in three categories: (1) hedge finance units which borrow no more than they are able to service in interest and principal out of operating cash flows, (2) speculative finance units which are overleveraged to the point where they can service interest on their debt out of operating cash flows, but cannot repay the principal, and thus must continually roll over their existing debt, and (3) Ponzi finance units, whose operating cash flows are inadequate even to service interest on their debt. In Minsky’s financial instability hypothesis (FIH) protracted prosperity leads endogenously to firms overleveraging themselves and transforming a market dominated by hedge finance into one dominated by speculative and Ponzi finance. Since Ponzi finance units are forced to sell off assets to service their existing interest payments, once the market is sufficiently dominated by Ponzi finance units, this creates an oversupply of assets offered for sale, and the resulting debt deflation causes a financial crisis and drastic shortage of liquidity. It appears this crisis state can be brought about by a deceptively low critical mass of Ponzi and speculative finance units. This paper uses a large 2002–2009 quarterly data set of all publicly traded North American firms and foreign firms traded on North American exchanges, a total of 8,905 stocks. Financial ratios are used to classify these firms in each quarter according to Minsky’s FIH categories. Market value is used to weight the categories, and average betas are computed as measures of volatility. Results provide dramatic support for the FIH. The FIH is then reinterpreted in terms of Austrian business cycle (ABC) theory, which depends on inflationary credit expansion to drive the unsustainable prosperity. According to Minsky’s FIH, unsustainable prosperity emerges endogenously as long periods of economic expansion make borrowers and lenders alike more willing to engage in investment activities for which they fail to see the inherent risk. It becomes clear that this process is amplified and exacerbated by credit expansion. Minsky’s FIH helps flesh out some of the missing dynamics of the malinvestment liquidation phase of ABC theory, and the two views turn out to be surprisingly complementary.

The public administrator: Regulating for maritime transport efficiency

One role often fulfilled by public administrators is to regulate private enterprise in the public interest. The academic literature has not developed this area fully because public administration is not always tasked with this function. Nevertheless, when regulation forms a part of the responsibilities of the public administrator, it is among the most important. An essential foundation for effective regulation is a complete understanding of the implications and impact of regulatory action. In the absence of regulation, entrepreneurial awareness is applied in the private sector exclusively to satisfying consumer wants. In a regulated market, the entrepreneur’s focus is shifted toward regulatory imperatives. Regulation offers non-market opportunities for entrepreneurial innovation, as well as imposing new market constraints. This paper examines regulation of the maritime industry by the US federal government as an example.