Newsletter 149

The negative relationship between stock market P/E ratios and government bond yields seems to have become conventional wisdom among practitioners. Both limited empirical evidence and a misleading suggestion that the model originated in the Fed are used to support the model's plausibility. This article argues that the Fed model is flawed from a theoretical standpoint and reports evidence from 20 countries that casts serious doubt on its empirical merits. Despite its widespread use and acceptance, the Fed model is found to be a failure both as a normative and as a positive model of equity pricing. “Black swans, market timing and the Dow”, Applied Economics Letters, Vol. 16, June 2009, pages 1117-1121. Abstract: Do investors in the US stock market obtain their long-term returns smoothly and steadily over time or is their long-term performance largely determined by the return of just a few outliers? How likely are investors to successfully predict the best days to be in and out of the market? The evidence from the Dow Jones Industrial Average over the 1900-2006 period shows that a few outliers have a massive impact on long-term performance. Missing the best 10 days resulted in portfolios 65% less valuable than a passive investment and avoiding the worst 10 days resulted in portfolios 206% more valuable than a passive investment. Given that 10 days represent 0.03% of the days Do investors in the US stock market obtain their long-term returns smoothly and steadily over time or is their long-term performance largely determined by the return of just a few outliers? How likely are investors to successfully predict the best days to be in and out of the market? The evidence from the Dow Jones Industrial Average over the 1900-2006 period shows that a few outliers have a massive impact on long-term performance. Missing the best 10 days resulted in portfolios 65% less valuable than a passive investment and avoiding the worst 10 days resulted in portfolios 206% more valuable than a passive investment. Given that 10 days represent 0.03% of the days in the sample, the odds against successful market timing are staggering. Alexander Groh Heinrich Liechtenstein “How attractive is Central Eastern Europe for risk capital investors?”, Journal of International Money and Finance, Vol. 28, No 4, June 2009, pages 625-647. Abstract: This paper addresses the attractiveness of Central Eastern European countries for risk capital investors by the construction of a tailored composite measure. Based on a survey among institutional investors, we define six key drivers that determine an emerging country’s attractiveness for this type of investment. Using 42 socio-economic data series as proxies for these six key drivers, we benchmark the Central Eastern European countries with EU-15, Norway, and Switzerland and identify six tier groups of country attractiveness. We highlight socio-economic strengths and weaknesses of CEE and provide guidelines for policy improvements to attract more risk capital funding to spur innovation, entrepreneurship, employment, competitiveness and growth in the emerging region. This paper addresses the attractiveness of Central Eastern European countries for risk capital investors by the construction of a tailored composite measure. Based on a survey among institutional investors, we define six key drivers that determine an emerging country’s attractiveness for this type of investment. Using 42 socio-economic data series as proxies for these six key drivers, we benchmark the Central Eastern European countries with EU-15, Norway, and Switzerland and identify six tier groups of country attractiveness. We highlight socio-economic strengths and weaknesses of CEE and provide guidelines for policy improvements to attract more risk capital funding to spur innovation, entrepreneurship, employment, competitiveness and growth in the emerging region. B. Sebastian Reiche “To quit or not to quit: Organizational determinants of voluntary turnover in MNC subsidiaries in Singapore”, International Journal of Human Resource Management, Vol. 20, No 6, June 2009, pages 1359-1377. Abstract: Adopting an inductive case study approach, the paper develops an empirically grounded theoretical framework for organizational determinants of voluntary turnover of local staff in MNC subsidiaries. The research draws upon semi-structured interviews with HR managers at the Singaporean subsidiaries of six western multinationals. Using the conceptual lens of organizational identification, the study derives two turnover Adopting an inductive case study approach, the paper develops an empirically grounded theoretical framework for organizational determinants of voluntary turnover of local staff in MNC subsidiaries. The research draws upon semi-structured interviews with HR managers at the Singaporean subsidiaries of six western multinationals. Using the conceptual lens of organizational identification, the study derives two turnover determinants related to organizational structure and three turnover determinants related to organizational practices and explores how these organization-level factors may translate into Newsletter Research Division