Transitory Fluctuations Research Articles

Species range shifts of notorious invasive fish species in China under global changes: Insights and implications for management

Due to global changes, e.g., climate change and trade globalization, China is facing an increasingly severe threat from invasive freshwater fish species, which have the potential to cause negative impacts across various aspects and pose significant challenges for their eradication once established. Therefore, prioritizing the understanding of invasive species’ potential ranges and their determinants is vital for developing more targeted management strategies. Moreover, it is equally essential to consider the transitory range dynamics of invasive species that reflect changes in habitat availability and accessibility. Here, we used species distribution models (the maximum entropy algorithm) to assess the potential distributions of six notorious invasive fish species (i.e., Coptodon zillii, Cyprinus carpio, Gambusia affinis, Hemiculter leucisculus, Oreochromis mossambicus, and Oreochromis niloticus) in current and future (i.e., the 2030s, 2050s, and 2070s) periods along with their determinants, under two Shared Socio-economic Pathways scenarios (SSP1-2.6 and SSP5-8.5; global climate model: MRI-ESM2-0). Our results showed that the habitat suitability for the six species substantially benefited from temperature conditions (i.e., annual mean temperature or maximum temperature of warmest month). Throughout the given time periods, dramatic range expansions would occur for C. zillii, G. affinis, O. mossambicus, and O. niloticus, ranging from 38.61% to 291.90%. In contrast, the range of C. carpio would change slightly and irregularly, while H. leucisculus would contract marginally, with losses ranging from 1.06% to 12.60%. By the 2070s, species richness of these species would be relatively high in South, Central, and East China and parts of Southwest China. Furthermore, transitory fluctuations in the species ranges for all six species were observed throughout the entire time period (the 2030s–2070s). Given the range shifts for each species during different time periods, as well as time costs and budgets, adaptation strategies should be developed and implemented in the areas where they are most needed in each time period.

Earnings Management, IFRS Adoption, and the Correlation between Accruals and Cash Flows: Evidence from Korea

A fundamental role of accrual accounting is to smooth out transitory fluctuations in operating cash flows, suggesting a contemporaneous negative correlation between accruals and cash flows. While prior research (e.g., Bushman et al. 2016) documents a decline in the negative accruals-cash flow correlation over time and examines several factors (e.g., cash flow shocks, non-timing-related accruals, poor matching between revenues and expenses, and intangible intensity) that can explain the temporal pattern, we identify earnings management and IFRS adoption as additional relevant factors. Using a sample of Korean listed firms for the period from 1983 to 2017, we provide the following results. First, we find that the negative correlation between accruals and cash flows has declined over time in Korea. This decline is significantly associated with increases in non-timing-related accruals and poor matching between revenues and expenses. Second, and more importantly, we find that the negative accrual-cash flow correlation strengthens with an increase in the absolute and positive values of discretionary accruals. This suggests that, on average, Korean firms manage accruals upward in response to poor cash flow outcomes. Third, we find that the decrease in accrual management over the three years following IFRS adoption (as reported in prior research) can incrementally explain the decline in the negative accrual-cash flow relation. Overall, this study enhances our understanding of temporal changes in the contemporaneous negative correlation between accruals and cash flows by identifying earnings management and IFRS adoption as additional relevant factors.

Capital Budgeting and Risk Taking Under Credit Constraints

Limited external financing creates a hedging motive that distorts resource allocation for investment projects. I study these distortions through a dynamic model with endogenous collateral constraints. The hedging motive can be broken into three components: expected future productivity, leverage capacity, and current net worth. Although constrained firms behave as if averse to transitory fluctuations in net worth, they can endogenously pursue increased exposure to both persistent factors that predict future productivity and fluctuations in credit tightness. The most constrained firms abstain from financial hedging, while still distorting capital-allocation decisions, thereby influencing firm-level volatility. These distortions contribute to a potential explanation for the negative cross-sectional relationship between volatility and net worth. This paper was accepted by Gustavo Manso, Finance.

Hitting the gas or the brake? Recessions and firms' knowledge investments

PurposeWe examine how firms alter their investment behavior in response to changes in demand and access to credit during recessions. We compare and contrast investment changes in physical assets, R&D, and human capital.FindingsWe find that firms tend to shield R&D investments from transitory fluctuations in demand and that R&D investments are more sensitive to credit changes than usually assumed. For human capital, we find a cubic relationship between investments and demand changes.ConclusionImportant variation and trade‐offs remain hidden if investment is treated as a single category or if the distinction between demand and credit impulses is not made.

The Effects of IFRS Adoption on Observed Earnings Smoothness Properties: The Confounding Effects of Changes in Timely Gain and Loss Recognition

Ball and Shivakumar [(2006), The role of accruals in asymmetrically timely gain and loss recognition. Journal of Accounting Research, 44, 207–242] show that the observed smoothness of earnings (i.e. negative contemporaneous correlation between accruals and cash flows) is the joint product of the role of accruals in smoothing out transitory fluctuations in operating cash flows (noise reduction role) and the role of accruals in providing timely recognition of economic gains and losses (contracting role). These two roles of accruals have opposite effects on earnings smoothness properties. Using a regression framework that allows us to simultaneously consider both roles, we show that failing to control for changes in timely gain and loss recognition as firms shift to IFRS can lead to erroneous inferences regarding the effects of IFRS adoption on earnings smoothness, and consequently on researcher’ conclusions about how IFRS adoption has affected accounting quality. Our results are consistent with mandatory (2005) IFRS adoption resulting in a change in the contracting role rather than the noise reduction role (or smoothness role) of accruals. A decrease in timely loss recognition, an increase in timely gain recognition, and a net decrease in asymmetric timely loss recognition are what drives the change in observed smoothness properties of earnings around mandatory IFRS adoption.

The Moderating Effect of Self-Reported State and Trait Anxiety on the Late Positive Potential to Emotional Faces in 6-11-Year-Old Children.

Introduction: The emergence of anxiety during childhood is accompanied by the development of attentional biases to threat. However, the neural mechanisms underlying these biases are poorly understood. In addition, previous research has not examined whether state and trait anxiety are independently associated with threat-related biases.Methods: We compared ERP waveforms during the processing of emotional faces in a population sample of 58 6–11-year-olds who completed self-reported measures of trait and state anxiety and depression.Results: The results showed that the P1 was larger to angry than neutral faces in the left hemisphere, though early components (P1, N170) were not strongly associated with child anxiety or depression. In contrast, Late Positive Potential (LPP) amplitudes to angry (vs. neutral) faces were significantly and positively associated with symptoms of anxiety/depression. In addition, the difference between LPPs for angry (vs. neutral) faces was independently associated with state and trait anxiety symptoms.Discussion: The results showed that neural responses to facial emotion in children with elevated symptoms of anxiety and depression were most evident at later processing stages characterized as evaluative and effortful. The findings support cognitive models of threat perception in anxiety and indicate that trait elements of anxiety and more transitory fluctuations in anxious affect are important in understanding individual variation in the neural response to threat in late childhood.

Dissecting Interbank Risk

This paper analyses interbank risk using the information content of basis swap (BS) spreads, floating-to-floating interest rate swaps whose payments are associated with euro deposit rates for alternative tenors. We propose an empirical model to decompose BS quotes into persistent and transitory components. To estimate both unobservable constituents of BS spreads, we solve a signal extraction problem using a particle filter. Our empirical findings show that changes in systemic risk are associated with regime shifts. Shocks to aggregate liquidity are also important for describing persistent changes in BS spreads. Sovereign risk and risk aversion are relevant factors explaining transitory fluctuations.

Commodity price cycles and financial pressures in African commodities exporters

In this study, we examine the interdependence between the credit and commodity price cycles among African commodity exporters. Specifically, we use an evolutionary co-spectral analysis that sets a time-varying dynamic correlation measure. Results of our analyses suggest that persistent commodity price shocks exert a greater impact on real economy than transitory fluctuations. Similar patterns can be derived for different types of commodities. During downswings, coherence is high for beverages and agricultural raw materials. In contrast, coherence for metals and oil is high during upswings. Periods of high coherence correspond to periods of financial pressure. As such, they can serve as indicators for impending financial crises.

The Effects of IFRS Adoption on Observed Earnings Smoothing Properties: The Confounding Effects of Changes in Timely Gain and Loss Recognition

The observed smoothing of earnings (i.e. negative contemporaneous correlation between accruals and cash flows) is the joint product of the role of accruals in smoothing out transitory fluctuations in operating cash flows (noise reduction role) and the role of accruals in providing timely gain and loss recognition (contracting role). These two roles of accruals have opposite effects on earnings smoothing properties. We demonstrate that failing to control for changes in timely gain and loss recognition as firms shift to IFRS can lead to erroneous inferences regarding the effects of IFRS adoption on earnings smoothing, and consequently on researcher’ conclusions about how IFRS adoption has affected accounting quality. Our results are consistent with IFRS adoption resulting in a change in the contracting role rather than the noise reduction role of accruals. A decrease in timely loss recognition, an increase in timely gain recognition, and a net decrease in asymmetric timely loss recognition are what drives the change in observed smoothing of earnings.

Decadal changes in the distribution of common intertidal seaweeds in Galicia (NW Iberia)

Seaweed assemblages in Atlantic Europe are been distorted by global change, but the intricate coastal profile of the area suggests that susceptibility may differ between regions. In particular, NW Iberia is an important omission because no study has systematically assessed long-term changes in a large number of species. Using intertidal surveys for 33 common perennial seaweeds, we show that the average number of species per site declined significantly from 1998–99 to 2014 in NW Iberia. The largest drops in site occupancy were detected in kelps, fucoids, and carrageenan-producing Rhodophyta. Parallel analyses revealed significant upward trends in SST, air temperature, and strong waves; meanwhile, nutrients decreased slightly except in areas affected by local inputs. Similar changes reported for subtidal assemblages in other parts of Atlantic Europe suggest that the drivers may be ubiquitous. Nonetheless, a more proper assessment of both global and local impacts, will require further surveys, and the regular monitoring of intertidal perennial seaweeds appears as a cost-effective alternative to discriminate genuine long-term trends from transitory fluctuations.

Liquidity Constraints, the Extended Family, and Consumption

This study examines whether the extended family influences consumption. Extending prior tests on food consumption to total consumption, little to no evidence is found in support of altruism among related households and or that fluctuations in dynastic income affects one’s own consumption. However, the effect of transitory fluctuations in own income on consumption are contingent on own wealth and the wealth of the extended family, with estimates of the marginal propensity to consume roughly three times higher for individuals whose own and extended family wealth is low versus individuals whose own and extended family wealth is high.

Do the Rich Save More? Evidence from Canada

This paper provides new evidence on the long‐standing question of whether more affluent households save a larger fraction of their income. The major difficulty in empirically assessing the relationship between incomes and saving rates is to construct a credible proxy for long‐run income—purged of transitory fluctuations and measurement error. The Canadian Family Expenditure Survey provides us with both unusually good data on savings rates and potential predictors with which we can construct reliable long‐run income proxies. Our empirical analysis suggests that the estimated relationship between saving rates and long‐run incomes is sensitive to the predictor used to proxy long‐run income. Nevertheless, our preferred estimates indicate that, except for poorest households (who simply do not save), saving rates do not differ substantially across predicted long‐run income groups.

Is there income mobility in the Philippines?

Despite a more robust economic performance over the past decade compared with the 1980s and 1990s, growth in average household income is still far below what might be expected given the pace of economic expansion in the Philippines. Inequality of household income has also remained high, which leads to the question: is there income mobility in the Philippines? Using longitudinal data from three years of the redesigned Philippine Family Income and Expenditure Survey (2003, 2006, and 2009) and a variety of analytical tools, we examine the mobility of Filipino household income and show that it is less stagnant than is conventionally perceived. Empirical evidence suggests that significant positive and negative mobility exists; albeit, the two tend to offset each other, contributing to slow household income growth at the aggregate level. In addition, there is some evidence that transitory fluctuations contribute significantly to the observed level of income mobility. Overall, the findings are robust across different analytical tools used in measuring income mobility.

Editors’ Introduction

Editors’ Introduction

Re-Examining the Impact of Housing Wealth and Stock Wealth on Household Spending: Does Persistence in Wealth Changes Matter?

Case, Quigley and Shiller (2013) distinguished and quantified two wealth effects in retail sales at the state level: one from wealth held as corporate stock and one from wealth held in the form of home ownership. Here we investigate how each of these wealth effects varies by frequency -- that is, over different levels of persistence in the wealth fluctuations. Using the Case, Quigley and Shiller state-level panel data over the period from 1975Q1 to 2012Q2, and separately modeling the financial crisis period of 2008Q1 onward, we estimate a dynamic fixed-effects model for retail sales, allowing for endogeneity in both wealth variables. We find that the quarterly growth rate of state-level retail sales responds differently to fluctuations in these two wealth variables at different persistent levels. In particular, retail sales respond more intensely to highly-persistent fluctuations in stock wealth, and respond more strongly to less-persistent (more transitory) fluctuations in housing wealth.

Identifying permanent and transitory risks in the Chinese property insurance market

This paper develops a theoretical model to identify various risks in the Chinese property insurance market. Consequently, we apply a structural VAR model to quantify the magnitude, historical timing of these risks, and their dynamic impacts on the permanent and transitory components of the insurance premiums. The results indicate that the enormous amount of speculative funds flowing into China has aggravated insurance premiums as well as helped accelerate market volatilities due to its uncertain nature to the domestic economy and its short-term characteristic of investing. In particular, the speculative shock is shown to be the primary factor responsible for the transitory fluctuation of insurance premiums while the supply shock explains the preponderance of insurance premiums’ permanent growth in recent years.

Robust testing for stationarity of global surface temperature

Surface temperature is a major indicator of climate change. To test for the presence of an upward trend in surface-temperature (global warming), sophisticated statistical methods are typically used which depend on implausible and/or unverifiable assumptions, in particular on the availability of a very large number of measurements. In this paper, the validity of these methods is challenged. It is argued that the available series are simply not long enough to justify the use of methods which are based on asymptotic arguments, because only a small fraction of the information contained in the data is utilizable to distinguish between a trend and natural variability. Thus, a simple frequency-domain test is proposed for the case when all but a very small number of frequencies may be corrupted by transitory fluctuations. Simulations confirm its robustness against short-term autocorrelation. When applied to a global surface-temperature series, significance can be achieved with far fewer frequencies than required by conventional tests.

Stock Market Linkages in Emerging Asia-Pacific Markets

This study examines the stock market integration among major stock markets of emerging Asia-Pacific economies, viz. India, Malaysia, Hong Kong, Singapore, South Korea, Taiwan, Japan, China, and Indonesia. The Johansen and Juselius multivariate cointegration test, Granger causality/Block exogeneity Wald test based on the vector error correction model (VECM) approach, and variance decomposition analysis were used to investigate the dynamic linkages between markets. Cointegration test confirmed a well-defined long-run equilibrium relationship among the major stock markets, implying that there exists a common force, such as arbitrage activity, which brings these stock markets together in the long run. The results of Granger causality/Block exogeneity Wald test based on VECM and variance decomposition analysis revealed the stock market interdependencies and dynamic interactions among the selected emerging Asia-Pacific economies. This result implies that investors can gain feasible benefits from international portfolio diversification in the short run. On the whole, the study results suggest that although long-term diversification benefits from exposure to these markets might be limited, short-run benefits might exist due to substantial transitory fluctuations.

Stock Market Linkages in Emerging Asia-Pacific Markets

This study examines the stock market integration among major stock markets of emerging Asia-Pacific economies, viz. India, Malaysia, Hong Kong, Singapore, South Korea, Taiwan, Japan, China, and Indonesia. The Johansen and Juselius multivariate cointegration test, Granger causality/Block exogeneity Wald test based on the vector error correction model (VECM) approach, and variance decomposition analysis were used to investigate the dynamic linkages between markets. Cointegration test confirmed a well-defined long-run equilibrium relationship among the major stock markets, implying that there exists a common force, such as arbitrage activity, which brings these stock markets together in the long run. The results of Granger causality/Block exogeneity Wald test based on VECM and variance decomposition analysis revealed the stock market interdependencies and dynamic interactions among the selected emerging Asia-Pacific economies. This result implies that investors can gain feasible benefits from international portfolio diversification in the short run. On the whole, the study results suggest that although long-term diversification benefits from exposure to these markets might be limited, short-run benefits might exist due to substantial transitory fluctuations.

Clinical study of a noninvasive multimodal sono-contrast induced spectroscopy system for breast cancer diagnosis

To present a noninvasive multimodal sono-contrast induced spectroscopy (SCIS) system for breast cancer detection. An IRB approved clinical study was carried out to evaluate its diagnostic power. A total of 66 subjects were enrolled with informed consent. The study data were grouped into healthy breast tissue (26), histologically proven cancer (14), and benign mass (26). The diffuse reflectance optical intensity and low intensity focused ultrasound (LIFU) signals, as well as ultrasound images, were collected during each study. The ratio of optical intensities at wavelengths 685 and 830 nm was analyzed using wavelet technique to compare the LIFU effects in cancer and noncancerous tissues. The ultrasound images were also processed to obtain tissue texture parameters, such as correlation, energy, contrast, homogeneity, etc. Backward stepwise regression method was performed to identify the statistically significant factors correlating to tissue types (cancer vs benign mass). Comparison of the optical signals showed that LIFU induced transitory fluctuation in noncancerous tissue, but not in malignant tissue, as quantified by the ratio of mean absolute deviation (RMAD) of the high frequency component. Statistical analysis revealed that the RMAD ratios were significantly different in tumor vs noncancerous masses (p ≪ 0.01). For tissue texture parameters, energy and correlation were found to statistically correlate with the tissue types. A cancer characterization model was developed using the weighted factors to differentiate the tumor from the benign mass. Trade-off between sensitivity and specificity was obtained by varying the threshold value that estimated the upper-bound of the cancer output factor, from which the receiver-operating characteristic (ROC) curve was generated. The characterization model was optimized using ten modeling datasets and verified using another ten validation datasets randomly generated from the database. The optimization results show that an AUC of 0.93 can be achieved. With threshold 0.3, sensitivity of 96.0%, specificity of 84.1%, and negative predictive value (NPV) of 97.3% can be achieved. The feasibility of the multimodal system in characterizing breast cancer vs benign mass is established.