Columbia Business School Research

We consider distribution systems with a depot and many geographically dispersed retailers each of which faces external demands occurring at constant, deterministic but retailer specific rates. All stock enters the system through the depot from where it is distributed to the retailers by a fleet of capacitated vehicles combining deliveries into efficient routes. Inventories are kept at the retailers but not at the depot.

We consider a single-server queueing system with Poisson arrivals and general service times. While the server is up, it is subject to breakdowns according to a Poisson process. When the server breaks down, we need to repair the server immediately by initiating one of two available repair operations. The operating costs of the system include customer holding costs, repair costs and running costs. The objective is to find a corrective maintenance policy that minimizes the long-run average operating costs of the system. The problem is formulated as a semi-Markov decision process.

This study reports on the ex-post performance of survivor REITs and RECs over a 14.5-year period covering several business cycles. The results show that the systematic risk and risk-adjusted returns of REITs and RECs are quite different, especially during periods of low growth in real GNP. Relative to the overall stock market, survivor REITs, in particular, equity REITs, exhibited less volatility and higher returns than previous studies revealed.

This article treats the dynamic lot size model with quantity discount in purchase price. We study the problem with two different cost structures: the all-units-discount cost structure and the incremental-discount cost structure. We solve the problem under both discount cost structures by dynamic programming algorithms of complexity O(T³) and O(T²), respectively, with T the number of periods in the planning horizon.

Infinitesimal perturbation analysis is a method of obtaining estimates of performance sensitivity through simulation of a stochastic system. Expressions are derived for the limiting value of a broad class of such estimators associated with queueing networks, in terms of the unique solution to a set of linear equations. The approach used is to augment the underlying queueing process with information about which servers have been "perturbed" and by how much.

The issue of providing segment disclosures has renewed significance because the Securities & Exchange Commission (SEC) has been considering the extension of segment disclosures, both line-of-business (LOB) and geographically segmented (GEOG), to all interim financial statements. To determine whether GEOG data provide incremental information about the earnings process, the specific contribution of sales and income GEOG data was evaluated by estimating their predictive ability. Two sets of GEOG predictions were used in the predictive accuracy tests.

In this study we consider managerial earnings forecasts as voluntary information releases and compare their properties with predictions from a screening or signaling scenario.

Two methods are presented for estimating performance derivatives from simulation of multi-class queueing networks for sensitivity analysis. The methods use approximate subnetwork aggregation to reduce the problem to a single-class derivative estimation problem with which a modified infinitesimal perturbation analysis algorithm is used. The modified algorithm treats a subnetwork as though it had been aggregated, but is actually applied to the original (non-aggregated) network.

Knowledge of the one-month interest rate is useful in forecasting the sign as well as the variance of the excess return on stocks. The services of a portfolio manager who makes use of the forecasting model to shift funds between bills and stocks would be worth an annual management fee of 2 percent of the value of the assets managed. During 1954:4 to 1986:12, the variance of monthly returns on the managed portfolio was about 60 percent of the variance of the returns on the value weighted index, whereas the average return was two basis points higher.

This paper performs a financial statement analysis that combines a large set of financial statement items into one summary measure which indicates the direction of one-year-ahead earnings changes. Positions are taken in stocks on the basis of this measure during the period 1973–1983, which involve canceling long and short positions with zero net investment. The two-year holding-period return to the long and short positions is in the order of 12.5%. After adjustment for "size effects" the return is about 7.0%. These returns cannot be explained by nominated firm risk characteristics.

This paper examines the properties of a market solution to the output uncertainty problem faced by unincorporated primary producers. An insurance contract is formulated and shown to provide income insurance to producers without exposing insurers to moral hazard. The equilibrium relative to this contract is shown to be equivalent to that effected by a stock market available to all producers.

We examine two measures of monthly manufacturing production. The first is the index of industrial production; the second is constructed from the accounting identity that output equals sales plus the change in inventories. We show that the means, variances, and serial correlation coefficients of the log growth rates differ substantially between the two series, and the cross-correlations are in most cases less than 0.4.

This paper utilizes the concept of aggregative consistency defined in Rubinstein and Fishburn [1986], and the FASB's concept of representational faithfulness to evaluate foreign currency translation and accounting for changing prices as embodied in SFAS 70. The paper shows that SFAS 70 produces measurement errors and creates a foreign currency translation adjustment which does not reflect the effects of exchange rate changes. The conditions defined in the paper also facilitate an evaluation of the relative merits of restate/translate and translate/restate.

We consider a single-server queueing system with Poisson arrivals and general service times. While the server is up, it is subject to breakdowns according to a Poisson process. When the server breaks down, we may either repair the server immediately or postpone the repair until some future point in time. The operating costs to the system include customer holding costs, repair costs and running costs. The objective is to find a corrective maintenance policy which minimizes the long-run average operating costs of the system. The problem is formulated as a semi-Markov decision process.

No one has derived closed-form solutions for consumption with stochastic labor income and constant relative risk aversion utility. A numerical technique is used here to give an accurate approximation to the solution. The resulting consumption function is often dramatically different than the certainty equivalence solution typically used, in which consumption is proportional to the sum of financial wealth and the present value of expected future income.

This paper is motivated by two facts: failure of log-linear empirical exchange rate models of the 1970's and the observed variability of risk premiums in the forward market. Rational maximizing models predict that changes in conditional variances of monetary policies, government spendings, and income growths affect risk premiums and induce conditional volatility of exchange rates.

Several recent studies have suggested that empirical rejections of the permanent income/life cycle model might be due to the existence of liquidity constraints. This paper tests the permanent income hypothesis against the alternative hypothesis that consumers optimize subject to a well-specified sequence of borrowing constraints. Implications for consumption in the presence of borrowing constraints are derived and then tested using time-series/cross-section data on families from the Panel Study of Income Dynamics.

Trading on private information creates inefficiencies because there is less than optimal risk sharing. This occurs because the response of market makers to the existence of traders with private information is to reduce the liquidity of the market. The institution of the monopolist specialist may ease this inefficiency somewhat by increasing the liquidity of the market. While competing market makers will expect a zero profit on every trade, the monopolist will average his profits across trades. This implies a more liquid market when there is extensive trading on private information.

This paper describes efforts to validate a multiple car dispatch queueing (MCD) model of police patrol operations using New York City data. The MCD model was designed for use in a computer system that has been disseminated to many police departments in the U.S. to help planners allocate patrol cars among precincts. It has also been used to evalute specific changes in patrol policy in New York. We define validation as a series of hierarchical procedures ranging from tests of mathematical correctness to evaluations of model robustness.

In this paper we show that information in prices that leads (future) earnings is contained in financial statements. While accrual accounting rules produce an earnings number which reflects the information in stock prices with a lag, they also produce a large array of additional numbers presented in the income statement, balance sheet, and statement of changes in financial position. We demonstrate that certain of these numbers can be summarized into one measure that predicts future earnings.

Patterns of optical flow produced at the eye of a moving observer are important for the guidance of locomotion. This study examined age-related changes in the ability to perceive one's direction of self-motion, or heading, from optical flow, using computer displays that simulate translational or curvilinear movement parallel to a random-dot ground surface.

This article looks at the alternative methods that can be employed by firms with regards to rewarding equity holders. Economists have long been puzzled by why firms pay dividends when alternative methods of rewarding shareholders and financiers exist which involve less taxes. Dividend paying equity appears to be the most heavily taxed capital instrument available. It is subject to two levels of taxation: first, the federal corporation income tax (set at a 34 percent marginal rate in the U.S. as of June 1989) and second, the personal income tax if the shares are owned by households.

Most U.S. corporations choose their fiscal years to coincide with the calendar year. We document that the larger the firm, the more likely it is to begin its fiscal year in January. This finding holds across industries.

In this article we construct a model in which a consumer's utility depends on the consumption history. We describe a general equilibrium framework similar to Cox, Ingersoll, and Ross (1985a). A simple example is then solved in closed form in this general equilibrium setting to rationalize the observed stickiness of the consumption series relative to the fluctuations in stock market wealth. The sample paths of consumption generated from this model imply lower variability in consumption growth rates compared to those generated by models with separable utility functions.