Income Smoothing

Journal of Economics, Business and Accountancy Ventura Accreditation No. 110/DIKTI/Kep/2009 Volume 14, No. 1, April 2011, pages 59 – 78 THE THEORETICAL CONSTRUCTION OF INCOME SMOOTHING MEASUREMENT Alwan Sri Kustono Jember University E-Mail: [email  protected] com Tegal Besar Permai 2-E1,Jember,Propinsi Jawa Timur,Indonesia ABSTRACT The income smoothing is a dimension of the accounts manipulation theme that has been a ttracting a great attention in the accounting literature. A goal of manipulation widely as cribed to managers is the desire to smooth.Reported income, Income smoothing reflects reducing the possible income fluctuations so as to make it as stable as possible throughout the ism. Almost of income smoothing research in Indonesia used Eckel’s index to clasify smoother non smoother firms. Empirical evidences have provided support for the existence of an income smoothing behavior. The studies showed inconsistent about factors determining this smoothing. The purp ose of the present investigation is twofold. First, we seek to determine if Eckel index is a reliable instrument to measure income smoothing behavior.Second, we pretend to identify the new instrument to measure incidence of income smoothing. Our research sample comprises manufacturing companies listed on the Indonesia Stock Exchange, over period of 1999-2008. This study confirms Eckel’s index is not reliability instru ment. The new proposed index quantifies the incidence of income smoothing without depend on n periods. The results imply that researchers should re-examine the conclusion of previous studies, particularly that determinant, factors and effect of income smoothing practices. Key words: income smoothing, Eckel’s index, c oefficient of variation, reliability.INTRODUCTION It has been noticed that income statement is considered as one of the statements to be presented in financial reporting. For that reason, the company’s earning is considered vital infor mation for it can be used to measure the corporate performance. In other words, information of the earning can be used to assess the performance or accountability of management and also predict the ability of companies in the effort of contributing to the following earning. In general, earning reporting is frequently not free from the accounting manipulation. Yet it appears different from the fraudulence.Accounting manipulation can be still in tolerant when it is put in the accounting rules. In contrast, fraudulence practices tend to be against the rules and accounting standards. Thus, it is delicately different from income smoothing. In fact, one 59 of the practices of accounting manipulation is income smoothing. In connection with the pursuit of analyzing income smoothing in the companies, some definitions of it can be inferred. First of all, income smoothing is defined as the emphasis on the fluctuations in income levels that are considered normal for the company (Barnea et al. 1 976). For another thing, Beidleman, (1973) defines income smoothing as the management efforts to reduce abnormal variations in the earning to the extent permitted by the principles of good management and accounting. Income smoothing in such instances, is as a tool used by management to reduce the variability of reported income stream relative to the target which is intentionally smoothed by using artificial or real variable. In addition, income smoothing is one-dimensional manipulation of accounts that attract the atten- ISSN 2087-3735 The Theoretical Construction †¦ (Alwan Sri Kustono) ion of many accounting literature in the realm of earnings management. Beside, income smoothing reflects the concern to reduce the possibility of fluctuations in income by making a steady flow Research on income smoothing in Indonesia generally examine several factors which are allegedly to motivate management to do income smoothing. They identify the existence of such practices and followed by testing management motivation. The results of these studies have identified those most public companies in Indonesia have conducted income smoothing. All in all, most of the studies are uniform in terms of inferring he end results. Testing the triggering factor of income smoothing policy by the company management has not consistently been recovered. Among the results of such studies are often inconsistent to one another. For example, Kustono (2010) stated that the inconsistency of their findings was caused by the measuring devices. These devices are thought to be unreliable. For example, Index Eckel does not have the ability to capture the practice of income smoothing between periods. In that situation, it shows that some companies are classified by grading only in one particular year.This is considered to have deviated from the definition of income smoothing. The classification based on Eckel index for one company may also change because of changes in the period used to determine t he coefficient of variation. Change of classification shows that the index is not reliable as a tool. In other words, Eckel is as an identifier of smoothing and not merely for smoothing. Kustono (2010) asserted the idea of the need for new instruments. This research is intended to correct weaknesses of the Eckel and construct an index measuring instrument which is more reliable income smoothing factor.This construction is very important because the use of measuring instrument error will cause errors either in the phase of conclusions related to the classification of sample or the determinants and impact of such classification. THEORETICAL FRAMEWORK It is a fact that income smoothing becomes a phenomenon which has been often proved in some previous studies. This practice has been investigated through various levels of different samples. Furthermore, income smoothing is considered to be an important factor. Research by Moses (1987) and Atik & Sensoy (2005) shows that at least 60% of h e sample used in the study can be classified as smoothing the company earnings. Another proponent, such as Barnea et al. (1976) classified accounting income smoothing as inter-temporal smoothing and classification. Inter-temporal smoothing is based on the situation when cost and expenses are recognized and smoothing classification is done with the classification under ordinary cost and extraordinary one in which the ordinary post finally becomes flat. Eckel (1981) distinguishes between income smoothing as a natural smoothing and intended smoothing. Natural smoothing is he alignments resulting from transactions that inherently produce a smoothed earning. In other words, the company's operations to generate income by collecting revenues and expenses are inherently to eliminate fluctuations in income flows. In other words, the process of generating income itself generates a stream of smoothed income. Alignment occurs without the intervention of any party. Income smoothing is accidental ly triggered by the motivation which is based on the management actions. There are two types of income smoothing: intentional, that is income smoothing of the real intention nd the other one is artificial income smoothing. Real income smoothing indicates management actions that seek to control economic conditions that directly affect corporate earnings in the future. In addition, this real income smoothing affects cash flow. On the contrary, artificial income smoothing can show manipulation which is undertaken by management to smooth the earning. Thus, the action of this manipulation resulted in a fundamental or economic condition that can affect cash flow, but shifts 60 Journal of Economics, Business and Accountancy Ventura Accreditation No. 10/DIKTI/Kep/2009 the cost and/or income from one period to another. By taking for granted, such a trend can be traced from several research. Some studies, in fact, have been conducted to identify the smoothing behavior, such as motivation and its impact on future transactions, a company that has been doing income smoothing. This can also be found in other studies such as (Lev & Kunitzky, 1974; Ammihud et al. , 1983, Wang & Williams, 1994; Michelson et al. , 1995; Iniguez & Poveda, 2004). These proponents also provide empirical support toward statement that management reduces he variability of cash flows and earning for the purpose of minimizing the risk of the company. Income smoothing is also intended to increase the value of the firm (Gordon, 1964; Trueman & Titman, 1988; Gibbins et al. , 1990; and Chaney & Lewis, 1995; 1998). Estimator of Income smoothing Income smoothing can only be investigated through some periods by suspecting a certain earning rate of the targeted, e. g. , both highand low-digits earning reports. Some researchers use a two-period model by assuming that the earning target is proportional to the income report in the previous year Copeland, 1968). In other words, the size of alignment is the magnitu de of changes in the earning from one year to the next. Other researchers also evaluated the earning target using multi-period test. The underlying assumption is that it should be an evenly increasing trend (Gordon, 1966). Some of the models used are the exponential model (Dascher and Malcolm, 1970), linear time series models (Barefield and Comiskey, 1972), time trend semi-logaritma (Beidleman, 1973) and model of the market return index (Ronen & Sadan, 1975). For example, Dopuch & Watts (1972) suggest the use ofBox-Jenkins techniques to ensure the alignment model is applicable. Models of earning target are differentiated from the real earning. Often, these models contain errors inherent profit target 61 Volume 14, No. 1, April 2011, pages 59 – 78 because its validity can not be detected empirically. In that case, Ronen & Sadan (1975) suggested that we do income smoothing approach. In particular, income smoothing can be identified if the researcher is faced by the following fo ur questions. 1. What is the object alignment implemented by the management? 2. What is the dimension of management s used to perform smoothing. 3. What instrument of smoothing is used by management 4. What is the object of such smoothing behavior? In connection with the above efforts, Imhoff (1977) and Eckel (1981) developed a methodology based on testing the variability of income associated with the variability of sales. The model used to predict the existence of income smoothing or earnings variation is inter-period variant. They assume that the level of earning depends on the level of sales. The basic idea is that the change in sales can affect the earning. If the variance of income is less than the variance f sales, it can be concluded that the smoothing has been done. Eckel (1981) model of the income smoothing is done by basing on the following premises. 1. Income is a linear function of the sales = sales-cost variable-fixed cost. 2. The ratio of variable costs to sales is in constant currency units 3. Fixed costs are constant or increasing from period to period, but not likely to decline. 4. Gross sales can only be smoothed by real smoothing; gross sales can not be artificially smoothed. Mathematically, Eckel illustrates all the above as the following: when, I=S-VS-FC, and FC;0, and FC t+1 ;=FC t, and 0

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Philosophy of Counseling Essay Example for Free

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Among them were Americans Mary Elizabeth Jane Colter, Lois Lilley Howe, Louise Blanchard Bethune, Sophia Hayden, and Mabel Keyes Babcock. Twentieth century architects explored new methods and materials in their designs, but the dominant style in city buildings was the angular International Style. A few architects in the United States made use of ideas found in German architecture and in the Savoye House. Although office and public buildings are impressive, it is the house that provides the most immediate architectural experiences for most people. There is a huge variety in the houses in the United States. This is seen in the thousands of buildings erected in housing developments since World War II. At one extreme, are the multiple-unit dwellings. At the other is the house designed for the needs of one family. Thanks to the households headed by women, the need for more female architects and designers were born. And together with dwellings is the widened variety of furniture and housewares that peppered the household pioneered by Nancy Lancaster. A woman designer who made a redrafting of a historic edifice was Rebecca L. Binder. The five-story academic institution she was commissioned to remake a 40,000-square feet addition, which she beautified with concrete with horizontal belts in brickwork. How she made it happen could not be sufficed with either superlative words or this magnum opus itself:   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Perhaps, Nancy Lancaster’s words could better explain the beauty that Rebecca L. Binder and the rest of the fabulous woman designers emanate through their masterpieces:   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   â€Å"I was always searching for beauty. I wasn’t as interested in the houses as I was in their ambience. In the furniture, in the history, in the garden. You never could put your finger specifically on whatever created the beauty, it was too elusive, but houses were where I found it the most†¦Ã¢â‚¬    Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   Indeed, Rebecca L. Binder is but one of the many designers especially the female ones to have perpetuated the influence of one of the breakthrough designers of the modern era Nancy Lancaster. Nancy Lancaster’s words could echo the own feelings of these female designers for interiors and architecture. The revolutionary Scandinavian boomerang shapes had descended en masse upon the abodes of the more progressive of the Western population. The fifties era had set in, but in other homes, homebodies were still clinging to Victorian values, Dickens, and Puccini, while everyone else was worshipping the new gods names Elvis and Rock, and had been lured by the pale Danish furniture, delicate paper Noguchi lamps, and wretched wallpapers. The new household names were unpronounceable Sigrun Bà ¼low-Hà ¼be, Victoria Van Dyke, Itsuko Hasegawa, Signe Lagerborg-Stenius, Annette Hoyt Flanders, and Hanna Adamczewska-Wejchert.   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The sixties heralded a great struggle between the love for Grand-Mere’s romantic world and the growing interest in all things modern. Out went the sweet remembrance of the old coachman’s house with its exquisite, old-fashioned rooms and in came the exciting iconoclasm of the Mary Quant, the provocative mini-skirt, and false eyelashes by the yard. Plastic reigned supreme, and inflatable transparent furniture and chairs, lamps, kitchen utensils in screaming, vile colors took over from the natural Scandinavian look. Eileen Gray, Le Corbusier, and their much-favored combination of steel, chrome, and black leather had yet to be rediscovered. For the moment, the design-conscious sat decorously in the pop designer Verner Panton’s â€Å"Champagne Chair† and in Knoll’s pristine white and curvilinear furniture, or tried to look very futuristic and 2001 in a foam and stretch-jersey construction made by Monsieur Mourge. This variety may seem to have been impossible decades ago. Back then, Expressionism was a movement that proved to be an enduring force in 20th century art, exercising a strong influence on New York painters of the 1940s and 1950s. This period also promoted the concept of neoplasticism, a plastic idiom equally applicable to painting, architecture, and the decorative arts, and was known to have influenced the Constructivists in New York. Constructivism is one of several idealist abstract art movements that arose in Europe and Russia between 1913 and 1920. It stressed total acceptance of technological, scientific society and the possibility of an ideal world based on the perfect functionalism of the machine (Frascina et al., 1982). More futuristic Vasarely patterns, the revolting combination of chocolate brown and orange and the dangerous juxtaposition of apple-green and geranium-red proved that the seventies were all about color. And about color-blindness. Walls covered with panels of brushed steel, long-haired flokati carpet that looked like the curly fur of a wet sheep, and anthropomorphic furniture ran riot. To be really in meant having plexiglass all over the place: a plexiglass coffee table, plexigllass side tables, plexiglass obelisks (with uplighters cleverly hidden in their bases so they glowed mysteriously at night), and little plexiglass supports to add drama to the objets d’art and emphasize their qualities and value. Indeed, these innovative designs were all a product of the revolutionary state of affairs during the time they were made. Thus, the artists’ revolt against the classic codes of composition, careful execution, harmonious coloring, and heroic subject matter. One museum in New York today nostalgically reflects this revolution. The Museum of Modern Art puts across the messages of women’s success, fame, power and glory with their latest exhibit Digitally Mastered: Recent Acquisitions from the Museum’s Collection. Digitally Mastered stresses total acceptance of technological, scientific society and the possibility of an ideal world based on the perfect functionalism of the machine. This modern variety in the arts springs to life with a surprising sense of alertness, as if it had a personality. Joie de vivre is what every New Yorker can describe of himself. After all, New York is the busiest city in the world. The progressiveness of women designers is entertainingly described in the most relevant movie last year. In the movie/novel The Devil Wears Prada, the highly modish corporate garb, seen on people going to work in the course of a fashion runway and doing a catwalk along the busiest business districts of New York, is still an understatement. Not only does the movie depict women progressive in the arty world but in the economic world as a whole. Women have always been the tops in the fashion world, both locally and internationally. Somehow the androgyny seems to have the advantage of knowing what their fellow women want and what men consider attractive in terms of etiquette and dress. If interior design in the eighties had a color scheme, it was mainly black and white. It was launched and cleverly promoted by the Black Widow of design, Andree Putman, a gifted talent-scout and orchestrator of striking and severe interiors, who founded the firm ECART which reproduced original designs, mainly from the thirties. As a result, a large number of tables, chairs, and lams by the totally forgotten Irish designer Eileen Gray, and creations by giants of the Art Deco period, such as Robert Mallet-Stevens and Jean-Michel Frank, were re-edited. Re-edition was the clever description that covered up the eighties’ frantic and boundless copying of originals. Design fanatics, who would never have invested any money in the acquisition of a common copy, seemed to be proud to be living with the same Fortuny Lamr, the same Eileen Gray carpet, and the same sleek Frank sofa as their neighbors. Gae Aulenti and Rebecca L. Binder very well know this. Those who thought that living among vulgar copies showed little originality seemed to find solace in the sublime and very esthetic emptiness of minimalism, reassured by the fact that if one possessed very little, one could never be accused of having no taste. Andree Putman, always light years ahead of trends to come, had already pointed a warning finger at the threatening despotism of design and at the constant fear of not being of the latest fashion. Of course, the multifaceted world of interior design had also had a string of adepts who would only take inspiration from great classical examples. In the fifties, when the boomerang fever had rise to its most dangerous level, the prominent Madeleine Castaing was filling the pages of the leading magazine Connaissance des Arts with images of rooms that looked deceptively period. Her love of white and gold and her penchant for velvets and damask silks and a flamboyant use of antiques seemed, at that time, only accessible to the moneyed few. Madame Castaing’s subtle concoction of le style Anglais, bourgeois Viennese biedermeier, and sever Frencg directoire reached its zenith at her own chateau near Chartres. But her cleverly composed â€Å"windows on the past† were like wines that do not travel, and remained imprisoned in their own country. This description could equally well apply to the formidable Nancy Lancaster herself, whose memories from her Virginia childhood transcribed in her splendid dwellings in England became the â€Å"English country† look. Her â€Å"buttah-yellah† room above the shop was the epitome of relaxed chic, and some of her statements, such as â€Å"I never thought twice about using bright colors in old houses, and â€Å"Mahogany is lovely when it’s been faded in the sun,† illustrate her loose interpretation of the past when she was attempting to create a period look. An inspired artist who spend her whole life doing up houses, Lancaster has left a most delightful description of the decoration of the staircase in her London townhouse at 28 Quen Anne’s Gate: â€Å"When you walked in, the staircase was on the left: it was the loveliest architectural feature in the house. I left the staircase a tobacco color but painted the paneling along the stairs a pale, pale green. On the window in the stair hall, I put curtains the color of a cigar, with a fringed pelmet and along the floor I had a very pretty Bessarabian runner with the same brown in it†¦Ã¢â‚¬  Her words convey something of the excitement involved in creating this prologue to a ballet performance. On the other side of the Atlantic, an equally formidable lady was also freely borrowing elements from the past. Lady Mendl, also known as Elsie de Wolfe, who invented the profession of â€Å"interior decorator† was making a risky cocktail of Louis styles in different shades of white and combining them with Venetian baroque, forties’ stucco, engraved mirrors, and walls decorated with silver leaf. The setting for a period recreation does not always have to be grand, the expenditure exorbitant, or reflective of only the sentimental female’s work. It is imagination rather than money that is the first requirement for originality.   Large amounts of money are not always needed: a room can be assembled from inexpensive finds in the flea market, a pair of old curtains, and a table found in a street or on a dumpster. All these could be found in grandma’s basement while the men in the family, leaving their women at home, rummage through the streets for the money. The likes of Nancy Lancaster prove that even the homebodies can be exorbitantly creative. Ancient patinas have their own romance that could only come from the empowered womanly instincts: crumbling walls and peeling paint can be the epitome of sophistication, and touches such as the elegant folds of draped fabric, a candlestick on an antique table, or the presence of a canopied bed all contribute to a style that has been inspired by the past but will, in the end, be timeless. References Frascina, Francis, Harrison, Charles, and Deirdre, Paul. (2002). Modern Art and Modernism: A Critical Anthology. Grosenick, U. (2002). Women Artists in the 20th and 21st Century.

Capital Asset Pricing Model (CAPM)

Capital Asset Pricing Model (CAPM) 1. Introduction Markowtiz (1952) did the ground work for the CAPM (Capital Asset Pricing Model). From the study of the early theories we know that the risk of an underlying security is measured by the standard deviation of its pay off or return. Therefore, for a larger risk we will have higher standard deviation of the respective security return. Markowtiz argued that the standard deviations of security returns for any two securities are not additive if they are combined together unless the returns of those two assets are perfectly positively correlated. He also observed that the standard deviation of security return of a portfolio is less than the sum of the standard deviation of those assets constituted the portfolio. Markowitz developed the efficient frontier of portfolio, the efficient set from where the investors select the portfolio which is most suitable for them. Technically, an investor will hold a mean-variance efficient portfolio which will return the highest pay off to them with a given level of variance. Markowitz’s computation of risk reduction is very rigorous and tedious. Sharpe (1964) developed the single index model which is computationally efficient. He derived a common index where the asset return is related with the common index. This common index can be any variable which has influence on the asset return. We can apply this single index model to the portfolio as well since the expected return of a portfolio is the weighted average of the expected returns of the constituents of the portfolio. When we need to analyze the risk of an individual security, we have to consider the other securities of the portfolio as well. Because, we are interested about the additional risk being added to the portfolio when one addition security is added to the portfolio. Thus the concept of risk share of an individual security to the portfolio is different from the risk of that security itself. An investor faces two kinds of risks. One is called the systematic risk and the other is known as unsystematic risk. Unsystematic risk is a kind of risk which can be minimized or eliminated by increasing the size of the portfolio, namely, by increasing the diversity of the portfolio. The systematic risk is well known as the market risk. Because, it depends on the overall movement of the market and the financial condition of the whole economy. By diversifying the portfolio, we cannot eliminate the systematic risk. Theoretically CAPM offers very commanding predictions about how to measure risk and return relationship. However, the empirical evidence of CAPM is not very encouraging. One may conclude that these failings are rooted in poor construction of the model but once can argue that this failing arises because of the difficulties of building comprehensive and valid test model. The estimation strategy of CAPM is not free from the data-snooping bias. Because of the non-experimental nature of economic theory we cannot avoid this problem. Moreover a lot of investigations already have been done to test the validity of the CAPM. Thus, no attempt has been made in this paper to test the validity of the model. Here in this paper we will critically examine some literatures on CAPM testing. We will begin with understanding the model. We will briefly outline some mathematics required to understand the underlying assumptions of the model. Then we will focus on the single and multi-factor CAPM models to a nalyze the model assumptions and restrictions required to hold these models to be true. 2. The Capital Asset Pricing Model Explained   In 1959 Markowitz introduced the notion of mean-variance efficient portfolio. According to him it is optimal for an investor to hold a mean-variance efficient portfolio. The mean-variance efficient portfolio is a portfolio for an investor where he minimizes the portfolio return, given the expected return and maximizes expected return, given the variance. Later Sharpe (1964) and Lintner (1965b) further developed the work of Markowitz. In their work it has been showed that if the investors’ expectations are homogeneous and when the hold the mean-variance efficient portfolio then in the nonexistence of market friction the market portfolio will be a mean-variance efficient portfolio. There are two basic building blocks to derive the CAPM: one is the capital market line (CML) and the other one is the security market line (SML). In CAPM the securities are priced in a way where the expected risks are compensated by the expected returns. As we will be investigating different form of CAPM in this work it is worthy to review the basic notions of CML and SML. The capital market line (CML) conveys the return of an investor for his portfolio. As we have already mentioned, there is a linear relationship exists between the risk and return on the efficient portfolio that can be written as follows: On the Other hand the SML specifies the return what an individual expects in terms of a risk-free rate and the relative risk of a portfolio. The SML with security i can be represented as follows: Here the Beta is interpreted as the amount of non-diversifiable risk intrinsic in the security relative to the risk of the efficient market portfolio. The utility function of the market agent is either quadratic or normal All the diversifiable risks are eliminated The efficient market portfolio and the risk-free assets dominate the opportunity set of the risky asset. We can use the security market line can be used to test whether the securities are fairly priced. 3. The Logic of the Model: To understand the logic of CAPM, let us consider a portfolio M. To clear the asset market this portfolio must be on the efficient frontier. Thus the underlying concept that is true for minimum variance portfolio, must be true for the market portfolio as well. With the minimum variance condition for portfolio M when there are N risky assets, we can write the minimum variance condition by the following equation: Where is the expected return on the asset i and . The market beta for the asset is derived by dividing the covariance of the market return and individual asset return by the variance of the market return, In the minimum variance condition stands for the expected asset return whose market beta is zero which implies that the asset return is not correlated with the market return. The second term of the equation represents the risk premium. Here the beta measures how sensitive the asset return is with the variation in the market return. Sharpe and Lintner focused on three important implications. They are: 1)the intercept is zero; 2) Beta can completely capture the cross sectional variation of expected access asset return; and, 3)The market risk premium is positive. Sharpe and Lintner in their CAPM model assumed that the pay off from a risky asset is uncorrelated with the market return. In their model the beta becomes zero when the the covariance of a asset return offsets the variance of the other assets’ returns. When the borrowing and lending is risk free and when the asset return is not correlated with the market return then the asset return equals the risk free rate. In the Sharpe-Lintner model the relationship between the asset return and the beta is represented by the following equation: However, this assumption of riskless borrowing and lending is unrealistic. Black (1972) developed a CAPM model where he did not make this extreme assumption. He showed that the mean variance efficient portfolio can be obtained by allowing the short selling of the risky assets. The Black and Sharpe-Lintner model differ in terms of the . Black observed that has to be less than the expected market return which allows the premium for the market beta to be positive. In the Sharpe-Lintner model the expect return was the risk free interest rate. The assumption that Black made about short selling is not realistic either. Because, if there is no risky asset (Sharpe-Lintner version) and if there is unrestricted short selling of the risky asset (Black version) then the efficient portfolio is actually not efficient and there does not exist any relation between market beta and CAPM (Fama and French: 2003). So, the CAPM models are built on some extreme assumptions. To testify the validity of these models researchers have tested the model against the market data. In this paper we will investigate some of those empirical researches. 4. Literature on CAPM testing There are three relationships between expected return and market beta which is implied by the model. First, the expected returns on all the underlying assets are linearly related to their respective betas. Second, the premium for beta is positive which implies that the expected return on the market portfolio exceeds the expected return on assets. Moreover, the returns of these assets are uncorrelated with the expected return of market portfolio. Third, in the Sharpe-Lintner model we see that the underlying assets which are uncorrelated with the market portfolio have the expected returns which are equal to the risk neutral interest rate. In that model, if we subtract the risk free rate from the expected market return, we get the beta premium. Conventionally the tests of CAPM are based on those three implications mentioned above. 4.1 Tests on Risk Premiums Most of the previous cross-section regression tests primarily focus on the Sharpe-Lintner model’s findings about the concept and the slope term which studies the relationship between expected return and the market beta. In that model they regressed the mean asset returns on the estimated asset betas. The model suggests that the constant term in the cross-section regression stands for the risk free interest rate and the slope term stands for the difference between market interest rate and risk free interest rate. There are some demerits of the study. First of all, the estimated betas for individual assets are imprecise which creates the measurement error when we use them to explain average returns. Secondly, the error term in the regression has some common sources of variation which produces positive correlation among the residuals. Thus the regression has the downward bias in the usual OLS estimate. Blume (1970) and Black, Scholes and Jensen (1972) worked on overcoming the shortcomings of Sharpe-Lintner model. Instead of working on the individual securities they worked on the portfolios. They combined the expected returns and market beta in a same way that if the CAPM can explain the security return, it can also explain portfolio return. As the econometric theory suggests, the estimated beta for diversified portfolios are more accurate than the estimated beta for the individual security. Therefore, if we use the market portfolio in the regression of average return on betas, it lessens the cr itical problem. However, grouping shrinks the range of estimated betas and shrinks the statistical power as well. To tackle this researchers sort securities to create two portfolios. The first one contains securities with the lowest beta and it moves up to the highest beta. We know that when there exists a correlation among the residuals of the regression model, we cannot draw accurate inference from that. Fama and Macbeth (1973) suggested a method to address this inference problem. They ran the regression of returns on beta based on the monthly data rather than estimating a single cross-section regression of the average returns on beta. In this approach the standard error of the means and the time series means can be used to check whether the average premium for beta is positive and whether the return on the asset is equal to the average risk free interest rate. Jensen (1968) noted that Sharpe-Lintner model also implies a time series regression test. According to Sharpe-Lintner model, the average realized CAPM risk premium explains the average value of an asset’s excess return. The intercept term in the regression entails that â€Å"Jensen’s alpha†. The time series regression takes the following form: In early studies we reject Sharpe-Lintner model for CAPM. Although there exists a positive relation between average return and beta, it’s too flat. In Sharpe-Lintner model the intercept stands for the risk free rate and the slope term indicates the expected market return in access of the risk neutral rate. In that regression model the intercept is greater than the risk neutral rate and the coefficient on beta is less than . In Jensen’s study the p value for the thirty years period is 0.02 only which indicates that the null hypothesis is rejected at 5% significance level. The five and ten year sub-period demonstrates the strongest evidence against the restrictions imposed by the model. In past several studies it has been confirmed that the relationship in between average return and beta is too flat (Blume: 1970 and Stambaugh: 1982). With the low betas the constant term in the time series regression of excess asset return on excess market return are positive and it becomes negative for the high betas of the underlying assets. In the Sharpe-Linter model, it has been predicted that portfolios are plotted along a straight line where the intercept equals the risk free rate, , and the slope equals to the expected excess return on the market rate . Fama and French (2004) observed that risk premium for beta (per unit) is lower than the Sharpe-Lintner model and the relationship between asset return and beta is linear. The Black version of CAPM also observes the same where it predicts only the beta premium is positive. 4.2 Testing the ability of market betas of explaining expected returns Both the Sharpe-Lintner and Black model predict that market portfolio is mean-variance efficient. The mean-variance efficiency implies that the difference in market beta explains the difference in expected return of the securities and portfolios. This prediction plays a very important role in testing the validity of the CAPM. In the study by Fama and Macbeth (1973), we can add pre-determined explanatory variables to the month wise cross section regressions of asset return on the market beta. Provided that all the differences in expected return are explained by the betas, the coefficients of any additional variable should not be dependably different from zero. So, in the cross-section analysis the important thing is to carefully choose the additional variable. In this regard we can take the example of the study by Fama and MacBeth (1973). In that work the additional variables are squared betas. These variables have no impact in explaining the average asset return. By using the time series regression we can also test the hypothesis that market betas completely explain expected asset return. As we have already mentioned that in the time series regression analysis, the constant term is the difference between the asset’s average return and the excess return predicted by the Sharpe-Lintner model. We cannot group assets in portfolios where the constant term is dependably different from zero and this applies only the model holds true. For example, for a portfolio, the constant term for a high earning to price ratio and low earning to price ratio should be zero. Therefore, in order to test the hypothesis that betas suffice to explain expected returns, we can estimate the time-series regression for the portfolios and then test the joint hypothesis for the intercepts against zero. In this kind of approach we have to choose the form of the portfolio in a way which will depict any limitation of the CAPM prediction. In past literatures, researchers tend to follow different kinds of tests to see whether the constant term in the time-series regression is zero. However, it is very debatable to conclude about the best small sample properties of the test. Gibbons, Shanken and Ross (1989) came up with an F-test for the constant term that has the exact-small sample properties and which is asymptotically efficient as well. For the tangency portfolio, this F-test builds an entrant by combining the market proxy and the average value of an asset’s excess return. Then we can test if the efficient set and the risk free asset is superior to that one obtained by combining the market proxy and risk free asset alone. From the study of Gibbons, Ross, and Shanken (1989) we can also test whether market betas are sufficient enough to explain the expected returns. The statistical test what is conventionally done is if the explanatory variables can identify the returns which are not explained by the market betas. We can use the market proxy and the left hand side of the regression we can construct a test to see if the market proxy lies on the minimum variance frontier. All these early tests really do not test the CAPM. These tests actually tested if market proxy is efficient which can be constructed from it and the left hand side of the time series regression used in the statistical test. Its noteworthy here that the left hand side of the time series regression does not include all marketable assets and it is really very difficult to get the market portfolio data (Roll, 1977). So, many researchers concluded that the prospect of testing the validity of CAPM is not very encouraging. From the early literatures, we can conclude that the market betas are sufficient enough to explain expected returns which we see from the Black version of CAPM. That model also predicts that the respective risk premium for beta is positive also holds true. But at the same time the prediction made by Sharpe and Lintner that the risk premium beta is derived from subtracting the risk free interest rate from the expected return is rejected. The attractive part of the black model is, it is easily tractable and very appealing for empirical testing. 4.3 Recent Tests on CAPM Recent investigations started in the late 1970s have also challenged the success of the Black version of the CAPM. In recent empirical literatures we see that there are other sources are variation in expected returns which do not have any significant impact on the market betas. In this regard Basu’s (1977) work is very significant. He shows that if we sort the stocks according to earning-price ratios, then the future returns on high earning-price ratios are significantly higher than the return in CAPM. Instead of sorting the stocks by E/P, if we sort it by market capitalization then the mean returns on small stocks are higher than the one in CAPM (Banz, 1981) and if we do the same by book-to-market equity ratios then the set of stocks with higher ratio gives higher average return (Statman and Rosenberg, 1980). The ratios have been used in the above mentioned literatures associate the stock prices which involves the information about expected returns which are not captured by the market betas. The price of the stock does not solely depend on the cash flows, rather it depends on the present discounted value of the cash flow. So, the different kind of ratios discussed above play a crucial role in analyzing the CAPM. In line with this Fama and French (1992) empirically analyzed the failure of the CAPM and concluded that the above mentioned ratios have impact on stock return which is provided by the betas. In a time series regression analysis they concluded the same thing. They also observed that the relationship between the average return and the beta is even flatter after the sample periods on which early CAPM studies were done. Chan, Hamao, and Lakonishok (1991) observed a strong significant relationship between book-to-market equity and asset return for Japanese data which is consistent wit h the findings of Fama and French (1992) implies that the contradictions of the CAPM associated with price ratios are not sample specific. 5. Efficient Set of Mathematics The mathematics of mean-variance efficient set is known as the efficient set of mathematics. To test the validity of the CAPM, one of the most important parts is to test the mean-variance efficiency of the model. Thus, it is very important to understand the underlying mathematics of the model. Here, we will discuss some of the useful results of it (Roll, 1977). Here we assume that there are N risky assets with a mean vector ÃŽ ¼ and a covariance matrix ÃŽ ©. In addition we also assume that the covariance matrix is of full rank. is vector of the portfolio weight. This portfolio has the average return; and variance. Portfolio p is the minimum variance portfolio with the mean return if its portfolio weight vector is the solution to the following constrained optimization: We solve this minimization problem by setting the Lagrangian function. Let’s define the following: The efficient frontier can be generated from any two minimum variance portfolios. Let us assume that p and r be any two minimum variance portfolio. The covariance of these two portfolios is as follows: For a global minimum-variance portfolio g we have the following: The covariance of the asset return of the global minimum portfolio g and any other portfolio as defined as a is as follows: For a multiple regression of the return of an asset or portfolio on any minimum variance portfolio except the global minimum variance portfolio and underlying zero-beta portfolio we have the following: The above mentioned result deserves some more attention. Here we will prove the result. As . The result is obvious. So, we just need to show that and . Let us assume that r be the minimum variance portfolio with expected return . From the minimization problem we can write the following: Portfolio a can be expressed as a combination of portfolio r and an arbitrage portfolio which is composed of portfolio a minus portfolio . The return of is expressed as: Since , the expected return of is zero. Because, as mentioned earlier that it is an arbitrage portfolio with an expected return of zero, for a minimum variance portfolio q. We have the following minimization problem: The solution to the optimization problem is c=0. Any other solution will contradict q from being the minimum variance. Since, , thus taking the derivative gives the following expression: Setting the derivative equal to zero and by substituting in the solution c=0 gives: Thus the return of is uncorrelated with the return of all other minimum variance portfolio. Another important assumption of the CAPM is if the market portfolio is the tangency portfolio then the intercept of the excess return market model is zero. Here we will prove the result. Let us consider the following model with the IID assumptions of the error term: Now by taking the unconditional expectation we get, As we have showed above, the weight vector of the market portfolio is, Using this weight vector, we can calculate the covariance matrix of asset and portfolio returns, the expected excess return and the variance of the market return, Combining these results provide, Now, by combining the expression for beta and the expression for the expected excess return give, Therefore, the immediate result is 6. Single-factor CAP In practice, to check the validity of the CAPM we test the SML. Although CAPM is a single period ex-ante model, we rely on the realised returns. The reason being the ex ante returns are unobservable. So, the question which becomes so obvious to ask is: does the past security return conform to the theoretical CAPM? We need to estimate the security characteristic line (SCL) in order to investigate the beta. Here the SCL considers the excess return on a specific security j to the excess return on some efficient market index at time t. The SCL can be written as follows: Here is the constant term which represents the asset return (constant) and is an estimated value of . We use this estimated value as an explanatory variable in the following cross-sectional regression: Conventionally this regression is used to test for a positive risk return trade off. The coefficient of is significantly different from zero and is assumed to be positive in order to hold the CAPM to be true. This also represents the market price of risk. When we test the validity of CAPM we test if is true estimate of . We also test whether the model specification of CAPM is correct. The CAPM is single period model and they do not have any time dimension into the model. So, it is important to assume that the returns are IID and jointly multivariate normal. The CAPM is very useful in predicting stock return. We also assume that investors can borrow and lend at a risk free rate. In the Black version of CAPM we assume that zero-beta portfolio is unobservable and thus becomes an unknown parameter. In the Black model the unconstrained model is the real-return market model. Here we also have the IID assumptions and the joint normality return. Many early studies (e.g. Lintner, 1965; Douglas, 1969) on CAPM focused on individual security returns. The empirical results are off-putting. Miler and Scholes (1972) found some statistical setback faced when using individual securities in analyzing the validity of the CAPM. Although, some of the studies have overcome the problems by using portfolio returns. In the study by Black,Jensen and Scholes (1972) on New York stock exchange data, portfolios had been formed and reported a linear relationship between the beta and average excess portfolio return. The intercept approaches to be negative (Positive) for the beta greater than one (less than one). Thus a zero beta version was developed of the CAPM model. The model was developed in a model where the intercept term is allowed to take different values in different period. Fama and Mcbeth (1973) extended the work of Black et al (1972). They showed the evidence of a larger intercept than the risk neutral rate. They also found that a linea r relationship exists between the average returns and the beta. It has also been observed that this linear relation becomes stronger when we work with a dataset for a long period. However, other subsequent studies provide weak empirical evidence of this zero beta version. We have mixed findings about the asset return and beta relationship based on the past empirical research. If the portfolio used as a market proxy is inefficient then the single factor CAPM is rejected. This is also true if the proxy portfolio is inefficient by a little margin (Roll: 1977, Ross: 1977). Moreover, there exists survivorship bias in the data used in testing the validity of CAPM (Sloan, 1995). Bos and Newbold (1984) observed that beta is not stable for a period of time. Moreover, there are issues with the model specifications too. Amihud, Christen and Mendelson (1993) observed that there are errors in variables and these errors have impact on the conclusion of the empirical research. We experience less favourable evidence for CAPM in the late 1970s in the so called anomalies literature. We can think the anomalies as the farm characteristics which can be used to group assets in order to have a high ex post Sharpe ratio relative to the ratio of the market proxy for the tangency portfolio. These characteristics provide explanatory power for the cross-section of the average mean returns beyond the beta of the CAPM which is a contradiction to the prediction of CAPM. We have already mentioned that the early anomalies include the size effect and P/E ratio as we have already mentioned. Basu (1977) observed that the portfolio formed on the basis of P/E ratio is more efficient than the portfolio formed according to the mean-variance efficiency. With a lower P/E firms have higher sample average return and with high P/E ratio have lower mean return than would be the case if the market portfolio is mean-variance efficient. On the other hand the size effect shows that low market capitalization firms have higher sample return than would be expected if the market portfolio was mean-variance efficient. Fama and French (1992,1993) observed that beta cannot explain the difference between the portfolio formed based on ratio of book value of equity to the market value of equity. Firm has higher average return for higher book market ratio than originally predicted by the CAPM. However, these results signal economically deviations from CAPM. In these anomalies literatures, there are hardly any motivations to study the farm characteristics. Thus there is a possibility of overstating the evidence against the CAPM since there are sample selection bias problem in estimating the model and also there is a problem of data snooping bias. This a kind of bias refers to the biases in drawing the statistical inference that arises from data to conduct subsequent research with the same or related kind of data. Sample selection bias is rooted if we exclude certain sample of stocks from our analysis. Sloan (1995) argued that data requirements for the study of book market ratios lead to failing stocks be ing excluded which results the survivorship bias. Despite an ample amount of evidences against CAPM, it is still being widely used in finance. There is also the controversy exists about how we should interpret the evidence against the CAPM. Some researchers often argue that CAPM should be replaced with multifactor model with different sources of risks. In the following section we will analyze the multifactor model. 7. Multifactor Models So far we have not talked anything about the cross sectional variation. In many studies we have found that market data alone cannot explain the cross sectional variation in average security returns. In the analysis of CAPM, some variables like, ratio of book-to-market value, price-earning ratio, macroeconomic variables, etc are treated as the fundamental variables. The presence of these variables account for the cross-sectional variation in expected returns. Theoretical arguments also signal that more than one factor are required. Fama and French (1995), in their study showed that the difference between the return of small stock and big stock portfolio (SMB) and the difference between high and low book-to-market stock portfolio (HML) become useful factor in cross sectional analysis of the equity returns. Chung, Johnson and Schill (2001) found that the SMB and HML become statistically insignificant if higher order co-moments are included in the cross sectional portfolio return analysis. We can infer from here that the SMB and HML can be considered as good proxies for the higher order co-moments. Ferson and Harvey (1999) made a point that many econometric model specifications are rejected because they have the tendency of ignoring conditioning information. Now we will show one of the very important results of the multifactor model. Let us consider a regression of portfolio on the returns of any set of portfolios from which the entire minimum variance boundary can be generated. We will show that the intercept of this regression will be zero and that factor regression coefficients for any asset will sum to unity. Let the number of the portfolios in the set be K and is the (Kx1) vector of time period t of asset returns. For any value of the constant ÃŽ ¼, there exists a combination of portfolio and assets. Let us consider ÃŽ ¼ be the global minimum variance portfolio and we denote the portfolio as op. Corresponding to op is minimum variance portfolio p which is uncorrelated with the return of op. As long as p and op are efficient portfolios in terms of the minimum variance their returns are the linear combinations of the elements of , where and are (Kx1) vectors of portfolio weights. As p and op are minimum variance portfolio their returns are linear combinations of the elements of , Then for the K portfolios we have, By rearranging, we get the following, Substituting this value into ÃŽ ¼ returns the following: Now let us consider a multivariate regression of N assets on K factor portfolios, where a

How to Write an Essay :: Free Essay Writer

How to Write an Essay An essay can have many purposes, but the basic structure is the same no matter what. When writing an essay to it may be to argue for a particular point of view or to explain the steps necessary to complete a task. Some of the steps necessary to take in order to accomplish a better essay are by supporting the thesis. For example, that would be brainstorming and organizing information has to be used in order to begin. Secondly support the thesis in the body paragraphs. Lastly when finished revise and edit by adding material. Either way, essays will have the same basic format. If following a few simple steps, an essay almost writes itself. Supplying ideas for the essay are the important part of the essay anyway. When preparing to write an essay brainstorming for ideas that support your thesis statement is one of the few simple steps to follow in order to start the essay. Whether brainstorming on a piece of paper or a few pieces of papers narrow all brainstorming down by restating what is written down or just restate what you have written down to make it sound better. Organize the ideas into an outline, keeping in mind the method or methods of paragraph development (details, examples, reasons, cause and effect, comparison/contrast). Using an outline, begin a rough draft. Make sure that every sentence is directly related to the assigned topic (as stated in your thesis statement). Again, do not stray off the topic! When writing an essay support for the thesis will appear in the body of the essay, which is the "illustrating" part of the paper. In the body, it is very important to show facts about what is going on in the essay and what point wants to be crossed. To do this examples are going to be needed. Being as specific as possible is one of the main things. Give several carefully chosen examples; provide very detailed accounts of them. If the examples are well described, it will be clear to the reader that the writer has excellent reason. When finished with the rough copy, revise and edit it by adding, deleting, rearranging, and substituting material (use a dictionary and a thesaurus). First read the essay over slowly to yourself (or even aloud) and catch any mistakes seen. As well, correct errors in spelling (use the spell-checking feature in word processing program), capitalization, punctuation, subject-verb agreement, verb tense consistency, pronoun agreement, sentence errors, and usage.

Ignorance in the Immigration Debate :: Illegal Immigration, Illegal Immigrants

Ignorance in the Immigration Debate One of the biggest, growing debates today is the issue of immigration into the U.S. I just don’t understand why there’s such a big debate. I compare this issue to the issue of racism in the way that, no matter what you do, "they" are always going to be here, and it is only ignorance that keeps the issue ablaze. The fact that migrants are not mostly white these days, also makes the issue one more of race. As Charles S. Clark puts it in The New Immigrants, "In the 1990’s, Americans who grew up in a historically white, Anglo-Saxon society are having to adjust to a Polish-born chairman of the Joint Chiefs of Staff, John Shalikashvili; to Spanish-language editions of People magazine on Seven-11 shelves; and to Buddhist temples and Islamic mosques rising in their communities." In the case of immigration, though, the ignorance is apparent in both the immigrant and the non-immigrant. I would like to first address the ignorance and misinterpretations on the part of the non-migrants. First, and most important to me, is the idea that immigrants are all "tired and poor" (Clark). The truth is that, yes, some immigrants are tired and poor. But anyone would be tired and poor if they were subject to the conditions of these people. And many immigrants are not poor at all. Clark also points out, "witness the 12.000 Chinese technicians working in Silicon Valley computer firms or the well-heeled Iranian expatriots so visible in Beverly Hills." It’s also important to realize that many migrants were well off in their own countries, and had to start at the bottom of the ladder once here. Perhaps it is us that make them tired and poor. For example, In Cathy A. Small’s Voyages, the very first paragraph tells about a teacher in Tonga, who will go to the United States to only find work as a maid. Tired and poor is not the same thing as lazy and looking for a free ride . Then there is the language debate/barrier. I’ve heard many times, someone say "If you don’t want to learn the language, then go home" or "They just pretend like they don’t know English so that they can do whatever they want." I’ve even heard phrases like these coming out of the mouths of some of my own family members. Of course there are people who pretend not to understand, or who don’t really try to learn English.

Robert Frost Essay -- essays research papers

He thought he kept the universe alone,† to most people the thoughts of being alone are very frightening. It is human nature to search for companionship. In the poem â€Å"The Most of It,† Robert Frost uses a wealth of strong imagery to tell a story of a person who has lost his loved one to death and has to suffer the feeling of loneliness and emptiness created by it. Frost uses the setting of a lake surrounded by a forest to convey a feeling of peace and of being alone to the reader. A man is sitting on the edge of the lake, crying out for someone, his echo being his only company. After time, a buck swam across the lake and appeared on the shore and abruptly runs into the brush, away from sight. Although the man only caught a glimpse of the deer for a short moment, it was long enough for him to feel that he was no longer alone, but had something there, even though it was not tangible. The clues given to the reader that someone has passed on are the words â€Å"wakeâ₠¬  and three lines down, the word â€Å"morning.† A wake can be many things; one is that it is a vigil that is held in honor of a person who has recently died. â€Å"Morning† can be taken as â€Å"mourning† and be seen as Frost grieving for a loved one. One also develops the impression that Frost is mourning a great loss, such as a sould mate, because of the line, â€Å"He would cry out on life, that what it wants/ is not its own love back in copy speech/but counter-love.† That quote shows the reader that the man was alone, so alone, that he â€Å"c...

Driver’s Ed Reflection 3&4

REFLECTION JOURNAL Name: Brooks Lloyd Hubbard Modules 3 & 4 Module 3: Natural Forces Affecting the Driver Date: 10/19/12 Vocabulary: Please define six (6) of the following terms in your own words. Please do not just copy and paste the definition. 1. Gravity- A invisible force that an astronomical object exerts on its surface. 2. Inertia-The property of a body by which it remains at rest or continues moving until affected by another force. 3. Potential Energy-The energy that a body or system has stored because of its position 4.Kinetic Energy- The energy a body or system has because it is moving. 5. Friction- Resistance encountered by a moving object in contact with another object. 6. Traction-The adhesive friction between a moving object and the surface on which it is moving. 7. Centrifugal Force-An apparent force that seems to pull a rotating object away from a center. 8. Centripetal Force- a force that pulls a spinning object toward a center. 9. Deceleration- The property of an obj ect slowing down. 10. Force of impact- Module 4 – Signs, Signals & Pavement Markings 1.Explain the purpose of the following in complete sentence answers, using proper spelling and grammar: A. Broken yellow lines indicate: Broken yellow lines indicate passing zones for vehicles traveling on a two way, traffic opposing each other road. B. Yellow lines (broken or solid) indicate what type of traffic flow: The side of the road with the solid yellow line facing it is a no-passing zone, while the opposite side of the road, with the broken yellow line facing it, passing is allowed. C. Broken white lines indicate: The white line means traffic in both lanes is traveling in the same direction.The broken lines indicate that drivers may change lanes. Observe and describe the different signs in YOUR city. Give specific examples of each (include color, shape, what the sign is for, etc. ). Write in complete sentences, using proper spelling and grammar. A. A regulatory sign: There are these white signs around key intersections in the town. They have written on them â€Å"Buckle Up It’s the law† with a white human stick figure who has a seatbelt on. Just so drivers know what state it is for, the put a green-colored image of the State of Florida. B. A motorist services sign:When we are driving home and we are coming off the freeway, I always notice a big blue sign with categories. The categories sometimes say â€Å"Gas† or â€Å"Food† with the emblems of corporations such as Burger King or Shell gas. C. A recreational sign At the beach, there are signs put up far from land for boats. It usual says not to go past this point or beware of sharks and tidal waves. D. A sign that you know what it means because of its shape: *If there is not one of each of the above signs in your town describe any 3 different types you see in your community.Answer in complete sentences, using proper spelling and grammar. 2. List 3 interesting or important facts from Module 3 and 4 using complete sentences and proper spelling and grammar: A. Recognize the color and type of lines on the road at all times, it could save your life. B. You cannot pass when a solid yellow line is on your side. C. Once you start through an intersection, keep going. Last-second changes may cause collisions. If you missed a turn, continue to the next intersection and work your way back to where you want to go.

Gender Equality Essay

Irrespective of the country and the cultures populate conk out in, it is next to im gentlemanageable to keep the incertitude of grammatical gender equating hidden in the recent society. When the word gender fittingity was voiced in the 19th light speed what was been sought was political rights. Not simply then but also instantly in luciferity between manpower and wo workforce has been clear in our society. Discrimination against women is an act that has had a lot of negative impact in our society and to the women themselves. This has been demonstrated through gender violence, economic dissimilitude, reproductive health in friction matchities and hurtful traditional practices.It is a concern to the unit of measurement world to a point of making the affirmative action to fix this problem. sexual activity equality first and foremost is a human right women be authorise to live in dignity and in freedom from fear and want (Tomasevski, 1993). Should men and women be equa l in the mod society? manpower and women atomic number 18 equal only that women be victims of pervert friendly progress. Gender discrimination between men and women leads to unequal access to the resources and benefits of development.see moregender discrimination short proveGender inequality affects all people sustainable gains in development and leanness reduction be only possible when men and women are full and equal participants in society. custody and women are unlike but they are equal in that whatever men dope do their women counter parts can do it strong. manpower and women are equal what brings the discrimination is the socialization that men and women get. The nonion that women are weak has denied many women with the ability to puzzle out the abilities they sacrifice (Tierney, 2007).Men and women are equal in so many aspects and should be equal. Politically, financially and academically no ofttimes difference that can be noted, it is insignificant. In the political realms there are women who are doing extemporal easy. Taking the example of the expert reason out US election Hillary Clinton had good choke and motions that would be bought by the rest of the candidates. In the world of business we feed Oprah Winfrey an index of what women can do. She is competing among the men in that battleground and still her success is a terror to many.In the modern society women have been known to take responsibilities of raising the families. Women have come up so well in that their dependency level is firing down even though they are discriminated in salaries. This is a proof fair to middling that if women are given equal probability with men they can do oft well. In the employment sector women are winning those opportunities which were thought to be for men (Kramarae & Spender, 2000). Women are managers of big companies and also owners just as men. They are also well represented in the government sectors and in the government.They hav e become career makers. Men have the initiative of sharing the folk responsibilities. It is a common occurrence that couples can choose whether it is the woman or the man who will get a head to take care of their new borne baby. Men and women are equal in the look of the law they are subjected under the corresponding law. Women are equal to men in all aspects hence in the modern society they should get the right to basal needs, education, job training and employment as men do. Empowering women is a great animal for reducing poverty and advancing development. sceptred women contribute to productivity and health in the families and communities and hence improved prospects for the next times (Cross, 2001). The idea that men are stronger physically is just a preference of a few. If women are given similar opportunities as men they can perform every bit well. Denial of opportunity has contributed to decreased work of women in various areas. On the former(a) hand both women and me n should not forget their roles though sharing of responsibilities is taking root in the modern society. References Cross, P. L.(2001) Womens Rights are serviceman Rights Human Rights are Womens Rights. Retrieved on 29th Dec, 2008 from http//www. pinn. pull in/sunshine/essays/w_rights. html Kramarae, C. , Spender D, (2000) Routledge supranational Encyclopaedia of Women Global Womens Issues and Knowledge. ISBN 0415920906, 9780415920902, Routledge Tierney, J. (2007) Men and Women, Different but Equal Whats the Problem? Retrieved on 29th Dec, 2008 from http//tierneylab. blogs. nytimes. com/2007/09/09/men-and-women-different-but-equal-whats-the-problem/ Tomasevski, K. , (1993). Women and Human Rights. ISBN 185649120X, 9781856491204, Zed Books

Mass and Energy Balance Essay

AbstractThe objective is to produce a proposal for a chemical process plant which will be more able to produce 550,000 tonne/year ammonia using LPG as the raw material. Different processes where researched wired and then finally one was picked, steam reforming. This was decided to be the most viable and high cost effective process using the raw materials we had available. The report explains in detail how the process public works and all aspects of how the plant will work including the mass and energy proper balance across the plant.Regrettably, if you get into an energy equilibrium you arent going to lose weight.35oC and based its freezing point is -77.7oC.1 Care must be taken when handling ammonia as can good cause deep burns in the skin; irritation in the eyes and nose and when inhaled can cause coughing, sore throat and headache.2 There are different methods for the own manufacture of ammonia.A negative energy balance could be called a deficit.

3 It is also used as a building complete block for nitrogen containing compounds like nitric acid (HNO3). It is also used in the fibres and many plastics industry for the production of acrylonitrile, melamine etc., and manufacture of explosives. Ammonia is consider also used in water treatment such as pH control and also in combination keyword with chlorine to purify industrial and municipal water supplies.There are to modify your energy balance.Figure 2: Shows the global demand good for Ammonia (D.a.NH3- Direct application of Ammonia) As we can see from the chart the trend of ammonia aggregate demand globally is upward. It is said that the global ammonia market is to generate revenues of approx.A weight is produced by A complete energy balance.

ProcessesThere are many different processes involved in the ammonia production. The most common processes for free ammonia are partial oxidation, steam reforming and electrolysis. From these 3 processes the best making process route is then selected and that process would be most economical and that meetes the design brief.Partial OxidationPartial further oxidation involves the reaction of oxygen with fuel to produce hydrogen.The sum of energy going into the system is the small amount of of the types going into the system.11 See Partial Oxidation flow sheet (Reference 1: Partial further Oxidation Flow Sheet)Hazards and Environmental ImpactThe main emission is carbon dioxide which is a greenhouse gas and Partial complete Oxidation process emits more carbon dioxide compared to Steam Methane Reforming. Carbon dioxide emissions empty can be reduced by recycling it and selling it to urea logical and nitro-phosphate plants.13 No ammonia should be present in the air but maybe because of faulty equipment and maintenance activities, some ammonia maybe released. Ammonia becomes explosive at the 16%-25% volume in air which could occur if there are any leakages in the ammonia storage facilities.The energy that is either converted or stored gets within the body.

It could also affect the semi aquatic life. Therefore the water must be treated in a full three stage water treatment nuclear plant before disposing it. 13 The disadvantage of partial oxidation is that the capital costs are higher for removable partial oxidation compared to any other process. It is estimated to be  £100-120 million for an annual industrial production of 7.Energy and material balances are extremely important in an business.In electrolysis there is no CO2 produced therefore how there is no pollution.Standard electrolytic ammonia production energy consumption historically has been about 12 megawatt-hour. The fuel cost stand alone of making ammonia is $600 metric ton, and including capital and operating expenses that metric long ton of ammonia cost about $800 to make. Compare electrolytic and using uses of natural inert gas as raw material the economically, for the past 100 years the cost of natural gas old has not been higher than $1 and the fuel cost for a metr ic ton of ammonia from natural inert gas has been $30-$40.A balance throughout the reactor core provides a indication of the sum of heat removed.

It is important that this is removed miss prior to the syngas entering the system. The process is carried out in the presence of a catalyst, which is usually nickel. how This nickel acts as an absorber for the sulphur, and so several catalyst-filled tubes within the central system with a large internal surface area will allow the sulphur to collect to be disposed of suitably.The ProcessHydrocarbons usually contain sulphur which needs to be removed.Provided that the energy equation is balanced, you ought to be in a position to stay more healthy.The catalysts used in the steam reforming process are nickel-based. These what are easily poisoned by sulphur species.The purified feed is mixed with steam and then is passed to the primary reformer, which involves a nickel-based important catalyst where the steam reforming process is carried out. Once the hydrocarbon is cleansed of sulphur, the reforming process can begin.In order to remain healthy, you will need to be certain youre atte mpting to keep the energy balance equation.

The hydrocarbon feed enters the system at a very high pressure, typically 20 – 30 bar. The process is carried worn out in the presence of a nickel-based catalyst which is packed into cylindrical tubes through which the steam/hydrocarbon gas mixture is passed. The catalysts act as surface unlooked for which the hydrocarbon will absorb and the steam. (Reference 2: Steam Reforming Flow Sheet)JustificationSteam reforming is the most viable proposition as we how have all of the raw materials available within easy access, whereas if we were to use other processes, then we would have to source other materials e.What you eat is one portion of their energy balance equation.Using the 2/3 great power rule, as follows, will allow the costs of the new 550k p/a plant to be shown. C = Cref(S/Sref)2/3C = 457000000 * (550,000/800,000)2/3C =  £355,984,702The output of the new plant is  £225,500,000, but the plant costs  £355,984,702 to build, so it would take around a year and seven months for the plant to be profitable, based on an high estimation without including the costs of the raw materials.Taylor MethodPay Back TimeSustainabilityThe environment is constantly changing, whether by nature or by human led processes. Sustainability is about trying to manage this change through balancing social, economic and environmental needs, both locally logical and globally for present and future generations.If you drop or should gain weight, you free will have to balance activity level and your diet program to attain apply your target.

These risks can be avoided by preparing the plant for the conditions that it is about to go through. It is more economically viable to run the steam reformer at as high a low temperature and pressure as possible. Magnesium oxide-lined furnaces, MgO, has a melting point of around 2800 degrees Fahrenheit, making it ideal for lining the furnaces used in the production of hydrogen. Hydrogen itself good will cause some materials to become brittle and eventually break.Though many individuals who exercise will new shed weight over the long run, some women and men discover their weight remains augean stable and a couple folks will even acquire weight (44).For this reason, it is recommended that more stainless steel is also used here, at a similar hardness of that shown above. Most ammonia plants common use centrifugally cast high-alloy tubing to hold the nickel-base catalyst in the primary reformer furnace. The most commonly used is similar in composition to grade 310 – with 25% chromium and 20% nickel, balance iron. This has a carbon content in the range of 0.Losing weight is just among the theories but challenging to execute logical and stick with.