Economics

The global financial crisis has had a profound impact on the economy of the United States. One of the most important ways that the crisis has impacted the United States is in causing unemployment rates to rise significantly. As one of the leaders in the global economy, the United States had been a staple country in terms of employment statistics. The recent crisis caused employment to double in many areas around the country, pushing America further into a financial hole that has, at times, seemed quite dire. This happened for a number of reasons, including companies needing to cut costs, entire industries hitting the wall, and temporary or unskilled workers just not being necessary anymore. These factors were all exacerbated by the heightening financial crisis and combined to bring unemployment to a problematic level in the United States over the last past two years.

According to a report done by the Directorate for Employment, Labour, and Social Affairs, the financial crisis has had an impact on developed nations around the world. Their report specifically cites the United States, saying, Recent trends and the projections over the next two years point to significant differences across OECD countries. The downturn in economic activity took effect earlier in the United States, where the unemployment rate reached 6.5 in October and the rate of job losses in consecutive months hit a seven-year high. Over the past 12 months, the number of unemployed persons has increased by about 2.8 million in the United States (OECD). According to that report, it all started with the need for companies to cut back on costs. One of the things that had long made the American economy a strong one was the job security of skilled workers. Those individuals believed they were secure in their positions with various firms, but the economic crisis showed them and companies that very few workers were truly expendable. Many of these workers had dedicated their lives to various companies and their tasks, so when they were laid off, it was difficult for them to jump into a new job with a new company. Unemployment statistics can often rebound when the majority of people being laid off are young workers, as those individuals have the ability to bounce back and land in other jobs. As the report indicates, the recent crisis has forced many companies to cut ties with older, more established workers, which has slowed the recovery significantly.

Another way that the economic crisis has caused unemployment increases in the United States has to do with the near shut down of entire industries. Few financial crises have had this sort of overwhelming impact on specific industries, which has caused widespread job loss in sectors like the auto world. This is the most prominent and pronounced industry to consider. According to a report from the Portal for North America, The automobile industry worldwide is in the midst of an unprecedented crisis. The bankruptcies of Chrysler and GM have made taxpayers major shareholders in these carmakers (PFNA, 2009). The resulting job losses have totaled in the tens of thousands. When there is relative balance across the economy, it can help employment recovery, but when an entire industry is affected like it has been in this financial crisis, things can get especially dicey.

Many economic pundits have placed much of the blame on the fact that companies do not need to retain certain types of employees. In addition to cutting loose long-time employees, companies are also cutting back on the unskilled labor that they hire. Consultants fall into this group, as well, according to the OEDCs report. The report states, Historical experience suggests that youth, immigrants, low-skilled and older workers are more likely to bear the brunt of rising unemployment. Workers holding temporary contracts are also particularly vulnerable to an economic downturn (OEDC). If two people have jobs that could be combined into one job or completed by someone already on staff, companies are taking the initiative and becoming more efficient. Though that might bode well for the companys bottom line at the end of the quarter, it does very little to help the unemployment windfall that has taken place as a result of the crisis.

In total, the issue seems to be a perfect storm of different factors, all contributing to bring the countrys employment situation to its knees. With one or two factors, the economy might be able to right itself and more jobs might open up, but with people of all experience levels and proficiency levels being laid off, it is apparent that the situation is significantly more dire. When one considers that an entire important industry within the United States has lost tens of thousands of jobs over the last two years, it is easy to see where the problems are coming from. The crisis has effectively forced companies to cut back, and workers are the ones paying the price for this. Until the global economy starts to right itself once again, no help will be in sight for these companies or these workers.

Works Cited
Organization for Economic Co-Operation and Development. Impact of the economic crisis on employment and unemployment in the OECD countries. Directorate for Employment, Labour, and Social Affairs.  httpwww.oecd.orgdocument630,3343,en_2649_33927_41727231_1_1_1_1,00.html
Portal for North America. The Auto Industry in Crisis Causes and Consequences for American Recovery. 2010.  httpwww.portalfornorthamerica.orgevents201006auto-industry-crisis-causes-and-consequences-american-recovery.

2. The following is a straight line demand curve that confronts a single firm.
Compute Total Revenue and Coefficient of Price Elasticity
To compute for the total revenue, we use the formula

For price   6, Quantity  1 TR  6 x 1  6
For price   5, Quantity  2 TR  5 x 2  10
For price   4, Quantity  3 TR  4 x 3  12
For price   3, Quantity  4 TR  3 x 4  12
For price   2, Quantity  5 TR  2 x 5  10
For price   1, Quantity  6 TR  1 x 6  6
To compute for the coefficient of Price Elasticity, we use the formula

That is
For New P  5, Old P  6 New Q  2, old Q  1 E   QUOTE    -3.667
For New P  4, Old P  5 New Q  3, old Q  2 E   QUOTE    -1.80
For New P  3, Old P  4 New Q  4, old Q  3 E   QUOTE    -1
For New P  2, Old P  3 New Q  5, old Q  4 E   QUOTE    -0.556
For New P  1, Old P  2 New Q  6, old Q  5 E   QUOTE    -0.273
For convenience, we will only use the absolute values of the computed E. The table below summarizes the results
PriceQuantity DemandedTotal RevenueCoefficient of Price Elasticity 61652103.66743121.803412125100.5561660.273

Describe the character of elasticity across the prices based on the total revenue test and the elasticity coefficient.

Based on the table shown above, elasticity changes with respect to the change of total revenue per level of price and demand. In the table both parameters (price and demand) change inversely, meaning as price decreases, the demand increases. This behavior led to increasing total revenue for the first three levels and a decreasing behavior on the latter three stages. It can also be noticed that greater than 1 values of elasticity were achieved in 2nd and 3rd stages (prices are 5 and 4). This value of elasticity means that at an elastic demand, as price decreases, total revenue increases as reflected on the table.

The table also portrays that revenue cannot continue to rise as price falls and this is shown in the latter stages where the values of elasticity are less than 1 (prices are 2 and 1) which indicates that the demand is inelastic. This continuous reduction in prices led to a reduction in total revenue as well.

Lastly, a unitary elastic demand (E1) was achieved at a 3 price where the total revenue remain at a stable level of 12.00.
Does a straight line demand curve have constant elasticity
No. This is because a straight demand curve consists of constant intervals that make it straight. However, it does not lead to a conclusion that elasticity is constant. As observed from the table, the demand line is straight because it has constant intervals but the values of elasticity computed for each level differ that when it is graphed, a curve line will actually be created rather than a straight (constant) line.
Explain the determinant factors of price elasticity of demand

Determinant factors of price elasticity of demand
Necessities versus Luxuries  the demand for necessities are usually inelastic as opposed to luxuries which are elastic. This is because necessities are the things that are most important to us and that we cannot live without like water, food, etc. Thus, even if the price increases, our level of consumption will still remain. This is different from luxuries because luxuries are things that we want but are not really important, thus, when the price increases, we may choose the option of not buying it which leads to a reduced level of consumption.

Availability of substitutes  during situations in which prices on certain items increases,  when there are available substitutes in the market that  have lower prices, people tend to buy these substitutes rather than buying the expensive ones. For example, if the price of fish increases, consumers may choose to buy chicken or other meat to avoid high fish prices.

Price relative to income  consumption of goods or services is affected by the change in price especially if the price of a certain commodity or service is quite expensive relative to the consumers income. For example, if the price for plane tickets changes, this will result to an abrupt change in the number of traveling passengers. However, for certain commodities like rice, since the price is lower relative to the consumers income, any change in it price will not lead to an immediate change in consumption level.

Duration  for most goods, the longer a price change holds, the higher the elasticity becomes because more and more people will stop consuming the goods. Substitution may also happen in the long run as people will continue to look for alternative goods that they can consume. A good example is gasoline. Nowadays, as the price of gasoline increases, more and more people choose other types of gasoline like biodiesel that are cheaper than the gasoline that they are purchasing.

Brand  Some consumers value brand highly that even if price increases, they will still choose to buy that commodity, thus, making the demand more inelastic. An example of this would be Macintosh products that even if their products are more expensive than other existing products, many people still buy because of brand loyalty.

4. Assume a single firm in a purely competitive industry has variable costs as indicated in the following table in column 2. Complete the table and answer the questions
To compute for Total Cost, the formula used is

In the problem, TFC  40
For TP 0 TC  40  0  40 For TP 1 TC  40  55  95
For TP 2 TC  40  75  115 For TP 3 TC  40  90  130
For TP 4 TC  40 110  150 For TP 5 TC  40  135  175
For TP 6 TC  40  170  210 For TP 7 TC  40  220  260
For TP 8 TC  40  290  330
To compute for Average Fixed Cost (AFC), the formula used is

For TP 1 AFC  401  40.00 For TP 2 AFC  402  20.00 For TP 3 AFC  403  13.33 For TP 4 AFC  404  10.00
For TP 5 AFC  405  8.00 For TP 6 AFC  406  6.67
For TP 7 AFC  407  5.71 For TP 8 AFC  408  5.00
To compute for Average Variable Cost (AVC), the formula used is

For TP 1 AVC  551  40.00 For TP 2 AFC  752  37.50
For TP 3 AVC  903  30.00 For TP 4 AFC  1104  27.50
For TP 5 AVC  1355  27.00 For TP 6 AFC  1706  28.33
For TP 7 AVC  2207  31.43 For TP 8 AFC  2908  36.35
To compute for Average Total Cost (ATC), the formula used is

For TP 1 AVC  951  95.00 For TP 2 AFC  1152  57.50
For TP 3 AVC  1303  43.33 For TP 4 AFC  1504  37.50
For TP 5 AVC  1755  35.00 For TP 6 AFC  2106  35.00
For TP 7 AVC  2607  37.14 For TP 8 AFC  3308  41.25
To compute for Marginal Cost (MC), the formula used is

For TP 1 MC  (95-40)(1-0)  55.00 For TP 2 MC  (115-95)(2-1)  20.00
For TP 3 MC  (130-115)(3-2)  15.00 For TP 4 MC  (150-130)(4-3)  20.00
For TP 5 MC  (175-150)(5-4)  25.00 For TP 6 MC  (210-175)(6-5)  35.00
For TP 7 MC  (260-210)(7-6)  50.00 For TP 8 MC  (330-260)(8-7)  70.00
The table below summarizes the results obtained from the above calculations
(1)(2)(3)(4)(5)(6)(7)Total ProductTotal Var. CostTotal CostAFCAVCATCMC00 40 0.0 0.0 0.0 --1559540.0055.0095.05527511520.0037.5057.502039013013.3330.0043.3315411015010.0027.5037.502051351758.0027.0035.002561702106.6728.3335.003572202605.7131.4337.145082903305.0036.3541.2570

At a product price of 52, will this firm produce in the short run Explain. What will its profitloss be
At a product price of 52, the firm can produce units in the short run because the price exceeds the marginal cost. The table below shows the profits that can be generated when production is pursued.
(1)(2)(3)(4)(5)Total ProductTotal Var. CostTotal CostRevenue

P  52.00Profit (loss)00 40 0.0 0  40  (-40.00) 155951 x 52  52.0052- 95  (-43.00)2751152 x 52  104.00104  115 (-11.00)3901303 x 52 156.00156 - 130  26.0041101504 x 52  208.00208  150  58.0051351755 x 52  260.00260  175  85.0061702106 x 52  312.00312  210  102.0072202607 x 52  364.00364  260  104.0082903308 x 52  416.00416  330  86.00

Based on the table, negative profits (loss) can be achieved if production of 0-2 units is pursued. This is explainable due to the fixed cost that has been applied. A clear magnification of profit reduction can be seen on the production of 8 units which reduced the company profits from 104 (producing 7 units) to 86. Thus, it is clear that 7-unit production is the most profitable at the price level given with a profit of 104.

At a product price of 28, will this firm produce in the short run Explain. What will its profitloss be
The table below summarizes the profits or loss per production level given the price of 28. Since the price given is greater than the marginal cost computed for some levels, it is recommended for the company to pursue production at those levels. Even if loss will be achieved in the production of units, production should still continue to stay competitive rather than obtaining more loss for not producing at all. The optimal level for this production is 5 units that will lead to a 35 loss.

(1)(2)(3)(4)(5)Total ProductTotal Var. CostTotal CostRevenueProfit (loss)00 40 0.0 0  40  (-40.00) 155951 x 28  28.0028  95  (-67.00)2751152 x 28  56.0056- 115  (-59.00)3901303 x 26  84.0084  130  (-46.00)41101504 x 28  112.00112  150  (-38.00)51351755 x 28  140.00140 - 175  (-35.00)61702106 x 28  168.00168  210  (-42.00)72202607 x 28  196.00196  260  (-64.00)82903308 x 28  224.00224  330  (-106.00)

At a product price of 22, will this firm produce in the short run Explain. What will its profitloss be
At a price of 22 dollars, production is feasible for 2, 3 and 4 units since the price given exceeds the marginal cost for these levels. Thus, it is still good for the company to pursue production to remain competitive even if losses can occur. Based on the table generated, the optimal level at a price of 22 is 4 units with a loss of 62.00.

(1)(2)(3)(4)(5)Total ProductTotal Var. CostTotal CostRevenueProfit (loss)00 40 0.0  0  40  (-40.00) 155951 x 22  22.0022  95  (-73.00)2751152 x 22  44.0044  115  (-71.00)3901303 x 22  66.0066  130  (-64.00)41101504 x 22  88.0088  150  (-62.00)51351755 x 22  110.00110  175  (-65.00)61702106 x 22  132.00132  210  (-78.00)72202607 x 22  154.00154  260  (-106.00)82903308 x 22  176.00176  330  (-154.00)

Complete the following short-run supply schedule for this firm.
The data for the 52, 28 and 22 prices came from the previous computations. For 72, 45 and 15, the computations are shown below

At price  72, optimal units  8 units (marginal cost is nearest the price)
Profit  (72 x 8)  330  246.00
At price  45, optimal units  6 units (marginal cost is nearest the price)
Profit  (45 x 6)  210  60.00
At price  15, optimal units  3 units (marginal cost equals price)
Profit  (15 x 3)  130  (88.00)

Product PriceQuantity SuppliedProfit () or Loss (-)728246.00527104.0045660.00285(35.00)224(62.00)153(88.00)
Assume there are 500 identical firms in this industry, that they have identical cost data as the firm above, and that the industry demand schedule is as follows

Product PriceQuantity Supplied
(per firm)Quantity Demanded728250052735004564000285520022459001536700

What will the equilibrium price be
Equilibrium price will be at the point where quantity supplied  quantity demanded
At price   72.00 Demand  2500  500  5 per firm ( not equilibrium
At price   52.00 Demand  3500  500  7 per firm(  equilibrium
At price   45.00 Demand  4000  500  8 per firm  (  not equilibrium
At price   28.00 Demand  5200  500 10.4 per firm (  not equilibrium
At price   22.00 Demand  5900  500  11.8 per firm (  not equilibrium
At price   15.00 Demand  6700  500  13.4 per firm ( not equilibrium
Thus equilibrium price is  52.00 where Demand  7 units equals Supply  7 units

What will the equilibrium output for each firm be
Equilibrium output will be the supply at the equilibrium price (52.00), that is
Equilibrium output  7 units

What will profitloss be per unit
The profit per unit will be
For Q  7 units  Total Revenue (TR)  7 x 52 364.00     Total Cost (TC)  260.00
Profit  TR  TC  364  260  104.00
Profit per unit  104  7   14.85 unit

What will profitloss be per firm
The profit per firm will be
For Q  7 units  Total Revenue (TR)  7 x 52 364.00     Total Cost (TC)  260.00
Profit  TR  TC  364  260  104.00firm

The study on the Hierarchical Model proposes and tests a hierarchical model of market entry modes. To begin with, the entry modes were viewed as equity-based versus non-equity-based. In Equity-based modes, the choice was and is between wholly owned operations and equity joint ventures, while within non equity based modes, the choice was and is between contractual agreements and exports. In the hierarchical model, entry modes have been additionally modeled in to two the first way is to model as a continuum of increasing levels of resource commitment, risk exposure, control and profit potential from export to wholly owned subsidiaries, while the second way is to set a mode as baseline against which other modes are put side by side. It has also been argued that the entry modes choices can be critically examined from a hierarchical perspective. The first hierarchical level is choosing between equity and non-equity entry modes, the managers will thereafter decide which specific mode within equity or non-equity to consider.
 
The dependent variable is the entry mode in to china adopted by the foreign firms. The entry mode dependent variable is divided in to four categories wholly owned subsidiaries, Equity Joint Ventures (EJVs), contractual agreements and exports. The independent variables are Location, country risk of China, Uncertainty avoidance and power distance, Extend of interaction between the host and home countries and the industry factors. The Control variables are the yearly and overall importexport ratio of China versus the world as a whole and the other is the annual exportimport ratio of each home country versus the world as a whole. To test the proposition, the entry modes were first divided in to equity and non-equity modes and a binary logistic regression was run. The results showed that the hypothesized factors differentiate well between equity and non-equity modes. The study also demonstrates that the choice of entry modes is a hierarchical process that begins with a choice between equity and non-equity modes. The moment firms decide on equity or non equity modes, they move down the hierarchy to a lower level, managers would then put their focus on more micro-level factors, such as specific contract terms, human resource matters, distributions channel and so on. There are two competing approaches one approach treats modes as a continuum of increasing levels of commitment, risk, control and profit potential. The other approach is the baseline model. In most cases, the export is set as the baseline mode, against which wholly owned operations, Equity Joint Ventures (EJVs) and contractual agreements are compared.

This study proposes that entry modes can first be viewed as a choice between equity versus non-equity choices. The consideration factors used at this level may be different from those employed at the lower level of choice hierarchy. First and foremost, it provides a precise representation of what affects the choice of entry modes and at what specific level. The study shows that many country specific factors impact the mode choice at the equity versus non- equity level. This can keep away the mistakes of writing off a number of determinants in the event that they fail to show a significant impact within the equity modes or within the non-equity modes.  

The study also shows that country risks exert significant influence at the level of comparing equity modes to non-equity modes, but rather weak influence within the equity modes. Secondly, our study illustrates that there are country factors affecting the adoption of equity modes in the host countrys policy makers. In other words there are a number of things that the host country government can persuade foreign firms to adopt equity modes instead of non-equity modes. Thirdly, the hierarchical process can be useful to managers who are to handle the information overload and the complexity of the choice decision. The study shows that quite a number of country specific variables are significant at this level of hierarchy. Apart from the host country circumstances, they need to be conscious of the unconscious influence of their home culture on their mode choices so as to shun making sub-optimal decisions.

The purpose of the study on The National Culture Effects on Entry Mode Choices was first to describe the original data observing the choice of entry mode by foreign firms in terms of country and industry patterns, and secondly to statistically analyze the factors that influence the choice between joint ventures, wholly owned Greenfield (start-up) investments and acquisitions. This article built up a theoretical argument for why culture should influence the choice of entry. Two hypotheses are obtained which relate culture to entry mode choice, the first one focusing on the cultural distance between countries, and the second on attitudes towards uncertainty avoidance. The first hypothesis is the greater the cultural distance between the country of the investing firm and the country of entry, the more likely a firm will choose a joint venture or wholly owned Greenfield over an acquisition. The second one is, the greater the culture of the investing firm is characterized by uncertainty avoidance regarding organizational practices, the more likely that firm will choose a joint venture or wholly owned green field over an acquisition.
 
Using the multinomial logit model, the hypotheses are tested by analyzing data on 228 entries in to the United States market by acquisition, wholly owned Greenfield, and joint ventures. A multinomial logit model is particularly used to estimate effects of the explanatory factors on the chance that each of the alternatives would be chosen. The hypothesis results illustrated that the effect of Cultural Distance is to increase the chance of choosing a joint venture over an acquisition and is significant at the 0.001 level. Its effect is only significant at the 0.1 level for Greenfield. The results for Uncertainty Avoidance are quite striking, with the coefficients correctly signed and significant at 0.001 and 0.05 for joint ventures and Greenfield, respectively. It was also noted that the greater the American partners size, the more likely to joint venture than acquire. The effect of U.S. asset size on choosing Greenfield is negative and significant in both the uncertainty avoidance and cultural distance runs at the 0.1 and 0.5 levels, respectively. This outcomes stem from the asset size measurement for Greenfield in terms of the investment and for acquisition or joint ventures in terms of the size of the asset of the target or partner. The Non-U.S. Asset Size effects are insignificant for joint ventures in the cultural distance estimation, but correctly signed, although still insignificant for the uncertainty avoidance estimation.

The study does not find diversified firms more likely to enter by acquisition. On the contrary, the variable Diversified is positively signed, showing that diversified firms tend to enter by joint venture or Greenfield. The study also suggests that advertising is negatively related to joint ventures and Greenfield investments. This relationship is anticipated to be additionally pronounced for mature industries. The results of the study also argues that the cultural results are majorly driven by outliers, for instance, Japan scores highly distant in Culture from the United States and scores high on uncertainty avoidance. At the same time Japanese firms tend towards Greenfield and joint venture entries. The results may be interpreted as a primary Japanese effect.

The Uncertainty Avoidance effect is insignificant in the case of Joint Ventures but significant at 0.05 for Greenfield. Interestingly, Multi-nationality is positively signed, demonstrating that acquisitions are not encouraged for the more multinationals of corporations. On the other hand, Experience increases in significance in the runs, and is significant in 3 of the runs at 0.1 using a 1 tail test. In summary, the arithmetical assessments give strong support that cultural distance and national attitudes towards uncertainty avoidance influence the choice of entry mode. It should also be noted that these relationships are robust despite the controls added for industry and firm level effects. It is striking, therefore that cultural effects still appear persistent despite the sample size reduction and the diminishment in variance of the cultural variables.

Empirically, the Hierarchical study has made two progressive views. First, it incorporates all the four major modes of entry. Second, it is based on a large sample of over 10,000 observations which runs over a twenty year time period.

Unfortunately, this model does not tell if Equity Joint Ventures (EJVs) or wholly owned operations differ from the contractual arrangements. It also does not explain why the results are weak when contractual arrangements are compared to exports. There are some more limitations in the results. First and fore most, data published by China Business Review might be biased in favor of huge foreign business activities in China. Several minor activities from Hong Kong and Taiwan were missing in the database. Second, due to the nature and size of the data base, it is difficult to construct the firm specific variables such as RD intensity. Third, the use U.S industry data in a study that involves so many countries could be problematic. Fourth, the results in this study are inferred from the outcome of the firms entry mode decisions. More process-oriented studies investigating how managers make entry mode decisions are required to cross-validate the results in this study.

The effect of National Culture study suggests that the cultural characteristics are likely to have profound implications. Whereas theories of internalization and the firm are assumed to be culturally robust, their empirical application in a comparative setting seem to necessitate the consideration of cultural difference on the costs and risks which managers attach to different modes of transacting. It should also be noted that the management of these firms are influenced by the dominant country culture. The weaker results for the subsample when the Japanese entries are removed are partially a result of the decreased sample size (case drop from 228 t0 173) and partially a result of the outlier effect of Japan.

Scrutinies of law in economics apply the tools of microeconomic assumption toward the scrutiny of institutions as well as legal rules. The economic scrutiny of law has been well developed in countries which respect the rule of law, though it is something of great concern to note that the issue is sill underestimated by lawyers.  It was originally discussed by economists though there was little hope for success. The legal fraternity as a fact has no great concern to economic crimes. The scrutiny of law tries to bring forth the knowledge related to the application of rules and the right decision in judgment as it concerns the roles of the jurists.

By the fact that economics is a social discipline mainly concerned with human behavior in terms of their relationships, it is therefore obvious that the law go hand in hand with the study of economics.
Economics analysis of law usually has two broad categories positive field which deals with prediction and normative field which is concerned with efficiency. Constructive part of regulation as well as in finances tries as much as possible to foresee an outcome of legal guideline if not followed to the letter as argued by Buscaglia and William (7). For instance if one looks on a tort law being analyzed positively, one is in a good position to foresee the future liability that is likely to happen which is not the same as negligence. It also explains the development of common law in terms of monetary competence. Constructive approach is more neoclassical than normative approach of law and economics explains the relationship between regulation, finances and efficiency. With this particular approach one can make good recommendations in regard to the consequences it may cause. The normative main idea is the efficiency or the distributive efficiency which is regarded by law and economics scholars as Pareto efficiency.

This particular efficiency tries to ensure that when someone is becoming better-off there is another person becoming worse off.  On understanding the economic analysis of law it is important therefore to take a keen look on two main things which are policy analysis and political economy.

Analysis in policy terms usually outlines the effects of the regulation rules as well as outcomes in an institution. The outcome will focus on specific individuals of the institutions with respect to rules of governance. Economics on political basis focuses on how public institutions are run and how well they are managed as well as trying to know the behavior of those at the helm of such institutions. The manner in which those who are at the helm of public leadership behave can be used to evaluate on how the rules and the structures of the institution are carried out (Kaplow and Steven 76)
In real life situation, it is difficult to determine the origin of the effects of failing to follow up rules that are put in place to govern an institution. However when the jurisdiction creates certain programmes it is not a guarantee that they will not change because if the legislature changes the structure it will most likely affect the whole system.

Analysis in terms of policy makes a general assumption that people in positions of public institutions have a great care in relation to their work. Economy based on political basis on contrary holds that it is because of self interest and that the motivation of specific individuals is the same as that of people in public offices. Lastly, there is the assumption that the outlook of law has a big difference brought about by the great distinction between the strategic analysis and economic policy based on political will.  The right purpose of the legal regulation is imputed by an analyst who makes an assumption that the regulation taken by a policy maker will eventually promote the desired objective. The achievement of set goals then is possible with the respect of the laid rules and regulations.

A behavioral effect of an economic analysis is that there is an assumption that the rule and regulation is not known to only specific individuals but as well as to everyone who is under the said law (Robert  Thomas 63). Not all persons have the specific knowledge of the consequences of failing to honor a given rule and this at times becomes a great challenge to overcome.

Property rights must be clearly defined by a legal structure such as a clear determination of a party that owns a specific asset. If   possible, success implies that, in an argument area under discussion of the custody of a right, the right ought to go to the party who values it the most. But if exchanges of rights are allowed, the efficiency of the initial allocation is of secondary importance. The Coase theorem, which is the most necessary effect in the economic study of law, states that if the costs are not too large the rights to owning a property must be well defined.

If there exists a mistake in ownership of the rights and the fact that business expenses can not be zero there is a cost to be bared in regard to the misallocation. Good mechanism can be put in place in case of large transactions or procedure involved in transferring of the ownership of the rights. Any sort of economy and those personnel with control of organisations are not automatically the owners (Thomas, 89).

This creates incentives for disorganized use of the assets, such as sale of helpful raw resources for below market prices, with the earnings deposited outside the country. In such circumstances, the Coase theorem will not operate, and correctly defining property rights becomes important. One important issue in the analysis of economy is that, in marketplace economies, property privileges are well defined in many conditions. The uniqueness of efficient property rights are quite universal and usually have an exceptional regard as well as the fact that they are transferable. Over-fishing is well defined in the economic of analysis in the sense that for one to own a wild fish one just needs to catch it.

Victims usually do not enforce law because it is not possible at first but it is enforced by law enforcers. All criminals can not be arrested and punished because this may seem as the daily routine but just a few of them and that when they are arrested the punishment they receive should compensate for those who are not arrested or act as a lesson.

Different types of punishment are exercised because all criminals can not pay for fines as noted by Thomas (99). One implication of law and economics is that a fine should be used as castigation. The reason for this is that fines are transfers and do not create burden losses, captivity, on the other hand, transfers virtually no wealth from the criminal but causes two forms of burden loss when a criminal is put in jail she no longer contributes to the economy of paying those who take care of him and this is costly to the society.

Criminal law has been the subject of the most extensive empirical work in law and economics, probably because of the availability of data Economic theory predicts that criminals, like others, respond to incentives, and there is unambiguous evidence that increase in the probability and severity of castigation as noted by Louis  Steven (2002).

The issue of the restriction effect of capital punishment has been more controversial, but several recent papers using advanced econometric techniques and comprehensive data have found a significant deterrent effect each execution deters between eight and twenty-eight murders, with eighteen being the best

Conclusion
In spite of its pressure, the law and economics association has been criticized in a number of directions. This is in evident of normative law and economics. Louis  Steven (44) argue that basic neoclassical economists have particular basic criticisms regarding the rules and regulations in the economy. Many scholars willingly or unwillingly have failed to come up with a definite solution on how the rules and regulation regarding economic welfare so that there is no misconceptions of ideas. Policy analysts have a theory that is usually rejected by the legal community regarding the law of economics thus discouraging the policy makers on their welfares to which they are committed to in order to uplift the standards of analysis of economics.

These scholars generally reject the welfares to which policy analysis is committed. The challenge posed by traditional law of accounts is a headache to policy analysts in trying to harmonize it with law of economics. A great concern is motivated by the analysts in seeing whether the interests of particular individuals are in line with economic rules and regulations and those they are followed to the letter. The reason of this pledge to self-centered maximization of preferences would appear to lead to a rejection of the label for a discrete concept of law in social estimation of institutions.

Explain How A Competitive Market Operates. Discuss How The Market Moves Towards Equilibrium.

A competitive market is that type of market that has sufficient number of both the buyers and the sellers and that no single buyer or seller has the capacity to influence the price or have power over any market aspect of each other. A perfect competition can only be achieved in a perfect world. The perfect competition outlines the hypothetical form of market where the buyer and the seller has no ability to manipulate the prices of commodities.

In a competitive market, the concept of the theory of demand and supply is built and it follows the belief that there has to be some competition to keep the economy at motion. In most cases, a competitive market requires a middleman who intervenes in brokering the relationship between a buyer and a seller. The brokering is known as the market equilibrium. The involvement of a middleman who sets the standard of market equilibrium is the mechanism through which competitive market operates.

In order to achieve a perfect competition, there are five prerequisites that have to be met. The first condition is that there has to be a vast number of consumers and producers who have no impact on each other. The second condition requires that the goods and services to be easily interchangeable. There is also a need for all the firms to know the exact pricing that exist in other firms. Fourth, all the firms must have similar access to resources and the enabling technology and the fifth conditions require that any firm may choose to enter or exit the market at own will.

It is often difficult for firms to meet all the five requirements of competitive market. In some firms, meeting even a single requirement becomes a heavy task and becomes almost impossible. In the contemporary market condition, the marketplace nears the perfect competition when considering the agricultural market. For instance, a lot of farmers may be found to grow peaches where their local consumers are entirely the grocery stores in the area that may pay a set price per each bushel. Here, all the farmers are fully aware of the price. These peaches are then sold under a common banner as local and not by individual farm.

The element that keeps agricultural sector not to be a perfect competition is the regulations from the government that distorts the market theory. In another observation, even without government regulations, it is clear that not every farm will have equal access to the enabling resources and technology. In fact, all the market shops and stalls that are seen around the tourist areas in cities are same in both merchandise and prices. This does not encourage competitive market. In areas where the factors are not permitting the competitive market, an imperfect competition may exist instead (James, 2003). This scenario happens if a perfect competitive market is never achieved and a majority of markets work under this stand. The imperfect competition is common in situations where there is no available information about the items that are traded or sold. Similarly, it may also happen when there is a lag time in the marketplace particularly when there is a necessity for a supply or service but the availability of people to provide the goods and services is lacking.

Discuss How The Market Moves Towards Equilibrium.
A typical competitive market achieves equilibrium when the competition among the buyers forces the market price to increase up to the maximum demand price as it may appear in a demand curve. On the other hand, competition among the sellers makes the market price to be thrust down to the least price or minimum price of supply as it may be seen in the supply curve. With this competition being maintained among both the buyers and the sellers, the price in the market simultaneously changes in both the demand and the supply curves (Britton, 2002). The market equilibrium can well be reached when the price and the quantity in the market reach at equilibrium.

The competitive force that exits in the demand and supply of the commodities generate the market equilibrium in an automatic manner. In situations where the going price in the market is either lower or higher than the equilibrium price, a condition which creates a surplus or shortage of the quantity supplied in the market, the competitive forces will then eliminate the imbalances and re-establish the equilibrium. A competitive market is perfect when the equilibrium is achieved at a point where the quantity demanded and the quantities supplied are equivalent to the price.

Describe the Methods Government Can Use To Influence Market Outcome.
Market outcome has been studied from different approaches. These approaches have mainly been based on the industrial organizational perspective of market characterization as per the level of the competitive pressure. Another approach has been the consequent firm behavior modeling by the use of sophisticated tools of game theory at the same time permitting the mathematical modeling (Britton, 2002).  The visual framework that was coined by earlier economists that gave much importance on the correlation between the demand and supply in the market and the price and the quantity measures undoubtedly provides a guideline to a number of mathematical models which have proved to be helpful to policy makers particularly the government.

The government, through the utilization of the demand and supply concept can take up decisions that may be either damaging or building the market outcome. Therefore, the government can greatly influence the market income through policies that may either encourage or discourage the place. The government may set some taxes on commodities which are consumed by a minority of populations. Some tax impositions can be taken in order to discourage the consumption of the goods or services. For instance, the government may decide to increase the tax charged on all alcoholic drinks which will eventually reduce the market outcomes of those product that have alcoholic content (Snowdown, Vane, 1997). In the US, policy makers have influenced alcohol consumption as well as reduced adverse social consequences that could otherwise increase problems in the society.

The Effects of Government Policies on Market Outcomes
Tax is one important factor that affected the market outcome particularly the labor market outcomes. However, research has shown that there is a weak correlation that exists between the Government policies such as subsidies can also make a great change to market outcomes. One good or service will be favored as compared to another. The buyers or the sellers will prefer more subsidized goods that will cost less and that are produced by accredited companies that are known by the government.

The government may deliberately determine the prices of goods and service. When this occurs, the market outcome has to be affected either negatively or positively. For instance, the price of natural gas may be hiked and also the cost per barrel will be increased. This situation may witness the increase in market competitiveness between the individuals or firms selling different types of commodities. It then means a lot when taking an aerial view of such a problem caused by the governments in its suggestion to improve the market competitiveness (James, 2003). While not all like machines, humans always change their perceptions and end up making some other decisions to buy goods or services from the sellers of their choice.

Competitive market plays an important role in the recognition of a scenario when the buyer and the seller do not have any mandate over each other. The neoclassical theory is considered in to be an important lead which has been identified to be determining the government failure in it process of making policies and warn the buyers and sellers on the availability of the goods and services. While in another perspective, government policy may bring about innovations (Snowdown, Vane, 1997). For instance, the exemption of tax for some other traders or companies or even the state organs result to enormous changes in terms of development. The subsidies and tax exemption mainly act to encourage development.

In general, there are some factors which may encourage a competitive market. In situations where the government does not encourage competitiveness, an imperfect competitive market result. However, when all conditions that favor competitiveness are provided, a perfect competitive market ensues.

Question number 1 Briefly discuss how Japans market opens to the rest of the world. What are the major trends

Japanese markets are known for their tightly regulated industrial policies and tight links with governments. Moreover, it has been observed that Japanese markets are less accessible to international industries as strict rules control labor forces. Production system is extremely efficient with high-level quality control programs and efficient managerial practices. In spite of these factors, another set of factors adds up to international business entities not being able to access Japanese markets and these include maneuvered and monopolized exchange rates along with higher dumping practices. One of the main factors that have been seen in the case of Japanese markets is lowest innovation which is an important factor in market success.

Some changes have been seen in of Japanese markets. Global strategy has changed in Japanese manufacturing industries  as it was previously observed that Japanese markets were instructed to stay local and respond in a local manner but these days an understanding has been achieved in Japanese markets that globalization can improve profits. In additions to this, globalization has also been applied to a number of Japanese industries in the sense that many Japanese products are seen to be sold in more than 20 countries.  This makes Japanese industries face more competition in a relative manner thereby introducing the factor of innovation in each industry. In addition markets have changed as rules related to labor force have been changed thus ensuring greater entrance in Japanese markets (Voss, and Blackmon, 1998, p. 148).

Question 3 Briefly discuss the difference in the Japanese and Western business practices.
There are major differences in cultural practices between Japan and western countries. It is known for a fact that differences in cultural practices can lead to differences in managerial practices in businesses and multinational organizations. These cultural differences have lead to varied changes in managerial orientations being followed in Japan and western countries. In this case, many differences have been quoted. First difference relates to psychological orientation towards time. There is a great difference in attitudes towards time and this difference defines a countrys orientation towards long term and short-term goals and objectives in relation to business. Thereby these goals can indicate how important time is for these countries as differences are highlighted in strategic time calculation. This aspect has been studied and researched by Voss and Blackmon (1998) and this study has gathered manufacturing strategy data from 600 companies in 20 countries. In order to test differences in manufacturing strategy thinking orientation towards time, data collected related to manufacturing strategy adoption and important links between corporate and manufacturing strategy. Results of this study have been concluded and results show that there is a strong difference between Japan and western countries in terms of their manufacturing strategies and corporate strategies based on time orientation. Based on these studies, it has been seen that Japanese organizations have allocated resources in a timely manner and these have helped these organizations in making and generating more revenues. Success of Japanese corporations in business world has been because of customs followed with unique cultures not observed in western cultures. In addition language barriers play important roles but customs and traditions in Japanese corporations play more important roles in their success as compared to western corporations.

Question 4 What are the major characteristics of Japanese advertising
Only limited literature is available on Japanese advertising. However, respect for men and contempt for women is still being reinforced on Japanese advertising agencies. Japanese believe that media is a reflection of culture thereby reports indicate indigenous stereotyping in Japanese advertising magazines. Moreover, Japanese culture has been known to appreciate subtleties as well as image and this is highlighted in case of usage of strong reliance and emotional apparel in Japanese advertisements. In addition to these two factors, there is a strong use and belief of Japanese media in usage of impressions, ambiguities, and nuancesas compared to words thus verbal usage is lesser. This is particularly seen in case of commercial messages as these are aired for a limited time period and it is believed by Japanese advertisement agencies that viewers need to feel what is being shown in advertisement rather than listen and forget. It is thereby believed that ads more emotionally oriented are unforgettable as compared to verbal ads. Thereby an important feature in Japanese advertisement is centered on encompassing everything and every message in ambiguity and this forms the basis of Japanese advertisement in order to ensure that true essence of advertisement is maintained by not being too obvious and expressive. In addition it has been argued that Japanese advertisement magazines are more stereotypical. However a strong observation has been made that says that if Japanese magazines were completely stereotypical than women would be portrayed in a sexist manner rather than in egalitarian manner (Ford et al. 1998, p. 115).

Question number 5 It is often argued that Japan is a rich country with poor consumers. Why
Japan is considered as one of those countries that has resources and wealth but is poor in an intellect. It has been estimated that with total assets of 11 trillion yen, Japan is rated as one of the richest countries in the world. Superstores in smaller villages and smaller towns are crowded with villagers and various kinds of commodities. However it has been estimated that Japanese do not have the flare of using money. Japan being a richer country has no value for its customers that set its customers apart from its richness. For instance, a normal cup of coffee in Japan does not cost less than 1800 yen, this is too expensive, and lavish of a price to be given thereby customers are poorer as compared to country itself. After the World War Japan has become a rich country and the main reason behind this is dedication and hard work of Japanese manufacturing industries. Thereby Japanese economy has had a great influence on a global scale. Instead of success factors and having a great economical growth, Japanese still lacks confidence bestowed to it from international companies as it is observed that Japan lacks immensely in humanism. In order to produce richer consumers, there is a need that Japan starts to take into account the demands of the customers and drop the prices of products manufactured thus increasing sales thus increasing market values. More investments are needed on global problems as environmental issues, poverty and health care concerns, peace and welfare for all globally (Bird, 2001, p. 45).

Question number 7 Briefly discuss the fall of Abacus Banking and the banking crisis in Japan.
Bankers in Japan are known for their specialization in accounting rather than risk management. Risk management systems in banking culture are only seen in American banks and crisis in Japanese banks cannot be solved by using these American strategies. Banking crisis in Japan has been linked with tight banking regulations designed by the governments and high growth environments. As a result of these two factors, competition has been extremely limited in Japanese banking sector. In addition to this it was seen that management sector within these banks was under control in an extreme manner causing further weakness in incentives for Japanese banking systems making managers and higher authorities in banks hard to control traditional and nontraditional risk in banking. Abacus banking in Japan faced another issue related to rationed credit as it was clearly reflecting MOF and MITI priorities in Japan banking sector and these also included the monopolies of Chinese banking authorities. It is seen that Japanese bankers have been grown as experts to ancient banking, abacus, but they are not aware of current banking practices that especially include risk management and banking policies. Japanese banks are in a serious need to leaner how banks can behave in current situation and risk management being one of the most important factors to be learned. Japanese banks are still unaware of the fact that they can be profit making institutions. Japanese bank ,managers are never held accountable to stakeholders and higher authorities that has been an important cause of failure and this has been seen in accordance to banking regulations issued by governments (Arayama, and Mourdoukoutas, 2000, p. 23).

Abstract
The case study examines the conditional return correlations of the temporal variations that exist between the different asset groups (e.g. global stock and bonds) and the commodity futures. The study results and findings discovers that there is a conditional relationship existing between the SP500 futures and commodity futures, which had fell over time This decline is a good indication sign that the commodity futures, in the today economy, have ultimately become good and powerful tools that can be effectively employed in the strategic asset allocation. There was also a drop in the correlations with equity returns when the equity markets are above average volatility. This is no doubt good news for the investors because they require to diversify their portfolio when the equity markets are at high volatility, for instance during the 2008 global financial crisis that heavily struck the stock markets. The study further discovered that the drop in return correlations happening between Treasury-bills and commodity futures are parallel with increase in short-term volatility interest. This brings the suggestion r idea that when we add Treasury-bills to commodity futures portfolio then the investment risks are reduced for the investor.

Key Words DCC Model, Traditional Assets, Commodity Futures, Volatility, Conditional Correlation (CC)
Introduction

Hedge fund can basically be defined as an investment fund that is relatively open to some range of investors limited that have a huge range of investment portfolio and other trading practices than as compared to investing only in the long term investment funds, in addition provides some form of payment to the investment manager as a performance fee. Each and every hedge fund has its own unique and special investment strategy which will at the end determine the type and methods of investments which are chosen. As a class or rather a group, the hedge funds directs a wide range of investments which encompasses commodities and shares which are the key objects of this research. Most people believe that the initial hedge fund created for Alfred Jones Winslow by the law firm in 1949 to be the first hedge fund of its own kind ever created. The hedge fund was created by Seward  Kissel.

The year 2008 and 2009 recorded a positive hedge fund performance this was brought about by more than 1000 managers ( HYPERLINK httpwww.straightstocks.comwww.straightstocks.com). The investors who shifted  their money from equity markets to hedge fund investments made more than 75 return. According to Christopher Grunig, the Harcourt chief investor, the market shakeout that occurred in 2008-2009 brought about little competition to the hedge fund. As a result there was no competition coming from other heavy investors in the industry for instance the powerful investor banks ( HYPERLINK httpwww.straightstocks.comwww.straightstocks.com)

The commodity futures are characterized by low return correlation existing to the traditional assets and are therefore significant tools to be employed in strategic asset allocation (Erb  Harvey, 2006 Jensen et al., 2000). They are also better inflation hedge (Bodie, 1983 Rosanky  Bodie, 1980). Their return distribution is positively skewed (Gorton  Rouwenhorst, 2006), high liquidity. This assist in a big way in provision of leverage, complete transparency and reduced transacting costs. Lastly, recently, say in the financial crisis period, research indicated that that there were abnormal returns generated by the tactical trading in the commodity markets (Fuertes et al., 2008 Vrugt et al., 2007). For these reasons, the investors have been attracted to shift to the commodity futures.

It s clear that commodity futures inclusion into the strategic decision in properly diversified portfolio does not rely on temporal risk return contracts characteristics only it also depends on the correlation between the commodity futures and other portfolio over a time period. With this elaborate, the study evaluates and examines the conditional correlation existing between the traditional securities the commodity futures. This implies that reduction of risk computed by adding the commodity futures long position to a portfolio of equity increased over the analyzed duration. Ultimately, this means that over time the commodity futures have become the best portfolio diversifiers for the investors, and therefore the better tools for asset allocation. When the market risk rises, the correlations existing between equity returns and most of the commodity futures tend to decline.

The research also analyzes the conditional correlations temporal variations existing between fixed-income securities and commodity futures and then relates them to fixed-income indices conditional volatility.

The decline in return correlations existing between some equity and commodity returns that we see at the times of market stress can be expressed to be a  shift to quality . That is investors in Treasury-bills and equities, during the market panic, treat the commodity markets as refuge securities (for instance oils and metals). They reduce losses through sale of traditional asset portfolios and replacing them with commodity futures. The upsurge of volatility in the Treasury-bills and stock markets generates interest increase in the commodity futures markets giving explanation to the correlations observed during market stress. A natural disaster increase equity market volatility. Therefore, increase in market risk could happen concurrently to a decline in return correlation between the equity and commodity.
 Scope of the Paper

Section 3 avails the GARCH-DCC model employed in the estimation of the volatilities and conditional correlations. Section 4 presents the datasets. Section 5 examines the conditional return correlations   temporal variations existing between bond  global stock indices and commodity futures. Section 6 of the paper provides the conclusion.

Methodology
So far the GARCH (1, 1) model has been the most successful and the best volatility forecasting design (Lunde  Hansen, 2005) it was established by Bollerslev (1986). It assists in the description of financial return series volatility dynamics across asset groups and markets (Engel, 2004). The GARCH (1,1) variance, hii,t  is
Xi,t    i,t     ,         i, t          N ( 0 , hii ,t)
hii ,t   i   i 2i ,t-1  i hii ,t-1          i   1, ..,N    
subject to
i  0, , i  0, i  i 1
 and  coefficient finds that the resultant volatility time series short-term dynamics. A large  shows that the conditional variance shocks take a lot of time to dissipate meaning that the volatility is  persistent . A bigger  shows that the volatility acts intensely to the recent movement in the market
In approximating the CC, the research uses the dynamic CC model of Engel (2002). After estimating the GARCH (1,1) model, and using the results, we estimate the DCC (1,1), the time-varying correlation. Therefore the covariance matrix is Ht DtRtDt
Where Dt  diag (h11,t   .h NN,t )
Rt  Q-1 Qt Qt-t , time varying correlation
Qt  (q1jt)

Described by Qt  (1   a   b)   a (Yt-tt-1  )  bQt-1
 as used in the research is the N  N unconditional covariance of  Yt  xtht  that comes from the initial step approximation. Rewriting Rt  Q-1 Qt Qt-t , the CC between assets j  i and the time t is therefore expressed as
it  qij,t (qii,t qjj,t)

The DCC (1,1) model coefficients are calculated by the highest likelihood process through the BFGS.
The log likelihood equation is
L ()  - TNln(2tt1(lnHt  Yt H-1,t
Ht  (Ytt) equal to N  N covariance matrix.

The framework above can be used to study the CC existing between asset groups and commodity futures returns. First, the research looks at how the change over time through regression to time trend and constant. The study then examines the relationship existing between conditional volatilities and CC through regression using the following formulae
TC,t    T HT,t  C (hC,t  t)
Where T  Traditional assets, C  commodity futures.

To illustrate using the SP500, a positive T would mean that the SP500 and commodity futures conditional return correlations increases with equity markets volatility. We can use the evidence provided by Solnik et al. 1996). Alternatively, a negative T would illustrate the equity returns and commodity futures correlations when the equity markets have relatively high volatility. Finally, the research result would strive to prove the importance of commodity futures in diversifying the investment portfolios during the above normal volatility in the equity markets.

Data Sets
The data, obtained from Datastream International, constitute returns from 13 traditional asset groups and 25 commodities. The choice of bond indices and market represents a significant amount of asset allocation of a properly diversified world asset manager. On these criteria, the paper has shortlisted 7 equity asset groups (selected from global and United States markets). These are Russell 2000 Index, SP500 Composite, MSCI Latin America, Russell 1000 Value, MSCI Asia Pacific and Russell 1000 Growth Indexes. For the fixed-income markets, the paper adopts six bond indices.
The datasets also constitute the closing prices of 25commodities. The paper considers five energy futures, 11 agricultural futures, five metal futures and four livestock futures. In compiling the future prices into future return series, the settlement prices are collected on the most near maturity future contracts.

Table 1 indicates the statistics for 25 commodity future returns and the traditional assets group excessive returns. The results illustrate that the commodity futures average annualized returns range 16.6 (wheat) and 9.44 (corn) recording   1.30 on average. Commodity futures market high volatility does not translate automatically to highergreater average returns. For instance, unleaded gas and lumber futures have -9.0 average returns annually and above the average SD (standard deviation) (SD of 28.65, 35.26 respectively). The ration reward-to -risk implies that just a few commodities provide good risk-return trade-offs more than bonds and stocks over the duration considered. Table 1 also illustrates the excess kurtosis, skewness and Jarque-Beta test. It is therefore clear, from the table, that commodity futures return distribution strays from normality, with powerful evidence of excessive kurtosis standing at 1.

Table 2 illustrates correlations of unconditional return between traditional assets groups and commodity futures. As reported earlier, the SP500 returns correlations are very low (Jensen et al., 2000), ranging between 0.0948 (lumber) and -0.0206 (unleaded gas), with a 0.0139 mean. Averagely, 2.87, the research has recorded equally low return correlations with the other equity indices. The bonds record even lower figure at an average of 0.34. It is therefore elaborate that the commodity futures are not affected by the bonds and global stock returns. The commodities investors seek for this concept for risk diversification.

Empirical Results
This part of the research examines the conditional correlations existing between the SP500 returns and commodity futures and then provides an analysis. Table 3 shows the conditional correlations summary statistics estimated using our DCC model. The results from the table raise three comments. First, the average (table 3 0.0408) unconditional correlation is of similar capacity as the average (table 2 indicating 0.0139) unconditional correlation. Furthermore they are significant at 5. Secondly, the conditional correlations records considerable divergence volatilities, with SD ranging from 2.25 to 16.49 for lean hogs and gold respectively. Thirdly, and most importantly, conditional correlations regressions reveals a decline in conditional correlations over time for 19(20) of twenty five commodities recorded at 5 (10). The other coefficients are significantly positive for unleaded gas, coffee, live cattle and crude oil. It was further significant for the heating oil. The correlation decline recorded in table 3 is relevant in economic terms. The conditional correlations declined during 1981-2006 by an average of 5.8. The decrease was specifically more for precious metals i.e. gold (  -18.8)   platinum (  -17.72) and silver (  -28.38). The results show there has been an increase in segmentation between commodity futures and SP500 markets.

Due to this, the advantages of diversification of being commodity futures and long equity and the strategic asset allocation commodity futures have increased significantly. The correlation decrease over time, as seen in table 3, could be further illustrated by table 4 results due to the fact that there is often a decline in correlations at the time of high market volatility.

Table 4 in the appendix examines the relationship existing between the conditional market volatility and conditional correlations. The table indicates the coefficients of 11 T on  (hi,t) retrieved from equation one above  provides negative results at the level of 5. This clearly shows that the conditional correlations that exists between the SP500 returns and the 11 commodity futures declines in the duration when the risks at the market at that time increases. The institutional investors finds this to be positive news because when the volatility in the markets is high then they have more chances of diversification, they therefore shift to the commodity markets. In 10 situations, the T is found to (in four cases) be insignificant from zero and on the other side positive (in 10 cases). This phenomenon of the effects of the market volatility relayed on the equities and the market futures further brings forth the confirmation that different commodities does not behave in the same manner, they are therefore not perfect substitutes (Harvey  Erb, 2006).

Figure 1, for instance, which shows the plot of CC (Conditional Correlations) between SP500 and gold futures surplus returns plotted against the SP500 surplus returns CC. There is a drop in CC when there is a spike in SP500 (e.g. Oct. 2002, Feb. 1991, and Oct. 1987). Alternatively, when there is a decline in SP500, the CC seems to be more than the average e.g. 006-2006 or 1985. Due to this, the Correlation existing between these two series, as can be seen in Table one, becomes very low at -0.1751. This means that the commodity futures contracts (gold futures in this case) experiences some benefit of diversification during the increased or high market stress. Figure 1 further gives a straight line fixed to the CC to show the manner in which they did change over time.  The line slopes downwards, indicating that, the correlation occurring between the gold futures and the SP500 declined during this duration, just like in Table 3.

Over the 25 analyzed commodities, the equation one T average coefficient is found to be -0.2026 (see table 4). This means that one percent increase in the commodity futures leads to 0.020 cline in the correlation, on average. This implies that the SP500 bigger or rather higher volatilities means, ceteris paribas, more allocation to commodity futures. The potential investors, therefore at the turbulent periods, allocates more portfolio to commodity futures. The coefficients of T are significant and particularly low, for the precious metals for instance silver T  -1.5979, gold T  -69796 and platinum T  -1.5638. When the equity market volatility increases some agricultural goods performs better. (Tables 1, 2  3) Gold have recorded a low coefficient T, insignificant (meaning negative), conditional CC and unconditional CC, with the volatility being comparative to the index - SP500. This promotes gold s diversification characteristics and therefore a nice hedge at the market stress durations.

Table 4 illustrates the T coefficients which implies that the commodity futures, for instance the precious metals (silver, gold, platinum) are same to bonds, in that, just like experienced in bonds, they decrease their equity portfolio volatility in the durations when the market experiences higher market volatility, which are above average (Simon  Hunter, 2005). The observed results can be justified by the flight-to-quality by the investors which is a possible and viable economic rationale. When we view this from a different respectively, say, the potential investors may look at the commodity futures for instance the precious metals (gold, silver and platinum) as the major refuge commodities or rather securities when the market experiences high volatility specifically SP500 market. During the times or periods when the equity markets in the region is undergoing high volatility, the continuo resources re-allocation and equity asset managers stop-loss orders to the commodity futures for instance platinum, silver, gold and platinum exert higher downward pressures on the prices of the equities as compared to the prices of the commodity futures. In turn, this would assist in giving an elaborate and clear explanation to the decline in the correlation existing between equity returns and commodity futures that were noted in the duration when there was higher market volatility.

The research findings tally with the previous studies which have found out that when there is an increase of risks in the market, the investors dispose their shares to drastically stop the increase in losses they experience from the equity portfolios they replace this with the refuge assets.
Another reasonable explanation to the research findings lies on difference that most of the cases possess on the 2 types of securities. Particularly, Table 1 indicates that the agricultural futures majorly have return distributions positively skewed due to the natural disasters scenarios, for instance el Nio affect the prices of the commodities positively. On the other hand, the disasters affect the equity markets negatively. They create negative skewness and turmoil in their return distribution (see Table 1, Panel E).

Conclusion
The objective of the paper is to examine the way the commodity futures returns change over a given period from the asset groups (bonds and stock indices - globally). We discover that the commodity futures and SP500 index CC returns declined over time. This means that the equity markets and commodity futures have no doubt transformed over time to become better tools of asset allocation. There have been also an observation that over the half of the cross section studied in the paper, the CC existing between equity returns and commodity futures decline at the times of market turbulence. However, it is also significant to note that the evidence from the research is not parallel thought the commodities some of them have their CC increasing with equity markets volatility. This is however not unique because commodities does not have same characteristics (Harvey  Erb, 2006), they are therefore not substitutes.

Finally, the analysis could be used to account for the fact that the investors should hold in their portfolios diverse grades of company bonds like art work, real estate or hedge funds as other innovative ways of asset allocation.