Make Trade Not War?

This paper analyses theoretically and empirically the relationship between military conflicts and trade. We show that the conventional wisdom that trade promotes peace is only partially true even in a model where trade is economically beneficial, military conflicts reduce trade, and leaders are rational. When war can occur because of the presence of asymmetric information, the probability of escalation is lower for countries that trade more bilaterally because of the opportunity cost associated with the loss of trade gains. However, countries more open to global trade have a higher probability of war because multilateral trade openness decreases bilateral dependence to any given country and the cost of a bilateral conflict. We test our predictions on a large data set of military conflicts on the 1950–2000 period. Using different strategies to solve the endogeneity issues, including instrumental variables, we find robust evidence for the contrasting effects of bilateral and multilateral trade openness. For proximate countries, we find that trade has had a surprisingly large effect on their probability of military conflict.     

Foreign Exchange Fixings and Returns around the Clock

The U.S. dollar appreciates in the run-up to foreign exchange (FX) fixes and depreciates thereafter, tracing a W-shaped return pattern around the clock. Return reversals for the top nine traded currencies over a 21-year period are pervasive and highly statistically significant, and they imply daily swings of more than one billion U.S. dollars based on spot volumes. Using natural experiments, we document the existence of a published reference rate determines the timing of intraday return reversals. We present evidence consistent with an inventory risk explanation whereby FX dealers intermediate unconditional demand for U.S. dollars at the fixes.     

THE DISTRIBUTION OF RESEARCH PERFORMANCE ACROSS AUSTRALIAN UNIVERSITIES, 1992–2003, AND ITS IMPLICATIONS FOR 'BUILDING DIVERSITY'

We contribute to the debate on research performance by comparing the distribution of research inputs and outputs across Australian universities during 1992–2003. We have calculated annual Gini coefficients for various performance measures and Lorenz curves for the final year of the study. Various findings are evident. Research-input measures have remained relatively unevenly distributed across universities. Output measures were more evenly distributed and this exhibited a gradual and rather consistent convergence through time, supporting the view that the research output is being generated gradually more equally across Australia's universities. The exclusion of the 'Group of Eight' (Go8) universities results in a more even distribution of performance. However, in 2003 this group took the lion's share of research inputs but produced a smaller share of outputs. Our findings are relevant to current funding policy discussion.     

Testing the Predictive Power of Dividend Yields

This paper reexamines the ability of dividend yields to predict long-horizon stock returns. We use the bootstrap methodology, as well as simulations, to examine the distribution of test statistics under the null hypothesis of no forecasting ability. These experiments are constructed so as to maintain the dynamics of regressions with lagged dependent variables over long horizons. We find that the empirically observed statistics are well within the 95% bounds of their simulated distributions. Overall there is no strong statistical evidence indicating that dividend yields can be used to forecast stock returns.     

Do Bank‐Affiliated Analysts Benefit from Lending Relationships?

This paper investigates whether private information from lending activities improves the forecast accuracy of bank‐affiliated analysts. Using a matched sample design, matching by affiliated bank or borrower, we demonstrate that the forecast accuracy of bank‐affiliated analysts increases after the followed firm borrows from the affiliated bank. We also find that the increase in forecast accuracy is more pronounced for borrowers with greater information asymmetry and bad news, and for deals with financial covenants. Last, we find that the informational advantage of bank‐affiliated analysts exists only when the affiliated banks serve as lead arrangers, not merely as participating lenders. Overall, our evidence suggests that information flows from commercial banking to equity research divisions within financial conglomerates.