Price distortion induced by a flawed stock market index

Despite the introduction of sophisticated stock market indices, investors often trade portfolios of the flawed indices to change their exposure to the market. In this study, we show that these transactions cause significant mispricing in individual stocks, especially during periods of significant market movement. As an influential, albeit flawed, stock index, we focus on the Nikkei 225. We find index constituents that are excessively weighted on the index, experience buying (selling) pressure when the stock market surges (falls), and experience price corrections after such periods of change. In contrast, non-constituent stocks do not experience such trading pressure.     

The Substitution Effect of Mobile Games on Console Games: An Empirical Analysis of the Japanese Video Game Industry

In this paper, we discuss the substitution effects between mobile games and console games. We estimate such effects by a fixed-effect regression with instrumental variables using panel data of about 100,000 observations. The results showed that the substitution effects of playing smart devices on 3DS, Wii, and PSP were recognizable, but did not have significant effects on PS3, and the substitution effects on PSP were very small. Therefore, mobile games had a substitution effect on casual console games, or on console games in which the play situation resembled mobile games. In addition, the substitution effects were at most about 0.1. The substitution effects were small. Our results indicate that mobile games represent the pioneers in the new market of gaming at least during our observation period. But new games and traditional games will coexist for a while.     

Paretian Welfare Judgements and Bergsonian Social Choice

Two distinct approaches can be identified in the new welfare economics. The school of thought based on the compensation principles attempted to see what can be said about social welfare without making interpersonal comparisons of well-being by extending the applicability of the Pareto principle through hypothetical compensatory payments between gainers and losers. The Bergson-Samuelson school of thought introduced the social welfare function as a formal method of introducing a Pareto-inclusive ethical belief on social welfare, whose policy implications we should theoretically explore. Synthesising these two approaches, this paper identifies a condition under which the new welfare economics is logically impeccable.     

Error correction exchange rate modeling: Evidence for Mexico

A set of error correction models are proposed for the nominal exchange rate between the Mexican peso and the United States dollar. The basic theoretical frameworks utilize balance of payments and monetary constructs. Empirical estimation results are fairly weak for both specifications irrespective of the interest rate variable selected. Although dynamic simulation properties of the equations are acceptable, in no case do they generate levels of accuracy that exceed those associated with a random walk. Partial funding support for this research was provided by El Paso Electric Company, the Fulbright Council for International Exchange of Scholars, the Center for Inter American and Border Studies at the University of Texas at El Paso, and the Federal Reserve Bank of Dallas. Econometric research assistance was provided by David Torres and Roberto Tinajero. Helpful comments were provided by two anonymous referees, Joachim Zietz, Luis Berrnardo Torres, and participants at the 2001 American Statistical Association meetings in Atlanta.     

Market design for standardization problems with agent-based social simulation

This paper provides a computational market model with technological competitions among standards and presents simulations of various scenarios concerning standardization problems. The market model has three features: (1) economic entities such as consumers and firms are regarded as autonomous agents; (2) micro interactions among consumer agents or firm agents have essential mechanisms interpretable in real markets; and (3) consumers’ preferences and firms’ technologies co-affect their evolutionary behavior. In recent years, consumers have experienced various inconveniences from de facto competition based on a market mechanism. Standardization communities or committees such as the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) need to design a compatible standard or a de jure standard in a market. However, it is difficult for market designers to decide a method or timing for the standardization. Here, by introducing a novel technique used in agent-based social simulation (ABSS), which we call “scenario analysis,” we aim to support such decision making. Scenario analysis provides the possible market changes that can occur following implementation of a design policy under a specific market situation and the market mechanisms that generate these market changes.     

The Fable of the Keiretsu

Central to so many accounts of post-war Japan, the keiretsu corporate groups lacked economic substance from the start. Conceived by Marxists committed to locating "domination" by "monopoly capital," they found an early audience among western scholars searching for evidence of culture-specific group behavior in Japan. By the 1990s, they had moved into mainstream economic studies, and keiretsu dummies appeared in virtually all econometric regressions of Japanese industrial or financial structure. Yet the keiretsu began as a figment of the academic imagination, and they remain that today. Regardless of the keiretsu definition used, cross-shareholdings within the "groups" were trivial, even during the years when keiretsu ties were supposedly strongest. Neither does membership proxy for "main bank" ties. Econometric studies basing "keiretsu dummies" on the available rosters produce predictably haphazard and unstable results. In the end, the only reliably robust results are the artifacts of the sample biases created by the definitions themselves.     

Does Ownership Matter? Evidence from the Zaibatsu Dissolution Program

In 1985, Demsetz and Lehn argued both that the optimal corporate ownership structure was firm-specific, and that market competition would drive firms toward that optimum. Because ownership was endogenous to expected performance, any regression of profitability on ownership patterns would yield insignificant results. To test this hypothesis, we use the zaibatsu dissolution program from late-1940s Japan as a natural experiment: an exogenous shock to the equilibrium ownership structure. Through that program, the US-run occupation removed the more prominent shareholders from many of the most successful Japanese companies. By focusing on the way firms and investors responded to the mandated selloff, we accomplish two goals: (a) we avoid the endogeneity problem that has plagued much of the other research on the subject, and (b) we clarify the equilibrating dynamics by which competitive markets move firms toward their optimal ownership structure. With a sample of 637 Japanese firms for 1953 and 710 for 1958, we confirm the equilibrating mechanism behind the Demsetz-Lehn hypothesis: between 1953 and 1958, the ex-zaibatsu firms did retructure their ownership patterns. As of 1953, the unlisted ex-zaibatsu and new firms still had not been able to negotiate the transactions necessary to approach their profit-maximizing ownership structures. Even the listed firms had not fully undone the effect of the occupation-induced changes on managerial practices. By 1958 the firms had done this, and the earlier correlation between profitability and ownership disappeared. By then, firm profitability showed no correlation with ownership, whether under linear, quadratic, or piecewise specifications. We further find no evidence that ex-zaibatsu firms sought to strengthen their ties to banks over 1953–1958.     

Welfare Effects of Endogenous Information Acquisition and Disclosure in Duopoly Markets

Abstract

This paper investigates the interaction between firms' information acquisition decisions and disclosure of internally acquired information in a Cournot duopoly market under demand uncertainty. The main results are as follows. When the correlation between firms' demands is positive and sufficiently high, disclosure of information on demand uncertainty can enhance social welfare, given that the quality of firms' private information is constant. However, in the setting where firms' private information is endogenously determined, mandatory disclosure is not always desirable. This is because, when disclosure is mandated, firms acquire less precise information compared with the case where the acquired information is not disclosed; hence, their internal information environments are deteriorated. This can lead to unintended consequences such that disclosure regulation decreases social welfare.