The no-arbitrage condition and financial markets with heterogeneous information

This paper examines the role of the no-arbitrage condition in financial markets with heterogeneous expectations. We consider a single-period, state-contingent claims model, withM risky securities andS states. There exist two types of heterogeneously informed investors, where the information heterogeneity is defined with respect to either the security payoff matrix, the state probability vector, or state partitions. When the information heterogeneity is defined with respect to either the security payoff matrix or state partitions, the no-arbitrage condition imposes a constraint on the dispersion of information between informed and uninformed investors. Further, the no-arbitrage condition is useful in ascertaining the patterns of heterogeneity among investors that are consistent with equilibrium. However, when the information heterogeneity is defined with respect to state probabilities, the role of the no-arbitrage condition is severely restricted. Finally, the no-arbitrage condition may have important implications for the (necessary and sufficient) conditions for the existence of an equilibrium price vector in financial markets with heterogeneous expectations.     

Behavioral attitudes toward current economic events: a lesson from neuroeconomics

This paper discusses the implications of neuroeconomics with respect to behavioral attitudes toward the interpretation of current economic events. To this end it first brings to the fore two aspects of neuroeconomics, namely, that thinking imposes strain on the mind, and that brain activity is a scarce resource. It then discusses how this affects the attitude of an economist trained in a specific school of thought. Without exposure to other schools of economic thought, the economist will have unknowingly biased views.     

EQUITY HOME BIAS: A REVIEW ESSAY

This paper reviews the relatively more recent literature on equity home bias – the empirical finding that people overinvest in domestic stocks relative to the optimal investment portfolio implied by the modern portfolio theory. It reviews six broad classes of explanation of this puzzling phenomenon: (1) hedging home risks; (2) barriers to foreign investments; (3) information asymmetries; and (4) behavioral factors. The consensus is that none of the explanations can account for the full extent of the bias by itself, thus the home bias should be explained by a combination of rational and behavioral factors.     

On the Role of Paradigms in Understanding Economic Globalization

Any adequate analysis of economic globalization necessarily requires fundamental understanding of the worldviews underlying the views expressed with respect to the nature and role of economic globalization. This paper is based on the premise that any worldview can be associated with one of the four basic paradigms: functionalist, interpretive, radical humanist, and radical structuralist. It argues that any view expressed with respect to economic globalization is based on one of the four paradigms or worldviews. It, therefore, discusses four views with respect to the nature and role of economic globalization which correspond to the four broad worldviews. The paper emphasizes that the four views expressed are equally scientific and informative; they look at the nature and role of economic globalization from a certain paradigmatic viewpoint. Emphasizing this example in the area of economic globalization, the paper concludes that there are opportunities for each paradigm to benefit from contributions coming from the other three paradigms.     

On the Role of Paradigms in Understanding Economic Globalization

Any adequate analysis of economic globalization necessarily requires fundamental understanding of the worldviews underlying the views expressed with respect to the nature and role of economic globalization. This paper is based on the premise that any worldview can be associated with one of the four basic paradigms: functionalist, interpretive, radical humanist, and radical structuralist. It argues that any view expressed with respect to economic globalization is based on one of the four paradigms or worldviews. It, therefore, discusses four views with respect to the nature and role of economic globalization which correspond to the four broad worldviews. The paper emphasizes that the four views expressed are equally scientific and informative; they look at the nature and role of economic globalization from a certain paradigmatic viewpoint. Emphasizing this example in the area of economic globalization, the paper concludes that there are opportunities for each paradigm to benefit from contributions coming from the other three paradigms.     

Globalization and State: Four Paradigmatic Views

Any adequate analysis of globalization and state necessarily requires fundamental understanding of the worldviews underlying the views expressed with respect to the nature and role of globalization and state. This paper is based on the premise that any worldview can be associated with one of the four basic paradigms: functionalist, interpretive, radical humanist, and radical structuralist. It argues that any view expressed with respect to globalization and state is based on one of the four paradigms or worldviews. It, therefore, discusses four views with respect to the nature and role of globalization and state which correspond to the four broad worldviews. The paper emphasizes that the four views expressed are equally scientific and informative; they look at the nature and role of globalization and state from a certain paradigmatic viewpoint. Emphasizing this example in the area of globalization and state, the paper concludes that there are opportunities for each paradigm to benefit from contributions coming from the other three paradigms.     

Workers' self-management and planning: The Yugoslav case

The new constitution that Yugoslavia adopted in 1974 provides an elaborate blueprint for a workers' self-managed economy. One feature of the constitutional changes is that, in addition to continuing to strengthen the role of workers in decision-making, they strengthen the ability for macroeconomic co-ordination and, specifically, the role of planning. To reconcile the seemingly conflicting objectives of decentralizing and co-ordinating decision-making, a novel form of participative planning was introduced. The new system of self-management planning, although having elements of central planning and indicative planning, is radically different from both. This paper, after briefly reviewing the evolution of planning in Yugoslavia, analyses the rules, procedures and theoretical premises of the new system of planning codified in 1976.     

Corporate investment,dividend decisions,differential taxation and the no-arbitrage condition

Masulis and Trueman (1988) investigated corporate investment and dividend decisions under differential personal taxation. They assumed investors in different tax brackets, a state-preference complete market (which includes pure securities for each state) with a ban on short-selling. They concluded that shareholders prefer non-zero dividend payment. In their model, the restrictions on short-sales were needed to bound tax arbitrage profits, among investors in different tax brackets, so that equilibrium could be reached. However, the joint assumptions of complete markets, and restrictions on short-selling, are inconsistent. By utilizing more recent results, from the tax arbitrage literature, we allow short-selling, and examine the role and implications of the no-arbitrage condition. We show that, with investors in different tax brackets, equilibrium is feasible. We conclude that a revised Masulis and Trueman type model does not explain a non-zero optimal dividend policy.