Biting the hand that fed it: Did the stock market boom of the late 1990s impede investment in manufacturing?

The stock market increase in the 1990s may have diverted funds from fixed investments in manufacturing to other investiments, such as share repurchases, and to firms with faster stock price gains. We find that overall investment remained lower than it could have been without the stock price appreciation. We also find that manufacturing investment was impeded by the developments in the stock market. Based on our results, the policy focus should be on offering incentives for corporate decision makers to prioritize productive investments over other uses of funds instead of means to entice lenders to increase lending to manufacturing firms.     

Some Truths about Ostriches: Who Doesn't Prepay Their Mortgages and Why They Don't

Prepayment estimation is essential in forecasting expected mortgage cash flow patterns. Accordingly, mortgage and mortgage-backed security prices are highly dependent on prepayment assumptions. Yet borrower prepayment behavior appears to be highly irrational, in the sense that many borrowers prepay their mortgages when it is not optimal to do so and fail to prepay their mortgages when the prepayment option is substantially in the money. In this paper, we explore the latter phenomenon, using a large data set of loans originated during the relatively high-rate 1980s that have failed to prepay by year-end 1996. As a control group, we examine similar loans that did prepay during the refinancing boom of 1993. By coupling Case–Shiller house price index information at the zip-code level, we can analyze the effect of broader housing market trends, especially housing appreciation, on borrower prepayment behavior. Although housing prices did decline significantly during the late 1980s and early 1990s in many areas of the United States, we find evidence that only about 25% of non-refinancing households might have been constrained by declining collateral values. Household demographic characteristics may provide some further explanation for this apparently non-optimizing behavior; however, we do not have a complete explanation.     

Corporate Cultural Change – Is It Relevant For the Organisations of the 1990s?

Partly as a consequence of the popularity of the ‘excellence’ literature of the early 1980s, there was a widespread acceptance that ‘corporate cultural change’ was one of the effective mechanisms within a strategic HRM approach to people management. However, recent research into imposed cultural change programmes in the late 1980s raises doubts about their effectiveness as change mechanisms, as management control devices and as contributors to business performance. This article engages in the current debate concerning the aims, design and implementation of cultural change but goes on to question the relevance of such an idea for organisations in the context of the 1990s. the article extends the many debates within the HRM and corporate culture literature by contextualising them within the emerging features of organisations in the 1990s.     

The impact of Medigap insurance on out-of-pocket health expenditures by older Americans over the 1980s

This study presents a comparative analysis of out-of-pocket health expenditures over the 1980s by older Americans with and without Medigap (supplemental) insurance. The objective is to analyze changes during the 1980s in the pattern of health expenditures and in the financing of those health expenditures by households age 65 and over. Two-stage regression analysis shows that health goods and services are normal goods. Out-of-pocket health expenditures, excluding insurance premiums, are higher for those with Medigap insurance, which may be explained by the market failures of moral hazard and adverse selection.     

借鉴日元升值经验分析人民币升值及建议

我国面临的本币升值压力与二十世纪八、九十年代的日本有很大的相似性。本文通过分析日元升值对日本经济的积极和消极影响,借鉴日本的经验教训来讨论人民币升值的可能带来的影响及建议。     

Stock prices and exchange rates in VEC model—The case of Singapore in the 1990s

This paper uses an error correction model to explore 1) the asymmetric effects of four different exchange rates on Singapore stock prices and 2) the effects' sensitivity to economic instability. Both the Singapore currency appreciation against the U.S. dollar and Malaysianringgit and depreciation against the Japaneseyen and Indonesianrupiah lead to a longrun increase in stock prices for most selected periods of the 1990s; however, the effect associated with the U.S. dollar exchange rate has a sign reversal between the 1997–98 crisis period and the 1999–2000 recovery period. The influence of exchange rates on stock prices increases in a chronological order in the 1990s. The author would like to thank three anonymous referees and Joachim Zietz,JEF editor, for helpful comments. A summer research grant by the Franklin P. Perdue School of Business, Salisbury State University, is gratefully acknowledged.     

State Dependence at Internet Portals

This study offers evidence of the existence of switching costs on the Internet. It uses more flexible methods than previously possible to separate switching costs from serially correlated unobservables at Internet portals. The data contain nearly 1,000 observations per household, allowing for household-specific regressions that control for all household-specific heterogeneity. The results show that households exhibit switching costs. The loyalty generated by these costs drives a large fraction of portal visits and generates considerable revenues; however, these revenues are not large enough to justify the losses incurred by Internet portals in the 1990s while building market share. The results also suggest that random coefficients models overestimate true state dependence.     

A change in the earnings penalty for British men with working wives: Evidence from the 1980's and 1990's

Using pooled cross-sectional data from 1984–1989 and 1990–1995, two-stage (Tobit/OLS) regressions show that the penalty on male earnings for working wives, found in earlier research for British males in the early 1980's in managerial and other occupations, is not present in the second half of the 1980's and is largely reversed by the 1990's; in most occupational clusters, managers most notably, it is replaced by an earnings premium. The results are consistent with a view that increases in married women's labor force participation in Britain, coupled with positive assortative mating, have overwhelmed any forces tending to reduce male salaries when their wives work.     

Outsourcing of Services and the Productivity Recovery in U.S. Manufacturing in the 1980s and 1990s

Manufacturing productivity growth recovered during the 1980s and 1990s, while other sectors, particularly services, did not. In the same period U.S. manufacturing has engaged in the “outsourcing” or “contracting-out” of service functions. Has the recovery of manufacturing been accomplished by industrial reorganization--sloughing off sluggish services--rather than technical progress? We analyze this question by reducing service inputs to their consituent elements of material inputs. Service productivity growth is thus imputed to the goods sectors, reducing the recovery of manufacturing productivity growth in the 1980s by one fifth. The recovery lasted through the 1990s, when high productivity performers in manufacturing have been relatively successful at outsourcing sluggishservices.

     

Stock prices,firm size,and changes in the federal funds rate target

The Fed targeted the federal funds rate during the period 1974–1979; they returned to that procedure in the late 1980s and have maintained it since then. For both periods, we find that stock prices reacted significantly to unanticipated changes in the federal funds rate target. Consistent with the prediction of imperfect capital market theories, the estimated impact of monetary shocks is significantly larger for small stocks than for big stocks in the late 1970s, when business conditions were typically bad. However, the “size effect” is not present in the 1990s, when business conditions were typically good.     

Analysis of the impact of Sino-US trade friction on China’s stock market based on complex networks

This paper analyzes the impact of the Sino-US trade friction incident in 2018 on China's stock market by using the complex network methods. Firstly, we divide the Sino-US trade friction incident in 2018 into four research periods. Based on the GARCH-BEKK model and the Planar Maximum Filter Graph (PMFG) algorithm, the volatility spillover network between China's stock market sectors and the stock price correlation network of China's stock market corresponding to the above four research periods are constructed. Next, from the perspective of sectors in stock market, we use various network centrality indicators to build a systematic importance comprehensive evaluation index of industry sectors in the stock market through the principal component analysis method, to explore the impact of the Sino-US trade friction incident on the risk spillover effects of sectors in China's stock market. From the perspective of the overall stock market, we analyze the impact of Sino-US trade friction incident on the overall stability of the stock market through calculating the network topology indicators and conducting simulation experiments. Finally, the main factors affecting the stability mechanism of China's stock market are studied through the probit model. The results show that: (1) The risk spillover effect of various sectors in China's stock market changes significantly in different periods of Sino-US trade friction, and there are obvious cyclical rotation effects among various sectors (2) When some weighted stocks in the stock market abnormally fluctuate or suffer targeted shocks, the China's stock market's ability to maintain stability is weak, and the Sino-US trade friction will reduce the stability of China's stock market, and the higher the intensity of trade friction incident is, the more obvious the impact of the incident is. (3) The important factors that affect the abnormal fluctuations in China's stock market include four types of indicators: the stock market network structure, the fluctuation of important international stock indexes, the fluctuation of commodity prices in the international market, and the domestic macroeconomic indicators. This study provides a reference for China's financial regulatory authorities to conduct macro-prudential management, control systemic risks, and maintain the stability of financial market.     

The relationship between oil prices,the stock market and the exchange rate: Evidence from Mexico

This paper analyzes the variables of oil price, exchange rate and stock market index to explain how they interact with each other in the Mexican economy. The examined period includes monthly data from January 1992 to June 2017. A Vector Autoregressive Model (VAR) is implemented that includes oil prices, the nominal exchange rate, the Mexican stock market index, and the consumer price index. Results indicate that the exchange rate has a negative and statistically significant effect on the stock market index; this indicates that an appreciation of the exchange rate is related to an increase in the stock market index. It is also found that the consumer price index has a positive effect on the exchange rate and a negative effect on the stock market index. The results also indicate that oil prices are statistically significant against the exchange rate, concluding that an increase in oil prices creates an appreciation of the exchange rate. In addition, the impulse-response functions show that the effects found tend to disappear over time.     

An empirical investigation of U.S. bank risk and the Mexican peso crisis

This paper examines two pairs of hypotheses about the effect of the Mexican Peso crisis on U.S. bank stock returns. We use a three-index market model as our empirical methodology because bank stocks are influenced more by both interest rate risk and foreign exchange risk than other non-banking stocks. The results show that the market reacted to each event promptly, supporting semi-strong market efficiency. To find out whether these effects created a domino effect in the U.S. banking system, a set of cross-sectional regressions were run. In general, the empirical results support the investor-contagion hypothesis, which indicates that the market penalized or rewarded banks without regard to their ecposure to the market for Mexican loans.     

Policy on the margin: Evaluating the impact of margin debt requirements on stock valuations

Rapidly rising stock prices in the 1990s raised worries about potential inflationary or destabilizing effects. The use of initial margin debt requirements by the Federal Reserve was proposed to reduce the run-up in stock prices. This paper evaluates the likely impact of margin debt requirements on stock valuations. The results suggest that higher margin requirements would have had no impact on stock market valuations in the 1990s, Moreover, other forms of consumer credit are relatively more important in determining household equity positions than margin debt, making the control of margin debt not an obvious public policy choice.(JEL E58, G18)     

Evolution of price effects after one-day abnormal returns in the US stock market

This paper provides a comprehensive analysis of price effects after one-day abnormal returns and their evolution in the US stock market, using Dow Jones Index over the period 1890–2018. We utilise several statistical tests and econometric methods (the modified cumulative abnormal return approach, regression analysis with dummy variables, R/S analysis (Hurst, 1951), and the trading simulation approach). The results suggest that a strong momentum effect between 1940 and 1980 after a day of positive abnormal returns was present in the US stock market, and it was exploitable for profit. However, after the 1980s this has since disappeared. Overall, price effects after one-day abnormal returns during the analysed period tend to be unstable in terms of their strength and direction (momentum or contrarian effect). Nowadays, the evidence for the price effects after one-day abnormal returns in the US stock market is weak. Our results, therefore, are consistent with the Adaptive Market Hypothesis (Lo, 2004).     

Trump versus Reagan – the global dimension

• ? Could the Trump era resemble the 1980s? ‘Reaganomics’ boosted world growth – but not necessarily in the ways people think – and not for emerging markets (EMs), a larger part of today's world economy. Growth then was also aided by factors such as declining interest rates, which are missing today, and we doubt that deregulation will lead to a productivity surge. US asset prices, meanwhile, were depressed in 1981, unlike now, so the big gains of the 1980s are unlikely to be repeated. EM assets should do better than back then, though.
• ? Optimistic observers – and to some extent, markets – have been drawing parallels between the policy mixes of the Trump and Reagan administrations, and talking up the prospects of stronger global growth. But while the US did support world growth in the 1980s, this was arguably more due to Keynesian' demand‐side policies than supply‐side ones: Reagan's record on supply‐side policies was mixed.
• ? The US is still an important driver of global activity, but markets may be too optimistic about the effect of Trump's policies on world growth. Any Trump fiscal stimulus will occur against a much less favourable background than that of the 1980s, when US growth also benefitted from a variety of factors missing now.
• ? It is also unclear whether Trump's administration will tolerate large expansions of the current account and fiscal deficits as the ‘price’ for more growth. And we are sceptical about the prospects of big gains from deregulation: US economic dynamism has waned, but the policies so far proposed in this area look potentially misdirected.
• ? Over the coming years asset market performance is unlikely to mirror that of the 1980s: valuations suggest less room for dollar appreciation and stock market gains this time around. But emerging market (EM) assets may do better – the soaring dollar and high US rates that hit EMs in the 1980s are unlikely to be repeated. And our analysis suggests even modestly better US growth will support commodity prices and EM growth.

     

An empirical behavioral model of household’s deposit dollarization

We use the behavioral concept to endogenously model the evolution of the link between households’ deposit dollarization and exchange rate developments in Russia. We estimate the model empirically and show that the reaction of households to exchange rate appreciation weakens when exchange rate developments become more volatile. The proposed model outperforms the contemporary nonlinear time series models in forecasting the changes in dollarization during the Bank of Russia’s transition to a flexible exchange rate regime.

     

Market value,market share,and mergers: Evidence from a panel of U.S. firms

Improving shareholder value has often been cited as a merger determinant. Because mergers create larger firms and less competition, they may increase shareholder value through higher market share and stock‐market value. We investigate merger impacts on firms' stock‐market value and market share. We construct panel data from 4 different data sources on public merging and non‐merging U.S. manufacturing firms for 1980–2003. Instrumental variables and factors such as R&D, patents, and citations control for endogeneity. We find that mergers are positively correlated with stock‐market value and market share.     

Dynamic interaction of risk–return trade-offs between oil market and China’s stock market: An analysis from the risk preferences perspective

The risk–return trade-off refers to the compensation required by investors for bearing risks, which can be viewed as the risk preference of investors in a market. The current study investigates the dynamic interdependence of risk–return trade-offs between China’s stock market and the crude oil market from the perspective of risk preference of investors, which is designed to explore the transmission process of investors’ risk preference in both markets. Specifically, this study applies the time-varying parameter GARCH-M model, namely TVP-GARCH-M model, to characterize the time-dependent risk–return trade-offs (investors’ risk preferences) in the crude oil and China’s stock markets, then examines their relationship through Granger causality tests. Results show that a variation in risk preferences of the oil market investors can dramatically cause a variation in risk preferences of the Chinese stock market investors, while the risk preference of investors in the Chinese stock market does not lead to that in the crude oil market, which is in accordance with expectations. The dynamic effect of investors’ risk appetite in the crude oil market is further examined by the TVP-VAR model. The findings of this work suggest that there generally exists a positive impact of investors’ risk preference in the oil market and that the effect is time-varying to a greater degree during the short and medium term. Moreover, responses of the Chinese stock market investors’ risk preference were more significant during the 2008 financial crisis. Additionally, the empirical results remain robust when applying alternative crude oil prices and China’s stock prices.     

Monetary Policy and Asset Prices: A Markov‐Switching DSGE Approach

This paper estimates a Markov‐switching dynamic stochastic general equilibrium model by incorporating stock prices in monetary policy rules in order to identify the Federal Reserve's stance toward them. Based on the data from 1984:Q1 to 2009:Q2, I find that historical evidence of the policy reaction toward stock prices is weak except for the stock market bubble of the 1990s. A counterfactual exercise shows that the rapid growth in stock prices during that period would have been significantly higher if monetary policy had been independent of the stock market. However, unconditional macroeconomic volatility increases with the degree of policy responsiveness toward stock prices. Copyright © 2017 John Wiley & Sons, Ltd.