Capital market efficiency and the relationship between equity returns, interest rates, and monetary aggregates in Australia

This paper examines the efficiency with which the Australian share market incorporates new information relating to interest rates and the monetary aggregates into share prices. It finds a strong relationship between medium term government security yields and equity returns although little relationship could be found between unanticipated changes in the monetary aggregates and share returns. Furthermore, the interest rate relationship involved long lags and suggests inefficiency in stock market pricing in Australia.     

Some evidence on the role of money illusion in labor supply behavior

The Keynesian idea that workers are subject to money illusion in their labor supply decisions is tested by estimating a labor supply function that includes the price level as an independent variable. The model is estimated with data drawn from various BLS publications and is aggregated by SMSA. The results indicate a significant negative supply response to price-level changes after controlling for the nominal wage rate, income, and the SMSA's unemployment rate. There is no significant difference between workers' supply response to the price level and the nominal wage rate, which suggests that workers are not subject to money illusion.     

Market efficiency across securities exchanges

Considerable empirical evidence has been presented in the literature of finance in recent years addressed to the question of the informational efficiency of the American capital market. The present paper adds to that evidence. In particular, securities traded off the NYSE—on the American Stock Exchange, on regional exchanges, and over the counter—are found to exhibit return characteristics that imply rather more frequent price departures from equilibrium than for their NYSE-listed counterparts. The data consist of the actual investment experiences of a large sample of individual investors with securities traded in the various locales.     

The optimal policy rule under rational expectations and multiplier uncertainty

This paper shows the role of macro policy under multiplier uncertainty when expectations are rational and the supply structure is affected by price level variance. Policy less is a function of price level variance and possibly of the expected price level. If the letter argument is omitted from the less function, optimal policy simply minimizes the horizontal variance of the aggregate demand curve. If it is not omitted, the level of policy depends on the responsiveness of the supply structure to price level variance, and there may be multiple local policy optima.     

The determinants of occupational mobility patterns among blue-collar jobs

Barriers to mobility are commonly believed to partition blue-collar jobs into skilled, semiskilled, and unskilled components. This paper develops a model based in large measure on the classical gravity model for purposes of ascertaining mobility pattern determinants and for testing for the presence and form of mobility barriers. The model is implemented on a 1965–1970 sample data of male mobility among 60 intermediate-detailed blue- collar occupations. The empirical results reveal that mobility patterns in the blue-collar component conform well with neoclassical theoretical expectations. Very little support is found for the view that the blue-collar labor market is highly structured or segmented in its operations through the mobility process.     

Oil prices and world inflation

In this paper we attempt to address the nature of the causal relationships between oil prices and U.S. inflation. We use a procedure developed by Granger to assess “causality” or, more precisely stated, “informativeness.” Our results confirm that higher oil prices have increased the U.S. WPI. Our results also support OPEC's contention that their price increases have in part been a result of worldwide inflation.     

Bank structure and mortgage rates: Implications for interstate banking

Competition in financial markets has been the subject of many studies in the area of market structure and performance. This paper analyzes the differences in mortgage rates between unit banking and branch banking states to consider the likely outcome of interstate banking on competition. A model of interest rate determination is developed which suggests that, at least in the mortgage market, interstate banking will, ceteris paribus, decrease competition if it lowers the number of competing firms and increases deposit concentration levels. Support is provided for the argument that only those states under statewide branching laws may receive more competitive environments from the spread of interstate banking.     

Beta adjustment methods

This study is an analysis of the forecasting ability of adjusted and unadjusted betas. Based on the Canadian data for 252 stocks, random errors in betas are the most important reason for the poor predictive ability of individual security betas. Most of this random error is eliminated if securities are grouped into portfolios. However, further improvements in forecasting ability are gained by adjusting the security betas for bias and inefficiency. Five methods of adjusting the naive beta estimates have been tried, including two methods not tested before. These two, Vasicek's two-stage method and order-bias adjustment method, gave results generally superior to others.     

Regularity and diversity in firm size distributions in U.S. industries

The size distribution of firms in manufacturing industries has long been a matter of interest in industrial organization. Distribution in different industries show considerable regularity that static economic theory fails to explain. Stochastic growth models appear to provide some insights, but empirical tests of the log-normal or Pareto distributions have been inconclusive. This paper draws on market share data for over three hundred U.S. manufacturing industries and analyses the distribution of largest firm sizes. A statistical test of the Pareto hypothesis, rather different from previous tests in the literature, decisively rejects that hypothesis as a general explanation for the upper tail of the distribution. Instead, great diversity among distributions is found, and the regularities that do emerge imply a greater clustering of large firms than predicted by theory.     

Price adjustment strategy under conditions of high inflation: An empirical examination

Price adjustment strategy is a central problem to businesses operating under conditions of high inflation. Three different approaches to the problem are presented and some of their implications tested empirically by means of a unique data set. The empirical observations do not support any of the three traditional approaches.     

Uncertainty,organizational form,and x-efficiency

When the firm is uncertain about the efficiency units of labor that it employs, some organizational forms—franchise, owner-operated, and multiplant firms— may be more profitable than others. As a result, particular organizational forms may dominate an industry with uncertain inputs. Conversely, various organizational forms may be selected by a company selecting producing units that will maximize the decision maker's expected utility of profits. This paper offers an alternative view of firm attributes associated with x-efficiency.     

Increases in energy prices,costs of production,and plant size

A translog cost function is estimated for U.S. manufacturing in order to investigate plant size differences in responses to increases in energy prices. Smaller plants were more intensive users of energy in the early 1970s but were also better able to substitute out of energy and into other inputs during the first round of energy price increases. As a result, by the mid-1970s larger plants had become more intensive energy users. Thus, later energy price increases probably had a greater adverse impact on the production costs of larger plants in manufacturing.     

A new approach for measuring wage ignorance in the labor market

In this article we offer a new econometric approach to the evaluation of information content within labor markets. We define ignorance as the difference between the wage (price) individuals earn (pay) with full information and the wage (price) they actually receive (pay) given their limited information stocks, and we make use of a frontier production function approach to measure ignorance for various markets. Our empirical results are highly consistent with the analytical results in six areas of search theory. Furthermore, our results suggest a new interpretation of the role of unions.     

Scale economies,entry, and welfare

This study shows how scale economies, initial size differences among firms, potential competition, and adjustment costs may influence the entry of firms into a dynamic oligopoly. It also examines the effects of these factors on the final size distribution of firms in an industry, and on the welfare levels of consumers and producers. We find that low to moderate scale economies are insufficient for Cournot-Nash competition to drive small firms from the market. Only when scale economies are quite high will the distribution of firm sizes become degenerate. Potential competition and the size of incumbent firms' capital stocks are additional barriers to entry. The welfare conclusion is that there may be a government role to preserve potential competition, but also to dissuade small firms from entering certain markets where there are economies of scale.