Price correlation and granger causality tests for market definition

The static price correlation test for determining the relevant product and geographic market is critically examined and then extended to (arguably) localized markets for products such as cement, gravel, sand, crushed stone, concrete, and asphalt products. The empirical results lead to the conclusion that the price correlation test is as generally applicable for testing for local markets as it is for testing for citywide or larger markets. The Granger causality model is used alternatively to test market definition empirically. The results suggest that the Granger causality test may be a useful supplement to the price correlation test in delineating markets.     

Price changes and trading volume relationship in the Hong Kong stock market

Studies on the relationship between price changes and trading volume can provide insight into the structure of the financial market. In this paper, we will study the above topic and concentrate on the stock market of Hong Kong. The correlation between price changes and trading volume as well as that between the magnitude of price changes and trading volume will be examined. We will also check the asymmetry of the price changes and volume relationship. Moreover, we will investigate the relationship between the variance of return and trading volume. Finally, the Granger causality test of price changes and volume will be performed.     

State of the German Short-Term Power Market

The paper at hand provides a comprehensive overview of the current state of the German short-term power market with focus on trading and efficiency. The pivotal question is whether current market designs are appropriate to maximise social welfare. If this can’t be confirmed, trade-offs between technical restrictions, transparency requirements, the structure of the supply side and regulators focusing mainly on consumer surplus are analysed, which prevent markets from being fully efficient. The emphasis is on Germany due to it’s central location in Europe, it’s sheer size and the rapid increase of renewable generation in recent years. This development forced the German power market into a state of transition. As a result, developments in Germany might serve as a blueprint for other European countries. The introduction of negative day-ahead prices, the implementation of a very liquid intraday trading, a quarter hourly auction and market-based systems for the procurement of Ancillary Services are just some examples of Germany’s pioneering role. On the other hand, negative effects of the rapid changes such as the excessive use of non-market based redispatch measures and system endangering imbalance price regimes shall also be explored. As a matter of course, cross-references to other European countries and harmonisation projects are included as the German market is well interconnected with neighbouring markets.     

Innovation and new product introductions in emerging markets: Strategic recommendations for the Indian market

While radical innovations and growth strategies supporting such innovations may provide the firm with very high returns, there are also considerable risks in devising and implementing such innovations. Apart from the business risks of venturing into new territories and new markets, radical innovations also carry with them the burden of accounting for market and environmental factors that are often not under the control of the firm. The opportunities presented by the emergence of several Asian markets, such as India and China, are particularly appealing for Western countries willing to expand into these markets. However, market characteristics, institutional development, and customer behaviors bring into sharp focus the choice of a specific innovation and new product development strategy for such markets. This paper examines these various strategic issues in the context of India. The paper concludes with strategic recommendations for managers and some propositions for future academic research.     

Commercial Mortgage-Backed Securities (CMBS) and Market Efficiency with Respect to Costly Information

Commercial mortgage-backed securities (CMBS) are complex asset-backed securities trading in markets that do not currently use derivatives pricing technology. This lack of usage is due to the complexity of the modeling exercise, and only the recent and costly availability of historical data. As such, CMBS markets provide a natural environment for the testing of market efficiency with respect to this costly information. Using this information, this article develops a CMBS pricing model to provide a joint test of the model and market efficiency. Backtesting our pricing model for 4 years, although there is some evidence of abnormal trading profits, we cannot reject the efficiency of the CMBS markets.     

Fertilizer market liberalization and private retail trade in Kenya

This paper examined the factors influencing the entry and sales decision of private traders in fertilizer retail trade in a liberalized market using survey data from Kenya. A two-stage econometric model is used to examine traders’ entry and sales decision. The results provide insights into factors that are associated with private retail traders’ entry and sales decisions in an era of liberalized fertilizer markets. It shows substantial entry into fertilizer retail trade following market liberalization. Relatively limited investments in trading assets and equipment are predicted to hold back firm expansion. Implications drawn from the study provide insights into likely research and policy interventions.     

Thinking creatively about markets

The paper takes a broad view of how economists identify market boundaries. Three types of definition are distinguished: trading markets, anti-trust markets and strategic markets. The first is based on the familiar law of one price, while the second follows US DIJ guidelines and is designed to identify positions of market power. Neither of these definitions suits the needs of one of the more recent and fastest growing users of economics, namely those responsible for corporate strategy decisions inside firms. The paper reviews why market definitions are a fundamental part of strategy decisions, and identifies several ways that such users might define market boundaries.     

Price Sensitivity of Hourly Day-ahead and Quarter-hourly Intraday Auctions in Germany

The introduction of the quarter-hourly intraday auction in 2014 for the German market confirms a tendency towards short-term energy markets. The reason for the new market was the need to trade shorter periods than just hours a day-ahead to minimize open positions in the more volatile continuous intraday trading. The increased production capacity of solar power boosted this requirement for new short-term power products. The quarter-hourly market shows a distinctive zigzag price formation. We identify two influencing factors: first, the solar residual that combines the trading of solar power ramps around midday as well as the gradients of consumption and thermal power plant ramps throughout the course of the day, and second, a characteristic two stage market design with higher liquidity for the hourly than for the quarter-hourly auction. Therefore, demand, solar generation and inflexible ramps of thermal power plants are hedged at the hourly day-ahead auction and use the quarter-hourly auction only to balance the remaining differences. To prove this argument the price sensitivities of the hourly day-ahead and quarter-hourly intraday auctions in Germany are compared based on actual bid and ask curves from 2015 and 2016. Finally, the development of an adequate design of future spot markets is discussed.     

场外市场与私募股权投资退出

场外市场是沪深证券交易市场的有益补充,是建立多层次资本市场体系中的重要一极,由于其相对较低的进入门槛．在中小企业直接融资体系及企业资产要素流动中扮演着极为重要的角色,而私募股权投资基金则是场外市场的重要交易主体。文章着重论述了私募股权投资退出与场外市场是相互促进、相辅相成的关系,规范统一有序的场外市场为私募投资退出提供了广阔舞台,私募投资退出的顺畅又为场外市场注入了流动性活力。因此．当前形势下加强场外市场建设对于私募股权投资退出具有重要的现实意义。     

Price relations between export and domestic rice markets in Thailand

Many rice importing countries argue that rice exporting nations isolate their domestic markets through the use of stabilization pricing policies which cause international rice markets to become excessively volatile. For the argument to hold any weight, price transmission between exporting countries’ domestic and export markets should be unidirectional whereby export prices are driven by domestic prices but domestic prices are not affected by export prices. The study tests the hypothesis on Thailand, traditionally the world’s largest rice exporter. The results from the causality tests are not entirely clear, however the results from the impulse response functions show that while the shocks originating in the domestic market are higher in magnitude in the export market in the short-run, the shocks originating in the export market are more persistent in the domestic market. This suggests that although Thailand’s domestic policies are somewhat effective in the immediate months after the shock they allow price transmission from its export market to transfer over to its domestic market in the long-run. The results therefore imply that Thailand’s domestic pricing programs are not heavily distorting world rice markets.     

INEFFICIENCIES AND MARKET POWER IN FINANCIAL ARBITRAGE: A STUDY OF CALIFORNIA'S ELECTRICITY MARKETS*

For two years prior to the collapse of California's restructured electricity market, power traded in both a forward and a spot market for delivery at the same times and locations. Nonetheless, prices in the two markets often differed in significant and predictable ways. This apparent inefficiency persisted, we argue, because most firms believed that trading on inter‐market price differences would yield regulatory penalties. For the few firms that did make such trades, it was not profit‐maximizing to eliminate the price differences entirely. Skyrocketing prices in 2000 changed the major buyers' (utilities') incentives and exacerbated the price differentials between the markets.     

Versorgungssicherheit auf Elektrizitätsmärkten — Investitionsdilemma durch ineffizientes Marktdesign?

This article addresses the investment dilemma in the area of power generation, which in insufficiently designed, liberalized power markets leads macroeconomically to undesirably low levels of energy supply security. The prime causes for this dilemma in the German power market are rooted first in damages for suppliers which are limited in cases of generation capacity-induced power failures and second in the time delay between the final trading opportunity and the actual power delivery. The latter inhibits the ability to individually balance unexpected changes in rates of power generation and discharge at any time. Furthermore, the following factors contribute to an intensification of the dilemma: insufficient end user participation in the wholesale market, a lack of single end user cut-off options, as well as time lags in the construction of generation capacities combined with various market uncertainties. Potential approaches to a sustainable improvement of supply security include on the one hand an increase in liquidity of intraday trading to align market clearing and power delivery as closely as possible. The promotion of direct marketing for renewable energy along with other strategies will lead to such an improvement. On the other hand, end users’ utilization of smart meters should be enhanced. Thus, peak load could be moderated and allows for the inclusion of end users’ willingness to pay into the wholesale market.     

New Product Development 2.0: Preference Markets—How Scalable Securities Markets Identify Winning Product Concepts and Attributes*

Preference markets address the need for scalable, fast, and engaging market research in new product development. The Web 2.0 paradigm, in which users contribute numerous ideas that may lead to new products, requires new methods of screening those ideas for their marketability, and preference markets offer just such a mechanism. For faster new product development decisions, a flexible prioritization methodology is implemented for product features and concepts, one that scales up in the number of testable alternatives, limited only by the number of participants. New product preferences for concepts, attributes, and attribute levels are measured by trading stocks whose prices are based upon share of choice of new products and features. A conceptual model of scalable preference markets is developed and tested experimentally. Benefits of the methodology are found to include speed (less than one hour per trading experiment), scalability (question capacity grows linearly in the number of traders), flexibility (features and concepts can be tested simultaneously), and respondent enthusiasm for the method.     

Meat marketing in Burkina Faso after the devaluation of the FCFA: Insights into the functioning of informal market systems

The strategies that participants in informal African markets adopt in response to shocks have rarely been analysed, yet these can provide important insights into how such markets function. Policy advice often seeks to modernise trading practices within such markets so as to improve efficiency. However, efforts to improve efficiency could have undesirable consequences if the current functioning of the markets is inadequately understood. In Burkina Faso, the FCFA devaluation in 1994 led to increasing livestock exports and a subsequent meat shortage on the domestic market. Based on market statistics from Burkina Faso and household interviews, the study investigates the status of meat consumption before and up to four years after the devaluation. Results indicate that the price increase for cattle was only transmitted to consumers after a time lag. Meat is more frequently sold in little heaps than on a weight basis. Lower per-kg prices of smaller size heaps imply an income gain for poorer consumers. Butchers use all edible body parts in addition to the carcass (i.e. head, hoofs, intestines) to buffer price fluctuations and to cope with the consumers’ notion of a fixed nominal price. This suggests that butchers and their clients are embedded in networks of what [S. Plattner, 1989. Economic behavior in markets. In: Plattner S. (Ed.), Economic anthropology, Stanford, pp. 209–222.] called equilibrating economic relations, which are favoured by the perishable nature of meat. Selling live animals or meat by weight is often considered as a measure to increase transparency within informal markets. However, the introduction of formalized or standardized marketing measures alone, without lowering the transaction costs of other components of the value chain, risks undermining the equilibrating social relationships that play an important role particularly for the poorer market actors, and thereby disadvantaging vulnerable population groups.     

On Welfare Losses Due to Imperfect Competition

Corporate managers and executive compensation in many industries place significant emphasis on measures of firm size, such as sales revenue or market share. Such objectives have an important—yet thus far unquantified—impact on market performance. With n symmetric firms, equilibrium welfare losses are of order 1/n⁴, and thus vanish extremely quickly. Welfare losses are less than 5% for many empirically relevant market structures, despite significant firm asymmetry and industry concentration. They can be estimated using only basic information on market shares. These results also apply to oligopsonistic competition (e.g., for retail bank deposits) and strategic forward trading (e.g., in restructured electricity markets).     

Strommarktdesign: Zur Ausgestaltung der Auktionsregeln an der EEX

This paper studies the design of power exchanges in liberalized electricty markets. We analyze several pricing rules for day ahead trading and show that a uniform price mechanism has quite desirable properties as compared to its alternatives. We then discuss how the particular cost structure of electricity generation can be accounted for by appropriate bid formats. We moreover analyze the effects of bid caps and price floors in electricity auctions on market performance, as well as several other aspects of electricity market design. In particular, we discuss linkage of independently operating markets for electricity, reserve energy and transmission capacities, coupling of national power exchanges, and the effects of transparency on the outcome of electricity markets.     

CPF stocks: Prices,returns and volatility

We identify a unique phenomenon in the Central Provident Fund (CPF) stocks where stock prices increase in the absence of fundamental changes in firm value. CPF stocks are stocks endorsed by the Central Provident Fund Board in Singapore as approved investment for its members. CPF stocks offer significant price appreciation and value preservation as well as abnormal returns in the bull market before the October 1987 market crash. We find evidence of noise trading in bull markets and price pressure effects that persist through bearish market conditions.The authors are from the Department of Finance and Banking, National University of Singapore.     

Sale before Completion of Development: Pricing and Strategy

The paper examines the risk-and-return characteristics of a popular development strategy, the presale system (or sale before completion), used in many Asian cities. We model a presale decision in a real-options framework and suggest that the use of presale is primarily for a risk-sharing purpose. That is, developers can reduce bankruptcy and marketing risks by selling (or leasing) their projects before their completion dates. Our model also indicates that, because of the presale system, there is a barrier for new developers to enter into a market, which helps explain the anecdotal observation that most real estate markets in Asian cities are oligopolistic in nature and dominated by large developers.     

Market reform and private trade in Eastern and Southern Africa

This article reviews the experience of market reform in Eastern and Southern Africa and highlights some key lessons learned. A distinction is drawn between countries whose policy regime before reform was favourable to food production and those whose policies were unfavourable, and alternative reform paths are described. The two key issues emerging are the role of the public sector after reform, for which there is still no clearly appropriate model, and how the strong short-term response of the private sector to trading opportunities can be transformed into investment. Post-reform markets have been competitive, but operate under tight constraints with little evidence of significant capital accumulation. Critical research issues to inform policy making are identified.     

Ein Vergleich ausgewählter europäischer Strombörsen

We study the rules of selected european energy exchanges and compare their institutional design. In most countries (except for the UK) a uniform price mechanism is used. The rules differ, however, in the possibilities to express complementary cost components in the bids. Also the degree of international coupling of markets is very different across countries. Our comparison of the markets allows to identify attractive trading rules and yields insights on an effective electricity market design.