Decision Frequency and Synchronization Across Agents: Implications for Aggregate Consumption and Equity Return

This article examines a model in which decisions are made at fixed intervals and are unsynchronized across agents. Agents choose nondurable consumption and portfolio composition, and either or both can be chosen infrequently. A small utility cost is associated with both decisions being made infrequently. Calibrating returns to the U.S. economy, less frequent and unsynchronized decision-making delivers the low volatility of aggregate consumption growth and its low correlation with equity return found in U.S. data. Allowing portfolio rebalancing to occur every period has a negligible impact on the joint behavior of aggregate consumption and returns.     

The Monitoring Incentive of Transactional and Relationship Lenders: Evidence from the Syndicated Loan Market

We identify a group of lenders specializing in syndicating tradable loans (referred to as transactional lenders [TLs]). We show that borrowers borrowing from TLs experience worse operating performance and more severe credit quality deterioration after loan origination compared to those borrowing from relationship lenders. This difference in the postloan issue performance remains robust after controlling for the potential self‐selection of the lender type, or using percentage of traded loans out of all syndicated loans to capture lenders’ propensity for syndicating tradable loans. Our results also remains qualitatively the same after we drop various types of risky loans.     

THE IMPACT OF LOW‐INCOME HOME ENERGY ASSISTANCE PROGRAM PARTICIPATION ON HOUSEHOLD ENERGY INSECURITY

The impact of the low‐income home energy assistance program (LIHEAP), the single largest energy assistance program available to poor households in the United States has received little rigorous attention. If LIHEAP participation significantly improves low‐income household energy security, funding cuts or eliminating the program could negatively impact the poor. This article empirically estimates the impact of LIHEAP on household energy security. The results indicate participation in LIHEAP significantly increases energy security in low‐income households. Simulations suggest that elimination of the current household energy‐assistance safety net will decrease the number of low‐income energy secure households by over 17%. (JEL I38, Q48)     

Explaining the Magnitude of Liquidity Premia: The Roles of Return Predictability,Wealth Shocks,and State‐Dependent Transaction Costs

Constantinides (1986) documents how the impact of transaction costs on per‐annum liquidity premia in the standard dynamic allocation problem with i.i.d. returns is an order of magnitude smaller than the cost rate itself. Recent papers form portfolios sorted on liquidity measures and find spreads in expected per‐annum return that are the same order of magnitude as the transaction cost spread. When we allow returns to be predictable and introduce wealth shocks calibrated to labor income, transaction costs are able to produce per‐annum liquidity premia that are the same order of magnitude as the transaction cost spread.     

The Interrelation of Stock and Options Market Trading-Volume Data

This research empirically investigates the relation between common stock and call option trading volumes. The paper hyothesizes and tests a sequential flow of information between the stock and option markets. If information trading for CBOE-listed firms is predominantly accomplished through option trading, then existing research methodologies may be biased against finding any significant economic consequences in those instances where option listing is an important variable. Results indicate that trading in call options leads trading in the underlying shares, with a one-day lag.     

An Experimental Investigation of Alternative Going‐Concern Reporting Formats: A Canadian Experience*

This study questions whether the current or proposed Canadian standard of disclosing a going‐concern contingency is viewed as equivalent to the standard adopted in the United States by financial statement users. We examined loan officers' perceptions across three different formats ‐ namely, an integrated note with a clean auditor's report (the current Canadian standard), a stand‐alone note with referencing on the face of the balance sheet and income statement (the proposed and now rescinded standard), and a modified auditor's report with an explanatory paragraph in addition to a stand‐alone going concern note (the standard adopted in the United States and other countries). Bank loan officers were selected as the appropriate financial statement users for this study. The results of the test of the hypothesis suggest that once the going‐concern note is fully disclosed in the notes, the style of presentation within the notes (a stand‐alone note versus an integrated note) does not significantly influence the reactions and perceptions of risk if the auditor's report is unmodified (i.e., if no reference is made to a going‐concern contingency). However, when the auditor's report is modified with an explanatory paragraph detailing the uncertainty and referencing the going‐concern note in the footnotes, the format appeared to convey a stronger signal of financial distress to loan officers. These results appear to differ from prior research, which holds that once the information is released in the financial statements, the format has no additional effect. The finding of this study is that the proposed and withdrawn Canadian standard was not perceived differently by the bankers from the present Canadian standard, but the standard adopted in the United States and most other countries was. This makes a strong argument for moving all the way to that standard as opposed to the “halfway” approach of the now rescinded CICA exposure draft. Thus, the public interest in Canada may not be served by adopting a halfway approach.     

A Proposed Framework for Monetary Policy

Leave the ERM, cut interest rates and let the pound find its own level⃛ it's the cut and run option. The credibility of our anti-inflationary strategy would be in tatters. And quite soon interest rates would have to go back up again - Norman Lamont, in a speech to the European Policy Forum, July 1992.