Decoding Inside Information

Exploiting the fact that insiders trade for a variety of reasons, we show that there is predictable, identifiable “routine” insider trading that is not informative about firms’ futures. A portfolio strategy that focuses solely on the remaining “opportunistic” traders yields value‐weighted abnormal returns of 82 basis points per month, while abnormal returns associated with routine traders are essentially zero. The most informed opportunistic traders are local, nonexecutive insiders from geographically concentrated, poorly governed firms. Opportunistic traders are significantly more likely to have SEC enforcement action taken against them, and reduce trading following waves of SEC insider trading enforcement.     

Bank Lending Standards and Access to Lines of Credit

This paper examines how changes in bank lending standards are related to the availability of bank lines of credit for private and comparable public firms. Overall, we find that access to lines of credit is more contingent on bank lending standards for private than for public firms. The impact of bank lending standards is however asymmetric: while private firms are less likely than public firms to gain access to new lines when credit market conditions are tight, we find no difference between public and private firms in terms of their use or retention of pre‐existing lines. We also find that private firms without lines of credit use more trade credit when bank lending standards are tight, which is suggestive of a supply effect. Overall, the evidence suggests that “credit crunches” are likely to have a disproportionate impact on private firms. However, pre‐existing banking relationships appear to mitigate the impact of these contractions on private firms.     

Identification of Maximal Affine Term Structure Models

Building on Duffie and Kan (1996) , we propose a new representation of affine models in which the state vector comprises infinitesimal maturity yields and their quadratic covariations. Because these variables possess unambiguous economic interpretations, they generate a representation that is globally identifiable. Further, this representation has more identifiable parameters than the “maximal” model of Dai and Singleton (2000) . We implement this new representation for select three‐factor models and find that model‐independent estimates for the state vector can be estimated directly from yield curve data, which present advantages for the estimation and interpretation of multifactor models.     

THE ADOPTION OF STATE ELECTRICITY REGULATION: THE ROLE OF INTEREST GROUPS*

This paper examines the adoption of state electricity regulation around the beginning of the 20th century. I model this decision as a hazard rate to determine what influenced the adoption of state regulation. I find that adoption is positively correlated with capacity shortages, greater wealth and lower residential electricity penetration rates. These results suggest that state regulation responded to regulatory inefficiencies and residential consumer interests. In addition, adoption rates were higher in states that had a strong industrial and coal mining presence. These results are consistent with the interest group and contracting theories of regulation.     

The Resiliency of the High-Yield Bond Market: The LTV Default

This paper investigates the resiliency of the new-issue high-yield bond market by examining the changes in implied default rates of such bonds before and after the largest high-yield bond default, i.e., the LTV bankruptcy. Specifically, the paper compares implied default probabilities of high-yield bonds during the post-LTV period calculated from actual new-issue yields with instrumental default probabilities calculated on the assumption that the default had not occurred. A comparison of these probabilities reveals that the market's perception of default on the high risk segment of the bond market increased significantly after the LTV bankruptcy. However, the effect was transitory, lasting only six months. Thus, the market was resilient to a major default.     

The Impact of Human Resource Policies on Union Organizing

Using newly available data from the Conference Board on employer human resource policies, certification election outcomes, and union organization of new company facilities, we find that the logic of "union substitution" efforts by employers is supported: Companies having or encouraging employee communication and participation programs, including nonunion grievance procedures, are more successful in maintaining nonunion status than are companies without such programs. However, certain human resource policies, such as work sharing (as an alternative to layoffs), may actually enhance chances of union success.     

Fundamental Economic Variables,Expected Returns,and Bond Fund Performance

In this article, we develop relative pricing (APT) models that are successful in explaining expected returns in the bond market. We utilize indexes as well as unanticipated changes in economic variables as factors driving security returns. An innovation in this article is the measurement of the economic factors as changes in forecasts. The return indexes are the most important variables in explaining the time series of returns. However, the addition of the economic variables leads to a large improvement in the explanation of the cross-section of expected returns. We utilize our relative pricing models to examine the performance of bond funds.     

A Mechanism for Inducing Cooperation in Noncooperative Environments: Theory and Applications

We construct a market‐based mechanism that induces players in a noncooperative game to make the same choices as characterize cooperation. We then argue that this mechanism is applicable to a wide range of economic questions and illustrate this claim using the problem of “The Tragedy of the Commons.”     

The Impact of Inflation and Taxation on Tenure Choice and the Redistributive Effects of Home-Mortgage Interest Rate ReguIation*

Judy Yates (1981) notes the regressive redistributive impact of home-mortgage interest rate regulation and offers some explanations. This paper provides an alternative explanation of Yates' observations in terms of the interaction of inflation with the current tax system in Australia. A model of tenure choice in the context of inflation and taxation is developed. In explaining this phenomenon, the model also establishes the regressive nature of the tax subsidy to owner-occupation. Home-mortgage interest rate regulation is then introduced. This reinforces the redistributive bias in the housing finance market. The model is used finally to predict the impact of deregulation. It is concluded that deregulation by itself can only remove redistributive bias resulting from regulated mortgage interest rates. Reform of the tax system is required to eliminate the regressive redistributive effects of the tax subsidy to owner-occupation .