Connected Stocks

We connect stocks through their common active mutual fund owners. We show that the degree of shared ownership forecasts cross‐sectional variation in return correlation, controlling for exposure to systematic return factors, style and sector similarity, and many other pair characteristics. We argue that shared ownership causes this excess comovement based on evidence from a natural experiment—the 2003 mutual fund trading scandal. These results motivate a novel cross‐stock‐reversal trading strategy exploiting information contained in ownership connections. We show that long‐short hedge fund index returns covary negatively with this strategy, suggesting these funds may exacerbate this excess comovement.     

Why Firms Use Currency Derivatives

We examine the use of currency derivatives in order to differentiate among existing theories of hedging behavior. Firms with greater growth opportunities and tighter financial constraints are more likely to use currency derivatives. This result suggests that firms might use derivatives to reduce cash flow variation that might otherwise preclude firms from investing in valuable growth opportunities. Firms with extensive foreign exchange-rate exposure and economies of scale in hedging activities are also more likely to use currency derivatives. Finally, the source of foreign exchange-rate exposure is an important factor in the choice among types of currency derivatives.     

Housing Benefit and Financial Returns to Employment for Tenants in the Social Sector

This paper examines the impact of the UK housing benefit system on the financial returns to employment of people in local authority or Housing Association accommodation. It outlines the current structure of housing benefit and examines its effects on the returns to employment using data from the Family Expenditure Survey. It analyses the consequences of a number of reforms to the current system — lowering social rents, increasing the levels of housing benefit received in work and restricting the amount of rent covered by housing benefit payments. This analysis highlights the trade-offs involved in various strategies available for restructuring the present system. JEL classification: H3, H4, J3.     

Book Reviews

Books reviewed:
E. Wayne Nafziger and Juha Auvinen, Economic Development, Inequality, and War: Humanitarian Emergencies in Developing Countries.
Steve Striffler and Mark Moberg (eds), Banana Wars. Power, Production and History in the Americas.
Stefano Ponte, Farmers and Markets in Tanzania: How Policy Reforms Affect Rural Livelihoods in Africa.
Catherine Boone, Political Topographies of the African State: Territorial Authority and Institutional Choice.     

An analysis of the Journal of Consumer Studies and Home Economics 1977–93

Any field of study worthy of academic consideration and development needs a research base to support it. Many research practitioners working within the consumer studies and home economics areas have expressed fears about not only the lack of development of a research base but also the communication network within the research community. This study analyses one of the main research journals that is used by this research community, the Journal of Consumer Studies and Home Economics, and examines its contribution. By analysing its development over the first 17 years of its existence, it has been shown that there is an international research community which is beginning to communicate with itself. However, these research practitioners still seem to rely more on research material from outside their own professional area rather than from work published in their own research journals. A lack of an indexing service covering the consumer studies and home economics areas continues to hamper dissemination of research material to a wider academic audience.     

Distance,Language, Religion,and the Law of One Price: Evidence from Canada and Nigeria

We examine the impact of physical distance, language, and religion on Law of One Price (LOP) deviations across interwar Canadian and modern Nigerian cities. The data comprise monthly average retail prices for narrowly defined goods collected by national statistical agencies. We find that differences in the fraction of the city population sharing a common language and religion have a significant impact on LOP deviations. The impact of language differences is consistent with a recently developed theory in which both trade costs and differences in signal–noise ratios contribute to LOP deviations.