Analysis of efficient markets

A simple trading model is presented in which Bayes’ rule is used to aggregate traders’ forecasts about risky assets’ future returns. In this financial market, Bayes’ rule operates like an omnipotent market-maker performing functions that in 1776 Adam Smith attributed to an “invisible hand.” We have analyzed two distinct cases: in the first scenario, the traders’ forecast errors are uncorrelated, and in the second scenario, the traders’ forecast errors are correlated. The contribution of our paper is fourfold: first, we prove that the “efficient market” mean-return can be expressed as a complex linear combination of the traders’ forecasts. The weights depend on the forecast variances, as well as on the correlations among the traders’ forecasts. Second we show that the “efficient” variance is equal to the inverse of the sum of the traders’ precision errors, and is also related to the correlations among the traders’ forecast errors. Third, we prove that the efficient market return is the best linear minimum variance estimator (BLMVE) of the security’s mean return (in the sense that it minimizes the sum of the traders’ mean squared forecast errors). Thus, an efficient market aggregates traders’ heterogeneous information in an optimal way. Fourth, we prove that an efficient market produces a mean return (price) as a Blackwell sufficient (most informative) experiment among all possible aggregated expected return (price) forecasts.     

Private equity, ‘union recognition’ and value extraction at the Automobile Association: The GMB as an emergency service?

This article evaluates union recognition and ‘value extraction’ in a private equity buy‐out. The article reviews private equity, investor value and ownership interests, details union recognition at the Automobile Association (AA) before and after its acquisition by private equity, and reviews the GMB's wider campaign of opposition to private equity ownership.     

SOCIAL CHANGE AND ECONOMIC LIFE IN BRITAIN IN THE 1980s

Books reviewed in this article:
Duncan Gallie, Catherine Marsh, and Carolyn Vogler (eds.) (1994) Social Change and the Experience of Unemployment.
Jill Rubery and Frank Wilkinson (eds.) (1994) Employer Strategy and the Labour Market.
Alison McEwan Scott (ed.) (1994) Gender Segregation and Social Change: Men and Women in Changing Labour Markets.
Roger Penn, Michael Rose, and Jill Rubery (eds.) (1994) Skill and Occupational Change.
Michael Anderson, Frank Bechhofer, and Jonathan Gershuny (eds.) (1994) The Social and Political Economy of the Household.
Duncan Gallie, Roger Penn, and Michael Rose (eds.) (1996) Trade Unionism in Recession.     

The Poverty of Politics: How Income Redistribution Hurts the Poor

In spite of the significant research literature identifying a tradeoff between income redistribution and economic growth, massive public programs have been implemented to help the poor by transferring income to them. Since Lyndon Johnson's war on poverty began in 1964, over 3.5 trillion dollars have been transferred. However, the possibility that everyone, including the poor, may in fact be made worse off by the transfer has largely been ignored. With a simple algebraic model, the authors demonstrate that, over time, both high and low-income groups are harmed by redistribution. In addition, social mobility, as well as political concerns with relative poverty and international income redistribution increases the damage to all income groups produced by redistribution.     

Interpersonal influence and consumer innovativeness

Innovators represent a small and somewhat elusive group of consumers who are often the earliest adopters of new products. As such, marketing researchers and practitioners alike are interested in determining the personality characteristics that influence innovators to purchase a new product early in the product life cycle. This correlational study examined the relationships of three of these characteristics (susceptibility to interpersonal influence, attention to social comparison information, and role‐relaxed consumption) to individual innate innovativeness. Data were collected using self‐report surveys administered to 326 students at a large public university in the south‐east United States. The results supported hypothesized negative relationships between consumer innovativeness and both susceptibility to interpersonal influence and attention to social comparison information, as well as a positive relationship between consumer innovativeness and role‐relaxed consumption.     

Foreign investment in Russia and China: A long way to go,but reason for optimism

D. LeBaron, with D. Carpenter. 2002. Mao, Marx, and the Market: Capitalist Adventures in Russia and China. New York: John Wiley & Sons, Inc. 303 pages; ISBN: 0‐471‐15315‐X. B. Granville & P. Oppenheimer (Eds.). 2001. Russia's Post‐Communist Economy. Oxford, England: University Press. 538 pages; ISBN 0‐19‐829525‐1. H. Fung & K.H. Zhang (Eds.). 2002. Financial Markets and Foreign Direct Investment in Greater China. New York: M.E. Sharpe, Inc. 302 pages; ISBN: 0‐7656‐0804‐9.     

Are regulations the answer for emerging stock markets? Evidence from the Czech Republic and Poland

Does the emergence of a stock market require a well-developed legal and/or regulatory system? Although historical work by Neal and Davis [Neal, L., & Davis, L. (2005). The evolution of the rules and regulations of the first emerging markets: The London, New York, and Paris stock exchanges, 1792–1914. Quarterly Review of Economics and Finance, 45, 296–311] and Stringham [Stringham, E. (2003). The extralegal development of securities trading in seventeenth century Amsterdam. Quarterly Review of Economics and Finance, 43, 321–344] suggests that securities markets have successfully developed with little government oversight, numerous authors [including Black, B. (2001). The legal and institutional preconditions for strong securities markets. University of California Law Angeles Law Review, 48, 781–855; Coffee, J. (1999). Privatization and corporate governance: The lessons from securities market failure. Journal of Corporation Law, 25, 1–39; Frye, T. (2000). Brokers and bureaucrats: Building market institutions in Russia. Ann Arbor: University of Michigan Press; Glaeser, E., Johnson, S., & Shleifer, A. (2001). Coase versus the Coasians. Quarterly Journal of Economics, 116, 853–899; Mlčoch, L. (2000). Restructuring of property rights: An institutional view. In L. Mlčoch et al. (Eds.), Economic and Social Changes in Czech Society After 1989. Prague: The Karolinum Press; Pistor, K. (2001). Law as a determinant for equity market development – the experience of transition economies. In Peter Murrell (Ed.), The Value of Law in Transition Economies (pp. 249–287). Ann Arbor: Michigan University Press; Stiglitz, J. (1999). Whither reform. Ten years of the transition. Keynote Address, Annual Bank Conference on Development Economics, Washington, DC, April 28–30, 1999; Zhang, X. (2006). Financial market governance in developing countries: Getting the political underpinnings right. Journal of Developing Societies, 2, 169–196] argue that the Czech Republic and other Eastern European governments need more regulation for their newly created stock markets. They maintain that the Warsaw Stock Exchange, which is seen as more regulated, has outperformed the Prague Stock Exchange which is seen as largely unregulated. Thus increased regulations are a key to increased performance. This article, however, maintains that the evidence from the Czech experience has been misinterpreted. This article provides an in depth case study of the Czech stock market and finds that (a) Czech capital markets have been hindered by government intervention from their beginning, (b) that the evidence on Poland's superior performance is not as strong as suggested, and (c) that Czech regulators seem to be unqualified, lack the proper incentives, and are unlikely to benefit the market. Under these circumstances it appears that Neal and Davis (2005:311) are correct that increased government involvement is unlikely to improve the situation.     

Information services in rural areas — access and delivery

In the UK, considerable interest has been expressed in the extent to which telecommunications could help to improve the accessibility and provision of information services in rural areas. Information services are typically provided by local and central government departments, voluntary advice agencies, and by a wide range of professional, financial, public utility and transport undertakings. It has never been particularly easy to visit service outlets in market towns, but recent changes in the organization and location of information services, together with the withdrawal of many public transport services, have caused a significant deterioration in physical accessibility. The authors summarize their research project on ‘Telecommunications and information services in rural areas’, the final report of which was submitted to the UK Department of the Environment in October 1978.     

Planning for recreational planning

This paper takes a look at recreational planning from the point of view of a formal planning system. In particular, the development of a decision support system for recreational planning is discussed. One of the outputs of this system is the familiar recreation plan and its associated processes. In addition, such a system allows the recreation plan to deal with some important issues on a timely basis as well as establishing a strong working relationship with local agencies.