A note on January returns in the U.S. government bond market: The term effect

This study documents a previously unobserved January effect in the market for riskless debt. Long-term government bonds have significantly lower returns in January than in the rest of the year. This January effect is opposite in sign to the January effects that have been previously documented in the markets for equity and the markets for risky debt. Tax-loss selling in the equity markets in conjunction with parking the proceeds may provide a possible explanation for the negative January effect in the market for government bonds.     

Public-Private Partnerships A Public Economics Perspective

Public-private partnerships (PPPs) are spreading all over theworld. It may be quite plausible that they were initially startedmainly as an attempt to evade expenditure controls and hidepublic budget deficits. But if they are properly designed andtransparently reported, PPPs can play a useful role in enhancingthe efficiency of the provision of services that were suppliedbefore solely by the public sector. This article provides apublic economics perspective on PPPs. (JEL codes: H54, L33)     

Liquidity risk and the cross-section of hedge-fund returns

This paper demonstrates that liquidity risk as measured by the covariation of fund returns with unexpected changes in aggregate liquidity is an important determinant in the cross-section of hedge-fund returns. The results show that funds that significantly load on liquidity risk subsequently outperform low-loading funds by about 6% annually, on average, over the period 1994–2008, while negative performance is observed during liquidity crises. The returns are independent of the liquidity a fund provides to its investors as measured by lockup and redemption notice periods, and they are also robust to commonly used hedge-fund factors, none of which carries a significant premium during the sample period. These findings highlight the importance of understanding systematic liquidity variations in the evaluation of hedge-fund performance.     

Stefano Battilossi,Youssef Cassis,and Kazuhiko Yago (eds.): Review of Handbook of the history of money and currency

Business Economics -     

Earnings dispersion and aggregate stock returns

This paper studies the relation between aggregate stock returns and contemporaneous and future cross-sectional earnings dispersion. We hypothesize that increases in expected earnings dispersion signal increases in uncertainty and increases in unemployment, thereby causing expected returns to rise, which in turn causes prices to decline. We find a positive relation between aggregate stock returns and contemporaneous earnings dispersion because higher earnings dispersion is associated with higher expected returns. Consequently, we also find a negative relation between aggregate stock returns and future (one-year ahead) earnings dispersion, as investors anticipate higher future earnings dispersion and higher expected returns.     

The desirability of workfare in the presence of misreporting

In this paper we demonstrate that in addition to its acknowledged screening role, workfare—namely, introducing work (or training) requirements for welfare eligibility in means-tested programs—also serves to mitigate income misreporting by welfare claimants. It achieves this goal by effectively increasing the marginal cost of earning extra income in the shadow economy for claimants who satisfy the work requirement. We show that when misreporting is sufficiently prevalent, supplementing a means-tested transfer system with work requirements is socially desirable.     

Capital income taxation under majority voting with aging population

An old person typically has a mixed attitude toward the welfare-state benefits, when they are financed by capital taxes, because her income derives mostly from capital. We develop a majority-voting model which focuses on the effect of aging on this dilemma. Surprisingly, the theory predicts that tax rates on capital income could actually rise as the population ages, even though older individuals would be expected to own more capital than the young and thus vote against higher taxes. We then confront the key prediction of the model with panel data for ten European Union countries, over the period 1970–1996. We investigate the asymmetric effect of aging on the taxation of capital and labor. The implications of the model are shown to be consistent with panel data. JEL no. H0, H5, P1     

Complex Systems and the Merger Process

This paper considers how some of the generic principles that have emerged in the course of recent study and thinking around complex systems might be applied in a helpful way to the particular context of understanding the nature of the merger process. Theoretically, the paper stresses the connections between the processual and time-dependent nature of learning and knowledge acquisition and the systemic nature of socio-economic development and transformation. When carried into the substantive domain of mergers and their contribution to restructuring in the pharmaceuticals industry, we suggest that the complex systems approach provides a fruitful complement to alternative conceptual frameworks, albeit one which is still at an early stage of development in terms of this particular application.