Efficiency and the Bear: Short Sales and Markets Around the World

We analyze cross‐sectional and time‐series information from 46 equity markets around the world to consider whether short sales restrictions affect the efficiency of the market and the distributional characteristics of returns to individual stocks and market indices. We find some evidence that prices incorporate negative information faster in countries where short sales are allowed and practiced. A common conjecture by regulators is that short sales restrictions can reduce the relative severity of a market panic. We find strong evidence that in markets where short selling is either prohibited or not practiced, market returns display significantly less negative skewness.     

ZERO INFLATION: TRANSITION COSTS AND SHOE LEATHER BENEFITS

The idea that the monetary authority cannot achieve price stability except at the cost of a recession is the most common and convincing argument against price stability. This paper presents calculations showing that the resource costs of a recession that might result from eliminating a 4 percent inflation are approximately equal to the "shoe leather" costs incurred when inflation is stable at 4 percent.     

RESALE PRICE MAINTENANCE AND ANTITRUST POLICY

Some scholars would legalize all purely vertical resale price maintenance (RPM). They acknowledge that RPM can harm consumers when it facilitates horizontal collusion among manufacturers or dealers. But when RPM is purely vertical (i.e., when it is imposed by a manufacturer acting independently), they argue that it must be procompetitive. Recent theoretical research has shown, however, that purely vertical RPM can reduce economic efficiency. This result occurs when the higher prices and dealer services induced by RPM benefit marginal consumers but substantially reduce the welfare of intramarginal consumers, who would have preferred the product without the services at a lower price. Since these circumstances are empirically plausible, a rule of per se legality may not be appropriate. At the same time, evaluating RPM under the rule of reason might not be workable. Anticompetitive instances of the type described could be difficult to prove. These research findings, therefore, are most consistent with a rule of per se illegality for RPM, with exceptions for situations in which RPM is most likely to be pro-competitive (e.g., new entry).     

The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis

This study compares the pre and postprivatization financial and operating performance of 61 companies from 18 countries and 32 industries that experience full or partial privatization through public share offerings during the period 1961 to 1990. Our results document strong performance improvements, achieved surprisingly without sacrificing employment security. Specifically, after being privatized, firms increase real sales, become more profitable, increase their capital investment spending, improve their operating efficiency, and increase their work forces. Furthermore, these companies significantly lower their debt levels and increase dividend payout. Finally, we document significant changes in the size and composition of corporate boards of directors after privatization.     

Performance Persistence

We explore performance persistence in mutual funds using absolute and relative benchmarks. Our sample, largely free of survivorship bias, indicates that relative risk-adjusted performance of mutual funds persists; however, persistence is mostly due to funds that lag the S&P 500. A probit analysis indicates that poor performance increases the probability of disappearance. A year-by-year decomposition of the persistence effect demonstrates that the relative performance pattern depends upon the time period observed, and it is correlated across managers. Consequently, it is due to a common strategy that is not captured by standard stylistic categories or risk adjustment procedures.