POST-CRASH INDICATORS

The stock market crash has inevitably awakened fears that the world economy may be on the brink of recession. We examine the movement in output pre- crash and the evidence which is so fat available for the fourth quarter. The response of policy makers is also considered. We conclude that, ahead of the crash, output was rising strongly and that there are no signs yet of a slowdown. In the US consumer confidence has been dented, but elsewhere easier fiscal and monetary policy may fully compensate for the crash     

Community preferences and social choice

This paper gives necessary and sufficient conditions for the aggregation of preferences, extending an earlier treatment of aggregation by Stolper, Gorman, Samuelson and Chipman. Such aggregation procedures are intended to deal with the problem of aggregating demand functions in econometrics, where the aggregate is required to be independent to the income distribution. Thus, it is usually assumed in this form of aggregation that all consumers face the same prices, but that the distribution of income is unrestricted.In order to establish the characterisation result, we present a new approach to preference aggregation which involves summing certain subsets of the graphs of the preferences, viewed as subsets of a Euclidean space. This procedure has a clear geometrical interpretation, and a number of useful applications. In particular, it enables us to analyse the possibility of aggregation when prices are not constrained to be the same for all consumers, a case of possible empirical significance. We also show that the Stolper-Gorman-Samuelson-Chipman construction of community indifference curves coincides with a special case of this procedure.Finally, this approach allows us to develop the relationship between these forms of aggregation and the preference aggregation problem as it occurs in social choice theory.     

ON THE FUNCTIONAL FORM OF EARNINGS AND STOCK PRICES: INTERNATIONAL EVIDENCE AND IMPLICATIONS FOR THE E/P ANOMALY

This paper examines the functional form of earnings and stock prices on US and Finnish stock markets. Although the functional specification of the components of financial ratios based on purely accounting numbers has received considerable attention, the functional form of earnings and stock prices has not been investigated carefully enough. This investigation is, however, important because of the common use of E/P ratio in financial statement analysis. The empirical evidence provided by this study indicates that the proportional relationship between earnings and stock prices is rejected in both countries. In addition, it is discovered that this deviation from proportionality is a major factor producing the so-called E/P anomaly in these two countries.