Information, trade, and derivative securities

Hellwig's (1980) model is used to analyze the value of improvingtrading opportunities by more frequent trading in the underlyingasset, or by trading in a derivative asset. With multiple tradingsessions, uninformed investors behave as rational trend followers,while more informed investors follow a contrarian strategy.As trading becomes continuous, Pareto efficiency is achieved.With trading in an appropriate derivative security, Pareto efficiencymay be achieved in only a single round of trading. All derivativeclaims are then priced on Black and Scholes (1973) principlesand, in the absence of further supply shocks, no trading willtake place in subsequent trading rounds.     

Investment analysis and the adjustment of stock prices to common information

In this article we are concerned with the effect of the numberof investment analysts following a firm on the speed of adjustmentof the firm's stock price to new information that has commoneffects across firms. It is found that returns on portfoliosof firms that are followed by many analysts tend to lead thoseof firms that are followed by fewer analysts, even when thefirms are of approximately the same size. Many analyst firmsalso tend to respond more rapidly to market returns than dofew analyst firms, adjusting for firm size. This relation, however,is nonlinear, and the marginal effect of the number of analystson the speed of price adjustment increases with the number ofanalysts.     

Auditor liability: A comparison of judge and juror verdicts

This research examines differences between judges and jurors in rendering liability judgments in auditor litigation cases. While any number of case contexts would allow us to contrast and compare judges and jurors, we chose one that we believed would also address a second timely issue, auditor reliance or non-reliance upon the work of others. Within the general context of litigation of an alleged audit failure, we manipulated, between-participants, external auditor reliance on the work of others (relied on outsourced work, relied on in-house internal auditors’ work or did not rely). Our results show differences in the liability assessments of judges and jurors. Judges assign more liability to auditors that rely on the work of in-house internal auditors, less liability to auditors that rely on outsourced internal auditors and the least liability to auditors that choose not to rely on the work of internal auditors (but re-perform the work themselves) while jurors assess higher liability regardless of the work done by the auditors. Mediation analyses suggests the differences found in the overall liability assessments of jurors and judges are partially driven by their divergent attitudes towards the public accounting profession with jurors’ unfavorable attitudes leading to them assign liability regardless of the work performed. Further analysis suggests juror insensitivity to our reliance manipulations may reflect a strict liability perspective (consistent with prior work by Charron and Lowe (2008)); while judges consider other factors when making liability assessments.     

The unemployment problem

The paper reviews the unemployment problem in Europe. It showsthat while there is a good deal of heterogeneity in Europeanunemployment experience, a 'European model' of high and persistentunemployment characterizes many of the core continental economies,in contrast to the low unemployment experience of the USA. Theexplanation that this difference is due to a common skill-biasedshock interacting with more rigid labour-market features inthe European case is reviewed, as is the suggestion that theEuropean experience is exceptional on account of the more stringentmacro-environment created by devotion to tight monetary policies.The policy outlook is one in which strongly expansionary economicpolicies seem unlikely to be launched and most of the burdenof fighting unemployment will be borne by labour-market reforms;the bad side-effects of these could be cushioned by resort towage subsidies, supporting a 'European' bias in favour of equality.The 35-hour week is judged to be an unlikely remedy.     

THE TRANSMISSION OF MONETARY POLICY UNDER THE REPO SYSTEM IN SOUTH AFRICA: AN EMPIRICAL ANALYSIS♣

The study examines the influence of the repo rate on the interbank rate and analyses whether the transmission channels of interest rates have changed since the adjustment to the repo system in September 2001. The paper employs the Granger causality test using the ECM framework. The results suggest that the influence of the repo rate on the interbank rate was stronger before the adjustments to the system were made. The interbank rate and the repo rate were found to “reverse” roles in the period after the adjustments to the system. Our results show that the changes to the repo system in 2001 did not lead to the achievement of the intended transmission channel; instead it was found that the system in place before the changes were made was in fact already achieving the transmission path that the authorities hoped to accomplish by changing the system.     

Survivor bias and mutual fund performance

Mutual fund attrition can create problems for a researcher becausefunds that disappear tend to do so due to poor performance.In this article we estimate the size of the bias by trackingall funds that existed at the end of 1976. When a fund mergeswe calculate the return, taking into account the merger terms.This allows a precise estimate of survivorship bias. In addition,we examine characteristics of both mutual funds that mergerand their partner funds. Estimates of survivorship bias overdifferent horizons and using different models to evaluate performanceare provided.     

The functional form of the aggregate import demand equation : A comparison of three European economies

A more general approach than that of ‘best fit’ for choosing empirically the appropriate formulation of the aggregate import demand function for three small open European economies is presented. This approach leads to the choice of a particular form, from a class of forms, for a given specification of the aggregate import demand function. It was found that the log-linear form was preferred to the linear form. This is regarded as an interesting result, given it's economic implications for the type of economy studied in this paper, as it confirms earlier results by Khan and Ross for three different types of economy — the United States, Canada, and Japan.     

Inflation, inflation uncertainty, and monetary policy in Turkey: 1960–1998

The authors constructed a time series of monthly inflation uncertainty in Turkey from 1960 to 1998 using GARCH models and investigated the link between inflation and inflation uncertainty using Granger tests. The authors found strong statistical support that inflation significantly raised inflation uncertainty in Turkey over the full sample period and three subsamples. The evidence on the effect of inflation uncertainty on average inflation is mixed and depends on the time period examined. An analysis of the political conditions and the record of macroeconomic policy making in Turkey between 1960 and 1998 reveal institutional and political factors that can help explain the empirical results.     

On the sensitivity of mean-variance-efficient portfolios to changes in asset means: some analytical and computational results

This paper investigates the sensitivity of mean-variance(MV)-efficientportfolios to changes in the means of individual assets. Whenonly a budget constraint is imposed on the investment problem,the analytical results indicate that an MV-efficient portfolio'sweights, mean, and variance can be extremely sensitive to changesin asset means. When nonnegativity constraints are also imposedon the problem, the computational results confirm that a positivelyweighted MV-efficient portfolio's weights are extremely sensitiveto changes in asset means, but the portfolio's returns are not.A surprisingly small increase in the mean of just one assetdrives half the securities from the portfolio. Yet the portfolio'sexpected return and standard deviation are virtually unchanged.     

Financial Savings from the common fund

Zusammenfassung Finanzielle Ersparnisse eines gemeinsamen Fonds. — Die beiden wichtigsten “Vorschl?ge zur Finanzierung eines Systems internationaler Rohstoffabkommen gehen übereinstimmend von der Vorstellung aus, da\ ein zentraler Finanzierungsfonds, der ?gemeinsame Fonds?, Ressourcen sparen würde. In dieser Arbeit wird nun untersucht, wieviel Ressourcen ein einfaches Bufferstock-System erfordert, das Produktion und Konsum langfristig ausgleicht. Die Analyse zeigt, da\ ein System, das auf einem ?gemeinsamen Fonds? beruht, zwar zun?chst weniger Finanzmittel ben?tigen würde als ein System unverbundener Bufferstocks, da\ am Ende der Periode aber, wenn die finanzielle Abrechnung der unverbundenen Bufferstocks berücksichtigt wird, dieser Vorteil des ?gemeinsamen Fonds? verschwindet. Wenn Abweichungen zwischen sozialen und privaten Diskonts?tzen oder Unterschiede zwischen den Systemen hinsichtlich der durchschnittlichen Kapitalkosten zugelassen werden, dann k?nnte der ?gemeinsame Fonds? eine gewisse überlegenheit bewahren, die wahrscheinlich aber nur marginal ist. Die Begründung für einen gemeinsamen Fonds des hier untersuchten Typs mu\ deshalb auf nicht-finanziellem Gebiet gesucht werden.

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Résumé Les épargnes financières du fonds commun. — Nous commen?ons avec l’observation que les deux propositions principales concernant le financement d’un système des accords internationaux sur les matières premières ont en commun la notion qu’un fonds central de financement, le fonds ?commun?, pourrait ?épargner? des ressources. Cet article a examiné les implications sur les exigences de ressource d’un simple système des stocks régulateurs basé sur la balan?ante production et consommation autour de leurs tendances à long terme. L’analyse indique qu’un système basé sur un ?fonds commun? d’abord aurait exigé moins caisse versée qu’un système des stocks régulateurs pas combinés, mais si la balance de caisse des stocks régulateurs pas combinés à la fin de la période est tenue compte, cet avantage du fonds commun disparaít. Si les déviations entre les taux sociaux et privés d’escompte, ou les différences entre les systèmes regardant les frais moyens des capitaux, sont admises puis le fonds commun pourrait regagner quelque supériorité financière, mais cela est probablement de manière marginale. C’est pourquoi on doit argumenter en faveur d’un fonds commun de la sorte examinée dans cet article sur la base non-financière.

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Resumen Ahorros financieros del fondo común. — Comenzando con la observación que las dos proposiciones principales referentes al financiamiento de un sistema de acuerdos internacionales para productos tienen en común la noción que un fondo de financiamiento central, el ?fondo común?, ?ahorraría? recursos, este artículo ha examinado las implicaciones sobre el requerimiento de recursos de un simple sistema de ?buffer stocks? basado en el balanceo de la productión alrededor de sus trayectorias de largo plazo. El análisis indica, que mientras un sistema basado en el ?fondo común? habría requerido el empleo de menos dinero líquido que un sistema de ?buffer stocks? desligado, esta ventaja del fondo común desaparece cuando se toman en cuenta las balanzas de caja de los ?buffer stocks? desligados al final del período. Si se admiten desviaciones entre tasas de descuento privadas y sociales o diferencias entre sistemas en el costo promedio del capital, entonces el fondo común podría retener cierta superioridad financiera, pero esto probablemente tendrá solamente un valor marginal. La investigatión del caso de un fondo común del tipo examinado en este artículo consecuentemente tendrá que ser realizada sobre una base no financiera.