Asset prices and expected monetary policy: evidence from daily data

This article explores the relationships among Libor, gold prices, the exchange rate, oil prices, fed funds futures prices and stock prices at a daily frequency. This article examines whether expected monetary policy, measured by changes in the prices of fed funds futures contracts, reacts to high frequency changes in asset prices and, in turn, whether asset prices respond to changes in expected monetary policy. The article reveals that there are statistically significant relationships between expected US monetary policy and shocks to Libor and exchange rates. It also reveals that there is no evidence of a systematic relationship between stock prices and expected monetary policy changes. Splitting the data into expansionary and recessionary periods using NBER dating, we find results for the expansionary periods that are very similar to the results for the entire period. For the periods of recession, we find little evidence of significant linkages between markets.     

Informational efficiency with ambiguous information

This paper proves the existence of fully revealing rational expectations equilibria for almost all sets of beliefs when investors are ambiguity averse and have preferences that are characterized by Choquet expected utility with a convex capacity. The result implies that strong-form efficient equilibrium prices exist even when many investors in the market make use of information in a way that is substantially different from traditional models of financial markets.     

Investigating the failure to best respond in experimental games

Experimental Economics - We examine strategic sophistication using eight two-person 3?×?3 one-shot games. To facilitate strategic thinking, we design a ‘structured’...     

Identification and Measurement of Australian Consumer Sentiment

This article was prepared by Dr L. V. Defris and J. S. McDonnell of the Institute research staff. The authors wish to thank Professor R. F. Henderson and Dr P. J. Sheehan for their helpful comments.     

Cocreating business's new social compact

Moving beyond decades of mutual distrust and animosity, corporations and nongovernmental organizations (NGOs) are learning to cooperate with each other. Realizing that their interests are converging, the two sides are working together to create innovative business models that are helping to grow new markets and accelerate the eradication of poverty. The path to convergence has proceeded in three stages. In the initial be-responsible stage, companies and NGOs, realizing that they had to coexist, started to look for ways to influence each other through joint social responsibility projects. This experience paved the way for the get-into-business stage, in which NGOs and companies sought to serve the poor by setting up successful businesses. In the process, NGOs learned business discipline from the private sector, while corporations gained an appreciation for the local knowledge, low-cost business models, and community-based marketing techniques that the NGOs have mastered. Increased success on both sides has laid the foundation for the cocreate-business stage, in which companies and NGOs become key parts of each other's capacity to deliver value. When BP sought to market a duel-fuel portable stove in India, it set up one such cocreation system with three Indian NGOs. The system allowed BP to bring the innovative stove to a geographically dispersed market through myriad local distributors without incurring distribution costs so high that the product would become unaffordable. The company sold its stoves profitably, the NGOs gained access to a lucrative revenue stream that could fund other projects, and consumers got more than the ability to sit down to a hot meal-they got the opportunity to earn incomes as the local distributors and thus to gain economic and social influence.     

Screening,Market Signalling,and Capital Structure Theory

This paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approaches. The model is developed in the context of a capital market setting in which bondholders produce costly information about a firm's a priori imperfectly known earnings distribution and use this information in specifying a bond valuation schedule to the firm. Given this schedule, the firm's optimal choices of debt-equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm's earnings distribution.     

Stock market volatility forecasting: Do we need high-frequency data?

The general consensus in the volatility forecasting literature is that high-frequency volatility models outperform low-frequency volatility models. However, such a conclusion is reached when low-frequency volatility models are estimated from daily returns. Instead, we study this question considering daily, low-frequency volatility estimators based on open, high, low, and close daily prices. Our data sample consists of 18 stock market indices. We find that high-frequency volatility models tend to outperform low-frequency volatility models only for short-term forecasts. As the forecast horizon increases (up to one month), the difference in forecast accuracy becomes statistically indistinguishable for most market indices. To evaluate the practical implications of our results, we study a simple asset allocation problem. The results reveal that asset allocation based on high-frequency volatility model forecasts does not outperform asset allocation based on low-frequency volatility model forecasts.     

Macroeconomic Influences and the Variability of the Commodity Futures Basis

We provide evidence that the spread between commodity spot and futures prices (the basis) reflects the macroeconomic risks common to all asset markets. The basis of many commodities is correlated with the stock index dividend yield and corporate bond quality spread. Explanatory power is related to exposure to macroeconomic fluctuations: about 40 percent of the variation in the basis of a portfolio of commodities with high business cycle sensitivity is explained by the stock and bond yields. Further diagnostics indicate that these associations are largely due to the presence of risk premiums, rather than spot price forecasts, in the basis.     

Comparable Worth and Factor Point Pay Analysis in State Government

This study examines how factor point systems have treated state government jobs, which are held disproportionately by women, minorities, and union members. The findings indicate that female jobs may gain from comparable worth pay proposals, but the gains are dissipated in actual pay; unionized and minority workers tend to lose both proposed and actual pay; and the dispersion of points and pay is narrowed for jobs covered by collective bargaining agreements     

INTRANATIONAL AND INTERNATIONAL KNOWLEDGE FLOWS: EFFECTS ON THE FORMAL AND INFORMAL SECTORS

This article studies the effects of international and intranational knowledge flows. Contributions include comparing the effects of knowledge flows on the formal and informal sectors and determining multilateral spatial spillovers of innovation. Results show that formal entrepreneurs respect intranational intellectual property rights, but benefit from international spillovers, especially from patents granted. In contrast, informal entrepreneurs somewhat respect intranational patents granted, but not patent applications and citations. International spillovers to the informal sector are mainly from patents granted. Spillover magnitudes are greater internationally than intranationally, and greater in the informal sector than the formal sector (except for trademarks). (JEL O33, L26, K42)