Testing the Efficiency of the Canadian-U.S. Exchange Market under the Assumption of no Risk Premium

The efficiency of the Canadian-U.S. exchange market for the current float is examined more extensively than previously. Semi-strong-form tests which admit the lagged spot rate as a predictor are considered in addition to the standard weak-form test. These stronger tests reject the joint null hypothesis of an efficient exchange market and no risk premium for the period ending in October 1976, although not for the entire period. For almost every year the current spot rate provided a better forecast of the future spot rate than did the current forward rate.     

Reinforcement Learning and Savings Behavior

We show that individual investors over‐extrapolate from their personal experience when making savings decisions. Investors who experience particularly rewarding outcomes from 401(k) saving—a high average and/or low variance return—increase their 401(k) savings rate more than investors who have less rewarding experiences. This finding is not driven by aggregate time‐series shocks, income effects, rational learning about investing skill, investor fixed effects, or time‐varying investor‐level heterogeneity that is correlated with portfolio allocations to stock, bond, and cash asset classes. We discuss implications for the equity premium puzzle and interventions aimed at improving household financial outcomes.     

The Behavior of the Interest Rate Differential Between Tax-exempt Revenue and General Obligation Bonds: A Test of Risk Preferences and Market Segmentation

This paper presents evidence that the yield differential between revenue bonds and similar general obligation bonds varies contracyclically with the level of economic activity. The evidence also indicates that significant investor-borrower induced market segmentation exists in the municipal bond market. An increase in the relative demand by commercial banks for tax-exempt securities and/or an increase in the supply of revenue bonds relative to the supply of general obligation bonds increase the yield spread between the two classes of debt. These findings were the result of a series of empirical tests with both macroeconomic and microeconomic data.     

The Impact of Bank Consolidation on Commercial Borrower Welfare

We estimate the impact of bank merger announcements on borrowers' stock prices for publicly traded Norwegian firms. Borrowers of target banks lose about 0.8% in equity value, while borrowers of acquiring banks earn positive abnormal returns, suggesting that borrower welfare is influenced by a strategic focus favoring acquiring borrowers. Bank mergers lead to higher relationship exit rates among borrowers of target banks. Larger merger‐induced increases in relationship termination rates are associated with less negative abnormal returns, suggesting that firms with low switching costs switch banks, while similar firms with high switching costs are locked into their current relationship.     

Cost Savings from Check 21 Electronic Payment Legislation

Electronic payment legislation permitted an initially paper substitute digital image of a check, and later the electronic digital image of a check, to be processed and presented for payment on a same‐day basis. By shifting to electronic collection and presentment, Federal Reserve per item check processing costs fell by over 70%, reducing estimated overall U.S. payment system costs by $1.16 billion in 2010. Payment collection times and associated float fell dramatically for collecting banks and payees with consequent additional savings in firm working capital costs of perhaps $1.37 billion and indebted consumer benefits of $0.64 billion.