When trade hurts: Consumption indivisibilities and labor market distortions

We present a simple model where complementarities between wages and demand due to factor market distortions can make a transition economy worse off from trade. Prior to trade, a virtuous circle prevails: high wages in industry support a high demand for indivisible industrial goods, which in turn supports high wages. However, factor market distortions in the transition economy create a comparative disadvantage in industry. Opening up to trade results in the import of indivisibles and a fall in manufacturing wages, breaking this virtuous circle. Consequently, trade liberalization without structural reform can have serious adverse effects in a transition economy.     

Subscriber return, underpricing, and long-term performance of U.K. privatization initial public offers

This study distinguishes between issuer underpricing and subscriber returns, and estimates their magnitudes for U.K. privatization initial public offers (PIPOs). It proposes and tests empirical models which incorporate theoretical, institutional, and other factors which interact to explain subscriber returns and issuer underpricing. The estimates reveal that, on average, issuer underpricing, which is measured relative to the total equity market value on the first day of trading, is 23.62%, whereas the average raw return available to subscribers is up to 41%. Regression analysis shows that underwriters' commission, market volatility, regulatory situation of the company, proportion of share clawback, and demand for shares taken together explain up to 70% of the variation in issuer underpricing and 64% of subscribers' returns. The evaluation of the long-run performance of PIPOs to assess the extent to which initial gains to subscribers persist for longer periods concludes that U.K. PIPOs, on average, provide long-run holding gains to investors, unlike their private sector counterparts.     

Wage Effects of Trade Reform with Endogenous Worker Mobility

In this paper, we use a linked employer–employee database from Brazil to evaluate the wage effects of trade reform. With an aggregate (firm-level) analysis of this question, we find that a decline in trade protection is associated with an increase in average wages in exporting firms relative to domestic firms, consistent with earlier studies. However, using disaggregated, employer–employee level data, and allowing for the endogenous assignment of workers to firms due to match-specific productivity, we find that the premium paid to workers at exporting firms is economically and statistically insignificant, as is the differential impact of trade openness on the wages of workers at exporting firms relative to otherwise identical workers at domestic firms. We also find that workforce composition improves systematically in exporting firms, in terms of the combination of worker ability and the quality of worker–firm matches, post-liberalization. These results stand in stark contrast to the findings reported in many earlier studies and underscore the importance of endogenous matching and, more generally, non-random labor market allocation mechanisms, in determining the effects of trade policy changes on wages.     

Portfolio Selection and Optimization with Higher Moments: Evidence from the Indian Stock Market

The Markowitz portfolio optimization model, popularly known as the Mean-Variance model, assumes that stockreturns follow normal distribution. But when stock returns do not follow normal distribution, this model wouldbe inadequate as it would prescribe sub-optimal portfolios. Stock market literature often deliberates that stock returns are non-normal. In such context the Markowitz model would not be sufficient to estimate the portfolio risks. The purpose of this paper is to expand the original Markowitz portfolio theory (mean-variance) via adding the higher order moments like skewness (third moment about the mean) and kurtosis (fourth moment about the mean) in the return characteristics. The research paper investigates the impact of including higher moments using multi-objective programming model for portfolio stock selection and optimization. The empirical results indicate that the inclusion of higher moments had a considerable impact in estimating the returns behavior of portfolios. The portfolios optimized using all the four moments, generated higher returns for the given level of risk in comparison to the returns of the Markowitz model during the study period 2000–2011. The results of this study would be immensely useful to fund managers, portfolio managers and investors as it would help them in understanding the Indian stock market behavior better and also in selecting alternative portfolio selection models.     

Is protection really for sale? A survey and directions for future research

This paper critically and selectively surveys the literature on protection for sale and discusses directions for future research in this area. It suggests that the standard approach needs to be augmented to provide more compelling tests of this model.     

Skill acquisition,credit constraints,and trade

In this paper we develop a general equilibrium model where credit constraints limit the ability of agents with heterogeneous abilities and wealth to acquire skills. We identify a new effect, the induced Rybczynski effect, that works in the opposite direction from the normal supply response and may result in relative supply being downward-sloping. We analyze the effects of trade and show that under some conditions trade may reduce welfare. Finally, we study the effects of trade on income distribution and inequality.     

THE DETERMINANTS AND DYNAMICS OF BID-ASK SPREADS ON THE LONDON STOCK EXCHANGE

We analyze the effect of various factors on the size of spreads on the London Stock Exchange since “Big Bang” and find that the price of a security, volume of transactions, risk associated with security returns, and degree of competition among market makers explain 91 percent of the cross-sectional variation in spreads. The results are consistent with the argument that the inside spread encompasses the order-processing, inventory-adjustment, and adverse-information cost of spreads. We also investigate the speed at which spreads move toward their normal levels after a temporary deviation. Although the speed of adjustment varies across firms, the cross-sectional median of 0.896 indicates it takes more than one period (day) for the adjustment to be completed. The volume of transactions and the degree of competition among market makers are the significant factors that affect the speed of correction in spreads toward their normal levels. This implies private information is incorporated more quickly into prices for stocks with greater competition and high trading volume.     

Acquisitions: Private versus Public

Takeovers of privately held companies represent more than 80% of all takeovers. Despite their significance, studies of such takeovers and their impact on the wealth of shareholders are rare. Using a very large, near exhaustive, sample of listed and privately held UK targets we examine the impact of such takeovers on the risk adjusted return of listed UK acquirers over the period 1981 to 2001. Acquirers earn significant positive returns during the period surrounding the bid announcement although the gains are dependent on target status, mode of payment, and the relative size of those involved. The much quoted conclusion, derived from the experiences of listed firm bidders that the shareholders of acquiring firms fail to gain from takeovers, cannot be generalised. Acquiring a privately held company is an attractive option for maximising shareholder wealth.     

Vertical trading and uneven development

The phenomenon of vertical trading, in which the center exports a good involving a high degree of processing which leads to economy-wide learning and the periphery exports a good which does not generate such effects, is formalized in a simple dynamic model of trade. It is shown that the periphery can ‘lose’ from such trade relations. Conditions under which this can occur are shown to involve parameters of the learning functions, and the ‘sizes’ of the two countries.