Identifying the Transition from Efficient-Market to Herding Behavior: Using a Method from Econophysics

We test whether “detrended fluctuation analysis” (DFA)—an econophysics method—identifies the transition from efficient-market trading to herding behavior and the rise of the NASDAQ dot.com stock market bubble. DFA divides a time series into “segments” of varying lengths and then tests whether power-law distributions exist within the segments. A power-law distribution of stock-price changes within a segment indicates herding behavior and the start of the dot.com bubble. The clarity of the transition indication depends on both segment lengths and segment starting dates. Our findings show that DFA can be used to identify the beginning of stock-market bubbles but not the beginning of crashes.     

Mixed Duopoly,Merger and Multiproduct Firms

The literature on mergers has extensively analyzed the decision to merge by private firms, but it has not considered the decision to merge by private and public firms. We assume that when a private firm and a public firm merge (or when one of them acquires the other), they set up a multiproduct firm in which the government owns an exogenous percentage stake. In this framework, we show that the decision to merge by firms depends on the degree to which goods are substitutes and on the percentage of the shares owned by the government in the multiproduct firm.     

Learning by doing,spillovers and shakeouts

This paper studies industry evolution driven by non strategic learning by doing and spillovers. We characterize a dynamic process of cost and output changes and its effect on welfare and industry profits. The paper gives conditions for shakeouts to occur and analyzes the key factors affecting these conditions. Since shakeouts could lead to a long-run social loss due to higher market concentration, there is a role for a government to play in limiting unnecessary shakeouts. The most effective way to do so is to enhance spillovers.JEL Classification: L11, L13, O31Correspondence to: Michael TroegeWe would like to thank Hans Mewis, Christophe Moussu and an anonymous referee for valuable comments and suggestions. We also benefited from comments of seminar participants at WZB, Humboldt University, Northwestern University and the EEA/ESEM 1999 meetings. Part of the research was carried out while Michael Tröge was visiting Northwestern University. Financial support by the German Research Council (DFG) is gratefully acknowledged.     

Optimal designs for generalized linear models with biased response

This paper is concerned with the search for locally optimal designs when the observations of the response variable arise from a weighted distribution in the exponential family. Locally optimal designs are derived for regression models in which the response follows a weighted version of Normal, Gamma, Inverse Gaussian, Poisson or Binomial distributions. Some conditions are given under which the optimal designs for the weighted and original (non-weighted) distributions are the same. An efficiency study is performed to find out the behavior of the D-optimal designs for the original distribution when they are used to estimate models with weighted distributions.     

Does foreign aid really raise per capita income? A time series perspective

Abstract. We analyze the relationship between per capita income and foreign aid. We employ annual data and five‐year averages and carefully examine the time‐series properties of the data. Panel estimations with dynamic feasible generalized least‐squares (DFGLS) show that aid generally has an insignificant or minute negative significant impact on per capita income (particularly in highly aid‐dependent countries). This holds true for countries with different levels of human development and income, as well as for different regions. We also find that aid has a small positive impact on investment, but a significant negative impact on domestic savings (crowding out) and the real exchange rate (appreciation). JEL classification: F35, O11, C23, C51     

The endless need for regulation in telecommunication: An explanation

Telecommunication services have existed as a legal monopoly nearly throughout its entire history. In 1998, telecom market liberalisation was achieved across the European Union (EU) through the introduction of competition among telephone services. Asymmetrical obligations were deemed necessary in order to compensate the market power of the former monopolist.As the evolution of asymmetrical regulation in Spain illustrates, obligations and the telecommunications operators subject to them increased with the regulatory framework established in 2002 in the EU. This new regulatory framework may continue to expand through the inclusion of functional separation as another possible asymmetrical obligation. In short, it seems that the regulatory pressure on the telecommunications industry is increasing, despite the lapse in time since the liberalisation of the industry.In this paper, a methodology developed by the Austrian School of Economics is applied in order to explain why the telecommunication market is subject to increasing regulation in Europe, rather than deregulation, after more than 10 years of liberalisation. In particular, Mises's theory of price control is used to explain the evolution of the regulation of local loop unbundling.     

Reliable Estimates of Sovereign Rating

International Advances in Economic Research -     

The impact of securities regulation on the earnings properties of European cross-listed firms

The objective of this study was to determine if the securities regulation in a foreign country is related to the earnings quality of European firms cross-listed in Europe. The study compared the post-listing earnings quality of 112 European firms cross-listed in 13 European stock exchanges during 1989–2001 to those of a controlled sample of non-cross-listed firms. Earnings quality was assessed by the use of reporting discretion to manage earnings. The regulatory strictness was represented by three indices of securities regulation.Empirical results provide some support to a positive association between earnings quality and the foreign securities regulation, suggesting that the foreign regulatory requirements have little or no effect on the reported earnings of European firms cross-listed in European exchanges.     

Credit spreads: An empirical analysis on the informational content of stocks,bonds, and CDS

This paper explores the dynamic relationship between stock market implied credit spreads, CDS spreads, and bond spreads. A general VECM representation is proposed for changes in the three credit spread measures which accounts for zero, one, or two independent cointegration equations, depending on the evidence provided by any particular company. Empirical analysis on price discovery, based on a proprietary sample of North American and European firms, and tailored to the specific VECM at hand, indicates that stocks lead CDS and bonds more frequently than the other way round. It likewise confirms the leading role of CDS with respect to bonds.