Thick market externalities in a spatial model

It is natural to think of thick market externalities as spatial phenomena. When agents are in close physical proximity, potential trading partners are more numerous and less costly to reach. Counteracting such agglomeration benefits is the dispersion force due to land being an essential input in production. The distribution of economic activities over space is an outcome of how decisions on location, land demand, and the search strategy of agents interact in spatial equilibrium. More desirable locations are those that allow their occupants more abundant and less costly access to potential trading partners. In spatial equilibrium, these are the densest locations, the occupants of which benefit from the strongest thick market externalities.     

Do Unexpected Land Auction Outcomes Bring New Information to the Real Estate Market?

Land and real estate are intrinsically related but generally traded in two different markets. Vacant land, being a major “raw material” for development of real estate, is traded by developers who actively manage development risk for profit. Real estate, being a long lived final product, is traded by end-users or investors for use or investment in the secondary market. This study examines price discovery between the two markets. The key question is whether land transactions, in the form of public auctions, convey any new information to the secondary real estate market. Our results suggest unexpected land auction outcomes have both market-wide and local effects on real estate prices. However, the impacts are asymmetric. We found that lower than expected land auction prices have a significant negative market-wide and local impact on real estate prices while higher than expect land auction prices have little or no impact.     

Intraday volatility in the bond,foreign exchange,and stock index futures markets

Intraday volatility for the Eurodollar, the Euro/dollar foreign exchange rate, and the E‐mini S&P 500 futures contracts traded on a continuous 23‐hour schedule on the Chicago Mercantile Exchange Globex electronic platform is studied. Volatility transmission in a single market across different regions is mainly explained by intraregion volatility (heat waves); interregion volatility (meteor showers) plays a secondary role. The joint impact of liquidity variables such as volume and open interest on volatility is also analyzed. Volume tends to increase volatility, but open interest does not affect it. The results are explained by the type of trading venue. Unlike floor‐based trading systems, in electronic markets open interest does not seem to provide additional information on market liquidity and its relation to volatility beyond any information contributed by volume. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:313– 334, 2008     

Strategies for fiscal consolidation in Japan

Japan's key fiscal challenge is to put public finances on a more sustainable footing. This paper investigates the macroeconomic implications of alternative fiscal strategies for Japan using the IMF's Global Fiscal Model. The results suggest that (i) an adjustment package that achieves primary balance through lower social transfers and government spending and a higher VAT is the most viable option and has a smaller negative impact on growth than other fiscal measures; (ii) achieving primary balance is not sufficient to stabilize the net debt ratio; (iii) prefunding future aging costs provides greater long-term benefits compared with less front-loaded strategies; (iv) tax reform involving shifting from corporate taxation to consumption taxation could mitigate the short-term output losses associated with fiscal consolidation; (v) the spillovers to the rest of the world from consolidation in Japan are positive in the medium term, but modest.     

A technology replacement model with variable market potential — An empirical study of CRT and LCD TV

The rapidly changing economic environment and increasingly fierce competition indicate that companies must innovate in both their products and marketing strategies if they are to continue to flourish. Specifically, the ability to accurately predict the demand for products is crucial when firms decide to allocate their resources, especially in the fast moving high technology industries, where there is very high investment in R&D and production facilities. This study establishes a forecast model for technology replacement based on the diffusion model with population growth used for the variable market potential. The proposed model is then applied to investigate the CRT and LCD TV market.The results suggest that the new model is more accurate than the constant market potential model in fitting and forecasting performance. Consumers who purchase a TV for the first time are likely more attracted to LCD TV rather than CRT TV. As for those individuals who already own a CRT TV, the attraction is not strong enough to encourage them to replace their current CRT TV with a new LCD TV. Moreover, it is noted that the falling price of LCD TV is an essential factor in encouraging purchases.     

Can Island Provide Liquidity and Price Discovery in the Dark?

On September 23, 2002, facing a regulatory mandate issued by the Securities and Exchange Commission, Island teminated the position of the Nasdaq 100 Index Tracking Stock (QQQ) on its book. While the market volume remained almost the same, Island's market share in the QQQ fell significantly. However, Island still dominates other trading centers in the price discovery process and volatility spillovers. The spreads on most trading centers became narrower after Island removed its quotes from the public view. The overall results suggest that the decrease in market transparency does not compromise market liquidity. Informed traders who provide price discovery in the QQQ are willing to sacrifice potential price improvements for the fast speed and reliable execution that Island offers, and are able to trade in the absence of displayed quotes.     

Fractional cointegration and futures hedging

This article examines the performance of various hedge ratios estimated from different econometric models: The FIEC model is introduced as a new model for estimating the hedge ratio. Utilized in this study are NSA futures data, along with the ARFIMA-GARCH approach, the EC model, and the VAR model. Our analysis identifies the prevalence of a fractional cointegration relationship. The effects of incorporating such a relationship into futures hedging are investigated, as is the relative performance of various models with respect to different hedge horizons. Findings include: (i) Incorporation of conditional heteroskedasticity improves hedging performance; (ii) the hedge ratio of the EC model is consistently larger than that of the FIEC model, with the EC providing better post-sample hedging performance in the return–risk context; (iii) the EC hedging strategy (for longer hedge horizons of ten days or more) incorporating conditional heteroskedasticty is the dominant strategy; (iv) incorporating the fractional cointegration relationship does not improve the hedging performance over the EC model; (v) the conventional regression method provides the worst hedging outcomes for hedge horizons of five days or more. Whether these results (based on the NSA index) can be generalized to other cases is proposed as a topic for further research. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 457–474, 1999     

The conditional heteroscedasticity of the yen–dollar exchange rate

This paper examines the conditional heteroscedasticity of the yen–dollar exchange rate. A model is constructed by extending the asymmetric power autoregressive conditional heteroscedasticity model to a process that is fractionally integrated. It is found that, unlike the equity markets, the appreciation and depreciation shocks of the yen against the dollar have similar effects on future volatilities. Although the results reject both the stable and the integrated models, our analysis of the response coefficients of the past shocks and the application of the models to the estimation of the capital requirements for trading the currencies show that there are no substantial differences between the fractionally integrated models and the stable models. © 1998 John Wiley & Sons, Ltd.     

Within-industry timing of earnings warnings: do managers herd?

An earnings surprise can be caused by a combination of firm-specific factors and market or industry factors. We hypothesize that managers have an incentive to time their warnings to occur soon after their industry peers’ warnings to minimize their apparent responsibility for earnings shortfalls. Using duration analysis, we find that firms accelerate their warnings in response to peer firms’ warnings. We conduct several tests to control for alternative explanations for warning clustering (for example, common shocks and information transfer) and conclude that the observed clustering is primarily due to herding. Our study is one of the first to empirically examine managers’ herding behavior and the first to document clustering of bad news. Moreover, we provide a multi-firm perspective on managers’ disclosure decisions that alerts researchers to consider or control for herding when they examine other determinants of managers’ disclosure decisions.