Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation

Linear and nonlinear Granger causality tests are used to examine the dynamic relation between daily Dow Jones stock returns and percentage changes in New York Stock Exchange trading volume. We find evidence of significant bidirectional nonlinear causality between returns and volume. We also examine whether the nonlinear causality from volume to returns can be explained by volume serving as a proxy for information flow in the stochastic process generating stock return variance as suggested by Clark's (1973) latent common-factor model. After controlling for volatility persistence in returns, we continue to find evidence of nonlinear causality from volume to returns.     

The Determinants of Stock Option Compensation: Evidence from Finland

A new, long, and rich panel data set consisting of all Finnish publicly traded firms is used to study how firm characteristics and stock market developments influence the adoption and targeting of stock option compensation. Stock option adoption is found to be a procyclical phenomenon. Findings from firm‐level econometric analysis often corroborate those based on U.S. data, but important differences also emerge. Findings include: (i) firms with higher market value per employee are more likely to use stock option compensation; (ii) share returns from the past year affect the adoption of targeted stock options, but not broad‐based plans; (iii) our results are consistent with the hypothesis that selective and broad‐based plans arise as solutions to differing monitoring difficulties. Broad‐based schemes are observed when production is human capital‐intensive and employee performance is hard to monitor, while selective schemes are adopted when ownership is dispersed and therefore owners may have weak incentives to monitor management.     

The Competitiveness of UK Manufacturing: Performance and Prospects

The competitiveness of UK manufacturing and its future prospects are examined in terms of productivity, the performance of high technology industries and the relationship between science and technology. Die main findings are that concentrating on productivity performance can be misleading and attention should also be paid to the structural aspects of competitiveness, especially the relationship between the science base arid industrial technology. On this basis we conclude that if the UK is to realise fully the competitive potential of technological change, differences in these structural aspects of competitiveness need to be addressed.     

THE EMERGENCE OF COPYING TECHNOLOGIES: WHAT HAVE WE LEARNED?

The past few decades have seen dramatic advancements in the technology of copying and the diffusion of copying technology to the general public. This paper surveys some of the recent academic literature dealing with this issue. We focus on (i) the effect of varying the extent of property rights enforcement by the government, and (ii) possible responses by producers of originals to consumers' ability to produce copies. The traditional view is that as the government increases property rights enforcement, there is a decrease in the social welfare loss due to underproduction and an increase in the social welfare loss due to under-utilization. In the first half of the paper, we show how the analyses contained in a number of recent studies throw doubt on this traditional viewpoint. In particular, varying the extent of property rights enforcement has effects that the traditional analysis ignores. As a result, the social welfare losses mentioned above can move in ways not recognized previously. The conclusion is that, contrary to what is sometimes suggested, choosing an optimal level of property rights enforcement by the government should not be viewed as a simple trade-off between these two social welfare losses. In the second half of the paper, we discuss possible market responses to consumers' ability to produce copies. Among other responses, we consider the role of price discrimination and complementary products when copying is possible.     

THE EFFECTS OF VERTICAL MARKETS ON TRADE POLICY REFORM

Typically, analysis of trade liberalization ignores the impactthat intermediate stages in the production and distributionsystem may have on the pass-through of changes in tariffs tofinal goods' prices. Using a model of a multi-stage system,this paper shows that both the number of vertical stages andthe degree of imperfect competition at any specific stage canaffect the degree of tariff pass-through. Simulation of themodel with respect to recent changes in the European Union bananaregime suggests that ignoring vertical market structure is likelyto over-estimate the benefits to consumers of trade liberalization.     

Tax Law Improvement in Australia and the UK: The Need for a Strategy for Simplification

In both Australia and the UK, programmes are under way to simplify tax legislation by rewriting it. This paper demonstrates that tax simplification is a complicated concept and concludes that sustainable improvement is unlikely to be achieved if reform is limited only to linguistic changes. Tax law is complicated because there are powerful pressures that tend to increase the complexity of modern tax systems and these should also be considered in any simplification programme. In addition, tax simplification may be promoted by the greater use of purposive legislation — that is, legislation drafted in terms of general principles rather than much more comprehensive legislation designed to deal with every likely possibility. The paper examines the progress of the Australian Tax Law Improvement Project and argues that what is needed is a strategy for tax simplification that is incorporated into the process of generating tax policy itself. JEL classification: H20.