The Intertemporal Relation Between the U.S. and Japanese Stock Markets

This paper finds a high correlation between the open to close returns for U.S. stocks in the previous trading day and the Japanese equity market performance in the current period. In contrast, the Japanese market has only a small impact on the U.S. return in the current period. High correlations among open to close returns are a violation of the efficient market hypothesis; however, in trading simulations, the excess profits in Japan vanish when transactions costs and transfer taxes are included.     

Fiscal Adjustment and Inflation Targeting in Less Developed Countries

Inflation targeting may not be viable in less developed countries (LDCs) where policymakers rely too heavily on cuts in infrastructure investment to balance the budget. Using a mix of analytical and numerical methods, we demonstrate that the equilibrium ceases to be saddle point stable under active policy when infrastructure cuts account for 30–70% of fiscal adjustment and the return on infrastructure exceeds a comparatively low threshold value. The result is robust to the form of the Taylor rule, the degree of real wage flexibility, the initial level of debt, the choice of a balanced‐budget or debt‐targeting rule, and the q‐elasticity of private investment spending.     

INEQUALITY OF OPPORTUNITY IN EARNINGS AND CONSUMPTION EXPENDITURE: THE CASE OF INDIAN MEN

The paper associates inequality of opportunities with outcome differences that can be accounted by predetermined circumstances which lie beyond the control of an individual, such as parental education, parental occupation, caste, religion, and place of birth. The non‐parametric estimates using parental education as a measure of circumstances reveal that the opportunity share of earnings inequality in 2004–05 was 11–19 percent for urban India and 5–8 percent for rural India. The same figures for consumption expenditure inequality are 10–19 percent for urban India and 5–9 percent for rural India. The overall opportunity share estimates (parametric) of earnings inequality due to circumstances, including caste, religion, region, parental education, and parental occupation, vary from 18 to 26 percent for urban India, and from 16 to 21 percent for rural India. The overall opportunity share estimates for consumption expenditure inequality are close to the earnings inequality figures for both urban and rural areas. The analysis further finds evidence that the parental education specific opportunity share of overall earnings (and consumption expenditure) inequality is largest in urban India, but caste and geographical region also play an equally important role when rural India is considered.     

中印双边贸易的基础探析与前景展望

中国和印度被认为是21世纪世界上两个最大的和增长最快的经济实体。但是，受冷战的影响，长期以来，两个国家在经贸方面没有太多的合作。近年来，两国高层领导人开始了接触。政治合作导致了双方经济上的合作，双边贸易已成为经济合作的发动机。并且，当今中印的双边贸易不断增强的趋势正在对两国的政治交往产生积极影响。两国的边境贸易被定位为一种解决双方长期存在的政治问题的工具。我们不能忽略的一个事实是，印度是中国在南亚地区最大的贸易伙伴，中印的边界贸易对两国的政治关系和相互理解有明显的影响。中印双边贸易基础坚实、前景光明。     

Economic Growth,Terms of Trade and Welfare in an Open Monetary Economy*

The authors investigate the impact of growth on terms of trade, absolute prices and welfare using a two-country, monetary model. Under flexible exchange rates export-biased growth would lead to a decline in the terms of trade if the two countries are ‘similar’. Under fixed exchange rates a weaker condition than the barter condition of export-biased growth is sufficient, namely, for the import commodity the demand creating effect of growth dominates the supply effect while for the exported commodity the opposite holds. Secondly, substitutability between money and commodities indicates that no necessary relation holds between the terms of trade and the trade balance. Thirdly, the introduction of money creates a real balance effect so that decline in terms of trade is no longer a necessary (or sufficient) condition for immiserization. Finally, the paper concludes by questioning two policy conclusions drawn in earlier models: one, that the declining terms of trade of less developed countries was due to a bias in the growth strategy and, two, that monetary models of trade support the ‘monetarist’ proposition that growth and a deteriorating trade balance can only co-exist if the domestic monetary policy is nonneutral.     

Stapled Finance

“Stapled finance” is a loan commitment arranged by a seller in an M&A setting. Whoever wins the bidding contest has the option (not the obligation) to accept this loan commitment. We show that stapled finance increases bidding competition by subsidizing weak bidders, who raise their bids and thereby the price that strong bidders (who are more likely to win) must pay. The lender expects not to break even and must be compensated for offering the loan. This reduces but does not eliminate the seller's benefit. It also implies that stapled finance loans will show poorer performance than other buyout loans.     

Seasonalities in NYSE Bid-Ask Spreads and Stock Returns in January

Using end-of-month bid-ask spreads for 540 NYSE stocks over the period 1982–1987, we document a seasonal pattern in which both relative and absolute spreads decline from the end of December to the end of the following January. Cross-sectional regressions do not, however, provide evidence of a significant correlation between changes in spreads at the turn of the year and January stock returns. Either there is no cause and effect relation between the coincidental seasonals in bid-ask spreads and January returns for NYSE stocks or the data are too “noisy” to reveal any relation.     

Corporate Disclosures: Strategic Donation of Information*

In this paper, we model a corporate insider's motivation of truthful pre‐trade disclosure of her private payoff‐relevant information. In a model in which disclosure has no efficiency gains like reduced cost of capital, no legal implications, and no signaling motivations, we show that a corporate insider may choose to disclose payoff‐relevant information as a means of maximizing her trading profits. This truthful disclosure is done pre‐trade and is beneficial to the corporate insider as it erodes the informational advantage of other traders with private information. This new rationale for public disclosure needs to be empirically tested by examining the trades of corporate insiders after, and not before, public disclosures.     

Consumer Comprehension of Environmental Advertising and Labeling Claims

Two national surveys, with a total of 2,004 respondents, were conducted to examine comprehension of the terms “recycled” and “recyclable.” Only about five percent of respondents exhibited a thorough understanding of “recycled” and “recyclable” consistent with EPA and FTC definitions. Moreover, respondents displayed a limited understanding of “pre-consumer waste,” assumed a high percentage of recycled content in products labeled “recycled,” and inferred widespread availability of recycling facilities whenever a “recyclable” claim was made. Less educated and lower income respondents displayed higher levels of miscomprehension than more advantaged respondents. These results suggest the need for regulation of environmental advertising and labeling claims and for consumer education.