Are There Tax Effects in the Relative Pricing of U.S. Government Bonds?

We investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury bonds. We obtain positive statistically and economically significant estimates for the implicit tax rates of a “representative” investor in the late 1970s and early 1980s. After the 1986 Tax Reform, the point estimates for the tax rate are close to zero. Tests for a regime shift associated with the 1986 Tax Reform support the hypothesis that this event largely eliminated tax effects from the term structure. We discuss both institutional and statutory explanations for this change.     

Interindustry Wage Differentials and Unobserved Ability: Siblings Evidence from Five Countries

We examine the role of unobserved ability in explaining interindustry wage differentials. By using data on brothers, we account for unmeasured abilities shared by siblings. The data came from four Nordic countries and the United States. In the Nordic countries, only a moderate proportion of the variability in industry wages can be attributed to unobserved ability, while unmeasured factors explain as much as half of the U.S. industry‐wage variation. Accounting for such differences, we show that the U.S. interindustry wage dispersion is similar with that in the Nordic countries.     

THE VALUE OF INFORMATION IN STOCHASTIC CONTROL AND FINANCE

We present an optimal portfolio problem with logarithmic utility in the following three cases:

• (i) 

  The classical case, with complete information from the market available to the agent at all times. Mathematically this means that the portfolio process is adapted to the filtration     of the underlying Brownian motion (or, more generally, the underlying Lévy process).

       

Stock Market Liquidity and the Business Cycle

In the recent financial crisis we saw liquidity in the stock market drying up as a precursor to the crisis in the real economy. We show that such effects are not new; in fact, we find a strong relation between stock market liquidity and the business cycle. We also show that investors' portfolio compositions change with the business cycle and that investor participation is related to market liquidity. This suggests that systematic liquidity variation is related to a “flight to quality” during economic downturns. Overall, our results provide a new explanation for the observed commonality in liquidity.