ECONOMICS OF STOCK-PRICE VIBRATIONS: RIDING SPECULATIVE WAVES WITHOUT SPECULATION

Abstract.  When speculation causes share prices to fluctuate, even the best speculators may do 'hardly better than the comprehensive common-stock averages' (Samuelson). We further demonstrate in this paper that non-speculators can indeed benefit, in terms of both utility and wealth, from speculative price fluctuations by choosing their portfolio optimally. In particular, we show both how much and how fast non-speculators' wealth can accumulate, presumably at speculators' expenses, over periods of price fluctuations. We also show a seemingly paradoxical outcome where a rational individual would rejoice more when stock prices fall than when they rise by the same (absolute) amounts.     

On the performance of tests by Wu and by Hausman for detecting the ordinary least squares bias problem

We first consider the performance of the Wu (1973) - Hausman (1978) (W-H) specification error test as a test for the existence of ordinary least squares (OLS) bias. We discuss power properties of the test under alternative null hypotheses, one of which has not previously been considered. We next consider how the W-H test performs as an indicator of the extent (rather than the existence) of an OLS bias problem, since this usage of the test seems common in applied studies. Finally Monte Carlo methods are used to evaluate Wu's two-step estimation procedure involving the W-H test as a pretest.     

Dynamic Seemingly Unrelated Cointegrating Regressions

We propose the parametric Dynamic Seemingly Unrelated Regression (DSUR) estimator for simultaneous estimation of multiple cointegrating regressions. DSUR is efficient when the equilibrium errors are correlated across equations and is applicable for panel cointegration estimation in environments where the cross section is small relative to the available time series. We study the asymptotic and small sample properties of the DSUR estimator for both heterogeneous and homogeneous cointegrating vectors. We then apply the method to analyse two long-standing problems in international economics. Our first application revisits the estimation of long-run correlations between national investment and national saving. Our second application revisits the question of whether the forward exchange rate is an unbiased predictor of the future spot rate.     

Business Groups and the Big Push: Meiji Japan's Mass Privatization and Subsequent Growth

Paul Rosenstein-Rodan argues that economic development requirescoordinated investment in many interdependent industries, andprescribes a flood of state-controlled investment across allsectors—a so-called big push. Widespread government failuredefeated twentieth-century ‘big push’ schemes. Butspillovers across firms and industries, and from public goods,hold-up problems, and capital market limitations are real, andjustify coordinated growth across sectors if it can be donewithout government failures. Large, extensively diversifiedpyramidal business groups of listed firms dominate the historiesof developed economies and the economies of developing economies.Arguing that such groups provided this coordination in prewarJapan after a state-run big push failed, we propose that pyramidalbusiness groups are private-sector mechanisms for coordinatingbig push growth, and that competition between rival groups inducesefficiency unattainable in a state-run big push. We postulatethat a successful business-group led big push requires economicopenness, basic public goods, rule of law, separation of thestate from business, and a timely demise of business groupswhen the big push phase is complete. Where these criteria arenot met, growth stalls and oligarchic families become too powerfulto dislodge.     

Assessment of passenger benefits brought about by international airport projects

This study sets forth a method to calculate the passenger benefits of an international airport project and assesses the passenger benefits brought about by two international airport projects.An international airport project mainly increases the number of flights and the possibility of determining convenient timetables. It does not significantly decrease the flight time of international travel. Thus, the user benefits brought about by an international airport project cannot be expressed by the conventional concept of ‘traveling time’, which is the term generally used.In this study, the ‘Expected Value of Traveling Time’ and ‘Expected Value of Generalized Cost’ are presented as indexes to evaluate improvements in convenience brought about by international airport projects. The passenger benefits of two airport projects in Japan are measured by consumer surplus calculated from the demand function using these indexes.These indexes are accurately calculated taking into consideration factors such as scheduling connections between domestic and international transport, and so enable a grasp not only of reductions in flight time, but also of passenger benefits resulting from international airport projects, such as increases in the number of flights and reductions in the time required to make transfers during domestic travel.     

Retail market structure and the threat by the manufacturer to sell goods directly to the consumer

When a manufacturer and its retailers and consumers are spatially separated, the retailers’ market size may be limited by the manufacturer who provides consumers with an option to purchase goods directly from them. The manufacturer uses this tactic to increase profit when a few retailers dominate the market. The mill price of a manufacturer, that is, the price of the good at delivery from a manufacturer’s factory, is critical under these circumstances.If the manufacturer charges a franchise fee, thus absorbing the retailer’s profit, this fee is a function of the mill price. Mill price policy can be used to maximize profit on the sale of goods and collection of the franchise fee. The resulting retail market structure becomes preferable for the manufacturer and consumers since the manufacturer’s profit is larger, as is the quantity purchased, compared with a competitive equilibrium in which every firm entering the market area is assumed to move its location instantly without cost.     

Robust estimation for structural spurious regressions and a Hausman-type cointegration test

This paper analyzes an approach to correcting spurious regressions involving unit-root nonstationary variables by generalized least squares (GLS) using asymptotic theory. This analysis leads to a new robust estimator and a new test for dynamic regressions. The robust estimator is consistent for structural parameters not just when the regression error is stationary but also when it is unit-root nonstationary under certain conditions. We also develop a Hausman-type test for the null hypothesis of cointegration for dynamic ordinary least squares (OLS) estimation. We demonstrate our estimation and testing methods in three applications: (i) long-run money demand in the U.S., (ii) output convergence among industrial and developing countries, and (iii) purchasing power parity (PPP) for traded and non-traded goods.     

Top-down Production Management: A Recent Trend in the Japanese Productivity-enhancement Movement

It is well known that many of the manufacturing practices advanced in Japan in the 1970s and 1980s emphasize bottom-up decision processes characterized by teams, the empowerment of multi-skilled workers on the shopfloor, demand-pull and horizontal decision mechanisms. These practices include Just-in-Time (JIT) and quality management practices such as quality circles (QC) and total quality management (TQM). While these practices continue to be effective under appropriate circumstances, the drastic appreciation of the Japanese yen that has taken place since the mid-1980s and the prolonged recession following the burst of the bubble have forced many Japanese manufacturers to adopt new methods to improve their production efficiency. In this paper we discuss one of such methods called Total Productivity Management (TPM). Unlike JIT or TQM, implementing TPM requires a top-down approach. TPM provides direct connections between corporate-wide objectives such as the overall cost reduction and shopfloor practices. It is possible that TPM has contributed significantly to Japanese manufacturers' recent success in reducing their cost of operation. © 1997 John Wiley & Sons, Ltd.