Detecting Abnormal Bid-Ask Spread: A Comparison of Event Study Methods

This study examines empirical issues associated with the use of bid-ask spreads in event studies. The simulation results indicate that the distribution of average standardized abnormal spread shows little deviation from normality. Simulation results also indicate that the widely used percent spread metric results in test statistics with low power. In contrast, use of a standardized raw spread metric and a simple mean-adjusted expectation model results in well specified and reasonably powerful Patell and Brown-Warner type test statistics. As the abnormal spread series is characterized by high first order serial correlation, it is important to adjust for this serial correlation when using multi-day event windows.     

Detecting trading response using transaction-based research designs

This paper examines issues pertinent to using number of transactions in event-type studies of market trading response. It presents rejection frequencies for portfolios of 20, 50, and 100 observations corresponding to different abnormal trading measures and test approaches. Findings include: (1) A cross-sectionalt-statistic approach performs almost as well as more elaborate test approaches and is robust to nonnomality in the number of transactions distribution; (2) a logarithmic transformation induces near-normality in the number of transactions distribution; and (3) for equal induced percentage increases in trading, rejection rates for number of transactions exceed those for percentage of outstanding shares trades (i.e., volume). The advantage of transactions over volume is relatively more important for small sample studies (e.g.,n<100) and those with small average increases in trading activity.     

Refuge Strategies for Managing Pest Resistance in Transgenic Agriculture

When the application of pesticides placesselective evolutionary pressure on pestpopulations it can be useful to plant refugeareas: crop areas intended to encourage thebreeding of pests susceptible to the pesticide. Renewed interest in refuge areas has arisenwith recent advances in biotechnology andgenetically modified (GM) crops. This paperuses a simple model of evolution of pestpopulation and pest resistance to characterizethe socially optimal refuge strategy to managepest resistance. We show both that theestablishment of refuge areas might best bedelayed until resistance becomes an importantconcern, and that the use of refuge areas inthe long-run use will not be optimal if thefitness cost of resistance does not exceed thediscount rate.     

Monopoly extraction of an exhaustible resource with two markets

Abstract.  Although much has been written about monopoly extraction of natural resources, the case of a resource being sold in two separate markets has escaped notice. We find that a monopolist facing two different iso‐elastic demand schedules extracts more rapidly than the social planner, whether or not arbitrage prevents price discrimination between markets. JEL classification: D42, Q3