TRADE,STRUCTURAL REFORM,AND INSTITUTIONS IN SUB‐SAHARAN AFRICA

Sub‐Saharan African countries have traditionally lagged the rest of the developing world in terms of overall trade relative to gross domestic product. But, there is growing interest among these countries to initiate trade policies and improve quality of institutions as a way to promote trade and boost foreign direct investment. This article extends the gravity model of trade to include proxies for trade reform policy and institutional quality among the 15 countries of the Economic Community of West African States (ECOWAS) for data spanning 1984–2006. Alternative methods of estimation based on ordinary least squares, Heckman two‐step procedure, and Poisson pseudo‐maximum likelihood produce predictions that are consistent with the standard gravity model. They further highlight the evidence of restrictive trade policies and weak institutions that contribute to the failure of ECOWAS countries to boost bilateral trade. (JEL F13, F15, O19, O55)     

Robust Measures of Earnings Surprises

Event studies of market efficiency measure earnings surprises using the consensus error (CE), given as actual earnings minus the average professional forecast. If a subset of forecasts can be biased, the ideal but difficult to estimate parameter‐dependent alternative to CE is a nonlinear filter of individual errors that adjusts for bias. We show that CE is a poor parameter‐free approximation of this ideal measure. The fraction of misses on the same side (FOM), which discards the magnitude of misses, offers a far better approximation. FOM performs particularly well against CE in predicting the returns of U.S. stocks, where bias is potentially large.     

Information Asymmetry and the Dealer's Bid-Ask Spread: A Case Study of Earnings and Dividend Announcements

Recent theoretical work on the bid-ask spread asserts that the dealer should widen the bid-ask spread when he or she suspects that the information advantage possessed by informed traders has increased. Thus, the dealer's spread can be employed to test for an increase in information asymmetry prior to an anticipated information event. In this paper, the method is applied to earnings and dividend announcements, which have been documented to be information events. The authors study three groups of announcements: (a) joint announcements—i.e., earnings and dividend announcements that are made on the same day, (b) initial (first) announcements—earnings or dividend announcements that were not preceded by another announcement in the prior thirty days, and (c) following (second) announcements—those announcements that follow the first announcement by at least ten days but by no more than thirty days. The authors find a strong increase in information asymmetry only before the second announcements and virtually no increase before the joint and first announcements. This is consistent with the hypothesis that there is, on average, normal information asymmetry before announcements, but that the dealer will suspect a nonroutine announcement (with an attendant increase in information asymmetry) when the second announcement is separated from the first by more than ten days. Other possible explanations for the results are discussed, and suggestions for future research are outlined.     

A Cross-Category Analysis of Shelf-Space Allocation,Product Variety,and Retail Margins

Retailers' allocation of shelf space as well as the breadth of varietyoffered varies across categories. Many researchers have developedheuristics for determining what retailers should do with regard tothese decisions. We explore how these constructs are actually relatedin practice. We utilize data obtained from Marsh Supermarkets, a largeIndianapolis-based grocery retailer, to explore the relationshipsbetween these variables. The results of this analysis are a set of rawfacts concerning the relationship between some of grocery retailers'more important category-level decisions.     

Estimating Oil Risk Factors Using Information from Equity and Derivatives Markets

We introduce a novel approach to estimating latent oil risk factors and establish their significance in pricing nonoil securities. Our model, which features four factors with simple economic interpretations, is estimated using both derivative prices and oil‐related equity returns. The fit is excellent in and out of sample. The extracted oil factors carry significant risk premia, and are significantly related to macroeconomic variables as well as portfolio returns sorted on characteristics and industry. The average nonoil portfolio exhibits a sensitivity to the oil factors amounting to a sixth (in magnitude) of that of the oil industry itself.     

A REVISIT TO THE STATIONARITY OF OECD INFLATION: EVIDENCE FROM PANEL UNIT‐ROOT TESTS AND THE COVARIATE POINT OPTIMAL TEST*

This paper re‐examines the stationarity of inflation rates in 19 Organisation for Economic Cooperation and Development countries with the use of cross‐sectional information. We employ the panel unit‐root tests that allow for cross‐sectional dependency and the covariate point optimal test. These tests have high power in common due to the exploitation of cross‐sectional information, and they can assist mutually to draw a concrete conclusion on inflation dynamics for all series in the panel. Our empirical results show that allowing for cross‐sectional dependency rejects the null hypothesis that all series in the panel have a unit root, implying that there is at least one stationary series in the panel. With the help of the results of the covariate test, we can distinguish the panel into a group of stationary and a group of non‐stationary series. For robustness, the two groups of series are re‐confirmed by the panel tests. Our results reveal evidence of mean reversion in inflation for 15 of 19 countries, which is significantly stronger as compared to that obtained by the state‐of‐the‐art univariate unit‐root tests.     

ESTIMATING THE WILLINGNESS TO PAY FOR DIGITAL MUSIC

The general consensus among the copyright piracy literature is that economic incentives and enforcement are both effective strategies that complement one another in reducing the occurrence of piracy. Yet, the key factor underlying these strategies is the ability of the media industries to influence an individual's willingness to pay (WTP) for legal purchases when illegal versions exist. This article estimates the effects of factors influencing WTP for digital music downloads. Our results show that while income and risk perceptions play a dominant role in determining WTP, ethics are also important in influencing WTP. Our results are consistent with the growing consumer acceptance of fee-based music services that can exist alongside peer-to-peer file sharing as well as serve as a viable substitute . ( JEL O34, K42, D12)