labor market segmentation a cluster analysis of job groupings and barriers to entry real expenditures on public assistance programs have increased substantially in the past two decades as has real per capita income investments in a variety of education programs have risen and a number of jobs programs have been tried although there have been some gains for example a decline in the percentage of the population in poverty 31 474 a number of disparities persist unemployment remains at record levels and the prospect for sizable reductions in the unemployment rate seems quite small there are persistent differences between the mean household incomes of blacks and whites that have not narrowed at all during the past two decades 15 there is also a widespread perception that a disadvantaged segment of the u s population has no effective access to good jobs and if such persons get them they do not stay employed for long this means that many such adults are caught in a cycle of unemployment welfare dependency bad jobs and intermittent employment whereas there is nearly universal agreement that the persistent disparities in well being are undesirable there is considerable disagreement on what to do about this in part the disagreement stems from ignorance about the facts for example rigorous operational definitions of good and bad jobs have not been developed the notion that some persons do not have access to the good jobs is primarily based on anecdotes fortunately longitudinal data bases are now available that permit more rigorous empirical analysis of such issues

an equilibrium model of asset trading with sequential information arrival in an effort to better understand the dynamic market price adjustment process this paper develops a model which describes the impact of new information on a financial market the primary emphasis is on the price change volume relationship in the presence of a margin requirement we find that the margin requirement significantly affects the relation of price change to volume furthermore this relationship is shown to be affected by the number of investors in the market the degree of information dissemination differences in interpretation of information and the implicit cost of the margin requirement

hedging with mispriced futures this paper analyzes the correspondence between arbitrage sector pricing efficiency and the short term hedging costs and effectiveness of futures contracts reversals of initial contract mispricings by arbitrage sector trading leads to an important mispricing retum component in the total retum to hedge portfolios the existence of the mispricing retum has implications for initial hedge ratio selection hedging effectiveness and expected hedge retum the analysis is used to interpret the hedge ratio guidance and performance of short term hedges between the standard and poor s 500 stock index futures contract and the underlying s p 500 cash stock index portfolio over the 1982 1986 period

a multi state analysis of the targeted jobs tax credit programme 1989 a multi state analysis of the targeted jobs tax credit programme applied economics vol 21 no 1 pp 85 94

an analysis of the true notional bond system applied to the cbot t bond futures abstract the conversion factor system cfs is used in the determination of the invoice price of the chicago board of trade treasury bond futures as an alternative to the cfs oviedo oviedo r a 2006 improving the design of treasury bond futures contracts the journal of business 79 1293 1315 proposed the true notional bond system tnbs and showed that it outperforms the cfs when interest rates are deterministic the main purpose of this paper is to compare the effectiveness of the two systems in a stochastic environment in order to do so we price the cbot t bond futures as well as all its embedded delivery options under both the cfs and the tnbs our pricing procedure is an adaptation of the dynamic programming algorithm described in ben abdallah et al ben abdallah r ben ameur h breton m 2007 pricing cbot treasury bond futures les cahiers du gerad g 2006 77 numerical illustrations show that in a stochastic framework tnbs does not always outperform the cfs however as the long term mean moves away from the level of the notional rate the tnbs performs increasingly better than the cfs

a theory of trading volume a theory of trading volume is developed based on assumptions that market agents frequently revise their demand prices and randomly encounter potential trading partners the model describes two distinct ways informational events affect trading volume one is consistent with conjectures made by empirical researchers that investor disagreement leads to increased trading but the observation of abnormal trading volume does not necessarily imply disagreement and volume can increase even if investors interpret the information identically if they also have had divergent prior expectations simulation tests support the model and are used to contrast the random pairing environment with costless market clearing volume is lower in the costly market and volume increases caused by an informational event persist after the event period this is consistent with existing empirical evidence and suggests that markets do not immediately clear all orders or that investors have demands to recontract

salomon brothers and the may 1991 treasury auction analysis of a market corner abstract in may 1991 the treasury sold 12 29 billion in two year notes through improper bidding salomon brothers gained control of at least 86 percent of the issue this study investigates the impact of salomon s attempted corner by examining the postauction price behaviour of the two year note based on a no arbitrage relation the results show that the two year note was substantially overpriced for approximately six weeks following the auction the typical mispricing during this period is estimated at 0 16 to 0 25 percent of par in dollar terms the aggregate misvaluation averaged 20 30 million and by controlling the supply of the issue salomon stood to gain substantially from the squeeze

implicit delivery options and optimal delivery strategies for financial futures contracts abstract futures contract specification usually allow the short position some variation as to when where how much and what is to be delivered in this paper we derive the optimal delivery policy for the treasury bond futures contracts and find that our policy produces profits that are positive and statistically significant this indicates that future prices are too high in that the short position can earn profits by skillfully exercising his delivery options we find the actual delivery policies of market participants depart substantially from the optimal strategy the implications of these findings for futures traders and bond dealers are discussed

valuation and optimal exercise of the wild card option in the treasury bond futures market the chicago board of trade treasury bond futures contract allows the short position several delivery options as to when and with which bond the contract will be settled the timing option allows the short position to choose any business day in the delivery month to make delivery in addition the contract settlement price is locked in at 2 00 p m when the futures market closes despite the facts that the short position need not declare an intent to settle the contract until 8 00 p m and that trading in treasury bonds can occur all day in dealer markets if bond prices change significantly between 2 00 and 8 00 p m the short has the option of settling the contract at a favorable 2 00 p m price this phenomenon which recurs on every trading day of the delivery month creates a sequence of 6 hour put options for the short position which has been dubbed the wild card option this paper presents a valuation model for the wild card option and computes estimates of the value of that option as well as rules for its optimal exercise the treasury bond futures contract on the chicago board of trade gives several delivery options to the short position the quality option which allows the short to deliver any of several eligible delivery bonds has already been studied fairly extensively because many bonds are eligible to be delivered against the futures contract and the conversion factors used to adjust for the bond actually delivered do not perfectly reflect relative price differences the short side trader will choose to deliver the cheapest eligible bond kilcollin 71 presents a discussion and analysis of conversion factors and their effects on the optimal delivery bond gay and manaster 4 present a theoretical valuation model for the quality option when two classes of commodities with uncertain end of period spot prices may be delivered garbade and silber 3 provide a similar analysis and estimate parameters of the valuation formula for a variety of agricultural commodity futures kane and marcus 6 have used monte carlo simulations to value the quality option in the treasury bond futures market in contrast the various timing options embedded in the delivery process have received comparatively little attention one of the most important of these is the so called wild card option the wild card option arises because the futures market closes each trading day at 2 p m central standard time which locks in the futures settlement price for the rest of the day while the short trader has until 8 p m of each trading day in the delivery month to declare an intent to deliver

a strategic analysis of sinking fund bonds abstract unlike most securities the pricing of sinking fund bonds is influenced by the distribution of ownership which summarizes the extent to which the market is cornered the effect of the distribution of ownership on the pricing of sinking fund bonds is examined by an explicit game in which the price obtained for bonds sold can depend upon the size of the investor s position this framework is used to contrast the valuation of sinking fund bonds with the valuation of amortizing bonds and straight debt we show that it is generally incorrect to view sinking fund bonds as being equivalent to serial bonds

a unique t 1 trading rule in china theory and evidence abstract unique to the world china adopts a t 1 trading rule which prevents investors from selling stocks bought on the same day we develop a dynamic price manipulation model to study the effects of the t 1 trading rule compared to the t 0 trading rule which allows investors to buy and sell the same stocks during the same day we show that the t 1 trading rule reduces the total trading volume and price volatility and improves the trend chasers welfare when trend chasing is strong an empirical test using data on china s b share stock market supports the model s theoretical predictions

market manipulation price bubbles and a model of the u s treasury securities auction market this paper models the u s treasury securities auction market and demonstrates that mar ket manipulation can occur in a rational equilibrium it is a dynamic model with traders participating in a when issued market a treasury auction and a resale market manipu lations occur when dealers in the when issued market use their knowledge of the net order flow in order to corner the auction and squeeze the shorts from the when issued market this manipulation equilibrium generates bubbles in treasury security prices and specials in repo rates we also compare discriminatory and uniform price auction rules with respect to manipulation our analysis shows that manipulations can occur in long run equilibrium under discriminatory price auctions but not under uniform price auctions

treasury auction bids and the salomon squeeze recent press accounts claim that collusion is common practice in treasury auctions and that as a result the auction profits are excessive but this paper finds that the auction prices are on average marginally higher than the secondary market bid prices the auction profits however are systematically related to the total fraction of winning bids tendered by banks and dealers the postauction prices of the two year notes in which salomon brothers had a 94 percent holding are also examined the secondary market prices of these notes were significantly higher than the estimated competitive prices in the four week postissue period

employment tax credit programs the effects of socioeconomic targeting provisions argentina s proempleo experiment conducted in 1998 2000 was designed to assess whether a wage subsidy and specialized training could assist the transition from workfare to regular work randomly sampled workfare participants in a welfare dependent

special repo rates this article provides the causes and symptoms of special repo rates in a competitive market for repurchase agreements a repo rate is in effect an interest rate on loans collateralized by a specific instrument a special is a repo rate significantly below prevailing market riskless interest rates this article shows that specials can occur when those owning the collateral are inhibited whether from legal or institutional requirements or from frictional costs from supplying collateral into repurchase agreements specialness increases the equilibrium price for the underlying instrument by the present value of savings in borrowing costs associated with the repo specials this article characterizes competitive repurchase or repo markets and the equilibrium relationship between repo rates and the underlying cash market prices repurchase markets are often called financing markets since they are effectively vehicles for collateralized borrowing that are often used to finance the purchase of the underlying collateral this article provides causes and effects of specials meaning specific repo rates significantly below prevailing market interest rates for loans of similar maturity and credit risk the example of united states treasury instruments is emphasized because of the extensive use of the treasury repo market as a means of hedging against or speculating on changes in u s interest rates and because of the high incidence of specials in treasury repo rates numerous specific instru

fails to deliver short selling and market quality we investigate the aggregate market quality impact of equity shares that fail to deliver hereafter ftds for a sample of 1 492 nyse stocks over a 42 month period from 2005 to 2008 greater ftds lead to higher liquidity and pricing efficiency and their impact is similar to our estimate of delivered short sales furthermore during the operative period of a security and exchange commission sec order mandating stock borrowing prior to short sales the securities affected display relatively lower liquidity and higher pricing errors finally we do not find any evidence that ftds caused price distortions or the failure of financial firms during the 2008 financial crisis

negative option values are possible the impact of treasury bond futures on the cash u s treasury market abstract this paper uses a unique financial instrument in the u s treasury market to study the price behavior of the put option embedded in the november 2009 14 callable u s treasury bond we find that beginning in august 1993 the estimated option value was persistently negative on nearly every day for the ensuing eight months we show that the anomalous pricing behavior arose because the underlying callable bond became the cheapest to deliver issue against u s treasury bond futures contracts hence this paper provides direct evidence that derivative assets can significantly distort pricing in the primary asset market

can position limits restrain rogue trading this paper studies the imposition of position limits on commodity futures from the perspective of curbing excessive speculation and thus manipulation we present a simple general equilibrium model in a static rational expectations framework and agent heterogeneity to illustrate that excessive speculation serves to enrich other agents at the expense of the speculator position limits on the contrary are not only superfluous but also counter productive as they exacerbate market power and lead to a deterioration in efficiency position limits not only reduce social welfare but also cannot restrain market manipulation

the value of wildcard options wildcard options are embedded in many derivative contracts they arise when the settlement price of the contract is established before the time at which the wildcard option holder must declare his intention to make or accept delivery and the exercise of the wildcard option closes out the underlying asset position this paper provides a simple method for valuing wildcard options and illustrates the technique by valuing the sequence of wildcard options embedded in the s p 100 index oex option contract the results show that wildcard options can account for an economically significant fraction of oex option value many exchange traded derivative securities contain embedded delivery

the quality delivery option in treasury bond futures contracts this paper uses three methods to estimate quality option values for cbot treasury bond futures contracts it presents evidence regarding 1 payoffs from exercising this option at delivery 2 estimates from a t bond futures pricing model that incorporates this option and 3 estimates obtained from an exchange option pricing formula the results indicate that this option is worth considerably less than reported by kane and marcus 1986a for example payoffs obtained by switching from the bond cheapest to deliver three months prior to delivery to the one cheapest at time of delivery average less than 0 30 percentage points of par

an ex post analysis of the cme group s solution to the 5 year gap issue abstractin early 2001 the us department of the treasury suspended the issuance of 30 year bonds and then resumed issuing its long paper in early 2006 as a result there was a 5 year gap in the baskets deliverable into us t bond futures contracts expiring before 2016 in 2013 the cme group raised the issue that grades contending for cheapest to deliver status were becoming significantly isolated from the rest of the basket because of this maturity gap the aim of this article is to provide an ex post assessment of the approach chosen by the cme group to address this so called 5 year gap issue and to compare its efficiency with that of an alternative solution that was not considered at the time

strategic trading behavior and price distortion in a manipulated market anatomy of a squeeze abstract this paper investigates an attempted delivery squeeze in a bond futures contract traded in london using cash and futures trades of dealers and customers we analyze their strategic trading behavior price distortion and learning in a market manipulation setting we argue that marked differences in settlement failure penalties in the cash and futures markets create conditions that favor squeezes we recommend that regulators require special flagging of forward term repurchase agreements on the key deliverables that span futures contract maturity dates and that exchanges mark to market their contract specifications more frequently or consider a cash settled contract on a basket of bonds

hedging performance and basis risk in stock index futures in early 1982 trading began at three different exchanges in futures contracts based on stock indexes stock index futures were an immediate success and quickly led to a proliferation of new futures and options markets tied to various indexes one reason for this success was that index futures greatly extended the range of investment and risk management strategies available to investors by offering them for the first time the possibility of unbundling the market and nonmarket components of risk and return in their portfolios many portfolio management and other hedging applications in investment banking and security trading have been described elsewhere1 ranging from use by a passive fund manager to reduce risk over a long time horizon to use by an underwriter to hedge the market risk exposure in a stock offering for one or two days in considering the potential applications of index futures it is clear that in nearly every case a cross hedge is involved that is the stock position that is being hedged is different from the underlying portfolio for the index contract 2 this means that return and risk for an index futures hedge will depend upon the behavior of the basis i e the difference between the futures price and the cash price hedging a position in stock will necessarily expose it to some measure of basis risk risk that the change in the futures price over time will not track exactly the value of the cash position basis risk can arise from a number of different sources and is a more significant problem for stock index contracts than for other financial futures like treasury bills and bonds 3 the most apparent cause of basis risk is the nonmarket component of return on the cash stock position since the index contract is tied to the behavior of an underlying stock market index nonmarket risk cannot be hedged this is the essential problem of a cross hedge however basis risk can be present even when the hedge involves a position in the index portfolio itself and there is no nonmarket risk for one thing returns to the index portfolio include dividends while the index and the index future only track the capital value of the portfolio any risk associated with dividends on the portfolio will become basis risk in a hedged position still dividends are fairly low and also quite stable so this may not be a terribly important shortcoming

a global stock and bond model six fundamental risk factors four for stocks and two for bonds explain most of the common volatility of individual stocks and bonds worldwide some of the risk factors have a strong international component and others are more purely national the cross national component of the risk factors tends to be stronger within the european union than worldwide the model proposed in this article can be used for integration of worldwide asset selection and asset allocation decisions

futures trading and volatility in the gnma market futures markets for agricultural commodities have existed for well over 100 years recently there has been a major expansion of futures trading into nontraditional areas particularly interest bearing securities and foreign currenciesthe so called financial futures the introduction of exchange traded futures contracts for treasury bills gnma pass through certificates and other securities has created new hedging arbitrage and speculative opportunities for the investors issuers and dealers who are active in the cash markets for these securities futures trading has also opened these markets to participation by new classes of traders particularly private and smaller institutional investors through the process of arbitrage a financial futures market will be closely linked to the cash market for the underlying securities an important concern of the regulatory authorities is what effect opening a futures market is likely to have on an existing cash market the purpose of this paper is to analyze the impact of futures trading in government national mortgage association gnma passthrough certificates on price volatility in the cash market for these securities there are several major ways in which opening futures trading can increase efficiency and smooth price variations in a cash market most importantly futures provide a mechanism for those who buy and sell the actual security or commodity to hedge themselves against unfavorable price changes through the futures market risk can be spread across a large number of investors and transferred away from those hedging spot positions to professional speculators who are more willing and able to bear it this risk transfer may substantially improve the functioning of the spot market because it reduces the need to incorporate risk premia in cash market transactions to compensate for the risk of price fluctuations second futures market may increase the informational efficiency of a cash market since futures prices are determined in a unified highly visible market by traders who specialize in gathering and evaluating information the futures market is expected to be an efficient market in the sense that prices will reflect the best estimate of true future values given the information currently available if anything an informationally efficient futures market should lead to more efficient pricing in the cash market the importance of both of these effects will depend upon the structure of the existing cash market the more developed and integrated is the cash market the

bidder behavior in multiunit auctions evidence from swedish treasury auctions we analyze a unique data set on multiunit auctions which contains the actual demand schedules of the bidders as well as the auction awards in over 400 swedish treasury auctions first we document that bidders vary their prices bid dispersion and the quantity demanded in response to increased uncertainty at the time of bidding second we find that bid shading can be explained by a winner s curse driven model in which each bidder submits only one bid despite the fact that the bidders in our data set use much richer bidding strategies third we explore the extent to which the received theories of multiunit auctions are able to offer insights into the bidder behavior we observe our empirical evidence is consistent with some of the predictions of the models of auctions that emphasize private information the winner s curse and the champion s plague while the models of multiunit auctions serve as useful guideposts our empirical findings also point to several new areas of research in multiunit auctions

difference systems in financial futures markets many financial futures markets allow substitutions for the par grade of security at delivery substitutes are deliverable at premiums or discounts differences in commodities parlance to the futures price the rule that establishes these differences is called a difference system this paper characterizes financial futures market equilibrium with yield based difference systems and investigates particular systems in use the major finding is that currently used difference systems effectively limit deliverable supply in the futures markets and lead to futures prices which understate the cash market price of the par security in order to increase deliverable supply many financial futures markets allow the delivery of a variety of grades issues of securities in fulfillment of a financial futures contract the par grade of security on which the futures contract is based is deliverable at the futures price various other grades of securities are deliverable at premiums or discounts to the futures price in commodities parlance these premiums and discounts are called differences and the rule that establishes the set of premiums and discounts is called a difference system see hoffman 2 chapter xv for an excellent discussion of difference systems in commodity futures contracts there are two types of difference systems currently in use in financial futures markets both are based on security yields the first is called variable rate or yield maintenance pricing under this system nonpar securities are deliverable at the futures price times a factor which is the price of the delivered security relative to the par security where both are discounted by the yield of the par security selling at the futures price the second is called fixed rate or factor pricing under this system nonpar securities are deliverable at the futures price times a factor which is the price of the delivered security relative to the par security where both are discounted at the yield of the par security selling at par this paper first characterizes financial futures market equilibrium with yieldbased difference systems and then investigates theoretically and empirically the particular characteristics of factor pricing and yield maintenance pricing the major finding is that currently used differences systems produce financial futures prices which systematically understate the spot market price of the par security vice president chicago mercantile exchange this research was conducted while the author was economist financial studies section board of governors of the federal reserve system the opinions in this paper are those of the author and do not necessarily reflect the opinions of the board

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

a model of competitive stock trading volume a model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives i examine the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics it is found that volume is positively correlated with absolute changes in prices and dividends i show that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns

history is repeating itself get ready for a long dry spell the recent disappearance of a five year maturity gap from the set of bonds deliverable to the chicago board of trade treasury bond futures has resulted in a distinctive configuration whereby a single t bond will have the shortest remaining maturity in the delivery basket of bonds for a five year period this situation would be inconsequential were three other conditions not simultaneously present ensuring that this single bond will probably be the cheapest to deliver bond over the next five years we show that a similar alignment of conditions happened in 1994 1999 during the long dry spell of the 11 we recall the detrimental repercussions of that dry spell on the bond markets and suggest possible steps to remedy the current situation

special repo rates an empirical analysis duffie 1996 examines the theoretical impact of repo specials on the prices of treasury securities and concludes that all else the same an issue on special will carry a higher price than an otherwise identical issue we examine this hypothesis and find strong evidence in support of it we also examine whether the liquidity premium associated with on the run issues is due to repo specialness and find evidence of a distinct effect finally we investigate whether auction tightness and percentage awarded to dealers are related to subsequent specialness and find that both variables are generally significant underlying the cash market for u s treasury securities is the financing or repo market at any given time the repo rate for most treasury issues the general collateral rate is the same but a few issues are typically on special an issue on special has associated with it a repo rate that is less than the prevailing general collateral rate as a result the owner of a security that is on special is able to obtain below market financing rates via a repurchase agreement duffie 1996 examines the theoretical causes of repo specials and their impact on the prices of treasury securities in the context of a general equilibrium model his primary conclusion is that specialness will be priced in the cash market meaning that all else the same an issue on special or likely to go on special will carry a higher price than an otherwise identical issue we investigate this hypothesis using data on repo specials and find clear evidence in support of it we conclude that specialness is priced and that the magnitude of the cash market premium reflects both the future duration and magnitude of repo specialness we also examine whether the liquidity premium associated with on therun issues is due to repo specialness and find evidence of a distinct effect finally as a test of duffie s model we investigate whether auction tightness and percentage awarded to nonbank primary dealers are related to subsequent specialness the evidence is consistent with predictions with both variables generally significant

differential information and dynamic behavior of stock trading volume this article develops a multiperiod rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock investors trade competitively in the stock market based on their private information and the information revealed by the market clearing prices as well as other public news we examine how trading volume is related to the information flow in the market and how investors trading reveals their private information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the self regulation of commodity exchanges the case of market manipulation influential economists argue that government regulation of manipulative practices in financial markets is unnecessary because exchanges have incentives to take nearly first best precautions against the exercise of market power this article shows that the theoretical arguments underlying this proposition are weak because exchange members are likely to ignore the effects of manipulation on inframarginal traders and price informativeness competition between exchanges may be limited and collective action problems preclude efficient exchange intervention for these reasons exchanges will likely take few precautions against market power an examination of the history of self regulation at 10 exchanges prior to the passage of laws proscribing manipulation shows that they took few if any measures to curb manipulation since the characteristics of manipulation imply that it can be deterred efficiently through the use of harm based sanctions this theory and evidence strongly suggest that self regulation is a

quality option profits switching option profits and variation margin costs an evaluation of their size and impact on treasury bond futures prices this paper provides empirical evidenee that the quality option in f bond futures is much less valuable than previously indicated in addition a dynamic trading strategy involving multiple switches of the cash bonds held in a long cash versus short futures position is shown to produce substantially greater profits than the single exercise of the quality op tion these findings suggest that the optimal management of long cash short futures positions is likely to involve dynamic trading strategies while passive strategies appear more appropriate for short cash long futures positions it is also shown that required variation margin payments are frequently large and may impact the profitability and risk of such positions to a greater extent than either of these options further evidenee is given indicating that observed t bond futures prices reflect an imputed value for the options and risks inherent in such positions

collateral and short squeezing of liquidity in fixed rate tenders abstract the paper models fixed rate tenders where a central bank offers to lend central bank funds to financial institutions bidders are constrained by the amount of collateral they have we focus on the strategic interaction between bidding in the tender and trading in the interbank market after the tender where short squeezes could occur we examine how the design of the tender affects equilibrium bidding behavior and the incidence of short squeezes important elements in the analysis include the type of policy implemented by the central bank as well as bidders initial endowments of liquidity and collateral three instruments for softening short squeezes are identified the tender rate the tender size and admissible collateral increasing the tender rate or size tends to decrease the probability and severity of a short squeeze the possibility of a short squeeze may induce bidders to oversubscribe even if the tender rate is higher than the competitive rate

high frequency trading and end of day price dislocation abstract we show that the presence of high frequency trading hft has significantly mitigated the frequency and severity of end of day price dislocation the effect of hft is more pronounced on days when end of day price dislocation is more likely to be the result of market manipulation moreover the effect of hft is more pronounced than the role of trading rules surveillance enforcement and legal conditions in curtailing the frequency and severity of end of day price dislocation we show our findings are robust to different proxies of the start of hft by trade size cancellation of orders and co location

discriminatory versus uniform treasury auctions evidence from when issued transactions abstract we use when issued transactions data to assess the treasury s current experiment with uniform auctions when issued volume is higher under uniform as compared to discriminatory auctions suggesting a higher information release which should reduce pre auction uncertainty and the winner s curse under uniform auctions when issued volatility falls after the auction and again after the outcome announcement the pattern is the opposite for discriminatory auctions this is further evidence that uniform auctions increase pre auction information and lower the short squeeze a direct comparison of markups in uniform and discriminatory auctions yields mixed results

a strategic analysis of corners and squeezes we develop a dynamic game theoretic model of a futures market in which prices can be manipulated by corner and squeeze we investigate equilibrium trading strategies and the price dynamics these strategies produce price paths produced by our model can mimic observed prices for potentially comerable commodities and explain the volatility of certain prices even when no manipulations occur our model also generates occasional apparent price bubbles and accounts for the existence of normal backwardation in futures markets even when players are risk neutral

volume volatility and the dispersion of beliefs i examine a two period noisy rational expectations model of a futures market and show that the dispersion of expectations about a weighted average of future prices measures both the additional volatility and the additional expected volume of trade associated with noisy information the role played by dispersion helps clarify several stylized facts concerning volume and price behavior specifically dispersion can be a factor contributing to the positive correlation between volume and absolute price changes and the positive correlation between consecutive absolute price changes article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

manipulation of the commodity futures market delivery process an analysis of the futures market delivery end game specifies necessary and sufficient conditions for long and short traders to manipulate futures prices at contract expiration the empirical and welfare implications of manipulation are derived as well manipulation is most likely to occur in markets where economic frictions such as transportation and transactions costs make it inefficient to return excessive deliveries to their original owners these consumption distortions induce price changes that favor manipulators manipulation may also occur in markets where such costs are unimportant but the necessary conditions for the manipulation of a frictionless market are very restrictive copyright 1993 by university of chicago press

a reexamination of option values implicit in callable treasury bonds abstract longstaff 1992 and edleson fehr and mason 1993 examine option values implicit in callable treasury bonds and report a significant puzzle implied option values are frequently negative using an alternative approach we reexamine this issue and find that implied option values are generally positive and in contrast to previous studies instances of option values sufficiently negative to overcome the bid ask spread are rare we explain the findings in other studies by showing that the method used may lead to the appearance of a negative option value when the true value is positive

social norms and the enforcement of laws we examine the interplay between social norms and the enforcement of laws agents choose a behavior e g tax evasion production of low quality products corruption harassing behavior substance abuse etc and then are randomly matched with another agent there are complementarities in behaviors so that an agent s payoff decreases with the mismatch between her behavior and her partner s and with overall negative externalities created by the behavior of others a law is an upper bound cap on behavior a law breaker when detected pays a fine and has her behavior forced down to the level of the law equilibrium law breaking depends on social norms because detection relies at least in part on whistle blowing law abiding agents have an incentive to whistle blow on a law breaking partner because this reduces the mismatch with their partners behaviors as well as the negative externalities when laws are in conflict with norms and many agents are breaking the law each agent anticipates little whistle blowing and is more likely to also break the law tighter laws banning more behaviors greater fines and better public enforcement all have counteracting effects reducing behavior among law abiding individuals but increasing it among law breakers we show that laws that are in strong conflict with prevailing social norms may backfire whereas gradual tightening of laws can be more effective in influencing social norms and behavior