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

insider control and the soft budget constraint a simple theory abstract insider control of a firm is shown to be a cause of the soft budget constraint and it has many welfare consequences the implication is that establishing effective corporate governance is a necessary measure to harden budget constraints

international capital mobility net versus gross stocks and flows abstract feldstein and horioka 1980 observed that net capital flows have been small in relation to domestic saving and investment flows for oecd countries in the post war period which they interpreted as evidence of low capital mobility this paper argues that the correlation between gross domestic and international financial flows can be a better indicator of capital mobilitythan net capital flows contrary to the conventional wisdom among international economists gross flows have been small in relation to gross domestic asset creation for oecd countries although by this measure the degree of capital mobility increased in the 1980s

the evolving impact of combinatorial opportunities and exhaustion on innovation by business groups as market development increases the case of taiwan business groups are key sources of innovation in emerging market economies but we understand little about why innovativeness differs across groups and over time variation in the density of intragroup buyer supplier ties which are common structural linkages among group affiliates can help explain both cross sectional and temporal heterogeneity of group innovativeness we argue that greater buyer supplier density within a group initially creates combinatorial opportunities that contribute to group innovativeness but ultimately generates combinatorial exhaustion that constrains innovation combinatorial exhaustion will set in at lower levels of density as the market environment becomes more developed because the opportunity costs of local search increase the research introduces a dynamic argument to studies of business group innovation this paper was accepted by bruno cassiman business strategy

the current account in the macroeconomic adjustment process macroeconomic adjustments to changes in the economic environment are to a large extent conditioned by the intertemporal choices of economic agents when agents face an intertemporal budget constraint a decision to alter current indebtedness implies changes in future consumption possibilities and will be based on expectations of the entire future path of key variables and not only current variables a formal model to show how today s current account is a function of both current and future economic variables is presented the determination of the current account under classical assumptions of market clearing and continuous full employment is emphasized

toward an economic model of the japanese firm i owe a great deal to professor moses abramovitz who suggested that i write this article i appreciate his constant encouragement and guidance which aided me throughout its preparation i am also indebted to three anonymous referees of the journal and to professors ryutaro komiya and michael riordan for their critical comments and helpful suggestions needless to say i am solely responsible for the views expressed in this paper

aggregate spending and the terms of trade is there a laursen metzler effect this paper investigates the spending and current account effects of terms of trade shifts in a model where households maximize utility over an infinite planning period in the framework developed here an economy specialized in production must experience a fall in aggregate spending and a current surplus as a result of an unanticipated permanent worsening in its terms of trade the paper s model thus provides a setting in which the current account deficit predicted by laursen and metzier harberger and others fails to materialize

japan s different trade regime an analysis with particular reference to keiretsu many claim that although formal trade barriers have been removed at the border japanese markets remain unusually closed because of non tariff barriers after describing japan s development strategy and the debate over the sources of japanese growth we consider current trade barriers recent research has made some headway investigating the impact of one of the alleged invisible barriers in particular efforts have been made to test if the behavior of japanese corporate groups known as keiretsu creates a barrier to trade finally we consider whether private sector trade restrictions warrant a public response what if anything should be done about keiretsu

partial ownership arrangements and collusion in the automobile industry this paper develops a conjectural variation model that allows for partial ownership arrangements and foreign trade this model is applied to the japanese and us automobile industries although collusion is found to occur in the japanese automobile industry it is found to be more competitive than the us automobile industry the effect imports have on firms price cost margins in both countries is also found to be different

how foolish are internet investors we offer the first systematic evidence that stock recommendations published on the internet move prices and trading volumes we found that buy announcements for small cap growth stocks published in the nightly performance recap of the motley fool s rule breaker portfolio engender statistically significant abnormal returns the effects were generally larger than those following secondhand buy recommendations published in the print media or after a stock purchase recommendation on the television program wall treet week our finding of unusual trading volume also provides evidence consistent with the hypothesis that the motley fool buy announcements are closely followed and acted on by internet investors

recent theoretical work on the soft budget constraint the soft budget constraint is a syndrome that was identified and studied by janos kornai in his analysis of centrally planned economies see kornai 1980 the syndrome is said to arise when a seemingly unprofitable enterprise is bailed out by the government or the enterprise s creditors in other words the enterprise is not held to a fixed budget but finds its budget constraint softened by the infusion of additional credit when it is on the verge of failure kornai viewed the soft budget constraint as a crucial ingredient for explaining the salient features of socialist economic performance in particular the pervasiveness of shortages one interesting puzzle is why centrally planned economies have been particularly susceptible to the influence of the soft budget constraint the capitalist world is hardly immune as the recent financial crisis in asia attests but on the whole it has proved less vulnerable indeed the very origin of the soft budget constraint and the mechanism by which it gives rise to shortages and other undesirable effects are also obviously important questions although kornai s work has long been well known and appreciated answers to these associated theoretical questions have been hazarded only recently in maskin 1996 i surveyed some of the initial efforts in this direction including mathias dewatripont and maskin 1995 which argues that centralization of credit can give rise to soft budget constraints because it facilitates the refinancing of

mining fool s gold we discuss the popular motley fool s foolish four portfolio as a case study in data mining we document the performance of the foolish four portfolio and use it to illustrate the mistaken inferences that can plague any investment research project we describe the warning signs of data mining and discuss the antidotes to it out of sample tests and the adjustment of returns for risk transaction costs and taxes finally we document that the foolish four and dow 10 trading rules have become popular enough to influence selected stock prices at the turn of the year

price flexibility in japan 1970 1992 a study of price formation abstract we estimate probability and size of price change conditional upon the deviation of a price from its target level for a large number of individual wholesale and consumer price indices in japan we find robust and strong asymmetry in price adjustments especially among cpis cross section variations in price responsiveness depend upon characteristics of distribution channels in particular efficiency and input measures of distributive services using a simulation model we also find that the macroscopic downward rigidity almost disappears if the size of the shock is small compared to the target inflation rate

results oriented versus rules oriented trade policies a theoretical survey this paper surveys the recent literature on results oriented versus rules oriented trade policies after presenting a simple setting capturing the basics of results oriented markets access schemes we discuss extensions which have been or might be developed in this line of research in particular we investigate how the use of simple costly verification of information models might be fruitfully applied to analyze the incentives for countries to choose between results oriented and rules oriented trade policies

foreign owned land while foreign investment augments the capital stock it also affects land prices if it causes land values to rise then the resulting capital gain benefits current landowners but the perma nent effect can be to reduce welfare other things equal more crowde d countries have higher land prices and lower steady state welfare b ut their net foreign indebtedness depends on technology savings beha vior and the interest rate even when it does not affect the domesti c capital stock a land tax raises steady state welfare copyright 1988 by american economic association

macroeconomic dynamics in a multi country economy a dynamic optimization approach using a multicountry model with perfect foresight dynamic optimization by infinitely lived households the authors analyze the dynamics of macroeconomic nonmonetary and monetary variables the authors show that the most patient country initially accumulates foreign debt but eventually decumulates this debt and becomes a creditor it monotonically increases its consumption and experiences monotonic price and exchange rate appreciation the moderately patient country initially accumulates foreign assets but eventually decumulates them and becomes a debtor its consumption also follows a humped path the least patient country monotonically decumulates foreign assets lowers its consumption and experiences rising inflation and exchange rate depreciation copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

vertical restraints and producers competition this paper examines the rationale for vertical restraints it shows that there are important circumstances under which these restrictions have significant anti competitive effects the paper focuses on the consequences of exclusive territorial arrangements among the retailers of two products which are imperfect substitutes such arrangements are shown to increase consumer prices under plausible conditions the increase in consumer prices is sufficiently large to more than offset the deleterious effects from double marginalization resulting from reduced competition among retailers the imposition of exclusivity provisions is may be part of a nash equilibrium among producers these results hold whether there are or are not franchise fees this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

what does japanese trade structure tell us about japanese trade policy some argue foreign access to japanese markets remains tightly controlled and that if japan is to be a member in good standing of the international economic system japan must do more than just adhere to the formal rules of the gatt japan must show by the results of its international economic transactions that foreign access to its market is not tightly controlled as this point of view is increasingly dominating american economic diplomacy with japan it is particularly important that its premise be examined first i examine japan s growth record and trade record to the extent that japan s trade performance is different i explore whether the difference can legitimately be attributed to japanese policies this paper finds that neither the price behavior of japanese firms nor the pattern and volume of what japan imports or exports suggests that japan s trade regime is different some of japan s economic institutions may be distinctive but there is little evidence they produce outcomes which distort the international economic system what remains to be explained is the conviction of so many that japan is more a parasite than a pillar of the international economic system the record of economic research directly and indirectly bearing on this issue does not support such a conclusion at all

domestic saving and international capital movements in the long run and the short run the evidence and analysis in this paper support the earlier findings of feldstein and horioka 1980 that sustained increases in domestic savings rates induce approximately equal increases in domestic rates of investment new estimates for the post opec period 1974 79 imply that each extra dollar of domestic saving increases domestic investment by approximately 85 cents in a sample of 17 oecd countries an explicit analysis of the problems of identification and simultaneous equations bias suggests that the regression estimates are more relevant as a guide to the long run response of international capital flows than to their short run behavior coefficient estimates based on annual variations in savings and investment are subject to potentially severe simultaneous equations bias that is not present when annual observations are averaged over a decade or more and the regression is estimated with a cross country sample of these averages a portfolio model of international capital allocation that is presented in the paper indicates that the short run change in the rate of net foreign investment in response to a sustained increase in domestic saving is likely to be substantially greater than the ultimate steady state response this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

the trade creating effects of business and social networks evidence from france using theory grounded estimations of trade flow equations this paper investigates the role that business and social networks play in shaping trade between french regions the bilateral intensity of networks is quantified using the financial structure and location of french firms and bilateral stocks of migrants compared to a situation without networks migrants are shown to double bilateral trade flows while networks of firms multiply trade flows by as much as four in some specifications finally taking network effects into account divides the estimation of the impact of transport costs and of the effect of administrative borders by around three

how much is a tulip worth the kind of passion to possess tulip bulbs that gripped holland some 350 years ago may be alive and well today among certain u s equity investors

public policy private preferences and the japanese trade pattern as nontariff forms of trade protection proliferate it has become more difficult to analyze the impact of trade policy on trade flows in a number of well known papers researchers have attempted to infer the impact of trade policy indirectly by ascribing to trade policy the differences between actual and predicted trade flows much of the work has been applied to analysis of japanese trade policy and the conclusions of these studies have differed widely some previous research has also ascribed a role to the keiretsu or networks of affiliated firms in explaining japan s apparently distinctive trade performance this paper presents a model that integrates data on factor endowments observable protection in traditional and nontraditional forms and the keiretsu it extends existing research in two principal ways first alternative cross national models of comparative advantage are nested to permit the identification of critical modeling assumptions underlying the divergent conclusions of the previous stu

credit and efficiency in centralized and decentralized economies we study a credit model where because of adverse selection unprofitable projects may nevertheless be financed indeed they may continue to be financed even when shown to be low quality if sunk costs have already been incurred we show that credit decentralization offers a way for creditors to commit not to refinance such projects thereby discouraging entrepreneurs from undertaking them initially thus decentralization provides financial discipline nevertheless we argue that it puts too high a premium on short term returns the model seems pertinent to two issues soft budget constraint problems in centralized economies and differences between anglo saxon and german japanese financing practices

on the international capital ownership pattern at the turn of the twenty first century abstract this paper studies the trends of current accounts and accompanying capital movements from a growth theoretic perspective and to predict the credit debt structure among major industrialized countries the united states japan and west germany at the turn of the twenty first century the past movements of national saving and investment support the habitat view by feldstein and horioka that the supply of savings create investment where it is generated rapid increases in the united states foreign debt may imply however the relevance of the traditional view that capital moves so as to equate its rate of returns the simulation exercises shows that the ratio of external debt to capital stock in the united states will rise to 30 40 over the long run in absence of the recovery of its saving ratio to the historical standard in the 1970s

the dartboard column second hand information and price pressure this study analyzes the effect of second hand information on the behavior of security prices and volume using analysts recommendations published in the monthly dartboard column of the wall street journal for the two days following the publication of the recommendations average positive abnormal returns of 4 percent nearly twice the level of abnormal returns documented in previous research on analyst recommendations and average volume double normal volume levels on the two days following publication of the recommendations are documented the positive abnormal return on announcement is partially reversed within 25 trading days the authors conclude that the positive abnormal return on announcement of the recommendations is a result of naive buying pressure as well as the information content of the analysts recommendations

hardening the budget constraint the experience of the post socialist countries abstract the study surveys the typical manifestations of the softness of the budget constraint such as state subsidies soft taxation non performing loans the accumulation of trade arrears between firms and the build up of wage arrears in the various post socialist countries it was widely maintained at the outset of the post socialist transition that the holy trinity of liberalization privatization and stabilization would suffice to produce an efficient market economy since then it has become clear that hardening the budget constraint needs to be given equal priority with these unless this occurs the effects of privatization will fall short of expectations as they have in russia

structure of agricultural protection in industrial countries abstract the nominal rates of agricultural protection in ten industrial countries from 1955 to 1980 are estimated with the same commodity coverage and data definitions a regression analysis is conducted to explain variations in the measured level of agricultural protection in terms of political as well as economic factors nearly 80 percent of the variations is accounted for by differences in agriculture s comparative advantage agriculture s share in total economy the international terms of trade between agricultural and manufactured commodities regionalism eec and food security consideration associated with non military alliance

business groups and social welfare in emerging markets existing evidence and unanswered questions abstract this paper reviews existing studies of the role of emerging market business groups a ubiquitous but poorly understood organizational form i first suggest that understanding the definition of business groups is itself an interesting albeit under studied research issue i then argue that the existing evidence suggests that the performance effects of group affiliation are large and generally positive there is substantial evidence that part of this is due to welfare enhancing functions originating in the idea that groups substitute for missing outside institutions but that part is also due to welfare reducing minority shareholder exploitation evidence is lacking on the extent to which groups facilitate rent seeking or the exercise of market power evidence is also lacking on the extent to which groups hamper the future development of markets the paper identifies areas where research is needed before current competition policy experiments in countries like china india and korea can be evaluated

trade policy issues and empirical analysis interest in u s trade policy has been stimulated in recent years by the massive american trade deficit by the belief that intervention by foreign governments in international markets has given other countries a competitive edge over the united states and by concern about the increase in protectionism among industrial countries in turn major analytical developments in international economics have revolutionized trade theory broadening its scope both by introducing in a more formal manner such concepts as imperfect competition increasing returns product differentiation and learning effects and by including the study of political and economic factors that shape trade policy decisions this collection of papers the result of a conference held by the nber applies these new trade theories to existing world cases and also presents complementary empirical studies that are grounded in more traditional trade theories the volume is divided into four parts the papers in part 1 consider the problem of imperfect competition empirically assessing the economic effect of various trade policies introduced in industries in which the new trade theory seems to apply those in part 2 isolate the effects of protection from the influences of the many economic changes that accompany actual periods of protection and also examine how the effects from exogenous changes in economic conditions vary with the form of protection part 3 provides new empirical evidence on the effect of foreign production by a country s firms on the home country s exports finally in part 4 two key bilateral issues are analyzed recent u s japanese trade tensions and the incident involving the threat of the imposition of countervailing duties by the united states on canadian softwood lumber

competition in japan japan registered a remarkable 6 5 percent rate of economic growth from 1955 to 1990 catching up with high income western countries in its level of economic development during the 1950s 1960s 1970s and into the 1980s japan s share of world exports rose dramatically from 2 9 percent in 1960 to 6 1 percent in 1970 8 2 percent in 1980 and a peak of 9 8 percent in 1985 porter takeuchi and sakakibara 2000 japanese firms were increasingly successful internationally in large visible industries such as automobiles semiconductors and consumer electronics the striking economic success of japan was widely attributed to a set of economic institutions and policies that encouraged collaboration and limited competition the japanese case then called into question many of the bedrock assumptions of competition thinking it seemed to show that there was a different path to economic prosperity this article begins by examining competition in japan and the supporting policies and institutions during the twentieth century many factors seem to suggest that competition in japan has been less intense but there is an awkward complication the empirical evidence about the intensity of competition in japanese industry does not support the conclusion the story clearly is more complicated we seek to reconcile the apparent differences between policy and institutional circumstances and the empirical evidence by examining the types of competition that prevail across japanese industries and the underlying causes japan indeed pursued an array of policies that limited competition but these policies were not applied throughout the economy in fact those industries in which competition

supplier preferences and dumping an analysis of japanese corporate groups while the nature and intensity of issues confronting the international economy change over time the trade and investment tensions between the u s and japan have continued unabated for many years in part they find their origin in japan s overall and bilateral trade surpluses although these are generally recognized as macroeconomic phenomena apart from the trade imbalances bilateral disputes arise also from the perceived inability of american exporters and investors to penetrate the japanese market there is empirical evidence indicating that the japanese firms have a distinct preference to buy their needed machinery and other inputs from other japanese firms 5 6 7 it is the closed nature of japan s market that triggered the bilateral negotiations known as structural impediments initiative one reason for the difficulty faced by outsiders trying to sell in japan is the way in which japanese companies are organized keiretsu is a form of interlocking relationships among japanese firms and industry groups 2 that allegedly enjoys advantages such as risk sharing and stable inter firm relations which encourage efficient investment in relation specific assets and oligopolistic market power 1 it has been suggested as a possible reason for low sales by non japanese firms to japanese firms operating inside and outside of japan there is certainly a strong tendency for member companies of a keiretsu to source from within their own corporate group this paper explores an economic rationale for this behavior by examining the implications of cross ownership and implicit contracts long term reciprocity and shows that supplier preferences unambiguously increase the incidence of dumping in this fashion the paper provides a link between two sets of stylized facts supplier preferences by japanese firms and the numerous dumping complaints brought in the us against large japanese companies supplier preferences

an empirical investigation of the impact of antitakeover amendments on common stock prices abstract antitakeover amendments are amendments to a corporation s charter that impede the ability of an outsider to gain control of the firm a number of individuals and institutions have onjected to such amendments on the grounds that they are not in the best interests of the shareholders of the firms that adopt them this paper employs event time methodology to investigate the impact of antitakeover amendments on the common stock prices of firms that adopt them the results indicate that the announcement of such amendments is associated with a positive revaluation of stock price contrary to the concerns of their critics we conclude that antitakeover amendments are proposed by managers who seek to increase the value of the firm and are approved by stockholders who share that objective