a hedonic price analysis of hearing aid technology in this article we study how technological components affect the price of hearing aids the main goals are to determine which functional and technological features have the greatest influence on manufacturer based prices in the hearing aid industry and to analyse the price cost margins at the dispenser level using a unique data set that is compiled from a hearing clinic in west texas the result shows that style and signal processing scheme are the two most important determinants of hearing aid price other characteristics such as directional microphone noise cancellation and a certain shell type are also positively related to price further on average this particular local dispenser has a markup of about 35 per hearing instrument

a market microstructure explanation for predictable variations in stock returns following large price changes prior empirical evidence of predictable variations in stock returns following large price changes is found to be at least in part driven by the sample selection bias arising from the systematic movement of closing transaction prices within the bid ask spread by using the average of the bid ask prices in the sample selection process the price reversal on the day following the events day 1 disappears for a short run period after day 1 however systematic abnormal return patterns are still observed these short run price reversals persist even after controlling for the influence of systematic trading patterns around the events however investigation of contrarian investment profits from these short run price reversals shows that the average abnormal returns are not large enough to cover the transaction price movement between the bid and ask prices

short term reaction of stock markets in stressful circumstances abstract in this paper we document the short term stock price behaviour following a period of stock market stress we focus on price behaviour using daily market indexes from 39 stock exchanges over the period 1989 1998 our results are not consistent with the overreaction hypothesis we find positive negative abnormal price performance in the short term window up to 10 days following positive negative price shocks our analysis also highlights differences between developed and emerging markets we show that the post shock abnormal performances are significantly larger for emerging markets but that this momentum behaviour is markedly less in the late 1990s we find the size of the after shock tremors to be related to market liquidity with larger post shock price changes in less liquid markets

the welfare analysis of product innovations with an application to computed tomography scanners the main goal of this paper is to put forward a methodology for the measurement of product innovations using a value metric that is equating the magnitude of innovations with the welfare gains they generate this research design is applied to the case of computed tomography scanners a revolutionary innovation in medical technology the econometric procedure centers on the estimation of a discrete choice model the nested multinominal logit which yields the parameters of a utility function defined over the changing quality dimensions of the innovative product the estimated flow of social gains from innovation is used to compute a social rate of return to r d to explore the interrelation between innovation and diffusion and to trace the time profile of benefits and costs the latter suggesting the possible occurrence of technological cycles

risk return and equilibrium a revisit this paper reports the results of tests of the major implications of the two parameter capital asset pricing model the findings indicate that the relationship between stock returns and systematic risk contains important nonlinearities during 1935 82 these nonlinearities cannot be ascribed to previously documented anomalies related to firm size or january seasonality moreover the test results appear to be sensitive to the choice of the proxy for the market portfolio

the risk and required return of common stock following major price innovations this paper presents empirical evidence demonstrating that the risk and expected returns of common stocks typically change in the aftermath of large price movements when temporary changes in uncertainty follow major financial events subsequent stock returns should be positively correlated with the shift in return volatility this prediction is strongly supported by the data on more than 9 100 daily price change events during 1962 1985 moreover the data also suggest that ex ante returns on common stocks may incorporate a premium for increases in parameter uncertainty associated with the events

stationary sunspot equilibrium in a cash in advance economy abstract in this paper we demonstrate the existence and uniqueness of a class of stationary sunspot equilibria in the cash in advance economy of lucas and stokey sunspots affect not only the price of money but prices of productive assets assets prices may fluctuate forever below their market fundamentals

price and quality of desktop and mobile personal computers a quarter century historical overview when introduced in 1976 personal computers pc s had only several kilobytes of randomaccess memory ram and no hard disk processed commands at speeds of less than 1 megahertz mhz yet typically cost several thousand dollars today s pc s have megabytes mb of ram and gigabytes of hard disk memory process commands at speeds exceeding 1 000 mhz and often cost less than 1 000 ever more powerful pc boxes have been transformed into increasingly smaller and lighter notebooks in the context of such rapid technological progress government statistical agencies face the formidable tasks of reliably tracking real output growth in the pc industry and adjusting pc prices for quality changes in 1986 following collaboration with ibm researchers the bureau of economic analysis bea began adjusting mainframe computer prices for quality change using hedonic price methods rosanne cole et al 1986 in 1990 the bureau of labor statistics bls first published an experimental price index for mainframe computers also based on hedonic methods today the bls publishes producer and consumer price indexes for a number of electronic goods including informationprocessing equipment using hedonic price methods dennis fixler et al 1999 the hedonic regression methods employed by researchers and government statisticians to adjust pc prices for quality changes are usually based on pooled cross section and time series data and they typically assume some parameter equality across models as well as some parameter stability over time here we report on results from an examination of the stability of annual pc hedonic price parameters over almost the first quarter century of their history 1976 1999 and on the equality of estimated hedonic price parameters between desktop and mobile models we compute price indexes based on alternative assumptions concerning parameter equality and stability and we assess at what point in time when constructing price indexes mobile and desktop models were appropriately treated as distinct product groups

the rate of return to the high scope perry preschool program abstract this paper estimates the rate of return to the highscope perry preschool program an early intervention program targeted toward disadvantaged african american youth estimates of the rate of return to the perry program are widely cited to support the claim of substantial economic benefits from preschool education programs previous studies of the rate of return to this program ignore the compromises that occurred in the randomization protocol they do not report standard errors the rates of return estimated in this paper account for these factors we conduct an extensive analysis of sensitivity to alternative plausible assumptions estimated annual social rates of return generally fall between 7 and 10 with most estimates substantially lower than those previously reported in the literature however returns are generally statistically significantly different from zero for both males and females and are above the historical return on equity estimated benefit to cost ratios support this conclusion

us presidential elections and implied volatility the role of political uncertainty abstract this paper focuses on the effects of political uncertainty and the political process on implied stock market volatility during us presidential election cycles using monthly iowa electronic markets data over five elections we document that stock market uncertainty as measured by the vix volatility index increases along with positive changes in the probability of success of the eventual winner the association between implied volatility and the election probability of the eventual winner is positive even after controlling for changes in overall election uncertainty these findings indicate that the presidential election process engenders market anxiety as investors form and revise their expectations regarding future macroeconomic policy

observational equivalence of the overlapping generations and the cash in advance economies abstract this paper demonstrates that any equilibrium in an overlapping generations economy a la grandmont 1985 can be supported as an equilibrium in a cash in advance economy a la lucas and stokey 1987 and vice versa thus business cycles could occur at real life frequencies

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

a cost benefit analysis of hearing aids including the benefits of reducing the symptoms of dementia we carried out a cba of hearing aids has in which we estimated the direct utility benefits and included the indirect utility benefits working through a reduction in dementia symptoms the benefits methodology involved using qalys as the outcome measure and then applying the price of a qaly to convert the outcome measure into monetary terms the price of a qaly was derived from an age specific vsl estimate the effects of has on utility were estimated from a fixed effects regression on a large national panel data set provided by nacc where we used a negative proxy for the qol we also used a fixed effects regression for the estimate of the indirect benefits involving has reducing dementia symptoms we found that the total benefits mainly coming from the direct benefits were extremely large relative to the costs with benefit cost ratios over 30

risk aversion uncertain information and market efficiency abstract this paper develops and tests the uncertain information hypothesis as a means of explaining the response of rational risk averse investors to the arrival of unanticipated information the theory predicts that following news of a dramatic financial event both the risk and expected return of the affected companies increase systematically and that prices react more strongly to bad news than good an empirical investigation of over 9000 marketwide and firm specific events produces results consistent with these predictions we conclude that the market reacts to uncertain information in an efficient if not instantaneous manner

a reconsideration of hedonic price indexes with an application to pc s this paper compares hedonic to matched model indexes matched model indexes are averages of the price changes of goods that remain on sampled stores shelves since goods that disappear tend to have falling market values matched model indexes select from the right tail of price changes the bls can construct hedonic indexes that correct for this selection and are justified by standard arguments in an empirical study of pc s hedonics produce sharp price declines while matched model indexes are near zero also though there are modifications to hedonics that seem desirable they are not those in current use

stock returns following large one day declines evidence on short term reversals and longer term performance we examine stock returns following large one day price declines and find that the bid ask bounce and the degree of market liquidity explain short term price reversals further we do not find evidence consistent with the overreaction hypothesis we observe that securities with large one day price declines perform poorly over an extended time horizon while the concept of market overreaction has been noted for many years its formal description and examination is a relatively recent area of study debondt and thaler 1985 define the overreaction hypothesis as the overresponse to new information this hypothesis suggests that extreme movements in stock prices are followed by movements in the opposite direction to correct the initial overreaction and that the greater the magnitude of initial price change the more extreme the offsetting reaction one manner in which the overreaction hypothesis has been studied is the analysis of stock returns following large one day stock price declines brown harlow and tinic 1988 and atkins and dyl 1990 find significant reversals for stocks that experience one day price declines focusing on extreme price movements bremer and sweeney 1991 examine returns following one day price declines of 10 percent or more for fortune 500 firms that are in the center for research in security prices crsp data files they find significant positive three day abnormal returns over the period 1962 to 1986 and note that this three day recovery is inconsistent with stock prices fully and quickly reflecting relevant information they also suggest that market illiquidity may partially explain their findings the purpose of this study is to explain security return behavior following large one day declines our primary objective is to explore the role of the bid ask bounce market liquidity and overreaction in explaining price reversals in the three day period immediately following large one day declines large one day price declines are likely to be associated with substantial selling pressure enhancing the probability that a closing transaction is at a

risk and return abstract this paper examines the seasonality in the basic relationship between expected return and risk during 1935 82 the results reveal that the positive relationship between return and risk is unique to january the risk premiums during the remaining eleven months are not significantly different from zero

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

predictable patterns after large stock price changes on the tokyo stock exchange this paper extends to japanese stocks recent research on short term stock price adjustment to new information using standard methodologies we find that stock returns of firms included in the nikkei 300 tend to be significantly positive after large price decreases this is similar to the pattern observed for american stocks in other research the pattern remains when returns are adjusted for market movements and exists independently of the october 1987 market break we find little evidence of significant patterns following large stock price increases we also find little evidence that non transaction prices explain the persistent significant returns observed following large price decreases on the tokyo stock exchange we conjecture that broker dealers and tse member firms respond to large price decreases not by trading for their own profit but rather by selectively supplying liquidity to their preferred retail customers we conclude that ordinary investors probably cannot earn economic profits from these statistically significant patterns

predictable events and excess returns the case of dividend announcements abstract this paper hypothesizes that the risk per unit of time and the required rate of return are higher than normal during an event period whose timing can be predicted consistent with this hypothesis this paper presents empirical evidence indicating that the unconditional mean rate of return the variance of stock returns and their systematic risk are higher than usual during dividend announcement periods however the documented increases in the systematic risk are not large enough to fully explain the excess returns this finding is puzzling and hard to reconcile with existing theory

the reversal of large stock price decreases extremely large negative 10 day rates of return are followed on average by largerthan expected positive rates of return over following days this price adjustment lasts approximately 2 days and is observed in a sample of firms that is largely devoid of methodological problems that might explain the reversal phenomenon while perhaps not representing abnormal profit opportunities these reversals present a puzzle as to the length of the price adjustment period such a slow recovery is inconsistent with the notion that market prices quickly reflect relevant information recent research on stock returns has uncovered a substantial number of empirical findings that are broadly inconsistent with popular asset pricing models for example keim and stambaugh 1985 cross 1973 french 1980 gibbons and hess 1981 and rogalski 1984 find evidence of day ofthe week and weekend effects on stock returns while banz 1981 and reinganum 1983 find evidence of a size effect this paper presents evidence of another empirical puzzle consider the behavior of a firm s rate of return on days after it has experienced a large negative one day rate of return less than say 10 observed daily stock returns after such an extreme event are significantly larger than average on following days for a 10 fall the return above average is 1 773 for the day after and rises cumulatively to 2 215 by the second day this multiple day price adjustment is observed in a sample of firms that is largely devoid of methodological problems that might explain the reversal phenomenon the major interest of this phenomenon is the long recovery period of the stock price reversal such a slow recovery is inconsistent with the notion that market prices fully and quickly reflect relevant information

the value of a year s general education for reducing the symptoms of dementia we present a method for estimating the benefits of years of education for reducing dementia symptoms based on the cost savings that would accrue from continuing independent living rather than relyi

differential information and security market equilibrium we propose a simple model of equilibrium asset pricing in which there are differences in the amounts of information available for developing inferences about the returns parame ters of alternative securities in contrast with earlier work we show that parameter uncer tainty or estimation risk can have an effect upon market equilibrium under reasonable conditions securities for which there is relatively little information are shown to have relatively higher systematic risk when that risk is properly measured ceteris paribus the initially very limited model is shown to be robust with respect to relaxation of a number of its principal assumptions we provide theoretical support for the empirical examination of at least three proxies for relative information period of listing number of security returns observations available and divergence of analyst opinion

return predictability following large price changes and information releases abstract we examine return behavior following large price change events unconditional post event abnormal returns are found to be unimportant as we condition on other criteria related to the quality of information like volume and public announcements the abnormal returns become large the type of news provides further refinement if the news relates to earnings or analyst recommendations then the 20 day abnormal returns become much larger ranging from 3 to 4 for positive events and about 2 25 for negative events finally an out of sample trading strategy confirms investor under reaction and generates significant abnormal annualized returns of the order of 12 18

stock return predictability despite low autocorrelation abstract this paper shows that short horizon stock returns can be predicted to a much greater degree by past price movements than would be anticipated given their low autocorrelation this raises doubts over the reliability of the autocorrelation statistic as a measure of stock market predictability

stock returns asymmetric volatility risk aversion and business cycle some new evidence i introduction most asset pricing models starting with intertemporal capital asset pricing model of merton 1973 suggest a positive relation between risk and return for the aggregate stock market there is an extensive empirical literature that has tried to establish the existence of such a trade off between risk and return for stock market indexes unfortunately the results have been inconclusive often the relation between risk and return has been found insignificant and sometimes even negative recently it has been debated whether risk aversion is state dependent and whether it is procyclical or countercyclical in this article we explore the role of the business cycle in the relation between risk and return for the aggregate stock market specifically by employing asymmetric generalized autoregressive conditional heteroskedasticity in mean models agarch m markov switching models and a simple theoretical equilibrium framework we explore how these three related issues excess stock returns volatility and risk aversion are affected by business cycles as noted by fama 1990 of many possible forces that drive the stock market real economic activities represented by business cycles could be an important one since they are highly related to major stock pricing factors market volatility and the psychology of investors particularly investors attitude toward risk an interesting observation about excess stock return is that it is time varying over business cycles and significantly higher in boom periods 1 according to our estimates for the sample period 1926 2001 presented in table 1 the mean excess stock return is 0 8963 mo in boom periods and 0 3247 mo in recession periods the excess stock return tends to be very high in the boom period because stock returns remain relatively high with increasing dividend payments another interesting observation about the stock market is that the volatility of excess stock return is also time varying over business cycles and significantly lower in boom periods our estimates of standard deviation of monthly stock excess return for the sample period 1926 2001 are 4 6 in the boom period and 8 2 in the recession period these estimates imply that the excess return risk relation is time varying over the business cycle since the coefficient of variance or standard deviation in the conditional mean equation is usually interpreted as being closely related to the coefficient of relative risk aversion as argued by merton 1980 our finding suggests a potential time varying risk aversion 2 there is a general agreement that investors within a given time period require a larger expected return from a security that is riskier however there seems to be no relationship between risk and return over time as such whether or not investors require a larger risk premium for investing in a security during periods when the security is more risky relatively remains inconclusive at first glance it may appear that rational risk averse investors would require a relatively larger risk premium during times when the payoff from the security is more risky a larger risk premium may not be required however because times that are relatively more risky could coincide with times in which investors are better able to bear particular types of risk further a larger risk premium may not be required because investors may want to save relatively more during periods when the future is more risky 3 hence a positive as well as a negative sign for the correlation between the conditional mean and the conditional variance of the excess return on stocks would be consistent with existing theories since there are conflicting predictions about the intertemporal trade off between risk and return it is important to empirically characterize the nature of this relation according to merton 1980 the coefficient of variance or the standard deviation in the conditional mean equation which is called volatility feedback is usually interpreted as the coefficient of relative risk aversion

evidence on stock market overreaction 1986 evidence on stock market overreaction financial analysts journal vol 42 no 4 pp 74 77

the effect of discretionary price control decisions on equity values abstract the macro literature presents conflicting evidence on the effects of price controls in this study the fact that the macro economic effect of wage and price controls is the aggregation of the micro economic effects is used to implement a different approach to measure the effects of price controls the effect of price controls is inferred from examining the impact of discretionary regulatory decisions on the equity values of individual firms during phase ii of nixon s economic stabilization program the empirical results indicate that violators of the regulations incurred significant abnormal losses that were unrelated to the explicit penalties this suggests that implicit penalties were imposed on offending firms the analysis of price increase decisions provides weak evidence that these price commission decisions had an impact on equity values

is bad news cause of asymmetric volatility response a note this article uses a direct test of the impact of economic news on stock volatility the main interest is to test whether the asymmetric response of volatility can be due to the effect of bad news to do this this study takes items of news into account as exogenous variables the analysis is divided into two stages each of which uses different items of news as exogenous variables additional to the information provided by the residuals the first stage uses more exhaustively classified information whereas the second considers daily information as a global sign this study finds that bad news is responsible for most of the observed asymmetric behaviour of variance further this study detects that the gjr model adequately captures the impact of bad news when traders are not ready to carry out a time consuming analysis of the information

hedonic price indexes with unobserved product characteristics and application to personal computers we show that hedonic price indexes may be biased when not all product characteristics are observed we derive two primary sources of bias the first source is a classical selection problem that arises due to changes over time in the values of unobserved characteristics the second comes from changes in the implicit prices of unobserved characteristics next we show that the bias can be corrected for under fairly general assumptions using extensions of factor analysis methods we test our methods empirically using a new comprehensive monthly dataset for desktop personal computer systems for these data we find that the standard hedonic index has a slight upward bias of approximately 1 4 per year we also find that omitting an important characteristic cpu benchmark causes a large bias in the index with standard methods but that this bias is essentially eliminated when the proposed correction is applied

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through

a cost benefit analysis of the 55 mph speed limit this article presents the results of an empirical study which estimates the number of reduced fatalities as a result of the imposed 55 mph speed limit time series data for the us from 1952 to 1979 is employed in a regression model capturing the relation between fatalities average speed variability of speed and the speed limit also discussed are the alternative approaches to valuing human life and the value of time provided is a series of benefit cost ratios based on alternative measures of the benefits and costs from life saving the paper concludes that the 55 mph speed limit is not cost efficient unless additional time on the highway is valued significantly below levels estimated in the best reasearch on the value of time 12 references 1 table

price reversals bid ask spreads and market efficiency we examine the behavior of common stock prices after a large change in price occurs during a single trading day and find evidence that the stock market appears to have overreacted especially in the case of price declines however the magnitude of the overreaction is small compared to the bid ask spreads observed for the individual stocks in the sample we interpret this finding as being consistent with a market that is efficient after transactions costs are considered