a positive effect of human capital on growth abstract recent studies have found that economic growth appears to be unrelated to increases in educational attainment in this note i show that there is a correlation in one dataset but it is typically hidden by unrepresentative observations

do individual investors treat trading as a fun and exciting gambling activity evidence from repeated natural experiments we hypothesize that individual investors treat trading as a fun and exciting gambling activity implying substitution between this activity and alternative gambling opportunities to examine this hypothesis we study the lottery jackpots and the trading of individual investors in taiwan when the jackpots exceed 500 million taiwan dollars the trading volume decreases between 5 2 and 9 1 among stocks preferred by individual investors and between 6 8 and 8 6 among lottery like stocks the decline in individual buy volume is statistically indistinct from the decline in sell volume large jackpots are associated with less trading in options with high sensitivity to volatility

smooth trading with overconfidence and market power we describe a symmetric continuous time model of trading among relatively overconfident oligopolistic informed traders with exponential utility traders agree to disagree about the precisions of their continuous flows of gaussian private information with enough disagreement an equilibrium exists in which prices reveal the average of all traders signals immediately but traders continue to trade gradually towards target inventories the price is a linear function of a trader s inventory the derivative of a trader s inventory and the average other traders valuations prices reflect a keynesian beauty contest faster than equilibrium trading generates flash crashes jel d8 d43 d47 g02 g14

trading as gambling this paper offers evidence from three different samples consistent with investors substituting between playing the lottery and gambling in financial markets in the united states increases in the jackpots of the multistate lotteries powerball and mega millions are associated with significant reductions in small trade participation in the stock market california based discount brokerage clients and german discount brokerage clients are significantly less likely to trade during weeks with larger lottery prizes in the california and german lotteries respectively variation in lottery prizes affects speculative trading in more lottery like securities such as individual stocks and options but not trading in bonds and mutual funds trading that is likely associated with long term savings motives such as trading in retirement accounts does not respond to lottery jackpots either the negative relation between trading activity and jackpots is stronger for individuals who are more likely to play the lottery this paper was accepted by brad barber finance

behavioral biases of mutual fund investors we examine the effect of behavioral biases on the mutual fund choices of a large sample of us discount brokerage investors using new measures of attention to news tax awareness and fund level familiarity bias in addition to behavioral and demographic characteristics of earlier studies behaviorally biased investors typically make poor decisions about fund style and expenses trading frequency and timing resulting in poor performance furthermore trend chasing appears related to behavioral biases rather than to rationally inferring managerial skill from past performance factor analysis suggests that biased investors often conform to stereotypes that can be characterized as gambler smart overconfident narrow framer and mature

caveat emptor cross country data on education and the labor force abstract cross country data on education and the labor force frequently are used to describe important dimensions of development and to estimate models of economic growth and growth determinants the impact of education and related phenomena this investigation finds 1 there are serious intertemporal and inter country comparability problems with these data that may importantly affect inferences about labor force size trends and productivity and schooling investments and impact 2 data gaps are systematically related to levels of development and literacy and 3 conclusions about the determinants or consequences of development based on constructed data that have been made available to fill data gaps can be seriously misleading

strong form efficiency with monopolistic insiders we study market efficiency in an infinite horizon model with a monopolistic insider the insider can trade with competitive market makers and noise traders and observes privately the expected growth rate of asset dividends in the absence of the insider this information would be reflected in prices only after a long series of dividend observations thus the insider s information is long lived surprisingly however the monopolistic insider chooses to reveal her information very quickly within a time converging to zero as the market approaches continuous trading although the market converges to strong form efficiency the insider s profits do not converge to zero

dynamic portfolio choice with frictions abstract we show how portfolio choice can be modeled in continuous time with transitory and persistent transaction costs multiple assets multiple signals predicting returns and general signal dynamics the objective function is derived from the limit of discrete time models with endogenous transaction costs due to optimal dealer behavior we solve the model explicitly and the intuitive solution is also the limit of the solutions of the corresponding discrete time models we show how the optimal high frequency trading strategy depends on the nature of the trading costs which in turn depend on dealers inventory dynamics finally we provide equilibrium implications and illustrate the model s broader applicability to micro and macro economics monetary policy and political economy

price inference in small markets this paper investigates the effects of market size on the ability of price to aggregate traders private information to account for heterogeneity in correlation of trader values a gaussian model of double auction is introduced that departs from the standard information structure based on a common fundamental shock the paper shows that markets are informationally efficient only if correlations of values coincide across all bidder pairs as a result with heterogeneously interdependent values price informativeness may not increase monotonically with market size as a necessary and sufficient condition for the monotonicity price informativeness increases with the number of traders if the implied reduction in the absolute value of an average correlation statistic of an information structure is sufficiently small

information aggregation in dynamic markets with strategic traders this paper studies information aggregation in dynamic markets with a finite number of partially informed strategic traders it shows that for a broad class of securities information in such markets always gets aggregated trading takes place in a bounded time interval and in every equilibrium as time approaches the end of the interval the market price of a separable security converges in probability to its expected value conditional on the traders pooled information if the security is non separable then there exists a common prior over the states of the world and an equilibrium such that information does not get aggregated the class of separable securities includes among others arrow debreu securities whose value is 1 in one state of the world and 0 in all others and additive securities whose value can be interpreted as the sum of traders signals

effect of quantity and quality of education on per capita real gdp growth evidence from low and middle income african countries although several empirical studies have investigated the growth impact of the quantity of schooling in african countries research on the impact of schooling quality the degree to which schooling

the lognormal diffusion is hardly an equilibrium price process for exhaustible resources abstract in a model of a competitive spot market for an exhaustible resource under demand uncertainty it is shown that the lognormal diffusion the geometrical brownian motion can hardly be an equilibrium price process under the reasonable assumptions that suppliers choose the time to extract and deposits have different costs each supplier will start extraction when price first exceeds a boundary which depends on that supplier s costs but no new extraction will start during periods when the price is lower than the previously recorded high it is highly unlikely that aggregate demand responds to prices in the same way as supply

microstructure bluffing with nested information chakraborty and yilmaz 2004a b con sider strategic models of repeated trading by an informed insider with long lived private infor mation they show that if market makers face uncertainty about the existence of informed trades in the order flow then with sufficiently many periods of trading the insider will bluff in every equilibrium in the precise sense ruled out in albert s kyle 1985 1323 i e by first destabilizing prices with unprofitable trades made at the nth auction then recouping the losses and much more with profitable trades at future auctions by bluffing the insider adds noise to the market s inference problem and makes prices less sensitive to his trades in this note we demonstrate how the scope for profitable bluffing is enhanced by the pres ence of other rational informed traders in the

lottery players stock traders the behavior of stock traders and lottery buyers can teach us about our common aspirations thoughts and emotions and help answer many questions of finance

disagreement and learning dynamic patterns of trade we study volume dynamics when there are disagreements among investors for that purpose we develop a dynamic model in which differences in the interpretation of public information lead to trade we obtain a simple linear equilibrium in closed form in which risk averse agents take into account future trading opportunities when solving for their optimal portfolio allocation using this framework we then study what restrictions on the disagreement process are needed to generate empirically observed patterns in volume and prices we show that having infrequent but major disagreements leads to autocorrelation in volume and correlation between volume and absolute price changes when agents disagree on past news but agree on the interpretation of current news there is learning and the convergence of agents opinions leads to trade

large block transactions the speed of response and temporary and permanent stock price effects abstract the paper investigates how quickly prices attain new equilibrium levels after large block transactions and measures the associated temporary and permanent price effects we find that prices adjust within at most three trades with most of the adjustment occurring in the first trade the temporary price effect for seller initiated transactions is related to block size but the temporary price effect observed for buyer initiated transactions is no larger than that observed in 100 share trades most of the price effect associated with block trades is permanent and is related to block size regardless of the initiating party

brain drain and economic growth theory and evidence we focus on the impact of migration prospects on human capital formation and growth in a small open developing economy we assume that agents are heterogeneous in skills and take their educational decisions in a context of uncertainty regarding future migrations we distinguish two growth effects an ex ante brain effect migration prospects foster investments in education because of higher returns abroad and an ex post drain effect because of actual migration flows the case for a beneficial brain drain bbd emerges when the first effect dominates i e when the average level of human capital is higher in the economy opened to migrations than in the closed economy we derive the theoretical conditions required for such a possibility to be observed using cross section data for 37 developing countries we find that the possibility of a bbd could be more than a theoretical curiosity

why do oil prices jump or fall this paper discusses theories that can explain the zig zags of oil prices in general and in particular the recent jump more precisely the following explanations are discussed homo oeconomicus pure profit maximization if demand is dynamic and convex price reaction function price increases and respectively declines depend on capacity utilization cartelization contingent on output or revenues of which the latter can lead to backward bending supply segments and multiple equilibria statistical descriptions mean reversion homo politicus i e arguments for price hikes that are rational public choice despite the long run economic loss finally two approaches are presented that emphasize demand uncertainty one extending the above mentioned dynamic demand framework and the other considers a dynamic game of non competitive suppliers with lumpy investments summing up a demand shock seems to be the most suitable explanation of today s high prices indeed a shock given that international energy agency iea and department of energy doe were promising just a couple of years ago that we are going to have lots of oil at low prices while others and in particular politics have surprisingly little or no explanatory power

the social outcomes of education and feedbacks on growth in africa most of the effects of education included in the complete model presented here are shown to be consistent with those found in the mainstream of the research on each outcome using microeconomic data this however is a first effort to estimate net education effects more comprehensively beyond just growth and health effects on other key measures of development in africa and also a new view of indirect feedbacks on economic growth and of externalities after developing the conceptual framework the regression estimates are presented together with a discussion of the net direct and indirect effects of education on each outcome these are shown to improve infant mortality increase longevity strengthen civic institutions and democratisation increase political stability and increase investment in physical capital which in turn have positive delayed feedback effects on the economic growth process the effects also lower fertility rates and population growth rates but the latter occurs only after long dela

the behavior of stock prices around institutional trades all trades executed by 37 large investment management firms from july 1986 to december 1988 are used to study the price impact and execution cost of the entire sequence package of trades that we interpret as an order we find that market impact and trading cost are related to firm capitalization relative package size and most importantly to the identity of the management firm behind the trade money managers with high demands for immediacy tend to be associated with larger market impact financial economists have long studied the equity trading process and its impact on stock prices much prior empirical research isolates individual trades and analyzes the behavior of the stock price around each trade see for example kraus and stoll 1972a holthausen leftwich and mayers 1987 1990 keim and madhavan 1991 petersen and umlauf 1991 hausman lo and mackinlay 1992 and chan and lakonishok 1993 evaluating the behavior of stock prices around trades provides a means of discriminating among various hypotheses as to the elasticity of the demand for stocks yields an estimate of the cost of executing trades and a measure of the liquidity of a market and permits tests of different models of the determination of quotes and transaction prices for many institutional investors however even a moderately sized position in a stock may represent a large fraction of the stock s trading volume accordingly an investment manager s order is often broken up into several trades it is often misleading therefore to consider an individual trade as the basic unit of analysis in the study of trading activity and its effects on prices this paper uses the record of trades executed by 37 large investment manage

investment under alternative return assumptions comparing random walks and mean reversion abstract many recent theoretical papers have come under attack for modeling prices as geometric brownian motion this process can diverge over time implying that firms facing this price process can earn infinite profits we explore the significance of this attack and contrast investment under geometric brownian motion with investment assuming mean reversion while analytically more complex mean reversion in many cases is a more plausible assumption allowing for supply responses to increasing prices we show that cumulative investment is generally unaffected by the use of a mean reversion process rather than geometric brownian motion and provide an explanation for this result

education and economic growth a meta regression analysis summary this paper surveys the literature which examines the effect of education on economic growth specifically we apply meta regression analysis to 57 studies with 989 estimates and show that there is substantial publication selection bias toward a positive impact of education on growth once we account for this the genuine growth effect of education is not homogeneous across studies but varies according to several factors specifically it is attributed to differences in education measurement and study characteristics mainly model specification as well as type of data used and the quality of research outlets where studies are published e g academic journals vs working papers

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 economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

imperfect competition among informed traders we analyze competition among informed traders in the continuous time kyle 1985 model as foster and viswanathan 1996 do in discrete time we explicitly describe the unique linear equilibrium when signals are imperfectly correlated and confirm the conjecture of holden and subrahmanyam 1992 that there is no linear equilibrium when signals are perfectly correlated one result is that at some date and at all dates thereafter the market would have been more informationally efficient had there been a monopolist informed trader instead of competing traders the relatively large amount of private information remaining near the end of trading causes the market to approach complete illiquidity copyright the american finance association 2000

the long and short of it why are stocks with shorter runs preferred this article examines how consumers process graphical financial information to estimate risk we propose that consumers sample the local maxima and minima of a graph to infer the variation around a trend line which is used to estimate risk the local maxima and minima are more extreme the higher the run length of the stocks the consecutive number of upward or downward movements of a price series with identical mean variance skewness and kurtosis three experiments show that this leads to stocks with higher run lengths being perceived as riskier the run length effect importantly the run length effect is greater for investors who are more educated are employed full time trade more frequently have had longer experience trading and trade a wider range of financial instruments implications for the communication of financial products public policy and consumer welfare are discussed as are theoretical implications for the processing of visual and financial information and behavioral finance

where has all the education gone cross national data show no association between increases in human capital attributable to the rising educational attainment of the labor force and the rate of growth of output per worker this implies that the association of educational capital growth with conventional measures of total factor production is large strongly statistically significant and negative these are on average results derived from imposing a constant coefficient however the development impact of education varied widely across countries and has fallen short of expectations for three possible reasons first the institutional governance environment could have been sufficiently perverse that the accumulation of educational capital lowered economic growth second marginal returns to education could have fallen rapidly as the supply of educated labor expanded while demand remained stagnant third educational quality could have been so low that years of schooling created no human capital the extent and mix of these three phenomena vary from country to country in explaining the actual economic impact of education or the lack thereof

behavioral portfolio theory we develop a positive behavioral portfolio theory bpt and explore its implications for portfolio construction and security design the optimal portfolios of bpt investors resemble combinations of bonds and lottery tickets consistent with friedman and savage s 1948 observation we compare the bpt efficient frontier with the mean variance efficient frontier and show that in general the two frontiers do not coincide optimal bpt portfolios are also different from optimal capm portfolios in particular the capm twofund separation does not hold in bpt we present bpt in a single mental account version bpt sa and a multiple mental account version bpt ma bpt sa investors integrate their portfolios into a single mental account while bpt ma investors segregate their port folios into several mental accounts bpt ma portfolios resemble layered pyramids where layers are associated with aspirations we explore a two layer portfolio where the low aspiration layer is designed to avoid poverty while the high aspiration layer is designed for a shot at riches

market fairness the poor country cousin of market efficiency both fairness and efficiency are important considerations in market design and regulation yet many regulators have neither defined nor measured these concepts we develop an evidencebased policy framework in which these are both defined and measured using a series of empirical proxies we then build a systems estimation model to examine the 2003 2011 explosive growth in algorithmic trading at on the london stock exchange and nyse euronext paris our results show that greater at is associated with increased transactional efficiency and reduced information leakage in top quintile stocks for less liquid stocks manipulation at the close declines we also document the tradeoff between reduced spreads and increased manipulation or information leakage following the introduction of mifid1

an investigation of transactions data for nyse stocks using transactions data the behavior of returns and characteristics of trades at the micro level is examined a minute by minute market return series is formed and tested for normality and autocorrelation evidence of differences in return distributions is found among overnight trades trades during the first 30 minutes following the market opening trades at the close and trades during the remainder of the day the latter distribution is found to be normal unusually high returns and standard deviations of returns are found at the beginning and the end of the trading day when the beginningand end of the day effects are omitted autocorrelation in the market return series is reduced substantially a number of patterns in trading are reported this paper empirically investigates the nature of the return generating process and the characteristics of trade size price changes trading frequency and trading interval at the level of individual trades for a large sample of nyse stocks previous studies of market indices have used daily weekly or monthly

option valuation of claims on real assets the case of offshore petroleum leases this paper extends financial option theory by developing a methodology for the valuation of claims on a real asset an offshore petroleum lease several theoretical and practical problems not present in applying option pricing theory to financial assets are addressed most importantly we show the necessity of combining option pricing techniques with a model of equilibrium in the market for the underlying asset petroleum reserves the advantages of this approach over conventional discounted cash flow techniques are emphasized the methodological development provides important insights for both company behavior and government policy promising empirical results are reported

the effect of uncertainty and aggregate investments on crude oil price dynamics this paper is a study of the dynamics of the oil industry and we derive a mean reverting process for the crude oil price oil is supplied by a market leader opec and by an aggregate that represents non opec producers the non opec producers take the oil price as given the cost of non opec producers depends on past investments shifts in these investments are influenced by costs of structural change in the construction industry a drop in the oil price to below a given level triggers lower investments but if the oil price reverts back to a high level investments may not immediately expand in an uncertain oil demand environment cost of structural change creates a value of waiting to invest this investment behaviour influences the oil price process

crude oil market efficiency and modeling insights from the multiscaling autocorrelation pattern abstract empirical research on market inefficiencies focuses on the detection of autocorrelations in price time series in the case of crude oil markets statistical support is claimed for weak efficiency over a wide range of time scales however the results are still controversial since theoretical arguments point to deviations from efficiency as prices tend to revert towards an equilibrium path this paper studies the efficiency of crude oil markets by using lagged detrended fluctuation analysis dfa to detect delay effects in price autocorrelations quantified in terms of a multiscaling hurst exponent i e autocorrelations are dependent of the time scale results based on spot price data for the period 1986 2009 indicate important deviations from efficiency associated to lagged autocorrelations so imposing the random walk for crude oil prices has pronounced costs for forecasting evidences in favor of price reversion to a continuously evolving mean underscores the importance of adequately incorporating delay effects and multiscaling behavior in the modeling of crude oil price dynamics

what is the optimal trading frequency in financial markets this article studies the impact of increasing trading frequency in financial markets on allocative efficiency we build and solve a dynamic model of sequential double auctions in which traders trade strategically with demand schedules trading needs are generated by time varying private information about the asset value and private values for owning the asset as well as quadratic inventory costs we characterize a linear equilibrium with stationary strategies and its efficiency properties in closed form frequent trading more double auctions per unit of time allows more immediate asset reallocation after new information arrives at the cost of a lower volume of beneficial trades in each double auction under stated conditions the trading frequency that maximizes allocative efficiency coincides with the information arrival frequency for scheduled information releases but can far exceed the information arrival frequency if new information arrives stochastically a simple calibration of the model suggests that a moderate market slowdown to the level of seconds or minutes per double auction can improve allocative efficiency for assets with relatively narrow investor participation and relatively infrequent news such as small and micro cap stocks

education social cohesion and economic growth analysis of the contribution of education to growth through its role in promoting a common culture indicates that when different cultural groups separately determine the social content of their school curricula excessive polarization can result with less than optimal growth the optimal trajectory involves a gradual reciprocal convergence of school curricula towards the middle ground this may be difficult to implement in a political context in which all agents are identified with one group or another when curricula are determined by legislative bargaining centralization of schooling may result in overly rapid homogenization in some cases and perhaps surprisingly excessive polarization in others this abstract was borrowed from another version of this item

stock price manipulation it is generally agreed that speculators can make profits from insider trading or from the release of false information both forms of stock price manipulation have now been made illegal in this article the authors ask whether it is possible to make profits from a different kind of manipulation in which an uninformed speculator simply buys and sells shares they show that in a rational expectations framework where all agents maximize expected utility it is possible for an uninformed manipulator to make a profit provided investors attach a positive probability to the manipulator being an informed trader article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

episodic liquidity crises cooperative and predatory trading we describe how episodic illiquidity arises from a breakdown in cooperation between market participants we first solve a one period trading game in continuous time using an asset pricing equation that accounts for the price impact of trading then in a multi period framework we describe an equilibrium in which traders cooperate most of the time through repeated interaction providing apparent liquidity to one another cooperation breaks down when the stakes are high leading to predatory trading and episodic illiquidity equilibrium strategies that involve cooperation across markets lead to less frequent episodic illiquidity but cause contagion when cooperation breaks down why is illiquidity rare and episodic pastor stambaugh 2003 detect only 14 aggregate low liquidity months over the time period 1962 to 1999 despite being of significant magnitude most of the episodes were short lived and were followed by long periods of liquidity 1 the origin of this empirical observation still remains a puzzle in this paper we attempt to shed light on this puzzle by developing a theoretical model in which a breakdown in cooperation between traders in the market manifests itself in predatory trading this mechanism leads to sudden and short lived illiquidity we develop a dynamic model of trading based on liquidity needs during each period a liquidity event may occur in which a trader is required to liquidate a large block of an asset in a relatively short time period this need for liquidity is observed by a tight oligopoly whose members may choose to predate or cooperate predation involves racing and fading the distressed trader to the market

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

the only game in town investors confusion between market gains and trading gains helps explain why they continue trading even though it rarely improves their performance then too some investors reason that if trading based on random selection is as likely to prove profitable as not trading based on any information whatever will result in performance better than neutral the key to the fallacy in their reasoning is the market maker who must impose a spread in order to survive

higher education and economic growth in africa abstract this paper uses panel data over the 1960 2000 period a modified neoclassical growth equation and a dynamic panel estimator to investigate the effect of higher education human capital on economic growth in african countries we find that all levels of education human capital including higher education human capital have positive and statistically significant effect on the growth rate of per capita income in african counties our result differs from those of earlier research that find no significant relationship between higher education human capital and income growth we estimate the growth elasticity of higher education human capital to be about 0 09 an estimate that is twice as large as the growth impact of physical capital investment while this is likely to be an overestimate of the growth impact of higher education it is robust to different specifications and points to the need for african countries to effectively use higher education human capital in growth policies

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

a battle of informed traders and the market game foundations for rational expectations equilibrium abstract potential manipulation of prices and convergence to rational expectations equilibrium is studied in a game without noise traders informed players with initially long and short positions bulls and bears seek to manipulate consumer expectations in opposite directions in equilibrium period 1 prices reveal the state so manipulation is unsuccessful bears and uninformed consumers sell up to their short sale limits in period 1 bulls buy in period 1 but receive arbitrage losses when the number of bulls and bears approaches infinity the equilibrium converges to the ree without short sale constraints there is a non revealing equilibrium but no revealing equilibrium

long lived private information and imperfect competition we develop a multi period auction model in which multiple privately informed agents strategically exploit their long lived information we show that such traders compete aggressively and cause most of their common private information to be revealed very rapidly in the limit as the interval between auctions approaches zero market depth becomes infinite and all private information is revealed immediately these results are in contrast to those of kyle 1985 in which the monopolistic informed trader causes his information to be incorporated into prices gradually and when the interval between auctions is vanishingly small market depth is constant over time fama 1970 defines a strong form efficient market as one in which security prices fully reflect all available information including both publicly and privately held information in a pioneering and influential article kyle 1985 develops a model in which a single privately informed trader with long lived information optimally exploits his monopoly power over time kyle s 1985 main results are i the informed trader trades in a gradual manner so that his information is incorporated into prices at a slow almost linear rate and ii when auctions are held continuously the depth of the market is constant over time however kyle s 1985 assumption of a single informed trader is strong in the sense that in actual financial markets it is reasonable to expect that at least a few players will have access to private information and will trade in the knowledge that they will face competition with other informed agents in the market 1 we develop a multi period auction model in which multiple strategic informed traders optimally exploit their long lived informational advantage we thus explore the restrictiveness of kyle s assumption of a single informed trader and also examine

beauty contests and iterated expectations in asset markets in a financial market where traders are risk averse and short lived and prices are noisy asset prices today depend on the average expectation today of tomorrow s price thus iterating this relationship the date 1 price equals the date 1 average expectation of the date 2 average expectation of the date 3 price this will not in general equal the date 1 average expectation of the date 3 price we show how this failure of the law of iterated expectations for average belief can help understand the role of higher order beliefs in a fully rational asset pricing model and explain over reaction to noisy public information

lottery markets design micro structure and macro behavior an ace approach abstract an agent based computational modeling of the lottery market is established in this paper to study the design issue in terms of the lottery tax rate as well as the emerging market behavior by using genetic algorithms and fuzzy logic lottery participants are modeled as autonomous agents who may endogenously adapt to exhibit behavioral properties consistent with well noticed behavior of lottery markets three major findings are presented first as anticipated a laffer curve is found in this model nonetheless the laffer curve has a flat top which indicates the non uniqueness of the optimal lottery tax rate second conscious selection behavior is also observed but it becomes weaker as time goes on third for the halo effect we observe exactly the opposite each of these three findings are then compared with available empirical results and the mechanism of genetic algorithms is further examined in light of the anti halo effect

gambling preferences options markets and volatility this study examines whether the gambling behavior of investors affects volume and volatility in financial markets focusing on the options market we find that the ratio of call option volume relative to total option volume is greatest for stocks with return distributions that resemble lotteries consistent with the theoretical predictions of stein 1987 we demonstrate that gambling motivated trading in the options market influences future spot price volatility these results not only identify a link between lottery preferences in the stock market and the options market but they also suggest that lottery preferences can lead to destabilized stock prices

rubble logic what did we learn from the great stock market bubble the financial analysts journal s 60th anniversary happens to coincide with the five year anniversary of the peak of the great stock market bubble of 1999 2000 the combination of proximity in time with just a bit of distance makes this year an appropriate time to consider what we may have learned from this momentous event this article suggests lessons that if we haven t learned them we should have

irreversible investment with price ceilings a model of irreversible investment in a competitive industry under demand uncertainty is developed in the absence of restrictions investment by itself will keep the price from rising above a natural ceiling that exceeds the long run average cost by an option value factor when a lower ceiling is imposed investment is triggered only by the observation of an even higher shadow price as the imposed ceiling is reduced to the long run average cost this shadow price goes to infinity and investment ceases completely because investment is depressed a tighter price ceiling generally leads to a higher long run average price

manipulation and the allocational role of prices it is commonly believed that prices in secondary financial markets play an important allocational role because they contain information that facilitates the efficient allocation of resources this paper identifies a limitation inherent in this role of prices it shows that the presence of a feedback effect from the financial market to the real value of a firm creates an incentive for an uninformed trader to sell the firm s stock when this happens the informativeness of the stock price decreases and the beneficial allocational role of the financial market weakens the trader profits from this trading strategy partly because his trading distorts the firm s investment we therefore refer to this strategy as manipulation we show that trading without information is profitable only with sell orders driving a wedge between the allocational implications of buyer and seller initiated speculation and providing justification for restrictions on short sales

presidential address asset price dynamics with slow moving capital i describe asset price dynamics caused by the slow movement of investment capital to trading opportunities the pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade such as search costs for trading counterparties or time to raise capital by intermediaries i discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions which subsided afterward after presenting examples of price reactions to supply shocks in normal market settings i offer a simple illustrative model of price dynamics associated with slow moving capital due to the presence of inattentive investors i address the implications for asset price dynamics of the apparent slow movement of investment capital to trading opportunities the arrival of new capital to an investment opportunity can be delayed by fractions of a second in some markets for example an electronic limit order book market for equities or by months in other markets such as that for catastrophe risk insurance accordingly prices respond to supply or demand shocks with a sharp reaction because of the relatively small subset of capital and thus risk bearing capacity that is immediately available to absorb a shock on short notice such a price impact is substantially reversed over time as additional capital becomes available the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of attention costs to trade as well as institutional impediments to capital movement such as search costs for trading

a transaction data study of weekly and intradaily patterns in stock returns abstract weekly and intradaily patterns in common stock prices are examined using transaction data for large firms negative monday close to close returns accrue between the friday close and the monday open for smaller firms they accrue primarily during the monday trading day for all firms significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens on monday mornings prices drop while on the other weekday mornings they rise otherwise the pattern of intraday returns is similar on all weekdays most notable is an increase in prices on the last trade of the day

how to define illegal price manipulation the term illegal price manipulation is difficult to define current us law does not explicitly define it the finance and econom ics literature uses the term manipulation in an imprecise manner this paper proposes that a trading strategy not be classified as illegal price manipulation unless the violator s intent is to pursue a scheme that undermines eco nomic efficiency both by making prices less accurate as signals for efficient resource allo cation and by making markets less liquid for risk transfer since price effects are market wide we treat the terms price manipulation and market manipulation as synonyms our definition applies equally to financial and com modities markets

the quality of schooling quantity alone is misleading although much research discusses the quantity of schooling as an effective impact on productivity and earnings most such research leaves out the idea of the quality of schooling which may cause biases in the estimated returns to schooling this paper consequently attempts to extend the standard mincerian approach to incorporate school quality as well as quantity it demonstrates how exclusion of quality in the standard procedure may cause biases in the estimated returns to years of schooling probably in the upward direction the paper explores the implications of this extension of the standard model for the case of young brazilian males it shows that the estimate of the private return to years of schooling using the preferred quality inclusive specification is only one half the estimate using the standard procedure indicating substantial upward bias in the standard estimates it further outlines a method for estimating a social return to quality and finds that it exceeds substantially the social return to quantity the paper then shows why this in turn suggests there may be an equity productivity trade off in schooling investments

trading as entertainment among 1 000 german brokerage clients for whom both survey responses and actual trading records are available investors who report enjoying investing or gambling turn over their portfolio at twice the rate of their peers including entertainment attributes as additional explanatory variables in cross sectional regressions of portfolio turnover on objective investor attributes more than doubles the fraction of the total variation of portfolio turnover that can be explained the results are robust to controlling for gender and proxies for overconfidence constructed from survey responses nonpecuniary benefits of trading thus appear to offer a straightforward explanation of the excessive trading puzzle

informed speculation with imperfect competition competitive rational expectations models have the unsatisfactory property dubbed the schizophrenia problem by hellwig that each trader takes the equilibrium price as given despite the fact that he influences that price an examination of information aggregation in a non competitive rational expectations model using a nash equilibrium in demand functions shows that the schizophrenia problem is avoided by having each trader take into account the effect his demand has on the equilibrium price given a distribution of private information across traders prices reveal less information than in the competition equilibrium and prices no longer become fully informative in the limit as noise trading vanishes or as traders become risk neutral with small traders the model may become one of monopolistic competition not perfect competition in contrast to the competitive model a reasonable model of endogenous acquisition of costly private information is obtained even when traders are risk neutral

basic needs government debt and economic growth this paper investigates the relationships between basic needs and economic growth where the interactions between output health nutrition and education are explicitly simultaneous we find a unidirectional relationship that improving basic welfare contributes strongly to labour productivity change but a clear reverse causation only from growth to nutrition there are substantial differences in the patterns of simultaneous interactions at different income and welfare levels there are strong self reinforcing effects of literacy and debt service on poverty making it difficult for poor countries to rectify their situation channelling resources towards improving health education and nutrition could bring dramatic economic returns