offset carbon emissions or pay a price premium for avoiding them a cross country analysis of motives for climate protection activities abstractthis article contributes to the economic literature on pure and impure public goods by considering two alternatives for contributing to the public good climate protection offsetting carbon emissions from conventional consumption or paying higher prices for climate friendly products we empirically examine a wide range of motives and their impact on individuals choice in favour of these two alternatives relying on data from representative international surveys our results indicate that environmental awareness warm glow motives and the desire to set a good example have the most robust effects on both climate protection activities in germany and the united states however some motives differ considerably between both alternatives and the two countries a green identity enhances the willingness to pay a price premium for climate friendly goods or services in germany while social norms seem to be of much higher relevance in the united states our results further suggest that the choice of climate

the tail index of exchange rate returns in the literature on the empirical distribution of foreign exchange rates there is now consensus that exchange rate yields are fat tailed three problems however persist 1 which class of distribution functions is most appropriate 2 are the parameters of the distribution invariant over subperiods 3 what are the effects of aggregation over time on the distribution in this paper we employ extreme value theory to shed new light on these questions we apply the theoretical results to ems data

environmental and ecological economics in the 21st century an age adjusted citation analysis of the influential articles journals authors and institutions we investigate the influence of articles authors journals and institutions in the field of environmental and ecological economics we depart from studies that investigated the literature until 2001 and include a time period that has witnessed an enormous increase of importance in the field we adjust for the age effect given the huge impact of the year of an article s publication on its influence and we show that this adjustment does make a substantial difference especially for disaggregated units of analysis with diverse age characteristics such as articles or authors we analyse 6597 studies on environmental and ecological economics published between 2000 and 2009 we provide rankings of the influential articles authors journals and institutions and find that ecological economics energy economics and the journal of environmental economics and management have the most influential articles they publish very influential authors and their articles are cited most the university of maryland resources for the future the university of east anglia and the world bank appear to be the most influential institutions in the field of environmental and ecological economics

nonlinear mean reversion in the short term interest rate using a new bayesian method for the analysis of diffusion processes this article finds that the nonlinear drift in interest rates found in a number of previous studies can be confirmed only under prior distributions that are best described as informative the assumption of stationarity which is common in the literature represents a nontrivial prior belief about the shape of the drift function this belief and the use of flat priors contribute strongly to the finding of nonlinear mean reversion implementation of an approximate jeffreys prior results in virtually no evidence for mean reversion in interest rates unless stationarity is assumed finally the article documents that nonlinear drift is primarily a feature of daily rather than monthly data and that these data contain a transitory element that is not reflected in the volatility of longermaturity yields the drift of the short term interest rate is an important determinant of a wide variety of asset prices both inside and outside the boundaries of what is often called fixed income while volatilities may be estimated relatively accurately using high frequency observations of the short rate the short rate s extreme persistence makes identifying the true shape of the drift function a particularly elusive goal if our goal is merely to fit prices then the difficulty in estimating a drift function can be avoided by backing out implied drifts using a no arbitrage approach such as hull and white 1990 or heath jarrow and morton 1992 these methods bypass the true distribution entirely focusing on solving for the risk neutral drift function that is consistent with the cross section of bond prices if our goal however is to learn from prices and to be able to assess theories such as the expectations hypothesis that link short and long rates then estimating the drift function under the true measure is unavoidable in several recent articles a variety of sophisticated econometric techniques have been brought to bear on the problem in particular

differences between continuous and discrete contingent value estimates in a split sample contingent valuation study of willingness to pay wtp for food safety improvements the dichotomous choice dc elicitation method consistently generated much larger estimates of wtp than did a continuous method little or none of these differences was due to bias introduced by the statistical techniques used with the dc data most or all of the difference was due to differences in respondent behavior in addition the continuous wtp responses showed a significant scope effect while the dc responses did not the observed difference in behavior may be attributable in part to yea saying by dc respondents

computing the constant elasticity of variance option pricing formula this paper expresses the constant elasticity of variance option pricing formula in terms of the noncentral chi square distribution this allows the application of well known approximation formulas and the derivation of a whole class of closed form solutions in addition a simple and efficient algorithm for computing this distribution is presented this paper shows that the constant elasticity of variance cev formula can be expressed as a function of the noncentral chi square distribution a simple and efficient algorithm for computing this distribution is presented approximations to this distribution can be used to estimate accurately the cev formula when the computation of the exact solution is problematic section i discusses theories and some evidence on the association between volatility and price level section ii presents the particular kind of relationship assumed by the cev model and reviews empirical evidence on the model section iii shows that the cev formula can be expressed in terms of the noncentral chisquare distribution a simple algorithm for computing this distribution is derived in section iv section v presents some special closed form solutions to this distribution finally section vi shows that an approximation to the cev formula can be used when the exact solution converges slowly i relationship between volatility and price level several theoretical arguments imply an association between stock price and volatility geske 11 black 3 and christie 5 consider the effects of financial leverage on the variance of the stock an increase in the stock price reduces the debt equity ratio of the firm and therefore reduces the variance of the stock s returns black hypothesizes that price changes may also affect volatility through their impact on operating leverage in addition he proposes a reverse causal relationship whereby an increase in the volatility of stocks causes prices to fall in rubinstein s 171 displaced diffusion model the relation between price and volatility of returns depends on the firm s asset mix and debt equity ratio empirical evidence supports the hypothesis that volatility changes with stock price schmalensee and trippi 19 examining just over a year of weekly data on six stocks find a strong negative relationship between stock price changes and changes in implied volatility black 3 using over ten years of data on thirty stocks finds that a given proportional increase decrease in stock price is

bubbles and volatility of stock prices effect of mimetic contagion the author discusses the effect of the mimetic contagion on the dynamics of stock prices each investor bids and or asks prices such that adjusts to his present value calculated from his incomplete information set and to the average price of others buyers and sellers mimetic contagion an original stochastic treatment based on the equation of motion of the probability density function is used to calculate the equations of the mean and variance of the market price as soon as the agents are mimetic and or have correlated present values then the moments of the market price are driven away from the fundamental ones copyright 1991 by royal economic society

patterns of productivity in the finance literature a study of the bibliometric distributions this study finds a bibliometric regularity in the finance literature that the number of authors publishing n papers is about 1 nc of those publishing one paper we find that the finance literature conforms very well to the inverse square law c 2 if data are taken from a large collection of journals when applied to individual finance journals we find that values of c range from 1 95 to 3 26 we also find that top rated journals have higher concentrations among their contributors this implies that the phenomenon success breeds success is more common in higher quality publications it is frequently observed in bibliometric matters and in various social phenomena that success breeds success a frequently cited paper is more likely to be cited again than one little cited an author of many papers is more likely to publish again than one who has published little a journal which has been frequently consulted is more likely to be consulted again than one of previously infrequent use this is analogous to the folk saying the rich get richer and the poor get poorer lotka s law of scientific productivity is an example of such empirical laws lotka 1926 proposes an inverse square law relating authors of scientific papers to the number of papers written by each author specifically using data in the decennial index of chemical abstracts and in the name index of auerbach s geschichtstafeln der physik lotka plots the number of authors against the number of contributions made by each author on a logarithmic scale lotka finds that the points are closely scattered around a straight line having a slope of approximately negative two on the basis of this empirical observation lotka concludes the following in the cases examined it is found that the number of persons making 2 contributions is about one fourth of those making one the number making 3 contributions is about one ninth etc the number making n contributions is about 1 n2 of those making one and of all contributors the proportion that make a single contribution is about 60 percent thus lotka s empirical finding can be summarized by the equation an a1 n2 n 1 2 3 1

escape dynamics in learning models this article illustrates and characterizes how adaptive learning can lead to recurrent large fluctuations learning models have typically focused on the convergence of beliefs towards an equilibrium however in stochastic environments there may be rare but recurrent episodes where shocks cause beliefs to escape from the equilibrium generating large movements in observed outcomes i characterize the escape dynamics by drawing on the theory of large deviations developing new results which make this theory directly applicable in a class of learning models the likelihood frequency and most likely direction of escapes are all characterized by a deterministic control problem i illustrate my results with two simple examples

a damped diffusion framework for financial modeling and closed form maximum likelihood estimation abstract asset price bubbles can arise unintentionally when one uses continuous time diffusion processes to model financial quantities we propose a flexible damped diffusion framework that is able to break many types of bubbles and preserve the martingale pricing approach damping can be done on either the diffusion or drift function oftentimes certain solutions to the valuation pde can be ruled out by requiring the solution to be a limit of martingale prices for damped diffusion models monte carlo study shows that with finite time series length maximum likelihood estimation often fails to detect the damped diffusion function while fabricates nonlinear drift function an alternative method based on ait sahalia s specification test on parametric models is proposed

treating respondent uncertainty in contingent valuation a comparison of empirical treatments this research examines the impact of uncertainty on contingent valuation responses using 1 a survey of canadian landowners about willingness to accept compensation for converting cropland to forestry and 2 a survey of swedish residents about willingness to pay for forest conservation five approaches from the literature for incorporating respondent uncertainty are used and compared to the traditional random utility model with assumed certainty the results indicate that incorporating uncertainty has the potential to increase fit but could introduce additional variance while some methods for uncertainty can be an improvement over traditional approaches it is imperative to exercise caution when making systematic judgments about the effect of uncertainty on contingent valuation responses

yes in my backyard spatial differences in the valuation of forest services and local co benefits for carbon markets in mexico forests provide many and large benefits including cost efficient climate change mitigation however international carbon markets have not stimulated the demand for forestry offsets domestic market mechanisms are emerging in many countries and forests could be highly valued through these policies as most of the benefits produced by forests are enjoyed locally here a choice experiment explores drivers of valuation and willingness to pay for forest carbon services in voluntary markets in mexico by comparing the valuation of citizens from four regions to test geographical preference for projects n 645 findings from multinomial logit models show valuation of forest carbon services is transferable and citizens would pay more for offsets from projects closer to their homes proximate forests provide a range of co benefits to local users including environmental services and opportunities for recreation factors related to valuation include sense of responsibility previous knowledge of carbon emissions previous visits to the sites regional identification and the valuation of local environmental services e g improvements in local air quality knowledge of spatial heterogeneity in valuation of the use of forest services can help to design market based instruments by identifying highly valued areas for environmental services programs and carbon markets

displaced diffusion option pricing this paper develops a new option pricing formula that pushes the underlying source of risk back to the risk of individual assets of the firm the formula simultaneously encompasses differential riskiness of the assets of the firm their relative weights in determining the value of the firm the effects of firm debt and the effects of a dividend policy with both constant and random components although this setting considerably generalizes the black scholes 1 analysis it nonetheless produces a formula via riskless arbitrage arguments that given estimated inputs is as easy to use as the black scholes formula

on rational bubbles and fat tails this paper addresses the statistical properties of time series driven by rational bubbles a la blanchard and watson 1982 using insights on the behavior of multiplicative stochastic processes we demonstrate that the tails of the unconditional distribution emerging from such bubble processes follow power laws exhibit hyperbolic decline more precisely we find that rational bubbles predict a fat power tail for both the bubble component and price differences with an exponent smaller than 1 the distribution of returns is dominated by the same power law over an extended range of large returns although power law tails are a pervasive feature of empirical data these numerical predictions are in disagreement with the usual empirical estimates it therefore appears that exogenous rational bubbles are hardly reconcilable with some of the stylized facts of financial data at a very elementary level

portfolio manager behavior and global financial crises abstract i develop a two market agent based model to study how global portfolio managers affect global financial crises and stability first i create an agent based model where fund managers make their allocation decisions between two markets and a risk free asset based on the mean variance framework simulation results reveal that global managers do not create global financial crises second i extend the base model by incorporating insights from behavioral finance where risk is instead determined by fund manager losses simulation results reveal that slight global manager losses can trigger a widening of both markets risk premium accelerating the decline in asset prices worldwide statistical analysis reveals that global managers are a stabilizing force in smaller numbers however they become destabilizing in larger numbers the ability to reduce risk by diversifying across markets results in excessive risk taking if global managers exist in larger numbers systematic over leverage may result such that a deleveraging process can lead to the spreading of financial crises

momentum investment strategies portfolio performance and herding a study of mutual fund behavior this study analyzes the extent to which mutual funds purchase stocks based on their past returns as well as their tendency to exhibit herding behavior i e buying and selling the same stocks at the same time the authors find that 77 percent of the mutual funds were momentum investors buying stocks that were past winners however most did not systematically sell past losers on average funds that invested on momentum realized significantly better performance than other funds the authors also find relatively weak evidence that funds tended to buy and sell the same stocks at the same time copyright 1995 by american economic association

financial crashes as endogenous jumps estimation testing and forecasting abstract this paper provides an econometric approach for forecasting financial crashes based on diffusion processes with time varying parameters that are driven by market fundamentals under a polynomial drift function one obtains a cusp stochastic process that entails a generalized exponential stationary distribution this class of densities is quite convenient as it allows for skewness different tail shapes and even multimodality which corresponds to multiple equilibria movements from one equilibrium to another due to changes in the market fundamentals then relates to crashes methods for fitting and evaluating this sort of diffusion processes are proposed to enable the estimation and forecast of crash events finally an empirical assessment is carried out by tracking the likelihood of a crash during the swedish twin crises in the early 1990s

a framework for journal assessment the case of the journal of banking finance abstract we propose a citation based framework for the assessment of journal influence and demonstrate its application with the journal of banking and finance the framework assesses the current position of the journal its trends and the reasons behind the trends the journal of banking and finance is found to be one of the leading journals in the field of finance and its influence is increasing in fact it appears to be part of a group of leading journals that is separating itself from the other journals that are generally regarded as peers finally the journal of banking and finance is found to be the only leading finance journal with a high concentration of banking articles making it a primary outlet for influential articles in this area

costly search and mutual fund flows this paper studies the flows of funds into and out of equity mutual funds consumers base their fund purchase decisions on prior performance information but do so asymmetrically investing disproportionately more in funds that performed very well the prior period search costs seem to be an important determinant of fund flows high performance appears to be most salient for funds that exert higher marketing effort as measured by higher fees flows are directly related to the size of the fund s complex as well as the current media attention received by the fund which lower consumers search costs

mandatory versus voluntary payment for green electricity summary renewable energy sources have a critical role to play in contributing to the diversity sustainability and security of energy supplies the main objective of the paper is to gain an understanding of the support mechanism of renewable energy sources most preferred by households in the united kingdom this paper analyses households preferences and willingness to pay under a mandatory scheme where all households contribute compared to a voluntary scheme where only those who wish to pay to support renewables do so such as the green tariffs offered by electricity suppliers in the uk two self designed contingent valuation method cvm surveys are used to explore whether the type of payment option has an impact on households willingness to pay wtp for increasing share of renewable energy in electricity generation the paper also investigates whether the type of payment mode affects respondents self reported certainty of paying their stated valuations the results indicate that the likelihood of paying a positive amount for supporting renewable energy is higher under a mandatory scheme compared to a voluntary payment option in the uk respondents have a higher level of certainty in paying their stated wtp under a mandatory payment scheme

short term interest rates as subordinated diffusions in this article we cbaracterize and estimate the process for short term interest rates using federal funds interest rate data we presume that we are observing a discrete time sample of a stationary scalar diffusion we concentrate on a class of models in whicb the local volatility elasticity is constant and the drift has aflexible specufication to accommodate missing observations and to break the link between economic time and calendar time we model the sampling scheme as an increasing process that is not directly observed we propose and implement two new methods for estimation we find evidence for a volatility elasticity between one and onehalf and two when interest rates are high local mean reversion is smaul and the mechanism for inducing stationarity is the increased volatility of the diffusion process

stock market crashes as social phase transitions abstract stock market crashes are traumatic events that affect the lives of millions of people around the globe and have tremendous economic implications crashes are not only dramatic but often completely unexpected the 1987 crash for example was not induced by any obvious trigger even after the fact it is hard to find the reason for the crash why did the market crash in october rather than in september or december why did it crash at all to this day we lack satisfactory answers this paper shows that spontaneous market crashes can be explained by a social phase transition mechanism similar to statistical mechanics phase transitions investors heterogeneity plays the role of temperature and is key in determining the possibility and magnitude of the crash the analysis suggests that dramatic crashes are a robust and inevitable property of financial markets it also implies that market crashes should be preceded by an increase in price volatility as empirically observed thus market crashes like earthquakes are a fundamental and unavoidable part of our world however we can develop early warning systems that may help minimize the damage

does ecological economics have a future contradiction and reinvention in the age of climate change abstract this paper addresses the role of neoclassical methodologies in ecological economics and the contradictions these methodologies pose to the field s critical founding principles we first consider robert costanza s treatment of nicholas stern s global deal and then survey climate change related articles published in this journal over the past five years this survey reveals how mainstream neoclassical methodologies dominate discourse and do so by marginalizing more critical political economy analyses this situation imperils the field s founding vision of a no growth steady state it also fails to address the related growth dynamics of capitalism without such a critical treatment the field s formal embrace of methodological pluralism actually entails an ideological empiricism that renders ecological economics theoretically incoherent this situation undermines the field s historical promise as an alternative economic paradigm ecological economics now faces a problematic future its survival in a form faithful to its founding vision will require an explicit choice to address its internal contradictions and reinvent itself in ways relevant to our contemporary context without such a choice ecological economics will likely succumb to an implicit acceptance of the hegemony of mainstream economic methodologies and their pro growth imperatives

the value of a finance journal publication the empirical analysis examines the salary and publication records of 311 finance professors at public research universities to calculate the worth of a top finance journal article within rank salary regressions provide measures of the direct returns of a journal publication while probit models consider the indirect returns that result from promotion ultimately the analysis uses a reduced form salary equation to measure both the direct and indirect effects of publishing a journal article depending on professorial rank the present value of the first top finance journal article is between 19 493 and 33 754 with the additional result of large returns to subsequent publications what is a journal publication worth has long been a question of interest to academics in the finance and economics profession perhaps it is the desire to value assets the need to examine personal economic decisions or simply intellectual curiosity that motivates the many studies that exist whatever the reason economists continue to investigate the marginal contribution to a professor s salary of publishing one more article in a refereed journal the extant empirical research typically uses multiple linear regression analysis to examine a publication s marginal contribution to salary regression results in studies by bertin and zivney 1992 and delorme hill and wood 1979 support a positive relation between a professor s salary and the number of publications in an attempt to capture diminishing marginal returns tuckman and leahey 1975 first estimated a salary regression inodel with dummy variables for different publication ranges i e 1 2 publications 3 4 publications 5 10 publications etc they fit an incremental salary curve to the estimated publication range coefficients and then used the nonlinear function to evaluate average and marginal returns a second important contribution to the literature by tuckman and leahey is their observation that a journal publication has both a direct and indirect

publish or perish what the competition is really doing this study provides comprehensive publications performance data over a twenty five year period for finance doctorates these data indicate that publishing one article per year in any finance journal or finance accounting economics or business journal over any prolonged period of time is a truly remarkable feat met by only 5 percent of the graduates tenure screens combining various quantity and quality requirements are examined to assess their ability to predict future publication productivity faculty and administrators seeking defensible benchmarks for evaluating faculty research productivity in finance will find that these data and results are particularly useful copyright 1992 by american finance association

latent thresholds analysis of choice data under value uncertainty in many non market valuation settings stakeholders will be uncertain as to their exact willingness to pay for a proposed environmental amenity it then makes sense for the analyst to treat this value as a random variable with distribution only known to the respondent in stated preference settings researchers have used elicitation formats with multiple bids and uncertain response options to learn about individual value distributions past efforts have focused on inference involving the expectation of individual densities this requires stringent and likely unrealistic assumptions regarding the shape or moments of individual value distributions we propose a latent thresholds estimator that focuses instead on the range i e minimum and maximum willingness to pay of individual respondents the estimator efficiently exploits correlation patterns in individual responses and does not require any restrictive assumptions on underlying values it also nests some of the existing approaches which are not statistically supported for our empirical application copyright 2012 oxford university press

alternative approaches for incorporating respondent uncertainty when estimating willingness to pay the case of the mexican spotted owl abstract this paper explores the sources and patterns of respondents uncertainty regarding their willingness to pay wtp and presents alternative approaches for incorporating this uncertainty into estimation of the logit model recently proposed approaches are compared to methods proposed in this paper which allows for incorporation of uncertainty regarding both yes and no responses these approaches are evaluated by comparing the goodness of fit and variability of mean wtp extreme recoding of uncertain yes responses as no responses reduces the logit goodness of fit and the precision of the wtp estimate incorporating the degree of uncertainty of yes responses results in the highest goodness of fit and the smallest variability of mean wtp among the various models addressing uncertainty a regression model is used to determine the significant determinants of respondent uncertainty

a comparison of alternative certainty calibration techniques in contingent valuation abstract a field test of two types of certainty calibration techniques in contingent valuation of public lands indicated that a 10 point certainty scale reduced wtp estimates by about half adjusting for uncertainty via a not sure option did not reduce wtp estimates but the variance increased there are several differences between these two ways of accounting for respondents uncertainty which may suggest why they provide different wtp value estimates and variances

the danger of assuming homogeneous expectations the capital asset pricing model the black scholes option valuation model and many other economic models rely on the assumption of homogeneous expectations what are the effects of heterogeneous expectations on price determination are the homogeneous expectations models approximately correct we compare stock price dynamics in models with homogeneous and heterogeneous expectations heterogeneous expectations appear to play a crucial role in risky asset price determination when homogeneous expectations are assumed unacceptable market inefficiencies are observed the introduction of even a small degree of diversity of expectations changes the dynamics dramatically and the result is a much more realistic market these findings make one wonder how far the equilibrium prices of the capm and black scholes model are from the true values in markets with heterogeneous expectations

endogenous leverage and asset pricing in double auctions abstract we propose a double auction mechanism for the exchange of leveraged assets and bonds in an agent based model in this framework we validate recent results in general equilibrium theory about endogenous leverage and its consequences for asset pricing we find that the institutional details of exchange are critical for a good match between the theoretical equilibrium state and the final state of the double auction specifically the outcome of the double auction is sensitive to the details of how markets for debt and collateral are coordinated and how collateral is cleared when trade is restricted to neighbours in a network final prices and allocations are significantly different from unrestricted equilibrium

underreaction to fundamental information and asymmetry in mispricing between bullish and bearish markets an experimental study abstract in contrast to existing literature we implement experimental asset markets with fluctuating fundamental values following a stochastic process therefore we can measure traders behavior in both bullish and bearish markets we observe underreaction of price changes to changes in fundamental value which induces overvaluation in bearish and undervaluation in bullish markets we also find an asymmetry between markets with bullish fundamental values and those with bearish ones as the former markets show a higher degree of informational efficiency the reason for the observed underreaction lies in the relatively large volatility of the underlying fundamental value process

social interaction and stock market participation we propose that stock market participation is influenced by social interaction in our model any given social investor finds the market more attractive when more of his peers participate we test this theory using data from the health and retirement study and find that social households those who interact with their neighbors or attend church are substantially more likely to invest in the market than non social households controlling for wealth race education and risk tolerance moreover consistent with a peer effects story the impact of sociability is stronger in states where stock market participation rates are higher

pricing and hedging path dependent options under the cev process much of the work on path dependent options assumes that the underlying asset price follows geometric brownian motion with constant volatility this paper uses a more general assumption for the asset price process that provides a better fit to the empirical observations we use the so called constant elasticity of variance cev diffusion model where the volatility is a function of the underlying asset price we derive analytical formulae for the prices of important types of path dependent options under this assumption we demonstrate that the prices of options which depend on extrema such as barrier and lookback options can be much more sensitive to the specification of the underlying price process than standard call and put options and show that a financial institution that uses the standard geometric brownian motion assumption is exposed to significant pricing and hedging errors when dealing in path dependent options

conspicuous consumption dynamics abstract we formalize veblen s idea of conspicuous consumption as two alternative forms of interdependent preferences dubbed envy and pride agents adjust consumption patterns gradually in the direction of increasing utility from an arbitrary initial state the distribution of consumption among agents with identical preferences converges to a unique equilibrium distribution when pride is stronger the equilibrium distribution has a right skewed density when envy is stronger the equilibrium is concentrated at a single point and the adjustment dynamics involve a shock wave that can be interpreted as a growing moving homogeneous middle class

escaping nash inflation an ordinary differential equation ode gives the mean dynamics that govern the convergence to self confirming equilibria of self referential systems under discounted least squares learning another ode governs escape dynamics that recurrently propel away from a self confirming equilibrium in a model with a unique self confirming equilibrium the escape dynamics make the government discover too strong a version of the natural rate hypothesis the escape route dynamics cause recurrent outcomes close to the ramsey commitment inflation rate in a model with an adaptive government

pricing lookback and barrier options under the cev process this paper examines the pricing of lookback and barrier options when the underlying asset follows the constant elasticity of variance cev process we construct a trinomial method to approximate the cev process and use it to price lookback and barrier options for look back options we find that the technique proposed by babbs for the lognormal case can be modified to value lookbacks when the asset price follows the cev process we demon strate the accuracy of our approach for different parameter values of the cev process we find that the prices of barrier and lookback options for the cev process deviate sig nificantly from those for the lognormal process for standard options the corresponding differences between the cev and black scholes models are relatively small our results show that it is much more important to have the correct model specification for options that depend on extrema than for standard options

further results on the constant elasticity of variance call option pricing model the black scholes 4 call option model is a member of the class of constant elasticity of variance call option models proposed by cox 6 while the black scholes model assumes that the volatility or instantaneous variance of return is constant through time the other members of the class allow the volatility to change with the stock price this property is of interest because empirical evidence suggests that returns to common stock are heteroscedastic and also that volatilities implied from the black scholes model and market prices of call options are not constant

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

the journal of financial economics data for the 516 papers published in volumes 1 30 of the journal of financial economics in the period 1974 91 are analyzed 477 authors from 136 institutions contributed papers and these papers received 16 231 citations according to the social science citation index lists of authors and institutions who have contributed the most papers to the jfe and a list of the mostly highly cited jfe papers show why the journal has been successful in influencing the finance and economics literature during its first 18 years

participation and investment decisions in a retirement plan the influence of colleagues choices abstract this paper investigates whether peer effects play an important role in retirement savings decisions we use individual data from employees of a large university to study whether individual decisions to enroll in a tax deferred account plan sponsored by the university and the choice of the mutual fund vendor for people who choose to enroll are affected by the decisions of other employees in the same department to overcome the identification problems we divide the departments into sub groups along gender status age and tenure lines and we instrument the average participation of each peer group by the salary or tenure structure in this group our results suggest that peer effects may be an important determinant of savings decisions

how people respond to contingent valuation questions a verbal protocol analysis of willingness to pay for an environmental regulation abstract this paper investigates what a respondent is thinking when answering a willingness to pay question in a contingent valuation using a think aloud technique from psychology called verbal protocol analysis the willingness to pay responses we observed seem to be constructed from a variety of considerations including an obligation to pay a fair share of the cost of the solution and signaling concern for a larger set of environmental issues the finding that respondents seem to construct their values at the time they are asked rather than reporting a more well defined value is seen as consistent with over two decades of research on the psychology of decision making potential uses of verbal protocols in contingent valuation studies are also discussed

likelihood based specification analysis of continuous time models of the short term interest rate an extensive collection of continuous time models of the short term interest rate is evaluated over data sets that have appeared previously in the literature the analysis which uses the simulated maximum likelihood procedure proposed by durham and gallant 2002 provides new insights regarding several previously unresolved questions for single factor models i find that the volatility not the drift is the critical component in model specification allowing for additional flexibility beyond a constant term in the drift provides negligible benefit while constant drift would appear to imply that the short rate is nonstationary in fact stationarity is volatility induced the simple constant elasticity of volatility model fits weekly observations of the three month treasury bill rate remarkably well but is easily rejected when compared with more flexible volatility specifications over daily data the methodology of durham and gallant can also be used to estimate stochastic volatility models while adding the latent volatility component provides a large improvement in the likelihood for the physical process it does little to improve bond pricing performance

discrete choice under preference uncertainty an improved structural model for contingent valuation abstract this paper is concerned with discrete choice contingent value estimation in the presence of response errors we attempt to extend the theoretical frameworks developed by hanemann 1984 amer j agric econom 66 332 341 and cameron 1988 j environ econom management 15 355 379 by introducing preference uncertainty with individual respondents we assume that respondents have incomplete knowledge about their true valuation of a nonmarket resource and thus may give wrong yes no answers on whether or not to pay a given bid amount for the resource a post decisional confidence measure for each observed yes no answer is elicited for characterizing the degree of preference uncertainty with the help of this confidence measure we develop an improved structural model for deriving value estimates data from a forest environment valuation survey are used for the empirical estimations

can defaults save the climate evidence from a field experiment on carbon offsetting programs individual preferences for environmental policies can be influenced by the frame in which choices and decisions are presented in this paper we present results of a field experiment on the contributions to carbon offsetting programs under two alternative treatments for the default option the opt in treatment asked subjects to pay for the policy proposal while the opt out treatment asked subjects if they wanted to be excluded from payment for the policy proposal the results show that the frame of the default option had a significant effect on the amount of money paid for the policy proposal subjects were more likely to accept the policy proposal if the default option was the opt out treatment the results have implications for the design of environmental policies

stated versus revealed knowledge determinants of offsetting co2 emissions from fuel consumption in vehicle use abstract this paper examines the role of prior knowledge in offsetting co2 emissions from fuel consumption in vehicle use the main result of our econometric analysis on the basis of unique representative data from drivers license holders in the usa and germany refers to the strong discrepancy between the stated and revealed knowledge of co2 offsetting the revealed knowledge measured by the correct estimation of the costs for this offsetting practice has a positive impact on the stated purchase of corresponding offsetting credits in both countries in contrast the effect of the stated knowledge of offsetting is not robust and in some cases even negative surprisingly it cannot even be confirmed that drivers license holders who claim that they are more than sufficiently informed estimate these costs more accurately

diversification as a public good community effects in portfolio choice within a rational general equilibrium model in which agents care only about personal consumption we consider a setting in which due to borrowing constraints individuals endowed with local resources underparticipate in financial markets as a result investors compete for local resources through their portfolio choices even with complete financial markets and no aggregate risk agents may herd into risky portfolios this yields a pareto dominated outcome as agents introduce community risk unrelated to fundamentals moreover if some agents are behaviorally biased or cannot completely diversify their holdings rational agents may choose more extreme portfolios and amplify the effect

estimating the demand curve for sustainable use of pesticides from contingent valuation data abstract stated preference valuation techniques are often used to assess consumers willingness to pay for food items produced in farming systems that adopt a sustainable use of pesticides sup we propose an innovative valuation methodology in which dichotomous choice contingent valuation is used to estimate the demand curve price quantity relationship for such food items where price means price premium for the sup output quantity is the probability of choosing sup and the conventional food product is kept available in the market at the current market price this methodology can be used to evaluate market differentiation as a policy option to promote the sup the methodology is tested with data from a sample of urban consumers of fruits and vegetables in portugal the estimated demand curve is used to define the price level maximizing the total premium revenue for the sup sector as a whole this optimal level of the price premium is 77 55 or 163 of the value of the monthly basket of fruits and vegetables at current prices adopting the optimal price premium will decrease the number of consumers of sup food by 54 the reduction is even higher for low income consumers 80 leaving them more exposed to the risks of pesticide use

offsetting versus mitigation activities to reduce hbox co _ 2 emissions a theoretical and empirical analysis for the u s and germany this paper studies the voluntary provision of public goods that is partially driven by a desire to offset for individual polluting activities we first extend existing theory and show that offsets allow a reduction in effective environmental pollution levels while not necessarily extending the consumption of a polluting good we further discuss the impact of an increased environmental preference on purchases of offsets and mitigation activities several theoretical results are then econometrically tested using a novel dataset on activities to reduce hbox co 2 emissions for the case of vehicle purchases in the u s and germany we show that environmental preference triggers the stated use of hbox co 2 offsetting and mitigation channels in both countries however we find strong country differences for the stated purchase of hbox co 2 offsets while such activities are mainly triggered by a high general awareness of the climate change problem in the u s the perception that road travel is responsible for hbox co 2 emissions to a large extent is more important for driver s license holders in germany

herding among security analysts the paper shows that the buy or sell recommendations of security analysts have a signi cant positive in uence on the recommendations of the next two analysts this in uence can be traced to short lived information in the most recent revisions in contrast the in uence of the prevailing consensus is not stronger if the consensus accurately forecasts subsequent stock price movements this indicates consensus herding consistent with models in which analysts herd based on little information the consensus also has a stronger in uence when market conditions are favorable the resulting poorer information aggregation could cause bull markets to be intrinsically more fragilea e g bikhchandani et al j political economy 100 5 1992 992 1026 2000 elsevier science s a all rights reserved jel classixcation g11 g14 g24

journal communication and influence in financial research this article uses the articles and citations from a set of eight finance journals to explore interjournal citation patterns the research interests of individual journals each journal s influence in particular areas areas of recent interest to finance and the extent of interdisciplinary borrowing by finance we find the following two journals comprise the research core of finance research most journals publish in a variety of research areas but are influential in a smaller number a higher level of interest in financial markets than in corporate finance or financial institutions and an overall low level of borrowing from outside disciplines in this study we use journal publication and citation data to explore the communication of knowledge through journals such data are used in finance research by zivney and bertin 1992 chung and cox 1990 and heck and cooley 1988 among others to explore research productivity and by jensen et al 1990 to explore journal ratings most recently schwert 1993 employs such data in examining the influence of the journal of financial economics since its inception these types of data are also useful for investigating knowledge communication because they provide evidence of both transmission and reception of knowledge among journals the remainder of this article is organized to address the following three issues interjournal communication journal publication and influence across research areas and interdisicplinary borrowing in the first section we describe our data we study interjournal communications by examining the citation patterns of an eight journal set in section ii then in section iii we investigate journal publication and influence by categorizing each journal s articles by research area and by measuring the citation frequency of a journal s articles in individual research areas we also explore the areas of high overall publication interest in section iv we examine the level of interdisciplinary borrowing in finance by categorizing every citation of every article by discipline concluding remarks are in section v

a microscopic model of the stock market cycles booms and crashes abstract we present a model of the stock market based on the behavior of individual investors simulations exhibit rich phenomena which include cycles booms and crashes low dividend yield and more homogeneous market participants are shown to induce crashes

construct validity of dichotomous and polychotomous choice contingent valuation questions in this note we conduct construct validity tests for dichotomous choice dc and polychotomous choice pc contingent valuation questions contrary to previous results we find that dc and pc estimates of willingness to pay are theoretically valid convergent valid and similar in terms of statistical precision similar to previous results pc respondents are less sensitive to information than dc respondents we conclude that dc and pc valuation questions are construct valid for this study sequential pc valuation questions could be used in studies where obtaining information about the certainty or intensity of respondent preferences would be useful

on the pricing of european and american foreign currency call options abstract this study uses cox ross analysis and dynamic programming techniques to price foreign currency call options we show that under certain conditions the american call price will exceed its european counterpart while under other conditions the two prices will be identical we find that the american premium is a complex function of the degree to which an option is in or out of the money and that this premium is greatest when an option is near in or out we present empirical evidence which shows that the american model significantly improves upon a european model however significant pricing errors associated with the american model remain

market liquidity hedging and crashes in the absence of significant news hedging strategies were blamed for the stock market crash of october 1987 but traditional models cannot explain how a relatively small amount of selling could cause so large a price drop the authors develop a rational expectations model in which prices play an important role in shaping expectations markets are much less liquid in their model than in traditional models discontinuities or crashes can occur even with relatively little hedging the model is consistent with theories as disparate as keynes beauty contest insights and thom s catastrophe analysis and suggests means to reduce volatility copyright 1990 by american economic association

bubbles and crashes gradient dynamics in financial markets abstract fund managers respond to the payoff gradient by continuously adjusting leverage in our analytic and simulation models the base model has a stable equilibrium with classic properties however bubbles and crashes occur in extended models incorporating an endogenous market risk premium based on investors historical losses and constant gain learning when losses have been small for a long time asset prices inflate as fund managers increase leverage then slight losses can trigger a crash as a widening risk premium accelerates deleveraging and asset price declines

financial crises and interacting heterogeneous agents in this paper we examine various types of financial crises and conjecture their underlying mechanisms using a deterministic heterogeneous agent model ham in a market maker framework forward looking investors update their price expectations according to psychological trading windows and cluster themselves strategically to optimize their expected profits the switches between trading strategies lead to price dynamics in market that subsequently move price up and down and in the extreme case cause financial crises the model suggests that both fundamentalists and chartists could potentially contribute to the financial crises

respondent uncertainty in a contingent market for carbon offsets abstract the main objective of this paper is to provide additional empirical evidence of what explains respondent uncertainty in contingent valuation cv and how this in turn affects stated willingness to pay wtp air travelers asked to pay a carbon travel tax to offset carbon emissions from flying were asked how likely it is that they will actually pay if the tax is voluntary when changing the market compliance imperative from a mandatory carbon tax to a voluntary contribution a third of all air travelers consider it unlikely they will actually pay their stated wtp amount an ordered probit estimation approach is applied to identify the sources of respondent uncertainty besides the bid price respondent sense of responsibility and belief in the effectiveness of the voluntary carbon market are among the main reasons for the experienced uncertainty