does exchange rate variability depress trade flows evidence from error correction models this paper examines the impact of exchange rate volatility on the trade flows of the g 7 countries in the context of a multivariate error correction model the error correction models do not show any sign of parameter instability the results indicate that the exchange rate volatility has a significant negative impact on the volume of exports in each of the g 7 countries assuming market participants are risk averse these results imply that exchange rate uncertainty causes them to reduce their activities change prices or shift sources of demand and supply in order to minimize their exposure to the effects of exchange rate volatility this in turn can change the distribution of output across many sectors in these countries it is quite possible that the surprisingly weak relationship between trade flows and exchange rate volatility reported in several previous studies are due to insufficient attention to the stochastic properties of the relevant time series copyright 1993 by mit press

variations in trading volume return volatility and trading costs evidence on recent price formation models patterns in stock market trading volume trading costs and return volatility are examined using new york stock exchange data from 1988 intraday test results indicate that for actively traded firms trading volume adverse selection costs and return volatility are higher in the first half hour of the day this evidence is inconsistent with the admati and pfleiderer 1988 model which predicts that trading costs are low when volume and return volatility are high interday test results show that for actively traded firms trading volume is low and adverse selection costs are high on monday which is consistent with the predictions of the foster and viswanathan 1990 model academics investors and regulators alike are now intensively focused upon understanding the volatility of asset returns and its relation to trading volume this interest was undoubtedly piqued by the market break of october 1987 a time during which volatility and trading volume reached unprecedented levels but even beforehand researchers observed regular differences in the return process for various hours of the day and days of the week research concerning temporal patterns in stock market volatility and volume falls in two groups studies that document observed patterns and studies that develop models to predict patterns among the studies in the first group are oldfield and rogalski 1980 french and roll 1986 stoll and whaley 1990 harris 1986 and wood mcinish and ord 1985 who report evidence on seasonalities in daily and weekly return variances among the regularities that have been documented using interday data is that volatility is higher when the market is open than when it is closed oldfield and rogalski 1980 french and roll 1986 and stoll and whaley 1990 for example point out significant differences in return volatility between trading

transparency and economic policy we provide a two period model of political competition in which voters imperfectly observe the electoral promises made to other voters imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary government spending is larger than in a world of perfect observability transfers are partly financed through government debt and the size of the debt is higher in less transparent political systems the model provides an explanation of fiscal churning it also predicts that groups whose transfers are less visible to others receive higher transfers and that imperfect transparency of transfers may lead to underprovision of public goods from the policy perspective the main novelty of our analysis is a separate evaluation of the transparency of spending and the transparency of revenues we show that the transparency of the political system does not unambiguously improve efficiency transparency of spending is beneficial but transparency of revenues can be counterproductive because it endogenously leads to increased wasteful spending

exchange rate exchange rate volatility and foreign direct investment in the light of the importance of foreign direct investment fdi for the promotion of economic development this paper examines the impact of the changes in the real exchange rate and its volatility on fdi examining japan s fdi by industries we found that the depreciation of the currency of the host country attracted fdi while the high volatility of the exchange rate discouraged fdi our results suggest the need to avoid over valuation of the exchange rate and to maintain stable but flexible exchange rate in order to attract fdi

realized volatility transmission the role of jumps and leverage effects this paper is the first to employ a multivariate extension of the lhar cj model for realized volatility of corsi and reno 2012 considering continuous and jump volatility components and leverage effects the model is applied to financial s p 500 commodity wti crude oil and forex us eur intraday futures data and allows new insights in the transmission mechanisms among these markets besides significant leverage effects we find that the jump components of all considered assets do not contain incremental information for the one step ahead realized volatility the volatility of s p 500 and us eur exchange rate futures exhibits significant spillovers to the realized volatility of wti moreover decreasing equity prices appear to increase volatility in other markets while strengthening of the us seems to calm down the crude oil market

information trading volume and international stock return comovements evidence from cross listed stocks we investigate the joint dynamics of returns and trading volume of 556 foreign stocks cross listed on u s markets heterogeneous agent trading models rationalize how trading volume reflects the quality of traders information signals and how it helps to disentangle whether returns are associated with portfolio rebalancing trades or information motivated trades based on these models we hypothesize that returns in the home u s market on high volume days are more likely to continue to spill over into the u s home market for those cross listed stocks subject to the risk of greater informed trading our empirical evidence provides support for these predictions which confirms the link between information trading volume and international stock return comovements that has eluded previous empirical investigations

can we reject linearity in an har rv model for the s p 500 insights from a nonparametric har rv this article tests the linearity assumption underlying the popular heterogeneous autoregressive model for realized volatility har rv we implement a consistent model specification test that is robust to both distributional and model misspecification we find that using a nonparametric har rv nphar rv we are unable to reject the null of linearity

covariance breakdowns and connectedness of crude oil futures markets with non synchronous data this article identifies the breakdowns in the covariance of three benchmark crude oil futures markets wti brent and dubai and investigates the changes of market connectedness across the breakdow

deutsche mark dollar volatility intraday activity patterns macroeconomic announcements and longer run dependencies this paper provides a detailed characterization of the volatility in the deutsche mark dollar foreign exchange market using an annual sample of five minute returns the approach captures the intraday activity patterns the macroeconomic announcements and the volatility persistence arch known from daily returns the different features are separately quantified and shown to account for a substantial fraction of return variability both at the intraday and daily level the implications of the results for the interpretation of the fundamental driving forces behind the volatility process is also discussed the efficient market hypothesis contends that financial asset prices provide rational assessments of fundamental values and future payoffs by implication price changes should reflect the arrival and processing of all relevant new information however the proportion of return variability that can be ascribed to public news announcements is low for example cutler poterba and summers 1989 find that even the largest daily price changes in the stock market generally cannot be associated with any significant economic news 1 moreover proxies for the flow of public information e g the number of news items released by reuter s news service berry and hiowe 1994 or dow jones company mitchell and mulherin 1994 explain little of the overall variation thus if private information is ruled out proponents of rational price formation have to assert the existence of important news items

paying politicians theory and evidence this paper looks at the theory behind the idea that paying politicians better will improve their performance the paper lays out a political agency model with adverse selection and moral hazard where politicians are subject to two period term limits this model provides a number of predictions about how the pay of politicians affects agency problems we also consider what happens when the pool of politicians is endogenous the main ideas in the model are confronted with data on u s governors jel d72 j33

can speculative trading explain the volume volatility relation we derive a speculative trading model with endogenous informed trading that yields a conditionally heteroscedastic time series for trading volume and the squared price changes we use half hourly price change and volume data for ibm during 1988 to test the model and estimate the structural parameters using the simulated method of moments estimation procedure although the model seems to do a reasonable job fitting the unconditional moments of the volume and the squared price change processes it fares less well in fitting the relation between current trading volume and lags of trading volume and squared volume s and its lag s relation to squared price changes

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

macroeconomic announcements and asymmetric volatility in bond returns this study analyses the impact of macroeconomic news announcements on the conditional volatility of bond returns using daily returns on the 1 3 5 and 10 year us treasury bonds we find that announcement shocks have a strong impact on the dynamics of bond market volatility our results provide empirical evidence that the bond market incorporates the implications of macroeconomic announcement news faster than other information moreover after distinguishing between types of macroeconomic announcements releases of the employment situation and producer price index are especially influential at the intermediate and long end of the yield curve while monetary policy seem to affect short term bond volatility

time varying international stock market interaction and the identification of volatility signals abstract this paper investigates the dependency of international stock market interaction on financial volatility we show in a stylized economic model that volatility dependent cross market spillovers can be interpreted in two different ways as indicating information flow or uncertainty if higher volatility in one market leads to higher lower reactions in another market volatility reflects information uncertainty we apply a simultaneous time varying coefficient model where structural arch type variances serve two purposes governing the time variation of spillovers and ensuring statistical identification we analyze data of us and further stock markets indeed we find strong nonlinear volatility dependent spillovers

political careers or career politicians two main career paths are prevalent among politicians in modern democracies there are career politicians i e politicians who work in the political sector until retirement and political careers i e there are politicians who leave politics before retirement and work in the private sector in this paper we propose a dynamic equilibrium model of the careers of politicians in a political economy with a private sector and a political sector where individuals are heterogeneous with respect to their market ability as well as their political skills we characterize the conditions under which the two career paths emerge in equilibrium and establish a number of comparative statics results with respect to the quality of politicians and their careers

modeling and predicting oil vix internet search volume versus traditional mariables abstract as a key variable in option pricing models and monetary policy decisions volatility is an important factor in valuing and hedging investments this paper models and predicts the cboe crude oil volatility index using heterogeneous autoregressive har models that include traditional macro finance variables as well as abnormal search volume from google asvi we find that a pure har model fits oil volatility remarkably well when adding asvi we discover that this variable has a significant and positive relationship with oil volatility this relationship remains statistically significant when traditional financial and macroeconomic variables are accounted for therefore asvi is not only a good proxy for traditional macro finance variables but also carries additional information more importantly out of sample predictions show that asvi has high economic value allowing traders of volatility exposed portfolios to significantly increase returns

real exchange rate risk expectations and the level of direct investment four models of direct investment are analyzed assuming various relationships between foreign and domestic production the direct effect of risk adjusted expected real foreign currency appreciation is to lower foreign capital cost thus stimulating direct investment however when costs of other inputs are also affected induced productivity changes or output price changes may offset the direct effect reducing direct investment pooled estimation results for u s annual bilateral direct investment flows to five industrialized countries show significant reductions associated with expected appreciation of real foreign currency and significant increases associated with risk these results are consistent with the model where in response to risk the multinational firm reduces exports to the foreign country but offsets this somewhat by increasing foreign capital input and production

the effects of real and nominal uncertainty on inflation and output growth some garch m evidence in this paper we use garch m methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the united states from 1948 to 1996 we find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate we also find no support for the idea that more risky output growth is associated with a higher average real growth rate our key result is that in a variety of models and sample periods inflation uncertainty significantly lowers real output growth copyright 2000 john wiley sons ltd

the price variability volume relationship on speculative markets this paper concerns the relationship between the variability of the daily price change and the daily volume of trading on the speculative markets our work extends the theory of speculative markets in two ways first we derive from economic theory the joint probability distribution of the price change and the trading volume over any interval of time within the trading day and second we determine how this joint distribution changes as more traders enter or exit from the market the model s parameters are estimated by fiml using daily data from the 90 day t bills futures market the results of the estimation can reconcile a conflict between the price variability volume relationship for this market and the relationship obtained by previous investigators for other speculative markets this paper concerns the relationship between the variability of the daily price change and the volume of trading on speculative markets previous empirical studies 2 3 6 12 14 16 of both futures and equity markets always find a positive association between price variability as measured by the squared price change ap2 and the trading volume 2 there are two explanations for the relationship clark s 2 explanation which is secondary to his effort to explain why the probability distribution of the daily price change is leptokurtic emphasizes randomness in the number of within day transactions in clark s model the daily price change is the sum of a random number of within day price changes the variance of the daily price change is thus a random variable with a mean proportional to the mean number of daily transactions clark argues that the trading volume is related positively to the number of within day transactions and so the trading volume is related positively to the variability of the price change the second explanation is due to epps and epps 6 their model examines the mechanics of within day trading the change in the market price on each within day transaction or market clearing is the average of the changes in all of the traders reservation prices epps and epps assume there is a positive relationship between the extent to which traders disagree when they revise their reservation prices and the absolute value of the change in the market price that is an increase in the extent to which traders disagree is associated with a larger absolute price change the price variability volume relationship arises then because the volume of trading is positively related to the extent to which traders disagree when they revise their reservation prices

heteroskedasticity in stock return data volume versus garch effects this paper provides empirical support for the notion that autoregressive conditional heterqskedasticity arch in daily stock return data reflects time dependence in the process generating information flow to the market daily trading volume used as a proxy for information arrival time is shown to have significant explanatory power regarding the variance of daily returns which is an implication of the assumption that daily returns are subordinated to intraday equilibrium returns furthermore arch effects tend to disappear when volume is included in the variance equation the autoregressive conditiqnal heteroskedasticity arch process of engle 1982 has been shown to provide a good fit for many financial return time series 1 arch imposes an autoregressive structure on conditional variance allqwing volatility shocks to persist over time this persistence captures the propensity of returns of like magnitude to clu ter in time and can explain the well documented nonnormality and nonstability of empirical asset return distributions see especially fama 1965 an appealing explanation for the presence of arch is based upon the hypothesis that daily returns are generated by a maiture of distributions in which the rate of daily information arrival is the stochastic mixing variable as suggested by diebold 1986 gallant hsieh and tauchen 1988 and stock 1987 1988 arch might capture the time series properties e g serial correlation of this mixing variable hqwever this linkage has not been broadly documented with the datia the objective of this study is to examine the validity of this explanation for daily stock returns the empirical strategy exploits the implication of the mixture model that the variance of daily price increments is heteroskedastic specifically positively related to the rate of daily information arrival using daily trading volume as a proxy for the mixing variable we show that for a sample of 20 common stocks arch effects vanish when volume is included as an explanatory variable in the conditional variance equation

volatility components leverage effects and the return volatility relations abstract this paper investigates the risk return trade off by taking into account the model specification problem market volatility is modeled to have two components one due to the diffusion risk and the other due to the jump risk the model implies merton s icapm in the absence of leverage effects whereas the return volatility relations are determined by interactions between risk premia and leverage effects in the presence of leverage effects empirically i find a robust negative relationship between the expected excess return and the jump volatility and a robust negative relationship between the expected excess return and the unexpected diffusion volatility the latter provides an indirect evidence of the positive relationship between the expected excess return and the diffusion volatility

public information arrival and volatility of intraday stock returns abstract this study employs firm specific announcements as a proxy for information flows and investigates the information volatility relation using high frequency data from the australian stock exchange our analysis reveals a positive and significant impact of the arrival rate of the selected news variable on the conditional variance of stock returns even after controlling for the potential effects of trading volume and high opening volatility furthermore the inclusion of the news variable in the conditional variance equation of the generalized autoregressive conditional heteroscedastic model also reduces volatility persistence especially with intraday data combined with the evidence that news arrivals display a very strong pattern of autocorrelation our results are consistent with the mixture of distribution hypothesis which attributes conditional heteroscedasticity of stock returns to time dependence in the news arrival process