improving prediction market forecasts by detecting and correcting possible over reaction to price movements abstract we examine the impact of price trends on the accuracy of forecasts from prediction markets in particular we study an electronic betting exchange market and construct independent variables from market price odds time series from 6058 individual markets a dataset consisting of over 8 4 million price points using a conditional logit model we find that a systematic relationship exists between trends in odds and the accuracy of odds implied event probabilities the relationship is consistent with participants over reacting to price movements in particular in different time segments of the market increasing and decreasing odds lead respectively to under and over estimation of odds implied probabilities we develop a methodology to detect and correct the erroneous forecasts associated with these trends in odds in order to considerably improve the quality of forecasts generated in prediction markets

some evidence on herding behavior of u s banks the authors examine the international lending decisions of u s commercial banks of different sizes from 1977 to 1982 for evidence ofthe ex istence of herding behavior granger sims causality tests for the loans gran ted by the top nine the next fifteen and the remaining u s banks provide no c lear evidence of herding between the top nine and the next fifteen banks there is however evidence that the remaining banks mostly small ones herded behind the top twenty four banks overall the analysis presented here points to a very weak herding behavior copyright 1987 by ohio state university press

modeling a large population of traders mimesis and stability abstract we introduce a method of accurately and efficiently modeling a large population of participants in a financial market each participant is modeled as having an internal preference state affected by the continual arrival of exogenous information and by the behavior of others in order to describe a community of traders we introduce a population equation that is derived rigorously from the underlying single agent model the population equation is used to investigate collective behavior with mimetic interactions we observe and study the sharp transitions in parameter space from a stable time independent regime to instability where the demand and supply diverge sharply

forecasting metal prices do forecasters herd abstract we analyze more than 20 000 forecasts of nine metal prices at four different forecast horizons we document that forecasts are heterogeneous and report that anti herding appears to be a source of this heterogeneity forecaster anti herding reflects strategic interactions among forecasters that foster incentives to scatter forecasts around a consensus forecast

banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

corporate conservatism and relative compensation this paper demonstrates that in a simple setting with managerial concern for reputation and asymmetric information on ability most managers may refrain from undertaking innovations that stochastically dominate an industry standard common components of uncertainty lead to market inferences of managerial ability based on relative performance managers who undertake the industry standard are consequently evaluated with a more accurate benchmark than those innovating discontinuities in compensation when performance is low because of firings lead managers to have differing valuations of an accurate benchmark depending on type in particular very high and very low ability managers are more likely to undertake superior innovations than those of average ability

quantile relationship between oil and stock returns evidence from emerging and frontier stock markets abstract this study extends the literature on the asymmetric effect of oil price fluctuations on emerging and frontier stock markets via a quantile on quantile approach that allows to capture normal and extreme states in each respective market we find that oil risk exposures are heterogeneous across the emerging and frontier stock markets and indeed display quantile specific characteristics observing uniform patterns of oil risk exposures within groups of countries that include both importers and exporters we argue that oil price risk serves as a systematic risk proxy capturing the market s concerns regarding global growth expectations rather than a simple import export commodity our findings suggest that signals from the oil market either via measures of trading activity in oil futures or changes in basis values could be utilized by policy makers to improve models of stock market volatility

security analysis and trading patterns when some investors receive information before others in existing models of information acquisition all informed investors receive their information at the same time this article analyzes trading behavior and equilibrium information acquisition when some investors receive common private information before others the model implies that under some conditions investors will focus only on a subset of securities herding while neglecting other securities with identical exogenous characteristics in addition the model is consistent with empirical correlations that are suggestive of oft cited trading strategies such as profit taking short term position reversal and following the leader mimicking earlier trades in existing models of information acquisition all informed investors receive their information at the same time while these models provide many important insights in reality some investors either fortuitously or owing to superior skill acquire pertinent information before others by being first an investor can exploit this information to great advantage information that is uncovered only slightly later is less valuable even if it has not yet been publicly revealed we show in this article that the sequential nature of information arrival has a significant effect on both the trading decisions and the types of information collected by investors the model we develop describes the investment choices of a set of competitive risk averse investors who investigate the long term prospects of firms lucky or high ability investors uncover the

volatility spillovers between oil prices and stock sector returns implications for portfolio management abstract in this article we take a recent generalized var garch approach to examine the extent of volatility transmission between oil and stock markets in europe and the united states at the sector level the empirical model is advantageous in that it typically allows simultaneous shock transmission in the conditional returns and volatilities insofar as volatility transmission across oil and stock sector markets is a crucial element for portfolio designs and risk management we also analyze the optimal weights and hedge ratios for oil stock portfolio holdings with respect to the results our findings point to the existence of significant volatility spillover between oil and sector stock returns however the spillover is usually unidirectional from oil markets to stock markets in europe but bidirectional in the united states our back testing procedures finally suggest that taking the cross market volatility spillovers estimated from the var garch models often leads to diversification benefits and hedging effectiveness better than those of commonly used multivariate volatility models such as the ccc garch of bollerslev 1990 the diagonal bekk garch of engle and kroner 1995 and the dcc garch of engle 2002

speculative prices and popular models t he rational expectations revolution in economics was born of the recognition that the expectations people hold for future economic variables are fundamental to their behavior thus our economists economic models require their those who make up the economy economic models models which they use to generate their expectations the key idea of rational expectations models is to collapse the two models into one to assume that people know or behave as if they know the true model that describes the economy this idea allows economists to construct simple and elegant models of the economy models that are appealing theoretically and that can be studied without collecting any data about the models in the minds of economic actors the problem with the rational expectations models is that collapsing the two kinds of models into one is a gross oversimplification obviously the popular models the models that are used by the broad masses of economic actors to form their expectations are not the same as those held by economists once one accepts the difference economic modelling cannot proceed without collecting data on the popular models themselves this paper reports on such a data collection effort on popular models using questionnaire survey methods with the purpose of understanding speculative markets i will report here on my research to understand the u s stock market crash of october 1987 research fumiko konya yoshiro tsutsui and i undertook to understand the japanese stock market crash of october 1987 research karl case and i undertook to understand recent real estate booms and research john pound and i undertook to understand the periodic hot markets for initial public offerings ipo s of common stock

price volatility trading volume and market depth evidence from futures markets the relations between volume volatility and market depth in eight physical and financial futures markets are examined evidence suggests that linking volatility to total volume does not extract all information when volume is partitioned into expected and unexpected components the paper finds that unexpected volume shocks have a larger effect on volatility further the relation is asymmetric the impact of positive unexpected volume shocks on volatility is larger than the impact of negative shocks finally consistent with theories of market depth the study shows large open interest mitigates volatility

primary schooling cognitive skills and wages in south africa using a fairly rich data set from south africa the paper finds that despite the sobriquet gutter education the african schooling systems help to create cognitive skills and these skills are a determinant of wage levels various robust estimators are used but the influential outlier problem does not turn out to be serious computational skills appear to be more important than comprehension skills in influencing wages the african primary schooling system was an extremely poor generator of computational skill the seven year course raising the computational test score by 13 if that a policy implication is that productivity could be raised by certain near costless reallocations of resources in favour of mathematical learning

coase s choice of methodology this paper examines the nature of ronald h coase s realism by considering the relationship between theories and facts in his methodology i focus especially on coase s criticisms of friedman s 1953 essay as set out in a lecture published in 1982 it is shown that in developing his argument coase applies his institutional economics to address the question of how economists operating within a regulated market for ideas choose their theories he calls for realism in methodology and carries out an empirical study of economists choices he explores how the profession is regulated and highlights how discourse impacts on the functioning of science a key question addressed within this paper is how can coase maintain a sociological and rhetorical view of science without falling into relativism i identify the different motives for theory choice that coase considers and show that his answer is both institutional and epistemic this helps to clarify the status of the empirical basis in coase s methodology and sheds new light on the nature of his realism i conclude by carrying out a reflexive analysis of coase s text as a text that attempts to justify the methodology on which it is itself based

adoption of agricultural innovations in developing countries a survey this paper reviews various studies which have provided a description and possible explanation to patterns of innovation adoption in the agricultural sector the survey points out that the tendency of many studies to consider innovation adoption in dichotomous terms adoption nonadoption may not be appropriate in many cases where the actual decisions are defined over a more continuous range more attention needs to be given to the socio cultural and institutional environment in area studies so that their interrelation with economic factors affecting adoption can be inferred the presence of several interrelated innovations is another aspect that needs to be considered more carefully in future research since a number of simultaneous decisions may be involved furthermore the possibility of regular sequential patterns in adopting components of a new technological package should be specifically addressed in future studies finally the impact of differential adoption rates on land holding distribution merits attention in future research

rational herding in financial economics abstract this paper briefly describes recent papers on the economics of rational herding in financial markets some models can predict perfect herding in which rational agents all act alike without any countervailing force such herding typically arises either from direct payoff externalities negative externalities in bank runs positive externalities in the generation of trading liquidity or in information acquisition principal agent problems based on managerial desire to protect or signal reputation or informational learning cascades the paper also provides a few pointers to related literature and suggests issues to be addressed in future research

herding behaviour in energy stock markets during the global financial crisis sars and ongoing covid 19 abstract environmental change created worldwide interest in investing in renewable energy less reliance on fossil fuels would have a substantial influence on investors for alternative energy especially renewable energy the literature has concentrated on empirical studies of herding behaviour in finance but not in renewable energy this paper fills the gap by investigating herding in renewable energy using daily closing prices in renewable and fossil fuel energy stock returns in the usa europe and asia for march 24 2000 may 29 2020 which covers the global financial crisis gfc 2007 2009 the coronavirus crises of sars 2003 and the ongoing covid 19 2019 2020 pandemic the paper shows that 1 for low extreme oil returns investors are more likely to display herding in the stock market 2 for sars and covid 19 herding is more likely during extremely high oil returns after the gfc and 3 herding is more likely during periods of extremely low oil returns during the coronavirus crises these results suggest that after the gfc investors are more sensitive to asset losses so they will be more likely to display herding in the stock market however during sars and covid 19 investors panic so they may unwisely sell their assets there are strong cross sector herding spillover effects from us fossil fuel energy to renewable energy especially before the gfc while the us fossil fuel energy market has a significant influence on the europe and asia renewable energy returns during covid 19 during sars which was not a pandemic us fossil fuels only had an impact on us renewable energy returns

foreign portfolio investors before and during a crisis different categories of foreign portfolio investors in korea have differences as well as similarities in their trading behavior before and during the currency crisis first non resident institutional investors are always positive feedback traders whereas resident investors were negative feedback contrarian traders before the crisis but switch to be positive feedback traders during the crisis second individual investors herd significantly more than institutional investors non resident institutional as well individual investors herd significantly more than their resident counterparts third differences in the western and korean news coverage are correlated with differences in net selling by non resident investors relative to resident investors

on the comovement of commodity prices we present strong evidence against the excess comovement hypothesis that the prices of commodities move together beyond what can be explained by fundamentals prior studies employ broad macroeconomic indicators to explain common price movements and potentially correlated fundamentals are not controlled for we use inventory and harvest data to fit a partial equilibrium model that more effectively captures the variation in individual prices the model explains the majority of the comovements among commodities with high price correlation and all of the comovements among those with marginal price correlation common movements in supply factors appear to play an important role in the observed comovements in commodity prices

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

bank runs as an equilibrium phenomenon a standard demand deposit contract in which individuals are entitled to their full deposit at any time provided the bank is solvent is analyzed in a context in which there are no exogenous events on which agents condition their behavior and a unique equilibrium involving a bank run with positive probability is shown to exist

forecasting the conditional volatility of oil spot and futures prices with structural breaks and long memory models this paper extends previous studies by investigating the relevance of structural breaks and long memory in modeling and forecasting the conditional volatility of oil spot and futures prices using a variety of garch type models our results can be summarized as follows first we provide evidence of parameter instability in five out of nine garch based conditional volatility processes for energy prices second long memory is effectively present in all the series considered and a figarch model seems to better fit the data but the degree of volatility persistence diminishes significantly after adjusting for structural breaks finally the out of sample analysis shows that volatility models accommodating instability and long memory characteristics of the data provide the best volatility forecasts for most cases

the coasean analysis of lighthouse financing myths and realities in the lighthouse in economics coase r h journal of law and economics vol 17 no 2 357 76 1974 coase reached the conclusion that in england there existed a relatively efficient privately financed lighthouse system which would refute economists traditional statements concerning the production of public goods the purpose of this paper is to challenge his conclusion we first show that from a methodological and theoretical perspective the lighthouse is consistent with the problem of social cost coase r h journal of law and economics vol 3 1 44 1960 then applying coase s own method historical case studies we attempt to re examine the respective roles and efficiencies of private initiative and government

relationship between the oil price volatility and sectoral stock markets in oil exporting economies evidence from wavelet nonlinear denoised based quantile and granger causality analysis abstract this paper examines the extent of volatility between oil price and sectoral indices in the gulf cooperation council gcc countries by using quantile regression analysis qra for the return s series and denoised series over the period 2006 2017 four sectors are found to offer diversification opportunities during a high market i e 90th quantile all the sectors are found interdependent of oil price volatility however the bank and insurance sectors are insusceptible to oil price volatility during the 10th 25th and 75th quantiles in addition qra results for wavelet nonlinear denoising with a soft thresholding series indicate that all the sectors are interdependent of oil price volatility but that the aggregate market index transport and telecommunication sectors are insensitive to oil price volatility during the 75th and 90th quantiles this highlights the usefulness of denoising the financial returns series when applying regression tools moreover the contagion and interdependence between the oil price and stock returns sectors are estimated by frequency domain causality

the consequences of endogenizing information for the performance of a sequential decision procedure we analyse the implications of endogenizing information collection and reputational concerns for the performance of a sequential decision structure in this model two agents decide in a sequence whether to implement a public project the cost of gathering information is private we derive two results first endogenizing information replaces the herding problem with a free rider problem second endogenizing information aggravates the distortionary effect of reputational concerns

bank runs the deposit currency ratio and the interest rate abstract this paper provides a model of an economy with a banking system which is subject to bank runs the model is then used to explain the rise in short term interest rates during bank runs and the fall in the deposit currency ratio in anticipation of possible runs

linkages between oil price shocks and stock returns revisited abstract in this paper we revisit the debate on the relationship between oil price shocks and stock market returns by replicating the quantile on quantile qq regression model for the us stock market in sim and zhou 2015 journal of banking and finance and extending it to 15 countries the classification of these countries as oil importers or oil exporters depends on their net position in crude oil trade our results indicate that the main finding by sim and zhou 2015 that large negative oil price shocks can bolster stock returns when markets are performing well is only partially supported by the three largest oil importers in our sample china japan and india during the period 1988 1 2007 12 however when extending the study to more recent data period 1988 1 2016 12 we find that china and india experience higher returns when markets perform well and there is a large positive oil price shock also large positive oil price shocks often lead to higher stock market returns when markets perform well for both oil exporting countries canada russia norway and moderately oil dependent countries such as malaysia philippines and thailand in most cases large negative oil price shocks depress further already poorly performing markets as in sim and zhou 2015 these findings highlight that the relationship between the distributions of oil price shocks and stock market returns is not stable over time in most countries studied furthermore the asymmetric effect between positive and negative oil price shocks observed in the us market by sim and zhou 2015 is less evident in most countries for both the baseline and extended periods

bank suspension of convertibility abstract a banking panic occurs when depositors at all banks seek a large reduction in their deposit holdings suspension of convertibility of demand deposits into currency was the banking system s response to a banking panic when depositors are incompletely informed about the state of bank investments a panic can occur when depositors expect capital losses conditional on having observed noisy indicators of the state of bank investments banks with superior information about the investments can signal to depositors by suspending convertibility that continuation of the long term investments is mutually beneficial

famous first bubbles t he jargon of economics and finance contains numerous colorful expressions to denote a market determined asset price at odds with any reasonable economic explanation such words as tulip mania bubble chain letter ponzi scheme panic crash and financial crisis immediately evoke images of frenzied and probably irrational speculative activity many of these terms have emerged from specific speculative episodes which have been sufficiently frequent and important that they underpin a strong current belief among economists that key capital markets sometimes generate irrational and inefficient pricing and allocational outcomes before economists relegate a speculative event to the inexplicable or bubble category however we must exhaust all reasonable economic explanations while such explanations are often not easily generated due to the inherent complexity of economic phenomena the business of economists is to find clever fundamental market explanations for events and our methodology should always require that we search intensively for market fundamental explanations before clutching the bubble last resort thus among the reasonable or market fundamental explanations i would include the perception of an increased probability of large returns the perception might be triggered by genuine economic good news by a convincing new economic theory about payoffs or by a fraud launched by insiders acting strategically to trick investors it might also be triggered by uninformed market participants correctly inferring changes in the distribution of dividends by observing price movements generated by the trading of informed insiders while some of these perceptions might

dynamic correlation analysis of financial contagion evidence from asian markets we apply a dynamic conditional correlation model to nine asian daily stock return data series from 1990 to 2003 the empirical evidence confirms a contagion effect by analyzing the correlation coefficient series we identify two phases of the asian crisis the first shows an increase in correlation contagion the second shows a continued high correlation herding statistical analysis of the correlation coefficients also finds a shift in variance during the crisis period casting doubt on the benefit of international portfolio diversification evidence shows that international sovereign credit rating agencies play a significant role in shaping the structure of dynamic correlations in the asian markets

safety in numbers a model of managerial herd behavior abstract this paper provides a formalization of managerial herd behavior that is based on the principle of safety in numbers the explanation is completely independent of the information signalling approach to herd behavior scharfstein and stein 1990 banerjee 1992 and fully captures popular explanations of the phenomenon the key assumptions are that managers are individually risk averse and that their remuneration be partly based on relative performance

determinants and effects of income diversification amongst farm households in burkina faso using four years of household data from three agroecological zones in burkina faso sahelian sudanian and guinean the article examines the determinants and effects of household income diversification harvest shortfalls and terms of trade are found to drive diversification but land constraints do not income diversification is associated with higher incomes and food consumption and more stable income and consumption over years

herding anti herding behaviour in metal commodities futures a novel portfolio based approach the purpose of this article is twofold motivated by the heated debate on the financialization of commodities we examine the existence of herding behaviour in metal commodities futures in order to identify any time dependent properties reflected in time varying parameters we employ the overlapping rolling window regression technique the empirical evidence confirms a time varying anti herding behaviour before the global financial crisis and the absence of herding or anti herding behaviour during the crisis next we attempt to formally establish the link between the documented anti herding behaviour and portfolio management with the use of dynamic conditional correlations via the dcc garch family multivariate modelling after specifying the correlations an in sample recursive dynamic markowitz portfolio is constructed and monitored by doing so we attribute the anti herding behaviour to different portfolio positioning and rebalancing on the other hand in the absence of herding or anti herding behavi

wage premiums for education and location of south african workers by gender and race this paper focuses on wage premiums associated with educational investments and on how wages vary by region and within race and sex subsamples through the use of data from the 1993 project for statistics on living standards and development in south africa analysis of the given data revealed that although the quality of education for africans in south africa was lower than that for whites the percentage wage gains associated with additional years of primary secondary and higher education were significantly higher for africans than for whites these rates increased at higher levels of education for both race groups the lower quantity of education received by africans compared to whites is a simple explanation for the wage structure presented in this paper meanwhile the other two racial groups colored mixed races and indians occupy intermediate positions between whites and africans in terms of both the quantity of education received and wage returns to those levels of education

new evidence of anti herding of oil price forecasters abstract we used the oil price forecasts of the survey of professional forecasters published by the european central bank to analyze whether oil price forecasters herd or anti herd oil price forecasts are consistent with herding anti herding of forecasters if forecasts are biased towards away from the consensus forecast based on a new empirical test developed by bernhardt et al j financ econ 80 657 675 2006 we found strong evidence of anti herding among oil price forecasters

investors fear and herding in the stock market in this article we examine herding in three developed stock markets testing for the impact of investors fear on herding estimations to this end we employ daily data of all listed stocks from

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

the rural non farm sector issues and evidence from developing countries abstract the rural non farm sector has traditionally been viewed as a low productivity sector which produces low quality goods it is often expected to wither away as a country develops recent years have seen a shift away from this position towards recognition that the rural non farm sector can and often does contribute to economic growth rural employment poverty reduction and a more spatially balanced population distribution this paper reviews the literature on the conceptual and empirical underpinnings of this more recent perspective focussing on the experience in developing countries the paper documents the size and heterogeneity of the sector pointing to evidence that in many countries the sector is expanding rather than declining the issues associated with measuring the sector s economic contribution are discussed followed by empirical assessments for several countries and regions the distributional impact of non farm earnings is examined and it is found that a pro poor impact while by no means inevitable can be considerable the sector s trajectory over time in different settings is reviewed and the scope for and experience of various policy interventions is discussed

oil price shocks and stock markets in the u s and 13 european countries abstract oil price shocks have a statistically significant impact on real stock returns contemporaneously and or within the following month in the u s and 13 european countries over 1986 1 2005 12 norway as an oil exporter shows a statistically significantly positive response of real stock returns to an oil price increase the median result from variance decomposition analysis is that oil price shocks account for a statistically significant 6 of the volatility in real stock returns for many european countries but not for the u s increased volatility of oil prices significantly depresses real stock returns the contribution of oil price shocks to variability in real stock returns in the u s and most other countries is greater than that of interest rate an increase in real oil price is associated with a significant increase in the short term interest rate in the u s and eight out of 13 european countries within one or two months counter to findings for the u s and for norway there is little evidence of asymmetric effects on real stock returns of positive and negative oil price shocks for oil importing european countries

do investors herd in emerging stock markets evidence from the taiwanese market abstract this paper has three main contributions to the literature on investor herds first it extends investor herding studies to an emerging yet relatively sophisticated taiwanese stock market at the sector level by using firm level data second it employs different methodologies designed to test the existence of investor herds to better understand the sources of herd behavior third it discusses the implications of different herding measures for investors exposed to systematic and unsystematic risks we find that the linear model based on the cross sectional standard deviation cssd testing methodology yields no significant evidence of herding however the non linear model proposed by chang et al 2000 and the state space based models of hwang and salmon 2004 lead to consistent results indicating strong evidence of herd formation in all sectors we also find that the herding effect is more prominent during periods of market losses our results suggest limited diversification opportunities for investors in this market especially during periods of market losses when diversification is most needed further research is necessary to see whether similar findings hold for other emerging markets

rational contagion and the globalization of securities markets this paper argues that globalization may promote contagion by weakening incentives for gathering costly information and by strengthening incentives for imitating arbitrary market portfolios in the presence of short selling constraints the gain of gathering information at a fixed cost may diminish as markets grow moreover if a portfolio manager s marginal cost for yielding below market returns exceeds the marginal gain for above market returns there is a range of optimal portfolios in which all investors imitate arbitrary market portfolios and this range widens as the market grows numerical simulations suggest that these frictions can have significant implications for capital flows in emerging markets

literacy sharing assortative mating or what labour market advantages and proximate illiteracy revisited abstract this paper explores the relationship between household literacy and the labour market outcomes of illiterate household members which basu narayan and ravallion 2002 report using household income and expenditure data from bangladesh bnr attribute a considerable wage premium for proximate illiterate women in off farm employment to labour productivity gains from intra household literacy sharing this wage premium also suggests that women may be more efficient recipients of literacy externalities than men we propose that any such relationship might not be due to higher labour productivity but may have other explanations such as systematically different and unobserved attributes of illiterate females married into literate households we also pay attention to the negative selection of illiterate females into non farm wage employment which contrary to received wisdom suggests that household literacy may not be unambiguously progressive for females we propose that the widely reported finding that

dynamic spillovers between oil and stock markets in the gulf cooperation council countries this article exploits a new spillover directional measure proposed by diebold and yilmaz 2009 2012 to investigate the dynamic spillover of return and volatility between oil and equities in the gulf cooperation council countries during the period 2004 to 2012 our results indicate that return and volatility transmissions are bi directional albeit asymmetric in particular the oil market gives other markets more than it receives in terms of both returns and volatilities these trends were more pronounced in the aftermath of the global financial crisis in 2008 as the net contribution of oil has intensified after a burst during the crisis the empirical evidence from the sample is consistent with a system in which oil is playing the dominant role in the information transmission mechanism between oil and equities in the gcc countries

rational destabilizing speculation positive feedback trading and the oil bubble of 2008 abstract this article examines how the interaction of different participants in the crude oil futures markets affects the crude oil price efficiency normally the commercial market participants such as oil producers and oil consumers act as arbitrageurs and ensure that the price of crude oil remains within the fundamental value range however institutional investors that invest in crude oil to diversify their portfolios and or hedge inflation can destabilize the interaction among commercial participants and liquidity providing speculators we argue that institutional investors can impose limits to arbitrage particularly during the financial crisis when the investment demand for commodities is particularly strong in support we show that commercials hedgers had significantly reduced their short positions leading to the 2008 oil bubble they were potentially aggressively offsetting their short hedges as a result by essentially engaging in a positive feedback trading commercial hedgers at least contributed to the 2008 oil bubble these findings have been mainly overlooked by the existing research

does futures trading increase stock market volatility the case of the nikkei stock index futures markets abstract we propose new tests to examine whether stock index futures affect stock market volatility these tests decompose spot portfolio volatility into the cross sectional dispersion and the average volatility of returns on the portfolio s constituent securities our tests show that for nikkei stocks spot portfolio volatility increased and cross sectional dispersion decreased compared with average volatility when nikkei futures began trading on the osaka securities exchange but not on the singapore international monetary exchange for non nikkei stocks no shift occurred when futures trading began on either exchange these findings are consistent with the hypotheses that futures trading increases spot portfolio volatility but that there is no volatility spillover to stocks against which futures are not traded however the increase in volatility attributable to futures trading is small compared with volatility shifts induced by changes in broad economic factors

informational cascades a mirage abstract experimental research found contradictory results regarding the occurrence of informational cascades whereas anderson and holt anderson l r holt c a 1997 information cascades in the laboratory the american economic review 87 847 862 confirmed the model of banerjee banerjee a v 1992 a simple model of herd behavior the quarterly journal of economics 107 797 817 and bikhchandani et al bikhchandani s hishleifer d welch i 1992 a theory of fads fashion custom and cultural change as informational cascades journal of political economy 100 992 1026 through lab tests huck and oechssler huck s oechssler j 2000 informational cascades in the laboratory do they occur for the right reasons journal of economic psychology 21 661 671 came to contradictory results on crucial issues this article presents experimental evidence supporting further doubts concerning bayesian informational cascades just under two thirds of all decisions are characterized by an excessive orientation towards the private signal and only a small number of the subjects

futures trading activity and stock price volatility we examine whether greater futures trading activity volume and open interest is associated with greater equity volatility we partition each trading activity series into expected and unexpected components and document that while equity volatility covaries positively with unexpected futures trading volume it is negatively related to forecastable futures trading activity further though futures trading activity is systematically related to the futures contract life cycle we find no evidence of a relation between the futures life cycle and spot equity volatility these findings are consistent with theories predicting that active futures markets enhance the liquidity and depth of the equity markets

against posner against coase against theory in two articles published in 1993 richard posner characterized and vigorously attached ronald coase s methodological orientation coase resisted posner s diagnosis but did not provide a response this paper offers a response which coase might have given one of posner s major claims was that coase is antitheoretical or hostile to theory here it is suggested that posner s allegations suffer from serious unreflected ambiguities once we distinguish between a few different meanings of theory and theoreticity and between attitudes and accomplishments in regard to theory or between being antitheoretical nontheoretical protheoretical and theoretical it becomes possible to argue that coase does not hold an antitheoretical attitude even if his accomplishments fall short of theory in many but not all senses of the word the larger relevance of this conflict is that its confusions tend to be characteristic of parts of the economics profession more widely copyright 1998 by oxford university press

coordinated investing with feedback and learning this paper introduces assets for which the intrinsic value is endogenous to the amount of funding attracted a rational expectations equilibrium is developed additionally simulations of the model based on bounded rationality explore the different market behavior under fundamental and momentum based investing strategies both strategies produce herding characteristics the herding under the fundamental strategy approximates the optimal investing of a rational central planner the momentum strategy results in suboptimal economic development

a new approach to measure speculation in the oil futures market and some policy implications abstract we propose using a new relative measure the speculative ratio defined as trading volume divided by open interest to gauge speculative activity in the oil futures market we apply the speculative ratio to examine the relation between basis and speculative activity in the oil futures market before and after the financialization of the oil market in 2003 our finding suggests that the oil futures market is dominated by uninformed speculators in the post financialization period our finding carries several practical policy implications as follows 1 both the commodity exchange and the regulator should design regulations and trading policies that improve basis risk 2 on the commodity exchange side new policies on margin requirements and position limits for speculators should be implemented 3 margin requirements should be based on the level of basis risk 4 regulators should speed up implementation of the position limit rule in the dodd frank act and 5 stronger and more meaningful enforcement actions by regulators are required to punish and deter market manipulators

jumps and stochastic volatility in oil prices time series evidence abstract in this paper we examine the empirical performance of affine jump diffusion models with stochastic volatility in a time series study of crude oil prices we compare four different models and estimate them using the markov chain monte carlo method the support for a stochastic volatility model including jumps in both prices and volatility is strong and the model clearly outperforms the others in terms of a superior fit to data our estimation method allows us to obtain a detailed study of oil prices during two periods of extreme market stress included in our sample the gulf war and the recent financial crisis we also address the economic significance of model choice in two option pricing applications the implied volatilities generated by the different estimated models are compared and we price a real option to develop an oil field our findings indicate that model choice can have a material effect on the option values

speculation and volatility spillover in the crude oil and agricultural commodity markets a bayesian analysis this paper assesses factors that potentially influence the volatility of crude oil prices and the possible linkage between this volatility and agricultural commodity markets stochastic volatility models are applied to weekly crude oil corn and wheat futures prices from november 1998 to january 2009 model parameters are estimated using bayesian markov chain monte carlo methods speculation scalping and petroleum inventories are found to be important in explaining the volatility of crude oil prices several properties of crude oil price dynamics are established including mean reversion an asymmetry between returns and volatility volatility clustering and infrequent compound jumps we find evidence of volatility spillover among crude oil corn and wheat markets after the fall of 2006 this can be largely explained by tightened interdependence between crude oil and these commodity markets induced by ethanol production

bank failure contagion in historical perspective abstract bank failures are contagious due to the lack of bank specific information depositors who lack financial information on individual banks make withdrawal decisions based on the condition of the banking system as a whole a high ratio of bank failures then signals an adverse condition within the banking sector and triggers systemwide bank runs this paper looks at bank panics in u s history and shows the importance of solvency information specific to individual banks the major empirical finding is that the government or banks stopped bank panics mainly by providing financial information on banks

survey evidence on diffusion of interest and information among investors abstract questionnaire surveys of institutional and individual investors were undertaken to learn about patterns of communications it was found that direct interpersonal communications are very important in investor decisions questions elicited what fraction of investors were unsystematic and allowed themselves to be influenced by word of mouth communications or other salient stimuli randomly sampled investors were studied as well as investors in stocks whose price had recently increased dramatically contagion or epidemic models of financial markets are proposed in which interest in individual stocks is spread by word of mouth the survey evidence is interpreted as supporting such models

shared literacy and employment in the nonfarm sector this article empirically examines the external effect of family literacy on the earnings of illiterate workers considering recent findings that rural nonfarm sectors in developing countries are becoming more important in determining the welfare of households this article tests two hypotheses 1 an illiterate person living with literate members i e a proximate illiterate person is more likely to find a job in the nonfarm sector than is an illiterate person living with no literate person i e an isolated illiterate person and 2 wage income of a proximate illiterate worker is higher than that of an isolated illiterate worker the empirical results suggest that proximate illiterate persons earn higher wages than isolated illiterate persons because they are more likely to be employed in the nonfarm sector

herding behaviour and the declining value relevance of accounting information evidence from an emerging stock market abstractthis article sheds light on the underlying mechanisms behind the changes in the value relevance of accounting information in the karachi stock exchange kse during the 1999 2010 period we find that neither changes in earnings quality nor the earnings lack of timeliness hypothesis can explain the decline in the value relevance of accounting information in the kse based on the stylized facts associated with the growth of the kse and the broader economics literature we argue that the reduction in the explanatory power of accounting information vis a vis stock returns was caused by herding behaviour empirical estimates from state space model of herding behaviour confirm the existence of herding and we find that the value relevance of accounting information is significantly lower in periods characterized by herding behaviour this article is also amongst the first attempts to empirically demonstrate that an expansionary monetary policy and increases in foreign portfolio investment lead to increas

following the pied piper do individual returns herd around the market do equity returns indicate the presence of herd behavior on the part of investors during periods of market stress to test this proposition the cross sectional standard deviation of returns or dispersion is used to capture herd behavior when individual returns herd around the market consensus dispersions are predicted to be relatively low in contrast rational asset pricing models predict an increase in dispersion because individual returns are repelled away from the market return when stocks differ in their sensitivity to market movements the results for both daily and monthly returns are inconsistent with the presence of herding during periods of large price movements for example during extreme down markets when herding is expected to be most prevalent the magnitude of the increase in the dispersion of actual returns is mirrored by the increase in the dispersion of predicted returns that are estimated from a rational asset pricing model

multimarket trading and market liquidity when a security trades at multiple locations simultaneously an informed trader has several avenues in which to exploit his private information the greater the proportion of liquidity trading by large traders who can split their trades across markets the larger is the correlation between volume in different markets and the smaller is the informativeness of prices we show that one of the markets emerges as the dominant location for trading in that security when informed traders can use their information for more than one trading period the timely release of price information by market makers at one location adversely affects the profits informed traders expect to make subsequently at other locations market makers competing to offer the lowest cost of trading at their location consequently deter informed trading be voluntarily making the price information public and by cracking down on insider trading article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

literacy and intrahousehold externalities abstract the size of the intrahousehold externality created when a literate household member provides literacy services to illiterate members is estimated in this paper using a model of children s height for age in papua new guinea this externality appears to be large these results support the use of a new measure of literacy developed by basu and foster 1998 to take account of the gains when illiterates live in households where at least one person is literate regional rankings change when the new measure of literacy is used suggesting that policies guided by the usual measure of adult literacy may overlook an important pathway for human development

labor unions and the distribution of wages and employment in south africa few countries have higher wage inequality than south africa where wages of african and white workers differ by a factor of five using survey data collected in 1993 the authors analyze the complex effect of unions on this wage gap among male african workers in the bottom decile of the wage distribution union membership was associated with wages that were 145 higher than those of comparable nonunion workers and among those in the top decile the differential was 19 regression estimates also indicate that returns to observed productive characteristics of workers such as education and experience were larger for nonunion than union workers if the large union relative wage effect were cut in half the authors estimate that employment of african youth age 16 29 would increase by two percentage points and their labor force participation rate would also increase substantially

why bank credit policies fluctuate a theory and some evidence in a rational profit maximizing world banks should msdntain a credit policy of lending if and only if borrowers have positive net present value projects why then are changes in credit policy seemingly correlated with changes in the condition of those demanding credit this paper argues that rational bank managers with short horizons will set credit policies that influence and are influenced by other banks and demand side conditions this leads to a theory of low frequency business cycles driven by bank credit policies evidence from the banking crisis in new england in the early 1990s is consistent with the assumptions and predictions of the theory

does speculation in the oil market drive investor herding in emerging stock markets abstract this paper examines whether the time variation in the level of investor herding in the stock markets of major oil exporting nations relates to speculation and volatility in the global oil market we find that speculative activities in the oil market rather than oil price movements are positively correlated with anti herding in the stock markets of major exporters we argue that traders take the speculative signals from the oil market as a sign of positive expectations and try to generate superior profits by going against the crowd in their local market while this pattern largely holds during calm low volatility market periods we also find that significant herd behavior takes place during high volatility or crisis periods the findings suggest that policy makers who are concerned about stability in their stock markets should monitor measures of speculative activities in the energy market in order to model and monitor volatility and or risk transmissions into their markets

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed