the informational role of stock and bond volume in a kyle 1985 model the sign of the correlation between a firm s debt and equity returns is the same as the sign of the cross market kyle s lambda the sign is positive negative if private information concerns the mean risk of the firm s assets we show empirically that information conveyed by order flows is primarily about asset means the cross market lambdas are quite large consequently the portions of bond and stock returns explained by order flows are highly correlated even though the order flows themselves are virtually uncorrelated

the bond old bond spread abstract i document the profits on a trade that is long the old 30 year treasury bond and short the new 30 year treasury bond and is rolled over every auction cycle from june 1995 to november 1999 despite the systematic convergence of the spread over the auction cycle the average profits are close to zero the difference in repo market financing rates between the two bonds is a significant cost of carry in this trade i show that variation in the bond old bond spread is driven by the treasury supply of 30 year bonds as well as aggregate factors affecting investors preference for liquid assets

bond liquidity premia recent asset pricing models of limits to arbitrage emphasize the role of funding conditions faced by financial intermediaries in the us the repo market is the key funding market then the premium of on the run u s treasury bonds should share a common component with risk premia in other markets

the term structure of illiquidity premia abstract we investigate the term structure of bond market illiquidity premia and show that the term structure varies greatly over time short and long end are strictly separated suggesting that different economic factors drive different parts of the term structure we propose a stylized theoretical model which implies that current trading needs of investors determine the short end the long term risk of being forced to liquidate bond positions determines the long end empirical evidence supports these predictions while short term liquidation risk captured by asset market volatilities drives the short end the long end depends on the long term economic outlook

research advances in environmentally and socially sustainable operations abstract consumers and governments are pressuring firms to strike a balance between profitability and sustainability however this balance can only be maintained in the long run if the firm can take a holistic approach to sustain the financial flow profit resource flow planet and development flow people for the entire ecosystem comprising poor producers in emerging developing markets global supply chain partners consumers in developed countries and the planet by considering the flows associated with different entities within the ecosystem we classify and summarize recent operations research management science or ms research developments also we identify several gaps for future research in this important area

do european banks with a covered bond program issue asset backed securities for funding abstract the decline in the issuance of asset backed securities abss since the financial crisis and the comparative advantage of covered bonds cbs as a funding alternative to abss raise the question of whether banks still issue abss as a way to receive funding by applying double hurdle regression models to a dataset of 134 european banks observed during the period from 2007 to 2013 this study reveals that banks with a covered bond program cbp securitize ceteris paribus less of their assets the estimated difference in abs issuance is driven mainly by banks being more likely to issue abss as a funding tool rather than trying to manage their credit risk exposure or to meet regulatory capital requirements consistently a worse liquidity funding position results in higher levels of securitization only for banks without a cbp

trade ins and introductory offers in a monopoly we model the commonly used marketing practices of offering discounts to either repeat buyers trade ins or new buyers introductory offers of a quasi durable good we analyze these practices in terms of their potential for intertemporal and third degree price discrimination in our two period model the monopolist sets a first period price that segments the second period market optimally into holders and nonholders of the good in the second period different prices are quoted to the two market segments we present three versions of the model with varying assumptions on consumers rationality

remanufacturing as a marketing strategy the profitability of remanufacturing systems for different cost technology and logistics structures has been extensively investigated in the literature we provide an alternative and somewhat complementary approach that considers demand related issues such as the existence of green segments original equipment manufacturer competition and product life cycle effects the profitability of a remanufacturing system strongly depends on these issues as well as on their interactions for a monopolist we show that there exist thresholds on the remanufacturing cost savings the green segment size market growth rate and consumer valuations for the remanufactured products above which remanufacturing is profitable more important we show that under competition remanufacturing can become an effective marketing strategy which allows the manufacturer to defend its market share via price discrimination

stationary equilibrium in a market for durable assets this paper presents a dynamic model of consumer trading on the primary secondary and scrap markets for a stochastically deteriorating durable good in a stationary economy with perfect information and no transaction costs we explicitly model the trading process by tracking each durable from its birth in the primary market through its sequence of owners in the secondary market until its death in the scrap market we prove that a stationary equilibrium exists characterize the distribution of consumer holdings of durables and show that equilibrium asset prices are shadow prices to a particular regenerative optimal stopping problem we show that each heterogeneous agent equilibrium is observationally equivalent to a homogeneous agent equilibrium we derive a differential equation for equilibrium rental rates and a functional equation which links rental rates to asset prices these equations show precisely how the structure of durable prices and rental rates embody the functional form and population distribution of preferences and the technological characteristics of durable goods this abstract was borrowed from another version of this item

durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 on adverse selection this paper surveys durable goods theory starting with these three contributions where much of the focus is on recent literature and on models that explain real world phenomena in addition to the ideas found in the contributions of swan coase and akerlof topics covered include why producers sometimes practice planned obsolescence the role of adverse selection in new car leasing and reasons for aftermarket monopolization

determinants of international tourism a three dimensional panel data analysis international tourism is a fast growing industry generating half a trillion dollars in annual revenues and accounting for almost 10 of total international trade and almost half of total trade in services yet it has so far failed to receive the attention it deserves from mainstream economics this paper attempts to provide an initial understanding of the determinants of international tourism this paper claims that international tourism as other forms of trade in services is driven by unique factors of production and may be better dealt with in a single industry study rather than in a general equilibrium trade model in order to understand these determinants the world is viewed as a market of differentiated products and a discrete choice estimation technique is applied to a large three dimensional data set of tourist flows it is shown that a relatively simple estimation technique combined with a rich data set can deliver reasonable substitution patterns it is found among other things that pol

commodity liquidity measurement and transaction costs we examine the performance of liquidity proxies in commodities the amihud measure has the largest correlation with liquidity benchmarks amivest and effective tick measures also perform well these proxies are useful for studies of commodity liquidity over a long time period and those that lack access to high frequency data we use various aspects of transaction costs such as spread depth immediacy and resiliency to give insight into the costs of different execution approaches transaction costs increase with volatility and exhibit mean reversion splitting trades over one hour can reduce trading costs by two thirds compared to an immediate execution the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the relative contributions of private information sharing and public information releases to information aggregation we calculate learning rates when agents are informed through public and private observation of other agents actions we characterize the evolution of the distribution of posterior beliefs if the private learning channel is present convergence of the distribution of beliefs to the perfect information limit is exponential at a rate equal to the sum of the mean arrival rate of public information and the mean rate at which individual agents are randomly matched with other agents if however there is no private information sharing then convergence is exponential at a rate strictly lower than the mean arrival rate of public information c 2009 elsevier inc all rights reserved

existence of stationary equilibrium in the markets for new and used durable goods abstract we prove the existence of stationary equilibrium in the primary and secondhand markets for an indivisible consumer durable in a general model with stochastic degradation and endogenous scrappage decisions unlike rust econometrica 53 1985 783 we introduce transaction costs in the model as a motivation for consumer holdings of durables across multiple quality levels our technique allows for both multiple types of durables e g porsche and bmw and relaxation of the single crossing condition on consumer tastes we provide a simple example showing how increasing transaction costs affect secondhand prices eventually for sufficiently costly transactions closing the secondhand market altogether

fiscal requirements for dynamic and real determinacies in economies with private provision of liquidity a monetarist assessment we study the impact of fiscal policies on the inherent links between inflation unemployment and asset prices in an environment where firms provide liquidity and the central bank follows a constant money growth rate rule firms other than hiring workers also supply private assets that are not only useful as a store of value but also as collateral when firms are not taxed and public debt is scarce the economy is non ricardian so that real indeterminacies can be observed moreover labor market characteristics do not affect the demand for government liabilities however when agents face public and private asset scarcity labor market conditions then impact asset prices and inflation we further show that irrespective of the type of asset scarcity agents face when firms are taxed non ad valorem not only the level of tax revenues but also its composition matter for real allocations moreover we show that labor market conditions directly affect the dynamics of all government liabilities and inflation

term premiums in bond returns abstract this paper examines expected returns on u s treasury bills and on u s government bond portfolios expected bill returns are estimated from forward rates and from sample average returns both estimation methods indicate that expected returns on bills tend to peak at eight or nine months and never increase monotonically out to twelve months reliable inferences are limited to treasury bills and thus to maturities up to a year the variability of longer term bond returns preempts precise conclusions about their expected returns

operations research for green logistics an overview of aspects issues contributions and challenges the worldwide economic growth of the last century has given rise to a vast consumption of goods while globalization has led to large streams of goods all over the world the production transportation storage and consumption of all these goods however have created large environmental problems today global warming created by large scale emissions of greenhouse gasses is a top environmental concern governments action groups and companies are asking for measures to counter this threat operations research has a long tradition in improving operations and especially in reducing costs in this paper we present a review that highlights the contribution of operations research to green logistics which involves the integration of environmental aspects in logistics we give a sketch of the present and possible developments focussing on design planning and control in a supply chain for transportation inventory of products and facility decisions while doing this we also indicate several areas where environmental aspects could be included in or models for logistics

strategic estimation of asset fair values abstract we examine whether fair value fv input levels and estimation sources are related to fv inflation the difference between an insurer s fv estimate and the consensus fv estimate across the security s holders fv inflation is higher and self estimation more likely when insurers report using level 3 inputs when the consensus level is 2 regardless of the level fv is greater when self estimated public insurers that inflate fv through self estimation potentially obfuscate detection by reporting the use of level 2 inputs insurers with stronger incentives to appear financially healthy choose to self estimate resulting in greater aggregate portfolio fv inflation

trade in and save a two period closed loop supply chain game with price and technology dependent returns abstract consumers evaluate the convenience of changing their products according to the price paid as well as the technology quality level when the consumers wish to capitalize the products residual value they should return them as early as possible accordingly we develop a model of closed loop supply chain clsc where consumers seek to gain as much as possible from their returns and the return rate is a function of both price and quality we model a two period stackelberg game to capture the dynamic aspects of a clsc where the manufacturer is the channel leader we investigate who namely manufacturer or retailer should collect the products in the market thus we identify the best clsc structure to adopt when the return rate is both price and quality dependent our results demonstrate that it is always worthwhile for companies to collect products and adopt an active return approach for returns we investigate the effect of retail competition in both forward and backward channels and show the impact of eliminating the double marginalization on market outcomes

dealer balance sheets and bond liquidity provision abstract do regulations decrease dealer ability to intermediate trades using a unique dataset of dealer bond level transactions we link changes in liquidity of individual u s corporate bonds to dealers transaction activity and balance sheet constraints we show that prior to the financial crisis bonds traded by more levered institutions and institutions with investment bank like characteristics were more liquid but this relationship reverses after the financial crisis in addition institutions that face more regulations after the crisis both reduce their overall volume of trade and have less ability to intermediate customer trades

revenue management for durable goods using trade ins with certified pre owned options abstract the economics research suggests that firms can use trade ins as a revenue management device for price discrimination between new and replacement buyers of durabprle goods offering different prices to different groups of customers creates a market segmentation effect this study examines such an effect by considering trade ins and certified pre owned options for a durable goods firm where certified pre owned cpo represents the used goods market generated from the return flow of trade in transactions the optimal pricing and or trade in rebate is determined and the strategic choice between the two options is examined an analytical model is developed that incorporates the key durable goods features into model formulation specifically the deterioration rate or durability in a reverse measure and the variation in quality of the used goods our research findings indicate that i the magnitude of trade in rebates increases with the deterioration rate and quality variation ii the segmentation effect outweighs the cannibalization effect when the deterioration rate is moderately high iii the strategic choice of trade ins and cpo options is critically dependent on these two features and iv the majority of profit improvement is generated from trade in provisions although the cpo option can serve as a second profit boosting device

competing for order flow in otc markets we develop a model of a two sided asset market in which trades are intermediated by dealers and are bilateral dealers compete to attract order flow by posting the terms at which they execute trades which can include prices quantities and execution times and investors direct their orders toward dealers that offer the most attractive terms of trade equilibrium outcomes have the following properties first investors face a trade off between trading costs and speeds of execution second the asset market is endogenously segmented in the sense that investors with different asset valuations and different asset holdings will trade at different speeds and different costs for example under a leontief technology to match investors and dealers per unit trading costs decrease with the size of the trade in accordance with the evidence from the market for corporate bonds third dealers implicit bargaining powers are endogenous and typically vary across sub markets finally we obtain a rich set of comparative statics both analytically by studying a limiting economy where trading frictions are small and numerically for instance we find that the relationship between trading costs and dealers bargaining power can be hump shaped

information spillovers in asset markets with correlated values we study information spillovers in a dynamic setting with privately informed traders and correlated asset values a trade of one asset or lack thereof can provide information about the value of other assets the information content of trading behavior is endogenously determined in equilibrium we show that this endogeneity leads to multiple equilibria when the correlation between asset values is suciently high the

more or less a model and empirical evidence on preferences for under and overpayment in trade in transactions abstract trade in transactions typically involve an exchange of an old used version for a new or newer version of the product when consumers trade in their used model for a new model the firm faces the choice of paying the consumer a relatively low price for the used model and charging a commensurately low price for the new model or paying a relatively high price for the used model and charging a commensurately high price for the new model the extant literature suggests that consumers always prefer to be overpaid in trade in transactions because they disproportionately value the gain associated with the revenues from the sale of the used version of the product the authors draw from the prospect theory value function to develop a simple analytical model that identifies a condition under which this preference for overpayment is reversed their model predicts that even when faced with economically equivalent price formats consumers prefer to be overpaid when the ratio of the price of their used product

consumption benefits of national hockey league game trips estimated from revealed and stated preference demand data this paper examines the demand for hockey game trips among metropolitan and nonmetropolitan residents of alberta canada using data on both revealed and stated preference game trip behavior from a telephone survey conducted throughout alberta we estimate the effect of ticket prices team quality arena amenities and capacity on the latent demand for national hockey league hockey games we nd that lower ticket prices higher team quality and additional capacity encourage attendance in the status quo scenario consumer surplus per game is 50 for those who had attended hockey games and about 50 less for those who had not attended games exploiting the stated preference data we develop a number of other consumer surplus estimates we also include travel costs in the estimation of the demand function and estimate the full value of the game trip considering both ticket prices and travel costs sold out arenas in calgary and edmonton generate annual consumption bene ts of 40 and 35 million when only ticket prices are used to calculate consumer surplus i e excluding travel costs considering the full price consumer surplus for the calgary flames of 103 per game trip the annual consumption bene ts may be as high as 82 million jel r22 l83 d61

analysis of optimal timing of tourism demand recovery policies from natural disaster using the contingent behavior method this paper examines the applicability of contingent behavior hereafter cb method for analyzing dynamic processes and efficient policies in tourism demand recovery the cb questionnaires used for this study used a hypothetical disaster situation of bird flu in kyoto japan safety event visitor information and price discounting policies were designed accordingly respondents were then asked about their willingness to travel time the results showed the optimal timing for devising pertinent policies during the year we found that the first step requires a safety information announcement within one week immediately after disaster site decontamination the second step is the implementation of event information policy within 24th to 36th week after the disaster the third step constitutes announcing visitor information within the 37th to 52nd week after the second step the final step is the implementation of price discounting policy until the 52nd week immediately after the third step

financial regulatory reform after the crisis an assessment this is a survey of progress with the postcrisis global g20 reform of the financial system in five key areas of new regulation 1 making financial institutions more resilient 2 ending too big to fail 3 making derivatives markets safer 4 transforming shadow banking and 5 improving trade competition and market transparency the resiliency reforms particularly bank capital regulations have been increasingly successful in improving financial stability but have been accompanied by some reduction in secondary market liquidity i review specific areas where reforms are far from complete or have even been counterproductive this paper was accepted by gustavo manso finance conflict of interest statement the author s webpage at http www stanford edu duffie provides related research and disclosure of potential conflicts of interest

synthetic or real the equilibrium effects of credit default swaps on bond markets we provide a model of nonredundant credit default swaps cdss building on the observation that cdss have lower trading costs than bonds cds introduction involves a trade off it crowds out existing demand for the bond but improves the bond allocation by allowing long term investors to become levered basis traders and absorb more of the bond supply we characterize conditions under which cds introduction raises bond prices the model predicts a negative cds bond basis as well as turnover and price impact patterns that are consistent with empirical evidence we also show that a ban on naked cdss can raise borrowing costs

liquidity maturity and the yields on u s treasury securities the efrect8 of aaaet liquidity on expected retuma for ts with infinite maturities toc ka are eumined for bonda treuury notes and bills with matched maturities of lellll than 6 months the yield to maturity ill higher on notes which have lower liquidity the yield di1ferential between notes and billa is a decreuing and convex function of the time to maturity the results provide a robult confirmation of the liquidity effect in auet pricing this paper studies empirically the effects of the liquidity of capital assets on their prices amihud and mendelson 1986 1989 proposed that liquidity affects asset prices because investors require a compensation for bearing transaction costs transaction costs paid whenever the asset is traded form a sequence of cash outflows the discounted value of this cost stream proxies for the value 1088 due to illiquidity which lowers the asset s value for any given cash flow that the asset generates 1 as a result the return on assets should be an increasing function of their illiquidity other things equal for stocks the illiquidity effect is expected to be strong because their transaction cost sequence is infinite amihud and mendelson 1986 1989 demonstrated that common stocks with lower liquidity yielded significantly higher average returns after controlling for risk and for other factors these results on the importance of liquidity in the pricing of stocks raise additional questions i does the liquidity effect depend on the specific controls used by amihud and mendelson 1986 1989 1 ii does illiquidity have a similarly strong effect on the pricing of bonds whose maturities are finite and iii if liquidity affects bond yields how is this effect related to the bond s time to maturity

understanding the role of trade ins in durable goods markets theory and evidence the act of trading in a used car as partial payment for a new car resonates with practically all consumers such transactions are prevalent in many other durable goods markets ranging from golf clubs to ct scanners what roles do trade ins play in these markets what motivates the seller to set up a channel to facilitate trade ins intuitively accepting a trade in would appear to stimulate demand for the producer s product but facilitating the resale of these used goods that substitute for new goods might also increase cannibalization although such transactions involve billions of dollars we know relatively little about this practice from the extant research literature this paper develops an analytical model that incorporates key features of real world durable goods markets i coexistence of new and used goods markets ii consumer heterogeneity with respect to quality sensitivity iii firms that anticipate the cannibalization problem arising from the coexistence of new and used goods and iv lemon problems in resale markets whereby sellers of used goods are better informed than buyers about the quality of their particular item in our analysis a trade in policy amounts to an intervention by the firm in the used goods market which reduces inefficiencies arising from the lemon problem it motivates owners to purchase new goods and reduces their proclivity to hold on to purchased goods because of the low price the latter would fetch in a lemon market we also show that trade in programs are more valuable for less reliable products as well as for products that deteriorate more slowly our analysis shows that producers in durable goods markets should consider trade in programs as a matter of routine despite cannibalization concerns arising from a more active resale market a producer s profits will inevitably rise from introducing trade ins given pervasive lemon problems we test the key predictions of the model about price and volume of trade by assembling a data set of transactions of u s automobile consumers and find broad support for our model

rockets and feathers in power futures markets evidence from the second phase of the eu ets abstract this paper examines the possibility of asymmetric transmission of co 2 prices to electricity futures prices in the second phase of the european emission trading scheme we would like to assess whether output prices tend to respond more quickly to input price increases than decreases this phenomenon is known as rockets and feathers in the literature compared to zachmann and von hirschhausen 2008 who carried out a similar analysis for germany in the first phase of the emission trading scheme with data from 2005 to 2006 our study spans a longer timeframe july 2007 june 2010 with a presumably more mature permit market and includes three additional european countries france belgium and the netherlands results do not provide empirical evidence of statistically significant differences in the response of power prices to positive and negative shocks in co 2 allowance and fuel markets

regulation and market liquidity we examine the effects of postcrisis financial regulation encompassing the dodd frank act and basel iii on market liquidity of the u s fixed income market we estimate structural breaks in a large panel of liquidity measures of corporate and treasury bonds our methodology does not require a priori knowledge of the timing of breaks can capture not only sudden jumps but also breaks in slow moving trends and displays excellent power properties against the popular claim that postcrisis regulation hurt liquidity we find no evidence of liquidity deterioration during periods of regulatory intervention instead breaks toward higher liquidity are often detected the online appendix is available at https doi org 10 1287 mnsc 2017 2876 this paper was accepted by tomasz piskorski finance

product and sales contract design in remanufacturing abstract we develop and analyze an economic model of remanufacturing to address two main research questions first we explore which market cost and product type conditions induce a profit maximizing firm to be a remanufacturer given a separate secondary remanufactured goods market such markets exist for consumer goods where newness is a differentiating factor second we describe what effect profitable remanufacturing has on the environment our stylized modeling framework for analyzing these issues incorporates three components lease contracting product design and remanufacturing volume to operationalize this framework we model and solve for the optimal decisions of two firm types a non remanufacturer which we call a traditional firm and a remanufacturer which we call a green firm we describe conditions under which remanufacturing is and is not profitable and demonstrate that under certain cost and market conditions remanufacturing has negative consequences for the environment our results have implications for firms and policy makers who would like to choose remanufacturing as a strategy to improve profitability and environmental performance given the existence of conditions under which neither might occur

price presentation effects in purchases involving trade ins abstract when a new purchase involves trading in an old item the prices of component transactions may be presented in different ways the authors report three studies that examine how different price presentations influence evaluations and choice in an otherwise equivalent overall exchange although consumers play both buyer and seller roles in purchases involving trade ins the authors find that consumers evaluation of the overall exchange typically places more weight on the price of the new purchase than the trade in however they also show that the weights can be shifted systematically by 1 directly manipulating the importance of the trade in and 2 indirectly priming a seller vs buyer mind set in these instances consumers place more weight on the trade in price than the price of the new purchase

liquidity credit quality and the relation between volatility and trading activity evidence from the corporate bond market this paper investigates the roles of illiquidity and credit risk in determining the relations between price volatility of a bond and its trading frequency and trade size based on a large transaction dataset from october 2004 to june 2012 we find a positive relation between volatility and trading frequency and a negative relation between volatility and trade size consistent with the prediction of the search based theory the relations are much stronger for illiquid and risky bonds furthermore both liquidity and credit risk become more important in times of stress and their effects are reinforcing results strongly suggest that search frictions and credit risk are important factors driving the relation between volatility and trading activity in the corporate bond market

measuring liquidity in bond markets in the literature there is no consensus on a common approach to measure bond liquidity this paper is the first to comprehensively compare all commonly employed liquidity measures based on intraday and daily data for the u s corporate bond market we find that high frequency measures based on intraday data are very strongly correlated implying that previous results should be robust regarding the chosen measure most low frequency proxies based on daily data generally also measure transaction costs well however three proxies clearly take the lead corwin and schultz s 2012 high low spread estimator roll s 1984 measure and hasbrouck s 2009 gibbs measure

the recreational value of lake mckenzie fraser island an application of the travel cost method lake mckenzie is one of the most highly used and popular visitor destinations of all fraser island s natural sites attracting 2000 visitors a day in peak periods many consider this level of visitation to be unsustainable and the management authority is currently considering a range of management options to address this issue in assessing the alternatives it is useful to have some idea of the recreational use value of the lake under the current regime as it is this value that is at risk if visitor numbers are to be reduced this paper using the zonal travel cost method estimates the recreational use value of fraser island and lake mckenzie for australian resident independent visitors

the role of insider influence in mutual to stock conversions using a sample of 347 demutualizing thrifts from 1991 to 2004 we show that the level of inside participation is not a traditional signal of firm performance we conclude that unanticipated inside participation reflects the incentives of insiders to reduce the size of the offer to influence the level of expected initial public offer ipo returns we find unanticipated inside participation is related to lower offer size and higher initial returns but we do not find a relationship between inside participation and post ipo performance

is historical cost accounting a panacea market stress incentive distortions and gains trading we provide new empirical evidence concerning the contentious debate over the use of historical cost versus fair value accounting in regulating financial institutions these accounting rules through their interactions with capital regulation alter financial institutions optimal portfolio choice and trading behavior the insurance industry provides a natural laboratory in which to explore these interactions first there exist significant differences in regulatory accounting rules life insurers have greater flexibility to hold speculative grade instruments at historical cost than property and casualty insurers second within an insurer s investment portfolio detailed data are available on transactions positions and most importantly the regulatory accounting treatment for each security when faced with severe downgrades among their holdings in asset backed securities abs life insurers largely continue to hold the downgraded securities at historical cost and instead selectively sell their corporate bond holdings with the highest unrealized gains inducing significant price declines this is particularly true for life insurers facing regulatory capital constraints and with high abs exposures this behavior is largely absent among property and casualty insurers they instead disproportionately sell their re marked abs holdings historical cost accounting creates an altered incentive environment in which constrained financial institutions sell assets to realize gains insofar as this behavior transmits shocks across potentially unrelated markets historical cost accounting is not a panacea

experiments on percolation of information in dark markets in dark markets order submissions are bilateral and transaction prices are known only to the trading counterparties here we study to what extent the information aggregation theory proposed by duffie and collaborators predicts outcomes in a laboratory version of such markets we find that prices aggregate the available information but not in the strict sense of the theory where prices converge exponentially fast to average private signals prices instead fluctuate within bands around this average the band widths reflect in the best case the precision of the average signal and otherwise the precision of a single private signal

limits to arbitrage and the term structure of bond illiquidity premiums abstract theoretical models suggest that the relation of speculators capital and market liquidity is highly nonlinear changes in capital only marginally affect liquidity when capital is available abundantly but have a large effect when capital is scarce in this paper we confirm this relation within a regime switching model using three broad measures of german bond market liquidity we then analyze how the term structure of illiquidity premiums of german agency bonds is related to intermediaries capital and foreign flows illiquidity premiums are related to both variables only in the stress regime the effect of intermediaries capital is most strongly pronounced at the short end of the term structure in contrast flows into and out of the illiquid bond market segment constitute a level effect as they are related to illiquidity premiums of all maturities

how much can marketability affect security values how marketability affects security prices is one of the most important issues in finance we derive a simple analytical upper bound on the value of marketability using option pricing theory we show that discounts for lack of marketability can potentially be large even when the illiquidity period is very short this analysis also provides a benchmark for assessing the potential costs of exchange rules and regulatory requirements restricting the ability of investors to trade when desired furthermore these results provide new insights into the relation between discounts for lack of marketability and the length of the marketability restriction

the impact of bond rating changes on corporate bond prices new evidence from the over the counter market abstract i study the information content of bond ratings changes using daily corporate bond data from trace abnormal bond returns over a two day event window that includes the downgrade upgrade are negative positive and statistically significant although the reaction to upgrades is economically small monthly abnormal bond returns around downgrades and upgrades are statistically significant but overstate the magnitude of the reaction relative to two day abnormal returns unlike the bond market the stock market reaction to upgrades is statistically insignificant evidence suggests that the differing inferences on the effect of upgrades in the two markets can be attributed to wealth transfer effects rather than relative market inefficiencies in the cross section the bond market response is stronger for rating changes that appear more surprising rating changes of lower rated firms and upgrades that move the firm from speculative grade to investment grade

markets transparency and the corporate bond market for decades corporate bonds primarily traded in an opaque environment quotations which indicate prices at which dealers are willing to transact were available only to market professionals most often by telephone prices at which bond transactions were completed were not made public the u s corporate bond market became much more transparent with the introduction of the transaction reporting and compliance engine trace in july 2002 beginning that date bond dealers were required to report all trades in publicly issued corporate bonds to the national association of security dealers which in turn made transaction data available to the public in this paper we describe trading protocols in the corporate bond market and assess the impact of the increase in transparency on the market we review how trace has affected the costs that corporate bond investors paid to bond dealers for their transactions we canvass the opinions of a variety of finance professionals and consider articles in the trade press to obtain a broader view of the impact of transparency on the corporate bond market

automation versus intermediation evidence from treasuries going off the run this paper examines the choice of trading venue by dealers in u s treasury securities to determine when services provided by human intermediaries are difficult to replicate in fully automated trading systems when treasury securities go off the run their trading volume drops by more than 90 this decline in trading volume allows us to test whether intermediaries knowledge of the market and its participants can uncover hidden liquidity and facilitate better matching of customer orders in less active markets consistent with this hypothesis the market share of electronic intermediaries falls from 81 to 12 when securities go off the run electronic trading systems have been steadily increasing their share of securities trading in almost all financial markets as the amount of automation in financial markets increases it is natural to ask what services human intermediaries provide that are difficult or impossible to replicate in a fully automated trading system existing theory suggests that human intermediaries play at least two important functions first an intermediary s knowledge of the market and its participants may uncover hidden liquidity that facilitates quicker and more efficient matching of customer orders grossman 1992 the value of this matching function is greater when trading volume is low and matches are difficult to find second when information asymmetry is high the repeated interaction between an intermediary and its customers allows the intermediary to protect itself against informed trades and offer better prices to its customers seppi 1990 these two factors explain for example why electronic communications networks ecns have a greater market share for the largest and most actively traded nasdaq stocks while nasdaq market makers have a larger share in smaller less liquid stocks characterized by greater information asymmetry barclay hendershott and mccormick 2003 and why nyse specialists have higher participation rates in smaller less liquid stocks madhavan and sofianos 1998

pricing policy in nature based tourism abstract visitors to publicly owned national parks wildlife reserves and other natural areas pay entrance fees and other charges for their access and use what principles and criteria contribute to an appropriate pricing policy the answers to this are complex because of multiple pricing objectives visitor categories visitor activities fee instruments and philosophical positions in this review paper these issues are examined from the perspective of public agencies that are working to improve their pricing practices pricing is a potentially powerful tool to move towards greater efficiency fairness and environmentally sustainable management to date this tool is underutilized

presidential address issuers underwriter syndicates and aftermarket transparency i model strategic interaction among issuers underwriters retail investors and institutional investors when the secondary market has limited price transparency search costs for retail investors lead to price dispersion in the secondary market while the price for institutional investors is infinitely elastic because retail distribution capacity is assumed to be limited for each underwriter dealer bertrand competition breaks down in the primary market and new issues are underpriced in equilibrium syndicates emerge in which underwriters bid symmetrically with quantities allocated internally to efficiently utilize retail distribution capacity underwriters and dealers appear to compete vigorously for new security issues and yet also appear to earn high profits in this business what value are they generating that warrants high compensation are there obstacles that keep this value from flowing through to security issuers despite apparently fierce competition in the market for these financial services the model in this paper combines three elements a lack of price transparency in the secondary market limited retail distribution capacity and bertrand competition in the primary market dealer underwriters bid for new securities as bertrand competitors they then sell these securities in a secondary market with limited price transparency retail investors face costs of gathering price information while institutional investors who are frequent repeat customers do not this leads to price dispersion in the secondary market where some retail customers get attractive terms and others do not the rents that accrue to broker dealers who can sell to retail customers are limited by their distribution capacity this in turn limits their incentives to bid aggressively in the primary market in equilibrium they share the new issues through arrangements that resemble underwriter syndicates new issues are underpriced relative to average subsequent transactions prices the results illustrate how noncompetitive outcomes in the secondary market can lead to breakdowns in competition in the primary market and why issuers may have little to gain from improved price transparency while more transparency limits the rents dealers can extract from retail investors in the secondary market the lost rents are not absorbed by issuers mechanisms green is from the tepper school of business carnegie mellon university i would like to thank my long time colleagues and friends burton hollifield uday rajan and mike trick as well as the doctoral students in 47 724 for patiently listening to me think out loud about these issues roni israelov and bruce carlin provided helpful comments on an earlier draft

tax induced clientele effects in the market for british government securities abstract this paper develops a new methods for measuring tax effects in bond markets and presents empirical results for british government securities the basic idea is to construct a least cost portfolio which for investors in a given tax bracket dominates a given bond a portfolio is said to dominate a bond if it provides cash flows which are at least as great in every period and has a lower price in effect our method calculates an upper bound on the value of a bond to investors in a given tax bracket the results demonstrate i the existence of clientele effects and ii the absence of an effective tax rate

estimation and welfare calculations in a generalized corner solution model with an application to recreation demand the kuhn tucker model of wales and woodland 1983 provides a utility theoretic framework for estimating preferences over commodities for which individuals choose not to consume one or more of the goods due to the complexity of the model however there have been few applications in the literature and little attention has been paid to the problems of welfare analysis within the kuhn tucker framework this paper provides an application of the model to the problem of recreation demand in addition we develop and apply a methodology for estimating compensating variation relying on monte carlo integration to derive expected welfare changes

the impact of crisis events and macroeconomic activity on taiwan s international inbound tourism demand abstract the number of inbound tourism arrivals directly impacts the tourism industry and the government agency investments therein therefore policymakers need to improve their understanding of how crisis events affect the demand for inbound tourism from the first quarter of 1996 to the second quarter of 2006 taiwan experienced four major disasters at approximately two year intervals these disasters included the asian financial crisis in 1997 the 21st september 1999 earthquake the 11th september 2001 attacks in the united states and the outbreak of sars in 2003 this paper examines the impact of crisis events on the demand for tourism in order to establish a better understanding of changes and trends in the demand for international tourism this paper uses the auto regression distributed lag model by pesaran shin and smith pesaran m h shin y smith r j 2001 bounds testing approaches to the analysis of long run relationship journal of applied econometrics 16 289 326 to examine the negative impact of these disasters on the demand for inbound tourism this paper also explores the influence of variables such as foreign exchange rates incomes relative prices and transportation costs on the dynamics of the demand for inbound tourism this paper finds that a long term equilibrium exists among all variables indicating that macroeconomic variables may be used to determine the rise or fall of the number of inbound tourism arrivals income and foreign exchange rates are both significant explanatory variables in terms of incurred losses the number of inbound tourism arrivals suffered the greatest decline during the outbreak of severe acute respiratory syndrome sars followed by the 21st september 1999 earthquake and the 11th september 2001 attacks the impact of the asian financial crisis was relatively mild this paper finds that any impact on safety whether domestic or international negatively affects tourism demand the impact of financial crises on tourism demand is less significant ensuring the safety and health of tourists is the key to maintain demand for inbound tourism

the informational role of bond analysts this study uses a large sample of sell side bond analysts reports to examine the properties of recommendations provided by bond analysts and the impact of these recommendations on bond securities first we document that the distribution of bond analysts buy hold and sell recommendations is skewed positively but less so than the distribution of equity analysts recommendations the positive skewness in bond analysts recommendations is greater for

portfolio choice and pricing in illiquid markets abstract this paper studies portfolio choice and pricing in markets in which immediate trading may be impossible it departs from the literature by removing restrictions on asset holdings and finds that optimal positions depend significantly and naturally on liquidity when expected future liquidity is high agents take more extreme positions given that they do not have to hold those positions for long when they become undesirable consequently larger trades should be observed in markets with more frequent trading liquidity need not affect the price significantly however because liquidity has offsetting impacts on different agents demands this result highlights the importance of unrestricted portfolio choice the paper draws parallels with the transaction cost literature and clarifies the relationship between the price level and the realized trading frequency in this literature

dealer intermediation and price behavior in the aftermarket for new bond issues municipal bonds trade in decentralized broker dealer markets and are underpriced when issued but unlike equities the average price rises slowly over several days newly issued municipal bonds have high levels of price dispersion and the average price rises because the mix of trade sizes changes over time while large trades occur close to the reoffering price small trades occur between the reoffering price to as much as 5 above the reoffering price using a mixed distribution model we quantify the losses uninformed traders or issuers give up to broker dealers

bond illiquidity and excess volatility we find that the empirical volatilities of corporate bond and cds returns are higher than implied by equity return volatilities and the merton model this excess volatility may arise because structural models inadequately capture either fundamentals or illiquidity our evidence supports the latter explanation we find little relation between excess volatility and measures of firm fundamentals and the volatility of firm fundamentals but some relation with variables proxying for time varying illiquidity consistent with an illiquidity explanation firm level bond portfolio returns which average out bond specific effects significantly decrease excess volatility the author 2013 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

secondary trading costs in the municipal bond market using new econometric methods we separately estimate average transaction costs for over 167 000 bonds from a 1 year sample of all u s municipal bond trades municipal bond transaction costs decrease with trade size and do not depend significantly on trade frequency also municipal bond trades are substantially more expensive than similar sized equity trades we attribute these results to the lack of bond market price transparency additional cross sectional analyses show that bond trading costs increase with credit risk instrument complexity time to maturity and time since issuance investors and perhaps ultimately issuers might benefit if issuers issued simpler bonds

liquidity taxes and short term treasury yields this article investigates differences in yields on identical treasury notes and bills and shows that they reflect differences in liquidity immediacy risk and taxes it proposes an empirical measure for differences in the liquidity risk of notes and bills the volatility ofthe underlying rate times the ratio of bills turnover to notes turnover because differential taxes affect sellers but not buyers of bills and notes the results reject free of informational problems the hypothesis that the notes demand curve is horizontal note bill yield differences also decrease with inventories of notes the less liquid asset

bond returns liquidity and missing data this paper examines holding period returns to constant duration portfolios of u s govern ment notes and bonds and measures the return premium generated by liquidity differences in bonds the approach compares constant duration portfolios constructed in two distinct ways one using only bonds issued in the most recent treasury auction one using all other bonds comparisons of the resulting series are made meaningful by choosing narrow du ration ranges in the portfolio formation procedure this in turn induces a missing data problem in the created time series parameters of return distributions are therefore estimated employing a maximum likelihood framework that explicitly accounts for the missing data it is estimated that recently issued bonds are priced to return a premium of around 55 basis points per annum over otherwise equivalent instruments

turnover of used durables in a stationary equilibrium are older goods traded more this paper develops a dynamic model with transaction costs to determine the equilibrium resale pattern in a market for a durable good the key result is that the probability of resale is nonmonotonic in the age of the good trade volume is relatively low in the very beginning and in the middle of a good s life this result helps explain observed variations of resale rates across vintages for the u s market of used cars

a new linear programming approach to bond portfolio management this paper derives and tests a new linear programming lp approach to bond portfolio management the model elicits possible tax clientele effects in the pricing of u s gov ernment coupon bonds and simultaneously derives the optimal tax specific bond portfolio analytically the model derives these results by exploiting for a given tax bracket the price differential of an after tax stream of cash flows it accomplishes this objective by purchasing at the ask price underprieed bonds for the specific tax bracket while sim ultaneously selling at the bid price overpriced bonds the model requires that the net cash flow inclusive of purchased and sold bonds be nonnegative at all future dates the problem s formulation standardizes the position taken in each bond to a maximum of one unit one of the model s appealing features is the parsimonious number of required calcu lations only one lp program need be run per tax bracket in addition to obtaining an optimally chosen tax specific bond portfolio the model also measures the after tax term structure of spot u s government interest rates for both tax exempt and taxable investors finally the superior monthly holding period rates of return on the optimal taxspecific bond portfolio demonstrate an important property ofthe model s output

the term structure of bond liquidity we analyze the impact of market frictions on the trading volume and liquidity premia of finite maturity assets when investors differ in their trading needs our equilibrium model generates a clientele effect frequently trading investors hold only short term assets and predicts i a hump shaped relation between trading volume and maturity ii lower trading volumes of older compared with younger assets iii an increasing liquidity term structure from ask prices iv a decreasing or u shaped liquidity term structure from bid prices and v spillovers of liquidity from short term to long term maturities empirical tests for u s corporate bonds support our theoretical predictions

cross listed bonds information asymmetry and conservatism in credit ratings we propose information asymmetry as an additional explanation for rating conservatism because information asymmetry is likely higher for cross listed bonds than for u s bonds we expect and find that cross listed bonds are rated more conservatively than u s domestic bonds at issuance further cross listed bonds receive less frequent upgrades and take longer to be upgraded after issuance because lower ratings might also reflect higher default risk based on agencies private information we conduct additional tests to discriminate between the rating conservatism and private information explanations the results are consistent with ratings conservatism and inconsistent with the private information explanation

does a parent subsidiary structure enhance financing flexibility i examine whether firms exploit a publicly traded parent subsidiary structure to issue equity of the overvalued firm regardless of which firm needs funds and whether this conveys opposite information about firm values using 90 subsidiary and 37 parent seasoned equity offering seo announcements during 1981 2002 i document negative returns to issuers but insignificant returns to nonissuers in both samples and insignificant changes in combined firm value and parent s nonsubsidiary equity value in subsidiary seos firms issue equity to meet their own financing needs my evidence contrasts with previous studies and suggests that parent subsidiary structures

when does the bond price reaction to earnings announcements predict future stock returns abstract in this paper i show that the bond price reaction to earnings announcements has predictive power for post announcement stock returns and that this predictive ability is driven by the bonds of non investment grade firms i find that bonds predictive ability is more pronounced in firms that have a lower level of institutional shareholder ownership and whose bonds are more liquid this paper enhances our understanding of the relation between the stock and bond markets and complements the literature which documents whether and under what circumstances various accounting based measures and financial statement components predict post announcement stock returns

lemons hypothesis reconsidered an empirical analysis abstract this paper tests the hypothesis that there is no difference in the average maintenance expenditures required for cars acquired used and those acquired new the results showed no evidence that cars acquired used required more maintenance expenditures than those of a similar age acquired new

liquidity misallocation in an over the counter market abstract to understand the illiquidity of the over the counter market when dealers and traders are in long term relationships i develop a framework to study the endogenous liquidity distortions resulting from the profit maximizing screening behavior of dealers the dealer offers the trading mechanism contingent on the aggregate history of his customers summarized by the asset allocation the equilibrium distortion is type dependent trade with small surplus breaks down trade with intermediate surplus may be delayed trade with large surplus is carried out with a large bid ask spread but without delay because of dealers limited commitment the distortions become more severe when the valuation shock is frequent the valuation dispersion is large or the matching friction to form new relationships is large calibrating the model and running a horse race between matching efficiency trading speed and relationship stability i found that the liquidity disruption in the market during the recent financial crisis is more consistent with declining matching efficiency of forming trading relationships the optimal mechanism can be implemented by random quote posting

monopoly production and pricing of finitely durable goods with strategic consumers fluctuating willingness to pay abstract demand volatility and production lead time oblige manufacturers of made to stock goods to use economic forecasts in deciding on production quantities manufacturers of finitely durable goods face an additional complication in making production decisions they must consider not only the uncertainty in demand for new goods but also how the future sales will be affected by the older goods that will become available via a secondhand market using a model of an infinite horizon sequential game between a monopolistic producer of durable goods and strategic consumers we investigate how demand volatility affects producers production and pricing decisions we formulate the problem of a monopolist durable goods producer as a discrete time markov decision process and prove certain structural properties of the sales and production policy these structural properties facilitate an efficient computational algorithm which we use in running numerical experiments to explicate the producer s strategy and to conduct equilibrium comparative statics analysis we show that a simple myopic policy is optimal when each period s demand is independent and identically distributed i i d when demand is correlated across periods the producer s optimal production and sales policy is not myopic and in some states when the economy is poor the producer withholds some of the new goods inventory our numerical results suggest that in equilibrium the producer who is dealing with myopic rather than with forward looking consumers is more likely to sell some of these held back goods later as vintage goods

spanish treasury bond market liquidity and volatility pre and post european monetary union abstract spain enacted a number of important debt management initiatives in 1997 to prepare its treasury bond market for european monetary union we interpret the impacts of these changes through shifts in a bond liquidity life cycle function furthermore we highlight the importance of expected average future liquidity in explaining spanish bond liquidity premiums we also uncover pricing biases that support the spanish treasury s tactical decision to target high coupon premium bonds in its pre emu debt exchanges finally we show that emu has been associated with both a decrease in bond yield volatility and an increase in pricing efficiency

time varying risk aversion abstract exploiting portfolio data and repeated surveys of an italian bank s clients we test whether investors risk aversion increases following the 2008 crisis we find that after the crisis both qualitative and quantitative measures of risk aversion increase substantially and that affected individuals divest more stock we investigate four explanations changes in wealth expected income perceived probabilities and emotion based changes of the utility function our data are inconsistent with the first two channels while they suggest that fear is a potential mechanism underlying financial decisions whether by increasing the curvature of the utility function or the salience of negative outcomes

corporate bond market transaction costs and transparency using a complete record of u s over the counter otc secondary trades in corporate bonds we estimate average transaction costs as a function of trade size for each bond that traded more than nine times between january 2003 and january 2005 we find that transaction costs decrease significantly with trade size highly rated bonds recently issued bonds and bonds close to maturity have lower transaction costs than do other bonds costs are lower for bonds with transparent trade prices and they drop when the trace system starts to publicly disseminate their prices the results suggest that public traders benefit significantly from price transparency

price discovery in illiquid markets do financial asset prices rise faster than they fall we study price discovery in municipal bonds an important otc market as in markets for consumer goods prices rise faster than they fall round trip profits to dealers on retail trades increase in rising markets but do not decrease in falling markets further effective half spreads increase or decrease more when movements in fundamentals favor dealers yield spreads relative to treasuries also adjust with asymmetric speed in rising and falling markets finally intraday price dispersion is asymmetric in rising and falling markets as consumer search theory would predict in a wide variety of consumer markets prices for retail goods rise faster than they fall 1 this asymmetric price adjustment referred to as rockets and feathers is generally understood by economists to be inconsistent with perfect competition between sellers sellers appear to exploit local market power due to the search frictions that their customers face we document asymmetric price adjustment in a major over the counter otc financial market using a comprehensive sample of all trades in municipal bonds over a 5 year period we provide evidence that the asymmetric price adjustment is associated with opportunistic timing by the broker dealers who intermediate trades in the market movements in fundamentals that increase spreads earned by broker dealers are reflected quickly in prices while prices respond more slowly to changes that reduce their spreads further the asymmetries are more pronounced in states where tax treatment of the bonds would induce market segmentation we also document asymmetries in withinday price dispersion as implied by theoretical models of rockets and feathers price adjustments based on costly consumer search and learning

ordering effects in contingent valuation surveys this paper focuses on ordering effects in cvm surveys how the expressed value of a particular good valued in a sequence of several goods depends on where in the sequence the good is valued we use data from a norwegian cvm survey focusing on wtp for a 50 reduction in air pollution from car traffic to test for the existence of ordering effects and to apply a test for internal consistency we found considerable and significant ordering effects in our data but were not able to reject the hypothesis of internal consistency based on our survey we argue that ordering effects may be a result of rational choice these effects are problematic if a sequential valuation procedure is applied to a simultaneous problem and or the respondents are given imperfect information about the decision problem