the nature of costs and the number of firms at cournot equilibrium abstract the paper analyzes the perfect equilibria of a two stage entry production game in a simple model with constant marginal costs a fixed cost per firm and cournot behaviour at the production stage if fixed costs are not sunk the range of equilibrium values for n the number of firms can be quite large that range becomes smaller with the lower values of n being eliminated the more that fixed costs are sunk thus there is a sense in which sunk costs can rule out some less competitive equilibria to the benefit of consumers and potential entrants by enhancing the credibility of entry

stock returns implied volatility innovations and the asymmetric volatility phenomenon we study the dynamic relation between daily stock retums and daily innovations in optionderived implied volatilities by simultaneously analyzing innovations in index and firmlevel implied volatilities we distinguish between innovations in systematic and idiosyncratic volatility in an effort to better understand the asymmetric volatility phenomenon our results indicate that the relation between stock retums and innovations in systematic volatility idiosyncratic volatility is substantially negative near zero these results suggest that asymmetric volatility is primarily attributed to systematic market wide factors rather than aggregated firm level effects we also present evidence that supports our assumption that innovations in implied volatility are good proxies for innovations in expected stocic volatility

does product market competition increase strike activity evidence from the uk although many studies have examined the effect of labour market characteristics macroeconomic fluctuations and workplace level factors on strike activity much less is known about industry level determinants of industrial conflict and in particular the role of product market competition i examine the effect of competition on strike activity using evidence from a natural experiment of policy reform the introduction of cartel legislation in the uk in the late 1950s my econometric analysis which takes advantage of the fact that different industries were affected to varying degrees by cartel policy establishes that both the number of strikes and the number of working days lost as a result of strikes increased significantly when competition intensified after the abolition of cartels i propose an interpretation of these results with reference to theoretical models of bargaining with asymmetric information

price competition and market structure the impact of cartel policy on concentration in the uk this paper examines the impact of firms conduct on market structure it studies the evolution of concentration in uk manufacturing following the abolition of cartels using a theoretical framework based on sutton s theory of market structure and a panel data set of four digit industries over 1958 1977 the econometric results suggest that the intensity of price competition has a positive impact on concentration in exogenous sunk cost industries as well as in advertising intensive and r d intensive industries the concentration market size relationship while negative in exogenous sunk cost industries breaks down in industries with high advertising or r d intensity

option valuation with systematic stochastic volatility we use an extension of the equilibrium framework of rubinstein 1976 and brennan 1979 to derive an option valuation formula when the stock return volatility is both stochastic and systematic our formula incorporates a stochastic volatility process as well as a stochastic interest rate process in the valuation of options if the mean volatility and covariance processes for the stock return and the consumption growth are predictable our option valuation formula can be written in preference free form further many popular option valuation formulae in the literature can be written as special cases of our general formula in this paper we investigate the valuation of individual stock options when the volatility of the underlying stock return is stochastic and has a systematic component which is related to the stochastic volatility of the consumption growth or the market return such an investigation is timely and of significant interest because there is now a considerable amount of evidence that the volatility of stock prices is not only stochastic but that it is also highly correlated with the volatility of the market as a whole for example see black 1975 conrad kaul and gultekin 1991 jarrow and rosenfeld 1984 jorion 1988 and ng engle and rothschild 1992 furthermore empirical work by black and scholes 1972 gultekin rogalski and tinic 1982 and whaley 1982 has shown that the empirical biases inherent in the black scholes option prices are different for options on high and low risk stocks because low risk stocks are mainly large firm stocks with stochastic return volatilities that are highly correlated with the return volatility of the market and high risk stocks are mainly small firm stocks with a lessimportant systematic volatility component incorporating systematic volatility effects in option valuation models has the potential to reduce the empirical biases exhibited by prices computed from the black scholes formula we use equilibrium arguments that extend the consumption based representative agent framework of rubinstein 1976 brennan 1979 and stapleton and subrahmanyam 1984 to allow individual asset returns and the consumption growth to exhibit stochastic volatility in particular we permit the volatility of individual asset returns to consist of a systematic component that is related to the consumption or market volatility in addi

competition risk and managerial incentives this paper examines how the degree of competition among firms in an industry affects the optimal incentives that firms provide to their managers a central assumption is that there is free entry and exit in the industry which implies that changes in the nature of competition lead to changes in the equilibrium market structure the main result is that as the intensity of product market competition increases as a result of greater product substitutability or greater market size principals unambiguously provide stronger incentives to their agents to reduce costs at the same time more intense competition also leads to more volatile firm level profits consequently managers incentives are positively correlated with firm level risk consistent with empirical evidence a decrease in the cost of entering the market has the opposite effect on incentives but still induces a positive correlation between risk and incentives

recovering probability distributions from option prices this article derives underlying asset risk neutral probability distributions of european options on the s p 500 index nonparametric methods are used to choose probabilities that minimize an objective function subject to requiring that the probabilities are consistent with observed option and underlying asset prices alternative optimization specifications produce approximately the same implied distributions a new and fast optimization technique for estimating probability distributions based on maximizing the smoothness of the resulting distribution is proposed since the crash the risk neutral probability of a three four standard deviation decline in the index about 36 percent 46 percent over a year is about 10 100 times more likely than under the assumption of lognormality recently the increasing popularity of derivatives and some highly publicized failures to control risk have led to increased efforts to find reasonable methods to measure the sensitivity of large institutional derivatives portfolios to extreme events merely because such events are rare is not sufficient to ignore them since on the few occasions when they do occur significant amounts of money can change hands potentially wiping out profits accumulated over long prior periods a key assumption behind methods of estimation is the joint probability distribution of constituent underlying asset returns this has long been a concern of financial economists since probability assumptions are critical to much of their research during the last quarter century heretofore probability distributions of stock market returns have typically been estimated from historical time series unfortunately common hypotheses may not capture the probability of extreme events and the events of interest are rare or may not be present in the historical record even though they are clearly possible

evolution of international stock and bond market integration influence of the european monetary union abstract this paper examines the dynamic relationship between daily stock and government bond returns of selected countries over the past decade to infer the state and progress of inter financial market integration we proceed to empirically investigate the influence of the european monetary union emu on time variations in inter stock bond market integration segmentation dynamics using a two step procedure first we document the downward trends in time varying conditional correlations between stock and bond market returns in european countries japan and the us second we investigate the causality and determinants of this interdependent relationship in particular whether the various macroeconomic convergence criteria associated with the emu have played a significant role we find that real economic integration and the reduction in currency risk have generally had the desired effect on financial integration but monetary policy integration may have created uncertain investor sentiments on the economic future of the emu thereby stimulating a flight to quality phenomenon

competition and the relative productivity of large and small firms using a comprehensive dataset on the incidence of price fixing across british manufacturing industries in the 1950s i compare collusive and competitive industries and find evidence of a negative relationship between collusion and the labour productivity of larger firms relative to smaller firms in particular collusion is associated with a reduction or even a reversal of the productivity gap between larger and smaller firms this result is robust to controlling for the potential endogeneity of collusion

manufacturers and retailers in the global economy we develop a general equilibrium model to capture key features of the retailing and of the manufacturing industry in order to understand how these two industries interact and how labor is allocated between them we show that the observed shift in employment from manufacturing to retailing the rise in retailer product assortment and the emergence of slotting allowances in many retail markets are consistent with the global integration of product markets while higher retail market concentration is best explained by technological change in retailing we also identify a novel benefit from market integration consisting of efficiency gains in the vertical distribution chain

causal flows between oil and forex markets using high frequency data asymmetries from good and bad volatility abstract this paper investigates the causal linkages in volatility between crude oil prices and six major bilateral exchange rates against the u s dollar in the time frequency space using high frequency intraday data special attention is paid to the potential asymmetries in the causal effects between oil and forex markets the wavelet based granger causality method proposed by olayeni 2016 is applied to quantify the causal relations in the time and frequency domains simultaneously moreover the realized semivariance approach of barndoff nielsen et al 2010 is used to account for possible asymmetries in the transmission of volatility shocks the empirical results show that the significant causal links between oil prices and exchange rates are mainly concentrated in the long run and during periods of increased economic and financial uncertainty such as the global financial crisis and the subsequent european sovereign debt crisis further the causal effects from currency markets to the crude oil market are stronger than in the opposite direction consistent with the forward looking nature of exchange rates the role of the u s dollar as the key invoicing currency for global oil trading and the expanding financialization of the oil market since the mid 2000s in addition significant asymmetries coming from good and bad volatility are found at longer horizons specifically bad volatility seems to dominate good volatility in terms of the importance of transmission of volatility shocks

distance time and specialization lean retailing in general equilibrium transport time increases with distance traveled and time is valuable we show the implications of these facts for global specialization and trade products where timely delivery is important will be produced near the source of final demand where wages will be higher as a result in the model timely delivery is important because it allows retailers to respond to final demand fluctuations without holding costly inventories and timely delivery is possible only from nearby locations using a unique dataset that allows us to measure the retail demand for timely delivery we show that the sources of u s apparel imports have shifted in the way predicted by the model with products for which timeliness matters increasingly imported from nearby countries jel f1 transporting goods and people costs time and money and both transport fees and time in transit generally increase with the distance traveled these facts imply an incentive to economize on distance and the equilibrium effects

the determinants of asymmetric volatility volatility in equity markets is asymmetric contemporaneous return and conditional return volatility are negatively correlated in this article i develop an asymmetric volatility model where dividend growth and dividend volatility are the two state variables of the economy the model allows both the leverage effect and the volatility feedback effect the two popular explanations of asymmetry the model is estimated by the simulated method of moments i find that both the leverage effect and volatility feedback are important determinants of asymmetric volatility and volatility feedback is significant both statistically and economically the relationship between stock price and its volatility has long interested financial researchers empirically returns and conditional variance of next period s returns are negatively correlated that is negative positive returns are generally associated with upward downward revisions of the conditional volatility this empirical phenomenon is often referred to as asymmetric volatility in the literature see engle and ng 1993 zakoian 1994 and wu and xiao 1999 the presence of asymmetric volatility is most apparent during stock market crashes when a large decline in stock price is associated with a significant increase in market volatility formal econometric models have been developed by researchers to capture asymmetric volatility for example asymmetric arch models of nelson 1991 and glosten jagannathan and runkle 1993 have been found to significantly outperform their counterparts that do not accommodate the asymmetry moreover continuous time stochastic volatility models generally produce estimates of a negative correlation between return and return volatility bakshi cao and chen 1997 and bates 1997 for a review of the literature on asymmetric volatility see bekaert

productivity under the 1997 2010 labour government what was the productivity record under the labour government of 1997 2010 i show that productivity growth and economic performance in general was good when the uk is compared with its main international peers only the us had stronger productivity growth and the uk did better than the us in terms of the jobs market much of this improved performance was a continuation of the pattern since 1979 which broke a century of relative decline some part of the improvement is directly linked to policies especially over human capital innovation and competition we discuss the recent productivity puzzle the disappointing productivity figures since the onset of the great recession in 2008 and argue that our conclusions are unchanged as most other oecd countries have also experienced poor measured productivity

religiosity and the volatility of stock prices a cross country analysis prior research argues that religiosity increases the ethical behavior and levels of risk aversion of firm managers to the extent that this is true more religious countries might exhibit more stability in stock prices this study tests this assertion by determining whether religiosity in countries is negatively associated with volatility in financial markets using a unique empirical design we account for the possibility that the structure of financial markets is endogenously related to a country s religiosity by examining the volatility of american depositary receipts adrs while conditioning on a number of home country variables capturing religiosity we also control for the possibility of endogeneity bias by identifying an appropriate instrumental variable interestingly our tests show that religious affiliation and to a lesser extent religious adherence and religious beliefs negatively affect the level of adr volatility

a simple approach to interest rate option pricing a simple introduction to contingent claim valuation of risky assets in a discrete time stochastic interest rate economy is provided taking the term structure of interest rates as exogenous closed form solutions are derived for european options written on 1 treasury bills 2 interest rate forward contracts 3 interest rate futures contracts 4 treasury bonds 5 interest rate caps 6 stock options 7 equity forward contracts 8 equity futures contracts 9 eurodollar liabilities and 10 foreign exchange contracts article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the effect of competition on wages and productivity evidence from the united kingdom abstract i examine the impact of competition on wages and productivity using a panel data set of u k manufacturing industries over 1954 1973 the introduction of cartel law in the united kingdom in the late 1950s caused an intensification of price competition in previously cartelized manufacturing industries but it did not affect those industries that were not cartelized the econometric results from a comparison of the two groups of industries before and after the introduction of cartel law provide strong evidence of a negative effect of collusion on labor productivity growth there is no evidence of any effect of collusion on wages these results are robust to controlling for the potential endogeneity of collusion and are further strengthened by a comparison with u s data

imports я us retail chains as platforms for developing country imports wal mart toys r us and other large retail chains are often identified with cheap imports we use data from the census of retail trade and the international trade commission over the period 1997 2002 to test whether big chains serve as platforms for imports from ldcs using difference in difference specifications we show that chinese and other ldc imports have increased disproportionately in retail sectors with the sharpest consolidation into chains to quantify the importance of chain growth to import growth we apply a numerical algorithm that generates marginal propensities to import by firm size the largest retail firms propensity to import from china is 17 percentage points higher than that of smaller retailers the corresponding difference in import propensities from ldcs as a whole is 27 points the disproportionate growth of large retailers between 1997 and 2002 explains 5 of the overall growth in consumer goods imports 20 of the growth in consumer goods imports from china and 22 of the growth in consumer goods imports from ldcs

competition innovation and the use of innovations i examine the effect of competition on the production and use of innovations using evidence from a natural experiment of policy reform the introduction of cartel legislation in the uk in the late 1950s i compare manufacturing industries which had been collusive and were therefore affected by the policy with those that had been competitive and were not affected the intensification of competition following the abolition of cartels caused a short run decrease in innovations produced but had no significant effect in the long run in contrast innovations used increased both in the short run and in the long run

the impact of trades on daily volatility this article proposes a trading based explanation for the asymmetric effect in daily volatility of individual stock returns previous studies propose two major hypotheses for this phenomenon leverage effect and time varying expected returns however leverage has no impact on asymmetric volatility at the daily frequency and moreover we observe asymmetric volatility for stocks with no leverage also expected returns may vary with the business cycle that is at a lower than daily frequency trading activity of contrarian and herding investors has a robust effect on the relationship between daily volatility and lagged return consistent with the predictions of the rational expectation models the non informational liquidity driven herding trades increase volatility following stock price declines and the informed contrarian trades reduce volatility following stock price increases the results are robust to different measures of volatility and trading activity jel c30 g11 g12 stock return volatility is fundamental to finance contingent claims pricing risk management asset allocation and market efficiency tests use volatility as a basic building block consequently volatility has been widely studied along several dimensions volatility clustering in financial data has been well documented and extensively modeled by the autoregressive conditional heteroskedasticity arch of engle 1982 and the generalized arch extension of bollerslev 1986 1 shiller 1981 leroy and porter 1981 roll 1984 1988 french and roll 1986 and cutler poterba and summers 1989 have all documented a significant amount of volatility that cannot be explained by changes in fundamentals and thus may be attributable to mispricing schwert 1989 has studied the variation in stock market volatility over time and has analyzed the

a theory of the nominal term structure of interest rates a model of the nominal term structure of interest rates is developed that has a positive and stationary process for the interest rate and delivers closed form expressions for the prices of discount bonds and european options on bonds unlike the one state variable version of the cox ingersoll and ross 1985 model this model even in its one state variable version allows the term premium to change sign as a function of the state and the term to maturity and also allows for shapes of the yield curve that are observed in the u s data but that are disallowed in the cox ingersoll and ross model article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a model of collusion timing abstract i develop a dynamic model of collusion affording a substantial role to entry heterogeneous firms make collusion entry exit and investment decisions within an evolving environment the collusive agreement adopted is a rule of thumb motivated by the details of collusion in the lysine market it is found that an entrant will wait until it has a market share comparable to its competitors before agreeing to collude allowing for collusive possibilities tends to yield a less concentrated industry with reduced consumer welfare the model characterises events in the lysine market and could provide insights into markets with the potential for collusion and entry and uncertainty about the characteristics of potential entrants

collusion profitability and welfare theory and evidence abstract in a differentiated oligopoly model with free entry the static welfare loss from collusion is larger the lower the entry cost the larger the market size and the higher the degree of product differentiation the cartel overcharge is larger the lower the entry cost and the larger the market size and is independent of the degree of product differentiation these theoretical results are consistent with evidence from a natural experiment of policy reform the introduction of cartel law in the uk in the late 1950s price cost margins declined after the breakdown of cartels in low capital and larger sized industries relative to capital intensive and smaller sized ones there is weaker evidence of a fall in price cost margins in consumer good and advertising intensive relative to producer good and low advertising industries crucially these effects are not observed for industries that were not affected by the cartel law a comparison of these findings with evidence on the incidence of collusion suggests that the welfare loss from collusive pricing may often be smaller in industries where cartels tend to form than in those where collusion is more difficult to sustain

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

risk inflation and the stock market most explanations for the decline in share values over the past two decades have focused on the concurrent increase in inflation this paper considers an alternative explanation a substantial increase in the riskiness of capital investments we show that the variance of firms real gross marginal return on capital has increased significantly increasing the relative riskiness of investors returns on equity and that this can explain a large part of the market decline we also assess the effects of increase in the mean and variance of the inflation rate and a decline in firms expected return on capital this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

banking market structure and financial stability evidence from the texas real estate crisis in the 1980s abstract this paper examines the relationship between banking market structure and financial stability using data on thrifts a type of banking institution specializing in residential mortgage lending i test two related hypotheses first competition reduces franchise value second reduced franchise value induces risk taking testing the second hypothesis exploits predictions that when hit by an exogenous shock the slope of risk with respect to franchise value becomes more negative because thrifts adopt bang bang strategies and choose minimal or maximal risk using the texas real estate collapse in the 1980s as a natural experiment i find evidence supporting both hypotheses

real exchange rate fluctuations and the dynamics of retail trade industries on the u s canada border consumers living near the u s canada border can shift their expenditures between the two countries so real exchange rate fluctuations can act as demand shocks to border areas retail trade industries using annual county level data we estimate the effects of real exchange rates on the number of establishments and their average payroll in border counties for four retail industries in three of the four industries we consider the number of operating establishments responds either contemporaneously or with a lag of one year to real exchange rate movements for these industries the response of retailers average size is less pronounced the rapid response of net entry is inconsistent with any model of persistent deviations from purchasing power parity that depends on retailers costs of changing nominal prices

managing global sourcing inventory performance the use of global suppliers has increased considerably over the last three decades operations management theory establishes that global sourcing requires more units of inventory but since these units are often procured at a lower cost from global suppliers the capital invested in inventory and the consequent financial burden may increase or decrease with global sourcing this study provides rigorous firm level empirical evidence that links the global sourcing practices of public u s firms and their inventory investments we process bill of lading manifests customs forms to extract information on over half a million sea shipments from global suppliers to u s public firms and link this information with quarterly financial data from the compustat database we provide stylized facts on the participation of different firms and sectors in global trade using a simultaneous equation model we find that an increase in global sourcing results in an increase in inventory investment a 10 shift in sourcing from domestic to global suppliers increases the inventory investment by 8 8 for an average firm in our sample we also find that increasing the number of suppliers can mitigate this increase in inventory investment for example going from single to dual sourcing reduces inventory investment by about 11 we illustrate the use of our estimates to identify the impact of changing global sourcing strategy on inventory investment and operational performance metrics this paper was accepted by martin lariviere operations management

does exchange rate risk affect exports asymmetrically asian evidence abstract this paper tests the hypothesis of asymmetric effects of exchange rate risk with a dynamic conditional correlation bivariate garch 1 1 m model the asymmetry means that exchange rate risk volatility affects exports differently during appreciations and depreciations which may reflect exporter s asymmetric risk perception and hedging behavior using bilateral exports from eight asian countries to the us the real exchange rate risk significantly affects exports for all countries negative or positive in periods of depreciation or appreciation thus policy makers can consider the stability of the exchange rate in addition to its depreciation as a method of controlling export growth

price competition non price competition and market structure theory and evidence from the uk this paper examines the impact of price competition on advertising r and d expenditure and market structure a general theoretical result is derived which restricts the space of possible outcomes regarding the behaviour of concentration and advertising r and d expenditure following an intensification of price competition the theory is tested using uk data on the evolution of competition concentration and advertising over 1954 77 the econometric results suggest that the introduction of restrictive practices legislation in the uk caused a rise in concentration in previously cartelized high advertising manufacturing industries and probably also a fall in advertising intensity

trading asymmetric trend and volatility by leverage trend garch in taiwan stock index this article develops a leverage trend generalized autoregressive conditional heteroscedasticity garch model by incorporating asymmetric trend of returns of the exponential autoregressive and asymmetric volatility of garch models to study the asymmetric effects using in sample daily data of taiex over the period 4 january 1980 to 25 august 1997 and postsample daily data over the period 26 august 1997 to 10 september 2007 the evidence reveals that a curvaceous risk return relationship and both asymmetric volatility and asymmetric trend of returns are significant in taiex the episode of asymmetric trend of returns is that the positive information creates a higher return trend than the negative information of the same amount while similarly to most studies the evidence of asymmetric volatility appears that the negative information makes a higher volatility than the positive information of the same size most remarkably we evidence that the volatility asymmetry effect is a conservative trading factor

stock returns asymmetric volatility risk aversion and business cycle some new evidence i introduction most asset pricing models starting with intertemporal capital asset pricing model of merton 1973 suggest a positive relation between risk and return for the aggregate stock market there is an extensive empirical literature that has tried to establish the existence of such a trade off between risk and return for stock market indexes unfortunately the results have been inconclusive often the relation between risk and return has been found insignificant and sometimes even negative recently it has been debated whether risk aversion is state dependent and whether it is procyclical or countercyclical in this article we explore the role of the business cycle in the relation between risk and return for the aggregate stock market specifically by employing asymmetric generalized autoregressive conditional heteroskedasticity in mean models agarch m markov switching models and a simple theoretical equilibrium framework we explore how these three related issues excess stock returns volatility and risk aversion are affected by business cycles as noted by fama 1990 of many possible forces that drive the stock market real economic activities represented by business cycles could be an important one since they are highly related to major stock pricing factors market volatility and the psychology of investors particularly investors attitude toward risk an interesting observation about excess stock return is that it is time varying over business cycles and significantly higher in boom periods 1 according to our estimates for the sample period 1926 2001 presented in table 1 the mean excess stock return is 0 8963 mo in boom periods and 0 3247 mo in recession periods the excess stock return tends to be very high in the boom period because stock returns remain relatively high with increasing dividend payments another interesting observation about the stock market is that the volatility of excess stock return is also time varying over business cycles and significantly lower in boom periods our estimates of standard deviation of monthly stock excess return for the sample period 1926 2001 are 4 6 in the boom period and 8 2 in the recession period these estimates imply that the excess return risk relation is time varying over the business cycle since the coefficient of variance or standard deviation in the conditional mean equation is usually interpreted as being closely related to the coefficient of relative risk aversion as argued by merton 1980 our finding suggests a potential time varying risk aversion 2 there is a general agreement that investors within a given time period require a larger expected return from a security that is riskier however there seems to be no relationship between risk and return over time as such whether or not investors require a larger risk premium for investing in a security during periods when the security is more risky relatively remains inconclusive at first glance it may appear that rational risk averse investors would require a relatively larger risk premium during times when the payoff from the security is more risky a larger risk premium may not be required however because times that are relatively more risky could coincide with times in which investors are better able to bear particular types of risk further a larger risk premium may not be required because investors may want to save relatively more during periods when the future is more risky 3 hence a positive as well as a negative sign for the correlation between the conditional mean and the conditional variance of the excess return on stocks would be consistent with existing theories since there are conflicting predictions about the intertemporal trade off between risk and return it is important to empirically characterize the nature of this relation according to merton 1980 the coefficient of variance or the standard deviation in the conditional mean equation which is called volatility feedback is usually interpreted as the coefficient of relative risk aversion

in which industries is collusion more likely evidence from the uk i examine the factors facilitating or hindering collusion using a comprehensive data set on the incidence of price fixing across uk manufacturing industries in the 1950s the econometric results suggest that collusion is more likely the higher the degree of capital intensity and less likely in advertising intensive than in low advertising industries there is also some evidence of a non monotonic relationship between market growth and the likelihood of collusion there is no clear link between concentration and the incidence of collusion

how important is intertemporal risk for asset allocation how important is merton s intertemporal risk for asset allocation decisions to address this question we jointly estimate and test a conditional asset pricing model which includes long term interest rate risk as a potentially priced factor for four broad classes of assets large stocks small stocks long term treasury bonds and corporate bonds we find that the premium for long bond risk is the main component of the risk premiums of treasury bond and corporate bond portfolios while it represents a small fraction of total risk premiums for equities our results suggest that investors perceive stocks and especially small stocks as hedges against variations in the investment opportunity set since these four asset classes represent some of the most important for investors we proceed to use our estimates to compute the optimal asset allocations for investors who optimize with or without taking into account the intertemporal risk we provide a set of measures to investigate the importance of this risk we find that at average market volatility levels investors can earn annual premiums between 3 6 during expansions and 5 8 during recessions for bearing intertemporal risk alone these results underscore the importance of explicitly considering intertemporal risk in asset allocation decisions especially during down markets and business recessions

understanding the puzzling risk return relationship for housing standard theory predicts a positive relationship between risk and return yet recent data show that housing returns vary positively with risk in some markets but negatively in others this paper rationalizes these cross market differences in the risk return relationship for housing and in so doing explains the puzzling negative relationship the paper shows that when the current house provides a hedge against the risk associated with the future housing consumption households are willing to accept a lower return to compensate for risk thus weakening the positive risk return relationship further in markets with less elastic housing supply and a growing population hedging incentives can be sufficiently strong to make the relationship negative the empirical analysis confirms these predictions suggesting that hedging incentives housing supply and urban growth are indeed central to understanding the risk return relationship for housing 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