settlement tax and non synchronous effects in the basis of u k stock index futures abstract the basis in stock index futures markets is analytically and empirically studied in this paper within a no arbitrage cost of carry framework explanatory power improved when the implications of the u k stock exchange settlement system were introduced into the modelling process and until recently with the maturity of the market evidence indicating the presence of non synchronicities between the cash and futures markets was found strong evidence for tax effects upon the basis was not found to be present in the data analysed statistically significant relationships between basis mispricing and volume and volatility were found

pitfalls of a minimax approach to model uncertainty i it does not always keep the normative analysis of decision making distinct from its descriptive analysis losing sight of the fact that these methods are appealing shortcut approximations not improvements on decision making based on the savage axioms ii in all the existing applications to monetary policy it analyzes uncertainty about relatively unimportant aspects of models while making strong but actually uncertain assumptions about other more important aspects

one security many markets determining the contributions to price discovery when homogeneous or closely linked securities trade in multiple markets it is often of interest to determine where price discovery the incorporation of new information occurs this article suggests an econometric approach based on an implicit unobservable efficient price common to all markets the information share associated with a particular market is defined as the proportional contribution of that market s innovations to the innovation in the common efficient price applied to quotes for the thirty dow stocks the technique suggests that the preponderance of the price discovery takes place at the new york stock exchange nyse a median 92 7 percent information share although most of the classic paradigms in market microstructure concern a security that trades in a single centralized market such situations are becoming increasingly rare in practice fragmentation the dispersal of trading in a security to multiple sites has emerged as a dominant institutional trend this process is of concern to financial economists and regulators because price information and price discovery the impounding of new information into the security price arguably the most important products of a security market have many attributes of public goods as the process of fragmentation accelerates it may be important to determine where the price information and price discovery are being produced 1 this paper suggests a practical econometric approach to this problem the technique is illustrated with an application to u s equity markets many stocks listed on the new york stock exchange nyse trade concurrently on the regional exchanges and the national association of securities dealers national market system nasd nms since a share of ibm stock is the same security whether purchased on the midwest or pacific exchange this is a particularly clear instance of multiple markets nevertheless the expres

stock volatility and the levels of the basis and open interest in futures contracts this article tests a theoretical model of the basis and open interest of stock index futures the model is based on the differences between stock and futures in terms of investors ability to customize stock portfolios and liquidity empirical evidence confirms the model s prediction that increased volatility decreases the basis and increases open interest copyright 1995 by american finance association

a defense of the fomc we defend the forecasting performance of the fomc from the recent criticism of christina and david romer our argument is that the fomc forecasts a worst case scenario that it uses to design decisions that will work well enough are robust despite possible misspecification of its model because these fomc forecasts are not predictions of what the fomc expects to occur under its model it is inappropriate to compare their performance in a horse race against other forecasts our interpretation of the fomc as a robust policymaker can explain all thefindings of the romers and rationalises differences between fomc forecasts and forecasts published in the greenbook by the staff of the federal reserve system

portfolio serial correlation and nonsynchronous trading common stock portfolios of large heavily traded firms exhibit daily first order serial correlation in excess of what would be expected given the individual security coefficients further this correlation rises as the number of securities in the portfolio increases the direct implication of this finding is that nonsynchronous trading is not the only cause of correlation in daily market indices related implications are also discussed

trading mechanisms and stock returns an empirical investigation this paper examines the effects of the mechanism by which securities are traded on their price behavior we compare the behavior of open to open and close to close returns on nyse stocks given the differences in execution methods applied in the opening and closing transactions opening returns are found to exhibit greater dispersion greater deviations from normality and a more negative and significant autocorrelation pattern than closing returns we study the effects of the bid ask spread and the price adjustment process on the estimated return variances and covariances and discuss the associated biases we conclude that the trading mechanism has a significant effect on stock price behavior

default premiums in commodity markets theory and evidence we model the effect of nonperformance risk on forward and futures pricing and look for evidence of nonperformance risk in precious metals futures prices from the hunt brothers episode changes in default premiums are measured and related to the sequence of events in the metals markets during this period results suggest first that ex ante costs of nonperformance can be a significant priced factor in commodity markets and second that the arrival of new information is often associated with changes in these costs the evidence has implications for both theoretical and empirical research on commodity markets organized commodity markets offer traders an efficient medium in which to execute their hedging and speculative strategies in particular the markets have developed mechanisms that reduce the costs of nonperformance which would be substantial in the absence of an organized exchange devices such as margin requirements position limits daily marking to market price limit moves and the clearinghouse reduce the expected costs of distress and default in commodity markets while organized exchanges greatly reduce expected costs of nonperformance they do not eliminate such costs throughout the history of organized futures trading there have been many instances of markets collapsing or coming to the brink of collapse after a period of unusual trading activity the most prominent example in recent times is the near collapse of the new

certification and access to export markets adoption and return on investment of organic certified pineapple farming in ghana summary global food markets demand adherence to food standards by farmers in developing countries such as globalgap and organic certifications this paper analyzes the adoption and profitability of certified farming using farm level data of 386 ghanaian small scale pineapple farmers we employ an endogenous switching regression model to examine the adoption and impact of organic certification on the return on investment roi in pineapple farming the empirical results indicate that both organic and globalgap certification achieve a positive roi however organic certified farming yields a significantly higher roi than globalgap certified farmers mainly due to the price premium on the organic market

lag length selection and tests of granger causality between money and income one of the most widely accepred relationships in macroeconomics is the positive relationship between the rate of growth of the money supply and the rate of growth of income a diversity of opinion arises however with the attempt to identify a causal relationship between these variables while friedman and schwartz 1963 initiated the empirical investigation of money income causality sims 1972 made the most significant contribution to this literature with a practical application of the criterion developed by granger 1969 for identifying a causal relationship since the appearance of sims s approach and an alternative one advanced by sargent 1976 many researchers have applied these techniques to the investigation of the causal relationship between money and income l with two exceptions hsiao 1981 and mcmillin and fackler 1984 these researchers have arbitrarily chosen the lengths of their distributed lags the purpose of this paper is to test for granger causality between money and income this paper differs from previous work in that considerably more attention is focused on the effect of the lag specification on the test results in particular we investigate the extent to which rules of thumb arbitrary lag specifications and

reexamining intraday simultaneity in stock index futures markets abstract this note examines three empirical examples involving intraday dynamic relationships associated with stock index futures markets researchers often employ a vector autoregressive var model to analyze such high frequency transactions data while such a model can provide useful information regarding the nature of causal priority inherent in the data it is not the proper model to investigate the structural relationships of interest because it omits the contemporaneous interaction on the other hand a var model specification which is altered to incorporate simultaneity may enable the data to reveal the structural relationships of interest

promoting the role of farmer based organizations for value chain integration the tension between a program s targeting and an organization s investment strategy we use new data on 500 farmer based organizations fbos in ghana and regression analysis to reveal determinants of collective investments and the case of the millennium development authority s mida agricultural program in ghana to demonstrate that development programs offering hard incentives may be counterproductive in promoting collective action we show that when a program sets criteria for participation and offers in cash and in kind support to selected fbos it may promote rent seeking and crowd out equity capital formation this is so because fbos may have formed for the sole purpose of benefitting from incentives offered by the program and thus lack an economic justification which is an important condition for progression through the cooperative life cycle further by setting stringent participation criteria the program may end up selecting younger organizations while it is the more consolidated organizations that are able to connect to business development services bds and engage in more offensive collective action

the linkages persistence asymmetry in the volatility the price discovery and efficiency and the effect of the us subprime mortgage financial crisis on the spot and the futures market s returns the case of india abstractthis article examines the effects of persistence asymmetry and the us subprime mortgage crisis on the volatility of the returns and also the price discovery efficiency and the linkages and causality between the spot and futures volatility by using various classes of the arch and garch models and through the granger s causality we have used two indices one for spot and the other for futures for the daily data from 12 june 2000 to 30 september 2013 from nifty stock indices we have then tested for arch effects and subsequently employed various models of the arch and garch conditional volatility the garch 1 1 model is found to be significant and it implies that the returns are not autocorrelated and have short memory it supports the hypothesis of the efficiency of the markets the negative news has more significant effect on volatility corroborating the leverage impact in finance on market volatility we have also tested the volatility spillover effects the two methods we employed

local robustness analysis theory and application this paper develops a general framework for conducting local robustness analysis by local robustness we refer to the calculation of control solutions that are optimal against the least favorable model among models close to an initial baseline we provide nash and stackelberg equilibrium characterizations of the choice of control we apply this abstract formulation to a class of discrete time control problems this analysis is conducted using frequency domain methods and is shown to involve certain fundamental limits to the efficacy of controls in such environments finally we discuss some implications of our results for monetary policy

linking smallholders to markets determinants and impacts of farmer collective action in kenya summary this article investigates determinants and impacts of cooperative organization using the example of smallholder banana farmers in kenya farmer groups are inclusive of the poor although wealthier households are more likely to join employing propensity score matching we find positive income effects for active group members yet price advantages of collective marketing are small and high value market potentials have not yet been tapped beyond prices farmer groups function as important catalysts for innovation adoption through promoting efficient information flows we discuss the conditions under which collective action is useful and through what mechanisms the potential benefits emerge

the determination of spot and futures prices with storable commodities this paper analyzes the effects of futures trading in a market for a storable commodity in which producers and speculators are assumed to be risk averse and specifications of the aggregate supply and inventory demand functions are derived from explicit optimization a critical aspect is how the parameters of these functions change with the introduction of the future market as it is through these induced parameter changes that the futures market exerts its influence on the spot price the effects of the futures market on both the long run average spot price and its variance are analyzed while we are unable to draw any definitive conclusions on this issue we find that in all cases considered the futures market stabilizes the spot price as well as lowering its long run mean for many years now the question of the effects of futures trading on the stability of spot prices has been extensively debated this topic has been discussed at various levels for example farmers and agricultural interest groups have claimed that futures trading destabilizes spot prices thereby imposing welfare losses on the economy in the united states congress has decided that futures trading can cause price destabilization and has subjected futures trading to the regulation of the commodity futures trading commission at a more analytical level economists have been investigating the issue both empirically and more recently theoretically as well

friction in the trading process and the estimation of systematic risk abstract this paper considers how estimates of the market model beta parameter can be biased by friction in the trading process information decision and transaction costs that a leads to a distinction between observed and true returns b causes observed returns to be generated asynchronously for a set of interdependent securities and c thereby introduces serial cross correlation into security returns several propositions are derived from which consistent estimators of beta are obtained and the effect of differencing interval length on beta estimates is specified the formulation is contrasted with the related analyses of scholes williams 1977 and dimson 1979

simple versus optimal rules as guides to policy this paper compares the performance of different policy rules our comparisons focus on simple feedback rules versus rules which are optimal given knowledge of the correct economic structure and the appropriate loss function for the policymaker first we compare rule performance when the correct model is not known second we compare rule performance with respect to the frequency specific behavior for variables of interest taken as a whole our results indicate how the case for a model specific optimal rule can break down when one relaxes the assumption that the true model is known as well as the assumption that the appropriate loss function is known links are made to the literature on monetary policy

distributional effects of agricultural cooperatives in china exclusion of smallholders and potential gains on participation abstract this paper examines the treatment effects of the agricultural cooperative and publicly funded extension services on individual household economy using data collected by the author from watermelon producing farm households in rural nanjing the cooperative addressed in this study restricts the participation of small scale farmers implying that selection into the program must be taken into consideration for an accurate assessment of the treatment effect the econometric analysis revealed that government extension services have a modest effect on farm income in contrast the treatment effect of the agricultural cooperative is robust and substantially large accounting for nearly 70 of the pre matching difference this suggests that the agricultural cooperative system is an important avenue for farmers to improve their economic status the treatment effect of the agricultural cooperative is highly heterogeneous the economic benefits arising from the cooperative are significant only for small scale farms we can argue that a coexistence of smallholder exclusion and the treatment effect in favor of small scale farms poses serious challenges to pro poor agricultural growth in china

the dynamics of stock index and stock index futures returns in rational efficiently functioning markets the returns on stock index and stock index futures contracts should be perfectly contemporaneously correlated this study investigates the time series properties of 5 minute intraday returns of stock index and stock index futures contracts and finds that sp however the effect is not completely unidirectional with lagged stock index returns having a mild positive predictive impact on futures returns

agroindustrialization through institutional innovation transaction costs cooperatives and milk market development in the east african highlands abstract some small holders are able to generate reliable and substantial income flows through small scale dairy production for the local market for others a set of unique transaction costs hinders participation cooperative selling institutions are potential catalysts for mitigating these costs stimulating entry into the market and promoting growth in rural communities trends in cooperative organization in east african dairy are evaluated empirical work focuses on alternative techniques for effecting participation among a representative sample of peri urban milk producers in the ethiopian highlands the variables considered are a modern production practice cross bred cow use a traditional production practice indigenous cow use three intellectual capital forming variables experience education and extension and the provision of infrastructure as measured by time to transport milk to market a tobit analysis of marketable surplus generates precise estimates of non participants distances to market and their reservation levels of the covariates measures of the inputs necessary to sustain and enhance the market policy implications focus on the availability of cross bred stock and the level of market infrastructure both of which have marked effects on participation the velocity of transactions in the local community and inevitably the social returns to agroindustrialization

one market stocks futures and options during october 1987 we provide new evidence regarding the degree of integration among markets for stocks futures and options prior to and during the october 1987 market crash where previous analyses have resulted in recommendations for the implementation of circuit breakers the coordination of margin requirements across markets and changes in regulatory jurisdiction our analysis indicates that delinkage between markets during the crash was primarily caused by an antiquated mechanism for processing stock market orders the results suggest that market integration may be better served by efficient order execution than by further restricting markets

the temporal price relationship between s p 500 futures and the s p 500 index this paper empirically examines the intraday price relationship between s p 500 futures and the s p 500 index using minute to minute data three stage least squares regression is used to estimate lead and lag relationships with estimates for expiration days of the s p 500 futures compared with estimates for days prior to expiration the results suggest that futures price movements consistently lead index movements by twenty to forty five minutes while movements in the index rarely affect futures beyond one minute

on the robustness of simple and optimal monetary policy rules abstract this is a discussion of the paper simple versus optimal rules as guides to policy by brock durlauf nason and rondina bdnr presented in november 2006 at carnegie mellon university under the auspices of the carnegie rochester conference series on public policy i review the authors arguments present a few suggestions for extension and outline where i think at least one strand of the literature should be heading

the productivity and income effects of adoption of improved soybean varieties and agronomic practices in malawi abstract soybean constitutes an important component of the maize based smallholder cropping systems in malawi and holds considerable potential for countering soil fertility decline enhancing household food and nutrition security and raising rural incomes a number of yield enhancing improved soybean varieties and agronomic practices isvaps have been developed and disseminated in malawi but there is limited evidence on the adoption and impacts of these technologies this paper assesses the productivity and income effects of adopting isvaps using plot level data collected from a nationally representative sample of 1237 soybean growing households in malawi our results show that over a third of the sampled households have adopted isvaps furthermore results from a stochastic dominance analysis showed that soybean yields and net crop incomes for adopters are significantly higher than those of non adopters over the entire probability distribution of isvaps adoption endogenous switching regression model results further demonstrated that adoption of isvaps is associated with an average of 61 yield gain and 53 income gain for adopters overall the results point to the need for further scaling of isvaps for greater adoption and impact on the livelihoods of smallholder farmers in malawi

arbitrage nontrading and stale prices october 1987 this article explains a puzzle created by the standard and poor s 500 cash and futures prices during the crash of october 1987 the cash index appears to be a moving average of the futures but nontrading in constituent stocks explains only the initial period of delayed openings however execution of stale limit buy orders given the high volume and nyse market mechanisms at the time resulted in extraordinary levels of stock prices that were not caused by nontrading the model is supported in aggregate s p data and transactions data for individual stocks copyright 1992 by university of chicago press

robust control of forward looking models abstract this paper shows how to formulate and compute robust ramsey aka stackelberg plans for linear models with forward looking private agents the leader and the followers share a common approximating model and both have preferences for robust decision rules because both doubt the model since their preferences differ the leader s and followers decision rules are fragile to different misspecifications of the approximating model we define a stackelberg equilibrium with robust decision makers in which the leader and follower have different worst case models despite sharing a common approximating model to compute a stackelberg equilibrium we formulate a bellman equation that is associated with an artificial single agent robust control problem the artificial bellman equation contains a description of implementability constraints that include euler equations that describe the worst case analysis of the followers as an example the paper analyzes a model of a monopoly facing a competitive fringe

robust monetary policy with competing reference models abstract the existing literature on robust monetary policy rules has largely focused on the case in which the policymaker has a single reference model while the true economy lies within a specified neighborhood of the reference model in this paper we show that such rules may perform very poorly in the more general case in which non nested models represent competing perspectives about controversial issues such as expectations formation and inflation persistence using bayesian and minimax strategies we then consider whether any simple rule can provide robust performance across such divergent representations of the economy we find that a robust outcome is attainable only in cases where the objective function places substantial weight on stabilizing both output and inflation in contrast we are unable to find a robust policy rule when the sole policy objective is to stabilize inflation we analyze these results using a new diagnostic approach namely by quantifying the fault tolerance of each model economy with respect to deviations from optimal policy

program trading and intraday volatility program trading and intraday changes in the s p 500 index are correlated future prices and to a lesser extent cash prices lead program trades index arbitrage trades are followed by an immediate change in the cash index which ultimately reverses slightly no reversal follows nonarbitrage trades the cumulative index changes associated with buy and sell trades and with arbitrage and nonarbitrage trades all are similar price decompositions suggest that the results are not due to microstructure effects program trades in this 1989 1990 sample do not seem to have created major short term liquidity problems the results are stable within the sample many practitioners regulators and public commentators have expressed concerns about potential destabilizing effects of program trading they argue that program trades especially index arbitrage programs increase intraday volatility and decrease

intertemporal choice and income regularity non fungibility in the timing of income among kenyan farmers the optimal design of informal contracts in agricultural value chains depends on when farmers prefer to be paid for their output while the evidence from time preference experiments suggests a pref

allocating resources in an uncertain world water management and endangered species instream flows may be essential in protecting aquatic species that are threatened or endangered an economic model of the optimal allocation of water under pure uncertainty is developed with particular attention paid to the situation when a species characterized by critical depensation is affected by instream flows we adopt the notion of pure uncertainty that frank knight and daniel ellsberg intended which applies when decision makers cannot reduce their uncertainty to a unique probability distribution following recent work by hansen sargent and others we employ robust control as a way to deal with this problem copyright 2008 oxford university press

firm specific information and the correlation between individual stocks and bonds abstract this paper examines the correlation between the returns on individual stocks and the yield changes of individual bonds issued by the same firm and finds that they are negatively and contemporaneously correlated this suggests that individual stocks and bonds are driven by firm specific information that is predominantly related to the mean rather than the variance of the firm s underlying assets furthermore i find that lagged stock returns have explanatory power for current bond yield changes while current stock returns are unrelated to lagged bond yield changes this shows that stocks lead bonds in reflecting firm specific information

an investigation of transactions data for nyse stocks using transactions data the behavior of returns and characteristics of trades at the micro level is examined a minute by minute market return series is formed and tested for normality and autocorrelation evidence of differences in return distributions is found among overnight trades trades during the first 30 minutes following the market opening trades at the close and trades during the remainder of the day the latter distribution is found to be normal unusually high returns and standard deviations of returns are found at the beginning and the end of the trading day when the beginningand end of the day effects are omitted autocorrelation in the market return series is reduced substantially a number of patterns in trading are reported this paper empirically investigates the nature of the return generating process and the characteristics of trade size price changes trading frequency and trading interval at the level of individual trades for a large sample of nyse stocks previous studies of market indices have used daily weekly or monthly

adoption of improved wheat varieties and impacts on household food security in ethiopia this article evaluates the impact of the adoption of improved wheat varieties on food security using a recent nationally representative dataset of over 2000 farm households in ethiopia we adopted endogenous switching regression treatment effects complemented with a binary propensity score matching methodology to test robustness and reduced selection bias stemming from both observed and unobserved characteristics we expand this further with the generalized propensity score gps approach to evaluate the effects of continuous treatment on the response of the outcome variables we find a consistent result across models indicating that adoption increases food security and farm households that did adopt would also have benefited significantly had they adopted new varieties this study supports the need for vital investments in agricultural research for major food staples widely consumed by the poor and efforts to improve access to modern varieties and services policies that enhance diffusion and adoption of modern wheat varieties should be central to food security strategies in ethiopia

box spread arbitrage profits following the 1987 market crash real or illusory we examine market efficiency before and after the 1987 market crash using the box spread strategy implemented with european style s p 500 index spx options before the crash apparent arbitrage opportunities were rare and simulated trades were unprofitable assum ing a one minute execution delay after the crash apparent arbitrage opportunities were frequent and simulated trades were profitable even assuming a five minute execution delay our analysis makes the routine assumption that quotes are good until updated to construct a time series of prevailing quotes sampled at 30 second intervals if this assumption is valid then arbitrage profits were actually available if this assumption is invalid then such profits could have been illusory either scenario however implies that spx market effi ciency decreased following the crash prevailing price quotes repeatedly failed to satisfy the fundamental parity relation underlying the box spread

nonsynchronous security trading and market index autocorrelation the theoretical portfolio autocorrelation due solely to nonsynchronous trading is estimated from a derived model this estimated level is found to be substantially less than that observed empirically the theoretical and empirical relationship between portfolio size and autocorrelation also is investigated the results of this study suggest that other price adjustment delay factors in addition to nonsynchronous trading cause the high autocorrelations present in daily returns on stock index portfolios

intraday relationships among index arbitrage spot and futures price volatility and spot market volume a transactions data test abstract this paper examines intraday temporal relationships among arbitrage spreads cash and futures price volatility and cash trading volume using transactions data for the major market index futures contracts and the component stocks of the index results indicate that changes in the spread have a significant impact on cash and futures price volatility as well as on cash trading volume the impact of the spread however is attenuated by the short sale restriction in the cash market contrary to popular beliefs a more volatile market leads to subsequent decreases in the spread probably because of increases in the supply of arbitrage services or faster price adjustments

intraday volatility in the stock index and stock index futures markets we examine the intraday relationship between returns and returns volatility in the stock index and stock index futures markets our results indicate a strong intermarket dependence in the volatility of the cash and futures returns price innovations that originate in either the stock or futures markets can predict the future volatility in the other market we show that this relationship persists even during periods in which the dependence in the returns themselves appears to weaken the findings are robust to controlling for potential market frictions such as asynchronous trading in the stock index our results have implications for understanding the pattern of information flows between the two markets article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

profits from participation in high value agriculture evidence of heterogeneous benefits in contract farming schemes in southern india abstract this paper assesses the variable impact of participation in high value agriculture through contract farming arrangements in southern india using survey data for 474 farmers in four commodity sectors gherkins papaya marigold and broiler an endogenous switching model is used to estimate net profits from participation findings suggest that average treatments effect vary widely across contract commodities papaya and broiler contracting offer clear net gains for participants whereas marigold contracting leaves participants worse off for gherkins while contracting holds net gains for participating farmers overall this is true of contracts with some firms but not others the standard deviations of point estimates of treatment effects are quite large indicating variability in profit gains even within the same commodity sectors thus notwithstanding the sign of average treatment effects contract farming arrangements have diverse impacts on income for individual farmers and these could have implications for sustained participation of farmers in high value agriculture

stock index futures does the tail wag the dog the increase in program trading based on a comparatively narrow blue chip stock market barometer the major market index mmi is said to be fueling volatile price swings in the stock market a case of the tail wagging the dog the mmi is a price weighted index of 20 very actively traded stocks 16 of which are included in the dow jones 30 industrials because of its relatively small size the mmi is expected to be more easily arbitragible than other stock index futures contracts basically program trading involves taking a position long or short in a portfolio of stocks comprising the index and simultaneously taking an opposite position in the index futures contracts the objective of the program trade is to create a risk free position that earns a return in excess of the currently available risk free return program trades may move both the futures and the spot market the chain of causality may work as follows 1 investors believe the stock market will rise and they purchase futures contracts in expectation of higher equity values the purchase of the contracts is preferable to the purchase of the underlying stocks because it entails no initial investment and lower transaction costs 2 the rise in futures prices causes an imbalance between the prices of the futures and the underlying index as this premium between futures and index increases it may become profitable to execute a program trade 3 the simultaneous sale of futures and purchase of the underlying index will cause the premium between the futures and index to shrink changes in factors such as interest rates can also affect the equilibrium relation between the index price and the futures price thereby changing the premium or discount between the two markets program traders can take advantage of any change in the spread between the markets it does not matter what causes the change in spreads whether internal factors such as changes in investor expectations or external factors such as interest rate changes all program trading does is to bring cash and futures prices together the program trade may be an essential mechanism that ensures that futures prices and underlying equity prices are efficiently determined and that the hedging effectiveness of the futures contracts is reliable to date most of the literature on the impact of futures trading on the cash market has focused on changes in spot price volatility because of the initiation or cessation of futures trading a common conclusion of these studies is that the futures market has a smoothing effect on the cash market stabilizing the spot price the recent uproar engendered by the triple witching hour and the so called crises at expiration brings into question the smoothing influence that futures have on the underlying index 2 if the market is efficient prices adjust instantaneously to reflect all relevant information and knowledge of such information cannot lead to excess risk adjusted returns the central concept in the efficient market hypothesis is the fair game model 3 a sequence of past returns over time is a fair game if today s price reflects the then available information making it impossible to earn excess risk adjusted returns by trading on that information if the information set today contains all the information known and used by the market participants in the spot market in determining the spot price one of the components of the information set is the previous change in the price of futures contracts 4 does the tail wag the dog the financial press and the sec have answered this question in the affirmative 5 this note investigates the impact of the futures market on the spot market by evaluating the relation between index futures price changes and subsequent spot index price changes in addition we evaluate the degree to which the expiration of the futures contract affects the underlying index

index futures arbitrage and the behavior of stock index futures prices this article examines intraday transaction datafor s p 500 stock indexfutures prices and the intraday quotes for the underlying index the data indicate that thefutures price changes are uncorrelated and that the variability of these price changes exceeds the variability ofprice changes in the s p 500 index this excess variability of the futures over the index remains even after controlling for the nonsynchronous prices in the index quotes which induces autocorrelation in the index changes we advance and examine empirically two hypotheses regarding the difference between the futures price and its theoretical value that this mispricing increases on average with maturity and that it is path dependent evidence supporting these hypotheses is presented

market interactions in returns and volatilities between spot and forward shipping freight markets abstract the lead lag relationship in both returns and volatilities between spot and futures markets has been investigated extensively in the financial economics literature only a limited number of such studies have appeared on forward markets primarily due to the lack of easy access to empirical data this paper uses a unique database in over the counter forward freight agreements ffa to investigate the issue the underlying commodity is non storable being that of a shipping service with the additional feature of transactions costs being higher in the spot market in comparison to the forward market these features have interesting implications for the markets at the practical level the better understanding of the mean and variance dynamics can improve risk management and budget planning decisions

farmer organization collective action and market access in meso america abstract farmer organization and collective action are often seen as key factors in enhancing farmers access to markets often too little attention is directed at a the most appropriate types of organization b whether organization makes less or more sense in the case of producers of an undifferentiated commodity or a higher value product c whether the public or private sector is best placed to support farmer organizations and d the conditions necessary for ensuring their economic viability research in mexico and central america explored these issues for commodity maize and high value vegetables respectively the benefits of farmer organization are more evident in the vegetable sector characterized by high transaction costs associated with market access however horticultural farmer organizations in honduras and el salvador include less than 5 of total horticultural producers this is possibly due to farmer organizations limited business skills and non replicable organizational models there is less incentive for maize farmers to organize to access output markets as the transaction costs are relatively low the benefits of maize farmer organization are clearer when it comes to accessing inputs such as credit seed and fertilizer farmer organization is a critical factor in making markets work for the poor but the role and timing of public and private investment in these organizations is poorly understood

communicating trade offs amid controversial science decision support for climate policy abstract the paper considers the decision that arises in climate policy where there is expert disagreement about the correct scientific model and where a group of stakeholders needs to agree on a common policy target policy choice is posed as a decision under knightian uncertainty where decision makers lack grounds for assigning a particular probability distribution across contending forecasting models the decision is then framed as one of balancing two competing objectives that plausibly align with the dominant concern of stakeholders from each side in the policy debate a decision criterion is proposed to identify options for compromise that balance these objectives in different ways the criterion spans three standard non bayesian decision criteria policies generated by the criterion are combined with visual tools to communicate what s at stake in an environmental policy decision in which stakeholders disagree both about scientific models and about the relative importance of risks to the environment versus risks to economic growth the approach summarizes information that could be useful to policy makers tasked with negotiating a compromise the framework is applied to climate policy using dice 2007 nordhaus 2008 the results highlight a basic asymmetry between the mistake of doing too little and that of doing too much that suggests a strong argument for avoiding the current status quo of global inaction

order imbalances and stock price movements on october 19 and 20 1987 on october 19 1987 nyse stocks in the s p index declined seven percentage points more than nyse stocks not in this index in the first hour of trading on october 20 the s p stocks virtually recovered to the level of the non s p stocks there is a strong relation between order imbalances and stock price movements both in analyses of time series and cross sections thus in addition to the breakdown in the linkage between future prices and the spot index on these two days there were also breakdowns in the linkage among nyse stocks

impact of cooperatives on smallholders commercialization behavior evidence from ethiopia this article examines the impact of marketing cooperatives on smallholder commercialization of cereals using detailed household data in rural ethiopia we use the strong government role in promoting the establishment of cooperatives to justify the use of propensity score matching to compare households that are cooperative members to similar households in comparable areas without cooperatives the analysis reveals that although cooperatives obtain higher prices for their members they are not associated with a significant increase in the overall share of cereal production sold commercially by their members however these average results hide considerable heterogeneity across households in particular we find that smaller farmers tend to reduce their marketed output as a result of higher prices whereas the opposite is true for larger farmers

option values under stochastic volatility theory and empirical estimates abstract this paper numerically solves the call option valuation problem given a fairly general continuous stochastic process for return volatility statistical estimators for volatility process parameters are derived and parameter estimates are calculated for several individual stocks and indices the resulting estimated option values do not differ dramatically from black scholes values in most cases although there is some evidence that for longer maturity index options black scholes overvalues out of the money calls in relation to in the money calls

does cooperative membership improve household welfare evidence from apple farmers in china this paper examines the impact of cooperative membership on farm performance indicators such as apple yields net returns and household income using cross sectional data from a survey of farmers in china an endogenous switching regression model that accounts for selection bias is employed in the analysis the empirical results reveal that cooperative membership exerts a positive and statistically significant impact on apple yields farm net returns and household income a disaggregated analysis also reveals that small scale farms tend to benefit more from cooperatives than medium and large farms

stochastic turnpike property and stationary equilibrium abstract i study the stability properties of a stochastic equilibrium growth model with a finite number of infinitely lived consumers the exogenous stochastic environment is represented by a stationary stochastic process that influences preferences technology and primary resources consumers maximize the expected sum of discounted utilities production is intertemporal and primary resources are assumed to be necessary for the production of capital goods by adapting standard assumptions in general equilibrium theory and turnpike theory i show that if consumers have homogeneous discount factors close enough to one the allocation of an interior equilibrium converges to the allocation of a stationary equilibrium with transfer payments this result is used to prove the existence of a stationary equilibrium

the october 1987 s p 500 stock futures basis five minute changes in the s p 500 index and futures contract are examined over a ten day period surrounding the october 1987 stock market crash since nonsynchronous trading problems are severe in these data new index estimators are derived and used the estimators use the complete transaction history of all 500 stocks nonsynchronous trading explains part of the large absolute futures cash basis observed during the crash the remainder may be due to disintegration of the two markets even after adjustment for nonsynchronous trading the index displays more autocorrelation than does the futures and the futures leads the index

direct tests of index arbitrage models previous tests of stock index arbitrage models have rejected the no arbitrage constraint imposed by these models this paper provides a detailed analysis of actual s p 500 arbitrage trades and directly relates these trades to the predictions of index arbitrage models an analysis of arbitrage trades suggests that i short sale rules are unlikely to affect the cashfutures mispricing ii the opportunity cost of arbitrage funds exceeds the treasury bill rate and iii the average price discrepancy captured by arbitrage trades is small tests of the models provide some support for a version ofthe arbitrage model that incorporates an early liquidation option the ability of these models to explain arbitrage trades however is surprisingly low

a tale of three schools insights on autocorrelations of short horizon stock returns this article reexamines the autocorrelation patterns of short horizon stock returns we document empirical results which imply that these autocorrelations have been overstated in the existing literature based on several new insights we provide support for a market efficiency based explanation of the evidence our analysis suggests that institutional factors are the most likely source of the autocorrelation patterns

collective action for smallholder market access abstract the opportunity for smallholders to raise their incomes increasingly depends on their ability to compete in the market yet there are many failures in rural markets in developing countries that make it difficult for them to do this understanding how collective action can help address the inefficiencies coordination problems or barriers to market access is particularly important this paper draws on the case studies in this special issue and on other literature to examine the conceptual issues and empirical evidence on the role of collective action institutions in improving market access for the rural poor applying insights from studies of collective action in natural resource management the paper examines what conditions facilitate effective producer organizations for smallholders market access with special attention to the characteristics of user groups institutional arrangements types of products staples perishables and other commodities markets local domestic and international and external environment the paper also identifies policies and interventions that facilitate collective action for market access among smallholders and examines whether the public sector private sector and or civil society is best positioned to provide such interventions

the adoption and impact of soil and water conservation technology an endogenous switching regression application this paper identifies the factors that affect farmers decisions to adopt soil and water conservation technology in africa and how this technology impacts farm yields and net returns this technology is important because it improves efficiency of water use from rainfall a critical issue in water deficient sub saharan africa an analysis of new data from a survey of 342 rice farmers in northern ghana shows that farmers education capital and labor constraints social networks and extension contacts and farm soil conditions mainly determine adoption of field ridging and the adoption of this technology increases rice yields and net returns significantly jel q15 q24

impact of green control techniques on family farms welfare abstract using survey data of 375 family farms in five provinces of the huang huai hai plain this paper conducts a comprehensive measurement of family farms welfare within the framework of the capability approach theory furthermore using an endogenous switching regression model and a multinomial treatment effects model this paper evaluates the impact of the adoption or non adoption of green control techniques on family farms welfare and estimate the welfare effects of the degree and timing of adoption this research finds that the average treatment effect on family farm welfare with and without adopting green control techniques is significant at 0 084 and 0 046 respectively therefore green control techniques help to improve the welfare level of family farms compared with family farms that do not adopt green control techniques the welfare level of family farms adopting a high or low degree of green control techniques increases by 22 63 and 16 42 respectively and the welfare level of family farms given the early or late adoption of green control techniques increases by 5 87 and 7 57 respectively therefore the welfare effect of a high degree of adoption on family farms is greater and the welfare level of family farms with late adoption is higher

intraday relationships between volatility in s p 500 futures prices and volatility in the s p 500 index abstract this paper examines the intraday relationships between the volatility of s p 500 futures prices and the volatility of the s p 500 index we calculate variance measures for minute to minute price changes on a daily basis and across 30 minute intervals the empirical results indicate that i futures volatility is greater than index volatility ii volatility increased for both futures prices and the index in absolute terms from 1984 through 1986 iii both futures and index volatility increased directly with futures trading volume and iv index volatility was systematically greater during the first 30 minutes of trading each day than at other times granger tests however reveal no systematic pattern of futures volatility leading index volatility or index volatility leading futures volatility