assessing market dominance abstract we propose a new measure to assess market dominance contrary to concentration measures such as the herfindahl hirschman index that characterizes the concentration of an industry our dominance measure suggests an approach that classifies when an individual firm has a dominant position in our measure the criterion for dominance is relaxed as the intensity of existing competition increases or as entry barriers are lowered we apply the dominance measure to a number of well known competition cases

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

the assessment competition policy the paper advances four propositions concerning the objectives content and institutions of competition policy first the role of policy should be to advance economic efficiency rather than competition for its own sake or some wider definition of the public interest second economic analysis is generally ambiguous a priori about the efficiency effects of particular market structures and conduct third the design of policy and institutions needs to reflect this ambiguity policy rules are essential but there should be scope for parties to argue countervailing efficiency benefits a policy institution should be empowered to identify investigate and propose remedies for failures of competition subject to review by an independent competition tribunal fourth international harmonization of competition policies is essential current policies in the u k and ec and relationships between the two are evaluated and the case made for a radical reform of u k policy copyright 1993 by oxford university press

imperfect competition information heterogeneity and financial contagion this study examines how heterogeneity of private information may induce financial contagion using a model of multi asset trading in which the three main channels of contagion through financial linkages in the literature correlated information correlated liquidity and portfolio rebalancing are ruled out by construction i show that financial contagion can still be an equilibrium outcome when speculators receive heterogeneous fundamental information risk neutral speculators trade strategically across many assets to mask their information advantage about one asset asymmetric sharing of information among them prevents rational market makers from learning about their individual signals and trades with sufficient accuracy incorrect cross inference about terminal payoffs and contagion ensue when used to analyze the transmission of shocks across countries my model suggests that the process of generation and disclosure of information in emerging markets may explain their vulnerability to financial contagion jel d82 g14 g15

price discovery in the u s treasury market the impact of orderflow and liquidity on the yield curve we examine the role of price discovery in the u s treasury market through the empirical relationship between orderflow liquidity and the yield curve we find that orderflow imbalances excess buying or selling pressure can account for as much as 26 percent of the day to day variation in yields on days without major macroeconomic announcements the effect of orderflow on yields is permanent and strongest when liquidity is low all of the evidence points toward an important role of price discovery in understanding the behavior of the yield curve

how are stock prices affected by the location of trade abstract we examine pairs of large siamese twin companies whose stocks are traded around the world but have different trading and ownership habitats twins pool their cash flows so with integrated markets twin stocks should move together however the difference between the prices of twin stocks appears to be correlated with the markets on which they are traded most i e a twin s relative price rises when the market on which it is traded relatively intensively rises we examine several explanations of this phenomenon including the discretionary use of dividend income by parent companies differences in parent expenditures voting rights currency fluctuations ex dividend date timing issues and tax induced investor heterogeneity only the last hypothesis can explain some but not all of the empirical facts we conjecture that a country specific sentiment shocks might affect share intensity b investors are rational but markets are segmented by frictions other than international transactions costs such as agency problems

the economics of market dominance in this collection of essays industrial economists offer an in depth examination of dominant firms in competitive markets and the actions of authorities against such firms the volume opens with an essay by the editors which outlines the development of policy in different countries and gives an account of the main issues in the debate the contributors interpret recent policy developments in the united states britain and europe employ new aspects of oligopoly theory to challenge conventional wisdom about the detection of collusive pricing and defend profitability measurement as a useful tool for monopoly investigations other essays discuss the relevance of the new industrial economics and the persistence of monopoly firms

a search based theory of the on the run phenomenon we propose a model in which assets with identical cash flows can trade at different prices infinitely lived agents can establish long positions in a search spot market or short positions by first borrowing an asset in a search repo market we show that short sellers can endogenously concentrate in one asset because of search externalities and the constraint that they must deliver the asset they borrowed that asset enjoys greater liquidity a higher lending fee specialness and trades at a premium consistent with no arbitrage we derive closed form solutions for small frictions and provide a calibration generating realistic on the run premia

market manipulation price bubbles and a model of the u s treasury securities auction market this paper models the u s treasury securities auction market and demonstrates that mar ket manipulation can occur in a rational equilibrium it is a dynamic model with traders participating in a when issued market a treasury auction and a resale market manipu lations occur when dealers in the when issued market use their knowledge of the net order flow in order to corner the auction and squeeze the shorts from the when issued market this manipulation equilibrium generates bubbles in treasury security prices and specials in repo rates we also compare discriminatory and uniform price auction rules with respect to manipulation our analysis shows that manipulations can occur in long run equilibrium under discriminatory price auctions but not under uniform price auctions

imperfect competition in a multi security market with risk neutrality the central purpose of this paper is to develop a model of insider trading i e trading based on private information in the context of an imperfectly competitive multi security market with risk neutral agents imperfect competition allows us to consider strategic behavior and a multi security market lets us study the effect of a correlated environment on equilibrium we employ the informational assumption that market makers can observe all order flows and so portfolio diversification arises in this model for strategic reasons given correlated fundamentals market makers can potentially learn about every security from each order flow this causes even a risk neutral trader who does not face short selling restrictions to refrain from determining the demand for each security independently this contrasts with traditional multi asset models which focus on the incentive to reduce portfolio variance or the effect of short selling restrictions or budget constraints under imperfect competition correlation has two effects one ceteris paribus it allows the uninformed to learn from additional variables since each order flow could potentially have information about all payoffs on the other hand it creates an incentive for informed traders to restrict what others can learn from public information thus our analysis can be viewed as an application to the multi security heterogeneous information model in admati 1985 of the imperfectly competitive equilibrium concept which kyle 1985 first applied to the single security homogeneous information model of grossman and stiglitz 1980 our principal results include an explicit characterization of a linear equilibrium as a function of three general covariance matrices associated with payoffs noise trading and errors in private signals under general covariance structures we show that there always exists an equilibrium in which the relationship between the vector of prices and the vector of order flows is governed by a symmetric positive definite matrix the plan of the paper is as follows in section 2 we introduce our model we derive the equilibrium in section 3 and section 4 comments on the properties of the equilibrium the proofs of the results are in the appendix

undermining the principle of concentration european union regional policy and the socio economic disadvantage of european regions crescenzi r undermining the principle of concentration european union regional policy and the socio economic disadvantage of european regions regional studies this paper sets out to analyse the regional policy of the european union by assessing whether the actual distribution of funds to the regions undermines the principle of territorial concentration the empirical analysis shows that due to either political equilibriums or inaccurate assumptions about the most cost effective allocation of the funds the sources of structural disadvantage are more spatially concentrated than the funds devoted to compensating this disadvantage and reveals a weak association between socio economic disadvantage and european union funding corrections in allocation mechanisms are recommended in order to increase fund concentration and earmark resources more adequately to disadvantaged regions crescenzi r saper le principe de la concentration la politique regionale de l union europeenne et le desavantage socio econom

special repo rates this article provides the causes and symptoms of special repo rates in a competitive market for repurchase agreements a repo rate is in effect an interest rate on loans collateralized by a specific instrument a special is a repo rate significantly below prevailing market riskless interest rates this article shows that specials can occur when those owning the collateral are inhibited whether from legal or institutional requirements or from frictional costs from supplying collateral into repurchase agreements specialness increases the equilibrium price for the underlying instrument by the present value of savings in borrowing costs associated with the repo specials this article characterizes competitive repurchase or repo markets and the equilibrium relationship between repo rates and the underlying cash market prices repurchase markets are often called financing markets since they are effectively vehicles for collateralized borrowing that are often used to finance the purchase of the underlying collateral this article provides causes and effects of specials meaning specific repo rates significantly below prevailing market interest rates for loans of similar maturity and credit risk the example of united states treasury instruments is emphasized because of the extensive use of the treasury repo market as a means of hedging against or speculating on changes in u s interest rates and because of the high incidence of specials in treasury repo rates numerous specific instru

data revisions are not well behaved we document the empirical properties of revisions to major macroeconomic variables in the united states our findings suggest that they do not satisfy simple desirable statistical properties in particular we find that these revisions do not have a zero mean which indicates that the initial announcements by statistical agencies are biased we also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement which means that the initial announcements of statistical agencies are not rational forecasts

evaluating the impact of the structural funds on objective 1 regions an exploratory discussion martin r and tyler p 2006 evaluating the impact of the structural funds on objective 1 regions an exploratory discussion regional studies 40 201 210 evaluation evidence on the impact of the structural funds on employment in objective 1 regions remains elusive this paper seeks to make a contribution to this task by evaluating the impact of european union regional policy on cumulative job creation in the least prosperous objective 1 regions at the nuts 2 level it adopts an evaluation methodology pioneered originally by moore and rhodes in 1973 in the uk while tentative it estimates that the cumulative effect of european union cohesion policy is around 1 million jobs as at 2002 which is a significant contribution despite the considerable methodological and measurement problems this paper aims to encourage further research to be undertaken in this important area objective 1 regions impact employment counterfactual determination martin r et tyler p 2006 evaluer l impact des fonds structu

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

fx trading and exchange rate dynamics i examine the sources of exchange rate dynamics by focusing on the information structure of fx trading this structure permits the existence of an equilibrium distribution of transaction prices at a point in time i develop and estimate a model of the price distribution using data from the deutsche mark dollar market that prroduces two striking results 1 much of the short term volatility in exchange rates comes from sampling the heterogeneous trading decisions of dealers in a distribution that under normal market conditions changes comparatively slowly 2 public news is rarely the predominant source of exchange rate movements over any horizon copyright the american finance association 2002

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

government intervention and strategic trading in the u s treasury market we study the impact of permanent open market operations pomos by the federal reserve on u s treasury market liquidity using a parsimonious model of speculative trading we conjecture that i this form of government intervention improves market liquidity contrary to conclusions drawn by existing literature and ii the extent of this improvement depends on the market s information environment evidence from a novel sample of federal reserve pomos during the 2000s indicates that bid ask spreads of on the run treasury securities decline when pomos are executed by an amount increasing in proxies for information heterogeneity among speculators fundamental volatility and pomo policy uncertainty consistent with our model

y2k options and the liquidity premium in treasury markets financial institutions around the world expected the millennium date change y2k to cause an aggregate liquidity shortage responding to the concern the federal reserve bank of new york auctioned y2k options to primary dealers the options gave the dealers the right to borrow from the fed at a predetermined interest rate using the implied volatilities of y2k options and the on off the run spread we demonstrate that the fed s action eased the fears of bond dealers contributing to a drop in the liquidity premium of treasury securities our analysis shows the link between the microstructure of government debt markets and the central bank s provision of liquidity we argue that y2k options and their effects on liquidity premium broadly conform to the economic theory on public provision of private liquidity

inequality and convergence in europe s regions reconsidering european regional policies europe s regions income disparities and regional policies in this paper we take a critical look at current european regional policies first we document the motivation for such policies that is the large income disparities across the regions of the eu15 large disparities are certainly present second we illustrate the various instruments adopted and discuss their underpinnings in established economic theories next we look at available data searching for three kinds of evidence 1 if disparities are either growing or decreasing we conclude they are neither 2 which are the major factors explaining such disparities and in particular if they are the factors predicted by the economic models adopted by the commission to justify current policies we conclude this is most certainly not the case 3 if there are clear signs that eu policies as opposed to other social and economic factors are actually reducing such disparities we cannot find any clear sign of such desired impact our conclusion is that regional and structural policies serve mostly a redistributional purpose motivated by the nature of the political equilibria upon which the european union is built they have little relationship with fostering economic growth this casts a serious doubt on their social value and furthermore strongly questions extending such policies to future members of the european union a successful eu enlargement in our view calls for an immediate and drastic revision of regional economic policies michele boldrin and fabio canova

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

expectations and risk premia at 8 30 a m deciphering the responses of bond yields to macroeconomic announcements what explains the sharp movements of the yield curve upon the release of major u s macroeconomic announcements to answer this question we estimate an arbitrage free dynamic term structure model

the added value of european union cohesion policy mairate a 2006 the added value of european union cohesion policy regional studies 40 167 177 as part of the wider debate on financing the european union the notion of community added value is being used to justify expenditure on cohesion policy broadly this is defined as the increased value resulting from community action and the extent to which intervention adds value to the interventions of other administrations organizations and institutions the paper provides an assessment of the added value brought about by european union regional policy on the basis of the past experience across member states and regions it discusses different aspects of added value with respect to impacts economic integration policy making and programming institutional developments implementation learning and political awareness it concludes by commenting on the proposed reform of the structural funds added value impact integration programming reform mairate a 2006 the added value of european uni

liquidity reconstitution and the value of u s treasury strips an apparent pricing anomaly exists in the market for u s treasury strips zerocoupon strips created from principal payments typically trade at significantly higher prices than otherwise identical zero coupon strips created from coupon payments in addition to documenting this phenomenon this study demonstrates that differences in liquidity and differences in reconstitution characteristics explain much of this price variation u s treasury strips are zero coupon bonds created from either the principal or individual coupons of u s treasury bonds if the maturity date and face value are identical the cash flows for a strip derived from a principal payment are identical to the cash flows for a strip derived from a coupon payment however the two instruments almost always trade at significantly different prices for a recent sample 5 31 91 the mean percentage difference in price is greater than 1 2 with some differences greater than 2 7 this is an apparent anomaly since securities with identical cash flows should trade at the same price although coupon strips and principal strips have identical cash flows at maturity closer inspection reveals two differences the two instruments have different degrees of liquidity and different reconstitution characteristics previous studies have documented the effect of liquidity on prices in other markets amihud and mendelson 1986 1989 find that common stocks with differences in liquidity have significantly different risk adjusted rates of return silber 1991 studies restricted stock offerings and documents substantial price discounts on these illiquid securities vis a vis identical stocks that trade in the open market 1 in a study of u s treasury bills and treasury bonds with remaining maturities of less than six months amihud and mendelson 1991 find that differences in liquidity contribute to differences in prices between matched pairs of bills and bonds of the same

the cost of short selling liquid securities standard models of liquidity argue that the higher price for a liquid security reflects the future benefits that long investors expect to receive we show that short sellers can also pay a net liquidity premium if their cost to borrow the security is higher than the price premium they collect from selling it we provide a model free decomposition of the price premium for liquid securities into the net premiums paid by both long investors and short sellers empirically we find that short sellers were responsible for a substantial fraction of the liquidity premium for on the run treasuries from november 1995 through july 2009

strategic behaviour of incumbent firms in the uk abstract the main purpose of this paper is to examine the incidence of strategic behaviour in the uk by means of a questionnaire study performed across three broad manufacturing industries food electrical engineering and chemicals of the strategies which have received substantial theoretical attention r d and advertising appear widely used patenting pricing and excess capacity much less so vertical instruments such as purchasing policy also stand out as important but possibly only a minority of firms in our sample actively pursue strategic instruments

distributive politics and regional development assessing the territorial distribution of turkey s public investment turkey is often perceived as a country with low bureaucratic capacity and prone to political manipulation and pork barrel this article tests whether this is the case by analysing the extent to which politics rather than equity and efficiency criteria have determined the geographical allocation of public investment across the 81 provinces of turkey between 2005 and 2012 the results show that although the turkish government has indeed channelled public expenditures to reward its core constituencies socioeconomic factors remained the most relevant predictors of investment moreover in contrast to official regional development policy principles we uncover the concentration of public investment in areas with comparatively higher levels of development we interpret this as the state bureaucracy s intentional strategy of focussing on efficiency by concentrating resources on the better off among the most in need

on the volatility and comovement of u s financial markets around macroeconomic news announcements the objective of this paper is to provide a deeper insight into the links between financial markets and the real economy to that end we study the short term anticipation and response of u s stock treasury and corporate bond markets to the first release of surprise u s macroeconomic information specifically we focus on the impact of these announcements not only on the level but also on the volatility and comovement of those assets returns we do so by estimating several extensions of the parsimonious multivariate garch dcc model of engle 2002 for the excess holding period returns on seven portfolios of these asset classes we find that both the process of price formation in each of those financial markets and their interaction appear to be driven by fundamentals yet our analysis reveals a statistically and economically significant dichotomy between the reaction of the stock and bond markets to the arrival of unexpected fundamental information we also show that the conditional mean volatility and comovement among stock treasury and corporate bond returns react asymmetrically to the information content of these surprise announcements overall the above results shed new light on the mechanismsbywhichnewinformationisincorporatedintopriceswithinandacrossu s financial markets

structural funds and the evaluation of community economic development initiatives in the uk a critical perspective armstrong h and wells p 2006 structural funds and the evaluation of community economic development initiatives in the uk a critical perspective regional studies 40 259 272 since their inception within uk structural funds programmes in the 1990s community economic development ced initiatives have experienced a rapid expansion evaluation methods have struggled to adapt to what was a radically new type of policy this paper charts the rise of ced in the uk s objective 1 and 2 programmes and it examines the main problems posed by ced for structural funds monitoring and evaluation whilst progress in adapting the monitoring and evaluation methods to ced has been good a number of key challenges remain to be faced by the eventual ex post evaluations of the 2000 06 programmes and for the 2007 13 programming period the key challenges are identified and possible ways forward are discussed community economic development structural funds evaluation uk programmes armstrong h et wells p 2006 les

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

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

between development and social policies the impact of european structural funds in objective 1 regions rodriguez pose a and fratesi u 2004 between development and social policies the impact of european structural funds in objective 1 regions reg studies 38 97 113 european regional support has grown in parallel with european integration the funds targeted at achieving greater economic and social cohesion and reducing disparities within the european union eu have more than doubled in relative terms since the end of the 1980s making development policies the second most important policy area in the eu the majority of the development funds have been earmarked for objective 1 regions i e regions where gdp per capita is below the 75 threshold of the eu average however the european development policies have come under increasing criticism based on two facts the lack of upward mobility of assisted regions and the absence of regional convergence this paper assesses using cross sectional and panel data analyses the failure so far of european development policies to fulfil their objective of de

evaluating the impact of european union cohesion policy in less developed countries and regions bradley j 2006 evaluating the impact of european union cohesion policy in less developed countries and regions regional studies 40 189 199 the expansion of structural funds since the late 1980s presented european commission and domestic policy makers with design and impact evaluation challenges such policies moved beyond demand side stimulation and were aimed at the promotion of real convergence mainly through productivity enhancing supply side mechanisms research suggests that the macro models are potentially capable of extracting the pure structural funds policy impacts from the background of all the other domestic and external shocks that affect the economy at the same time however such results only provide imprecise ballpark impact estimates and the challenge remains of reconciling bottom up microanalysis with top down macroanalysis macro evaluation macro economic models hermin models ex ante impacts bradley j 2006 evaluer l impact de la politique de cohesion de l ue dans les pays

the on the run liquidity phenomenon abstract we test the implications of a model of multi asset speculative trading in which liquidity differentials between on the run and off the run u s treasury bonds ensue from endowment shocks in the presence of two realistic market frictions information heterogeneity and imperfect competition among informed traders and a public signal our evidence suggests that i off on the run liquidity differentials are economically and statistically significant even after controlling for several of the bonds intrinsic characteristics such as duration convexity repo rates or term premiums and ii off on the run liquidity differentials are smaller immediately following bond auction dates and larger when the uncertainty surrounding the ensuing auction allocations is high when the dispersion of beliefs across informed traders is high and when macroeconomic announcements are noisy consistent with our model

strategic trading in a dynamic noisy market this paper studies a dynamic model of a nancial market with a strategic trader in each period the strategic trader receives a privately observed endowment in the stock he trades with competitive market makers to share risk noise traders are present in the market after receiving a stock endowment the strategic trader is shown to reduce his risk exposure either by selling at a decreasing rate over time or by selling and then buying back some of the shares sold when the time between trades is small the strategic trader reveals the information regarding his endowment very quickly

an empirical analysis of stock and bond market liquidity this article explores cross market liquidity dynamics by estimating a vector autoregressive model for liquidity bid ask spread and depth returns volatility and order flow in the stock and treasury bond markets innovations to stock and bond market liquidity and volatility are significantly correlated implying that common factors drive liquidity and volatility in these markets volatility shocks are informative in predicting shifts in liquidity during crisis periods monetary expansions are associated with increased liquidity moreover money flows to government bond funds forecast bond market liquidity the results establish a link between macro liquidity or money flows and micro or transactions liquidity a number of important theorems in finance rely on the ability of investors to trade any amount of a security without affecting the price however there exist several frictions 1 such as trading costs short sale restrictions and circuit breakers that impact price formation the influence of market imperfections on security pricing has long been recognized liquidity in particular has attracted a lot of attention from traders regulators

collateral and short squeezing of liquidity in fixed rate tenders abstract the paper models fixed rate tenders where a central bank offers to lend central bank funds to financial institutions bidders are constrained by the amount of collateral they have we focus on the strategic interaction between bidding in the tender and trading in the interbank market after the tender where short squeezes could occur we examine how the design of the tender affects equilibrium bidding behavior and the incidence of short squeezes important elements in the analysis include the type of policy implemented by the central bank as well as bidders initial endowments of liquidity and collateral three instruments for softening short squeezes are identified the tender rate the tender size and admissible collateral increasing the tender rate or size tends to decrease the probability and severity of a short squeeze the possibility of a short squeeze may induce bidders to oversubscribe even if the tender rate is higher than the competitive rate

discriminatory versus uniform treasury auctions evidence from when issued transactions abstract we use when issued transactions data to assess the treasury s current experiment with uniform auctions when issued volume is higher under uniform as compared to discriminatory auctions suggesting a higher information release which should reduce pre auction uncertainty and the winner s curse under uniform auctions when issued volatility falls after the auction and again after the outcome announcement the pattern is the opposite for discriminatory auctions this is further evidence that uniform auctions increase pre auction information and lower the short squeeze a direct comparison of markups in uniform and discriminatory auctions yields mixed results

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

supply contraction and trading protocol an examination of recent changes in the u s treasury market we investigate liquidity and trader behavior in the u s treasury market during recent supply contractions as in the precontraction period dealers employ expandable order strategies to achieve greater than posted depth at the posted price and use expandable orders more often when expected information asymmetry is greater overall however dealers are less likely to discover greater than quoted depth during the supply contraction regimes we find that even after substantial losses in their market share of coupon treasury trading brokers reporting voice brokered trading through govpx provide an important protocol for depth discovery we investigate liquidity and trader behavior in the u s treasury market during recent supply contractions as in the precontraction period dealers employ expandable order strategies to achieve greater than posted depth at the posted price and use expandable orders more often when expected information asymmetry is greater overall however dealers are less likely to discover greater than quoted depth during the supply contraction regimes we find that even after substantial losses in their market share of coupon treasury trading brokers reporting voice brokered trading through govpx provide an important protocol for depth discovery

underpricing in discriminatory and uniform price treasury auctions this paper compares the newer uniform price u s treasury auctions to the traditional discriminatory mechanism and examines the extent to which the auction mechanisms are responsible for underpricing empirically i find that even for the newer uniform price auctions the average price received by the treasury is less than the price of the same securities in the concurrent secondary market although this underpricing is reduced by half relative to the older mechanism from the summary statistics released by the treasury i calibrate common value auction models for the two mechanisms and predict the level of underpricing in each auction i find that the observed magnitude of underpricing in the auctions is consistent with the model s predictions

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data

testing for convergence clubs in income per capita a predictive density approach the article proposes a technique based on the predictive density of the data conditional on the parameters of the model to jointly tests for groups of unknown size in a panel and to estimate the parameters of each group the procedure is applied to the problem of identifying convergence clubs in scaled income per capita data the steady state distribution of european regional data clusters around four poles of attraction with different economic features the distribution of income per capita of oecd countries has two poles of attraction and each group clearly identifiable economic characteristics we share the uncommonness of being different j p roche

thinking creatively about markets abstract the paper takes a broad view of how economists identify market boundaries three types of definition are distinguished trading markets anti trust markets and strategic markets the first is based on the familiar law of one price while the second follows us dij guidelines and is designed to identify positions of market power neither of these definitions suits the needs of one of the more recent and fastest growing users of economics namely those responsible for corporate strategy decisions inside firms the paper reviews why market definitions are a fundamental part of strategy decisions and identifies several ways that such users might define market boundaries

financial innovation and the role of derivative securities an empirical analysis of the treasury strips program the role that financial innovation plays in financial markets is very controversial to provide insight into this role we examine how market participants use the highly successful treasury strips program we find that investors use the option to create treasury derivative strips primarily to make markets more complete and take advantage of tax and accounting asymmetries although liquidity related factors help explain differences in the prices of treasury bonds and strips we find little evidence that the option to strip and reconstitute securities is used for speculative or arbitrage related purposes the role of financial innovation is a central issue for both policymakers and researchers in finance 1 critics argue that financial innovations often have no economic role beyond allowing some investors to take highly leveraged speculative or arbitrage related positions in contrast advocates argue that the introduction of new products makes financial markets more complete reduces frictions and transaction costs and leads to a more optimal allocation of risk in the economy to better understand the role played by financial innovation this paper examines how investors use the successful separate trading of registered interest and principal of securities strips program of the u s treasury this program allows investors to strip treasury notes and bonds to create separate discount bonds and to reconstitute previously stripped notes and