s p 500 cash stock price volatilities s p 500 stock return volatilities are compared to the volatilities of a matched set of stocks after controlling for cross sectional differences in firm attributes known to affect volatility no significant difference in volatility is observed between 1975 and 1983before the start of trade in index futures and index options since then s p 500 stocks have been relatively more volatile the difference is statistically but not economically significant the relative increase occurs primarily in daily returns and only to a lesser extent in longer interval returns other factors besides the start of derivative trade could be responsible for the small increase in volatility stock price volatility has received much attention in the popular press over the last few years especially since the october 19 1987 stock market crash the rise in volatility has alarmed investors regulators and the public in general some suggest that the start of trade in stock index futures and index options increased speculative activity that in turn destabilized cash markets causing higher volatility large trading activity in the derivative contracts makes the suggestion plausible volume in index futures and index options increased dramatically since their introductions in 1982 and 1983 by 1987 the average daily dollar volume in the s p 500 futures contracts alone exceeded the dollar volume of cash s p 500 trade by a factor of about two while the dollar value of the daily net change in total open interest is about 8 of s p 500 stock dollar volume speculative trade in futures and options frequently is accused of destabilizing underlying cash markets the charge has been made for more than a century in the agricultural precious metal and currency markets recent evidence by french and roll 1986 showing stock variance to be strongly related to trading session hours heightens these concerns unfortunately theoretical analyses of whether speculative trade destabilizes cash markets lead to conflicting conclusions depending on what assumptions are made 1 school of business administration university of southern california and office of economic analysis u s securities and exchange commission i wish to thank mary denny mcsweeny and steve hornstein for their valuable research assistance and the referee and editor for their many suggestions and insights the opinions expressed in this paper do not necessarily reflect those of the u s securities and exchange commission or those of the author s colleagues on its staff an increase in well informed speculative trade has two opposite effects on measured volatility it decreases volatility due to order flow imbalances caused by uninformed traders because informed traders provide liquidity in such events and it increases volatility due to new fundamental information since the information which is assumed to be generated at discrete time intervals is impounded into

common asset pricing factors in volatilities and returns in futures markets abstract factor based asset pricing models have been used to explain the common predictable variation in excess asset returns this paper combines means with volatilities of returns in several futures markets to explain their common predictable variation using a latent variables methodology tests do not reject a single factor model with a common time varying factor loading the single common factor accounts for up to 53 of the predictable variation in the volatilities and up to 14 of the predictable variation in the means s p500 futures volatility predicted by the factor model is highly correlated with volatility implied in s p500 futures options but both the factor and implied volatilities are significant in predicting future volatility in derivatives pricing both implied volatility from options and factors extracted from asset pricing models should be employed

world stock markets some random walk tests 1982 world stock markets some random walk tests applied economics vol 14 no 5 pp 515 531

is trade good or bad for the environment sorting out the causality we seek to contribute to the debate over globalization and the environment by asking what is the effect of trade on a country s environment for a given level of gdp we take specific account of the endogeneity of trade using exogenous geographic determinants of trade as instrumental variables we find that trade tends to reduce three measures of air pollution statistical significance is high for concentrations of so2 moderate for no2 and lacking for particulate matter although results for other environmental measures are not as encouraging there is little evidence that trade has a detrimental effect on the environment

portfolio return autocorrelation abstract this paper investigates whether portfolio return autocorrelation can be explained by time varying expected returns nontrading state limit orders market maker inventory policy or transaction costs evidence is consistent with the hypothesis that transaction costs cause portfolio autocorrelation by slowing price adjustment i develop a transaction cost model which predicts that prices adjust faster when changes in valuation are large in relation to the bid ask spread cross sectional tests support this prediction but time series tests do not

common persistence in conditional variances since the introduction of the autoregressive conditional heteroskedastic arch model in engle 1982 numerous applications of this modeling strategy have already appeared a common finding in many of these studies with high frequency financial or monetary data concerns the presence of an approximate unit root in the autoregressive polynomial in the univariate time series representation for the conditional second order moments of the process as in the so called integrated generalized arch igarch class of models proposed in engle and bollerslev 1986 in the igarch models shocks to the conditional variance are persistent in the sense that they remain important for forecasts of all horizons this idea is readily extended to a multivariate framework even though many time series may exhibit persistence in variance it is likely that several different variables share the same common long run component in that situation the variables are naturally defined to be co persistent in variance and the co persistent linear combination is interpretable as a long run relationship conditions for co persistence to occur in the multivariate linear garch model are presented these conditions parallel the conditions for linear co integration in the mean as developed by engle and granger 1987 the presence of co persistence has important implications for asset pricing relationships and in optimal portfolio allocation decisions an empirical example relating to the time series properties of nominal u s dollar exchange rates for the deutschemark and the british pound provides a simple illustration of the ideas

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

a note on quarterly returns to investment in ordinary shares 1919 1970 two tests of market efficiency this note analyses the data of foldes and watson 1982a it gives some statistics to test for weak form efficiency fama 1976 for quarterly returns xt for a valueand equally weighted equity portfolio and for 2 per cent consols gross and net of tax all series show a very high degree of randomness which implies a high quality in index construction the second test has returns for shares and consols regressed on inflation for the whole period and for five sub periods to see if they account for inflation foldes and watson 1982b in an excellent and detailed paper have examined uk and us equity portfolio returns over 1926 1970 for normality stationarity seasonal variation autocorrelation and a variance curve the autocorrelation section uses spectral analysis integrated spectra and a firstorder autoregression for the united states to see if the series are random it used only one uk equity portfolio value weighted money terms gross of tax but the spectra of this and value weights real terms and equal weights money terms were similar spectral analysis is the least reliable method of testing for dependence in financial returns given the very small samples used here and the need for covariance stationarity for return data this is discussed in praetz 1979 with the very difficult problem of testing for a flat spectrum the time domain tests using serial correlations and a runs test are much more powerful and easier to understand table 1 comprises 12 quarterly serial correlation coefficients r l r 12 an omnibus test of them chi squared 24 124 r j 2 durbin watson dw statistic dw xt xt 1 2 x2 and z runs a standardized statistic of the number of runs minus its expectation over the standard deviation of runs it has value weighted and equally weighted equity portfolios and 24 per cent consols gross and net of tax for whole period a 1 per cent significance level is used because of the large sample however not one statistic is significant supporting a very high degree of randomness a quarterly seasonal pattern praetz 1975 would have large positive values at r 4 r 8 etc which is clearly not the case here weak form efficiency means that a market cannot be exploited systematically for economic profit which is supported by the very low values of the statistics in table 1 cooper 1982 has studied the uk and other countries for randomness but at daily weekly and monthly intervals so the quarterly data used here are for a much longer period of time the only other index with dividends added over a comparable period is the de zoete equity index which has much more dependence in its returns over time benjamin 1980 the stock returns and inflation are related to market efficiency in an efficient market all relevant public information such as inflation should be reflected in market prices this is the semi strong form of market efficiency

does globalization affect growth evidence from a new index of globalization the study develops an index of globalization covering its three main dimensions economic integration social integration and political integration using panel data for 123 countries in 1970 2000 it is analysed empirically whether the overall index of globalization as well as sub indexes constructed to measure the single dimensions affect economic growth as the results show globalization indeed promotes growth the dimensions most robustly related with growth refer to actual economic flows and restrictions in developed countries although less robustly information flows also promote growth whereas political integration has no effect

stock price distributions with stochastic volatility an analytic approach we study the stock price distributions that arise when prices follow a diffusion process with a stochastically varying volatility parameter we use analytic techniques to derive an explicit closed form solution for the case where volatility is driven by an arithmetic ornstein ublenbeck or ar1 process we then apply our results to two related problems in the finance literature 1 options pricing in a world of stochastic volatility and 2 the relationship between stochastic volatility and the nature of fat tailes in stock price distributions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a critique of latent variable tests of asset pricing models abstract latent variable tests of asset pricing models make assumptions about the joint distribution of observable returns and unobservable benchmark returns these tests can falsely accept models when a mean variance efficient portfolio other than the benchmark satisfies the distributional assumptions imposed on the benchmark portfolio also because the assumptions are untestable there is no way to discover whether a model is being rejected because the assumptions are false without these assumptions however latent variable tests can be viewed only as tests of distributional hypotheses about mean variance efficient portfolios of unknown composition

forecasting stock return variance toward an understanding of stochastic implied volatilities we examine the behavior of measured variances from the options market and the underlying stock market under the joint hypotheses that markets are informationally efficient and that option prices are explained by a particular asset pricing model forecasts from time series models of the stockreturn process should not have predictive content given the market forecast as embodied in option prices both in sample and out of sample tests suggest that this hypothesis can be rejected using simulations we show that biases inherent in the procedure we use to imply variances cannot explain this result thus we provide evidence inconsistent with the orthogonality restrictions of option pricing models that assume that variance risk is unpriced these results also have implicationsfor optimal variance forecast rules

globalization and climate change new empirical panel data evidence globalization and climate change whether globalization is good or bad for the environment has been studied intensively in recent years however few studies have explicitly provided a general picture of globalization around the world or considered the rich dimensions of globalization outside of economic globalization by applying the new kof globalization index in a panel data sample of 166 countries over the 1990 2009 period our results suggest that on average overall carbon emissions rise with higher levels of economic social and political globalization although the effect varies by oecd and non oecd country group after decomposing the main contributors of carbon emissions our further data from the manufacturing and construction sector yield evidence consistent with a pollution haven effect in terms of climate change

co2 metabolic flow analysis in global trade based on ecological network analysis abstract co2 emission induced by international trade brings a plenty of pressure on global warming hence it is important to understand multi regional co2 flows that result from global trade and flow variation of different paths after transforming capital flows into co2 carbon flows we built an ecological network model of the global trade system s carbon metabolism through ecological network analysis we identified the direct and indirect effects of temporal co2 flows in the network we found that the total integral flow through the network experienced a remarkable increase during the study period in addition total import and export flows of four countries including us china germany and russia turned out to be rather big direct flow share was usually beyond 50 between two geographical adjacent countries while that share was below 50 when two countries are far away this research reveals the importance role of indirect flows and can therefore provide an empirical basis for adjusting and optimizing global trade network

dynamic linkages between globalization financial development and carbon emissions evidence from asia pacific economic cooperation countries abstract this study determines the dynamic linkages between globalization financial development and carbon emissions in asia pacific economic cooperation apec countries in the presence of energy intensity and economic growth under the framework of environment kuznets curve ekc this study employs the panel data from 1990 to 2016 westerlund cointegration technique to find long run cointegration and continuously updated bias corrected cup bc and continuously updated fully modified cup fm methods to check the long run elasticities between the variables empirical results indicate that globalization and financial development significantly reduce carbon emissions but economic growth and energy intensity increase them these results support the ekc hypothesis for apec countries the dumitrescu and hurlin causality analysis shows that globalization granger causes co2 emissions globalization also causes financial development and energy intensity a feedback effect exists between financial development and co2 emissions furthermore financial development causes economic growth but similar is not true from opposite side in granger sense finally this study presents important policy implications with respect to apec countries

the impact of economic globalization on renewable energy in the oecd countries abstract this paper analyzes the determinants of renewable energy consumption in the panel data of 30 oecd countries for the period from 1970 to 2015 the unique role is given to the effect of economic globalization on renewable energy we consider several measures of economic globalization and apply different econometric techniques we find the positive impact of the per capita income the per capita carbon dioxide emissions and the real price of oil on renewable energy also a higher level of economic globalization promotes renewable energy and the evidence is robust to the different measures of economic globalization in line with our findings promoting the economic aspects of globalization will enhance renewable energy thus it can suppress the adverse effect of climate change and global warming on living human beings and natural habitats in the long run therefore we need to enhance our knowledge of how globalization promotes renewable energy not only for the oecd countries but also for other developing and developed economies from a policy perspective we suggest that policymakers and governments in oced countries should consider economic globalization as a renewable energy promoting mechanism while designing their energy demand policy for the protection of natural environmental health

does fdi bring environmental knowledge spillovers to developing countries the role of the local industrial structure this paper examines the environmental knowledge externalities of fdi within and across cities in an emerging economy context it argues that the extent of these environmental externalities is contingent upon local industrial agglomeration using a panel dataset of 280 chinese prefectural cities from 2003 to 2012 we employ a spatial economic approach although limited to evidence from soot and hbox so 2 pollutants our results suggest that fdi brings overall positive environmental knowledge externalities to a region and also spillovers to nearby regions specialised cities may lock into a particular technological path attenuating the absorption and diffusion of a variety of fdi environmental knowledge conversely diversified cities promote cross fertilisation of environmental knowledge and mitigate local pollution intensity at the aggregated city level this study adds to the literature by highlighting the importance of considering both the spatiality of fdi and industrial structure in understanding fdi environmental knowledge spillovers

are co2 emission levels converging among industrial countries time paths of carbon dioxide emissions intwenty one industrial countries are examinedfrom 1960 1997 to test for stochastic andconditional convergence both panel unit roottests and cross section regressions areperformed overall we find significantevidence that co2 emissions haveconverged

income distribution and co2 emission a comparative analysis for china and india abstract the aim of this paper is to test whether income inequality contributes to environmental degradation in china and india where both countries are giving a great concern about the implications of their unsustainable energy consumption to the environment not only to themselves but also to the global environmental sustainability by applying the bounds test approach to cointegration we found in both countries a long run but not a statistically significant relationship between income inequality and co 2 emissions both in the long run and in the short run the robustness of our cointegration results is also ascertained by using three different long run tests furthermore applying the variance decomposition analysis to examine the dynamic causal relationship between the gini coefficient of income distribution and co 2 emissions we found that income inequality was the least important factor in determining co 2 emissions and that there was no causality running in any direction between co 2 emissions and income inequality in both countries still income and energy consumption are the major determinants of co 2 emissions in both countries nevertheless even though the evidence is not statistically significant in the case of china it indicates that reducing income inequality can have a positive impact on environmental quality while in india redistributing income to improve environmental degradation may not be effective

globalization and climate change new empirical panel data evidence whether globalization is good or bad for the environment has been studied intensively in recent years however few studies have explicitly provided a general picture of globalization around the world or considered the rich dimensions of globalization outside of economic globalization by applying the new kof globalization index in a panel data sample of 166 countries over the 1990 2009 period our results suggest that on average overall carbon emissions rise with higher levels of economic social and political globalization although the effect varies by oecd and non oecd country group after decomposing the main contributors of carbon emissions our further data from the manufacturing and construction sector yield evidence consistent with a pollution haven effect in terms of climate change

the political economy of pollution taxes in a small open economy abstract this paper develops a positive theory explaining pollution tax policy outcomes in a small open economy the equilibrium tax rate depends on lobby group membership the relative importance of lobbying activities and the tax elasticity of pollution the equilibrium properties are investigated the model is extended to incorporate pollution abatement and a pollution abatement subsidy we show that total pollution may be increasing in the pollution abatement subsidy rate this effect arises because the equilibrium pollution tax rate may be decreasing in the subsidy rate due to altered political influence of the lobby groups in the political equilibrium

foreign direct investment and environmental regulations a survey this paper presents a survey of the literature on the relationship between foreign direct investment fdi and environmental policy first i focus on empirical studies that analyse the impact of environmental costs on foreign investment locations next i review the main studies that attempt to explain the lack of evidence for the pollution haven hypothesis then i discuss the literature on the impact of fdi on local environmental regulations by concentrating on two recent political economy models finally i conclude by summarizing the main findings of the literature and suggesting some future research directions

natural disasters and the effect of trade on income a new panel iv approach natural disasters affect bilateral trade we use this fact to generalize the instrumental variables strategy of frankel and romer 1999 to a panel setup this allows revisiting an old question does openness cause per capita gdp we work with a modified gravity framework in which we interact foreign natural disasters with geography predicting the exogenous component of bilateral trade flows and aggregating over trade partners we obtain a time varying instrument for multilateral openness of a country controlling for constant determinants of income history geography by means of fixed effects we find a robust positive effect of trade on income averaging 0 74 the estimated elasticity is substantially smaller than the one obtained in the cross section poor or non oecd countries feature a larger elasticity

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

the environmental kuznets curve does one size fit all abstract this paper uses a new panel data set on state level sulfur dioxide and nitrogen oxide emissions from 1929 1994 to test the appropriateness of the one size fits all reduced form regression approach commonly used in the environmental kuznets curve literature empirical results provide initial evidence that an inverted u shape characterizes the relationship between per capita emissions and per capita incomes at the state level parameter estimates suggest however that previous studies which restrict cross sections to undergo identical experiences over time may be presenting statistically biased results

the structure of the climate debate first best climate policy is a uniform carbon tax which gradually rises over time civil servants have complicated climate policy to expand bureaucracies politicians to create rents environmentalists have exaggerated climate change to gain influence other activists have joined the climate bandwagon opponents to climate policy have attacked the weaknesses in climate research the climate debate is convoluted and polarized as a result and climate policy complex climate policy should become easier and more rational as the paris agreement has shifted climate policy back towards national governments changing political priorities austerity and a maturing bureaucracy should lead to a more constructive climate debate

international investment location decisions abstract in international location tournaments governments compete for foreign investment with tax and other short run incentives such tournaments can be won if agglomeration economies are sufficiently powerful to overcome investors desire to spread investments as a hedge against risk we focus on manufacturing investments by u s multinationals in the 1980s our econometric results suggest that agglomeration economies are indeed the dominant influence on investor calculations paradoxically short run incentives have limited apparent impact on location choice we conclude that high cost tournament play is unnecessary for countries with good infrastructure development specialized input suppliers and an expanding domestic market

financing clean energy projects through domestic and foreign capital the role of political cooperation among the eu the g20 and oecd countries abstract there is a growing concern among both individuals and policy makers in relevance to increasing co 2 emissions across the world as a result international organizations have started to pressurize economies to minimize their carbon emissions by increasing the share of clean energy consumption in total energy use hence the goal of this paper is to empirically explore to what extent both domestic stock market and foreign fdi inflows capital affect clean energy uses across the eu the g20 and oecd spanning the period 1993 2012 the results of long run elasticities document that both fdi and stock market developments play a significant role in promoting clean energy uses across all three country groups the results also suggest that clean energy consumption has a considerable positive and negative effect on economic output and co 2 emissions respectively while the political globalization has a substantial negative impact on carbon emissions across the eu the g20 and oecd economies