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

optimal consumption and investment with transaction costs and multiple risky assets we consider the optimal intertemporal consumption and investment policy of a constant absolute risk aversion cara investor who faces fixed and proportional transaction costs when trading multiple risky assets we show that when asset returns are uncorrelated the optimal investment policy is to keep the dollar amount invested in each risky asset between two constant levels and upon reaching either of these thresholds to trade to the corresponding optimal targets an extensive analysis suggests that transaction cost is an important factor in affecting trading volume and that it can significantly diminish the importance of stock return predictability as reported in the literature this paper studies the optimal intertemporal consumption and investment policy of an investor with a constant absolute risk aversion cara preference and an infinite horizon the investor can trade in one risk free asset and n 1 risky assets in contrast to the standard setting the investor faces both fixed and proportional transaction costs in trading any of these risky assets in the absence of transaction costs and when risky asset prices follow geometric brownian motions the optimal investment policy is to keep a constant dollar amount in each risky asset as shown by merton 1971 this trading strategy requires continuous trading in all the risky assets in addition the optimal consumption is affine in the total wealth in the presence of transaction costs however trading continuously in a risky asset would incur infinite transaction costs therefore risky assets are traded only infrequently in this case the literature on optimal consumption and investment with multiple risky assets subject to transaction costs is limited leland 2000 examines a multiasset investment fund that is subject to transaction costs and capital gains taxes under the assumption that the fund has an exogenous target for each risky asset he develops a relatively simple numerical procedure to compute the no transaction region akian menaldi and sulem 1996 consider an optimal consumption and investment problem with proportional transaction costs for

do mergers really reduce costs evidence from hospitals in this paper we compare potential and realized cost savings from hospital mergers our approach isolates changes in realized cost savings due to different output mixes from systematic changes due to time and also provides a measure of the potential cost savings due to scale economies our findings suggest that economies of scale are present for merging hospitals and they realize these cost savings immediately following a merger however we also show that over time cost savings from the merger decrease and the proportion of hospitals experiencing positive cost savings declines

the price effects of liquidity shocks a study of the sec s tick size experiment abstract do stock prices of publicly listed companies respond to changes in transaction costs using the sec s pilot program that increased the tick size for approximately 1 200 randomly chosen stocks we find a stock price decrease between 1 75 and 3 2 for small spread stocks affected by the larger tick size relative to a control group we find that the increase in the present value of transaction costs accounts for a small percentage of the price decrease we study channels of price variation due to changes in expected returns information risk investor horizon and liquidity risk the evidence suggests that trading frictions affect the cost of capital

valuing thinly traded assets we model illiquidity as a restriction on the stopping rules investors can follow in selling assets and apply this framework to the valuation of thinly traded investments we find that discounts for illiquidity can be surprisingly large approaching 30 50 in some cases immediacy plays a unique role and is valued much more than ongoing liquidity we show that investors in illiquid enterprises have strong incentives to increase dividends and other cash payouts thereby introducing potential agency conflicts we also find that illiquidity and volatility are fundamentally entangled in their effects on asset prices this aspect may help explain why some assets are viewed as inherently more liquid than others and why liquidity concerns are heightened during financial crises this paper was accepted by gustavo manso finance

optimal inattention to the stock market with information costs and transactions costs recurrent intervals of inattention to the stock market are optimal if consumers incur a utility cost to observe asset values when consumers observe the value of their wealth they decide whether to transfer funds between a transactions account from which consumption must be financed and an investment portfolio of equity and riskless bonds transfers of funds are subject to a transactions cost that reduces wealth and consists of two components one is proportional to the amount of assets transferred and the other is a fixed resource cost because it is costly to transfer funds the consumer may choose not to transfer any funds on a particular observation date in general the optimal adjustment rule including the size and direction of transfers and the time of the next observation is state dependent surprisingly unless the fixed resource cost of transferring funds is large the consumer s optimal behavior eventually evolves to a situation with a purely time dependent rule with a constant interval of time between observations this interval of time can be substantial even for tiny observation costs when this situation is attained the standard consumption euler equation holds between observation dates if the consumer is sufficiently risk averse

hospital systems and bargaining power evidence from out of market acquisitions competition analyses generally restrict their attention to how mergers alter concentration in the relevant consumer market studying hospital competition by focusing on the local patient market may be misleading however as multi market hospital systems often play an important role in the price negotiations of their members with managed care organizations we focus on out of market hospital mergers to investigate the cross market effects of system membership on member hospital reimbursement rates based on acquisitions occurring across the united states during 2000 2008 we find that hospitals exhibit significant increases of around 14 in their net reimbursement rates after becoming affiliated with an out of market system compared to independent stand alone hospitals we find no evidence that the price effect results from changes in patient case mix the cost of providing care generally or hospital quality the findings reveal that systems can impact the market power of hospitals in ways that have not been considered in recent antitrust analysis

antitrust treatment of nonprofits should hospitals receive special care nonprofit hospitals receive favorable tax treatment in exchange for providing socially beneficial activities extending this rationale suggests that nonprofit hospital mergers should be evaluated differently than mergers of for profit hospitals because suppression of competition may also allow nonprofits to cross subsidize care for the poor using detailed california data we find no evidence that nonprofit hospitals are more likely than for profit hospitals to provide more charity care or offer unprofitable services in response to an increase in market power therefore we find no empirical justification for applying as some courts have suggested different antitrust standards for nonprofit hospitals jel i11 l1 l44

dynamic portfolio choice with frictions abstract we show how portfolio choice can be modeled in continuous time with transitory and persistent transaction costs multiple assets multiple signals predicting returns and general signal dynamics the objective function is derived from the limit of discrete time models with endogenous transaction costs due to optimal dealer behavior we solve the model explicitly and the intuitive solution is also the limit of the solutions of the corresponding discrete time models we show how the optimal high frequency trading strategy depends on the nature of the trading costs which in turn depend on dealers inventory dynamics finally we provide equilibrium implications and illustrate the model s broader applicability to micro and macro economics monetary policy and political economy

on the diversification observability and measurement of estimation risk this paper reexamines how risk return relationships are affected by investor uncertainty about the exact parameters of the joint rate of return distribution we attempt to clarify results relating to three central issues first we address the issue of diversification focusing on an apt factor model framework second we discuss the observability of estimation risk and describe research experimental designs that should encompass the existence of estimation risk and reveal it in the data finally we suggest exploiting contemporaneous return observations on high and low information securities to aid in the measurement of return parameters for low information securities

unemployment benefits crowd out nascent entrepreneurial activity analyzing a cross country panel of 16 oecd countries from 2002 to 2005 we find that higher unemployment benefits crowd out nascent entrepreneurial activity our results hold regardless of entrepreneurial motivation necessity or opportunity and entrepreneurial type imitative or innovative

predisclosure information firm capitalization and security price behavior around earnings announcements several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month e g ball and brown 1968 and brown and kennelly 1972 this has been attributed at least partly to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release the evidence above reflects an average finding across all firms one question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific firm characteristics that lead to differential amounts of predisclosure information this study focuses on firm size capitalization as one such characteristic a firm

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

paper millionaires how valuable is stock to a stockholder who is restricted from selling it abstract many firms have stockholders who face severe restrictions on their ability to sell their shares and diversify the risk of their personal wealth we study the costs of these liquidity restrictions on stockholders using a continuous time portfolio choice framework these restrictions have major effects on the optimal investment and consumption strategies because of the need to hedge the illiquid stock position and smooth consumption in anticipation of the eventual lapse of the restrictions these results provide a number of important insights about the effects of illiquidity in financial markets

portfolio claustrophobia asset pricing in markets with illiquid assets many classes of assets are illiquid or nonmarketable in that they cannot always be traded immediately thus a portfolio position in these becomes at least tem porarily irreversible we study the asset pricing implications of this type of illiquidity in an exchange economy with heterogeneous agents in this market one asset is always liquid the other asset can be traded initially but then not again until after a blackout period illiquidity has a dramatic effect agents abandon diversification and choose polarized portfolios instead the value of liquidity can represent a large portion of the equilibrium price of an asset jel g11 g12

financial transaction taxes market composition and liquidity we use the introduction of a financial transaction tax ftt in france in 2012 to test competing theories on its impact we find no support for the idea that an ftt improves market quality by affecting the composition of trading volume instead our results are in line with the hypothesis that a lower trading volume reduces liquidity and in turn market quality consistent with theories of asset pricing under transaction costs we document a shift in security holdings from short term to long term investors finally we find that moderate aggregate effects on market quality can mask large adjustments made by individual agents

crossovers dividends and the size effect the size effect may have been the result of high stock volatility and low dividend payments suppose an equity market is partitioned into a large stock index and a small stock index and suppose that over a given period of time each of the indexes retains its share of the total market capitalization price volatility will cause some stocks to cross over from one index to the other which will result in higher returns for the small stock index and lower returns for the large stock index dividend payments by large companies could offset the effect of the crossovers but they have historically been insufficient to do so hence the size effect

continuous time methods in finance a review and an assessment i survey and assess the development of continuous time methods in finance during the last 30 years the subperiod 1969 to 1980 saw a dizzying pace of development with seminal ideas in derivatives securities pricing term structure theory asset pricing and optimal consumption and portfolio choices during the period 1981 to 1999 the theory has been extended and modified to better explain empirical regularities in various subfields of finance this latter subperiod has seen significant progress in econometric theory computational and estimation methods to test and implement continuous time models capital market frictions and bargaining issues are being increasingly incorporated in continuous time theory the roots of modern continuous time methods in finance can be traced back to the seminal contributions of merton 1969 1971 1973b in the late 1960s and early 1970s merton 1969 pioneered the use of continuous time modeling in financial economics by formulating the intertemporal consumption and portfolio choice problem of an investor in a stochastic dynamic programming setting merton 1973b also showed how such a framework can be used to develop equilibrium asset pricing implications thereby significantly extending the asset pricing theory to richer dynamic settings and expanding the scope of applications of continuous time methods to study problems in financial economics 1 within a span of about 30 years from the publication of merton s inf luential papers continuous time methods have become an integral part of financial economics indeed in certain core areas in finance such as e g asset pricing derivatives valuation term structure theory and portfolio selection continuoustime methods have proved to be the most attractive way to conduct research and gain economic intuition the continuous time approach in these areas has produced models with a rich variety of testable implications the econometric theory for testing continuous time models has made rapid strides in the last decade and has thus kept pace with the impressive progress on the theoretical front one hopes that the actual empirical investigations and estimation using the new procedures will follow suit soon

trading in derivatives when the underlying is scarce abstract regulatory restrictions and market frictions can constrain the aggregate quantity of long and short positions in a security when these constraints bind we refer to the security as scarce and its price becomes distorted relative to its value in a frictionless market we show that an otherwise redundant derivative can reduce the price distortion of the underlying security by relaxing its scarcity we also show that it is especially important to analyze the underlying and derivative markets jointly when evaluating the impact of regulation such as short sales bans and position limits in derivatives that restricts trade

what distinguishes entrepreneurs evidence on the motives for self employment abstract previous studies distinguish between survival and aspirations based on ex ante declarations in this paper we propose an identification strategy based on objective criteria using evidence from a standard labour force survey we find that self employed who switched from wage employment and created additional jobs were systematically over compensated relative to those who did not switch and to those who switched but have not created additional jobs

taxes and stock return seasonality evidence from the london stock exchange prior to the introduction of capital gains taxes seasonality is not detected in the returns of firms that traded on the london stock exchange however after the imposition of a capital gains tax the british stock return data exhibit apparent monthly effects in both jan uary and april additional analysis reveals that while the april effect is consistent with the tax loss selling hypothesis the january effect cannot be attributed solely to the introduction of capital gains taxation furthermore the authors efforts indicate that much caution should be exercised when interpreting studies that compare results from non u s data sources with those from u s data copyright 1987 by the university of chicago

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

equilibrium pricing and trading volume under preference uncertainty information collection processing and dissemination financial institutions is challenging this can delay the observation by traders of the exact capital charges and constraints of their institution during this delay traders face preference uncertainty in this context we study optimal trading strategies and equilibrium prices in a continuous centralized market we focus on liquidity shocks during which preference uncertainty is likely to matter most preference uncertainty generates allocative ineficiency but need not reduce prices traders progressively learning about the preferences of their institution conduct round trip trades which generate excess volume relative to the frictionless market in a cross section of liquidity shocks the initial price drop is positively correlated with total trading volume across traders the number of round trips is negatively correlated with trading profits and average inventory

the capital asset pricing model in economic perspective the capital asset pricing model capm is theoretically incomplete in its demand side focus risk averse investors and internally inconsistent homogeneous beliefs is not conclusively supported empirically and yet it legitimizes a notion that investors can earn higher returns by bearing undiversifiable risk our article does not merely extend the capm with more realistic assumptions it completes its original framework by including 1 risk taking investors in the investor population 2 investors who can have heterogeneous expectations or beliefs an overlooked but required condition for the capm to be an internally consistent and meaningful model of competitive financial asset pricing under uncertainty and 3 a positive sloped short run supply curve based on a reasonable interpretation of the nature of financial asset trade upon a complete economic interpretation it is shown that the equilibrium systematic risk rate of return relationship depends on whose aggregate trading activity dominates ri

transactions costs and portfolio choice in a discrete continuous time setting abstract this paper makes the following observation concerning a new formulation of the consumption and portfolio choice model of merton 1971 with transaction costs suppose an investor observes his or her current wealth only when making a transaction that transactions are costly and that decisions to transact can be made at any time based on all current information if at each transaction the agent is charged a fixed fraction of current portfolio value an optimal policy exists and the optimal interval of time between transactions is fixed independent of time and current wealth

the price ain t right hospital prices and health spending on the privately insured we use insurance claims data for 27 6 percent of individuals with private employer sponsored insurance in the us between 2007 and 2011 to examine the variation in health spending and in hospitals transaction prices we document the variation in hospital prices within and across geographic areas examine how hospital prices influence the variation in health spending on the privately insured and analyze the factors associated with hospital price variation four key findings emerge first health care spending per privately insured beneficiary varies by a factor of three across the 306 hospital referral regions hrrs in the us moreover the correlation between total spending per privately insured beneficiary and total spending per medicare beneficiary across hrrs is only 0 14 second variation in providers transaction prices across hrrs is the primary driver of spending variation for the privately insured whereas variation in the quantity of care provided across hrrs is the primary driver of medicare spending variation consequently extrapolating lessons on health spending from medicare to the privately insured must be done with caution third we document large dispersion in overall inpatient hospital prices and in prices for seven relatively homogenous procedures for example hospital prices for lower limb mris vary by a factor of twelve across the nation and on average two fold within hrrs finally hospital prices are positively associated with indicators of hospital market power even after conditioning on many demand and cost factors hospital prices in monopoly markets are 15 3 percent higher than those in markets with four or more hospitals

price discrimination and bargaining empirical evidence from medical devices many important issues in business to business markets involve price discrimination and negotiated prices situations where theoretical predictions are ambiguous this paper uses new panel data on buyer supplier transfers and a structural model to empirically analyze bargaining and price discrimination in a medical device market while many phenomena that restrict price discrimination are suggested as ways to decrease hospital costs e g mergers group purchasing organizations and transparency i find that 1 non discriminatory pricing actually works against hospitals because competition is more intense under price discrimination and 2 results depend ultimately on a previously unexplored bargaining effect

the association between accounting earnings and security returns for large and small firms abstract the differential information hypothesis advanced by atiase 1980 states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size this study examines two corollaries of that hypothesis first security prices of large firms anticipate accounting earnings earlier than security prices of small firms second for a given level of unexpected earnings the cumulative abnormal returns of small firms exceed those of large firms the results are generally consistent with atiase s hypothesis

transaction taxes and the behavior of the swedish stock market abstract this paper studies the effects of transaction taxes on the behavior of swedish equity returns during the 1980 1987 period sweden provides an excellent laboratory style setting for such a study as taxes were imposed for political purposes rather than to alter the behavior of the stock market volatility did not decline in response to the introduction of taxes although stock price levels and turnover did large proportions of trading activity migrated overseas to london when the tax rate was increased to 2 in 1986

estimation and identification of merger effects an application to hospital mergers abstract existing empirical estimates of merger effects are compromised by the fact that merging and nonmerging entities differ in unobserved ways that independently affect outcomes of interest to obtain an unbiased estimate of the effect of consummated mergers i propose an approach that focuses on the response of rivals to mergers and accounts for the endogeneity of exposure to these mergers i apply this approach to evaluate the impact of independent hospital mergers in the united states between 1989 and 1996 using the physical colocation of rivals as an instrument for whether they merge i find a sizeable one time increase in price following a rival s merger with the greatest increase occurring among hospitals nearest the merging hospitals these results are more consistent with predictions from structural models of the hospital industry than with prior observational estimates of the effects of hospital mergers

asset returns with transactions costs and uninsured individual risk abstract we explore whether incorporating an explicit motive for holding liquid assets within an equilibrium asset pricing model helps explain the following features of asset returns and turnover in the post war u s economy i the low risk free real interest rate ii the large spread between returns on liquid assets and stocks and iii the greater transaction velocity of liquid assets relative to stocks we introduce a demand for liquid assets by adding uninsured individual risk together with differential costs of trading securities numerical simulations attempting to match the return data generate a ratio of liquid assets to income considerably below observed levels

liquidity premia in dynamic bargaining markets abstract this paper develops a search theoretic model of the cross sectional distribution of asset returns abstracting from risk premia and focusing exclusively on liquidity in contrast with much of the transaction cost literature it is not assumed that different assets carry different exogenously specified trading costs instead different expected returns due to liquidity are explained by the cross sectional variation in tradeable shares the qualitative predictions of the model are consistent with much of the empirical evidence

optimal portfolio liquidation with distress risk we analyze the problem of an investor who needs to unwind a portfolio in the face of recurring and uncertain liquidity needs with a model that accounts for both permanent and temporary price impact of trading we first show that a risk neutral investor who myopically deleverages his position to meet an immediate need for cash always prefers to sell more liquid assets if the investor faces the possibility of a downstream shock however the solution differs in several important ways if the ensuing shock is sufficiently large the nonmyopic investor unwinds positions more than immediately necessary and all else being equal prefers to retain more of the assets with low temporary price impact in order to hedge against possible distress more generally optimal liquidation involves selling strictly more of the assets with a lower ratio of permanent to temporary impact even if these assets are relatively illiquid the results suggest that properly accounting for the possibility of future shocks should play a role in managing large portfolios

an exact solution to a dynamic portfolio choice problem under transactions costs the presence of any friction in financial markets qualitatively changes the nature of the optimization problem faced by an investor it requires one to either act or do nothing an issue which of course does not arise in frictionless situations the investor considered here accumulates wealth without consuming until some terminal point in time when he consumes all his objective is to maximize the expected utility derived from that terminal consumption we postpone the terminal point far into the future to obtain a stationary portfolio rule the portfolio policy is in the form of two control barriers between which portfolio proportions are allowed to fluctuate we show how to calculate them

insider trading and the short swing profit rule abstract the short swing profit rule is a federal statute that requires insiders to forfeit any trading profit earned from a combined purchase and sale that occurs within a six month period using a multi period strategic rational expectations equilibrium framework i demonstrate that the rule tends to reduce both the amount of insider trading and the amount of profit earned by an informed insider from information based trades because the rule imposes a constraint on the insider s dynamic trading strategy nevertheless the rule increases the insider s welfare at the expense of uninformed investors outsiders because the rule inhibits risk sharing which leads to an ex ante wealth transfer from outsiders to the insider

can mergers increase output evidence from the lodging industry we find that hotel mergers increase occupancy in some specifications price also rises because these effects occur only in markets with high capacity utilization and high uncertainty we reject simple models of price or quantity competition in favor of models of revenue management where firms price to fill available capacity in the face of uncertain demand

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

does risk sharing motivate interdealer trading we use unique data from the london stock exchange to test whether interdealer trade facilitates inventory risk sharing among dealers we develop a methodology that focuses on periods of extreme inventories inventory cycles we further distinguish between inventory cycles that are unanticipated and those that are anticipated because of worked orders the pattern of interdealer trade during inventory cycles matches theoretical predictions for the direction of trade and the inventories of trade counterparts we also show that london dealers receive higher trading revenues for taking larger positions

explaining international variations in self employment evidence from a panel of oecd countries organisation for economic cooperation and development oecd data from 1972 to 1996 reveals substantial differences in the levels and trends of self employment rates across countries this article uses recently developed panel integration and cointegration techniques to explore the determinants of aggregate self employment rates we find that within the panel self employment rates are positively and significantly related to personal income tax rates and negatively and significantly related to the unemployment benefit replacement rate this accords a central role to government tax and transfer policies in contrast to nonrobust influences from macroeconomic variables which have been widely used in previous studies

episodic liquidity crises cooperative and predatory trading we describe how episodic illiquidity arises from a breakdown in cooperation between market participants we first solve a one period trading game in continuous time using an asset pricing equation that accounts for the price impact of trading then in a multi period framework we describe an equilibrium in which traders cooperate most of the time through repeated interaction providing apparent liquidity to one another cooperation breaks down when the stakes are high leading to predatory trading and episodic illiquidity equilibrium strategies that involve cooperation across markets lead to less frequent episodic illiquidity but cause contagion when cooperation breaks down why is illiquidity rare and episodic pastor stambaugh 2003 detect only 14 aggregate low liquidity months over the time period 1962 to 1999 despite being of significant magnitude most of the episodes were short lived and were followed by long periods of liquidity 1 the origin of this empirical observation still remains a puzzle in this paper we attempt to shed light on this puzzle by developing a theoretical model in which a breakdown in cooperation between traders in the market manifests itself in predatory trading this mechanism leads to sudden and short lived illiquidity we develop a dynamic model of trading based on liquidity needs during each period a liquidity event may occur in which a trader is required to liquidate a large block of an asset in a relatively short time period this need for liquidity is observed by a tight oligopoly whose members may choose to predate or cooperate predation involves racing and fading the distressed trader to the market

hospital consolidation and costs another look at the evidence we investigate whether pairwise hospital consolidation leads to cost savings we use a unified empirical methodology to assess both systems and mergers our comparison group for each consolidation consists of 10 pseudo mergers chosen based on propensity scores cost function estimates reveal that consolidation into systems does not generate savings even after 4 years mergers in which hospitals consolidate financial reporting and licenses generate savings of approximately 14 2 3 and 4 years after merger the system consolidation and merger results are very robust to changes in the specification and the sample

cost of capital to the hospital sector this paper provides estimates of the cost of equity and debt capital to for profit and non profit hospitals in the u s for the years 1972 83 the cost of equity is estimated using alternatively the capital asset pricing model and arbitrage pricing theory we find that the cost of equity capital using either model substantially exceeded anticipated inflation the cost of debt capital was much lower accounting for the corporate tax shield on debt and capital paybacks by cost based insurers lowered the net cost of capital to hospitals

portfolio choice with illiquid assets we present a model of optimal allocation to liquid and illiquid assets where illiquidity risk results from the restriction that an asset cannot be traded for intervals of uncertain duration illiquidity risk leads to increased and state dependent risk aversion and reduces the allocation to both liquid and illiquid risky assets uncertainty about the length of the illiquidity interval as opposed to a deterministic nontrading interval is a primary determinant of the cost of illiquidity we allow market liquidity to vary from normal periods when all assets are fully liquid to illiquidity crises when some assets can only be traded infrequently the possibility of a liquidity crisis leads to limited arbitrage in normal times investors are willing to forgo 2 of their wealth to hedge against illiquidity crises occurring once every 10 years this paper was accepted by itay goldstein finance

financial intermediation in an overlapping generations model with transaction costs abstract we analyze an overlapping generations economy where agents interact to share liquidity risk we show that a pure exchange economy has excessive trade in equilibrium because agents interact to rebalance their portfolios intergenerational financial intermediaries reduce the number of interactions because agents only transact when they face liquidity needs in the absence of asset risk intermediaries match redemptions with deposits and dividends and never sell assets if the economy is subject to transaction costs the intermediated economy can sustain higher stationary investment and welfare we also find that dead weight transaction costs can increase welfare because it protects banks from interbank arbitrage and dampens the inherent cyclicality of market economies

are seasonal anomalies real a ninety year perspective in recent years there has been a proliferation of empirical studies documenting unexpected or anomalous regularities in security rates of return in addition to the widely studied relation between firm size and rate of return 1 these include seasonal regularities related to the time of the day harris 1986 the day of the week see ball and bowers 1986 cross 1973 french 1980 gibbons and hess 1981 jaffe and westerfield 1985 keim and stambaugh 1984 and lakonishok and levi 1982 the time of the month ariel 1987 and the turn of the year see haugen and lakonishok 1988 jones pearce and wilson 1987 lakonishok

the dynamic properties of financial market equilibrium with trading fees we incorporate trading fees in a long horizon dynamic general equilibrium model in which traders optimally and endogenously decide when and how much to trade a full characterization of equilibrium is provided which allows us to study the dynamics of equilibrium trades equilibrium asset prices and rates of return in the presence of trading fees we exhibit the effect of trading fees on deviations from the consumption capm and analyze the pricing of endogenous liquidity risk we compare for the same shocks the impulse responses of this model to those of a model in which trading is infrequent because of trader inattention the current version reflects material that was previously in two papers w21421 and w19155

transaction costs and asset prices a dynamic equilibrium model in this article we study the effects of transaction costs on asset prices we assume an overlapping generations economy with a riskless liquid bond and many risky stocks carrying proportional transaction costs we obtain stock prices and turnover in closed form surprisingly a stock s price may increase in transaction costs and a more frequently traded stock may be less adversely affected by an increase in transaction costs calculations based on the marginal investor overestimate the effects of transaction costs for realistic parameter values transaction costs have very small effects on stock prices but large effects on turnover

can governments do it better merger mania and hospital outcomes in the english nhs the literature on mergers between private hospitals suggests that such mergers often produce little benefit despite this the uk government has pursued an active policy of hospital mergers arguing that such consolidations will bring improvements for patients we examine whether this promise is met we exploit the fact that between 1997 and 2006 in england around half the short term general hospitals were involved in a merger but that politics means that selection for a merger may be random with respect to future performance we examine the impact of mergers on a large set of outcomes including financial performance productivity waiting times and clinical quality and find little evidence that mergers achieved gains other than a reduction in activity given that mergers reduce the scope for competition between hospitals the findings suggest that further merger activity may not be the appropriate way of dealing with poorly performing hospitals

survey evidence on diffusion of interest and information among investors abstract questionnaire surveys of institutional and individual investors were undertaken to learn about patterns of communications it was found that direct interpersonal communications are very important in investor decisions questions elicited what fraction of investors were unsystematic and allowed themselves to be influenced by word of mouth communications or other salient stimuli randomly sampled investors were studied as well as investors in stocks whose price had recently increased dramatically contagion or epidemic models of financial markets are proposed in which interest in individual stocks is spread by word of mouth the survey evidence is interpreted as supporting such models

decentralized trading with private information the paper studies how asset prices are determined in a decentralized market with asymmetric information about asset values we consider an economy in which a large number of agents trade two assets in bilateral meetings a fraction of the agents has private information about the asset values we show that over time uninformed agents can elicit information from their trading partners by making small offers this form of experimentation allows the uninformed agents to acquire information as long as there are potential gains from trade in the economy as a consequence the economy converges to a pareto efficient allocation

options short sales and market completeness this paper presents empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales the significantly higher average level of short interest exhibited by optionable stocks supports the argument that options facilitate short selling we also find significant effects on option prices related to the short interest in the underlying stock we then present evidence that options also increase information efficiency earlier work that is replicated and extended here has suggested that short sale constraints cause stock prices to underweight negative information options appear to reduce that effect

timing tax evasion standard models of tax evasion implicitly assume that evasion is either fully detected or not detected at all empirically this is not the case casting into doubt the traditional rationales for interior evasion choices i propose two alternative dynamic explanations for interior tax evasion rates first fines increasing in the duration of an evasion spell implying that the expected costs of evasion increase convexly with the time spent non reporting while the benefits increase linearly second different vintages of income sources subject to aggregate risk and fixed costs when switched between evasion states the dynamic approach yields a transparent representation of revenue losses and social costs due to tax evasion novel findings on the effect of policy on tax evasion and a tractable framework for the analysis of tax evasion dynamics

hospital mergers who merges with whom merger pairings are categorized based on the ownership status teaching status hospital size caseload severity and geographical distance of merging hospitals to determine the types of hospitals that tend to merge with each other the results show that mergers between two non teaching nonprofit or for profit hospitals occur more often but that only ownership status not teaching status affects the propensity to merge after controlling for other merger pair characteristics this paper also finds that hospitals are more likely to merge with a partner of similar size and close geographical proximity but not necessarily the closest candidate however ownership status not distance between hospitals is the dominant determinant of merger pairs

how do you capture liquidity a review of the literature on low frequency stock liquidity researchers have various ways to measure liquidity but most of them come with both merits and demerits this study provides a literature review of low frequency liquidity measures with a primary focus on liquidity measurement as well as its implication on asset pricing based on the dimension it captures a range of existing low frequency measures are divided into four categories of liquidity proxies including transaction cost volume price impact and multidimension based measures we review some well established liquidity proxies a new bid ask spread estimator and price impact ratios proposed recently finally we discuss how good low frequency liquidity measures are at capturing standard liquidity benchmarks which are constructed from high frequency intraday data

equilibrium theory of stock market crashes abstract we consider an equilibrium in illiquid stock market in which liquidity suppliers trade with investors and face significant trading costs a similar situation was observed during the recent financial crisis we find that the expected risk premium on the stock and its sharpe ratio are positive and very large while the expected stock return volatility is a few times bigger than in the liquid market investors sell stock shares due to their excessive leverage whereas market makers try to compensate their trading costs with the profits expected from buying the stock shares with very high sharpe ratio moreover the short term stock returns exhibit either a strong overreaction or a momentum effect depending on the state of the economy

portfolio choice under transitory price impact abstract we consider a portfolio optimization problem for a short term investor who faces an illiquid stock market the illiquidity of this market results from a transitory price impact that is captured by the transaction costs that are convex in the number of shares traded by an investor the linear component in these costs defines a no trading zone while the nonlinear component does not allow trading the stock at an arbitrary rate the portfolio choice problem is solved when the stock path is continuous and when the stock may crash we find that an economy could be in states where the conditional liquidity premium is of the same order of magnitude as the historical risk premium of the stock market if the illiquid stock undergoes crashes then in many states an investor demands a premium for crashes that is much higher than that in the liquid market finally we study the shape of the no trading zone when the nonlinearity in the transitory price impact is strong or moderate we find that this shape is significantly different from that when the transitory price impact is linear

dynamic market participation and endogenous information aggregation abstract this paper studies information aggregation in financial markets with recurrent investor exit and entry i consider a dynamic general equilibrium model of asset trading with private information and collateral constraints investors differ in their aversion to knightian uncertainty when uncertainty is high some investors exit the market since exiting investors information is not fully revealed by prices conditional return volatility and risk premia both increase the model also implies that exit is more likely when wealth is more concentrated in the hands of less uncertainty averse investors the model thus predicts less informative prices toward the end of a long boom moreover economies with looser collateral constraints should see more volatility due to exit and partial revelation higher capital requirements potentially improve welfare by inducing more information revelation by prices