a public firm in a model of spatial duopoly with price discrimination we visit the role of privatization in the location decision of firms in an industry where no firm can produce all varieties demanded we demonstrate that the nash equilibrium locations are socially optimal in the presence of a publicly owned firm notwithstanding the degree of privatization

modelling the relationship between future energy intraday volatility and trading volume with wavelet abstractalthough the energy and stock markets are both characterized by volatility and liquidity and there has been substantial research to explore the relationship between volatility and trading volume tv in stock markets few researchers have investigated this relationship in energy markets moreover studies that have explored this association within energy markets did not describe its nature or impetus to redress this oversight we investigate this relationship using intraday data from the oil and gas markets the most liquid energy markets in the world in this way the current article extends the previous studies through the use of a frequency approach to propose an original analysis of the relationship between volume and volatility more specifically we employ a continuous wavelet transform to identify the lead lag phase between volatility and volume this framework supplants usual time series modelling as it uses a measure of coherence for different frequencies and time scales to capture fu

technological leadership and persistence of monopoly under endogenous entry static versus dynamic analysis abstract we build a dynamic oligopoly model with endogenous entry in which a particular firm leader invests in an innovation process facing the subsequent entry of other firms followers we identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre emptive r d investment strategic predation eventually resulting in the elimination of all followers compared to a static model the dynamic one provides new insights into the leader s intertemporal investment choice its optimal decision making and the dynamics of the market structure over time we also contrast the leader s investment decisions with those of the social planner

a theory of endogenous coalition structures consider an environment with widespread externalities and suppose that bind ing agreements can be written we study coalition formation in such a setting our analysis proceeds by defining on a partition function an extensive form bargaining game we establish the existence of a stationary subgame perfect equilibrium for such a game our main results are concerned with the characterization of equilib rium coalition structures we develop an algorithm that generates under certain conditions an equilibrium coalition structure our characterization results are especially sharp for symmetric partition functions in particular we provide a uniqueness theorem and apply our results to a cournot oligopoly journal of economic literature classification numbers c71 c72 c78 d62 q 1999 academic press

horizontal mergers with free entry abstract we consider the impact of horizontal mergers in the presence of free entry and exit in contrast to much of the previous literature on mergers our model yields predictions that seem intuitively reasonable with only moderate cost synergies mergers of a small number of industry participants are beneficial even under quantity competition there is no free rider problem in that insiders always benefit more than outsiders and quantity setting and price setting games yield similar predictions about profitability we also derive two welfare results that hold under quantity competition with homogeneous goods if the initial no merger equilibrium is symmetric then with free entry 1 a horizontal merger has no impact on the equilibrium price and 2 all privately beneficial mergers are socially beneficial

the unilateral incentives for technology transfers predation and deterrence by proxy abstract joint production between rival firms often entails knowledge transfers without direct compensation leaving the question as to why more efficient firms would give their rivals such an advantage we find that such transfers are credible mechanisms to make the market more competitive so as to deter entry or force exit we determine that with free entry such transfers are profitable and further it may be optimal to predate or deter every firm possible so that a market with many firms can become a duopoly while consumers are harmed by such action production efficiency normally increases sufficiently so that welfare increases

evaluating debt repurchases what are the alternatives to investment abstract a general model of debt repurchases is built which reconciles most points raised in the literature on buybacks the inclusion of assets alternative to domestic investment is shown to be of crucial importance in the analysis and leads to the reversal of some previous results it is shown that investment necessarily rises following a buyback independently of the source of the funds used the condition that determines whether or not buybacks are an attractive solution to the debtor is derived it is shown to depend on the price at which debt can be bought and on an interest differential effect

debt and incentives in a dynamic context abstract the incentive problems associated with debt overhang have been shown to make debt forgiveness potentially pareto improving models studying this argument abstract from the long term character of the credit relationship we show that the debt forgiveness argument is strengthened when incentive problems are considered in a multi period context

causality in quantiles and dynamic stock return volume relations abstract this paper investigates the causal relations between stock return and volume based on quantile regressions we first define granger non causality in all quantiles and propose testing non causality by a sup wald test such a test is consistent against any deviation from non causality in distribution as opposed to the existing tests that check only non causality in certain moment this test is readily extended to test non causality in different quantile ranges in the empirical studies of three major stock market indices we find that the causal effects of volume on return are usually heterogeneous across quantiles and those of return on volume are more stable in particular the quantile causal effects of volume on return exhibit a spectrum of symmetric v shape relations so that the dispersion of return distribution increases with lagged volume this is an alternative evidence that volume has a positive effect on return volatility moreover the inclusion of the squares of lagged returns in the model may weaken the quantile causal effects of volume on return but does not affect the causality per se

equilibrium binding agreements abstract we study equilibrium binding agreements the coalition structures that form under such agreements and the efficiency of the outcomes that result we analyze such agreements in a context where the payoff to each player depends on the actions of all other players thus a game in strategic form is a natural starting point unlike the device of a characteristic function explicit attention is paid to the behavior of the complementary set of players when a coalition blocks a proposed agreement a solution concept and its applications are discussed journal of economic literature classification numbers c70 c71

multidivisional firms internal competition and the merger paradox traditional modelling of mergers has the merged firms insiders cooperate and maximize joint profits this approach has several unappealing results in quantity setting games for example mergers typically are not profitable for insiders but are profitable for non merging firms outsiders we take a different approach and allow for a parent company that can play each insider off one another in quantity setting games with our approach mergers are profitable for insiders unprofitable for outsiders socially beneficial and involve in a non monopolizing merger a small number of firms finally we find that the optimal strategy depends on whether firms compete in quantity or prices jel classification l000 entreprises multi divisionnelles concurrence interne et le paradoxe des fusions les modelisations conventionnelles des fusions suggerent que les entreprises fusionnees parties prenantes cooperent et maximisent leurs profits conjoints cette approche engendre plusieurs resultats contre intuitifs dans des jeux de concurrence par les quantites i e les fusions en general ne sont pas profitables pour les parties prenantes mais sont profitables pour des entreprises qui ne sont pas fusionnees les autres les auteurs adoptent une approche differente qui permet a l entreprise mere de jouer les parties prenantes l une contre l autre dans ce genre de jeu avec l approche adoptee les fusions sont profitables pour les parties prenantes non profitables pour les autres socialement benefiques et impliquent un petit nombre d entreprises dans une fusion qui ne cree pas un monopole finalement on trouve que la strategie optimale depend fondamentalement du fait que les entreprises se concurrencent par les prix ou par les quantites

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

debt write downs and debt equity swaps in the two sector model abstract debt overhang models have motivated the possibility of pareto improving market based debt reduction schemes through the assumption that creditors can seize debtor output under default these models usually reach the conclusion that both debtor financed debt repurchases and debt equity swaps are not in the interest of debtor nations this paper re examines these conclusions for a debtor nation that also has a safe sector which is unexposed to seizure debt overhangs are then shown to distort the composition of investment in the debtor nation nominal debt reductions mitigate these distortions enhancing the potential for pareto improving debt equity swaps

liquidity credit quality and the relation between volatility and trading activity evidence from the corporate bond market this paper investigates the roles of illiquidity and credit risk in determining the relations between price volatility of a bond and its trading frequency and trade size based on a large transaction dataset from october 2004 to june 2012 we find a positive relation between volatility and trading frequency and a negative relation between volatility and trade size consistent with the prediction of the search based theory the relations are much stronger for illiquid and risky bonds furthermore both liquidity and credit risk become more important in times of stress and their effects are reinforcing results strongly suggest that search frictions and credit risk are important factors driving the relation between volatility and trading activity in the corporate bond market

simultaneous entry and welfare abstract i examine the welfare properties of free entry under conditions of simultaneous entry specifically i consider the second best problem of influencing the number of entrants while taking as given firm behavior upon entry i consider two alternative models of simultaneous entry grab the dollar entry and war of attrition entry i show that if entry costs are low then the results from previous models of sequential entry are fairly robust to the possibility of simultaneous entry if however entry costs are high then the welfare effects of free entry depend delicately on the nature of the entry game being played

on the relationship between energy returns and trading volume a multifractal analysis forecasting and modelling commodities price movements and the activity of energy markets are of real interest to investors and policymakers especially during turbulent times this study investigat

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

market competition r d and firm profits in asymmetric oligopoly we investigate a cournot model with strategic r d investments wherein efficient low cost firms compete against less efficient high cost firms we findthat an increase in the number of high cost firms can stimulate r d by the low cost firms while it always reduces r d by the high cost firms more importantly this force can be strong enough to compensate for the loss that arises from more intense market competition the low cost firms profits may indeed increase with the number of high cost firms an implication of this result is far reaching as it gives low cost firms an incentive to help rather than harm high cost competitors we relate this implication to a practice known as open knowledge disclosure especially ford s strategy of disclosing its know how publicly and extensively at the beginning of the 20th century

how many firms should be leaders beneficial concentration revisited we investigate how the number of stackelberg leaders and followers aects economic welfare first we discuss the model with m leaders and n m followers compete in a homogeneous good market daughety 1990 nds that under constant marginal costs the stackelberg model m2 0 n yield a higher welfare than the cournot model m 0 or

mergers of complements and entry in innovative industries abstract i study a merger between producers of complement inputs facing potential entry with investment by the incumbents in deterministic cost reduction and by the entrants in probabilistic innovation and then competition in prices the merger solves cournot complementarity problems in investment and pricing which is what makes it profitable but also potentially anti competitive when the demand is inelastic the merger harms consumers by reducing r d of the entrants if the incumbents are efficient enough always when bundling is adopted instead with a demand elastic enough the merger increases consumer surplus even with bundling

sovereign debt repurchases no cure for overhang troubled debtor countries do not gain by repurchasing external bank debt at market discount even if a buyback would stimulate investment by relieving debt overhang the reason is that buybacks allow creditors to reap more than 100 percent of any efficiency gains that might result from increased investment we show that open market buybacks provide a benchmark for evaluating more complex negotiated buyback deals by comparing any given deal with a hypothetical market buyback of the same size one can derive upper and lower bounds on the gain to the country we apply our model to the 1990 mexican debt deal

maturity effects in energy futures abstract this paper examines the effects of maturity on future price volatility and trading volume for 129 energy futures contracts recently traded in the nymex the results provide support for the maturity effect hypothesis that is energy futures prices do become more volatile and trading volume increases as futures contracts approach maturity

cooperative r d under uncertainty with free entry abstract this paper analyzes the effects of cooperative r d arrangements in a model with stochastic r d and output spillovers our main innovation is to allow for free entry in both the r d race and product market moreover in contrast with the literature we assume that cooperative r d arrangements do not have to include all the firms in the industry we show that sharing of research outcomes is a necessary condition for the profitability of cooperative r d arrangements with free entry the profitability of rjv cartels depends on their size subsidies may be desirable in cases of larger rjvs since they are the ones which are less likely to be profitable

market conditions trader types and price volume relation in energy futures markets we investigate the asymmetric relations between trading volume and price changes and trading volume and price volatility of energy futures contracts across maturities and under different market conditions using a relatively long sample of daily observations we examine whether the impact of trading volume on returns and volatility of futures contracts can be time varying and dependent on the market condition we differentiate the market condition based on the slope of the forward curve into backwardation and contango the results indicate that trading volume and returns are positively related when the market is in backwardation and negatively related when the market is in contango in addition the positive relation between changes in trading volume and volatility of futures contracts seem to be stronger when the market is in backwardation than when it is in contango finally the results indicate that to a certain extent trade participation and trading activities of agents in energy futures markets can be explained by the slope of the forward curve which reflects the market condition and sentiment

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

are big mergers welfare enhancing when there is environmental externality abstract previous studies find that horizontal merger deals that consolidate a majority of firms in the market are likely to reduce welfare this study provides an in depth analysis of the relationship between the size of a merger and welfare in industries with environmental externality in an international framework we show that in a market where more than 50 of firms have merged a further increase in the size of the merger could increase or decrease welfare depending on two previously unexplored factors i a given threshold of size of a merger and ii the pollution intensity of firms furthermore we show that the relationship between welfare and size of merger can be affected by an exogenous change in emission tax at home and in a foreign country

forecasting the var of crude oil market do alternative distributions help abstract accurate modeling of the empirical distribution of crude oil market returns is extremely important in estimating risk measures in addition to several commonly used distributions alternative distributions are explored in this study some of which account for the asymmetry and heavy tails simultaneously found in distributions and contain more tail parameters to separately depict the right and left tails when forecasting the value at risk var of crude oil markets during highly volatile periods seven backtests are also conducted to compare the var forecasting accuracy among different distributions the empirical results indicate that a highly volatile environment challenges the commonly used distributions and the four risk models based on commonly used distributions are rejected about 27 to 38 of the time the alternative distributions i e skewed general error distributions sged generalized hyperbolic skewed student t distributions ghst and generalized asymmetric student t gast distributions generally produce more accurate var measurement and gast gives the best measurement accuracy the empirical results imply that risk managers or policymakers should further consider more flexible distributions such as sged ghst or gast in particular when quantifying or managing the risk in turbulent market times

debt buybacks debt reduction and debt rescheduling under asymmetric information in the early nineties there was a significant recovery of many debtridden economies after the shift in debt policy implicit in the socalled brady plan yet the use of scarce resources from debtor countries to buy back part of their debts remains a controversial feature of this plan we use a multiperiod model of debt overhang to show that under asymmetric information this transfer of resources emerges naturally as part of the shift from a strategy of debt rescheduling to one of debt reduction after nearly a decade of suffering from debt ridden economies in the early nineties many countries with large external debts finally reduced their debt service ratios regained access to spontaneous private financing and achieved higher growth and lower inflation imf 1993 many analysts have since attributed at least part of this success to the shift in the international debt strategy in 1989 which took a new direction with the so called brady initiative l a rather controversial feature of this initiative was the use of scarce resources from the debtor countries to buy back part of their debt there are two reasons why this use of a country s resources seems unwise first capital has more value in the debtor country than abroad thus transferring additional current resources from the country to its creditors at fair prices would appear to be welfare reducing second contrary to the idea that by repurchasing its debt in the open market a debtor country benefits from the discount price bulow and rogoff 1988 1991 prove under assumptions that include symmetric information that these buybacks hurt the country since the purchase price2 incorporates and transfers to the seller all the benefits caused by a reduced debt 3

are benefits from oil stocks diversification gone new evidence from a dynamic copula and high frequency data abstract oil is perceived as a good diversification tool for stock markets to fully understand this potential we propose a new empirical methodology that combines generalized autoregressive score copula functions with high frequency data and allows us to capture and forecast the conditional time varying joint distribution of the oil stocks pair accurately our realized garch with time varying copula yields statistically better forecasts of the dependence and quantiles of the distribution relative to competing models employing a recently proposed conditional diversification benefits measure that considers higher order moments and nonlinear dependence from tail events we document decreasing benefits from diversification over the past ten years the diversification benefits implied by our empirical model are moreover strongly varied over time these findings have important implications for asset allocation as the benefits of including oil in stock portfolios may not be as large as perceived

stackelberg competition with endogenous entry i characterise endogenous market structures where leaders have a first mover advantage and entry is endogenous leaders are always more aggressive than the followers independently from strategic substitutability or complementarity under quantity competition leaders produce more than any follower and i determine the conditions for entry deterrence high substitutability and non increasing marginal costs under price competition leaders set lower prices than the followers the opposite than with an exogenous number of firms in contests leaders invest more than each follower in all these cases a leadership improves the allocation of resources compared to the nash equilibrium with endogenous entry this article studies endogenous market structures where a firm has a first mover advantage in the sense of stackelberg 1934 on the other firms and entry in the market is endogenous the article characterises the equilibrium of these endo genous market structures and provides welfare analysis for some of the applications these market structures emerge in many sectors which are substantially competitive a fringe of firms is ready to enter whenever there is a profitable opportunity but where some incumbent firms have a competitive advantage over the followers because of technological historical or legal reasons or just because entry was not possible at an earlier stage and choose their strategies before them 1 while symmetric models of strategic interactions have been widely studied in the presence of endogenous entry in a marshallian tradition 2 traditional models with incumbent firms facing a competitive fringe of entrants have been mostly limited to the analysis of markets with homogeneous goods and entry deterrence for instance in the theories of limit pricing and of contestable markets baumol et al 1982 more recently vives 1988 has analysed games with sequential entry of multiple firms but without endogenising the entry process see also anderson and engers 1992 1994

modelling the conditional volatility of commodity index futures as a regime switching process commodity index futures offer a versatile tool for gaining different forms of exposure to commodity markets volatility is a critical input in many of these applications this paper examines issues in modelling the conditional variance of futures returns based on the goldman sachs commodity index gsci given that commodity markets tend to be choppy webb 1987 a general econometric model is proposed that allows for abrupt changes or regime shifts in volatility transition probabilities which vary explicitly with observable fundamentals such as the basis garch dynamics seasonal variations and conditional leptokurtosis the model is applied to daily futures returns on the gsci over 1992 1997 the results show clear evidence of regime shifts in conditional mean and volatility once regime shifts are accounted for garch effects are minimal consistent with the theory of storage returns are more likely to switch to the high variance state when the basis is negative than when the basis is positive the regime switching model also performs well in forecasting the daily volatility compared to standard garch models without regime switches the model should be of interest to sophisticated traders who base their trading strategies on short term volatility movements managed commodity funds interested in hedging an underlying diversified portfolio of commodities and investors of options and other derivatives tied to gsci futures contracts copyright 2001 john wiley sons ltd

futures price variability a test of maturity and volume effects a number of previous studies have examined the contemporaneous relation between asset price variability and volume traded for example clark 1973 cornell 1981 and tauchen and pitts 1983 have investigated this relation for futures markets and epps and epps 1976 harris 1984a 1984b and smirlock and starks 1984 for the stock market underlying this empirical research is a theoretical framework that suggests that price variability or the absolute change in prices and volume traded should be positively correlated according to this theoretical framework the so called mixture of distributions hypothesis mdh 1 the correlation between price variability and volume should be positive because of joint dependence on a common directing variable or event this study uses contract disaggregated data on futures prices to obtain evidence on the relation between price variability and volume of trading strong positive contemporaneous correlations between trading volume and price volatility are documented consistent with the mixture of distributions hypothesis it is concluded that maturity is not a suitable surrogate for the common directing variable specifically while maturity has a strong effect on volume no such relation is found for price variability finally while in the majority of cases price variability and trading volume are contemporaneously correlated there are a significant number of cases in which a sequential relation appears to be present an earlier version of this paper was presented at the 1984 meeting of the european finance association in manchester england and at southern methodist university the university of wisconsin madison duke university mcgill university and the university of toronto we wish to thank the seminar participants and an anonymous referee from this journal for constructive comments and criticism all remaining errors are of course our responsibility we would also like to thank the columbia center for the study of futures markets and the interactive data corp for providing some of the data used in the study 1 see clark 1973 and harris 1984a 1984b

heteroskedasticity in stock return data volume versus garch effects this paper provides empirical support for the notion that autoregressive conditional heterqskedasticity arch in daily stock return data reflects time dependence in the process generating information flow to the market daily trading volume used as a proxy for information arrival time is shown to have significant explanatory power regarding the variance of daily returns which is an implication of the assumption that daily returns are subordinated to intraday equilibrium returns furthermore arch effects tend to disappear when volume is included in the variance equation the autoregressive conditiqnal heteroskedasticity arch process of engle 1982 has been shown to provide a good fit for many financial return time series 1 arch imposes an autoregressive structure on conditional variance allqwing volatility shocks to persist over time this persistence captures the propensity of returns of like magnitude to clu ter in time and can explain the well documented nonnormality and nonstability of empirical asset return distributions see especially fama 1965 an appealing explanation for the presence of arch is based upon the hypothesis that daily returns are generated by a maiture of distributions in which the rate of daily information arrival is the stochastic mixing variable as suggested by diebold 1986 gallant hsieh and tauchen 1988 and stock 1987 1988 arch might capture the time series properties e g serial correlation of this mixing variable hqwever this linkage has not been broadly documented with the datia the objective of this study is to examine the validity of this explanation for daily stock returns the empirical strategy exploits the implication of the mixture model that the variance of daily price increments is heteroskedastic specifically positively related to the rate of daily information arrival using daily trading volume as a proxy for the mixing variable we show that for a sample of 20 common stocks arch effects vanish when volume is included as an explanatory variable in the conditional variance equation