why gaussian macro finance term structure models are nearly unconstrained factor vars this paper explores the impact of simultaneously enforcing the no arbitrage structure of a gaussian macro nance term structure model mtsm and accommodating measurement errors on bond yield through ltering on the maximum likelihood estimates of the model implied conditional distributions of the macro risk factors and bond yields for the typical yield curves and macro variables studied in this literature the estimated joint distribution within a canonical mtsm is nearly identical to the estimate from an economic model free factor vector autoregression factor var even when measurement errors are large it follows that a canonical mtsm does not oer any new insights into economic questions regarding the historical distribution of the macro risk factors and yields over and above what is learned from a factor var in particular the discipline of a canonical mtsm is empirically inconsequential for analyses of impulse response functions of bond yields and macro factors or empirical studies of term premiums these results are rotation invariant and therefore apply to many of the specications of risk factors in the literature in deriving these results we develop a new canonical form for mtsms that is particularly revealing about the nature of the over identifying restrictions implied by mtsms relative to yield based factor models

unions and strikes with asymmetric information strikes seem to be a pareto inefficient outcome of bargaining between a union and a firm however this paper shows that strikes can be the outcome of rational behavior by both agents if the firm has more information than the union concerning the state of nature the union can use strikes as a way of gaining information the paper uses an asymmetric information model where the firm has information about the state i e profitability that the union does not know the schedule of wage offers by the union then depends on the probability that a given state will occur

how good are standard debt contracts stochastic versus nonstochastic monitoring in a costly state verification environment the authors investigate ex ante efficient contracts in an environment in which implementation is costless in this environment standard debt contracts will typically not be optimal optimal contracts may involve defaults even in states in which the borrower is fully able to repay the authors then examine the welfare costs of arbitrarily restricting the set of feasible contracts to standard debt contracts when model parameters are calibrated to realistic values the welfare loss from exogenously imposing this restriction is extremely small thus if implementation costs are actually nontrivial as seems likely standard debt contracts will be very close to optimal copyright 1994 by university of chicago press

valuing risky fixed rate debt an extension this paper develops a corporate bond valuation model that takes into account both early default and interest rate risk it corrects a defect of recent contributions where pricing equations do not assure that the payment to bondholders upon bankruptcy is no greater than firm value the bankruptcy triggering mechanism is directly related to the payoff received by bondholders when early bankruptcy is forced upon the firm more specifically the default barrier is defined simply as a fixed quantity discounted at the riskless rate up to the maturity date of the risky corporate bond as soon as this threshold is crossed bondholders receive an exogenously specified fraction ofthe remaining assets deviations from the absolute priority rule also are captured because it accounts for gaussian interest rate uncertainty default risk and deviations from the absolute priority rule this model is capable of producing quite diverse shapes for the term structure of yield spreads

optimal capital structure and bankruptcy choice dynamic bargaining versus liquidation abstract we model a firm s optimal capital structure decision in a framework in which it may later choose to enter either chapter 11 reorganization or chapter 7 liquidation creditors anticipate equityholders ex post reorganization incentives and price them into the ex ante credit spreads using a realistic dynamic bargaining model of reorganization we show that the off equilibrium threat of costly renegotiation can lead to lower leverage even with liquidation in equilibrium if reorganization is less efficient than liquidation the added option of reorganization can actually make equityholders worse off ex ante even when they liquidate on the equilibrium path

monetary policy bond risk premia and the economy within an affine model of the term structure of interest rates where bond yields get driven by observable and unobservable macroeconomic factors parameter restrictions help identify the effects of monetary policy and other structural disturbances on output inflation and interest rates and decompose movements in long term rates into terms attributable to changing expected future short rates versus risk premia when estimated the model highlights a broad range of channels through which monetary policy affects risk premia and the economy risk premia affect monetary policy and the economy and the economy affects monetary policy and risk premia

an empirical investigation of u s firms in reorganization the purpose of this paper is to understand the institutional features of chapter 11 from an empirical examination of thirty firms that have emerged from reorganization we find the recontracting framework of chapter 11 to be complex lengthy and costly violations of absolute priority in favor of stockholders are frequently encountered these deviations may result from the bargaining process of chapter 11 or from a recontracting process between creditors and stockholders which recognizes the ability of stockholder oriented management to preserve firm value an example of such recontracting addresses myers underinvestment problem an investigation of the effects of chapter 11 on the pricing of risky debt is also provided the purpose of this paper is to understand the institutional features of chapter

ontology and the study of social reality emergence organisation community power social relations corporations artefacts and money the conception of social reality i have previously defended and here extend positing features such as social relations positions and powers is thoroughly naturalistic and even consistent with modern interpretations of quantum field theory it also serves to ground a social science that can be scientific in the sense of natural science this is the thesis defended here central to the argument is an emphasis on a strong form of emergence and the category of organisation in process to bring out various salient features of the position defended i take the opportunity to compare aspects of it with relevant components of the contribution of john searle whose ontological conception appears at once to be both very similar yet also very different copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

ontology and the history of economic thought the case of anti reductionism in the work of friedrich hayek tony lawson has long advocated an ontological turn in the history of economic thought this essay aims to contribute towards that goal by considering how one aspect of the methodology adopted by a prominent heterodox economist was informed by ontological considerations the economist is friedrich hayek the aspect of his methodology concerns the possibility of reductionism while the ontological category that informs his anti reductionist methodology though not as we shall see in a wholly consistent way is that of emergence the account presented below suggests that the notion of emergence played an increasingly important and also increasingly explicit role in the arguments hayek mounts against reductionism in his postwar work on theoretical psychology and social theory in the case of his theoretical psychology notwithstanding the fact that he had access to a set of concepts that afforded him the opportunity to mount an emergentist case against reductionism hayek s most prominent argument against reductionism was and remained computational rather than emergentist in nature in the case of his mature post 1960 social theory however hayek explicitly advanced a consistently emergentist case against reductionism based on the importance of organising relations for the generation of higher level structural properties such as the coordinative powers of the liberal market economy the implications of this ontologically informed discussion of hayek s arguments against reductionism for existing interpretations of hayek s work are considered

the effect of capital structure on a firm s liquidation decision abstract a firm s liquidation can impose costs on its customers workers and suppliers an agency relationship between these individuals and the firm exists in that the liquidation decision controlled by the firm as the agent affects other individuals the customers workers and suppliers as principals the analysis in this paper suggests that capital structure can control the incentive conflict problem of this relationship by serving as a pre positioning or bonding mechanism appropriate selection of capital structure assures that incentives are aligned so that the firm implements the ex ante value maximizing liquidation policy

credit rationing concessionary lending and debt maturity abstract a firm raises capital for a two period investment while creditors observe the project status midstream unobservable managerial perks may consume capital each period when the firm is unfortunate early on short term financing results in either concessionary lending or costly liquidation rolling over short term debt may be problematic because the high risk premium creditors demand when asset value is low relative to debt impares managerial motivation precisely when the incentive to defer perk consumption is weakest long term financing may reduce total agency costs be enabling lenders to charge higher initial premia in effect shifting loan repayments to states in which incentive constraints are non binding

game theoretic analysis of a bankruptcy problem from the talmud abstract for three different bankruptcy problems the 2000 year old babylonian talmud prescribes solutions that equal precisely the nucleoli of the corresponding coalitional games a rationale for these solutions that is independent of game theory is given in terms of the talmudic principle of equal division of the contested amount this rationale leads to a unique solution for all bankruptcy problems which always coincides with the nucleolus two other rationales for the same rule are suggested in terms of other talmudic principles needless to say the rule in question is not proportional division

taylor rules mccallum rules and the term structure of interest rates abstract recent empirical research shows that a reasonable characterization of federal funds rate targeting behavior is that the change in the target rate depends on the maturity structure of interest rates and exhibits little dependence on lagged target rates see for example cochrane and piazzesi 2002 the fed and interest rates a high frequency identification american economic review 92 90 95 the result echoes the policy rule used by mccallum 1994a monetary policy and the term structure of interest rates nber working paper no 4938 to rationalize the empirical failure of the expectations hypothesis applied to the term structure of interest rates that is rather than forward rates acting as unbiased predictors of future short rates the historical evidence suggests that the correlation between forward rates and future short rates is surprisingly low mccallum showed that a desire by the monetary authority to adjust short rates in response to exogenous shocks to the term premiums imbedded in long rates i e yield curve smoothing along with a desire for smoothing interest rates across time can generate term structures that account for the puzzling regression results of fama and bliss 1987 the information in long maturity forward rates the american economic review 77 680 392 mccallum also clearly pointed out that this reduced form approach to the policy rule although naturally forward looking needed to be studied further in the context of other response functions such as the now standard taylor 1993 discretion versus policy rules in practice carnegie rochester conference series on public policy 39 195 214 rule we explore both the robustness of mccallum s result to endogenous models of the term premium and also its connections to the taylor rule we model the term premium endogenously using two different models in the class of affine term structure models studied in duffie and kan 1996 a yield factor model of interest rates mathematical finance 57 405 443 a stochastic volatility model and a stochastic price of risk model we then solve for equilibrium term structures in environments in which interest rate targeting follows a rule such as the one suggested by mccallum i e the mccallum rule we demonstrate that mccallum s original result generalizes in a natural way to this broader class of models to understand the connection to the taylor rule we then consider two structural macroeconomic models which have reduced forms that correspond to the two affine models and provide a macroeconomic interpretation of abstract state variables as in ang and piazzessi 2003 a no arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables journal of monetary economics 50 745 787 moreover such structural models allow us to interpret the parameters of the term structure model in terms of the parameters governing preferences technologies and policy rules we show how a monetary policy rule will manifest itself in the equilibrium asset pricing kernel and hence the equilibrium term structure we then show how this policy can be implemented with an interest rate targeting rule this provides us with a set of restrictions under which the taylor and mccallum rules are equivalent in the sense if implementing the same monetary policy we conclude with some numerical examples that explore the quantitative link between these two models of monetary policy

the costs of inefficient bargaining and financial distress abstract this study provides the first large sample analysis of the stock market reactions to interfirm litigation when a suit is filed the common stock of the typical defendant declines by about 1 while the plaintiff experiences no significant gains for the average pair of firms the combined drop in value upon filing is 21 million much of the loss is regained if the suit is settled the findings suggest that bargaining among firm claimants sometimes leads to very inefficient outcomes part of the leakage is explained by the costs of increased financial distress imposed on the defendant

distress risk premia in expected stock and bond returns abstract prior studies find that shareholders strategic actions over debtholders are significant for stock prices but not for bond prices i find that for firms with private and public debt strategic default has no significant effect on distress risk premia in expected stock or bond returns suggesting that the dispersion of bondholders greatly weakens the shareholder advantage effect the shareholder advantage effect on stock prices is only significant for firms with only private debt and to some degree affected by the dispersion of stockholders and complexity in capital structure overall renegotiation friction helps explain the cross sectional implications of strategic default for stock and bond prices

financial distress stock returns and the 1978 bankruptcy reform act we study distress risk premia around a bankruptcy reform that shifts bargaining power in financial distress from debtholders to shareholders we find that the reform reduces risk factor loadings and returns of distressed stocks the reform effect is stronger for firms with lower firm level shareholder bargaining power an increase in credit spreads of riskier relative to safer firms in particular for firms with lower firm level shareholder bargaining power confirms a shift in bargaining power from bondholders to shareholders out of sample tests reveal that a reversal of the reform s effect leads to a reversal of factor loadings and returns

temporal aggregation of univariate and multivariate time series models a survey abstract we present a unified and up to date overview of temporal aggregation techniques for univariate and multivariate time series models explaining in detail although intuitively the technical machinery behind the results some empirical applications illustrate the main issues

the information content of distressed restructurings involving public and private debt claims abstract this paper examines debt restructurings by financially distressed firms we develop a model which predicts that in public debt exchange offers firms with unfavorable private information will offer equity claims to convince bondholders that the firm s prospects are poor in contrast offering equity to well informed private lenders conveys favorable private information to outsiders consistent with our analysis we find positive average abnormal returns around restructurings that offer equity to private lenders and senior debt to public debtholders and we find significant negative average abnormal returns when private lenders are offered senior debt and public lenders are offered equity

the design of bankruptcy law a case for management bias in bankruptcy reorganizations in an incomplete contracting environment bankruptcy is considered to be a renegotiation of the firm s financial contracts an optimal bankruptcy law is derived as optimal restric tions on the environment within which the claimants to a distressed firm bargain the law is used as a commitment device to ensure actions that are ex ante optimal but not subgame perfect we show that the bankruptcy court can use two types of mechanisms to implement the optimal bankruptcy outcome direct restrictions on the bargaining game between the claimants and the use of a restricted auction in both cases the restrictions prevent the strategic use of bankruptcy by firms not in financial distress provide for truthful revelation of information so that distress results in an ex post efficient allocation of resources and es tablish a bias toward the manager in reorganizations that provides correct ex ante decision making incentives

effects of classifying equity or debt on the value of the firm under tax asymmetry this paper examines the effect of classifying a firm s equity or debt into subclasses of unequal seniority on the total expected tax burden of the firm and its security holders in a world with no agency and no bankruptcy costs it is shown that when positive income is taxed at a higher rate than that allowed on realized capital losses expected taxes are min imized and the value of the firm is maximized if the firm has only one class of equity and at most one class of debt this result helps to explain the common practice of issuing corporate bonds under open indentures in fact our empirical results indicate that before the advent of a differentiated capital gains tax in 1921 a great majority of publicly traded long term industrial bonds were issued under closed indentures by 1951 nearly all such debt was issued under single indentures i e there was only one class of creditor

clarence ayres technology pragmatism and progress this paper explores the origins and continued relevance of clarence ayres definition of technology as a process involving both physical tools and a scientific method of reasoning where science is understood to achieve cross cultural explanatory power by virtue of technological validation ayres concept of technology derived from his training as a pragmatist and was primarily philosophical rather than descriptive but is congruent with the work of modern historians of technology and remains useful in addressing a variety of concerns about both the promise and dangers of technological change copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the default rate experience on high yield corporate debt recent 1978 83 net returns on high yield low rated debt have been impressive averaging 490 to 580 basis points above the long term government bond index but low rated junk bonds pose a risk of default not present in the higher rated segment of the bond market the authors divided the par value of defaulting debt by total low rated straight debt outstanding to arrive at an estimate of the default rate for high yield bonds excluding johns manville which had the only defaulting debt rated investment grade just prior to the default date for the 1974 84 period this averaged 1 52 per cent or 152 basis points annually year to year variations in the rate were substantial furthermore default experience differed across various industry segments railroads and reits were particularly vulnerable to default in the past although they are unlikely to represent a large portion of future defaults retailer electronic computer airline and oil and gas defaults have become more common in recent years losses from default are actually lower than the default rate alone implies defaulted bonds traded on average at 41 per cent of par shortly after default after accounting for the bonds retained value and the loss of interest the average reduction in return to the investor who had purchased the bonds at par would have been in the range of 96 to 100 basis points annually

bankruptcy costs and the new bankruptcy code bankruptcy costs are the deadweight economic costs of firms going bankrupt they include both ex post bankruptcy costs incurred after a firm s bankruptcy filing such as transactions costs and ex ante bankruptcy costs incurred before the filing such as those resulting from creditors attempts to reduce their losses if bankruptcy occurs and or managers attempts to raise the expected return to equity by increasing the firm s risk 1 this paper has two purposes first it proposes a model of bankruptcy costs which focuses on the costs of inefficient decision making before the firm s actual bankruptcy filing the model implies upper bound expressions for total bankruptcy costs second the new u s bankruptcy code2 went into effect late in 1979 and made important changes in bankruptcy reorganization procedures the paper poses the question of whether the changes made under the new code tend to raise or lower aggregate u s bankruptcy costs we approach this question by calculating the upper bound expressions suggested by the model using parameter values from both before and after the new code took effect from an economic standpoint the most important changes instituted under the new bankruptcy code had the effect of making it more difficult to reorganize firms in bankruptcy previously it was common for failing firms to file for bankruptcy but for prior management to continue to operate the firm in much the same form as before the bankruptcy filing prevented unpaid creditors from suing the firm while a reorganization plan was arranged which cut back most debts from an economic standpoint such a procedure was anomalous since we learn in basic economics that competition in the long run should cause inefficient firms to go out of business as long as failing firms are more likely to be inefficient than firms in general it would seem to be rewarding inefficiency and offsetting

corporate liquidity and capital structure we solve for a firm s optimal cash holding policy within a continuous time contingent claims framework using dividends short term borrowing and equity issues as controls assuming mean reversion of earnings optimal cash is non monotone in business conditions and increasing in the level of long term debt the model matches closely a wide range of empirical benchmarks and predicts cash and leverage dynamics in line with the empirical literature firm value is quite insensitive to changes in the level of long term debt the model has interesting implications for asset substitution hedging and pecking order growth opportunities do not greatly affect cash holding policy

canonical term structure models with observable factors and the dynamics of bond risk premia we derive a canonical representation for the no arbitrage discrete time term structure models with both observable and unobservable state variables popularized by ang and piazzesi 2003 we conduct a specification analysis based on this canonical representation and we analyze how alternative parameterizations affect estimated risk premia impulse response functions and variance decompositions we find a trade off between the need to obtain parsimonious parameterizations and the ability of the models to match observed patterns of variation in risk premia we also find that more richly parameterized models uncover a greater influence of macroeconomic fundamentals on the long end of the yield curve

the labor market impact of immigration in western germany in the 1990 s in this article we estimate the wage and employment effects of recent immigration in western germany using administrative data for the period 1987 2001 and a labor market equilibrium model we find that the substantial immigration of the 1990s had very little adverse effects on native wages and on their employment levels instead it had a sizeable adverse employment effect on previous immigrants as well as a small adverse effect on their wages these asymmetric results are partly driven by a higher degree of substitution between old and new immigrants in the labor market and in part by the rigidity of wages in less than flexible labor markets in a simple counter factual experiment we show that in a world of perfect wage flexibility and no unemployment insurance the wage bill loss of old immigrants would be much smaller

expectation puzzles time varying risk premia and dynamic models of the term structure abstract linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional expectations theory this paper shows that these findings are not puzzling relative to a large class of richer dynamic term structure models specifically we match all the key empirical findings reported by fama and bliss 1987 american economic review 77 4 680 692 and campbell and shiller 1991 review of economic studies 58 495 514 among others within large subclasses of affine and quadratic gaussian term structure models additionally we show that certain risk premium adjusted projections of changes in yields on the slope of the yield curve recover the coefficients of unity predicted by the models key to this matching are parameterizations of the market prices of risk that let the risk factors affect the market prices of risk directly and not only through factor volatilities the risk premiums have a simple form consistent with fama s findings on the predictability of forward rates and are also shown to be consistent with interest rate feedback rules used by a monetary authority in setting monetary policy

modeling bond yields in finance and macroeconomics from a macroeconomic perspective the short term interest rate is a policy instrument under the direct control of the central bank from a finance perspective long rates are risk adjusted averages of expected future short rates thus as illustrated by much recent research a joint macro finance modeling strategy will provide the most comprehensive understanding of the term structure of interest rates we discuss various questions that arise in this research and we also present a new examination of the relationship between two prominent dynamic latent factor models in this literature the nelson siegel and affine no arbitrage term structure models

order and process in institutionalist thought commons and ayres process is a central category in institutionalist economics conceptions of process often bound up with ideas of historical time and circular or cumulative causation are regularly used to distinguish institutionalism from mainstream theorising and to highlight similarities or complementarities with other heterodox positions discussions of institutionalist ideas of process however have tended to concentrate on the contributions of thorstein veblen to the exclusion of those of other major institutionalists in contrast this article considers two other important contributors to institutionalist thought john commons and clarence ayres the differences between these authors works are often thought to articulate some kind of a fault line in institutionalist thought highlighting very different and indeed incompatible positions i argue that although their overall projects are clearly very different if attention is focussed on the general ontological presuppositions of each author there exists a good measure of common ground between them this is especially the case if comparisons are made in line with the focus of this special issue between their conceptions of process and order from an ontological perspective moreover those aspects of their accounts that at first appear at odds are rather shown to be quite compatible and even usefully complementary

claimholder incentive conflicts in reorganization the role of bankruptcy law when a firm is financial distress in most cases a set of mutually advantageous reorganization plans exist this article shows that the bankruptcy code by providing rules governing the negotiation process yields a unique solution to the reorganization process in addition the structure imposed by the code mitigates the holdout problem created by the individual claimant s divergent incentives article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the resolution of claims in financial distress the case of massey ferguson when a firm s business deteriorates to the point where it cannot meet its financial obligations the firm is said to have entered the state of financial distress the first signals of distress are usually violations of debt covenants coupled with the omission or reduction of dividends some financially distressed firms eventually go bankrupt others recover or manage to settle the claims against them out of court 1 the behavior of firms in financial distress is interesting for two reasons first the costs of financial distress are an important element in capital structure theory in many models 2 these costs are hypothesized to counteract the tax benefits of leverage and lead to an internal optimum for the capital structure of the firm second financial distress has come to be recognized as a state in which contractual claims are incompletely specified standard terms of the debt equity contract are violated when the firm enters financial distress and claimants may then decide not to act according to previously agreed upon rules or legal formulas recent history has provided a number of examples of firms in financial distress including massey ferguson international harvester chrysler and braniff the resolution of claims in these situations often differs from what is predicted by legal rules or standard theoretical models this paper examines the actual resolution of claims in the reorganization of massey ferguson ltd in part i we use time series data on daily stock returns to test different specifications of priority rules for debt and equity claims in part ii we consider whether massey ferguson avoided deadweight costs of financial distress through the restructuring of claims negotiated among creditors during the winter of 1980 81

explaining differences in corporate capital structure theory and new evidence abstract this paper tests a theory of optimal capital structure based on three simple imperfections i personal and corporate taxes ii bankruptcy related costs and iii transfer of wealth from unprotected creditors in contrast to other empirical tests most of which rely on comparative statics to devise a linear regression we derive a testable equation explicitly from the firm s value maximizing first order condition our cross sectional tests confirm earlier findings by warner 1977 and ang et al 1982 that the fixed explicit costs of bankruptcy are not statistically significant however we find strong explanatory power in the marginal implicit costs of bankruptcy these costs have two components first the data suggest that firms with high fixed asset intensity carry heavier debt loads because of the floor that these assets create for potential bankruptcy costs to be borne by security holders this result explains inter industry differences in debt ratios found by schwartz and aronson 1967 and scott 1972 it also explains some anomalies in recent tests by bradley et al 1984 who find a positive relationship between debt ratios and depreciation when their model predicted a negative relation in our view depreciation acts more asa proxy for fixed asset and less as a proxy for non debt tax shield which bradley et al were analyzing secondly our tests suggest that an unprotected creditor or wealth transfereffect provides additional stimulus to issuance of debt and that this stimulus is stronger than the net tax effect schwartz 1981 finds such distributional explanations to be both economically meaningful and worthy of further empirical research because of its potential for initiating legal reform we modestly claim that our finding in this regard is an important first step in this research and is similar to the wealth transfer effect from bondholders to stockholders studied by masulis 1980 1983

monetary policy effects new evidence from the italian flow of funds new evidence on the transmission of monetary policy to the economy is provided through an analysis of the effects of a restrictive monetary policy shock on italian flow of funds over the period 1980 to 2002 firms reduce issuance of debt and decrease the acquisition of financial assets providing no support for the existence of strong financial frictions following the shock in the first quarter households increase short tem liabilities and diminish the acquisition of liquid assets and shares the public sector increases net borrowing during the first 2 years financial corporations decrease their borrowing for three quarters while in the same period the foreign sector increases borrowed funds we claim that our results shed new light on the role of the financial decisions of the economic sectors in the transmission mechanism of monetary policy

resolution of financial distress under chapter 11 abstract we develop a contingent claims model for a firm in financial distress with a formal account for renegotiations under the u s bankruptcy procedure known as chapter 11 shareholders and two classes of creditors senior and junior alternatively propose a reorganization plan subject to a vote the bankruptcy judge can intervene in any renegotiation round to impose a plan the multiple stage bargaining process is solved in a non cooperative game theory setting the calibrated model yields the liquidation rate the duration of chapter 11 and the frequency of deviations from the absolute priority rule which are consistent with empirical evidence

what does the term structure tell us about future inflation abstract this empirical analysis indicates that for maturities of six months or less the term structure of nominal interest rates provides almost no information about the future path of inflation but does provide information about the term structure of real interest rates however as maturities lengthen to nine and twelve months the nominal term structure begins to contain information about future inflation but ceases to provide information about the real term structure these results are explained by differences in the relative variability of expected future inflation changes and real term structure slopes at different points in the term structure

institutions in economics the old and the new institutionalism 1 definitions and issues 2 formalism and anti formalism 3 individualism and holism 4 rationality and rule following 5 evolution and design 6 efficiency and reform 7 conflicts and complementarities

explorations into factors explaining money market returns in this article we measure and interpret the common factors that describe money market returns results are presented for both three and four factor models we find that the three factor model explains on average 86 percent of the total variation in most money market returns while the four factor model explains on average 90 percent of this variation using mimicking portfolios we provide an interpretation of the systematic risks represented by these factors in this article we attempt to measure and interpret the common factors that describe money market returns the factor approach we employ assumes that the covariance matrix of a set of random variables in this case excess returns can be decomposed into common or systematic components and idiosyncratic or nonsystematic components this decomposition into systematic and nonsystematic components is based on an assumption of a linear relationship between the returns of each security and a set of common factors this is the assumption of linear return generating models which form an integral part of the structure of many asset pricing theories for example arbitrage pricing theory apt as developed by ross 1976 the interpretation is that the common factors represent sources of systematic or nondiversifiable risk and the idiosyncratic component of returns represents diversifiable risks our focus here is not on testing a particular asset pricing model per se but on developing empirical evidence for the existence of stylized facts regarding money market returns the stylized facts take the form of the existence measurement and interpretation of the common factors that are found in money markets our attempt to measure and interpret these sources of systematic risk may eventually lead to the construction of observable eco

a note on noise in the market for bankrupt firms securities abstract the well documented phenomena of departures from the absolute priority rule apr have provoked an important public policy debate over their consequences some scholars argue that apr violations increase economic efficiency because they play an important role in the avoidance of inefficient liquidations and also mitigate inefficient risk incentives another group argues that apr violations should be abolished because they add greater uncertainty to the security valuation process that is they increase noise in security prices to date however no evidence has been presented on the issue of how much noise apr violations add we develop a theoretical model that allows an empirical test of the effect of apr violations on noise our results suggest that apr violations importantly increase noise indeed at least 30 percent and as much as 85 percent of the noise in security prices may be attributable to apr violations this does not suggest that the beneficial effects of apr violations are nonexistent or unimportant but it does imply that failing to account for the effect of apr violations on noise in any modelling of optimal bankruptcy rules may lead to a suboptimal design we also find that the amount of noise in this market appears to have declined over time as more institutional informed investors have entered the market for bankrupt firms securities and the effect of change in the bankruptcy law has become clearer both consistent with the noisy rational expectations hypothesis

the costs of bankruptcy chapter 7 liquidation versus chapter 11 reorganization our paper explores a comprehensive sample of small and large corporate bankruptcies in arizona and new york from 1995 to 2001 bankruptcy costs are very heterogeneous and sensitive to the measurement method used we find that chapter 7 liquidations appear to be no faster or cheaper in terms of direct expense than chapter 11 reorganizations however chapter 11 seems to preserve assets better thereby allowing creditors to recover relatively more our paper also provides a large number of further empirical regularities our paper analyzes the largest sample of corporate bankruptcies to date we research approximately 300 cases from the arizona and new york federal bankruptcy courts from 1995 to 2001 these cases consist of 1 both publicly traded and privately held corporations and 2 both chapter 7 liquidations and chapter 11 reorganizations this sample is practically the entire population of unique corporate bankruptcies in these courts our paper s primary objective is to measure how the two available bankruptcy procedures differ especially but not only in terms of cost we explore four variables namely the change in the estate s value during bankruptcy a measure of indirect costs the time spent in bankruptcy another and more common measure of indirect costs the expenses submitted to and approved by the bankruptcy court a measure of direct costs and the recovery rates for creditors and apr violations our most important findings are that chapter 7 liquidations are not cheaper than chapter 11 reorganizations particularly after we control for endogenous self selection of firms into bankruptcy procedure bankruptcy professionals attorneys accountants trustees regularly end up with most of the post bankruptcy firm s value in chapter 7 arturo bris is at imd yale school of management and ecgi ivo welch is at brown uni

the nature of heterodox economics heterodoxy serves as an umbrella term to cover the coming together of separate projects or traditions in answering the question what distinguishes heterodoxy from the orthodoxy the author argues that matters of ontology are central in answering the question how are the various traditions that make up the modern heterodoxy to be distinguished from each other the author defends criteria other than varying commitments to specific substantive theories policy measures or techniques or basic units of analysis

ex ante costs of violating absolute priority in bankruptcy a basic question for the design of bankruptcy law concerns whether value should be divided in accordance with absolute priority research done in the past decade has suggested that deviations from absolute priority have beneficial ex ante effects in contrast this paper shows that ex post deviations from absolute priority also have negative effects on ex ante decisions taken by shareholders such deviations aggravate the moral hazard problem with respect to project choice increasing the equityholders incentive to favor risky projects as well as with respect to borrowing and dividend decisions