claim timing and ex post adverse selection many health care treatments are not urgent and may be delayed if patients so choose because insurance coverage is typically determined by the treatment date individuals may have incentives to strategically delay treatments to minimize out of pocket costs the strategic delay of treatment a particular form of moral hazard can be an important source of subsequent adverse selection in which ex ante identical individuals select insurance coverage based on their differing accumulation of previously delayed treatments this article investigates these forces empirically in the context of the missing market for dental insurance using rich claim level data my analysis reveals that approximately 40 of individuals strategically delay dental treatments when incentivized to do so and this flexibility in delaying treatment can explain why the market for dental insurance has largely unraveled more generally the counterfactual analysis suggests features such as open enrolment periods and contracting on pre existing conditions may be helpful tools in overcoming adverse selection in insurance contexts where the timing of uncertainty is not contractible

nonstationary term premia and cointegration of the term structure this paper proposes a model of the term structure with nonstationary term premia which exhibit a factor structure this explains the common empirical finding of a cointegrating rank smaller than the one predicted by the rational expectations hypothesis of the term structure an application to german interest rate data yields easily interpretable results

asset pricing with observable stochastic discount factors the stochastic discount factor model provides a general framework for pricing assets by specifying the discount factor suitably it encompasses most of the theories currently in use including capm and consumption capm the sdf model has been based on the use of single and multiple factors and on latent and observed factors in most situations and especially for the term structure single factor models are inappropriate whilst latent variables require the somewhat arbitrary specification of generating processes and are difficult to interpret in this paper we survey the principal different implementations of the sdf model for bonds equity and forex and propose a new approach this is based on the use of multiple factors that are observable and modelling the joint distribution of excess returns and the factors using a multi variate garch in mean process we argue that in general single equation and var models although widely used in empirical finance are inappropriate as they do not satisfy the no arbitrage condition since risk premia arise from conditional covariation between the returns and the factors both a multi variate context and having conditional covariances in the conditional mean process is essential we explain how apparent exceptions such as the cir and vasicek models in fact meet this requirement but at a price we explain our new approach discuss how it might be implemented and present some empirical evidence mainly from our own researches partly to enable comparisons to be made the survey also includes evidence from recent empirical work using more traditional approaches

on the number of factors in the arbitrage pricing model recent theory has demonstrated that the arbitrage pricing model with k factors critically depends on whether k eigenvalues dominate the covariance matrix of returns as the number of securities grows large the purpose of this paper is to test whether sample covariance matrices can be characterized as having k large eigenvalues using all available data on the 1983 crsp tapes we compute sample covariance matrices of returns in sequentially larger portfolios of securities analyzing their eigenvalues we find evidence that one eigenvalue dominates the covariance matrix indicating that a one factor model may describe security pricing we also find that for values of k larger than one there is no obvious way to choose the number of factors nevertheless we find that while only the first eigenvalue dominates the matrix the first five eigenvalues are growing more distinct arbitrage pricing theory apt as originally developed by ross 22 23 is built on the twin assumptions of no arbitrage opportunities in the capital market and a linear relationship between actual returns and k common factors the principal hypothesis of the model is that expected returns should be linearly related to the weights of the common factors in the assumed linear process in every test of the model the focus has been to use factor analysis to extract k factors from sample covariance matrices and then to test the hypothesis by regressing returns or average returns against the factor loadings of the common factors most previous tests have either assumed that the number of factors is equal to some predetermined number or have estimated k simultaneously with estimation of the factor loadings thus existing tests of the apt are joint tests of the apt pricing result and an assumed or estimated number of factors the question of how many factors are important has not been addressed separately from the pricing tests because the apt pricing result is the significant prediction of a theory which has little to say about the value of k nevertheless crosssection linear models have been a central part of financial economics and it is clearly important to know at least the approximate number of factors which will be significant in such regressions particularly given the computational difficulties of large scale factor analysis furthermore dhrymes friend and gultekin 6 report that the number of factors needed for standard chi squared tests increases university at buffalo suny i am in debt to donald bosshardt gary chamberlain thomas ho richard roll lemma senbet mark zmijewski and the participants in finance workshops at the universities of michigan wisconsin and buffalo for their extensive comments nevertheless i am solely responsible for what remains this paper would not have been started without the unselfish cooperation of jay leavitt director of academic computing university at buffalo suny who designed the eigenvalue algorithm which i used i am also grateful for partial financial support and lavish computer funds from the school of management and for the expert programming assistance provided by ravi shukla

testing the expectations hypothesis in the brazilian term structure of interest rates a cointegration analysis in this article the expectations hypothesis eh is tested using cointegration techniques for maturities ranging from 1 to 12 months for the brazilian market we found evidence suggesting that for the period 1995 2006 the cointegration implication generally seems to hold we also found strong evidence supporting causality from short to long rates and also in the opposite direction empirical evidence supports the expectations theory of the term structure of interest rates

does central bank transparency impact financial markets a cross country econometric analysis blinder et al 2001 argues that more open public disclosure of central bank policies may enhance the efficiency of markets we examine this claim by studying for a set of seven industrialized countries whether selected central banks moves toward more open disclosure during the 1990s improved or worsened the predictability of the corresponding national financial markets employing methodologies analogous to campbell and schiller 1991 we find that for all countries the forecasting error has decreased for interest rates on the respective government bonds across most maturity lengths and that the expectations hypothesis has generally performed better at the short end of the yield curve our results also tentatively show that the effects are stronger for central banks that made the move to greater disclosure compared to those banks that resisted increasing the public s information set these findings are consistent with tabellini s 1987 view that central bank secrecy will hinder the smooth functioning of financial markets

inflation and real short term interest rates a kalman filter analysis of the term structure this paper applies the kalman filter technique to look at the relationship among real interest rates inflation and the term structure of interest rate under the expectations hypothesis using quarterly data from 1960 1 to 1991 1 for inflation three month nominal short term interest rates and long term yields with maturities from one to five years this paper finds that the expectations hypothesis of the term structure holds up well for the data under the assumptions of a time varying premium and a random walk real interest rate in other words a reconciliation of the expectations hypothesis with the data is attained by assuming time varying term premium and non stationary real interest rate

a cointegration analysis of treasury bill yields this paper shows that yields to maturity of u s treasury bills are cointegrated and that during periods when the federal reserve specifically targeted short term interest rates the spreads between yields of different maturity define the cointegrating vectors this cointegrating relationship implies that a single nonstationary common factor underlies the time series behavior of each yield to maturity and that risk premia are stationary an error correction model that uses spreads as the error correction terms is unstable over the federal reserve s policy regime changes but a model using post 1982 data is stable and is shown to be useful for forecasting changes in yields copyright 1992 by mit press

equilibrium in competitive insurance markets with ex ante adverse selection and ex post moral hazard abstract existence of pure strategy equilibria is studied in health insurance markets that exhibit both ex ante adverse selection of the rothschild stiglitz wilson type and ex post hidden information moral hazard it is found that ex post moral hazard has two offsetting effects on the existence of equilibrium and that in general it is difficult to say whether an equilibrium is more or less likely to exist numerical simulations and an analytical example confirm that moral hazard may increase the likelihood of equilibrium these results are interpreted as evidence that health maintenance organization hmo markets could be less likely to exhibit stable equilibria than are fee for service insurance markets

the monotonicity of the term premium another look this paper reexamines existing evidence regarding the monotonicity of the term premium using a recently developed approach for testing inequality constraints we propose and conduct tests for whether the term premium is monotonic and reach different conclusions from those implied by individual t statistics on term premiums even under a bonferroni type adjustment our results generally support mcculloch s 1987 view that the liquidity preference hypothesis remains unrefuted

urban labour markets the causes and consequence of change the labour market plays a key role in mediating the relationship between economic competitiveness and social cohesion within nations cities and regions it transmits external shocks and internal restructuring of the economy to the employment prospects incomes and quality of life of individuals and communities key issues concern the pace and nature of economic change the ability of the labour market to adjust whether some groups bear a disproportionate burden and what policies can help to mitigate these effects the labour force should also be viewed as more than a passive recipient of economic change in the language of urban competitiveness labour can be regarded as an urban asset with an in uence on economic performance through its productivity creativity and availability the issues surrounding labour market adjustment exibility and employability go to the heart of many contemporary economic and social theories and policies this paper provides an overview of contemporary labour market developments in britain s cities it also updates research from over a decade ago to establish the long term trends incorporates a selective review of recent literature and discusses the implications for government policy this approach is felt to be justi ed on the grounds that there has been less synoptic research on urban labour markets in britain during the past decade than there was in the 1970s and 1980s research has tended to become more specialised and focused on particular features of the labour market such as the growth of non employment and social exclusion particular localities or city types such as global and polycentric cities or particular adjustment processes such as migration commuting or wage exibility meanwhile there is a growing body of literature asserting that there has been a turn around and recovery in the performance of cities but with limited supporting evidence coincidentally there have been important developments in labour market policy including increasing emphasis placed on supply side perspectives individual behaviour skills and choice while the differential demand for labour in different places has been downplayed the rst section analyses the long term changes in labour demand looking particularly at the scale and composition of employment trends in the 1980s and 1990s compared with earlier decades despite major restructuring of the british economy and

preferred habitat for liquidity in international short term interest rates abstract risk shifting window dressing and a preferred habitat for liquidity have been offered as possible explanations as to why us money market rates are higher before the year end than afterwards the two hypotheses differ in the timing of the rate decline at the year end and the evidence on the timing of the decline supports the preferred habitat hypothesis in us money markets this paper extends this line of research to the behavior of international short term interest rates at year ends and quarter ends using london interbank offer rates libor for 11 different currencies the results suggest that the behavior of libor for five currencies the us dollar euro japanese yen swiss franc and german mark is consistent with year end or quarter end preferred habitats for liquidity other currencies do not demonstrate consistently distinct patterns in turn of the year and turn of the quarter yields none of the results provides any support for risk shifting window dressing

macroeconomic sources of risk in the term structure we develop a new way of modeling time variation in term premia based on the stochastic discount factor model of asset pricing the joint distribution of excess u s bond returns of different maturity and the observable fundamental macroeconomic factors is modeled using multivariate garch with conditional covariances in the mean to capture the term premia by testing the assumption of no arbitrage we derive a specification test of our model we estimate the contribution made to the term premia at different maturities through real and nominal sources of risk from the estimated term premia we recover the term structure of interest rates and examine how it varies through time finally we examine whether the reported failures of the rational expectations hypothesis can be attributed to an omitted time varying term premium

understanding the effects of homeownership and regional unemployment levels on internal migration during the economic crisis in spain the spanish labour market is characterised by high levels of unemployment which have increased during the global economic crisis spain is also a country which is characterised by a very high percentage of homeownership with more than 83 of households being owner occupiers both regional levels of unemployment and homeownership are known to be important factors influencing the spatial mobility decisions of households but little is known about how these factors influenced mobility during the recent economic crisis this paper uses rich individual level microdata from the last two spanish censuses 2001 and 2011 to study the effect of homeownership and regional unemployment levels on both short and long distance mobility our finding suggest that the role influence and interconnection of unemployment and homeownership in mobility decision have changed in the last decade

do stationary risk premia explain it all evidence from the term structure abstract predictable variations in excess returns have often been attributed to the presence of time varying risk premia in this paper we use an insight based upon new techniques from time series analysis to test whether stationary risk premia can alone explain the behavior of excess returns to long bonds relative to rolling over short rates surprisingly we reject this hypothesis using u s t bill returns we then show that either permanent shocks to the risk premia and or rationally anticipated shifts in the interest rate process could produce anomalous results

making inferences from controlled income maintenance experiments nationally this paper addresses a question whose answer is essential for interpreting the results of such experiments if an experiment of limited duration is conducted under ideal conditions what can be inferred from the experimental results about behavior in a world where nit is adopted permanently by ideal conditions we mean that a individuals or households 2 in the experiment are conventional utility maximizers given the structure of the experiment and b the experiment is sufficiently well designed to permit the differential responses of individuals to be identified 3 the

markov switching models rational expectations and the term structure of interest rates in order to evaluate the efficiency of the monetary transmission mechanism we develop the formulas for testing rational expectations theory in the term structure of interest rates with var models of stochastically switching regimes in which all the parameters are regime dependent these formulas are obtained for the strict version of rational expectations as well as for the case where measurement errors are assumed in the expectations relationship they are extensible to other contexts that involve variables linked by rational expectations behaviours the testing procedure is implemented on interest rates of the spanish inter bank money market measurement errors must be assumed to find signs favourable to the theory

time varying volatility and the dynamic behavior of the term structure in this paper the authors consider a framework in which the cross sectional and time series behavior of the yield curve can be studied simultaneously they examine the relationship between the yield curve and the time varying conditional volatility of the treasury bill market the authors demonstrate that different shaped yield curves can result given different combinations of volatility and expectations about future spot rates moreover adjusting the forward rate for the volatility related forward premium can improve its performance as a predictor for the future spot rate copyright 1993 by ohio state university press

tests of the expectations hypothesis resolving the campbell shiller paradox one of the more puzzling results in the expectations hypothesis eh testing literature is the campbell shiller paradox csp in an influential paper campbell and shiller 1991 found that the slope of the term structure almost always gives a forecast in the wrong direction for the short term change in the yield on the longer bond but gives a forecast in the right direction for long term changes in short rates this paper provides an econometric resolution to the csp specifically it shows that by their construction these tests can generate results consistent with the csp if the eh does not holdnwhatever the reason monte carlo experiments confirm that this explanation can account for campbell and shiller s paradoxical results for most pairings of short term and long term rates considered

shifted deductibles for high risks more effective in reducing moral hazard than traditional deductibles in health insurance a traditional deductible i e with a deductible range 0 d is in theory not effective in reducing moral hazard for individuals who know ex ante that their expenditures will exceed the deductible amount d e g those with a chronic disease to increase the effectiveness this paper proposes to shift the deductible range to si si d with starting point si depending on relevant risk characteristics of individual i in an empirical illustration we assume the optimal shift to be such that the variance in out of pocket expenditures is maximized results indicate that for the 10 percent highest risks in our data the optimal starting point of a 1000 deductible is to be found far beyond 1200 which corresponds with a deductible range of 1200 2200 or further we conclude that compared to traditional deductibles shifted deductibles with a risk adjusted starting point lower out of pocket expenditures and may further reduce moral hazard

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

patient cost sharing in low income populations economie theory suggests that a natural tool to control medical costs is increased consumer cost sharing for medical care while such cost sharing reduces full insurance wherein patients are indifferent between falling sick or remaining healthy a greater reliance on coinsurance and copayments can in theory stem patient and provider incentives to engage

a daily view of yield spreads and short term interest rate movements daily data on short term interest rates are used to show how changes in federal reserve operating procedures have affected the term structure yield spreads were helpful in predicting short term interest rate movements during the nonborrowed reserves targeting period 1979 82 but not during the earlier federal funds targeting period since the adoption of contemporaneous reserves accounting in 1984 yield spreads have been informative about short term interest rate movements principally because of the interplay between the market determination of the overnight funds rate on reserve settlement wednesdays and the fed s apparent commitment to stabilizing the funds rate on other days copyright 1996 by ohio state university press

rational expectations econometric analysis of changes in regime an investigation of the term structure of interest rates abstract this paper is of interest both for its methodological contribution of new tools for analyzing rational expectations models and for its substantive conclusions concerning the term structure of interest rates during the monetary experiment of october 1979 the paper studies systems subject to changes in regime interpreted here as occasional discrete shifts in the parameters governing the time series behavior of exogenous economic variables the specification is shown to be quite tractable both theoretically and empirically the technique is used to analyze yields on three month treasury bills and ten year treasury bonds during 1962 to 1987 a constant parameter linear model for short term rates is shown to be inconsistent both with the univariate time series properties of short rates and with the observed bivariate relation between long and short rates under the expectations hypothesis of the term structure an alternative nonlinear model that admits the possibility of changes in regime affords a much better description of the univariate process for short rates moreover the cross equation restrictions implied by the expectations hypothesis of the term structure are consistent with the nonlinear specification indeed the residuals of the restricted relation have a standard error of only 0 8 basis points this is a third less than that of a completely unrestricted linear regression of long rates on short rates and compares with an unconditional standard deviation of long rates of 142 basis points i conclude that once the recognition by bond traders of changes in regime is taken into account the expectations hypothesis of the term structure of interest rates holds up fairly well for these data

rational behavior in the presence of coverage ceilings and deductibles consumers of health care services with insurance plan features such as deductibles copayments and coverage ceilings in which the price of health care depends upon expenditures accumulated during a single year should rationally anticipate the impact of current consumption decisions on the price of health care later in the year we show that in the absence of wealth effects and risk aversion a utility maximizing consumer should base current consumption decisions on the expected end of year price of health care in a specific model with risk aversion and lumpy consumption decisions we show that the expected end of year price remains close to the true shadow price of health carefor plausible insurance plan and demand parameters we use this result in an econometric model of the demand for ambulatory mental health services

benchmarking the expectations hypothesis of the interest rate term structure an analysis of cointegration vectors i test cointegration restrictions that are consistent with the expectations hypothesis of the term structure by employing the full information maximum likelihood methods developed by johansen yield curves appear to be the result of cointegration among interest rates the cointegration vectors that best describe the long term impact of interest rate levels on interest rate changes can often be written as linear combinations of interest rate spreads there is however difficulty in keeping short term yields in such a restricted cointegrated system with other interest rates short term speculative returns from long term bonds do not conform to the expectations hypothesis

spatially rebalancing the uk economy towards a new policy model martin r pike a tyler p and gardiner b spatially rebalancing the uk economy towards a new policy model regional studies the current uk government has announced its intention to rebalance the national economy spatially to create a northern powerhouse to rival that in london and the south east this imbalance is in fact a longstanding problem that 90 years of regional policy has not resolved this paper argues that the entrenched nature of the uk s spatial imbalance derives in part from the centralized nature of the national political economy and that only a bold and radical change in that political economy based on a devolution and decentralization of or economic financial and political power is called for

a defense of traditional hypotheses about the term structure of interest rates expectations theories of asset returns may be interpreted either as stating that risk premia are zero or that they are constant through time under the former interpretation different versions of the expectations theory of the term structure are inconsistent with one another but i show that this does not necessarily carry over to the constant risk premium interpretation of the theory i present a general equilibrium example in which different types of risk premium are constant through time and dependent only on maturity furthermore i argue that differences among expectations theories are secondorder effects of bond yield variability i develop an approximate linearized framework for analysis of the term structure in which these differences disappear and i test its accuracy in practice using data from the crsp government bond tapes in a well known article in this journal cox ingersoll and ross cir 4 reexamine and find wanting certain hypotheses about the term structure of interest rates a striking feature of cir s re examination is that it is entirely theoretical cir show that different versions of the pure expectations theory of the term structure which traditionally were regarded as equivalent are in fact inconsistent with one another when interest rates are random furthermore in a fairly general continuous time arbitrage pricing framework when interest rates are random all versions of the theory except one are incompatible with equilibrium at first sight cir s results appear to be devastating to traditional empirical work on the term structure they suggest that researchers must specify arbitrage pricing models with a small number of state variables before proceeding to empirical work such models must restrict not only the deterministic components

explaining the failures of the term spread models of the rational expectations hypothesis of the term structure contrary to the predictions of the rational expectations hypothesis of the term structure of interest rates empirical evidence suggests that the term spread between long and short rates fails to forecast future movements of long term rates although its forecasts of future short term rates are in the correct direction in this paper the authors show that this puzzling behavior of the term spread alone can be explained by a time varying term premium that is correlated with the term spread once this is accounted for neither expression of the expectations hypothesis is against the predictions of the theory copyright 1997 by ohio state university press

the utilization of outpatient medical services in japan we estimate the price elasticity of demand for outpatient care in japan we use a nationally representative microdata set consisting of nearly 440 000 japanese patients using time between outpatient visits as a demand measure we estimate a cox proportional hazards model to calculate price effects with predicted probabilities we simulate yearly utilization and obtain elasticity estimates for most diagnostic categories we obtain inelastic downward sloping demand curves with price elasticities from 0 12 to 0 54 for the anomalous category we cannot reject a zero slope the elasticity estimates for japan are similar to u s estimates despite institutional differences

revisiting the expectations hypothesis of the term structure of interest rates the expectations hypothesis of the term structure has been decisively rejected in a large empirical literature that spans several decades in this paper using a newly constructed dataset of synthetic zero coupon bond yields we show that evidence against the expectations hypothesis is substantially weaker in data generated after the widespread publicity of its failure these results are consistent with the idea that asset pricing anomalies tend to disappear once they are widely recognized

adjustment to job loss in britain s major cities bailey n and turok i 2000 adjustment to job loss in britain s major cities reg studies 34 631 653 this paper examines the labour market consequences of severe employment decline in britain s major cities between 1981 and 1991 using labour market accounts significant adjustment to employment change occurred through out migration and commuting but unemployment in cities also rose although much of it was recorded as inactivity on average women were less able to adjust through out migration or commuting than men while women in lower skilled jobs showed much less adjustment than those in professional or managerial occupations this suggests that the creation of employment opportunities for less skilled occupations brings far greater direct benefits to the resident population of major cities than the creation of professional or managerial employment bailey n et turok i 2000 ajuster ala suppression d emplois dans les grandes villes de grande bretagne reg studies 34 631 653 a partir des ch

heterogeneous effect of coinsurance rate on healthcare expenditure generalized finite mixtures and matching estimators the article proposes a combination of finite mixture models and matching estimators to account for heterogeneous and nonlinear effects of the coinsurance rate on healthcare expenditure the analysis with panel data for adult japanese consumers in 2008 2010 and for female consumers in 2000 2010 demonstrates the presence of subpopulations with high medium and low healthcare expenditure and subpopulation membership is explained by lifestyle variables generalized finite mixtures provide adequate fit compared to loglinear model conditional average treatment effect estimations reveal the existence of nonlinear effects of the coinsurance rate in the subpopulation with high expenditure

the monotonicity of the term premium abstract fama s evidence that the term premium on treasury securities is not monotonically increasing is found to depend entirely on the behavior of bid asked mean returns on 9 and 10 month bills and only during the subperiod 8 64 12 72 when transactions costs as reflected in the bid asked spread are taken into account there is found to be no way to exploit this non monotonicity the anomalous behavior of the quotations is attributed to the treasury s auctions of 9 month bills during the period 9 66 10 72 the hypothesis that the term premium is a monotonically increasing function of maturity remains unrefuted

immobility and insecure labour markets an active response to precarious employment this article explores how people experience and respond to a post industrial labour market context through residential im mobility focusing on places that are represented through a range of offic

a comparison of alternative models for the demand for medical care we have tested alternative models of the demand for medical care using experimental data the estimated response of demand to insurance plan is sensitive to the model used we therefore use a split sample analysis and find that a model that more closely approximates distributional assumptions and uses a nonparametric retransformation factor performs better in terms of mean squared forecast error simpler models are inferior either because they are not robust to outliers e g anova anocova or because they are inconsistent when strong distributional assumptions are violated e g a two parameter box cox transformation

expectations and risk in the treasury bill market an instrumental variables approach this paper examines rational expectations in the treasury bill market from 1961 to 1988 with a risk premium specified to be proportional to the volatility of excess returns using instrumental variables from 1961 to 1972 and from 1972 to 1979 rational expectations cannot be rejected and both the predictive power of the yield curve and the risk premium are highly significant by contrast with just a constant risk premium and with a risk pre mium proxied by moving averages of absolute interest rate changes rational expectations are rejected for each subperiod and the yield curve has significant predictive information only from 1972 to 1979

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco

urban marginality and labour market restructuring local authority tenants and employment in an inner london borough this paper examines the changing employment circumstances of local authority tenants in the inner london borough of camden within the context of the radical labour market restructuring which occurred in london during the last third of the 20th century it draws upon survey data from the 1960s and 1990s in order to assess the scale and impact of employment and housing changes on camden s local authority tenant population the final part of the paper uses qualitative work history data to illustrate how the tenants themselves have experienced the increasingly flexible and precarious metropolitan labour market various types of employment trajectory are outlined in relation to labour market participation unemployment and gendered patterns of paid and unpaid work