analyst forecasting errors additional evidence analyst forecasting errors are approximately as large as dreman and berry 1995 documented and an optimistic bias is evident for all years from 1985 through 1996 in contrast to their findings i show that analyst forecasting errors and bias have decreased over time moreover the optimistic bias in quarterly forecasts was absent for sp 2 firms with comparatively large amounts of market capitalization absolute value of earnings forecast and analyst following and 3 firms in certain industries

rational panics and stock market crashes abstract this paper offers an explanation for stock market crashes which focuses on the role of rational but uninformed traders we show that uninformed traders can precipitate a price crash because as prices decline they surmise that informed traders received negative information which leads them to reduce their demand for assets and drive the price of stocks even lower the model yields several implications such as that crashes can occur even when the fundamentals are strong and that the magnitude of the crash depends on the fraction of uninformed investors and the amount of unsophisticated passive investing present in the market

the changing time series properties of earnings cash flows and accruals has financial reporting become more conservative abstract this paper documents changes in the patterns of earnings cash flows and accruals over the last four decades in the absence of a generally accepted definition of conservatism a number of measures of reporting conservatism are identified and examined these measures rely on the accumulation of nonoperating accruals the timeliness of earnings with respect to bad and good news characteristics of the earnings distribution and the market to book ratio the patterns are consistent with an increase in conservative financial reporting over time the findings have implications for accounting standard setting regulation of financial information and financial statement analysis

analysts weighting of private and public information using both a linear regression method and a probability based method we find that on average analysts place larger than efficient weights on i e they overweight their private information when they forecast corporate earnings we also find that analysts overweight more when issuing forecasts more favorable than the consensus and overweight less and may even underweight private information when issuing forecasts less favorable than the consensus further the deviation from efficient weighting increases when the benefits from doing so are high or when the costs of doing so are low these results suggest that analysts incentives play a larger role in misweighting than their behavioral biases copyright 2006 oxford university press

overreaction and underreaction in analysts forecasts abstract we examine hypotheses derived from behavioral decision theory regarding conditions that lead to overreaction and conditions that lead to underreaction in analysts earnings forecasts we argue that three heuristics jointly influence earnings forecasts leniency representativeness and anchoring and adjustment we present a model for the concurrent influence of these heuristics on forecast errors and examine three predictions of this model 1 that there is a tendency towards overreaction in forecast changes and underreaction in forecast revisions 2 that there is overreaction to positive forecast modifications and underreaction to negative forecast modifications and 3 that these biases increase with the forecast horizon

strategic behavior of federal open market committee board members evidence from members forecasts abstract in this paper we use panel data to test whether federal open market committee fomc board members forecasts are rational rationality is rejected in the sense that forecasts by members are heavily dependent on previous own forecasts and last consensus made in fomc furthermore we reveal the strategic behavior of fomc board members forecasts by governors who always have voting rights agree much with the previous consensus of fomc members forecasts in contrast non governors who rotate voting rights exaggerate their forecasts they aggressively deviate their forecasts from previous consensus the former is herding behavior and the latter is anti herding behavior our results imply that individual members behave strategically governors want to present policy consistent forecasts to the congress and non governors utilize their forecasts to influence decision making in fomc

comparisons and combinations of long and long short strategies market neutral long short strategies get their returns from alphas and short rebates long strategies get their returns from alpha and the market differing return and risk sources complicate their comparison partly because of the strong market referenced focus of conventional performance analysis compelling theoretical advantages of active return per unit of active risk suggest that long short strategies are better able to deliver excess return than are conventional institutional long strategies long short strategies even with tiny positive alphas are seen to improve investors efficient frontiers when added to a traditional t bill long portfolio mix mostly because their risk sources are uncorrelated surprisingly the improvement occurs even if long short strategies are sharpe ratio inferior to long strategies these results provide theoretical support for including long short strategies in most investors mix of assets

security analysis and trading patterns when some investors receive information before others in existing models of information acquisition all informed investors receive their information at the same time this article analyzes trading behavior and equilibrium information acquisition when some investors receive common private information before others the model implies that under some conditions investors will focus only on a subset of securities herding while neglecting other securities with identical exogenous characteristics in addition the model is consistent with empirical correlations that are suggestive of oft cited trading strategies such as profit taking short term position reversal and following the leader mimicking earlier trades in existing models of information acquisition all informed investors receive their information at the same time while these models provide many important insights in reality some investors either fortuitously or owing to superior skill acquire pertinent information before others by being first an investor can exploit this information to great advantage information that is uncovered only slightly later is less valuable even if it has not yet been publicly revealed we show in this article that the sequential nature of information arrival has a significant effect on both the trading decisions and the types of information collected by investors the model we develop describes the investment choices of a set of competitive risk averse investors who investigate the long term prospects of firms lucky or high ability investors uncover the

earnings skewness and analyst forecast bias abstract we argue that if analysts objective is to provide the most accurate forecast by minimizing the mean absolute forecast error then the optimal forecast is the median instead of the mean earnings forecast bias is observed when the median is different from the mean in a skewed earnings distribution thus part of the observed analyst forecast bias could be a result of analysts efforts to improve forecast accuracy when the earnings distribution is skewed we find that earnings skewness is significantly related to analyst forecast bias we also provide evidence that the market adjusts for part of the skewness induced bias

public disclosure private information collection and short term trading abstract this paper examines how public disclosure affects private inforamtion acquisition activity in a market economy we analyze a setting where traders with short term investment horizons are allowed to trade on their private information prior to a public disclosure we demonstrate in this setting that public disclosure stimulates investment in private information acquisition this result is shown to have implications for the magnitude of the pre announcement and announcement price reactions to the disclosure

analyzing the analysts career concerns and biased earnings forecasts this paper examines the career concerns of security analysts we relate long histories of their earnings forecasts to job separations we find that relatively accurate past forecasts lead to favorable career outcomes such as remaining at or moving up to a high status large prestigious brokerage house controlling for accuracy optimistic forecasts relative to the consensus increase the chances of favorable job separations job separations depend much less on accuracy for analysts who cover stocks that are underwritten by their brokerage houses such analysts are also much more likely to be rewarded for optimistic forecasts than other analysts furthermore job separations were much less sensitive to accuracy and somewhat more sensitive to optimism during the stock market mania of the late 1990s these findings suggest that the well documented analyst forecast optimism bias is likely due to incentives to promote stocks

insider trading outside search and resource allocation why firms and society may disagree on insider trading restrictions we show that entrepreneurs may prefer to allow insider trading even when it is not socially optimal we examine a model in which an insider manager allocates resources on the basis of his private information and outside information conveyed through the secondary market price of the firm s shares if the manager is allowed to trade he will compete with informed outsiders reducing the equilibrium quality of outside information while the benefits to production of outside information are the same for society and entrepreneurs we show that the social and private costs are different thus entrepreneurs and society may disagree on the conditions under which insider trading restrictions should be imposed article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

developing country fisheries and technical efficiency the java sea purse seine fishery the analysis of technical efficiency in developing country agriculture is well established but has been overlooked for developing country commercial marine fisheries policies raising technical efficiency in agriculture are viewed as uniformly positive but are a mixed blessing in fisheries due to the open access property right and common pool resource this study explores this contradiction and policies aimed to promote sustainable development and management of renewable common pool resources through a case study of the java sea purse seine fishery season of the year rather than fisher or vessel characteristics primarily determines technical efficiency the results are contrasted with developing country agriculture and conclusions drawn for fisheries development strategies

risk aversion liquidity and endogenous short horizons we analyze a competitive model in which different information signals get reflected in value at different points in time if investors are sufficiently risk averse we obtain an equilibrium in which all investors focus exclusively on the short term in addition we show that increasing the variance of informationless trading increases market depth but causes a greater proportion of investors to focus on the short term signal which decreases the informativeness of prices about the long run finally we also explore parameter spaces under which long term informed agents wish to voluntarily disclose their information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

imperfect competition in a multi security market with risk neutrality the central purpose of this paper is to develop a model of insider trading i e trading based on private information in the context of an imperfectly competitive multi security market with risk neutral agents imperfect competition allows us to consider strategic behavior and a multi security market lets us study the effect of a correlated environment on equilibrium we employ the informational assumption that market makers can observe all order flows and so portfolio diversification arises in this model for strategic reasons given correlated fundamentals market makers can potentially learn about every security from each order flow this causes even a risk neutral trader who does not face short selling restrictions to refrain from determining the demand for each security independently this contrasts with traditional multi asset models which focus on the incentive to reduce portfolio variance or the effect of short selling restrictions or budget constraints under imperfect competition correlation has two effects one ceteris paribus it allows the uninformed to learn from additional variables since each order flow could potentially have information about all payoffs on the other hand it creates an incentive for informed traders to restrict what others can learn from public information thus our analysis can be viewed as an application to the multi security heterogeneous information model in admati 1985 of the imperfectly competitive equilibrium concept which kyle 1985 first applied to the single security homogeneous information model of grossman and stiglitz 1980 our principal results include an explicit characterization of a linear equilibrium as a function of three general covariance matrices associated with payoffs noise trading and errors in private signals under general covariance structures we show that there always exists an equilibrium in which the relationship between the vector of prices and the vector of order flows is governed by a symmetric positive definite matrix the plan of the paper is as follows in section 2 we introduce our model we derive the equilibrium in section 3 and section 4 comments on the properties of the equilibrium the proofs of the results are in the appendix

private property and economic efficiency a study of a common pool resource abstract the british columbia halibut fishery provides a natural experiment of the effects of privatizing the commons using firm level data from the fishery 2 years before private harvesting rights were introduced the year they were implemented and 3 years afterward a stochastic frontier is estimated to test for changes in technical allocative and economic efficiency the study indicates that 1 the short run efficiency gains from privatization may take several years to materialize and can be compromised by restrictions on transferability duration and divisibility of the property right 2 substantial long run gains in efficiency can be jeopardized by preexisting regulations and the bundling of the property right to the capital stock and 3 the gains from privatization are not just in terms of cost efficiency but include important benefits in revenue and product form

crowding out and the informativeness of security prices individual investors trade less agressively on any particular piece of information as more investors observe it the trades of the new investors observing a piece of information crowd out some of the trades of the old investors who observe that same piece of information this paper shows that when traders are risk averse these crowding out effects lead the proportions of traders who choose to observe one signal versus another to differ from the proportions that maximize the informativeness of prices one of the principal functions of security markets is to provide incentives for individuals to collect economically relevant information and then to incorporate this information into pricing this paper shows that the presence of multiple types of information can have a major impact on investors incentives to acquire information and the informativeness of the resulting security price specifically the model studies the case in which there are two factors a and b whose sum is the asset s payoff and a fixed pool of investors each of which is about to choose whether to learn a or to learn b the paper addresses the question will the proportion of investors who choose to learn a in equilibrium maximize the security price s ability to predict terminal value the paper finds that when traders are risk averse the answer is no and that there is a clear economic interpretation for the forces which push the equilibrium allocation of information away from the allocation which maximizes price informativeness the paper also finds strikingly different results for risk neutral and riskaverse investors this suggests that intuitions gained from models with risk neutral strategic traders1 may not be robust to situations with riskaverse investors

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

ownership structure speculation and shareholder intervention an institution holding shares in a firm can use information about the firm both for trading speculation and for deciding whether to intervene to improve firm performance intervention increases the value of the institution s existing shareholdings but intervention only increases the institution s trading profits if it enhances the precision of the institution s information relative to that of uninformed traders thus the ability to speculate can increase or decrease institutional intervention we examine key factors that affect the intervention decision the usefulness of short swing provisions and restricted shares in encouraging institutional intervention and implications for ownership structure across different firms institutional investors hold an ever greater fraction of corporate america s equity traditionally these institutions were stock pickers who tried to beat the market through trading if a firm whose stock they held seemed headed for trouble these investors headed for the door the wall street rule more recently some of these institutions have been using the ownership rights attached to their shares to pressure firms to act in the shareholders interest some have even argued that there is a synergy between gathering information for use in trading shares speculation and intelligently pressuring firms to improve performance intervention we argue that these motives can also conflict analyzing these motives allows us to predict which firms are most likely to attract institutional intervention which in turn has crosssectional implications for firm ownership structure recent examples suggest that institutional investors with large stakes sometimes intervene and sometimes follow the wall street rule so that there is indeed a choice to be studied in the early 1990s there was a wave of activism by a variety of large institutional investors among them calpers the california public employees pension fund putnam management a mutual fund manager and j p morgan a bank holding company these institu

loss function assumptions in rational expectations tests on financial analysts earnings forecasts abstract prior research concludes that financial analysts do not process public information efficiently in generating their earnings forecasts the ordinary least squares ols regression based tests used in prior studies assume implicitly that analysts face a quadratic loss function in contrast we argue that analysts likely face a linear loss function and hence try to minimize their absolute forecast errors we conduct and compare rational expectations tests using these two alternative loss functions we reproduce most prior findings of forecast inefficiency with ols regressions but find virtually no evidence of forecast inefficiency with least absolute deviation regressions where we explicitly assume a linear loss function

rational markets yes or no the affirmative case with the recent flurry of articles declaiming the death of the rational market hypothesis it is well to pause and recall the very sound reasons this hypothesis was once so widely accepted at least in academic circles although academic models often assume that all investors are rational this assumption is clearly an expository device not to be taken seriously what is in contention is whether markets are rational in the sense that prices are set as if all investors are rational even if markets are not rational in this sense abnormal profit opportunities still may not exist in that case markets may be said to be minimally rational i maintain that not only are developed financial markets minimally rational they are with two qualifications rational i contend that realistically market rationality needs to be defined so as to allow investors to be uncertain about the characteristics of other investors in the market i also argue that investor irrationality to the extent that it affects prices is particularly likely to be manifest through overconfidence which in turn is likely to make the market hyper rational to illustrate the article reexamines some of the most serious historical evidence against market rationality

do analysts generate trade for their firms evidence from the toronto stock exchange abstract it has generally been assumed that the potential commission revenue is an important determinant of a sell side analyst s decision of what firms to cover and what information to publicly release however because stock volume has not been disaggregated on a brokerage firm level uncertainty remains regarding the economic importance of the relation between analyst coverage and brokerage firm volume using a unique data set that identifies the broker s involved in each trade i find that brokerage volume is significantly higher in covered stocks than in uncovered stocks on average brokers increase their market share in covered stocks by 3 8 relative to uncovered stocks

limited entry licensing insights from a duration model limited entry is used to manage many fisheries effectiveness depends on a program s ability to control aggregate fishing power which fleet size and composition both affect this article analyzes fleet composition and attrition in a limited entry fishery the california red sea urchin fishery it explores the dynamics of heterogeneity in catch and revenue and applies duration analysis to study individual fisherman attrition using both individual level and time varying covariates the results show that the fleet is becoming more homogenous but also more potent and spatially mobile regulations such as size limits and season restrictions tend to increase attrition

technological change and managerial ability evidence from a malaysian artisanal fishery technological progress can improve economic development but its role in the harvest of common resources has received little attention we study the relationship between skill and the use of electronic and mechanical innovations in the productivity of malaysian artisanal fishers surprisingly electronics users do not define the frontier and mechanical winch adopters produced well inside it we show that if technology is a skill substitute rather than a complement then it helps less efficient users catch up to the production frontier policy makers must balance the implications for participation rates and resource depletion against gains for the least skilled participants

automated earnings forecasts beat analysts or combine and conquer prior studies attribute analysts forecast superiority over time series forecasting models to their access to a large set of firm industry and macroeconomic information an information advantage which they use to update their forecasts on a daily weekly or monthly basis a timing advantage this study leverages recently developed mixed data sampling midas regression methods to synthesize a broad spectrum of high frequency data to construct forecasts of firm level earnings we compare the accuracy of these forecasts to those of analysts at short horizons of one quarter or less we find that our midas forecasts are more accurate and have forecast errors that are smaller than analysts when forecast dispersion is high and when the firm size is smaller in addition we find that combining our midas forecasts with analysts forecasts systematically outperforms analysts alone which indicates that our midas models provide information orthogonal to analysts our results provide preliminary support for th

endogenous market thinness and stock price volatility thin equity markets cannot accommodate temporary bulges of buy or sell orders without large price movements the resulting volatility can induce risk averse transactors who face transaction costs to desert these markets thus thinness and the related price volatility may become joint self perpetuating features of an equity market irrespective of the volatility of asset fundamentals if however appropriate incentive schemes are adopted to encourage entry by additional investors this vicious circle can be broken eventually shifting the market to a selfsustaining superior equilibrium characterized by a higher number of transactors lower price volatility and larger supply of the asset a number of empirical studies cohen et al 1976 telser and higimbotham 1977 pagano 1986 tauchen and pitts 1983 have found that thin speculative markets are ceteris paribus more volatile than deep ones a plausible explanation for this finding is that thin markets are generally characterized by small numbers of transactors per unit time and thus their prices are more sensitive to the impact of individual traders demand shocks conversely in deep markets transactors are so many that the uncorrelated demand shocks experienced by individual traders tend to offset each other and leave market prices largely unaffected while this suggests a rationale for the observed relationship between market size and price volatility it does so by taking market size as the exogenous factor however the volatility of a speculative market may feed back on its size in the sense that the high liquidation risk implied by very volatile prices can induce potential entrants to keep out of the market this paper shows that in a stock market with transaction costs this interaction between thinness and volatility can produce multiple steady state equilibria some characterized by low trade and high volatility and others by high trade and low volatility whether the market will settle in one equilibrium or another depends entirely on the expectations held by economic agents sections 2 and 3 the existence of these multiple bootstrap equilibria can be explained heuristically as follows each additional trader generates a positive externality for other actual or potential traders by decreasing the riskiness of the stock lower risk in turn tends to attract more investors with the effect of raising stock prices and inducing corporations to issue additional equity we thus have a feedback loop between market size and price volatility where market size is measured both along the dimension of the number of traders and along that of the total stock of equities if however investors face transactions costs in the stock market this positive feedback may fail to be operative if the volume of trade is expected to be small investors with relatively high transaction costs will abstain from trading thus the market

capacity and capacity utilization in common pool resource industries excess capacity poses one of the most pressingproblems that arise when industries exploitcommon pool natural resources it entailsover investment in the capital stock andexcessive use of variable inputs and placesadditional exploitation pressures on theresource stocks confusion persists over theappropriate definition and measurement ofcapacity and capacity utilization for theseindustries but understanding capacity and itsmeasurement is necessary to properly design acapacity management program this paperaddresses these issues by overviewing theconceptual and theoretical bases for capacityand capacity utilization measurement identifying specific problems for common poolresources outlining alternative methodologiesfor their measurement and illustrating the useof these definitions and measurement methods ina fisheries case study

in denial stock market underreaction to going concern audit report disclosures abstract we investigate the stock price reaction to uk going concern audit report disclosures in the calendar year subsequent to publication over this period our firm population underperforms by between 24 and 31 depending on the benchmark adopted this market underreaction to such an unambiguous bad news release is not a post earnings announcement drift phenomenon it is also robust to other potentially confounding explanations however whatever the reasons for such stock mispricing we find costly arbitrage prevents rational investors forcing prices back into line with fundamental value our results have implications for the market s ability to impound bad news appropriately and the incompleteness of arbitrage in such small loser firm situations

discussion of competing theories of financial anomalies efficient markets and asset pricing research did not begin with the development of a theory of price formation which was then subjected to empirical tests rather the impetus came from the accumulation of evidence that the behavior of speculative prices could be well approximated by a random walk faced with the evidence economists felt compelled to offer some rationalization in short there existed a large body of empirical results in search of a rigorous theory

should speculators be taxed a number of economists have supported the taxation of speculation in financial markets we examine the welfare economics of such a tax in a model of a financial market where some agents have superior information and others have a hedging motive we show that a tax on speculators may actually increase speculative profits this occurs if the speculators benefit from less informative prices offsets the cost of the tax the effect on the welfare of other agents depends on how information revelation changes risk sharing opportunities it is possible for the introduction of a tax to cause a pareto improvement copyright 2000 by university of chicago press

predictability in financial analyst forecast errors learning or irrationality in this paper we propose a rational learning based explanation for the predictability in financial analysts earnings forecast errors documented in prior literature in particular we argue that the serial correlation pattern in analysts quarterly earnings forecast errors is consistent with an environment in which analysts face parameter uncertainty and learn rationally about the parameters over time using simulations and real data we show that the predictability evidence is more consistent with rational learning than with irrationality fixation on a seasonal random walk model or some other dogmatic belief

the standard error of regressions statistical significance as used in economics has weak theoretical justification in particular it merges statistical and substantive significance the 182 papers using regression analysis in the american economic review in the 1980s were tested against 19 criteria for the accepted use of statistical significance most some three quarters of the papers did poorly likewise textbooks in econometrics do not distinguish statistical and economic significance statistical significance should not be the focus of empirical economics

analytical debiasing of corporate cash flow forecasts abstract we propose and empirically test statistical approaches to debiasing judgmental corporate cash flow forecasts accuracy of cash flow forecasts plays a pivotal role in corporate planning as liquidity and foreign exchange risk management are based on such forecasts surprisingly to our knowledge there is no previous empirical work on the identification statistical correction and interpretation of prediction biases in large enterprise financial forecast data in general and cash flow forecasting in particular employing a unique set of empirical forecasts delivered by 34 legal entities of a multinational corporation over a multi year period we compare different forecast correction techniques such as theil s method and approaches employing robust regression both with various discount factors our findings indicate that rectifiable mean as well as regression biases exist for all business divisions of the company and that statistical correction increases forecast accuracy significantly we show that the parameters estimated by the models for different business divisions can also be related to the characteristics of the business environment and provide valuable insights for corporate financial controllers to better understand quantify and feedback the biases to the forecasters aiming to systematically improve predictive accuracy over time

self selection and analyst coverage this paper examines the relation between analysts information about a stock s future prospects and their decisions to issue investment recommendations and earnings forecasts for that stock and the implications of this relation for the observed distribution of recommendations and earnings forecast errors articles in the financial press have long argued that analysts are reluctant to issue unfavorable investment information perhaps because they fear jeopardizing potential investment banking

the effect of public information and competition on trading volume and price volatility in a one period model of market making with many exogenously informed traders we first show that the variance of prices and expected trading volume depend on the public information released at the start of trading this is accomplished by representing beliefs with elliptically countoured distributions for which the form of optimal decision rules does not depend on the specific distribution used second if the model is altered so that the decision to become informed is made endogenous then the decision rules of the market maker and infomed traders depend on the public information third in a multiperiod model with many informed traders and long lived private information recursion formulas similar to those of kyle 1985 hold for all elliptically contoured distributions trading volume is autocorrelated and unless per period liquidity trading is bounded away from zero as new trading periods are added informed traders profits vanish article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

rational expectations and macroeconomic forecasts the article presents extensive results from testing for bias and serially correlated errors in a collection of time series of quarterly multiperiod forecasts for six variables including real gnp growth inflation and unemployment the analysis covers responses by 79 frequent participants in economic outlook surveys conducted regularly since 1968 it shows much greater incidence of apparently systematic errors for inflation than for the other variables also the tests are more favorable to composite group forecasts than to most of the individual forecast sets

price and trading volume reaction surrounding earnings announcements a closer examination the process of information dissemination and interpretation in securities markets is very complex and mostly unobservable while changes in prices and the amount of trading that takes place at the market level provide evidence of information processing verrecchia 1981 demonstrated that these are not sufficient to describe completely the dissemination of information and its interpretation by investors a descriptive study of price changes and trading volume however may still provide some insights into how investors react to information this paper is an empirical investigation of price changes and trading volume during the days surrounding the announcement of quarterly and annual earnings in the wall street journal wsj in the original paper investigating trading volume and price changes surrounding earnings announcements beaver 1968 was primarily concerned with whether the annual earnings announcement had information content i e led to changes in investors assessments of the probability distribution of future returns if there were any significant price changes and or trading volume during the week of the announcement then the annual earnings announcement was assumed to have had

information sales and insider trading with long lived information fundamental information resembles in many respects a durable good hence the eects of its incorporation into stock prices depend on who is the agent controlling its flow similarly to a durable goods monopolist a monopolistic analyst selling information intertemporally competes against herself this forces her to partially relinquish control over the information flow to traders conversely an insider solves the intertemporal competition problem through vertical integration thus exerting a tighter control over the flow of information comparing market patterns i show that a dynamic market where information is provided by an analyst is thicker and more informative than one where an insider trades

reputation and performance among security analysts members of the institutional investor all american research team supply more accurate earnings forecasts than other analysts when forecasts are matched by the corporation followed and by the date of brokerage house issuance this contemporaneous advantage is complemented by a timing advantage all americans supply forecasts more often than other analysts stocks returns immediately following large upward forecast revisions suggest that all americans impact prices more than other analysts however there is virtually no difference in returns following large downward revisions nevertheless the collective results suggest a positive relation between reputation and performance and assuming that all americans are better paid pay and performance

assessing technical efficiency in commercial fisheries the mid atlantic sea scallop fishery despite the extensive effort to research issues of allocative efficiency in fisheries little empirical analysis of technical efficiency te in fisheries exists this study examines vessel efficiency using a stochastic production frontier based on a sample of sea scallop vessels operating in the mid atlantic between 1987 and 1990 estimates of te are computed and compared with input usage resource conditions economic performance and recently imposed regulations the analysis suggests that owners and captains only partially compensate for changes in resource conditions through the use of labor and fishing effort and recent regulations may improve overall te in the short run

testing the rationality of price forecasts new evidence from panel data this paper tests the rationality of individual price forecasts in a panel of professional forecasters here unlike in most previous studies rationality is not rejected the results here differ because 1 using individual forecasts avoids aggregation bias 2 comparison of forecasts to initial data avoids bias due to data revision 3 the professional forecasters have economic incentives to state their expectations accurately and 4 a new covariance matrix estimator consistent when forecast errors are correlated across individuals is used copyright 1990 by american economic association

a note on joint estimation of scale economies and productivity growth parameters abstract in applied research it is common to estimate complete production models obtain measures of scale economies and total factor productivity growth and then regress such measures on exogenous variables such procedures result in inconsistent estimates of technological as well as regression parameters estimation of total factor productivity and scale economies in the first step does not take into account that these measures depend on exogenous variables in the second step therefore their dependence on exogenous variables is not properly taken into account in the first step the study proposes to estimate jointly the cost function the share equations as well as total factor productivity and scale economies measures using full system estimation to account for all the restrictions implied by their endogeneity the approach is illustrated using data from british french and german railways

biased forecasts or biased earnings the role of reported earnings in explaining apparent bias and over underreaction in analysts earnings forecasts the extensive literature that investigates whether analysts earnings forecasts are biased and or inefficient has produced conflicting evidence and no definitive answers to either question this paper shows how two relatively small but statistically influential asymmetries in the tail and the middle of distributions of analysts forecast errors can exaggerate or obscure evidence consistent with analyst bias and inefficiency leading to inconsistent inferences we identify an empirical link between firms recognition of unexpected accruals and the presence of the two asymmetries in distributions of forecast errors that suggests that firm reporting choices play an important role in determining analysts forecast errors r 2003 elsevier b v all rights reserved

stock price manipulation it is generally agreed that speculators can make profits from insider trading or from the release of false information both forms of stock price manipulation have now been made illegal in this article the authors ask whether it is possible to make profits from a different kind of manipulation in which an uninformed speculator simply buys and sells shares they show that in a rational expectations framework where all agents maximize expected utility it is possible for an uninformed manipulator to make a profit provided investors attach a positive probability to the manipulator being an informed trader article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

why new issues and high accrual firms underperform the role of analysts credulity we find that analysts forecast errors are predicted by past accounting accruals adjustments to cash flows to obtain reported earnings among both equity issuers and nonissuers analysts are more optimistic for the subsequent four years for issuers reporting higher issue year accruals the predictive power is greater for discretionary accruals than nondiscretionary accruals and is independent of the presence of an underwriting affiliation predicted forecast errors from accruals significantly explain the long term underperformance of new issuers the predictability of forecast errors among nonissuers suggests that analysts credulity about accruals management more generally contributes to market inefficiency copyright 2002 oxford university press

the dartboard column second hand information and price pressure this study analyzes the effect of second hand information on the behavior of security prices and volume using analysts recommendations published in the monthly dartboard column of the wall street journal for the two days following the publication of the recommendations average positive abnormal returns of 4 percent nearly twice the level of abnormal returns documented in previous research on analyst recommendations and average volume double normal volume levels on the two days following publication of the recommendations are documented the positive abnormal return on announcement is partially reversed within 25 trading days the authors conclude that the positive abnormal return on announcement of the recommendations is a result of naive buying pressure as well as the information content of the analysts recommendations

loss functions for predicted click through rates in auctions for online advertising summary we characterize the optimal loss functions for predicted click through rates in auctions for online advertising whereas standard loss functions such as mean squared error or log likelihood severely penalize large mispredictions while imposing little penalty on smaller mistakes a loss function reflecting the true economic loss from mispredictions imposes significant penalties for small mispredictions and only slightly larger penalties on large mispredictions we illustrate that when the model is misspecified using such a loss function can improve economic efficiency but the efficiency gain is likely to be small

specification and estimation of nonseparable two stage technologies the leontief ces and the cobb douglas ces a two stage technology is a sequential production process that first uses pri mary inputs to produce intermediate inputs and then uses theintermediate inputs to produce final output in this paper the authors show that two stage technologies provide a general procedure for combining production functions or cost functions to obtain new specifications suitable for empirical production analysis they investigate two new cost functions for which the input demand systemssatisfy global regularity conditions in a wide range of nondegenerate cases using six data sets the authors estimate thesetwo input demand systems both with and without imposing global regularity conditions and find that one of them performs well copyright 1987 by university of chicago press

market response to financial reports abstract a two date rational expectations model is analyzed at the first date traders can privately acquire a costly signal that provides imperfect information about a public report that will be issued at the second date equilibrium characterizations are provided for the fraction of traders that become informed and the informativeness of the first date price as well as the price change variance and the expected trading volume at the second date comparative statics identify how the above variables are influenced by changes in the information content of the public report and in particular how market phenomena at the public release date are influenced by endogenous prior information acquisition and trading in response to the forthcoming public release

short term investment and equilibrium multiplicity abstract i study the effects of the heterogeneity of traders horizons in a 2 period nree model where all traders are risk averse owing to risk premia short termism generates multiple equilibria in particular two distinct patterns arise along the low trading intensity equilibrium short termists anticipate a thinner second period market and owing to risk aversion scale back their trades this reduces both risk sharing and information impounding into prices enforcing a high returns volatility low price informativeness equilibrium along the high trading intensity equilibrium the opposite happens and a low volatility high price informativeness equilibrium arises thus in the presence of short term behavior and traders risk aversion periods of high volatility are a signal of poor price informativeness

dea based predictors for estimating fleet size changes when modelling the introduction of rights based management the introduction of individual transferable quotas itqs into a fishery is going to change not only the amount of catch a fleet can take but often also changes the fleet structure particularly if total allowable catches are decreased this can have an impact on the economic social and environmental outcomes of fisheries management management strategy evaluation mse modelling approaches are recognised as the most appropriate method for assessing impacts of management but these require information as to how fleets may change under different management systems in this study we test the applicability of data envelopment analysis dea based performance measures as predictors of how a fishing fleet might change under the introduction of itqs and also at different levels of quota in particular we test the assumption that technical efficiency and capacity utilisation are suitable predictors of which boats are likely to exit the fishery we also consider scale efficiency as an alternative predictor we apply the analysis to the torres strait tropical rock lobster fishery that is transitioning to an itq based management system for one sector of the fishery the results indicate that capacity utilisation technical efficiency and scale efficiency are reasonable indicators of who may remain in the fishery post itqs we find that the use of these measures to estimate the impacts of lower quota levels provides consistent fleet size estimates at the aggregate level but which individual vessels are predicted to exit is dependent on the measure used

differential information and dynamic behavior of stock trading volume this article develops a multiperiod rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock investors trade competitively in the stock market based on their private information and the information revealed by the market clearing prices as well as other public news we examine how trading volume is related to the information flow in the market and how investors trading reveals their private information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

fishing revenue productivity and product choice in the alaskan pollock fishery a key element in evaluating fishery management strategies is examining their effects on the economic performance of fishery participants yet nearly all empirical studies of fisheries focus exclusively on the amount of fish harvested the economic benefits derived from fish stocks involve the amount of revenue generated from fish processing which is linked to both the way fish are harvested and the products produced from the fish in this study we econometrically estimate a flexible revenue function for catcher processor vessels operating in the alaskan pollock fishery recognizing potential endogeneity and a variety of fishing inputs and conditions we find significant own price supply responses and product substitutability and enhanced revenues from increased fishing days and tow duration after a regulatory change introduced property rights through a new fishing cooperative we also find significant growth in economic productivity or higher revenues over time after controlling for observed productive factors and price changes which exceeds that attributable to increased harvest these patterns suggest that the move to rights based management has contributed significantly to economic performance in the pollock fishery

joint ventures and technology transfer the solomon islands pole and line fishery abstract joint ventures are a popular way of facilitating the transfer of technology from distant water fishing nations dwfns to developing resource owning countries in addition to being exploited by a joint venture the solomon islands fishing zone is also exploited by a dwfn fleet and a domestic fleet a stochastic frontier approach is used to compare changes in technology and technical inefficiency among the three fleets in the period 1988 1994 it is found that the level of productivity of the joint venture fleet is higher than that of the domestic fleet reflecting some past gains from the joint venture however the rate of increase of productivity is higher for the domestic fleet suggesting that the solomon islands are not receiving any on going benefits of technology transfer in return for concessional access to their waters

rationality and analysts forecast bias this paper proposes and tests a quadratic loos utility function for modeling corporate earnings forecasting where financial analysts trade off bias to improve management access and forecast accuracy optimal forecasts with minimum expected error are optimistically biased and exhibit predictable cross sectional variation related to analyst and company characteristics empirical evidence from individual analyst forecasts is consistent with the model s predictions these results suggest that positive and predictable bias may be a rational property of optimal earnings forecasts prior studies using classical notions of unbiasedness may have prematurely dismissed analysts forecasts as being irrational or inaccurate

disclosure decisions by firms and the competition for price efficiency this paper develops a model of the relationship between investment decisions by firms and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied it is shown that firms may expend more resources on disclosure than is socially optimal this is in contrast to the concern implicit in mandatory disclosure rules that firms will expend too few resources on disclosure this paper develops a model of the relationship between firms investment decisions and the efficiency of the market prices of their securities it is shown that more efficient security prices can lead to more efficient investment decisions this provides firms with the incentive to increase price efficiency by voluntarily disclosing information about the firm disclosure decisions are studied the costs of disclosure are twofold first there are costs of producing and disseminating the information included here are opportunity costs of firms employees auditing and legal expenses costs of printing and distribution and costs associated with the release of any proprietary information second there are traders costs of assimilating the information for instance while it is not very costly to obtain a firm s 8 k and 10 k once produced it is quite costly to understand the implications of their contents while the former costs have been recognized in the literature on disclosure the latter costs have not that is while traders are sometimes viewed as having access to some costly information the information contained in firms disclosures is typically taken to be costlessly observed by all see for instance diamond 1985 and dye 1987 1 taking traders costs of learning the information content of firms disclosures into account leads to new conclusions regarding incentives to expend resources on disclosure in particular it is shown that firms may spend more on disclosure than is socially optimal this overdisclosure results from firms competing for the attention of traders this is an interesting result given the public policy concern that firms on their own will spend less on disclosure than is socially optimal

sinning in the basement what are the rules the ten commandments of applied econometrics unpleasant realities of real world data force applied econometricians to violate the prescriptions of econometric theory as taught by our textbooks leamer 1978 vividly describes this behavior as wanton sinning in the basement with sinners metamorphizing into high priests as they ascend to the third floor to teach econometric theory but this sinning is not completely wanton applied econometricians do or should follow some unwritten rules of behavior in effect bounding the sinning and promoting a brand of honor among sinners this paper exposits these rules and culls from them an unauthorized list of the ten commandments of applied econometrics

long lived private information and imperfect competition we develop a multi period auction model in which multiple privately informed agents strategically exploit their long lived information we show that such traders compete aggressively and cause most of their common private information to be revealed very rapidly in the limit as the interval between auctions approaches zero market depth becomes infinite and all private information is revealed immediately these results are in contrast to those of kyle 1985 in which the monopolistic informed trader causes his information to be incorporated into prices gradually and when the interval between auctions is vanishingly small market depth is constant over time fama 1970 defines a strong form efficient market as one in which security prices fully reflect all available information including both publicly and privately held information in a pioneering and influential article kyle 1985 develops a model in which a single privately informed trader with long lived information optimally exploits his monopoly power over time kyle s 1985 main results are i the informed trader trades in a gradual manner so that his information is incorporated into prices at a slow almost linear rate and ii when auctions are held continuously the depth of the market is constant over time however kyle s 1985 assumption of a single informed trader is strong in the sense that in actual financial markets it is reasonable to expect that at least a few players will have access to private information and will trade in the knowledge that they will face competition with other informed agents in the market 1 we develop a multi period auction model in which multiple strategic informed traders optimally exploit their long lived informational advantage we thus explore the restrictiveness of kyle s assumption of a single informed trader and also examine

disagreements among shareholders over a firm s disclosure policy this paper examines the issue of voluntary disclosure of information by firms with heterogeneous shareholders it shows that in a rational expectations setting better iniformed shareholders prefer less disclosure than less well informed shareholders this is due to differences in the adverse risk sharing effect and the beneficial cost saving effect of disclosure among shareholders with differenit risk tolerances aild information acquisition cost functions the presence of individual liquidity shocks is shown to reduce shareholder disagreements regarding a firm s disclosure policy many firms voluntarily disclose information beyond l evels mandated by financial and accounting regulations still other firms seem to disclose as little information as they can the paper seeks to explain this difference prior studies dealing with disclosure typically are concerned with whether firms would disclose too little or too much information in the absence of mandatory rules 1 results differ across models depending on whether positive or negative externalities are considered for example in a model where disclosure only adversely affects shareholders risk sharing opportunities the optimal level of disclosure is zero and mandatory disclosure rules make all shareholders worse off 2 in contrast mandatory disclosure rules are viewed in this paper as a result of conflicts among firms shareholders with different risk attitudes and different access to inside information in general there is no optimal disclosure policy that is best for all shareholders 3 this paper is based on the model of diamond 1985 diamond considers two opposing effects a positive externality and a negative externality of disclosure to explain the existence of voluntary disclosure when acquiring private information is costly first disclosure adversely affects risk sharing

fisheries instrument choice under uncertainty this paper uses data from an actual fishery to construct a tractable dynamic model to compare expected profit and its variance optimal stock size optimal harvest rate and optimal fishing effort under different management regimes under uncertainty the results provide a comparison of instrument choice between a total harvest control and a total effort control under uncertainty an original method to evaluate the tradeoffs between profits and other criteria in a dynamic context and insights regarding the relative merits of catch and effort controls in fisheries management

financial analysts forecasts of earnings a better surrogate for market expectations abstract the specification of the market expectation of accounting numbers is a common feature of many empirical studies in accounting and finance givoly and lakonishok 1979 found that financial analysts forecasts have information content this study evaluates the quality of analysts forecasts as surrogates for the market expectation of earnings and compares it with that of prediction models commonly used in research results indicate that prediction errors of analysts are more closely associated with security price movements suggesting that analysts forecasts provide a better surrogate for market expectations than forecasts generated by time series models the study also identifies factors that might contribute to the performance of the financial analysts forecasts the broadness of the information set employed by analysts and to a lesser extent their reliance on information released after the end of the fiscal year appear to be important contributors to their performance

econometrics of the basu asymmetric timeliness coefficient and accounting conservatism a substantial literature investigates conditional conservatism defined as asymmetric accounting recognition of economic shocks news and how it depends on various market political and institutional variables studies typically assume the basu 1997 asymmetric timeliness coefficient the incremental slope on negative returns in a piecewise linear regression of accounting income on stock returns is a valid conditional conservatism measure we analyze the measure s validity in the context of a model with accounting income incorporating different types of information with different lags and with noise we demonstrate that the asymmetric timeliness coefficient varies with firm characteristics affecting their information environments such as the length of the firm s operating and investment cycles and its degree of diversification we particularly examine one characteristic the extent to which unbooked information such as revised expectations about rents and growth options is independent of other information and discuss the conditions under which a proxy for this characteristic is the market to book ratio we also conclude that much criticism of the basu regression misconstrues researchers objectives

a temporal analysis of earnings surprises profits versus losses i show that median earnings surprise has shifted rightward from small negative miss analyst estimates by a small amount to zero meet analyst estimates exactly to small positive beat analyst estimates by a small amount during the 16 years 1984 to 1999 i show that a rightward temporal shift in median surprise from negative to positive describes earnings but neither profits nor losses median profit surprise shifts within the positive quadrant from zero to one cent per share median loss surprise shifts within the negative quadrant from extreme negative about 33 cents per share to zero i show that the median surprise for profits exceeds that for losses in every year i document significant positive temporal trends in both meet and beat analyst estimates for both profits and losses but i find a greater frequency of profits that either meet or beat analyst estimates in every year i find a significant positive temporal trend in positive profits that are a little bit of good news and a significant negative temporal trend in managers who report losses that are an extreme amount of bad news my results are robust to the four internal validity threats i consider namely temporal changes in 1 analyst forecast accuracy 2 the mix of earnings of one sign preceded by earnings of another sign four quarters ago 3 the timeliness of the most recent analyst forecast and 4 the i b e s definition of actual earnings i find that managers of growth firms are relatively more likely than managers of value firms to report good news profits i show that when they do report positive profit surprises managers of growth firms are more likely to report a little bit of good news in every year

inefficiency in analysts earnings forecasts systematic misreaction or systematic optimism a rational analysis of analyst behavior predicts that analysts immediately and without bias incorporate information into their forecasts several studies document analysts tendency to systematically underreact to information underreaction is inconsistent with rationality other studies indicate that analysts systematically overreact to new information or that they are systematically optimistic this study discriminates between these three hypotheses by examining the interaction between the nature of information and the type of reaction by analysts the evidence indicates that analysts underreact to negative information but overreact to positive information these results are consistent with systematic optimism in response to information the literature on financial analysts defines the phrase forecast inefficiency to mean forecasts that fail to accurately incorporate new information on a timely basis and or that are biased these forecasts have also been described as irrational or suboptimal prior studies report inefficiency in analysts forecasts finding that they are upwardly biased and inaccurately reflect available information some studies conclude from this that analysts underreact to information other studies conclude that analysts overreact if markets treat analysts forecasts as both rational and statistically optimal then inefficient forecasts could have important implications for the efficiency of pricing in securities markets in this paper we reexamine the apparent tendency of analysts to misinterpret earnings information the intent of this study is to discriminate between three hypotheses 1 that analysts systematically underreact to new earnings information 2 that analysts systematically overreact to new earnings information and 3 that analysts are systematically optimistic in their reactions for hypotheses 1 and 2 the direction of the misinterpretation i e underor overreaction is independent of the nature of the information received in contrast hypothesis 3 predicts that analysts are optimistic in interpreting

technical efficiency effects of input controls evidence from australia s banana prawn fishery this paper provides the first ex post estimates of the effects of input controls on technical efficiency in a fishery using individual vessel data from the northern prawn fishery of australia for the years 1990 1996 and 1994 2000 stochastic production frontiers are estimated to analyse the efficiency impacts of input controls on engine and vessel size the results indicate that technical efficiency is increasing in a measure of vessel size and engine capacity that was controlled by the regulator from 1985 to 2001 and decreasing in an unregulated input gear headrope length the study shows that fishers have substituted from regulated to unregulated inputs over the period 1990 2000 and technical efficiency has declined coincident with increasing restrictions on vessel size and engine capacity the decline in technical efficiency indicates that the goal of the regulator to increase economic efficiency has not been realized

market liquidity hedging and crashes in the absence of significant news hedging strategies were blamed for the stock market crash of october 1987 but traditional models cannot explain how a relatively small amount of selling could cause so large a price drop the authors develop a rational expectations model in which prices play an important role in shaping expectations markets are much less liquid in their model than in traditional models discontinuities or crashes can occur even with relatively little hedging the model is consistent with theories as disparate as keynes beauty contest insights and thom s catastrophe analysis and suggests means to reduce volatility copyright 1990 by american economic association

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices

a comparison of stock market mechanisms i analyze a multi asset market under two trading mechanisms in the first the unrestricted system traders demand for each asset depends on all equilibrium prices and prices reflect the information contained in all order flows in the second the restricted system traders demand depends on the traded asset price and prices reflect single order flow information i show that informed traders use of multidimensional private information depends on the number of prices they observe and on the price formation process i then give conditions rendering the restricted system more efficient than the unrestricted system

self selection and the forecasting abilities of female equity analysts this paper investigates whether there are systematic differences between the forecasting style and abilities of female and male analysts and whether market participants recognize these differences my key conjecture is that only female analysts with superior forecasting abilities enter the profession due to a perception of discrimination in the analyst labor market consistent with this conjecture i find that female analysts issue bolder and more accurate forecasts and their accuracy is higher in market segments in which their concentration is lower further the stock market participants are aware of the male female skill

risk aversion market liquidity and price efficiency a model of a noncompetitive speculative market is analyzed in which privately informed traders and market makers are risk averse market liquidity is found to be nonmonotonic in the number of informed traders their degree of risk aversion and the precision of their information it is also shown that increased liquidity trading leads to reduced price efficiency and that under endogenous information acquisition market liquidity may also be nonmonotonic in the variance of liquidity trades article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

informed trading investment and welfare this article studies the welfare economics of informed stock market trading we analyze the effect of more informative prices on investment given that this dependence will itself be reflected in equilibrium prices while a higher incidence of informed speculation always increases firm value through a more informative trading process the effect on agents welfare depends on how revelation of information changes risk sharing opportunities in the market greater revelation of information that agents wish to insure against reduces their hedging opportunities on the other hand early revelation of information that is uncorrelated with hedging needs allows agents to construct better hedges