the relation between tax rates and pre tax returns direct evidence from the 1981 and 1986 tax rate reductions abstract this study documents one effect of the theory of implicit taxes providing evidence that a change in the tax rate results in a change in pre tax returns yield spreads of pairs of treasury bills maturing in the last week of december and the first week of january are examined year ends not affected by rate changes show a significant positive yield spread between these pairs of bills reflecting an upward sloping yield curve however for year ends coinciding with the tax rate reductions of 1981 and 1986 there is a significant negative yield spread between these pairs of bills

transfers to sustain dynamic core theoretic cooperation in international stock pollutant control international environmental agreements aiming at correcting negative externalities generated by transboundary pollution are difficult to achieve for many reasons important obstacles arise from asymmetry in costs and benefits and instability may occur due to the fact that coalitions of countries may attempt to do better for themselves outside of any proposed agreement in a static context it has already been shown that it is possible to achieve stability in the sense of the core of a co operative game by means of appropriately defined transfers between the countries involved however the transboundary pollution problems that are most important are caused by accumulated pollutants so that a dynamic analysis is required this paper provides a transfer scheme that yields a core property in a dynamic context the possibility of computing such transfers numerically is discussed

international environmental agreements for river sharing problems we study partial coalition formation and the strategic timing of membership of an iea for environmental issues in the coalitional bargaining game cbg of gomes econometrica 73 1329 1350 2005 we apply the cbg to a specific river sharing problem with two symmetric upstream agents each at a tributary and one downstream agent located at the junction of tributaries we identify five regions in the parameter space of a discount factor and a productivity parameter for water in one region the grand coalition always forms immediately in two other regions immediate formation of the grand coalition and gradual coalition formation both occur with positive probability in another two regions only gradual coalition formation occurs in one of these latter regions a region with discount factors close to one both upstream agents form a monopoly with positive probability formation of the monopoly persists in the limit as the discount factor goes to one

idiosyncratic variation of treasury bill yields i document a dramatic increase in the importance of two types of variation in treasury bill yields beginning in the early 1980s the first is idiosyncratic variation in individual short maturity less than three months bill yields the second is a common component in treasury bill yields that is not shared by yields on other instruments such as short maturity privately issued instruments or longer maturity treasury notes and bonds some evidence suggests the first type reflects increased market segmentation these results have important implications for the calibration and testing of no arbitrage term structure models and interpreting tests of the expectations hypothesis united states treasury bill yields play a central role in economists efforts to understand the behavior of financial markets the focus on treasury bills is driven by the belief that bill yields can be viewed as benchmarks from which yields on other debt instruments are derived for example in no arbitrage models of the default free term structure the stochastic properties of the hypothetical instantaneous interest rate determine bond prices researchers often construct and evaluate these models using short maturity bill yields as proxies for instantaneous interest rates similarly bill yields are frequently used to test the expectations hypothesis of the term structure 2 economists standard pricing models for default risky securities also view treasury yields as building blocks in such models yields on default risky securities depend at least in part on the yields of default free securities and the underlying stochastic default process therefore yields on treasury bills have been used in studies of the effects of monetary policy on the business cycle not because bills are intrinsically critical to the economy but because

further evidence on the variability of inflation and relative price variability abstract using a sample of monthly observations of both a 12 category group and a 203 category group of personal consumption expenditures we furnish evidence that relative price variability is positively related to both the inflation rate and inflation variability the relation is robust to oil price shocks

directional preferences information processing and investors forecasts of earnings this paper investigates the effects of preferences on judgments in an investing context where investors should be motivated to interpret information objectively yet have clear preferences with respect to what the information they are evaluating conveys i e a gain or a loss on their investment the results of the experiment are consistent with theories of motivated reasoning that predict when and in what manner directional preferences affect how information is processed specifically investors are motivated to agree unthinkingly with information that suggests they might make money on their investment but disagree with information that suggests they might lose money in disagreeing long investors expect earnings to be relatively high and short investors expect earnings to be relatively low these results have implications not only for understanding investor behavior but also for understanding the biased behavior of market participants who face conflicts of interest such as analysts managers and auditors by providing direct evidence that such behavior can arise for purely psychological reasons

can prospect theory explain the disposition effect a new perspective on reference points there has been recent debate about whether prospect theory can explain the disposition effect using both theory and simulation this paper shows that prospect theory often predicts the disposition effect when lagged expected final wealth is the reference point under the principle of preferred personal equilibrium regardless of whether the reference point is updated or not when initial wealth is the reference point however there is often no disposition effect models that use a reference point with no lag under the principle of preferred personal equilibrium or that determine the reference point using the principle of disappointment aversion cannot explain why the investor bought a stock in the first place reference point adjustment weakens the disposition effect leads to more aggressive initial stock purchase strategies and predicts history dependence in stock holding this paper was accepted by john list behavioral economics

the acid rain differential game this paper considers an acid rain differential game countries emit sulphur which is partly transferred to other countries depositions above critical loads ultimately destroy the soil countries face a trade off between the costs of emission reductions and the damage to the soil due to the depletion of the acid buffers because of the transboundary externalities the outcome will depend on whether the countries cooperate or not this paper presents the cooperative outcome and the open loop and markov perfect nash equilibria of the acid rain differential game it will be shown that the depositions always converge to the critical loads but the steady state levels of the buffer stocks differ the theory is used to analyse the acid rain differential game for sulphur between great britain and ireland finally some results are given for the whole of europe

do professional traders exhibit myopic loss aversion an experimental analysis two behavioral concepts loss aversion and mental accounting have been combined to provide a theoretical explanation of the equity premium puzzle recent experimental evidence supports the theory as students behavior has been found to be consistent with myopic loss aversion mla yet much like certain anomalies in the realm of riskless decision making these behavioral tendencies may be attenuated among professionals using traders recruited from the cbot we do indeed find behavioral differences between professionals and students but rather than discovering that the anomaly is muted we find that traders exhibit behavior consistent with mla to a greater extent than students

up close and personal investor sophistication and the disposition effect this paper analyzes the trading records of a major discount brokerage house to investigate the disposition effect the tendency to sell stocks that have appreciated in price winners sooner than stocks that trade below the purchase price losers in contrast to previous research that has demonstrated the disposition effect by aggregating across investors our main objective is to identify differences in the disposition bias across individuals and explain this in terms of underlying investor characteristics building on the findings in experimental economics and social psychology we hypothesize that differences in investor literacy about financial markets and trading frequency are responsible in part for the variation in individual disposition effect using demographic and socioeconomic variables as proxies for investor literacy we find empirical evidence that wealthier individuals and individuals employed in professional occupations exhibit a lower disposition effect consistent with experimental economics trading frequency also tends to reduce the disposition effect we provide guidelines for investment advisors regulators and investment communities to utilize our findings and help investors make better decisions

the turn of the year in money markets tests of the risk shifting window dressing and preferred habitat hypotheses musto 1997 identifies a turn of the year effect in the commercial paper market and offers risk shifting window dressing as an explanation we revisit this market with different methods and find strong evidence rejecting the risk shifting hypothesis we extend our analysis to other private issue money market instruments and find similar results we find further corroborating evidence in the 1 month t bill market and aggregate demand deposit data our results are consistent with a year end preferred habitat for liquidity associated with year end cash flow obligations

the end of the month as a preferred habitat a test of operational efficiency in the money market this paper argues that an aggregate preferred habitat for investors exists on or about the last day of the calendar month due to standardizations in the nation s payments system resulting in a concentrated flow of funds on this date thus equilibrium yield discounts are predicted for securities maturing on such dates empirical tests on monthly and daily treasury bill data support the principal hypothesis as well as several ancillary hy potheses the results have implications for treasury debt management for the short term cash and debt management practices of businesses and banks and for the empirical esti mation of daily weekly or monthly return premiums on risky securities

the disposition effect and investor experience we examine whether investing experience can dampen the disposition effect that is the fact that investors seem to hold on to their losing stocks to a greater extent than they hold on to their winning stocks to do so we devise a computer program that simulates the stock market we use the program in an experiment with two groups of subjects namely experienced investors and undergraduate students the inexperienced investors as a control procedure we consider random trade decisions made by robot subjects we find that though both human subjects show the disposition effect the more experienced investors are less affected

the effect of transaction size on off the run treasury prices this paper examines intra day trading data from the inter dealer broker market for u s treasury securities and measures the degree of price pressure in the off the run treasury market as is well known securities that would appear to be very close substitutes i e on the run and off the run treasury bonds behave as if there is some degree of market segmentation this is the first systematic study of the off the run treasury note and bond market focused entirely on a price pressure effect using intra day data the paper analyzes price pressure through matched pairs of securities that differ only in liquidity

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

from t bills to common stocks investigating the generality of intra week return seasonality the authors investigate the extent to which intra week seasonality still exists and whether its pattern is uniform across three stock indices and treasury bonds with seven different maturities they find that intra week seasonality continues to be significant and that its pattern is not uniform either between the stock indices and the treasury bonds or even among the bonds alone a pattern shared by stocks and bonds is that monday returns become increasingly negative with maturity these findings suggest that neither institutional nor general equilibrium explanations by themselves can explain the pattern of intra week seasonality in securities markets

valuation methods and policy making in environmental economics 1 valuation methods and policy making in environmental economics relevance and scope h folmer e van ierland part i the valuation of public goods 2 non market asset prices a comparison of three valuation approaches r c d arge j f shogren 3 valuing public goods in a risky world an experiment p o johansson 4 recreational values pareto optimality and timber supply p o johansson k g lofgren k g maler 5 estimating social benefits of environmental improvements from reduced acid rain deposition a contingent valuation survey s navrud part ii the valuation of health and life 6 benefits of reduced morbidity from air pollution control a survey m dickie s gerking 7 valuing a public good direct and indirect valuation approaches to the measurement of the benefits from air pollution abatement m shechter m kim l golan 8 environmental regulation and the valuation of life interindustry mobility and the market price of safety h w herzog jr a m schlottmann part iii cost benefit analysis 9 disequilibrium cost benefit rules an exposition and extension p o johansson k g lofgren 10 macroeconomic cost benefit analysis of environmental programmes a nentjes part iv aspects of policy making 11 benefit estimation for complex policies a randall j hoehn 12 the acid rain game k g maler index

are larger treasury issues more liquid evidence from bill reopenings this paper makes use of a natural experiment of the u s treasury department to examine the relationship between treasury security issue size and liquidity treasury bills that were first issued with 52 weeks to maturity and then reopened at 26 weeks are shown to be more liquid than comparable maturity bills that were first issued with 26 weeks to maturity the relationship is less pronounced when bills are on the run the most recently auctioned bills of a given maturity than when they are off the run and persists when controlling for other factors that affect liquidity the reopened bills are found to have higher yields lower prices than comparable maturity bills showing that the indirect liquidity benefits of reopenings are more than offset by the direct supply costs

the strong sequential core for stationary cooperative games abstract infinite time horizon stationary cooperative games are considered where at each date the instantaneous ntu game is determined by the state of nature the strong sequential core selects those utility streams that no coalition can improve upon by deviating at any moment in time the main result of the paper states that the strong sequential core is non empty provided that i the instantaneous ntu games in all states are additively b balanced ii at least one of these games is strongly additively b balanced and iii the discount factor is close enough to one

a theory of dynamic oligopoly iii cournot competition abstract we study the markov perfect equilibrium mpe of an alternating move infinite horizon duopoly model where the strategic variable is quantity we exhibit a pair of difference differential equations that when they exist differentiable mpe strategies satisfy for quadratic payoff functions we solve these equations in closed form and demonstrate that the mpe corresponding to the solution is the limit of the finite horizon equilibrium as the horizon tends to infinity we conclude with a discussion of adjustment costs and endogenization of the timing

the courage of misguided convictions the field of modern financial economics assumes that people behave with extreme rationality but they do not furthermore people s deviations from rationality are often systematic behavioral finance relaxes the traditional assumptions of financial economics by incorporating these observable systematic and very human departures from rationality into standard models of financial markets we highlight two common mistakes investors make excessive trading and the tendency to disproportionately hold on to losing investments while selling winners we argue that these systematic biases have their origins in human psychology the tendency for human beings to be overconfident causes the first bias in investors and the human desire to avoid regret prompts the second

market making costs in treasury bills a benchmark for the cost of liquidity abstract we focus on market making costs by examining the daily bid ask spreads for off the run one month treasury bills around two liquidity changing events event one salomon brothers supply shock results in a roughly 2 5 basis point increase in the spread because of an increase in ask prices and event two the long term capital management demand shock results in a doubling of the spread because of a decrease in bid prices our results provide a benchmark for researchers examining bid ask spreads of securities that include a liquidity premium a risk premium and an asymmetric information premium

the environmental kuznets curve semi parametrically revisited this paper re examines the existence of an environmental kuznets curve ekc across countries using a semi parametric regression estimator which places no restrictions on the functional form our results using cross country panel data on sulfur and carbon dioxide strongly suggest that the relationship between wealth and environmental degradation is not bell shaped as suggested by an ekc rather that there is a positive link for the very poorest countries and no clear relationship for richer countries

the puzzling price behavior of treasury bills that mature at the turn of calendar months abstract this paper documents the unusual price behavior of treasury bills that mature at the turn of calendar months there is a kink in the yield curve as it crosses calendar months and this kink is most pronounced as the yield curve crosses between calendar years potential seasonality in the spot rate of interest could not explain these results nor could they be explained by the mispricing of either the last bill or first bill in a month the exceptionally large premium on the first bill in a month tended to be earned throughout the lifetime of the bill

professional trader discipline and trade disposition recent evidence indicates irrational behavior among retail investors they hold onto losses and sell winners in a manner consistent with the disposition effect market professionals often use the term discipline to indicate trading strategies that minimize potential behavioral influences we investigate the nature of trading discipline and whether professional traders are able to avoid the costly irrational behaviors found in retail populations the full time traders in our sample hold onto losses significantly longer than gains but we find no evidence of costs associated with this behavior the successful floor futures traders in our sample exhibit trading behavior characterized as rational and disciplined moreover measures of relative trading discipline have predictive power for subsequent trading success

turn of month evaluations of liquid profits and stock returns a common explanation for the monthly and january effects this paper presents and tests a hypothesis that the standardization of payments in the united states at the turn of each calendar month generally induces a surge in stock returns at the turn of each calendar month the hypothesis also asserts that returns generally will be greater following the month of december and will vary inversely with the stringency of monetary policy empirical results using stock index returns for 19691986 support the hypothesis this analysis provides an explanation for the previously documented monthly effect in stock returns and a partial explanation for the january effect in a recent paper ariel 1987 documents an important empirical regularity in stock returns and terms it the monthly effect using value weighted and equally weighted daily stock index returns for the period 1963 1981 ariel shows that virtually all of the cumulative return on these indexes is realized on ten consecutive trading days of the calendar month beginning with the last trading day of the month and extending through the first nine trading days of the following month ariel considers various explanations for this phenomenon but none sufficed to explain the observed empirical regularity p 174 more recently lakonishok and smidt 1988 examine returns on the dow jones industrial average index for the period 1897 1986 and find that significant mean daily returns are realized consistently on only four consecutive trading days of the calendar month beginning with the last trading day of the month these trading days will henceforth be referred to as the turn of month trading days ariel s and lakonishok and smidt s tests indicate that the monthly effect is not merely another manifestation of the previously documented january effect rozeff and kinney 1976 first documented that average stock index returns in january are higher than in any other month keim 1983 and others find that the surge in january returns is largely confined to stocks of small firms and to the first few trading days in january branch 1977 and others have suggested that the surge in january returns is due to year end tax loss selling and subsequent repurchases in january studies by roll 1983 reinganum 1983 ritter 1988 and others provide evidence consistent with the tax loss selling

don t let your robots grow up to be traders artificial intelligence human intelligence and asset market bubbles abstract researchers who have examined markets populated by robot traders have claimed that the high level of allocative efficiency observed in experimental markets is driven largely by the intelligence implicit in the rules of the market furthermore they view the ability of agents artificial or human to process information and make rational decisions as unnecessary for the efficient operation of markets this paper presents a new series of market experiments that show that markets populated with standard robot traders are no longer efficient if time is a meaningful element as it is in all asset markets while simple two season markets with human subjects reliably converge to an efficient equilibrium markets with minimally intelligent robot traders fail to attain this equilibrium instead these markets overshoot the equilibrium and then crash below it in addition to firmly establishing the role of trader intelligence in asset market equilibrium these experiments also provide insights into why bubbles and crashes are consistently observed in many asset market laboratory experiments using human subjects

further evidence on segmentation in the treasury bill market abstract this paper shows that differences in supplies of 13 and 12 week treasury bills have statistically significant and economically meaningful effects on their yield differentials from january 1985 through october 1991 controlling for the general slope of the treasury bill yield curve the tendency of bills maturing at month ends to have lower yields and the tendency of bills whose supply is augmented by cash management bills to have higher yields the finding that market participants do not arbitrage away yield differentials that owe to differences in supplies indicates that demand curves for individual bills are downward sloping and that segmentation in the treasury bill market is more pervasive than previously documented

whose sabbath matters or when does the weekend effect occur abstract the weekend effect and other seasonal anomalies in financial markets are now familiar in many countries in searching for explanations for the weekend effect in particular it would be helpful to know when exactly it occurs whatever the it may be that produces the effect since most countries do not have weekend trading in financial assets the timing of it has not been narrowed down israel has trading in all financial assets except currency trading on sunday by examining day of the week effects for israel it appears that the weekend effect occurs on sunday late in the day and not an friday evening ar saturday other seasonal anomalies in israel seem to be similar to those elsewhere the generalizability of the findings to other countries is discussed

seasonality in daily bond returns this paper tests for seasonal patterns in corporate bond returns using the dow jones com posite bond average each seasonal pattern documented for equities is investigated for the period 1963 1986 corporate bond returns exhibit january turn of the year and weekof the month effects but no significant day of the week or turn of the month effects in contrast for the s p 500 stock index the turn of the month and day of the week ef fects are highly significant but the week of the month effect is less significant and the january and turn of the year effects are insignificant the behavior of an equity index constructed using companies in the bond index is similar to that of the s p except the turn of the year effect is significant

time consistent side payments in a dynamic game of downstream pollution abstract this note determines a rule to share a surplus gained when two countries or regions agree to coordinate their policies to reduce downstream pollution an intertemporal decomposition scheme for the total side payment is proposed this scheme has the following individual rationality property in each subgame that starts along the cooperative trajectory one country is guaranteed to receive a higher payoff in the cooperative solution than in the disagreement solution for this country another notion of individual rationality obtains this country will at any instant of time during the play of the game receive a higher payoff in the cooperative solution than in the disagreement solution

do forecast errors or term premia really make the difference between long and short rates abstract forward rates in the term structure of interest contain predictions of future spot rates plus possibly term premia realized spot rates contain predicted spot rates plus forecast errors under rational expectations forecast errors are not predictable by forecasting spot rates using publicly available information bounds on the variation of forecast errors and term premia are obtained for one month treasury bill rates one to two thirds of the variation in the difference between forward rates and realized spot rates is due to variation in term premia

are professional traders too slow to realize their losses data on a u s proprietary stock trading team provide evidence of the tendency of traders to hold on to their losers too long and sell their winners too soon that is the disposition effect the group of traders studied earned more than 1 4 million in intraday trading profits but they realized their winning trades at a much faster rate than their losing trades this tendency lowered their profitability when the traders limited their risk exposure by trading in small share sizes in low priced stocks or during periods of low volatility the discrepancy between losing and winning holding times rose an analysis of intraday prices suggests that traders could increase trading profits by holding winners longer and selling losers sooner

the disposition effect in securities trading an experimental analysis the disposition effect is the tendency to sell assets that have gained value winners and keep assets that have lost value losers disposition effects can be explained by the two features of prospect theory the idea that people value gains and losses relative to a reference point the initial purchase price of shares and the tendency to seek risk when faced with possible losses and avoid risk when a certain gain is possible our experiments were designed to see if subjects would exhibit disposition effects subjects bought and sold shares in six risky assets asset prices fluctuated in each period contrary to bayesian optimization subjects did tend to sell winners and keep losers when the shares were automatically sold after each period the disposition effect was greatly reduced

a regional dynamic general equilibrium model of alternative climate change strategies outcomes and noncooperative equilibria this study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries and that high income countries may be the major losers from cooperation jel h41 q4 q2 q20

a dynamic game of waste management abstract the paper studies a differential game of waste management disposal each of three neighbouring regions is endowed with a stock of waste but no additional waste is generated in any region and waste does not decay from natural reasons a region s stock of waste can be reduced only by dumping on its neighbours the model features two externalities a strategic externality caused by the fact that the payoff of a coalition depends on the actions of players outside the coalition and a stock externality caused by the fixed overall amount of waste the game has a finite time horizon and it is shown that intertemporal core theoretic cooperation can be sustained under intuitive conditions

treasury bill auction procedures empirical perspectives from french market bid functions we use empirical properties of market bid functions in treasury bill auctions to analyze the treasury auction mechanism we propose an econometric method that exploits data from auction tables and we determine variables influencing the shape of market bid functions and their fluctuations across auctions we apply the estimation procedure to discriminatory french treasury bill auctions we propose several applications of our empirical model first we provide a tool to forecast incoming auctions second we measure by simulations the impact of different environments on auction rates third we provide new empirical perspectives on the debate about the best procedure between the discriminatory and the uniform price auctions

tax induced intra year patterns in bonds yields the ratio of the yields on short term tax exempt and taxable bonds exhibits a sawtooth pattern that is consistent with the impacts of tax deferments from dates on which interest payments are received to dates on which the resulting tax payments are paid the effect of the tax deferment at turns of calendar years does not differ appreciably from the effect at the turn of any other tax quarter investors with tax payment schedules that differ from that of the investor that is indifferent between investing in taxable and tax exempt bolnds may benefit from tax related timing strategies for investing in these bonds issuers may benefit from tax related timing strategies for scheduling interest payments

optimal control for transboundary pollution under ecological compensation a stochastic differential game approach abstract to account for previously ignored yet widely observed uncertainty in nature s capability to replenish the natural environment in ways that should inform ideal design of ecological compensation ec regimes this study constructs a stochastic differential game sdg model to analyze transboundary pollution control options between a compensating and compensated region equilibrium strategies in the stochastic two player game inform optimal control theory and reveal a welfare distribution mechanism to form the basis of an improved cooperative game contract a case based numerical example serves to verify the theoretical results and supports three key insights first accounting for various random disturbance factors the probabilistic pollutant stock in stackelberg non cooperative game exceeds that of a cooperative game situation second the ec mechanism provides long term effective incentives only when the marginal losses of environmental damage in the compensating region are more than twice that of the compensated region achieving a pareto optimal equilibrium relies upon the attainment of a dynamic allocation ratio derived from the analysis of a robust welfare allocation mechanism third cross region cooperation reliably outperforms stackelberg non cooperation due to either overwhelming incumbent economic interests or high abatement costs this study illuminates the importance of balancing both parties interests within an ec agreement while reducing uncertainty around unobserved environmental factors during ex ante negotiations

international aspects of pollution control pollution is a by product of production is only gradually dissolved by the environment and crosses national borders the market outcome ignores the adverse effects of pollution and thus yields higher levels of output and pollution than would prevail under a supranational social planner which does care about pollution in practice governments often do not cooperate and this leads to outcomes of pollution and production in between the market outcomes and the outcomes under supra national social planning absence of precommitment leads to lower emission charges less cleaning up activities and more pollution appropriate levels of emission charges under the various outcomes are a result of this analysis attention is also paid to investment in clean technology the debate between optimists who believe that higher production is compatible with sound environmental policy and pessimists can be analysed in this way