primary commodity prices and the oecd economic performance abstract the relationship linking primary commodity prices to the oecd economic performance is analyzed by explicitly accounting for the presence of a two way causality the macroeconomic model is built on a relatively small number of equations which represent the interplay of five markets primary commodity financial oecd labour oecd and ldc product market the difference between primary commodity and manufactured good price formation is emphasized quantitative results are provided on the basis of historical estimations and dynamic simulations

competition between exchanges a research agenda this paper describes open research questions related to the competition and market structure of financial exchanges and argues that only a combination of industrial organization and finance can satisfactorily attack these questions two examples are discussed to illustrate how the combination of these two approaches can significantly enrich the analysis the network externality puzzle which refers to the question of why trading for the same security is often split across trading venues and the impact of the multi sided character of financial exchanges on pricing and profitability

insider trading revisited a recent article in this journal argued that insider trading is an unethical practice leading to an inefficiently functioning market the debate on this topic has primarily pitted ethical defenses of prohibition against economic arguments extolling its allowance in addition to being incomplete this approach ignores other unwanted economic effects of prohibition itself and unethical implications of its existence this article shows that adam smith s free market concept when properly interpreted provides all the incentive structure necessary for an efficient and ethical marketplace even when insider trading is permitted

how trading institutions affect financial market performance some laboratory evidence i introduction trading institutions vary considerably across contemporary financial markets 1 but most can be classified into one of two basic types the continuous double auction da allows traders to submit public offers to buy or to sell and to accept other traders offers at any moment in time the double auction institution offers immediacy but non uniform transaction prices the other basic trading institution the clearinghouse ch gathers offers and clears them at a unified price at a pre specified time it sacrifices immediacy for uniform transaction prices 2 the two types of institutions have co existed and evolved for centuries but now are emerging in new electronic versions market participants and policy makers would like to know which institution or variant or combination is most efficient but theoretical and empirical work to date provides little guidance this paper reports on a series of laboratory asset markets experiments designed to compare variants of the double auction and clearinghouse trading institutions the markets are small usually with eight or nine traders but the traders are profit motivated and experienced with the trading institutions the traded asset has uncertain market value and traders receive useful but inconclusive private information they can only learn the asset s true value during the course of trade laboratory markets offer several advantages for empirical study of financial market institutions first private information is observable even controllable in the laboratory and therefore the investigator can directly measure market efficiency 3 second the complexity of the environment can be varied systematically in the laboratory and its effects on market performance can be separated from the effects of the market institution and other forces finally the market institution itself is controllable in the laboratory so it is possible to make valid causal inferences on how the market institution shapes market performance i begin with a survey of relevant literature and other preliminaries in the rest of this section section ii outlines the laboratory procedures the creation of trading environments of varying complexity the electronic implementation of the clearinghouse and double auction trading institutions the computation of theoretical benchmark prices and allocations and the measurement of market performance section iii collects the results following an illustrative account of a double auction trading period and a clearinghouse trading period i use descriptive statistics to summarize market performance in each of the thirty nine experiments the main conclusions are based on statistical comparisons of market performance across alternative market institutions the clearinghouse institution does surprisingly well it delivers greater market depth than the double auction discovers prices at least as efficiently and produces final allocations almost as efficient as the double auction the main institutional variants examined in this paper concern the amount of information made public regarding order placement orderflow the data suggest that public display of the orderflow enhances double auction efficiency but may impair clearinghouse efficiency a study of trading volume shows higher volume in the double auction in both institutions volume increases when important private news arrives and when the trading period is about to end the paper concludes with a brief summary and discussion of the results a companion paper friedman 1991 considers the effects of awarding various privileges to some but not all traders copeland and friedman 1987 1991 provide useful background information on laboratory procedures and computerized double auction markets instructions for the current experiments are available on request the need for empirical work a skeptic might argue that empirical work is unnecessary the mere fact that the double auction and clearinghouse institutions both persist in major financial markets implies that both are highly efficient because a more efficient institution would displace less efficient institutions

the macroeconomic strike model a study of seventeen countries 1948 1975 this paper reports the results of an analysis of data on industrial conflict strikes and lockouts in seventeen oecd countries during the period 1948 75 a number of models are tested on this broad data set including the major elements of the ashenfelter and johnson model contrary to ashenfelter and johnson s results for the united states this study finds for most countries a positive relationship between the number of conflicts and the rate of increase in real wages in manufacturing further the increase in nominal wages produces stronger results in all models tested than the increase in real wages the effect of unemployment is unstable across countries and only one of two political variables yields even modest results the authors suggest that an explanation of their findings might be found in the relationship between changes in the wage structure and changes in the level of conflict

where should the line be drawn on insider trading ethics finance ethics have drawn increasing attention from both government regulators and academic researchers this paper addresses the issue of insider trading ethics previous studies on insider trading ethics have failed to provide convincing arguments and consistent results in particular the arguments against insider trading are based primarily on moral and philosophical grounds and lack empirical rigor this study intends to establish and examine the relationship between the ethical issue and economic issue of insider trading we argue that the ethics of insider trading is in essence an economic rather than a moral issue it is so far not clear to what extent insider trading may increase or decrease shareholders wealth until then we must take care to avoid over regulating insider trading

effect of strike activity on firm value the article examines the stock market s reaction to labor management problems and employee strikes a discussion is presented about various categories of strike costs and cumulative abnormal return

a wage structure theory of inflation industrial conflicts and trade unions the wage structure theory in this paper has three levels i the micro level considers the relative wage income r between two groups one r termed r is a conflict equilibrium which also gives the minimum number of conflicts the deviation of r from r is the labormarket tension ii these concepts are shown to generalize to the macro level leading to a macro conflict relation and a conflict augmented phillips curve iii institutions are introduced into the theory and it is shown how a central trade union reduces the number of conflicts by internalizing parts of the wage structure

wage determiniation in the uk further empirical results using conintegraion the present paper examines the long run behaviour of two types of wage models for the uk over the preiod 1996 1 1989 2 these models differing in their theoretical construction are estimated and explored using various tests for cointegration the hall 1986 1989 model is based on saragan s 1964 wage specification while the arestis and skott 1993 and arestis and biefang frisancho mariscal 1993 model is concerned with distributional and wage efficeincy theortical effects both models exhibit at least one economically sensible long run relationship for wage determination with significant and correctly signed parameters and show expected proportionality between wages and productivity further the arestis and skott 1993 model shows the effects of effciency wage elements on effort

rational expectations and the aggregation of diverse information in laboratory security markets the idea that markets might aggregate and disseminate information and also resolve conflicts is central to the literature on decentralization hurwicz 1972 and rational expectations lucas 1972 we report on three series of experiments all of which were predicted to have performed identically by the theory of rational expectations in two of the three series one in which participants trade a complete set of arrow debreu securities and a second in which all participants have identical preferences double auction trading leads to efficient aggregation of diverse information and rational expectations equilibrium failure of the third series to exhibit such convergence demonstrates the importance of market institutions and trading instruments in achievement of equilibrium

market for information experimental evidence predictions of the noisy rational expectations equilibrium ree model are found to be relatively accurate for both asset and information markets in the laboratory when information about an asset s uncertain dividend is sold to a fixed number of highest bidders prices allocations efficiency and distribution of profit predictions of the full revelation ree model in the asset market dominate the predictions of the walrasian model demand for information shifts to the left and its price declines close to zero when the price of information is fixed at a relatively high level the number of informed agents and the informativeness of the asset market tends to adjust to permit the informed agents to recover their investment in information

large block transactions the speed of response and temporary and permanent stock price effects abstract the paper investigates how quickly prices attain new equilibrium levels after large block transactions and measures the associated temporary and permanent price effects we find that prices adjust within at most three trades with most of the adjustment occurring in the first trade the temporary price effect for seller initiated transactions is related to block size but the temporary price effect observed for buyer initiated transactions is no larger than that observed in 100 share trades most of the price effect associated with block trades is permanent and is related to block size regardless of the initiating party

shareholder wealth maximization business ethics and social responsibility the primary objective of this article is to develop a framework for analyzing the ethical foundations and implications of shareholder wealth maximization swm distinctions between swm and the more widely examined construct of profit maximization are identified the most significant being the central role played in swm by the market mechanism for pricing the corporation s securities it is argued that empirical tests concerned with evaluating the ethical implications of swm will almost surely involve a joint hypothesis a number of recent empirical studies aimed at testing hypotheses with explicit ethical content are reviewed

industrial conflicts and economic conditions a comparative empirical investigation abstract the empirical work analyses eleven macro series from 1948 to 1975 for seventeen oecd countries including three series for conflicts strikes and lock outs it is demonstrated that the series for the plain number of conflicts are always the best in macro modelling hence conflicts matter less as such than as an indicator of the labour market climate three links between conflicts and the economy are examined i wage inflation is found the main factor generating conflicts ii no production loss due to conflicts appears in our annual macro series iii the main thrust is the examination of the fairly successful role conflicts can play as a push proxy in cost push models finally the strong international elements in both wage inflation and conflicts are discussed

capital asset prices with and without negative holdings prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

the ethics of insider trading despite the fact that a number of economists and philosophers of late defend insider trading both as a viable and useful practice in a free market and as not immoral i shall question the value of insider trading both from a moral and an economic point of view i shall argue that insider trading both in its present illegal form and as a legalized market mechanism undermines the efficient and proper functioning of a free market thereby bringing into question its own raison d etre it does so and is economically inefficient for the very reason that it is immoral thus this practice cannot be justified either from an economic or a moral point of view

competition and collusion in dealer markets this article develops a game theoretic model to analyze market makers intertemporal pricing strategies we show that dealers who adopt noncooperative pricing strategies may set bid ask spreads above competitive levels this form of implicit collusion differs from explicit collusion where dealers cooperate to fix prices price discreteness or asymmetric information are not required for collusion to occur rather institutional arrangements that restrict access to the order flow are important determinants of the ability to collude because they reduce dealers incentives to compete on price public policy efforts to increase interdealer competition should focus on such restrictions

strikes in the community addressing some early questions in post 1992 europe capital will tend to flow to areas of lowest unit output cost difference in the quality of labour management relations here proxied by strike activity could be an important component of such costs the performance of strike models for ec member states is examined paying particular attention to the evidence for reaction equality to macroeconomic stimuli and for the existence of strike waves both hypotheses are rejected meaning firstly that there is no justification for datapooling but secondly that member states are free to pursue policies to improve their industrial relations environments without fear they will be undermined by developments elsewhere

opening and closing the market evidence from the london stock exchange we investigate the performance of call markets at the open and close using a unique natural experiment provided by the london stock exchange where traders can choose between a call and an off exchange dealership system although the call market dominates dealers in terms of price discovery it suffers from a high failure rate to open and close trading especially when trading conditions are difficult the call s trading costs increase with asymmetric information slow trading order flow imbalances and uncertainty traders resort to use of call auctions is negatively correlated with firm size implying that the call may not be the optimal method for opening and closing trading of medium and small sized stocks

can transparent markets survive abstract this paper investigates whether transparent markets can survive when faced with direct competition from less transparent markets we first construct a game theoretic model in which in equilibrium the low transparency dealers capture early order flow and use the resulting informational advantage to quote narrower spreads and earn more profits than their more transparent competitors we then conduct a laboratory experiment that tests and supports all of these predictions a second experiment shows that most dealers choose to be of lower transparency when they are allowed to do so however the informational advantage of low transparency decreases as there are more such dealers while the high transparency dealers get increasing benefit from informed traders who attempt to broadcast deceptive trades as a result a small number of transparent dealers persist in our markets

information technology and screen based securities trading pricing the stock and pricing the trade many major stock exchanges rely on their member firms to act as dealer intermediaries risking their own capital to trade as dealers with investor customers a confluence of forces will dramatically alter the role of these intermediaries and the strategies available to them information technology is increasing the diversity of trading strategies used by investors these impose different costs and risks upon intermediaries alternative electronic trading venues off exchange trading systems are increasing the competition faced by established exchanges and have been especially effective in targeting investors who impose low risks upon intermediaries finally many of the automated systems developed by existing exchanges have stripped of many of the cues that have in the past been used by intermediaries to assess the riskiness of an investor s trade and to price accordingly we believe that competitive pressure from alternative trading venues will drive exchanges to develop mechanisms to support risk based pricing we explore through a stylized model of trading how the use of risk based pricing can preserve the established central market this enables intermediaries to separate pricing the shares traded from pricing the services for dealing these shares and provides low cost execution while preserving the benefits of intermediation our model uses a detailed computer simulation in which dealers interact with order flow to produce a sequence of trades which determine market prices which in turn influence order flow the model enables us to calculate trading costs for different classes of investor various other standard measures of market quality and market maker profitability

automation versus intermediation evidence from treasuries going off the run this paper examines the choice of trading venue by dealers in u s treasury securities to determine when services provided by human intermediaries are difficult to replicate in fully automated trading systems when treasury securities go off the run their trading volume drops by more than 90 this decline in trading volume allows us to test whether intermediaries knowledge of the market and its participants can uncover hidden liquidity and facilitate better matching of customer orders in less active markets consistent with this hypothesis the market share of electronic intermediaries falls from 81 to 12 when securities go off the run electronic trading systems have been steadily increasing their share of securities trading in almost all financial markets as the amount of automation in financial markets increases it is natural to ask what services human intermediaries provide that are difficult or impossible to replicate in a fully automated trading system existing theory suggests that human intermediaries play at least two important functions first an intermediary s knowledge of the market and its participants may uncover hidden liquidity that facilitates quicker and more efficient matching of customer orders grossman 1992 the value of this matching function is greater when trading volume is low and matches are difficult to find second when information asymmetry is high the repeated interaction between an intermediary and its customers allows the intermediary to protect itself against informed trades and offer better prices to its customers seppi 1990 these two factors explain for example why electronic communications networks ecns have a greater market share for the largest and most actively traded nasdaq stocks while nasdaq market makers have a larger share in smaller less liquid stocks characterized by greater information asymmetry barclay hendershott and mccormick 2003 and why nyse specialists have higher participation rates in smaller less liquid stocks madhavan and sofianos 1998

rewards experience and decision costs in first price auctions consistent with a model of asymmetric risk aversion subjects in first price auctions consistently bid above the risk neutral nash prediction it has been argued that this is due to low opportunity cost of deviating from the risk neutral bid we increase opportunity cost and payoff levels by factors of 0 1 5 10 and 20 from the normal levels generating payoffs up to 250 for risk neutral subjects and observe an insignificant increase in the slope of individual bid functions the rmse of bids declines significantly this is consistent with a reward decision cost model of bidding behavior

competition among trading venues information and trading on electronic communications networks this paper explores the competition between two trading venues electronic communication networks ecns and nasdaq market makers ecns oier the advantages of anonymity and speed of execution which attract informed traders thus trades are more likely to occur on ecns when information asymmetry is greater and when trading volume and stock return volatility are high ecn trades have greater permanent price impacts and more private information is revealed through ecn trades than though market maker trades however ecn trades have higher ex ante trading costs because market makers can preference or internalize the less informed trades and oier them better executions technological innovations that enable high speed low cost electronic trading systems are dramatically changing the structure of nancial markets exchanges and markets around the world are merging or forming alliances to improve liquidity and reduce costs in the face of increased competition from each other and from these computerized trading systems trading volume on electronic communications networks ecns has grown rapidly over the past several years ecns are now involved in more than a third of nasdaq trading volume and are attempting to increase their market share in nyse listed

monetary rewards and decision cost in experimental economics a survey of thirty one experimental studies which report data on the comparative effects of monetary rewards and opportunity cost shows 1 several studies in which increased rewards shift the central tendency of the data toward the predictions of rational models 2 in virtually all cases rewards reduce the variance of the data around the predicted outcome this is consistent with a model in which rewards are balanced against decision cost in agent behavior and explicates the argument that when rational models fail it can be attributed to low opportunity cost of deviations from the rational prediction

does anonymity matter in electronic limit order markets we develop a model in which limit order traders possess volatility information we show that in this case the size of the bid ask spread is informative about future volatility moreover if volatility information is in part private we establish that i the size of the bid ask spread and ii its informativeness about future volatility should change in the same direction when limit order traders identifiers stop being disclosed we test these predictions using data from the paris bourse as expected we find that the average quoted spread and its informativeness are significantly smaller when limit order traders identifiers are concealed these findings suggest that the limit order book is a channel for volatility information

strikes are more common in countries with majoritarian electoral systems strikes are more common in those oecd countries where the legislature is elected in single member districts smd than in those where it is elected by proportional representation pr furthermore more working days are lost due to industrial conflict in countries with smd i suggest a politico economic explanation for these rarely noticed empirical regularities further empirical testing including controls drawn from previous strike research reveals that they hold up in a variety of econometric specifications

an experiment testing the determinants of non compliance with insider trading laws recent stories of corporate insiders avoiding losses and in some cases generating enormous personal profits as their companies crumbled have led investors to question the integrity of american business and the fairness of the united states stock markets the sec tries to ensure the fairness of the stock markets by making and enforcing laws against unfair practices such as insider trading in the united states when insiders trade stock based on non public information they have broken the law and betrayed the trust that has been placed in them

risk aversion transparency and market performance using a model of market making with inventories based on biais 1993 we find that investors obtain more favorable execution prices and they hence invest more when markets are fragmented in our model risk averse dealers use less aggressive price strategies in more transparent markets centralized because quote dissemination alleviates uncertainty about the prices quoted by other dealers and hence reduces the need to compete aggressively for order flow further we show that the move toward greater transparency centralization may have detrimental effects on liquidity and welfare

does risk sharing motivate interdealer trading we use unique data from the london stock exchange to test whether interdealer trade facilitates inventory risk sharing among dealers we develop a methodology that focuses on periods of extreme inventories inventory cycles we further distinguish between inventory cycles that are unanticipated and those that are anticipated because of worked orders the pattern of interdealer trade during inventory cycles matches theoretical predictions for the direction of trade and the inventories of trade counterparts we also show that london dealers receive higher trading revenues for taking larger positions

efficiency of experimental security markets with insider information an application of rational expectations models the study reports on the ability of competing models of market information integration and dissemination to explain the behavior of simple laboratory markets for a one priced security returns to the security depended upon a randomly drawn state of nature some agents insiders whose identity was unknown to other agents knew the state before the markets opened with replication of market conditions the predictions of a fully revealing rational expectations model are relatively accurate prices adjusted immediately to near rational expectations prices profits of insiders were virtually indistinguishable from non insiders and efficiency levels converged to near 100 percent

insider trading in a rational expectations economy it is often argued that efficiency considerations require society to freely permit insider trading in this article an opposing efficiency argument is formalized the model incorporates an investment stage followed by a trading stage if outsiders expect insiders to take advantage of them in trading outsiders will reduce their investment the insiders loss from this diminished investor confidence may more than offset their trading gains consequently a prohibition on insider trading may effect a pareto improvement insiders are made better off if they can precommit not to trade on their privileged information govemment regulation accomplishes exactly this jel 022 026 313 the traditional rationale articulated for insider trading regulation and other securities law is that such rules promote confidence in markets indeed president franklin d roosevelt justified the first major u s securities legislation by saying it should give impetus to honest dealing in securities and thereby bring back public confidence similar language is still invoked half a century later in connection with enforcement efforts against insider trading and in proposals for tightened stock

effects of market reform on the trading costs and depths of nasdaq stocks the relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate on january 20 1997 the securities and exchange commission began implementing reforms that would permit the public to compete directly with nasdaq dealers by submitting binding limit orders additionally superior quotes placed by nasdaq dealers in private trading venues began to be displayed in the nasdaq market we measure the impact of these new rules on various measures of performance including trading costs and depths our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality

episodic liquidity crises cooperative and predatory trading we describe how episodic illiquidity arises from a breakdown in cooperation between market participants we first solve a one period trading game in continuous time using an asset pricing equation that accounts for the price impact of trading then in a multi period framework we describe an equilibrium in which traders cooperate most of the time through repeated interaction providing apparent liquidity to one another cooperation breaks down when the stakes are high leading to predatory trading and episodic illiquidity equilibrium strategies that involve cooperation across markets lead to less frequent episodic illiquidity but cause contagion when cooperation breaks down why is illiquidity rare and episodic pastor stambaugh 2003 detect only 14 aggregate low liquidity months over the time period 1962 to 1999 despite being of significant magnitude most of the episodes were short lived and were followed by long periods of liquidity 1 the origin of this empirical observation still remains a puzzle in this paper we attempt to shed light on this puzzle by developing a theoretical model in which a breakdown in cooperation between traders in the market manifests itself in predatory trading this mechanism leads to sudden and short lived illiquidity we develop a dynamic model of trading based on liquidity needs during each period a liquidity event may occur in which a trader is required to liquidate a large block of an asset in a relatively short time period this need for liquidity is observed by a tight oligopoly whose members may choose to predate or cooperate predation involves racing and fading the distressed trader to the market

price conveyed information versus observed insider behavior a note on rational expectations convergence in a recent paper on behavior in experimental securities markets plott and sunder 1982 concluded that the rational expectations re model was superior to the traditional prior information pl model in predicting equilibrium prices and holdings in particular given a market with one commodity three possible states of the world and three groups of trader types each with differing valuations on the commodity per state initially uninformed traders were able to infer the underlying state from the current market price and act accordingly in a related paper friedman harrison and salmon 1984 observed that given the existence of a futures market the re model outperformed the pi model in multiperiod single commodity markets as well one source of potential misinterpretation however comes from the fact that although one half of the traders of each type were informed of the true state at the beginning of each period in plott and sunder 1982 and one third of the traders of each type in friedman harrison and salmon 1984 the same traders were informed in almost every period in a more recent paper plott and sunder 1983 constructed markets where all traders received partial information i e given possible states x y and z a trader s private information would be either not x or not y if the state were z yet the combinations of traders receiving a certain message in any period were determined randomly

transaction cost economics and cross national patterns of industrial conflict a comparative institutional analysis at the core of a capitalist system is an implied coalition between labor and capital built upon a system of exchange and compromise without capital the material condition upon which labor s interests are realized would be impossible likewise without labor s consent to exchange wages for future investment capital could not procure the profits and savings necessary for its reproduction and transformation organizing stable and cost efficient class coalitions has long been recognized as not merely an economic priority but a political challenge yet some democracies have met this challenge more successfully than others for the student of comparative political economy an enduring question remains why the present study is an attempt to provide an answer that complements and integrates the more common macroand microanalytic studies of industrial conflict it is argued here that a useful approach is to explicate some of the major microeconomic dynamics that condition exchanges between labor and capital and to demonstrate how institutional devices designed to accommodate political representation and conflict resolution facilitate or impede the process of class compromise by employing the logic of transaction cost economics the analysis highlights the comparative institutional elements fundamental to economizing on the costs of exchange shaping consensus within a political economy s industrial relations system the resulting transaction cost efficiency model of industrial conflict specifies the ex ante cost factors price margin of transaction and the institutional control of bounded rationality and the ex post cost factors legislative polarized pluralism executive hegemony and the frequency of general elections central to the process of building and sustaining class coalitions the model is tested on data drawn from 19 democracies covering the years 1965 83 use of simulation models reveals the relative trade offs associated with different patterns of ex ante and ex post cost structures

strategic trading in a dynamic noisy market this paper studies a dynamic model of a nancial market with a strategic trader in each period the strategic trader receives a privately observed endowment in the stock he trades with competitive market makers to share risk noise traders are present in the market after receiving a stock endowment the strategic trader is shown to reduce his risk exposure either by selling at a decreasing rate over time or by selling and then buying back some of the shares sold when the time between trades is small the strategic trader reveals the information regarding his endowment very quickly

the specification of econometric strike models a varma approach in the case of macro econometric strike models classical regression techniques do not deal with important specification issues 1 the question of causality between strikes and other variables 2 the choice of appropriate lag structures and 3 omitted variable bias moreover since rational bargainers would tend to avoid previous bargaining mistakes the determinants of strike activity in a given period may not apply in subsequent periods this study attempts to model post war us strike behaviour beacuse of the spurious regression problems vector autoregressive moving average varma techniques are preferred to standard regression methods for the early post war period strikes are successfully modelled in terms of unemployment and wage and price inflation there is no feedback from strikes to the other variables contrary to the predominant view that us strikes are more frequent when real wage increases are small increasing rates of wage change both real and nominal lead to more strikes for t

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

privileged traders and asset market efficiency a laboratory study the 39 experiments reported here examine the impact on trading profits and on market performance of awarding special trading privileges to some traders and not others in call market experiments the last mover and orderflow access privileges are both modestly prof itable and neither impairs market performance in continuous market experiments quicker access to orderflow information is quite profitable and more detailed access is possibly prof itable both privileges seem to enhance market performance slightly by contrast privileged marketmaking is extremely profitable and greatly impairs market performance

political and industrial change in a model of trade union militancy and real wage growth the paper forwards an analytical formulation of the wage generating process in which trade union militancy and real wage movements interact key features of the advanced model are 1 a clarification of the role of macropolitical variables and of changing industrial composition in the wage determination process and 2 a simple explanation of why increasing unemployment and accelerating real wage growth may raise trade union militancy the empirical results obtained for west germany support the proposed model and stress the importance of treating labor militancy as a latent unobservable variable which relates to multiple indicators and may be subject to measurement errors

the market value of information some experimental results the authors examine the price and allocation of purchased information and of the underlying asset in eight double auction asset market experiments observed outcomes support fully revealing rational expectations in simple environments in which uninformed traders can easily infer the private information of informed traders but support nonrevealing rational expectations in more complex environments the private value of information is positive in the more complex noisy environments but competition forces the information price to its nash equilibrium value and the net gain by purchasers is approximately zero copyright 1992 by university of chicago press

anonymity adverse selection and the sorting of interdealer trades this article asks why london security dealers use more than one trading venue to trade with one another we argue that differences in the exclusivity liquidity anonymity and post trade transparency of each system permit a more efficient sorting of interdealer trades than if there were just one system our evidence comes from detailed data on where london dealers chose to place interdealer trades contrary to intuition we show that uninformed interdealer trades as measured by subsequent price impact tend to migrate to third party brokered systems where trade is anonymous by contrast informed interdealer trades tend to migrate to the direct nonanonymous public market additionally we show that this distribution of trades is supported by differences in the price improvement dealers receive in the direct and brokered markets our findings have implications for three strands of the market microstructure literature first they contribute to our understanding of the importance of anonymity and transparency in securities trading most theoretical models of the effects of anonymity and transparency predict that anonymous trading systems will attract more informed trades

transparency and liquidity a study of block trades on the london stock exchange under different publication rules this article examines whether reducing a market s transparency by delaying the publication of prices for block trades has any impact on liquidity the analysis uses a sample of 5987 blocks from the london stock exchange that cover three different publication regimes immediate 1987 88 90 minutes 1991 92 and 24 hours 1989 90 delaying publication does not affect the time taken by prices to reach a new level which is rapid under all regimes spreads differ across years but their size relates more closely to market volatility than to speed of publication there is therefore no gain in liquidity from delayed publication

risk allocation and inter dealer trading this paper contrasts an auction and a dealership market in the latter parallel to the public market market makers are allowed to trade with each other in a separate inter dealer market since market makers are assumed to be risk averse variations in asset holdings induced by trades with outside investors generate portfolio hedging trade we find that the price at which market makers trade with each other in the inter dealer market determines the prices quoted in the public market for outside investors it is shown that an investor gets a better price in the dealership market as long as the market makers and speculators are imperfectly competitive and the delay between executing the customer s order and trading in the inter dealer market is not too large

inflation and political instability in eight latin american countries 1946 83 the path of consumer price rises is compared with data for the incidence of political change and the frequency of military regimes from 1946 to 1984 for the following countries argentina brazil chile colombia mexico peru uruguay and venezuela a highly significant connection between the frequency of military government and the level of inflation is found this appears to be due to two other significant results i the military regimes are relatively unstable ones ii inflation normally turns upwards under civilian and downwards under military regimes i e the military regimes are relatively strong in fighting inflation finally it is demonstrated that few regimes survive a spell of hyperinflation

laboratory experimentation in economics six points of view 1 introduction and overview alvin e roth 2 bargaining phenomena and bargaining theory alvin e roth 3 equity and coalition bargaining in experimental three person games reinhard selten 4 the psychology of choice and the assumptions of economics richard thaler 5 hypothetical valuations and preference reversals in the context of asset trading marc knez and vernon l smith 6 economics according to the rats and pigeons too what have we learned and what can we hope to learn john h kagel 7 dimensions of parallelism some policy applications of experimental methods charles r plott

multimarket trading and market liquidity when a security trades at multiple locations simultaneously an informed trader has several avenues in which to exploit his private information the greater the proportion of liquidity trading by large traders who can split their trades across markets the larger is the correlation between volume in different markets and the smaller is the informativeness of prices we show that one of the markets emerges as the dominant location for trading in that security when informed traders can use their information for more than one trading period the timely release of price information by market makers at one location adversely affects the profits informed traders expect to make subsequently at other locations market makers competing to offer the lowest cost of trading at their location consequently deter informed trading be voluntarily making the price information public and by cracking down on insider trading article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

supply contraction and trading protocol an examination of recent changes in the u s treasury market we investigate liquidity and trader behavior in the u s treasury market during recent supply contractions as in the precontraction period dealers employ expandable order strategies to achieve greater than posted depth at the posted price and use expandable orders more often when expected information asymmetry is greater overall however dealers are less likely to discover greater than quoted depth during the supply contraction regimes we find that even after substantial losses in their market share of coupon treasury trading brokers reporting voice brokered trading through govpx provide an important protocol for depth discovery we investigate liquidity and trader behavior in the u s treasury market during recent supply contractions as in the precontraction period dealers employ expandable order strategies to achieve greater than posted depth at the posted price and use expandable orders more often when expected information asymmetry is greater overall however dealers are less likely to discover greater than quoted depth during the supply contraction regimes we find that even after substantial losses in their market share of coupon treasury trading brokers reporting voice brokered trading through govpx provide an important protocol for depth discovery

the use of information system technology to develop tests on insider trading and asymmetric information issues related to insider trading remain popular research topics empirical studies using historical data are limited by two key factors 1 the inability to identify exactly who possesses inside information and 2 the inability to identify the accuracy of information possessed advances in information system technology enable us to overcome these problems in the laboratory using this technology we create a research shell to conduct experiments where we can identify the exact type and quality of information accessible by each trader our system includes the capability to monitor individual activities in accessing inside information the system can automatically impose a monetary penalty if random monitoring identifies a trader accessing inside information our experiments involve traders who receive access to inside information without initial knowledge of the quality of that information the results indicate that traders were able to outperform the market if penalties for being caught accessing such information were not included once penalties were included however no significant performance differences were observed finally in a second set of experiments involving a simplified market with infrequent electronic monitoring and low penalty amounts inside information seemed to be rapidly and effectively disseminated to traders possessing no inside information

institutional trades and intraday stock price behavior abstract this paper examines the price effect of institutional stock trading using a unique data set that reports the transactions large and small of 37 large institutional money management firms the direction of each trade and the identity of the management firm behind each trade are known although institutional trades are associated with some price pressure we find that the average effect is small there is also a marked asymmetry between the price impact of buys versus sells we relate our findings to various hypotheses on the elasticity of demand for stocks the cost of executing transactions and the determinants of market impact although market capitalization and relative trade size influence the market impact of a trade the dominant influence is the identity of the money manager behind the trade

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed