bulls bears and market sheep abstract a deterministic excess demand model of stock market behavior is presented that generates stochastically fluctuating prices and randomly switching bear and bull markets

the demand for parimutuel horse race wagering and attendance there has been a long history of patron participation in parimutuel horse race wagering and attendance which are major recreational products in consumer budgets in this paper the demand for parimutuel horse race wagering and attendance has been specified and estimated for both thoroughbred and standardbred racetracks in a multistate market area the data are annual over the period 1960 1987 it is found that demand is price elastic in every case racing quality personal income the number of racing days competition from a state lottery and from professional sports baseball basketball football are all significant determinants of these demands both attendance and wagering are found to increase with an increase in racing quality however it seems that the new patrons attracted by quality racing tend to wager less than those who attend regularly the presence of a state lottery is found to have resulted in a substantial loss in attendance as well as in wagering at each of the racetracks this i

resolving differences in willingness to pay and willingness to accept reply gwendolyn c morrison 1997 raises a logical point regarding our experimental test of the divergence between willingness to pay wtp and willingness to accept wta measures of economic value shogren et al 1994 she argues that our design does not provide a true test of the existence of a fundamental endowment effect since we did not control for the potential of a pivoting indifference map daniel kahneman et al 1990 she concludes that even though our ev idence shows that the mean wtp and wta bids for market goods with close substitutes e g candy bars and coffee mugs converge after market experience the endowment effect might still be alive and well albeit at statisti cally insignificant levels

the who and why of lottery empirical highlights from the seminal economic literature lotteries operate today in many countries around the world this type of gambling is usually run by governments and is sometimes described as regressive lottery is an unfair bet so explaining the purchase of lottery tickets by risk averse consumers has been a challenge for economic theory lotteries can be analysed from either of two economic perspectives as a source of public revenue or as a consumer commodity in this paper the state of economic research on lotteries is reviewed focusing on its main empirical findings

adaptive markets and the new world order corrected may 2012 in the adaptive markets hypothesis amh intelligent but fallible investors learn from and adapt to changing economic environments this implies that markets are not always efficient but are usually competitive and adaptive varying in their degree of efficiency as the environment and investor population change over time the amh has several implications including the possibility of negative risk premiums alpha converging to beta and the importance of macro factors and risk budgeting in asset allocation policies

commodities momentum a behavioral perspective the growth in commodity related investments has sparked interest in the performance of momentum strategies in these markets this paper introduces a behavioral proxy of the 52 week high and low momentum that explains a significant proportion of the variation of conventional momentum returns after controlling for commodity specific risk factors our findings show that the 52 week high strategy generates significant profits after accounting for transaction costs we report that the 52 week high strategy is a better predictor of returns than conventional momentum our findings suggest that term structure and hedging pressure risk factors provide only a partial explanation of the results

the disparity between willingness to accept and willingness to pay measures of value psychologists have long argued that people are much more averse to a loss than attracted to an equivalent gain this behavior termed loss aversion has been formalized by kahneman and tversky 1979 in their reformulation of expected utility theory prospect theory in prospect theory the utility function is replaced by a value function that evaluates changes in income from the current level increases in income are weighted by a relatively small marginal utility decreases in income are weighted by a much larger marginal utility in effect the value function implies that a kink in the relationship between utility and income occurs at the initial income or reference point and that the slope of the utility function for losses in income is steeper than it is for gains in a recent paper knetsch and sinden 1984 report a series of experiments that demonstrate the existence of a large disparity between willingness to accept wta and willingness to pay wtp measures of value they argue that the psychological theory of loss aversion explains this difference economic theory would suggest that individuals who exhibit a large disparity between wta and wtp are perhaps underperceiving the value of gains or overperceiving the value of losses are behaving in an irrational manner and will consequently achieve a lower level of well being than if they behaved in a true utility maximizing manner this would in contrast to loss aversion usually imply near equal values for wta and wtp see willig 1976 further documentation of a larger than expected disparity between wta and wtp has been obtained in surveys asking for the value of a variety of public goods for example cummings brookshire and schulze 1986 document six

a dynamic analysis of moving average rules abstract the use of various moving average ma rules remains popular with financial market practitioners these rules have recently become the focus of a number empirical studies but there have been very few studies of financial market models where some agents employ technical trading rules of the type used in practice in this paper we propose a dynamic financial market model in which demand for traded assets has both a fundamentalist and a chartist component the chartist demand is governed by the difference between current price and a long run ma both types of traders are boundedly rational in the sense that based on a fitness measure such as realized capital gains traders switch from a strategy with low fitness to the one with high fitness we characterize the stability and bifurcation properties of the underlying deterministic model via the reaction coefficient of the fundamentalists the extrapolation rate of the chartists and the lag length used for the ma by increasing the intensity of choice to switching strategies we then examine various rational routes to randomness for different ma rules the price dynamics of the ma rule are also examined and one of our main findings is that an increase of the window length of the ma rule can destabilize an otherwise stable system leading to more complicated even chaotic behaviour the analysis of the corresponding stochastic model is able to explain various market price phenomena including temporary bubbles sudden market crashes price resistance and price switching between different levels

relative wealth concerns and financial bubbles we present a rational general equilibrium model that highlights the fact that relative wealth concerns can play a role in explaining financial bubbles we consider a finite horizon overlapping generations model in which agents care only about their consumption though the horizon is finite competition over future investment opportunities makes agents utilities dependent on the wealth of their cohort and induces relative wealth concerns agents herd into risky securities and drive down their expected return even though the bubble is likely to burst and lead to a substantial loss agents relative wealth concerns make them afraid to trade against the crowd

traders expectations in asset markets experimental evidence we elicit traders predictions of future price trajectories in repeated experimental markets for a 15 period lived asset we find that individuals beliefs about prices are adaptive and primarily based on past trends in the current and previous markets in which they have participated most traders do not anticipate market downturns the first time they participate in a market and when experienced they typically overestimate the time remaining before market peaks and downturns occur when prices deviate from fundamental values belief data are informative to an observer in predicting the direction of future price movements and the timing of market peaks

commodity markets price limiters and speculative price dynamics abstract we develop a behavioral commodity market model with consumers producers and heterogeneous speculators to characterize the nature of commodity price fluctuations and to explore the effectiveness of price stabilization schemes within our model we analyze how nonlinear interactions between market participants can create either bull or bear markets or irregular price fluctuations between bull and bear markets through a global homoclinic bifurcation both the imposition of a bottoming price level to support producers or a topping price level to protect consumers can eliminate such homoclinic bifurcations and hence reduce market price volatility however simple policy rules such as price limiters may have unexpected consequences in a complex environment a minimum price level decreases the average price while a maximum price limit increases the average price in addition price limiters influence the price dynamics in an intricate way and may cause volatility clustering

automobile safety regulation and offsetting behavior some new empirical estimates suppose that engineers can demonstrate that air bags will reduce the risk of death in an automobile by 25 percent for any given frequency and severity of accidents would the installation of these devices necessarily reduce the fatality rate by 25 percent the answer depends upon the response of drivers to the increased protection from dangerous accidents if they increase their driving intensity speed recklessness driving while intoxicated driving in unsafe conditions etc they may realize substantially less than a 25 percent reduction in expected fatalities such offsetting behavior is not irrational it merely represents a substitution of the marginal benefits of driving intensity for the reduced marginal cost of risk if offsetting behavior actually occurs it may be realized in increased risks for bicyclists motorcyclists and pedestrians these externalities could be substantial unless there is a reduction in risk taking among these groups as a result the net effect of mandating air bags or any other safety device is far from obvious there may be no net reduction in fatalities or serious injuries these theoretical considerations are at the core of sam peltzman s classic study 1975 of automobile safety regulation for policymakers however the key question is how much offsetting behavior actually occurs as peltzman 1977 acknowledges offsetting behavior could be trivial or substantial in this paper we explore this issue providing new empirical estimates of the effects of crashworthiness standards established for automobiles over the past fifteen years these standards have required the installation of lapshoulder belts energy absorbing steering columns head restraints padded dashboards crush resistant passenger compartments safer windshield mounting more secure locks and a variety of other features

buying a dream alternative models of demand for lotto existing lotto demand models utilize effective price computed as the face value of a ticket minus the expected value of prize money per ticket as their primary explanatory variable by contrast this article proposes a key role for consumption benefit or fun in the demand for gambling in general and lotto demand in particular it develops an alternative model of lotto demand that focuses on the maximum possible prize when this is tested against the traditional model using data from the u k national lottery we find that jackpot considerations exert an influence over and above that of variations in effective price

financial crises and regime dependent dynamics abstract generalized with the regime dependent beliefs and regime switching dynamics the simple market maker framework established by day and huang 1990 is capable to model all types of crises that is sudden crisis disturbing crisis and smooth crisis and to offer economic and dynamic justifications on how and why these crises appear moreover the model simulations verify the salient qualitative and statistical properties commonly observed in the real financial data such as fat tails volatility clustering long range dependence leverage effect and other stylized facts additionally the model replicates the various chart patterns widely applied in the technical analysis

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

volatility clustering a nonlinear theoretical approach abstract this paper verifies the endogenous mechanism and economic intuition on volatility clustering using the coexistence of two locally stable attractors proposed by gaunersdorfer et al 2008 by considering a simple asset pricing model with two types of boundedly rational traders fundamentalists and trend followers and noise traders we provide theoretical conditions on the coexistence of a locally stable steady state and a locally stable invariant circle of the underlying nonlinear deterministic financial market model and show numerically that the interaction of the coexistence of the deterministic dynamics and noise processes can endogenously generate volatility clustering and long range dependence in volatility observed in financial markets economically volatility clustering occurs when neither the fundamental nor trend following traders dominate the market and when traders switch more often between the two strategies

who matters in coordination problems we consider a common investment project that is vulnerable to a self fullling coordination failure and hence is strategically risky based on their private information agents who have heterogeneous investment incentives form expectations or sentiments about the project s outcome we nd that the sum of these sentiments is constant across dierent strategy proles and it is independent of the distribution of incentives as a result we can think of sentiment as a scarce resource divided up among the dierent payo types applying this nding we show that agents who benet little from the project s success have a large impact on the coordination process the agents with small benets invest only if their sentiment towards the project is large per unit investment cost as the average sentiment is constant a subsidy decreasing the investment costs of these agents will free up a large amount of sentiment provoking a large impact on the whole economy intuitively these agents insensitive to the project s outcome and hence to the actions of others are inuential because they modify their

papers in experimental economics competitive market institutions double auctions vs sealed bid offer auctions consider a market with the following characteristics 1 privacy that is each agent knows only his own valuation or cost conditions 2 exchange follows the rules of the oral double auction that is buyers freely announce bids or accept offers and sellers freely announce offers or accept bids 3 aggregate market supply and demand per trading period is stationary for at least two to three periods and 4 there are at least four buyers and as many sellers the literature reporting the results of a large number of experimental markets with these characteristics documents what appears to be a remarkably rapid convergence to a competitive equilibrium ce however any claim of double auction da convergence to the ce can only have meaning in one of three senses i the ce is attained immediately ii after t periods of trading some measure of the market s state such as mean price is nearer relative to experimental sampling variability to a ce than to some distinct alternative equilibrium such as a monopoly or nash equilibrium iii after t periods of trading this measure is nearer to a ce in da experimental markets than in markets organized under a different institution of contract for example a sealed bid auction since everything from electrons and the stars to rats and people yield state measures subject to error or random variation the deterministic criterion i can have no serious scientific standing by such criteria any hypothesis can be rejected and there could be no science of physics biology or economics 2 with the exception of certain very simple markets such as single object auctions or certain idealized markets such as the cournot quantity adjuster model economics has only two concepts of equilibrium monopoly and competitive the only formal model of da trading that has been proposed see david easley and john ledyard p 6 predicts stochastic convergence in finite time with probability one to a ce hence the only test alternative to the ce research hypothesis in da markets is a monopoly or monopsony equilibrium experimentalists have not reported statistical tests of the ce professor department of economics university of arizona assistant professor department of economics indiana university instructor department of economics university of arizona and sandia national laboratories albuquerque nm respectively we are indebted to the national science foundation for research support and to art denzau and mort kamien for helpful comments there is an early and recently growing body of experimental evidence for convergence to a competitive equilibrium under double auction rules the earliest evidence contained in experiments initiated in january 1956 is reported in smith 1962 1964 1965 1976 however these early experiments used between twenty and fifty or so participant buyers and sellers because in keeping with prevailing professional beliefs it was thought that a ce was unlikely to be approached unless numbers were quite large using large numbers was not unreasonable since it is a good beginning procedure to give a theory whatever is believed to be its best shot more recent evidence using six buyers six sellers and two traders in speculative da markets with cyclical demand is reported by r m miller charles plott and smith and williams 1979 for evidence from a comparison of oral and computerized da experiments with four buyers and four sellers see williams 1980 for further evidence in the context of the study of price controls see m isaac and plott 1981b and smith and williams 1981b in the context of a conspiracy study see isaac and plott 1981a in the context of comparisons between da and posted offer pricing see jon ketcham smith and williams in the context of a study of four variations on da rules see smith and williams 1980 all of these more recent papers report double auction experiments using no more than four buyers and four sellers 2as frederick mosteller once noted if you wanted to reject the inverse square law of attraction try tossing a sheet of paper out the window

trading heterogeneity under information uncertainty abstract instead of heuristical heterogeneity assumption in the current heterogeneous agent models hams we derive the trading heterogeneity by introducing information uncertainty about the fundamental value to a ham conditional on their private information about the fundamental value agents choose different trading strategies when optimizing their expected utilities this provides a micro foundation to heterogeneity and switching behavior of agents we show that the ham with trading heterogeneity originating from the incomplete information performs equally well if not better than existing hams in generating bubbles crashes and mean reverting prices the simulated time series matches with the s p 500 in terms of power law distribution in returns volatility clustering and long memory in volatility

learning and complementarities in speculative attacks we study a model where the aggregate trading of currency speculators reveals new information to the central bank and affects its policy decision we show that the learning process gives rise to coordination motives among speculators leading to large currency attacks and introducing non fundamental volatility into exchange rates and policy decisions we show that the central bank can improve the ex ante effectiveness of its policy by committing to put a lower weight ex post on the information from the market and that transparency may either increase or decrease the effectiveness of learning from the market depending on how it is implemented

public information and uninformed trading implications for market liquidity and price efficiency abstract we develop a rational expectations equilibrium model in which noise trading comes from discretionary liquidity traders the equilibrium quantity of aggregate noise trading is endogenously determined by the population size of liquidity traders active in the financial market by improving market liquidity public information reduces the expected trading loss of liquidity traders and thus attracts more such traders to the market which negatively affects information aggregation analyzing an alternative setting that models noise trading as coming from hedgers yields similar insights in a setting with endogenous information public information can harm information aggregation both through crowding out private information and through attracting noise trading

disequilibrium economic dynamics a post schumpeterian contribution abstract adaptive economizing in a decentralized economy with alternative technologies and scarce resources leads to various kinds of locally unstable behavior economic disequilibrium is the rule in such a world and requires the presence of market mechanisms that make possible continued viability if in addition to local instability economies are also globally unstable as considerable evidence suggests then the discovery and application of new structure is essential a complete dynamic theory of economic change must therefore be based not only on conventional rationality and routinely adapting behavior but on a superior faculty which may perhaps best be called creative intelligence

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

the application of laboratory experimental economics to the contingent valuation of public goods we have implicitly argued in the last section that a dynamic iterative survey mechanism may well need to be employed in the design of contingent valuation survey instruments in order to improve the accuracy of responses furthermore due to the current inaccuracy of hedonic and travel cost approaches for valuing public goods the least cost method in our view for establishing anchor or true individual values for testing alternative survey instruments is to use laboratory experiments the objective of these experiments should be the development of the most simple survey design which gives accurate responses subject to the budget of the investigator is a complex iterative voting procedure required how fast will such a procedure converge to true values what is the effect on incentives of relaxing the unanimity voting feature for large groups all of these operational questions can at least qualitatively be answered in an experimental laboratory setting

coordinated bubbles and crashes abstract in a market with information friction investors strategically consider the actions of others and evolutionarily switch between fundamental and technical strategies to maximize their payoffs the collective actions of all investors exert feedback on asset price which affects investors subsequent actions we find that investors have the incentive to adopt fundamental strategy to restore market efficiency only if the mispricing is sufficiently large when investors fail to coordinate on the fundamental strategy market inefficiency increases which blows the bubble as market inefficiency grows the coordination on fundamental strategy strengthens which eventually bursts the bubble

heterogeneous speculators endogenous fluctuations and interacting markets a model of stock prices and exchange rates abstract we develop a discrete time model in which the stock markets of two countries are linked via and with the foreign exchange market the foreign exchange market is characterized by nonlinear interactions between technical and fundamental traders such interactions may generate complex dynamics and recurrent switching between bull and bear market phases via a well known pitchfork and period doubling bifurcation path when technical traders become more aggressive the two stock markets are populated by fundamentalists and prices tend to evolve towards stable steady states driven by linear laws of motion a connection between such markets is established by allowing investors to trade abroad and the resulting three dimensional dynamical system is analyzed one goal of our paper is to explore potential spill over effects between foreign exchange and stock markets a second related goal is to study how the bifurcation sequence which characterizes the market with heterogeneous speculators is modified in the presence of interactions with other markets

markets and the measurement of value consumer s surplus and the hicksian measures of compensating and equivalent variation have a long history in empirical economic analysis however at both the theoretical and the empirical level economists psychologists and public choice theorists have not been able to reach a significant consensus regarding the usefulness of these measures economic theorists have only recently dissected the differences which exist between alternative welfare measures in a systematic and transparent fashion in willig 1976 hausman 1981 and takayama 1984 the role of income in determining the correct theoretical measurements of compensating and equivalent variations was exposed during this same period of time theoretical results obtained by the psychologists kahneman and tversky 1979 indicated that the fundamental structure of preferences upon which the theoretical economic results are based is flawed the so called prospect theory of decision developed by these authors indicated that measured of welfare based upon payment will differ from measures of welfare based upon compensation because of the fact that individuals will value losses at a greater marginal rate than gains this difference was then predicted to dominate any income effect important in the economist s model finally this period recorded the emergence of many demand revealing processes which provide individuals with appropriate incentives to accurately reveal their preferences as summarized in coursey and schulze 1986 one interpretation of the literature on incentive compatibility suggests a set of well defined guidelines for improving both the accuracy and validity of compensating and equivalent variation measures these differences in professional preferences regarding what is important in improving the accuracy of economic welfare measurements led john

financial crises and interacting heterogeneous agents in this paper we examine various types of financial crises and conjecture their underlying mechanisms using a deterministic heterogeneous agent model ham in a market maker framework forward looking investors update their price expectations according to psychological trading windows and cluster themselves strategically to optimize their expected profits the switches between trading strategies lead to price dynamics in market that subsequently move price up and down and in the extreme case cause financial crises the model suggests that both fundamentalists and chartists could potentially contribute to the financial crises

the speed of information revelation in a financial market mechanism abstract the paper studies the rate at which dispersed private information about the value v of a risky financial asset is incorporated into prices in an information adjustment mechanism the mechanism in the presence of competitive market makers aggregates the information of risk averse agents at a rate of n 1 2 where n is the number of rounds of the adjustment process without market makers convergence of prices to v is much slower in any case the asymptotic precision of prices is negatively related to the degree of risk aversion and the amount of noise in the system journal of economic literature classification numbers d83 g14

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

auctions experiments and contingent valuation laboratory experiments are a welcome development that promise to make a significant contribution to the study of economic behavior heiner 1985 plott 1982 smith 1982 1985 while relatively new to economics controlled laboratory studies of human behavior have long constituted the core of experimental psychology where there is a wealth of methodological experience from which experimental economists might profitably draw in particular current attempts to apply laboratory auction methods to valuing nonmarket environmental goods would be improved by more rigorous experimental design and data analysis procedures

theory of constant proportion portfolio insurance abstract we study constant proportion portfolio insurance cppi a dynamic strategy that maintains the portfolio s risk exposure a constant multiple of the excess of wealth over a floor up to a borrowing limit we use this simple rule to investigate how transaction costs and borrowing constraints affect portfolio insurance type strategies absent transaction costs cppi is equivalent to investing in perpetual american call options and is optimal for a piecewise hara utility function with a minimum consumption constraint as the multiple increases the payoffs under cppi approach those of a stop loss strategy the expected holding period return is not monotonic in the multiple and a higher expected return can be obtained under cppi than with a stop loss strategy

heterogeneity and stability bolster the strong not the weak we first study a stylized model of self fulfilling panic among agents with differing fragilities to strategic risk and show that depending on the severity of coordination problems the panic trigger threshold can depend only on one type s fragility we then present a model of systemic panic among financial institutions with heterogeneous fragilities to financial spillovers concerns about potential spillovers generate strategic interaction triggering a pre emption game in which one tries to exit the market before others to avoid spillovers although financial contagion originates in weaker institutions systemic risk can critically depend on financial health of stronger in the contagion chain in this case bolstering the strong rather than the weak more effectively enhances systemic stability

strategic complementarities and the twin crises the economic literature has emphasized the role of strategic complementarities in generating banking crises and currency crises motivated by evidence from recent financial crises we study a model where strategic complementarities exist not only within a group of creditors or within a group of currency speculators but also between the two groups the additional type of strategic complementarities generates a vicious cycle between banking crises and currency crises this vicious cycle magnifies the correlation between the two crises and destabilizes the economy we discuss some empirical implications and policy implications and in particular show that due to the interaction between the banking sector and the currency market a lender of last resort might not be able to prevent bank runs

the relationship between betting and lottery play we apply a novel daily time series data set of daily turnover from one of britain s leading bookmakers to analyze potential substitution between lottery play and bookmaker betting we find some evidence that bettors do substitute away from horse race soccer and numbers betting when the effective price of lottery tickets is unusually low that is when there is a rollover or other special draw this substitution has a highly specific pattern of timing that varies by sector our results further suggest that bettors rationally engage in forward looking substitution within their betting portfolios

feedback effects and asset prices feedback effects from asset prices to firm cash flows have been empirically documented this finding raises a question for asset pricing how are asset prices determined if price affects fundamental value which in turn affects price in this environment by buying assets that others are buying investors ensure high future cash flows for the firm and subsequent high returns for themselves hence investors have an incentive to coordinate which may generate self fulfilling beliefs and multiple equilibria using insights from global games we pin down investors beliefs analyze equilibrium prices and show that strong feedback leads to higher excess volatility

do new gambling products displace old evidence from a postcode analysis paton d and vaughan williams l do new gambling products displace old evidence from a postcode analysis regional studies this paper examines the extent to which new gambling products displace traditional products in particular it tests whether the introduction of fixed odds betting terminals fobts affected the number of traditional gambling machines in great britain it uses data from geographical districts based on postcodes within great britain between 2001 and 2006 using a propensity score matching approach no significant evidence is found that fobts caused a reduction in the number of machines in venues other than licensed betting offices paton d and vaughan williams l fobts 2001 2006 fobts paton d et vaughan williams l les nouveaux jeux de hasard est ce qu ils remplacent les anciens des preuves provenant d une analyse

crises and prices information aggregation multiplicity and volatility crises are volatile times when endogenous sources of information are closely monitored we study the role of information in crises by introducing a financial market in a coordination game with imperfect information the asset price aggregates dispersed private information acting as a public noisy signal in contrast to the case with exogenous information our main result is that uniqueness may not obtain as a perturbation from perfect information multiplicity is ensured with small noise in addition we show that a multiplicity may emerge in the financial price itself b less noise may contribute toward nonfundamental volatility even when the equilibrium is unique and c similar results obtain for a model where individuals observe one another s actions highlighting the importance of endogenous information more generally

conquering misperceptions about commodity futures investing long only commodity futures returns have been very disappointing over the last decade leading some to wonder whether investing in commodities was a mistake the poor performance is largely the result of poor income returns a return building block similar to a stock s dividend yield or a bond s yield three misperceptions have contributed to this disappointment 1 commodities are a play on commodity prices 2 commodity prices provide an inflation hedge and 3 commodity markets which are smaller than facebook s market capitalization can absorb abundant capital learning from mistakes and conquering misperceptions are key to becoming a better investor