second best property value capitalization abstract a simple model of distortive local finance shows how lump sum finance models are misleading what information local prices contain in the presence of distortions and the feasibility of adjusting observed property value changes to infer resident net benefits of public goods

the behavior of futures prices a review of theory and evidence how do futures prices behave the evidence indicates that they are typically a biased predictor of spot prices at maturity however the typical contention that this bias reflects the existence of a seasonal risk premium is not strongly supported by observations although futures markets are used by risk averse producers seeking the insurance offered by risk bearing speculators hedgers have been able to buy their insurance relatively cheaply in many cases even profiting from their futures trading speculators earnings seem to depend on their forecasting skills not on the mere existence of a risk premium other evidence suggests that the existence of a bias in a particular market owes more to the unique characteristics of the underlying commodity than to the market s structural characteristics tests of the random character of futures prices have found some degree of serial dependence but it is not clear whether these dependencies can be profitably exploited studies of the volatility of futures price indicate that volatility changes over the life of a contract the changes appear to depend upon distributions of the underlying state variables and the time to maturity with the seasonal state variable effect being dominant so that volatility may rise or fall over the contract s life multiperiod equilibrium pricing models of futures and forward contracts show that the futures and forward prices usually differ because of marking to market in the futures market unlike forward trading futures trading represents speculation on both the instantaneous interest rates and the spot prices consequently futures prices depend on the comovement of spot prices and interest rates

financial futures hedging via goal programming this paper presents multiperiod multiple objective goal programming as an alternative to the more conventional hedge ratio approaches to financial futures hedging the described model offers the potential benefits of i simultaneous achievement of multiple hedge related objectives i e minimization of transactions and margin opportunity costs regulation of cash flow and maximization of profits accruing from both the cash and futures positions and ii periodic modification and updating of the futures position as suggested by actual observed prices and interest rates throughout the hedging period to assess its overall effectiveness the model was applied to develop appropriate hedging strategies for three separate time periods each representing a unique interest rate trend i e upward movement downward movement and no change since real world implementation of the model requires the use of forecast data independent forecasts of both cash and futures prices were generated via 1 moving average 2 exponential smoothing and 3 random walk techniques in progressing through each of the 13 week time periods all forecasts were updated with the previous weeks actual price data revised forecasts and actual price data were then incorporated into the model constraints on a weekly schedule this approach in essence provided weekly futures activity recommendations based on the most recent price and interest rate developments observed at any point during the hedging period the realized gains or losses were then compared to the previously derived perfect foresight model results and to the traditional hedge ratio results this allowed for evaluation of the model s effectiveness under varying forecast methods and varying interest rate trends the results show that the goal programming model outperformed other strategies in most cases

the effects of decision making on futures price volatility existing literature on commodity futures price volatility emphasizes time to expiration and the resolution of uncertainty in this paper we stress the supply and demand inflexibilities arising from decision making a decision made on the supply demand side makes future supply demand responses less elastic therefore a shock arising after a decision is made is more effective in changing the futures price than a shock before the decision is made the results support the time to maturity hypothesis but do not conflict with the state variable hypotheses of futures price volatility evidence supporting the impacts of inflexibilities are presented for corn soybean and wheat contracts

the minimum variance hedge ratio under stochastic interest rates in an environment where interest rates are stochastic we examine the case of a pure hedger endowed with a fixed position in a long term bond in contrast to conventional wisdom according to which the difference between hedging through forward contracts and futures is immaterial it turns out that the minimum variance hedge ratio using forwards comprises two terms instead of one only when using futures the magnitude of the difference between the two hedge ratios may be important under some plausible assumptions this result is due to the presence of additional interest rate risk that bears on the profit and loss statement associated with the forward position this sheds some additional light on the respective features of forward and futures contracts written on interest rate sensitive securities

micro estimates of public spending demand functions and tests of the tiebout and median voter hypotheses responses to questions given to a random sample of michigan households are used to estimate public spending demand functions while income and price elasticities are similar to those obtained from aggregate data positive income elasticities appear to arise because public services are distributed in a prorich manner a relatively small variance in spending demands among urban and suburban communities in metropolitan areas with substantial public service variety suggests that the tiebout mechanism works this interpretation is supported by the fact that actual spending conforms substantially to desired levels in urban areas but less so in rural areas with little public sector choice

grain price expectations of illinois farmers and grain merchandisers the study s purpose is to measure the extent to which futures and option prices reflect the subjective price distribution of a subset of market participants farmers and grain merchandisers in illinois findings suggest that in most instances the futures price is an appropriate proxy for expected price however volatilities implied by option premia usually overestimate the subjective variances of producers and merchandisers these differences between individual and market expectations of variance are consistent with findings of overconfidence in the psychology literature and should be considered by analysts when making observations about hedging decisions and risk aversion

an equilibrium analysis of hedging with liquidity constraints speculation and government price subsidy in a commodity market we develop a simple commodity model to analyze i the effects of hedgying with liquidity constraints due to producers inability to bear unlimited trading losses ii the role of speculation in the process of risk allocation between consumers and producers and iii the equilibrium implications of government price subsidies to the producers we find that 1 liquidity constraints can cause futures prices to exhibit mean reversion which then makes speculation profitable 2 speculation tends to make futures price volatility an increasing function of futures price and 3 government price subsidy if actively hedged by the producers serves to lower the futures risk premium and reduce futures volatility commodity spot and futures prices are determined by the following types of market participants producers consumers speculators and governments producers have generally taken short futures positions in order to hedge against price declines consumers have generally taken long futures positions in order to hedge against price increases speculators who neither produce nor intend to consume the commodity are present in the spot and futures markets for the purpose of making a profit governments play significant roles in the markets by providing producers with various support programs and in some cases by directly intervening in the markets to affect commodity prices or adjust inventory levels the traditional approach to commodity futures pricing has been based on the theory of storage 1 as fama and french 1987 1988 show this approach to commodity pricing is particularly useful for explaining the basis movement as a function of inventory levels based on the hypothesis that the marginal convenience yield on inventory declines at a decreasing rate as

the time pattern of hedging and the volatility of futures prices the paper proposes a multi period model of hedging which allows for a futures position to be revised within the cash market holding period within this framework we assess the robustness of the two period theory of hedging when generalized to many periods we characterize the normal time path of a hedge and the way it is affected by the requirement that futures accounts mark to market daily finally we show how the resolution of production uncertainty over time affects hedging behavior and determines the volatility of futures prices in the large literature on hedging in futures markets the principal analytical accounts of hedging are framed in a two trade date setting an agent commits himself now to a future purchase or sale of a good whose cash price later is uncertain this risk is hedged by purchase or sale of an appropriate number of futures contracts and holding this futures position until the cash transaction is realized in the present paper we formulate a multi period model of hedging which allows for the futures position to be revised within the cash market holding period the resulting analysis captures an important institutional reality that is absent in a two trade date model namely the fact that the day to day fluctuations of the futures price will generate a series of random cash flows over the period during which a futures position is held this is due to the requirement that futures accounts mark to market daily within this framework we address a number of issues first we assess the robustness of the two period theory of hedging when generalized to many periods second we characterize the normal time path of a hedge and contrast futures and forward contracts from the perspective of an individual hedger finally we show how the resolution of production uncertainty over time affects hedging behaviour and determines the volatility of futures prices while the literature on asset demand in a multiperiod setting is large futures markets are specifically treated in a limited number of studies grauer and litzenberger 1976 are concerned principally with characterizing the relation of spot and futures prices in a market for a storable periodically produced commodity they offer a rationale for positive stock holding in markets where spot price exceeds the futures price richard and sundaresan 1980 are also concerned primarily with characterizing price behaviour since they posit identical consumers in equilibrium individual holdings of futures are zero there is no hedging activity in the sense that we understand it breeden 1980b analyzes the optimal futures position sizes in a multiperiod setting his framework is more general than ours in that his is a multi good multi asset model where preferences

the many faces of tiebout bias in local education demand parameter estimates abstract tiebout sorting can occasion bias in public service demand parameter estimates in at least three distinct ways this paper identifies each of these types of tiebout bias and provides estimates of each of their magnitudes first the empirical results suggest that the type of tiebout bias first identified by goldstein and pauly is positive and large but that their proposed method of correcting for that bias substantially overestimates its magnitude second failing to control for unobservable taste variations that are negatively correlated with the difference between an individual household s income and the income of the decisive voter is found to impart a significant negative bias into the income parameter estimate we find that conventional demographic descriptors do not adequately control for such taste variations and consequently fail to protect the income parameter estimates from this type of tiebout bias finally the significant negative relationship between individual household school expenditure demands and deviations of individual household income from the income of the decisive voter suggest that tiebout sorting is a significant phenomenon

the behavior of forward looking firms in the very short run the study develops a theory of very short run forward looking behavior allowing for forward trading and storage of final good and material input production and storage are separable from hedging decisions and depend only upon current forward and cash prices comparative statics are derived regarding production purchases and sales the hypotheses advanced are tested with monthly data pertaining to the u s soybean processing industry results suggest that in short run equilibrium futures prices of the soybean complex have had little influence on crushings or production but they have been important determinants of inventory levels

optimal hedging and equilibrium in a dynamic futures market abstract this paper considers an agent maximizing the expected utility of the sum of the terminal value of a fixed portfolio of spot market assets and the terminal value of a margin account on a futures trading position closed form solutions for the optimal hedging strategy are provided in several special cases

capitalization and the theory of local public finance the tiebout literature is incomplete this paper argues because it has not fully accounted for the capitalization of local fiscal variables into house values the paper explains why capitalization arises why it persists in long run equilibrium how it affects both residential location and the outcome of local voting and why it interferes with the efficiency of a system of local governments the analysis which is based on the main tiebout assumptions plus a property tax combines a model of household bids in a housing market with a median voter model of local public service determination

calibration of option based probability assessments in agricultural commodity markets a method for evaluating the reliability of option based price probability assessments is developed based on the calibration concept empirical tests using goodness of fit criteria are applied to four agricultural commodities results suggest that assessments in the corn and live cattle markets are reliable but such assessments overstate the volatility of soybean prices and understate the location of hog prices

on welfare measurement in cities this paper extends project evaluation in a spatial urban economy to consider the more general case of distortionary public finances if a local public improvement is financed at least in part by a distortionary property tax we show that residential land prices do not accurately measure the value of land improvements even when households are identical and the improvement is infinitesimally small the magnitude and direction of the measurement error will depend on the second order effects on aggregate demand via changes in population density at each location and on overall city size

optimal dynamic hedging in unbiased futures markets a discrete time dynamic hedging problem is solved under expected utility maximization and basis risk without imposing a particular parametric form for utility nor assuming normally distributed cash and futures prices the solution is valid for any increasing and strictly concave utility function and for quite general specifications of the joint distribution of cash and futures prices this generality is achieved by restricting the futures market to be unbiased and requiring that the size of the cash position be nonstochastic the dynamic hedging rule can be estimated empirically using similar methods to those used to estimate static hedge ratios

competitive equilibrium and the core in club economies with anonymous crowding in club economies with anonymous crowding competitive equilibrium states of the economy are efficient and coincide with the core when there is only one private good anonymous admission prices permit consumers with different tastes to share facilities consumers might do so when their demands for facility size and crowding coincide in which case sharing is efficient thus similarity of demands is the relevant consideration for efficiently grouping consumers with different tastes

leviathan and fiscal illusion in local government overlapping jurisdictions this paper integrates twomodels of local government behavior leviathan and fiscal illusion into theframework of overlapping jurisdictions estimation of the leviathan and fiscalillusion variables without accounting forvertical effects between overlappingjurisdictions results in overestimation ofthe horizontal effects using a medianvoter model and municipal and county datawe find support for the leviathan modelusing traditional tests these effects arelargely offset however when the test isset within the context of the verticalrelationship we find that municipal percapita expenditures and county per capitaexpenditures are symmetricallycomplementary

price specification and the demand for public goods abstract nearly all public expenditure demand studies define the marginal price for publicly provided goods as the household s share of the local property tax burden or what is often called the tax price such a definition is at odds with two familiar facts taxes are ordinarily distortionary and property values are often influenced by the value of local services this paper constructs a theoretically consistent marginal tax price measure incorporating these considerations the new measure demonstrates that previous estimates of the price and income elasticities of demand for public services are biased except under very restrictive circumstances moreover the direction of this bias will depend upon the actual incidence of public spending and the tenure status of residents

landlords and farmers implications of disparities in bargaining power for tenancy in agriculture abstract the equilibrium allocation of owner operated and rental land in the agricultural sector is examined given risk averse agents risky returns and asset price risk the model is extended to account for disparities in bargaining power among landlords and farmers in the absence of disparities the competitive equilibrium allocation satisfies the general conditions for optimal risk sharing with an adjustment factor similar to the optimal hedge ratio differences in bargaining power result in deviations from the optimal risk sharing conditions numerical simulations of tenancy structure are conducted for a developed agricultural economy exposed to various forms of risk estimates of parameter values representing the riskiness of returns and asset prices in this study are based on vector auto regressive techniques the simulations show that a substantial reduction of the rental ratio is obtained in a situation where farmers are equally or more risk averse than landlords consequently the results indicate that the importance of the tenancy institution as a risk sharing mechanism is severely mitigated in the presence of asset price risk risky returns relatively risk averse farmers and disparities in bargaining power

testing the martingale hypothesis in deutsche mark futures with models specifying the form of heteroscedasticity summary we examine the form of heteroscedasticity in deutsche mark futures price data and compare different specifications of the particular way that the variance is changing over time the martingale hypothesis is tested with daily and weekly rates of change of futures prices for the deutsche mark and some evidence is found against this hypothesis in analyses of daily data from 1981 to 1985 this rejection of the martingale hypothesis may be attributed to trading day effects in foreign currency prices and the resulting day of the week patterns in futures prices when the martingale hypothesis is tested with weekly data the null hypothesis is retained

a continuous time equilibrium model of forward prices and futures prices in a multigood economy abstract this paper is a theoretical investigation of equilibrium forward and futures prices we construct a rational expectations model in continuous time of a multigood identical consumer economy with constant stochastic returns to scale production using this model we find three main results first we find formulas for equilibrium forward futures discount bond commodity bond and commodity option prices second we show that a futures price is actually a forward price for the delivery of a random number of units of a good the random number is the return earned from continuous reinvestment in instantaneously riskless bonds until maturity of the futures contract third we find and interpret conditions under which normal backwardation or contango is found in forward or futures prices these conditions reflect the usefulness of forward and futures contracts as consumption hedges

taxation and the tiebout model the differential effects of head taxes taxes on land rents and property taxes on the theory of state and local public finance is the seminal paper by charles tiebout 1956 tiebout constructed a multijurisdictional model in which independent local governments offer a wide variety of expenditure and tax policies and perfectly mobile consumers reveal their preferences for local public goods through their choice of residential community he argued that under such circumstances local public service provision would be efficient the tiebout model has formed the basis of a vast number of subsequent articles in the state and local public finance literature and has also been very influential in urban and regional economics the efficiency properties of various tiebout type models of local public good provision have been examined and the role of politics in these models has been debated at length in this literature of more direct relevance to this paper however is the fact that although tiebout had little to say directly about taxation simply assuming the existence of head taxes subsequent analyses have used adaptations of this model to examine the effects of local head taxes land taxes and property taxes it is the literature on the efficiency and distributional effects of alternative local taxes that is the subject of this survey 1

heterogeneity of preferences for local public goods the case of private expenditure on public education abstract revealed preference techniques are used to investigate the degree of heterogeneity of local public good preferences by testing the hypothesis that demographic characteristics are correlated with preferences for expenditure on public education the test relies on a goodness of fit index which is on an estimation of wasted consumer expenditure we use bootstrap techniques to estimate the distribution of the test statistic preference heterogeneity is found to be common however democrat protestant households are found to have similar tastes and to a lesser extent so are households with school age children where at least one other trait is held in common republicans exhibit the greatest degree of preference heterogeneity

a test for allocative efficiency in the local public sector abstract this paper develops a test for pareto efficiency in the local public sectorusing the analytical result that aggregate property value is maximized at the public output level which satisfies the samuelson condition for efficiency by using cross section data it is possible to deduce whether a representative community provides its public goods in a property value maximizing and hence efficient fashion the empirical results show no systematic tendency to either under or over provide public goods in a sample of massachusetts communities

testing for weak form efficiency of crude palm oil spot and future markets new evidence from a garch unit root test with multiple structural breaks there is a sizeable literature that tests for weak form efficiency in commodity and energy spot and future prices while many studies now allow for multiple structural breaks to address the criticism that conventional unit root tests have low power to reject the unit root null in the presence of structural change the extant literature overlooks the fact that conventional unit root tests are biased in the presence of conditional heteroscedasticity we apply a recently developed generalized autoregressive conditional heteroscedasticity garch unit root test with multiple structural breaks to crude palm oil spot and future prices and find much more evidence against weak form efficiency than that found using tests that fail to allow for conditional heteroscedasticity our results point to the importance of allowing for heteroscedasticity when testing for efficiency in commodity and energy spot and future prices

electricity markets volatility estimates regularities and risk management applications the recent deregulation of the market for electric power in many parts of the us and canada has expanded the set of potential tools for managing the types of risks faced by both generators and consumers of electric power in particular manufacturing and other firms whose operations are powered by electricity now face on a continuing basis the engineering management decisions concerning whether they should buy or produce electricity and if they are to buy or sell electricity what types of contracts are optimum these types of risk management decisions typically involve futures forwards options and other financial derivatives the price and volatility of electric power are known to play an essential role in determining which of these instruments should be used however electricity as a commodity possesses certain special features not shared by other commodities and hence its risk properties are not yet well understood in this paper we consider and test certain hypotheses about the properties of electricity price using recent market data we find that electricity prices possess certain volatility and other systematic properties that can be characterized by the type and method of delivery of electricity these properties can be used by firms in formulating their optimal demand and supply schedules of electric power

optimal storage by crop producers when post harvest marketing strategies are restricted by disallowing speculative purchases sales out of storage becomes an irreversible decision and the dynamic marketing problem becomes analogous to the optimal exercise of a financial option the optimal marketing strategy is to hold at low prices and to sell at high prices with a cutoff price function marking the boundary between low and high prices a method for estimating the cut off price function is developed and applied to illinois soybean prices the decision rule is demonstrated to result in substantial gains from storage copyright 2002 oxford university press

seasonal patterns of futures hedging and the resolution of output uncertainty abstract optimal futures hedging is examined in a two good model with stochastic output and sequential information arrival a producer s optimal hedge depends on demand elasticity sensitivity of his output to weather his correlation with aggregate output and how rapidly his output uncertainty is resolved relative to other producers during different seasonal periods because regional output uncertainties are resolved at different times the optimal futures position of a grower will commonly reverse in direction during the crop year a producer with non stochastic output who faces price risk arising from demand shocks may remain unhedged or even maintain a long position

the political economy of transition the overriding importance of political constraints in the transition process has led to developments of the theory of the political economy of reform what are the main insights from that theory how does it reflect the transition reality what have we learned and what do we still need to learn the present article will attempt to answer those questions

forward contracts and futures contracts abstract this paper provides a detailed discussion of the similarities and differences between forward contracts and futures contracts under frictionless markets and continuous trading simple arbitrage arguments are invoked to value forward contracts to relate forward prices and spot prices and to relate forward prices and futures prices we also argue that forward prices need not equal futures prices unless default free interest rates are deterministic

a note on futures markets with small price and production risks when the spot price and production risk are jointly normally distributed the mean variance approach has little theoretical justification the authors use taylor approximations instead and show the three results one farmers hedge less than expected production when the futures price is less than or equal to the expected spot price two when the futures price equals the expected spot price farmers facing production risk produce less than those without production risk three normal backwardation contango prevails in the markets when correlation between the spot price and production risk is smaller greater in absolute value than the ratio of coefficients of variation of these variables copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

pricing and storage of field crops a quarterly model applied to soybeans this paper considers the role of competitive storage in markets for annually harvested field crops a quarterly model is presented that considers the allocative role of storage both within and between crop years rational price expectations are endogenous variables calculated by a recursive method forward stochastic simulations using the model generate data that can be used to characterize the distributions of the variables in the base case the model is assigned parameter values from a quarterly econometric model of the u s soybean market the results shed light on the distributions of the quarterly variables including the rational price expectations and show how these distributions are affected by changes in the carrying charge

the samuelson hypothesis in futures markets an analysis using intraday data this paper considers the samuelson hypothesis which argues that the futures price volatility increases as the futures contract approaches its expiration utilizing intraday data from 20 futures markets in six futures exchanges we find strong support for the samuelson hypothesis in agricultural futures however the samuelson hypothesis does not hold for other futures contracts we also provide supporting evidence that the negative covariance hypothesis is the key factor for the empirical support of the samuelson hypothesis in addition our findings remain largely unaltered even after we control for seasonality and liquidity effects

the emergence of english commercial law analysis inspired by the ottoman experience abstract thirteenth century england was a commercial backwater whose trade was dominated by foreigners to accommodate and encourage foreign merchants england modified its legal system by creating legal institutions that were available to both domestic and foreign traders among the most important of these institutions were streamlined debt collection procedures and mixed juries composed of both englishmen and foreigners by introducing institutions that treated locals and foreigners equally england created a level playing field that enabled english merchants to become increasingly prominent in the later middle ages england s ability to modernize its law was facilitated by the secular nature of english law the representation of merchants in parliament and legal pluralism medieval england contrasts sharply with the early modern ottoman empire the latter created special institutions for foreign merchants which eventually put ottoman muslims at a competitive disadvantage

tiebout bias on the demand for local public goods abstract empirical work estimating the demand for local public goods has been based upon the median voter model it has generally proceeded with little consideration given to the possibility of tiebout type migration emphasized in the property value literature in this paper we raise the question of how valid the typical cross section demand estimation procedures are when possible tiebout like migration among jurisdictions is taken into account we find that such procedures are not in fact consistent with a model in which people vote with their feet as well as with ballots we also show that if a full tiebout equilibrium has been achieved in a set of communities there is a simple and obvious way to estimate demands for local public goods which is different from the median voter approach this technique has not to our knowledge been used in existing studies and moreover has some practical as well as theoretical advantages if the workings of the tiebout process are not taken into account more is involved than just impracticality we show that the estimated effects of personal characteristics will generally be biased and that that direction of the bias can usually be determined

local property taxation with external land ownership abstract when housing in a local jurisdiction is produced using perfectly mobile capital and land owned by non residents a property tax on housing results in tax exporting this paper examines how property tax poll subsidy policies are determined in the presence of tax exporting and shows that the optimal property tax is the optimal tariff when residents are homogeneous when residents have different incomes and are mobile across jurisdictions the majority voting equilibrium property tax poll subsidy policy depends on factors such as tax exporting intrajurisdictional redistribution and congestion if the effect of intrajurisdictional redistribution is negligible for the median voter household mobility may result in a property tax poll subsidy policy that induces emigration of rich households

more reasons why farmers have so little interest in futures markets the use by farmers of futures contracts and other hedging instruments has been observed to be low in many situations and this has sometimes seemed to be considered surprising or even mysterious we propose that it is in fact readily understandable and consistent with rational decision making standard models of the decision about optimal hedging show that it is negatively related to basis risk to quantity risk and to transaction costs farmers who have less uncertainty about prices and those with a diversified portfolio of investments have lower optimal levels of hedging if a farmer has optimistic price expectations relative to the futures market the incentive to hedge can be greatly reduced and finally farmers who have low levels of risk aversion have little to gain from hedging in terms of risk reduction in that the certainty equivalent payoff at their optimal hedge may be little different than the certainty equivalent under zero hedging these reasons are additional to the argument of simmons 2002 who showed that if capital markets are efficient farmers can manage their risk exposure through adjusting their leverage obviating the need for hedging instruments

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

explaining the economic trajectories of civilizations the systemic approach abstract a civilization constitutes a durable social system of complementary traits some of the complementarities of any given civilization are between elements of material life and ones commonly treated as integral to culture identifying the mechanisms responsible for a civilization s observed trajectory involves therefore causal relationships that cross the often postulated cultural material divide complementarities make it difficult to transplant institutions across civilizations on a piecemeal basis they imply that reforms designed to jump start an economy will fail unless they are comprehensive civilizational analysis can benefit therefore from attention to institutional complementarities including ones involving both cultural and material variables

assessing the information content of mark to market accounting with mixed attributes the case of cash flow hedges we examine how outsiders rationally interpret a reported loss on derivatives when the application of mark to market accounting to cash flow hedges creates a mixed attribute problem we find that because of the mixed attribute problem the information content of mark to market accounting is related to the information content of historical cost accounting in a very specific way this relationship allows us to identify the circumstances under which mark to market accounting facilitates and when it detracts from the objective of providing an early warning of potential financial distress we show that the reporting of an impending derivative loss by a distressed firm can actually lead outsiders to infer that the firm is in a better financial position than what they would have inferred under the silence associated with historical cost accounting without the mixed attribute problem mark to market accounting would always yield more accurate assessments of the firm s financial position

volatility in electricity derivative markets the samuelson effect revisited this article proposes an empirical study of the samuelson effect in electricity markets our motivations are twofold first although the literature largely assesses the decreasing pattern in the volatilities along the price curve in commodity markets it has not extensively tested the presence of such a dynamic feature in electricity prices second the analysis of a non storable commodity enriches the literature on the behavior of commodity prices indeed it has been sometimes asserted that the samuelson effect results from the presence of inventories we examine the four most important electricity futures markets worldwide for the period from 2008 to 2014 the german nordic australian and us markets we also use the american crude oil market as a benchmark for a storable commodity negotiated on a mature futures market our analysis has two steps i in addition to the traditional tests we propose and test a new empirical implication of the samuelson effect price shocks should spread from the physical market to the paper market and not the reverse ii based on the concept of indirect storability we investigate the link between the samuelson effect and the storability of the commodity we find evidence of a samuelson effect in all of the electricity markets and show that storage is not a necessary condition for such an effect to appear these results should be taken into account for the understanding of the dynamic behavior of commodity prices for the valuation of electricity assets and for hedging operations

voluntary income redistribution with migration abstract this paper examines theoretically the welfare magnet problem brought about by income redistribution in a small area where disparities across jurisdictions in transfer policies may induce both recipient and resource migration we show that the level of redistribution determined by majority rule may either rise or decline as household mobility increases and that this level will be either higher or lower than the efficient level to an extent that depends on local market conditions the social value of migrants and the mobility of both the rich and the poor in particular an economy may benefit from the immigration of transfer recipients we also derive the form of an efficient community specific subsidy to transfers which in some cases will be negative

optimal hedging in a dynamic futures market with a nonnegativity constraint on wealth abstract this paper examines the issue of optimal hedging demands for futures contracts from an investor who cannot freely trade his portfolio of primitive assets in the context of lognormal rather than normal returns and of a constant absolute risk aversion utility function in this context the nonnegativity constraint on wealth is binding and the optimal hedging demands are not identical with those encountered in the bulk of the literature which has largely overlooked this problem negative results concerning the derivation of equilibrium in the futures markets and the computation of the open interests then follow

tiebout bias and the demand for local public schooling institute of university of ii business and california economic research berkeley center for real estate and urban economics working paper series working paper 86 109 tiebout bias and the demand for local public schooling by daniel l rubinfeld perry shipiro judith roberts these papers are preliminary in nature th urpose 39 to stimulate 39 ussion comment therefore they are not t cited or quoted 39 ny p ation wit express permissio the author graduate school of business administration

expiration and maturity effect empirical evidence from the spanish spot and futures stock index the paper studies how the time remaining to the expiration date of derivative markets affects the volatility of the ibex 35 index expiration effect and its futures market maturity effect the innovation of the study lies in both effects being studied together for the spanish stock market using bivariate ecm garch including dummy variables that express the time left to expiration day the results obtained show that during the week of the expiration day the conditional variance of both markets increases without presenting any significant behaviour in the correlation level during the second week however the conditional variance diminishes and the degree of correlation between both markets increases

intertemporal commodity futures hedging and the production decision this paper deals with the producer s optimal use of commodity futures in hedging the framework for analysis is an intertemporal consumption and investment model the producer makes his production decisions at the beginning of the period and realizes his return at the end of the time interval during the period he faces both price and output uncertainties in applying stochastic dynamic programming methods this paper shows the effect of these risks on his consumption behavior further the paper investigates his optimal hedging positions in the futures market over time and his optimal production decisions finally implications of these results on the futures markets are discussed this paper studies a normative model of the farmer s optimal hedging strategy and consumption behavior in a continuous time framework recent papers for example berck 3 rolfo 18 stoll 21 have analyzed the farmer s hedging strategies in a one period context these papers have provided interesting insights into the farmer s production decisions and the optimal design of futures contracts and markets however in a one period model some rather restrictive conditions are imposed on the individual s behavior for example in these models an individual is assumed to ignore any information arrival process as a result the individual is assumed to adjust neither consumption behavior nor hedging positions to the changing state of the world during the production period these conditions can be relaxed in a continuous time framework in an intertemporal context the farmer s hedging problem may be viewed as follows since the farm income at harvest depends on both the spot price and the output in bushels the farmer is subject to both price and output uncertainties during the production period 1 when the farmer can hedge only in the commodity futures market he cannot eliminate both the price and output uncertainties by any hedging strategy 2 as the farm income represents a significant portion of his wealth he must necessarily hold an undiversified portfolio during the production period therefore in essence the farmer must solve for his investment consumption behavior and his hedging strategy facing the nonmarketable asset problem mayers 14 in a multiperiod framework in this context one can see intuitively the major difference between a one

forward and futures prices evidence from the foreign exchange markets empirical studies of the treasury bill markets have revealed substantial differences between the futures price and the implied forward price these differences have been attributed to taxes transaction costs and the settling up procedure employed in the futures market this paper examines the forward and futures prices in foreign exchange in an attempt to distinguish between the competing explanations empirical studies of the treasury bill market have revealed differences between the futures price or rate and the implicit forward price derived from the term structure of interest rates 1 these differences have generally been attributed to market imperfections such as taxes and transaction costs see for example arak 1 capozza and cornell 2 and rendelman and carabini 6 recently however cox ingersoll and ross 3 henceforth cir derived a model in which forward and futures prices need not be equal even in perfect markets without taxes as long as interest rates are stochastic the significance of the cir effect may be hard to investigate using only data from the bill market because of the potentially complicating effects of taxes and transaction costs unique to this market by using data from the foreign exchange market we are able to eliminate the tax effect and reduce the impact of transaction costs the question we address is whether the discrepancies observed in the treasury bill market are also observed in the foreign exchange market if they are then we have evidence that the differences are due to a combination of the cir effect and the transaction costs common to both markets if they are not then either the magnitude of the cir effect is much less in the foreign exchange market or the treasury bill results are due to the unique tax treatment and transaction costs of that market this paper is organized as follows in section i the trading mechanics of the forward and futures markets in foreign exchange are discussed section ii reviews the explanations for the discrepancies between the forward and futures prices for treasury bills the institutional differences between the foreign exchange and bill markets are also summarized to show which of these explanations cannot apply to the foreign exchange market in section iii the data are decribed and the empirical results are presented the conclusions are summarized in the final section

a simple multiperiod minimum risk hedge model a multiperiod hedging model is developed that is simpler than other multiperiod models in the literature the model permits periodic adjustment of the hedge while minimizing the producer s profit variance minimum risk hedge ratios are calculated for steers cows hogs corn and soybeans using the full model with hedge adjustments every two months these ratios are compared to those using the model without periodic hedge adjustments and to a simple single period model the results suggest that simple models may work well for simple hedges while the full model is best for more complex hedging situations such as cross hedges our purpose in this paper is to develop a multiperiod hedging model in which the hedge can be updated each period other multiperiod hedging models e g anderson and danthine karp have substantial data requirements which limit their use as viable hedging tools our aim is to develop a simpler model that will have practical application the model is used to calculate minimum risk hedge ratios for steers cows hogs corn and soybeans and these ratios are compared with hedge ratios based on a multiperiod model in which the hedge cannot be adjusted each period simple minimum risk hedge ratios also are computed for each commodity and compared with the other ratios

the empirical analysis of fiscal illusion this paper examines the empirical analysis of the five main hypotheses subsumed under the generic term fiscal illusion after placing these hypotheses within a common theoretical framework the paper attempts to evaluate empirical research into the revenue complexity hypothesis the revenue elasticity hypothesis the flypaper effect renter illusion and debt illusion

investment and hedging under a stochastic yield curve abstract this paper examines portfolio decisions involving both fixed and non fixed income securities two state variables the short term and the long term interest rates fully determine the bonds prices and partly influence the other assets prices we propose first a methodology for determining optimal portfolios in such a context and then use that methodology to solve the portfolio problem of investors whose long term bond holdings are constrained which generates undesirable interest rate risk that are hedged with futures contracts the individual futures positions which involve several hedging components and the futures market equilibrium open interest are derived and analysed

production flexibility stochastic separation hedging and futures prices we study a dynamic model where uncertainty about interim output adjustments causes producers to face price cost and output uncertainty stochastically separable production decisions are independent of the producer s risk preferences and expectations and are based on the prevailing futures price as a certain output price conditions under which futures contracts achieve stochastic separation are established optimal hedging and maturity structure of futures contracts equilibrium futures prices and the effects of futures trading on output are studied the systematic risk premium depends on the product of the futures beta and the covariance of the market return with production revenues article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies