variations in trading volume return volatility and trading costs evidence on recent price formation models patterns in stock market trading volume trading costs and return volatility are examined using new york stock exchange data from 1988 intraday test results indicate that for actively traded firms trading volume adverse selection costs and return volatility are higher in the first half hour of the day this evidence is inconsistent with the admati and pfleiderer 1988 model which predicts that trading costs are low when volume and return volatility are high interday test results show that for actively traded firms trading volume is low and adverse selection costs are high on monday which is consistent with the predictions of the foster and viswanathan 1990 model academics investors and regulators alike are now intensively focused upon understanding the volatility of asset returns and its relation to trading volume this interest was undoubtedly piqued by the market break of october 1987 a time during which volatility and trading volume reached unprecedented levels but even beforehand researchers observed regular differences in the return process for various hours of the day and days of the week research concerning temporal patterns in stock market volatility and volume falls in two groups studies that document observed patterns and studies that develop models to predict patterns among the studies in the first group are oldfield and rogalski 1980 french and roll 1986 stoll and whaley 1990 harris 1986 and wood mcinish and ord 1985 who report evidence on seasonalities in daily and weekly return variances among the regularities that have been documented using interday data is that volatility is higher when the market is open than when it is closed oldfield and rogalski 1980 french and roll 1986 and stoll and whaley 1990 for example point out significant differences in return volatility between trading

do stock markets catch the flu we examine the impact of influenza on stock markets for the united states a higher incidence of flu is associated with decreased trading decreased volatility decreased returns and higher bid ask spreads consistent with the flu affecting institutional investors and market makers the decrease in trading activity and volatility is primarily driven by the incidence of influenza in the greater new york city area however the effect of the flu on bid ask spreads and returns is related to the incidence of flu nationally international data confirm our findings of a decrease in trading activity and returns when flu incidence is high

day of the week effects and asset returns the number of empirical studies using daily stock returns is rapidly increasing researchers generally assume that the distribution of stock returns is identical for all days of the week a convenient statistical assumption but not a necessary condition of market equilibrium nevertheless there are reasons to suspect that the distribution of returns may vary according to the day of the week the most obvious is the impact of weekends on monday s return since monday s return is calculated over three instead of one calender day the mean and variance may well be higher on monday compared with any other daily return perhaps three times as large previous research has examined the daily distribution of stock returns for a monday effect while fama 1965 does not compare daily mean returns he does report that monday s variance is about 20o greater than other daily returns with a traditional distributional assumption regarding the returns on a financial asset specifies that the expected returns are identical for all days of the week contrary to this plausible assumption this paper discovers that the expected returns on common stocks and treasury bills are not constant across days of the week the most notable evidence is for monday s returns where the mean is unusually low or even negative several explanations of the results are investigated but none proves satisfactory aside from documenting significant day of the week effects the implications of the results for tests of market efficiency are examined while market adjusted returns continue to exhibit day of the week effects these effects are no longer concentrated on monday during the last year we have had many conversations with our colleagues throughout the professions we are particularly thankful to the participants at sessions of the western and american finance associations where preliminary versions of this paper were presented special thanks are due to gene fama gailen hite jon ingersoll robert jarrow merton miller clifford smith and rex thompson the expert research assistance of frank rabinovitch and youngsup yun is gratefully acknowledged 1 the list of papers using daily stock returns is too long to name recent examples include charest 1978 dodd 1980 banz 1981 and reinganum 1981

the sensitivity of vpin to the choice of trade classification algorithm abstract the vpin metric easley et al 2012b aims to detect and predict the toxicity of order flow this paper examines the sensitivity and robustness of vpin to the choice of trade classification scheme which is the major input used to compute vpin we compare deterministic trade by trade classification approaches with results computed using a newly proposed heuristic approach bulk volume classification we find substantial differences for all levels of aggregation trade classification order imbalance vpin and identifying toxic periods we also find that the detection of toxic periods does not yield consistent results in more than 60 of cases but regression analysis can identify volume and return volatility as parameters that contribute to higher levels of sensitivity

a day end transaction price anomaly a large mean price change is observed on the last daily nyse transaction this suggests that closing prices may not consistently represent stock values transaction prices are studied to further characterize the day end price rise and to determine whether it is due to any limited subsample of stocks or dates the results indicate that the phenomenon is pervasive over most firms and days some evidence suggests that it is caused by a change in the frequency of ask prices at day end

informativeness of trade size in foreign exchange markets this article investigates a trading strategy that relies on private information in an electronic spot foreign exchange market in a structural microstructure model extended for high frequency data our analysis links the informational content of trading activity to order size we find that large currency orders are likely to be placed by informed traders during increased price volatility episodes in addition the data suggest that excess kurtosis in exchange rate returns corresponding to large price contingent trades is significantly lower than that in small trades

sources of stagnation in sub saharan africa abstract this paper investigates the sources of economic stagnation in sub saharan africa during the 1970s several policy variables are considered as well as a set of environmental variables which include climate violence export prices and other exogenous factors the paper uses statistical analysis in an attempt to identify the relative importance of the policy variables and the environmental variables taken as groups it also seeks to identify particular policy variables which seem to have been most significant in determining growth outcomes the technique employed for investigation is reduced form econometric estimation in a preliminary analysis the impact of the international trade environment on average economic performance in africa during the period since independence is investigated the results suggest an extremely close relationship between movements in export prices and average performance throughout the 20 year period a second econometric exercise investigates the joint impacts of environmental and policy variables on growth in a cross section of african states since 1970 the spirit of the approach is exploratory and a relatively large number of variables are constructed and tested through multivariate analysis a primary finding is that the environmental variables seem to have had more impact on growth as a group than the policy variables this finding must be qualified however by the continuing lack of some important policy variables agricultural price data have not yet become available in sufficient quantity for cross section analysis nor have several important human resource variables and indices of the use of resources in the public domain among the policy variables which have been used for the analysis those identified with retrenchment during periods of declining commodity prices seem most significant primary among these are the real effective exchange rate and some measures of effectiveness in foreign exchange reallocation during periods when imports must contract severely in the final section of the paper the cross section results are used for a counterfactual analysis of the growth experiences of individual african states measures of growth opportunity cost are constructed which suggest the degree to which errors in management and uncontrollable circumstances have held states below their potential growth paths the results suggest that some success stories may owe much to good luck while some failures may well be due less to bad management than to adverse circumstances

an error correction model of induced innovation in uk agriculture cointegration techniques are applied to a model of induced innovation based on the two stage constant elasticity of substitution ces production function this approach results in direct tests of the inducement hypothesis which are applied to agricultural data for the united kingdom from 1953 to 2000 the time series properties of the variables are checked cointegration is established and an error correction model ecm constructed which attempts to separate factor substitution from technological change finally the ecm formulation is subjected to causality tests which show that the factor price ratio for chemicals and land is granger prior to the factor saving bias of technological change however long run relative prices are not causally prior to the machinery labour ratio this results from perturbations in the user cost of machinery caused by oil price shocks thus the induced innovation hypothesis iih may explain long run transformations like the mechanical and fertilizer revolutions that

participating in african monetary unions an alternative evaluation abstract this paper complementary to that of devarajan and de melo deals with the development strategies and performances of 12 franc zone african countries 11 of them gathered in two monetary unions during 1960 1981 beside the actual rate of growth the relative growth performance is considered this performance measured as a residual of a regression on exogenous factors factors independent of economic policy appears to be close to the average performance of other developing countries and better than that of other african countries the results are explained by the direct influence of the foreign exchange regime of the zone and by its impact on economic policy economic policies of individual countries show however some substantial degree of autonomy

price volatility trading volume and market depth evidence from futures markets the relations between volume volatility and market depth in eight physical and financial futures markets are examined evidence suggests that linking volatility to total volume does not extract all information when volume is partitioned into expected and unexpected components the paper finds that unexpected volume shocks have a larger effect on volatility further the relation is asymmetric the impact of positive unexpected volume shocks on volatility is larger than the impact of negative shocks finally consistent with theories of market depth the study shows large open interest mitigates volatility

multivariate tests of the zero beta capm abstract a cross sectional regression test csrt of the capm is developed and its connection to the hotelling t2 test of multivariate statistical analysis is explored algebraic relations between the csrt the likehood ratio test and the langrange multiplier test are derived and a useful small sample bound on the distribution function of the csrt is obtained an application of the csrt suggests that the crsp equally weighted index is inefficient but that the inefficiency is not explained by a firm size effect from february to december

soes trading and market volatility the national association of security dealers alleges that professional trader use of the small order execution system soes causes greater security price volatility we docu ment bidirectional granger causality between a proxy for professional soes trading the frequency of maximum sized soes trades and a measure of stock price volatility we find that high levels of volatility precede high levels of maximum sized soes trades suggesting that volatility causes more frequent large soes trades likewise over a one minute time interval high levels of maximum sized soes trades cause high volatility over longer periods however intense maximum sized soes trading causes lower volatility inter preted in conjunction with harris and schultz 1997 these results suggest that high levels of maximum sized soes trades lead to more efficient price discovery in light of these results we believe that efforts to eliminate soes based on volatility considerations are unwarranted

liquidity dynamics and cross autocorrelations this paper examines the relation between information transmission and cross autocorrelations we present a simple model where informed trading is transmitted from large to small stocks with a lag in equilibrium large stock illiquidity induced by informed trading portends stronger cross autocorrelations empirically we find that the lead lag relation increases with lagged large stock illiquidity further the lead from large stock order flows to small stock returns is stronger when large stock spreads are higher in addition this lead lag relation is stronger before macro announcements when information based trading is more likely and weaker afterward when information asymmetries are lower

is the relationship between financial development and economic growth monotonic evidence from a sample of middle income countries summary we revisit the relationship between financial development and economic growth in a panel of 52 middle income countries over the 1980 2008 period using pooled mean group estimations in a dynamic heterogeneous panel setting we show that there is an inverted u shaped relationship between finance and growth in the long run in the short run the relationship is insignificant this suggests that too much finance can exert a negative influence on growth in middle income countries the finding of a non monotonic effect of financial development on growth is confirmed by estimating a threshold model

time and dynamic volume volatility relation abstract this paper examines volume and volatility dynamics by accounting for market activity measured by the time duration between two consecutive transactions a time consistent vector autoregressive var model is employed to test the dynamic relationship between return volatility and trades using intraday irregularly spaced transaction data the model is used to identify the informed and uninformed components of return volatility and to estimate the speed of price adjustment to new information it is found that volatility and volume are persistent and highly correlated with past volatility and volume the time duration between trades has a negative effect on the volatility response to trades and correlation between trades consistent with microstructure theory shorter time duration between trades implies higher probability of news arrival and higher volatility furthermore bid ask spreads are serially dependent and strongly affected by the informed trading and inventory costs

divergence of opinion in complete markets a note we consider an arrow debreu model with agents who have different subjective probabilities in general asset prices will depend only on aggregate consumption and the distribution of subjective probabilities in each state of nature if all agents have identical preferences then an asset with more dispersed subjective probabilities will have a lower price than an asset with less dispersed subjective probabilities if risk aversion does not decline too rapidly it seems that this condition is likely to be met in practice so that increased dispersion of beliefs will generally be associated with reduced asset prices in a given arrow debreu equilibrium there have been several recent investigations concerning the effect of heterogeneous probability beliefs on asset prices most of these investigations have taken place in the context of capm like mean variance models see for example lintner 5 miller 7 williams 10 jarrow 4 and mayshar 6 comparatively little has been done in the analysis of differences of opinion in an arrow debreu contingent claims context rubinstein 8 breeden and litzenberger 2 and breeden 1 have presented nice analyses of asset price determination in an arrow debreu model but most of their results have assumed commonly held probability beliefs in this paper we analyze the impact of divergence of opinion on asset prices in an arrow debreu economy the results serve to generalize the findings of rubinstein and breeden litzenberger to the case of different probability beliefs among the results we establish are 1 in equilibrium asset prices depend only on aggregate consumption and the distribution of subjective probability beliefs 2 asset values are an increasing function of any one individual s probability beliefs 3 an increase in the spread of the probability beliefs of investors may increase or decrease equilibrium asset values depending on the value of a parameter of the utility function however the most likely effect is to decrease the asset values these results are especially interesting in light of the recent empirical work of cragg and malkiel 3 they studied the relationship between ex post return and various measures of risk for common stocks and found that the measure of risk that performed best in their analysis was a measure of divergence of opinion

on multivariate tests of the capm abstract this paper evaluates the power of multivariate tests of the capital asset pricing model the results indicate that when employing an unspecified alternative hypothesis the ability of the tests to distinguish between the capm and other pricing models is poor an upper bound is derived for the distance the alternative distribution of the test statistic can be from the null distribution when the deviations from the capm are due to missing factors this upper bound explains the low power of the tests

aid and growth in sub saharan africa the recent experience abstract this paper presents some quantitative evidence on the relationship between foreign aid and economic growth in the low income countries of sub saharan africa two key findings are presented first aid is positively and significantly correlated with investment and economic growth in africa second fix capital formation contributed to the rate of growth this result which emerges from analyzing time series data is somewhat surprising given the disappointing performance of african countries since the early 1970s

penny wise dollar foolish buy sell imbalances on and around round numbers this paper provides evidence that stock traders focus on round numbers as cognitive reference points for value using a random sample of more than 100 million stock transactions we find excess buying selling by liquidity demanders at all price points one penny below above round numbers further the size of the buy sell imbalance is monotonic in the roundness of the adjacent round number i e largest adjacent to integers second largest adjacent to half dollars etc conditioning on the price path we find much stronger excess buying selling by liquidity demanders when the ask falls bid rises to reach the integer than when it crosses the integer we discuss and test three explanations for these results finally 24 hour returns also vary by price point and buy sell imbalances are a major determinant of that variation across price points buying selling by liquidity demanders below above round numbers yield losses approaching 1 billion per year this paper was accepted by brad barber teck ho and terrance odean special issue editors

monetary co operation and economic growth in africa comparative evidence from the cfa zone countries this article compares economic growth performance of ten african countries all members of the cfa monetary zone with that of 23 non zone sub saharan african ssa countries our descriptive results suggest that overall african economies have experienced similar growth trends which are higher in the 1970s than the 1980s however contrary to previous studies disaggregated comparison of the cfa with the ssa indicate that no significant growth differences exist between these economies moreover our empirical findings suggest that monetary expansion and capital formation have positive impacts on output growth whereas inflation and government spending show negative effects in sum although participating in a monetary union has not necessarily resulted in faster output growth it has enabled the cfa countries to better control price fluctuations and monetary expansion

determinants of productivity change using a profit function smallholder agriculture in zimbabwe the concept of total factor productivity tfp the ratio of quality adjusted output to input is straightforward yet explaining pro ductivity change and attributing residual out put growth to its appropriate sources raises numerous problems it has long been argued that technical change policy reform and insti tutional innovation are complements and are all required to achieve sustained productivity growth johnson lipton evenson and kramer binswanger and pingali however in explain ing productivity growth the emphasis usually is put on weather and on investments that gen erate new technology which farmers must be educated to use usually public sector research and development expenditures extension farmer education while these are un doubtedly important the conventional approach see for a survey has often ne glected the role of policies and investments at other stages of the agricultural system affecting farm technology adoption 1the danger of the conventional approach is that it may not adequately measure policy ef fects on productivity through their influence on input and output prices the conventional ap proach may therefore provide misleading impli cations for promoting productivity growth weak infrastructure and institution can prevent

financial development and growth in sub saharan africa do legal origin and cfa membership matter this article examines whether relations between legal origin financial development and economic growth that hold worldwide hold in british and french legal origin sub saharan africa ssa as well we also test for the differential impacts on financial development and on growth of communaute financiere africaine cfa currency union membership within french legal origin ssa our panel regressions and descriptive measures agree with the findings of british legal origin advantage with respect to financial development in addition financial development contributes positively to economic growth in british legal origin ssa as it does worldwide within french legal origin ssa we find that currency union constraints tend to hinder financial development in cfa countries beyond the negative impacts of french legal origin moreover contributions to the growth of various indicators of financial development in french legal origin ssa are negative or insignificant irrespective of cfa membership

the italian stock market efficiency and calendar anomalies abstract after describing the various concepts of efficiency information valuation full insurance and functional with special reference to the italian stock market the paper analyzes the impact of particular dates and periods of the civil year and stock exchange calendars on stock price changes to test the existence of information inefficiencies the analysis is based on the milan stock exchange s mib storico stock index with reference to the period 2 january 1975 22 august 1989 the events tested for systematic anomalies include weekend and public holidays the end of the calendar and stock exchange months and the end of the year the results obtained are in line with those found for the u s market with evidence of anomalous changes though not all are stable over time

food marketing and pricing policy in eastern and southern africa a survey abstract this article surveys the empirical record of grain marketing and pricing policy in eastern and southern africa over 1930 1995 the paper addresses five key issues with major implications for food policy throughout africa a why the anticipated supply response to market liberalization has not yet occurred b why the common assumption of state taxation of farmers to support a cheap food policy does not apply in most of the countries in the region c why the temporary successes of the state led approach to stimulating smallholder grain production were unsustainable d why the elimination of government food subsidies associated with market reform has not adversely affected consumers and e why the fiscal cost of the marketing systems at least initially worsened rather than improved after the reforms were implemented in most countries the key future challenges for marketing policy are how to develop coordinated and financially sustainable input finance and commodity marketing systems for raising productivity growth in smallholder agriculture while overcoming inherited agricultural dualism and how to mitigate the effects of food price instability in a cost effective manner

aggregation of test statistics an evaluation of the evidence on contracting and size hypotheses abstract more powerful tests of a theory of choice of accounting methods and the effect of changes in these choices on equity values are provided the power increase comes from efficiently aggregating results across studies one conclusion is that at least six variables common to more than one study have explanatory power these variables are managerial compensation leverage size risk and constraints on interest coverage and dividends another conclusion is that the posterior probability that the theory taken as a whole has explanatory power is close to one this conclusion includes the effect of variables that only appear in one study

nonnormalities and tests of asset pricing theories the robustness of the multivariate test of gibbons ross and shanken 1986 to nonnormalities in the residual covariance matrix is examined after considering the relative performance of various tests of normality simulation techniques are used to determine the effects of nonnormalities on the multivariate test it is found that where the sample nonnormalities are severe the size and or power of the test can be seriously misstated however it is also shown that these extreme sample values may overestimate the population parameters hence we conclude that the multivariate test is reasonably robust with respect to typical levels of nonnormality in traditional hypothesis testing a nonrandom test maps the values of a random variable into a sample space dichotomized into regions where a hypothesis is either accepted or rejected there are three possible outcomes from this process 1 a correct decision 2 a false rejection type i error or 3 failure to reject the hypothesis when it is false type ii error of the latter two types of error an error of the first kind is usually considered less desirable so typically a level of significance is selected with low probability of type i error e g 0 05 or 0 01 and a test is chosen so as to maximize power minimize probability of type ii error for the specified level of type i error knowledge of the relative level of these two errors is critical in assimilating the results of an experiment for example if the power of a test is equal to its significance level i e a weak test rejection of the null contains zero information 2 additionally in constructing parametric tests of hypotheses it is necessary to assume some distribution for the underlying data consequently when using parametric tests rejection of the null is only equivalent to rejection of at least one of the underlying hypotheses i e the null hypothesis or the distributional assumption interestingly the size significance level and power of procedures used to test

liquidity credit quality and the relation between volatility and trading activity evidence from the corporate bond market this paper investigates the roles of illiquidity and credit risk in determining the relations between price volatility of a bond and its trading frequency and trade size based on a large transaction dataset from october 2004 to june 2012 we find a positive relation between volatility and trading frequency and a negative relation between volatility and trade size consistent with the prediction of the search based theory the relations are much stronger for illiquid and risky bonds furthermore both liquidity and credit risk become more important in times of stress and their effects are reinforcing results strongly suggest that search frictions and credit risk are important factors driving the relation between volatility and trading activity in the corporate bond market

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

export instability and economic growth in sub saharan africa empirical research on the relationship between export instability and economic growth in less developed countries ldcs has yielded mixed results while some researchers find a negative relationship between export instability and economic growth others find a positive relationship a third group of researchers finds no significant relationship between export instability and economic growth in ldcs 1 those who find a negative relationship between export instability and economic growth in ldcs stress the negative effect export instability has on the supply of output through the generation of uncertainty in long term planning as well as due to shortages of inputs at critical times during the production process those who find a positive relationship between export instability and economic growth argue that ldcs respond to export instability by reducing consumption this process if repeated over a period of time increases savings and hence the rate of investment those who find no significant relationship between export instability and economic growth argue that ldcs are able to anticipate the fluctuations in export earnings and plan for such fluctuations hence instability in export earnings has no appreciable effect on economic growth c moran investigates the relationships between domestic savings rate and economic growth rate on the one hand and export instability on the other in a sample of ldcs 2 he finds that export instability has no significant long run impact on either domestic savings rate or economic growth rate however over relatively short periods of time export instability has a negative and significant effect on both savings and economic growth rate the negative effect occurs when the negative effects of price and of quantity fluctuations reinforce each other on the other hand when the negative effect of price fluctuations is counterbalanced by the effects of quantity fluctuations export instabil

an information theoretic analysis of stock returns volatility and trading volumes information theory is used to examine the dynamic relationships between stock returns volatility and trading volumes for s p500 stocks this provides an alternative approach to traditional granger causality tests when dealing with nonlinear relationships the article highlights the dominant role played by trading volumes in all of these relationships even in the return volatility relation and finds evidence of a market level feedback effect from index returns to the return volatility relation at the stock level the article also produces a number of stylized facts from an information theoretic perspective

subperiod aggregation and the power of multivariate tests of portfolio efficiency abstract when testing portfolio efficiency empiricists usually perform tests using subperiods and aggregate the results in some manner although the power of individual subperiod tests has been studied previously little is known about the power of the aggregate test power is evaluated here through simulations using two different aggregation techniques aggregate power is substantially higher than that for a single subperiod for example in one scenario the aggregate power is 0 77 over a sixty year period but only 0 17 for each five year subperiod in addition the level of power depends on the method of aggregation

productivity growth and environmental regulation in mexican and u s food manufacturing many argued during the nafta debate that trade liberalization would favor mexican over u s food processors especially because of lax environmental laws south of the border we find through an examination of profit functions that productivity growth in mexico has outstripped that in the united states suggesting free trade indeed will benefit mexican suppliers u s pollution regulations have had no impact on the profitability or productivity of u s food manufacturing in contrast mexico s swiftly rising environmental standards have enhanced food processors productivity growth corroborating the porter hypothesis pollution law therefore has favored mexican over u s food processing but for reasons few had anticipated

the real exchange rate and macroeconomic performance in sub saharan africa abstract pooled time series and cross section data for 33 countries in sub saharan africa ssa confirm the negative relationship between the real exchange rate rer misalignment and economic performance economic growth imports exports saving and investment macroeconomic instability also slows growth and other indicators of performance higher levels of misalignment are accompanied by higher levels of macroeconomic instability both lower levels of rer misalignment and instability lead to better economic performance the edwards model of rer determination performs well for the region black market premia tend to show a greater degree of misalignment in rer than alternative measures

regulatory and legal pressures and the costs of nasdaq trading the nasdaq market came under intense pressure from regulators and class action lawsuits following allegations of tacit collusion by christie and schultz 1994 this article examines the changes in transaction costs on the nasdaq from january 1993 through june 1996 using 16 million trades in 30 stocks effective spreads cannot be matched however the autocovariance spread estimator of roll 1984 works well with intraday data over this period this spread estimator reveals that trading costs declined significantly for 29 of the 30 stocks over 1993 96 article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

trade liberalization and industrial growth in pakistan a cointegration analysis using the framework of an endogenous growth model this study empirically analyses the relationship between trade policies and industrial growth in pakistan during the period 1973 1995 the cointegration and error correction modelling approaches have been applied the empirical results suggest that there exists a unique long run relationship among the aggregate growth function of industrial value added and its major determinants of the real capital stock the labour force real exports the import tariff collection rate and the secondary school enrolment ratio the short term dynamic behaviour of pakistan s growth function of industrial value added has been investigated by estimating an error correction model in which the error correction term has been found to be correctly signed and statistically significant

stock prices and volume the authors undertake a comprehensive investigation of price and volume co movement using daily new york stock exchange data from 1928 to 1987 they adjust the data to take into account well known calendar effects and long run trends to describe the process they use a seminonparametric estimate of the joint density of current price change and volume conditional on past price changes and volume four empirical regularities are found 1 positive correlation between conditional volatility and volume 2 large price movements are followed by high volume 3 conditioning on lagged volume substantially attenuates the leverage effect and 4 after conditioning on lagged volume there is a positive risk return relation article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the impact of trades on daily volatility this article proposes a trading based explanation for the asymmetric effect in daily volatility of individual stock returns previous studies propose two major hypotheses for this phenomenon leverage effect and time varying expected returns however leverage has no impact on asymmetric volatility at the daily frequency and moreover we observe asymmetric volatility for stocks with no leverage also expected returns may vary with the business cycle that is at a lower than daily frequency trading activity of contrarian and herding investors has a robust effect on the relationship between daily volatility and lagged return consistent with the predictions of the rational expectation models the non informational liquidity driven herding trades increase volatility following stock price declines and the informed contrarian trades reduce volatility following stock price increases the results are robust to different measures of volatility and trading activity jel c30 g11 g12 stock return volatility is fundamental to finance contingent claims pricing risk management asset allocation and market efficiency tests use volatility as a basic building block consequently volatility has been widely studied along several dimensions volatility clustering in financial data has been well documented and extensively modeled by the autoregressive conditional heteroskedasticity arch of engle 1982 and the generalized arch extension of bollerslev 1986 1 shiller 1981 leroy and porter 1981 roll 1984 1988 french and roll 1986 and cutler poterba and summers 1989 have all documented a significant amount of volatility that cannot be explained by changes in fundamentals and thus may be attributable to mispricing schwert 1989 has studied the variation in stock market volatility over time and has analyzed the

an investigation of transactions data for nyse stocks using transactions data the behavior of returns and characteristics of trades at the micro level is examined a minute by minute market return series is formed and tested for normality and autocorrelation evidence of differences in return distributions is found among overnight trades trades during the first 30 minutes following the market opening trades at the close and trades during the remainder of the day the latter distribution is found to be normal unusually high returns and standard deviations of returns are found at the beginning and the end of the trading day when the beginningand end of the day effects are omitted autocorrelation in the market return series is reduced substantially a number of patterns in trading are reported this paper empirically investigates the nature of the return generating process and the characteristics of trade size price changes trading frequency and trading interval at the level of individual trades for a large sample of nyse stocks previous studies of market indices have used daily weekly or monthly

real exchange rate behavior and economic performance in ldcs in recent years policy discussions have included increasing references to real exchange rate rer stability and correct exchange rate alignment as crucial conditions to improve economic performance in less developed countries ldcs 1 evidence from latin american asian and african countries is often quoted to support the view that the link between rer behavior and economic performance is strong it is argued that while unstable rers inhibited export growth in some of latin america their stability was fundamental in promoting east asian expansion in many african countries on the other hand persistently misaligned local currencies harmed the development of agriculture reducing domestic food supply 2 but in spite of its importance no empirical work has been attempted either to test the relationship between rer behavior and performance indicators at a broad multicountry level or to investigate the sources of rer variability and misalignment in ldcs the theoretical literature on rer determinants has been recently surveyed by sebastian edwards 3 he distinguishes between equilibrium and disequilibrium rers and between external and domestic rer determinants although domestic policies are often said to account for significant rer variations empirical work has only concentrated on the effect of nominal devaluations4 or speculative crises arising from expansionary monetary policies in a system of fixed ex

transactions volume and volatility we show that the positive volatility volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions thus it is the occurrence of transactions per se and not their size that generates volatility trade size has no information beyond that contained in the frequency of transactions our results suggest that theoretical research needs to entertain scenarios in which 1 both the frequency and size of trades are endogenously determined yet 2 the size of trades has no information content beyond that contained in the number of transactions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

government and economic growth in the less developed countries an empirical study for 1960 1980 adam smith founded modern economics with a powerful argument that free markets are the best route to prosperity and economic growth his conclusion has been studied and debated by economists ever since including nobel prize winners friedman hayek kuznets lewis myrdal and schultz whatever economists have concluded since world war ii the majority of the less developed countries seem to have opted for extensive government regulation of the private sector and for a large public sector has the large government role slowed or accelerated the growth of ldcs obviously this is an important issue this study looks at government expenditure revenue raising and regulation greater emphasis is put on expenditure because 1 the revenue raised is presumably a function of the level of expenditure and 2 there are few internationally comparable measures of regulation there are virtually no empirical studies of the general impact of government on economic growth an extensive literature search turned up only three papers gemmell analyzed the impact of nonmarket sector growth on various measures of macroeconomic performance for 27 ldcs and developed countries for 1960 and 1970 he drew no general conclusions about the relation between the size of the nonmarket sector and economic growth marsden found a negative relation between tax gdp ratios and economic growth for a cross section of 20 ldcs and developed countries for the 1970 79 period 2 i found a negative relationship between the share of government consumption expenditure in gdp and the growth of per capita gdp for a cross section of 96 ldcs and developed countries over various time periods between 1961 and 1976 3 this paper extends the approach used in my 1983 article

the place of agricultural research in the development of sub saharan africa abstract outside sub saharan africa ssa agricultural research ar yields excellent returns why does ssa get so little from its major ar effort why do its ar scientists cost more yet produce less smallness of countries and research stations dispersion and high turnover make it hard to attain a critical mass of national ar scientists to remedy this they could concentrate on a few problems and crops yet they have neglected many of the most important e g cassava and overstressed export crops in other ways too european biases have distorted african ar socioeconomists moreover have entered research design too little and too late above all current domestic funds have been too scanty and unreliable to adequately support international and capital account ar efforts this lack of steady commitment illustrates ar s need for direction from clearer agricultural policy based on radically improved information and recognizing ssa s dramatic rise in labor land ratios guidelines for such policy are indicated within these a formalized and poverty oriented ar design system is suggested

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

social welfare of alternative controlled price policies recent developments in social welfare analysis provide insights into the selection of price policies in the presen t paper a ces social welfare function and a weighted average of utilitarian and leximin rules are used to identify optimal producer prices in an economy where government is the price setter and agents are risk averse the analysis distinguishes between the interests of commercial producers peasant producers consumers and taxpayers a n application to zimbabwe indicates that a maize producer price in the low medium to medium portion of the historical range would be social ly optimal if egalitarian preferences are moderate this outcome is somewhat insensitive to group weighting schemes and to interpersonal utility correspondences copyright 1993 by mit press

a re examination of financial development stock markets development and economic growth this study provides new evidence on the role of financial development and stock market development in accounting for economic growth across geographic regions and income groups to derive feasible policy implications we estimate not only unbalanced panel regressions with period fixed effects but also variance decompositions of annual gross domestic product gdp growth rates to examine what proxy measures are most important in economic growth over time and how much they contribute to economic growth we find distinct direction timing and strength of the causal links between financial development stock market development and economic growth based on the results of granger causality tests therefore it may be necessary to make different efforts to achieve steady economic growth across geographic regions and income groups

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

order imbalance liquidity and market returns traditionally volume has provided the link between trading activity and returns we focus on a hitherto unexplored but intuitive measure of trading activity the aggregate daily order imbalance on the new york stock exchange signed order imbalances increase decrease following market declines rises which reveals that investors are contrarians on aggregate order imbalances in either direction either excess buy or sell orders reduce liquidity market wide returns are strongly affected by contemporaneous and lagged order imbalances market wide returns reverse themselves after high negative imbalance large negative return days the magnitude of this reversal is partially predictable from the level of the imbalance and return even after controlling for aggregate market volume and liquidity market returns are affected by order imbalance

evaluating participation in african monetary unions a statistical analysis of the cfa zones abstract thirteen african nations are engaged in two monetary unions with france often referred to as the cfa zone despite the acknowledged benefits of zone membership a convertible currency pooled resources and greater monetary and fiscal discipline several observers have questioned whether particular aspects of the zone such as the lack of autonomy of the two central banks and the surrender of the exchange rate as a policy instrument have impeded its members growth this paper addresses that question by testing whether cfa zone countries had different gnp growth rates from selected comparator countries during 1960 1982 results show that cfa countries grew significantly faster than comparator sub saharan african countries but usually slower and often significantly so than the whole sample of developing countries when the comparison is made by subperiod before and after 1973 cfa countries performance vis a vis that of their comparators improved during the 1973 1982 period casting further doubt on the claim that the monetary union is not functioning adequately

futures trading activity and stock price volatility we examine whether greater futures trading activity volume and open interest is associated with greater equity volatility we partition each trading activity series into expected and unexpected components and document that while equity volatility covaries positively with unexpected futures trading volume it is negatively related to forecastable futures trading activity further though futures trading activity is systematically related to the futures contract life cycle we find no evidence of a relation between the futures life cycle and spot equity volatility these findings are consistent with theories predicting that active futures markets enhance the liquidity and depth of the equity markets

modeling and predicting oil vix internet search volume versus traditional mariables abstract as a key variable in option pricing models and monetary policy decisions volatility is an important factor in valuing and hedging investments this paper models and predicts the cboe crude oil volatility index using heterogeneous autoregressive har models that include traditional macro finance variables as well as abnormal search volume from google asvi we find that a pure har model fits oil volatility remarkably well when adding asvi we discover that this variable has a significant and positive relationship with oil volatility this relationship remains statistically significant when traditional financial and macroeconomic variables are accounted for therefore asvi is not only a good proxy for traditional macro finance variables but also carries additional information more importantly out of sample predictions show that asvi has high economic value allowing traders of volatility exposed portfolios to significantly increase returns

inflation and monetary policy in selected west and central african countries abstract this paper studies the conduct and performance of monetary policy in five west and central african countries cameroon cote d ivoire gabon ghana and nigeria the first three are members of the cfa zone and maintain a fixed peg vis a vis the french franc the other two have recently opted for a more flexible exchange rate regime no general conclusion can be drawn on the monetary policy exchange rate policy nexus estimates of the offset coefficient are significantly different from negative one but var estimation results on the ability of the monetary authority to pursue an independent inflation target are mixed the monetary authorities of ghana and nigeria sterilize the accumulation of net foreign assets to a limited degree no such evidence exists for cfa zone members

modeling and predicting the cboe market volatility index abstract this paper performs a thorough statistical examination of the time series properties of the daily market volatility index vix from the chicago board options exchange cboe the motivation lies not only on the widespread consensus that the vix is a barometer of the overall market sentiment as to what concerns investors risk appetite but also on the fact that there are many trading strategies that rely on the vix index for hedging and speculative purposes preliminary analysis suggests that the vix index displays long range dependence this is well in line with the strong empirical evidence in the literature supporting long memory in both options implied and realized variances we thus resort to both parametric and semiparametric heterogeneous autoregressive har processes for modeling and forecasting purposes our main findings are as follows first we confirm the evidence in the literature that there is a negative relationship between the vix index and the s p 500 index return as well as a positive contemporaneous link with the volume of the s p 500 index second the term spread has a slightly negative long run impact in the vix index when possible multicollinearity and endogeneity are controlled for finally we cannot reject the linearity of the above relationships neither in sample nor out of sample as for the latter we actually show that it is pretty hard to beat the pure har process because of the very persistent nature of the vix index

volatility volume causality across single stock spot futures markets in india abstractthis study examines the causal relationships between volatility and volume across spot and futures market for the 50 constituent stocks of the cnx nifty index granger non causality tests implemented using vector autoregression var and asymmetric var models indicate the presence of significant causal relations from both the spot and futures volume to both the spot and futures volatility bidirectional causal relationships between spot and futures volume were observed for almost all stocks but few stocks displayed a similar relationship between volatilities the results highlight the importance of volume in absorbing information and its behaviour as the conduit of information

an empirical analysis of stock and bond market liquidity this article explores cross market liquidity dynamics by estimating a vector autoregressive model for liquidity bid ask spread and depth returns volatility and order flow in the stock and treasury bond markets innovations to stock and bond market liquidity and volatility are significantly correlated implying that common factors drive liquidity and volatility in these markets volatility shocks are informative in predicting shifts in liquidity during crisis periods monetary expansions are associated with increased liquidity moreover money flows to government bond funds forecast bond market liquidity the results establish a link between macro liquidity or money flows and micro or transactions liquidity a number of important theorems in finance rely on the ability of investors to trade any amount of a security without affecting the price however there exist several frictions 1 such as trading costs short sale restrictions and circuit breakers that impact price formation the influence of market imperfections on security pricing has long been recognized liquidity in particular has attracted a lot of attention from traders regulators

foreign equity trading and average stock return volatility we examine whether there is a relationship between foreign equity trading and average total volatility measured as the value weighted average of stock return variance in the istanbul stock exchange we employ foreign equity purchase and sale data to track changes in foreign equity trading which not only enable us to capture effective foreign investor participation but also to observe the potential asymmetric effects of incoming and outgoing funds on the average total volatility consistent with the implications of the asymmetric information hypothesis we find that net equity flow is positively associated with average total volatility furthermore we show that net equity flow affects the average total volatility through the local and idiosyncratic volatilities suggesting that foreign investors engage in the production of firm specific and market wide information

trade size order imbalance and the volatility volume relation abstract this paper examines the roles of the number of trades size of trades and order imbalance buyer versus seller initiated trades in explaining the volatility volume relation for a sample of nyse and nasdaq stocks our results reconfirm the significance of the size of trades beyond that of the number of trades in the volatility volume relation on both markets after controlling for the return impact of order imbalance the volatility volume relation becomes much weaker for nyse stocks the order imbalance in large trade size categories affects the return more than in smaller size categories for nasdaq stocks the largest return impact comes from the order imbalance in maximum sized small order execution system soes trades

trading and returns under periodic market closures this paper studies how market closures affect investors trading policies and the resulting return generating process it shows that closures generate rich patterns of time variation in trading and returns including those consistent with empirical findings 1 u shaped patterns in the mean and volatility of returns over trading periods 2 higher trading activity around the close and open 3 more volatile open to open returns than close to close returns 4 higher returns over trading periods than over nontrading periods 5 more volatile returns over trading periods than over nontrading periods it also shows that closures can make prices more informative about future payoffs we model a competitive stock market with periodic closures in which investors trade for both allocational and informational reasons we use the model to study how market closures intrinsically affect investors trading behavior and the return generating process the purpose of this analysis is to increase our understanding of the time variation in security trading and returns that are associated with regular market closures such as the intraday and intraweek patterns in stock returns volatility and trading volume we consider a stock market in which the exogenous information flow is homogeneous over time and the market closes periodically when the market is open investors trade the stock either to rebalance their overall portfolio of assets which also includes other illiquid assets or to speculate on future stock payoffs using their private information in particular investors adjust their asset portfolio by trading the stock in order to hedge the risk of illiquid assets we refer to these trades as hedging trades and those motivated by private information as speculative trades when the market is closed hong is from the graduate school of business stanford university and wang is from the sloan school of management massachusetts institute of technology and nber the authors thank jennifer huang for programming assistance and an anonymous referee for many valuable suggestions they also thank glenn ellison john heaton craig holden andrew lo steve slezak jeremy stein rene stulz the editor the nber asset pricing lunch group and par

multivariate tests of asset pricing the comparative power of alternative statistics this paper examines estimation issues associated with multivariate tests of asset pricing two issues are considered 1 the constraint that the sample size n must be less than the time series t and 2 the relative effect on power of using the multivariate statistic versus a univariate counterpart we find that an alternative statistic that allows for large n does not dominate the usual portfolio tests more notably we find that the power of a simple diagonal statistic usually dominates the multivariate statistic for cases considered inthis study

liquidity and the law of one price the case of the futures cash basis deviations from no arbitrage relations should be related to market liquidity because liquidity facilitates arbitrage at the same time a wide futures cash basis may trigger arbitrage trades and in turn affect liquidity we test these ideas by studying the dynamic relation between stock market liquidity and the index futures basis there is evidence of two way granger causality between the short term absolute basis and liquidity and liquidity granger causes longer term absolute bases shocks to the absolute basis predict future stock market liquidity the evidence suggests that liquidity enhances the efficiency of the futures cash pricing system copyright 2007 by the american finance association

a transaction data study of weekly and intradaily patterns in stock returns abstract weekly and intradaily patterns in common stock prices are examined using transaction data for large firms negative monday close to close returns accrue between the friday close and the monday open for smaller firms they accrue primarily during the monday trading day for all firms significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens on monday mornings prices drop while on the other weekday mornings they rise otherwise the pattern of intraday returns is similar on all weekdays most notable is an increase in prices on the last trade of the day

adverse selection costs trading activity and price discovery in the nyse an empirical analysis this paper studies the role that trading activity plays in the price discovery process of a nyse listed stock we measure the expected information content of each trade by estimating its permanent price impact it depends on observable trade features and market conditions we also estimate the time required for quotes to incorporate all the information content of a particular trade our results show that price discovery is faster after risky trades and also at the extreme intervals of the session the quote adjustment to trade related shocks is progressive and this causes risk persistency and unusual short term market conditions

calendar anomalies abnormal returns at calendar turning points 1988 calendar anomalies abnormal returns at calendar turning points financial analysts journal vol 44 no 6 pp 28 39

information transmission between the nasdaq and asian second board markets abstract in the 1980s and early 1990s the nasdaq s success helped to prompt singapore sesdaq japan jasdaq taiwan taisdaq and south korea kosdaq to set up or formalize their own second board markets in 1999 malaysia mesdaq and hong kong gem followed suit given the growing importance of these second board markets we examine whether there is any evidence of spillovers from nasdaq returns and volatilities to asian second board market returns and volatilities after controlling for spillovers from the nyse and whether these cross country spillovers are strong relative to domestic spillovers from the corresponding main board markets we employ egarch models dynamic causality tests and var based forecast error decompositions using daily data of a recent sample period that includes the asian financial crisis of 1997 and continues until april 20 2001 there is strong evidence of lagged returns and volatility spillovers from the nasdaq market to the asian second board markets when we exclude contemporaneous main board market returns there is also strong evidence of contemporaneous and lagged returns and volatility spillovers from the local main board markets to the corresponding second board markets however even in the presence of contemporaneous main board market returns there are substantial spillovers from the lagged nasdaq returns and volatilities to asian second board market returns and volatilities these findings are not sensitive to whether we use us dollar based data or local currency based data given the difference in the trading hours between the nasdaq and asian stock markets we use available intra day return data and canadian return data the findings seem quite robust there is substantial information spillover from the nasdaq to the asian and canadian second board markets these findings indicate the existence of a substantial cross country industry effect or meteor shower effect as well as a domestic market effect or heat wave effect and imply that both country diversification and industry diversification are important

rural urban migration and agricultural productivity the case of senegal abstract this paper explores the relationship between agricultural productivity and rural urban migration by developing an econometric model and applying it to the case of senegal country level data is used covering the years 1961 1996 policy implications of reducing rural urban migration using agricultural output elasticities are developed the findings support the hypothesis that rural urban migration is a positive function of the ratio of urban per capita income to rural per capita income moreover the results support a policy aimed at reducing rural urban migration flows through increases in per capita earnings derived from increased agricultural investment

autocorrelation of daily index returns intraday to intraday versus close to close intervals abstract first order autocorrelation coefficients of 1 daily equally weighted open to open returns 2 daily equally weighted intraday to intraday returns terminating at each of 23 successive 15 minute intervals of the trading day beginning at 10 15 a m and 3 daily equally weighted and value weighted close to close returns interval 24 are examined a number of findings concerning the behavior of these autocorrelations are reported first order autocorrelation is shown to follow a crude u shaped pattern when plotted against the time of the trading day but there is no significant difference in the behavior of autocorrelations based on open to open returns and 24 hour returns terminating at 10 15 a m evidence that intraday patterns in autocorrelation cannot be explained fully by trading delays also is presented

standard poor s 500 index futures volatility and price changes around the new york stock exchange close we examine the effects of the closing of the new york stock exchange nyse on volatility and price changes in the standard poor s s p futures market which trades for 15 more minutes each day when the nyse closes volatility in the futures market drops significantly only to increase at the close of the futures market thus exhibiting a u shaped pattern after the nyse closes we also find that friday s close is the period of highest volatility in the futures market also in the final minutes on friday the s p futures price anticipates the well known weekend effect found in equities copyright 1995 by university of chicago press

the price variability volume relationship on speculative markets this paper concerns the relationship between the variability of the daily price change and the daily volume of trading on the speculative markets our work extends the theory of speculative markets in two ways first we derive from economic theory the joint probability distribution of the price change and the trading volume over any interval of time within the trading day and second we determine how this joint distribution changes as more traders enter or exit from the market the model s parameters are estimated by fiml using daily data from the 90 day t bills futures market the results of the estimation can reconcile a conflict between the price variability volume relationship for this market and the relationship obtained by previous investigators for other speculative markets this paper concerns the relationship between the variability of the daily price change and the volume of trading on speculative markets previous empirical studies 2 3 6 12 14 16 of both futures and equity markets always find a positive association between price variability as measured by the squared price change ap2 and the trading volume 2 there are two explanations for the relationship clark s 2 explanation which is secondary to his effort to explain why the probability distribution of the daily price change is leptokurtic emphasizes randomness in the number of within day transactions in clark s model the daily price change is the sum of a random number of within day price changes the variance of the daily price change is thus a random variable with a mean proportional to the mean number of daily transactions clark argues that the trading volume is related positively to the number of within day transactions and so the trading volume is related positively to the variability of the price change the second explanation is due to epps and epps 6 their model examines the mechanics of within day trading the change in the market price on each within day transaction or market clearing is the average of the changes in all of the traders reservation prices epps and epps assume there is a positive relationship between the extent to which traders disagree when they revise their reservation prices and the absolute value of the change in the market price that is an increase in the extent to which traders disagree is associated with a larger absolute price change the price variability volume relationship arises then because the volume of trading is positively related to the extent to which traders disagree when they revise their reservation prices

what s not there odd lots and market data we investigate odd lot trades in equity markets odd lots are increasingly used in algorithmic and high frequency trading but are not reported to the consolidated tape or in databases such as taq in our sample the median number of odd lot trades is 24 but in some stocks odd lots are 60 or more of trading odd lot trades contribute 35 of price discovery consistent with informed traders using odd lots to avoid detection omitting odd lot trades leads to inaccuracies in order imbalance measures and makes sentiment measures unreliable excluding odd lots from the consolidated tape raises important regulatory issues

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

economic growth in africa abstract this paper draws on the recent endogenous growth methodology to study the factors behind differences in per capita growth rates across africa the results indicate that various economic factors including initial conditions investment population growth trade orientation inflation financial development and the growth of the government sector contribute significantly to economic growth in addition to economic variables we find the degree of political freedom to be a significant contributor to economic growth finally we find some evidence that economic growth by the members of the cfa franc zone has not fared well in comparison to other african countries