policy watch child support policies with more parents living apart the societal problem of parents who fail to share with each other or with their children becomes more acute although governments have mainly relied on public transfers to address the resulting economic hardships among children the emphasis has been shifting toward mandatory sharing through the rigorous enforcement of child support laws this paper first describes the economic context for child support the expanding federal role in regulating awards and collections the complex array of incentive and equity effects associated with child support the record of obtaining support payments from noncustodial parents and the effects of new award setting and enforcement policies finally it considers the child support assurance system csas approach recently proposed in congress under this plan the government would make up the difference between some minimum assured payment and the child support actually paid by the non custodial parent

a reanalyis of marital stability in the seattle denver income maintenance experiment this paper challenges the widely cited finding of groeneveld hannan and tuma that the seattle denver income maintenance experiment provides evidence that guaranteed income plans for poor husband wife families will increase marital dissolution relative to the existing program aid to families with dependent children the reanalysis of the experimental data distinguishes between the experimental treatment in the form of the pure negative income tax and the treatment plans that involved an experimental training program all the time periods of the experiment are used with allowance for the timing of the marital dissolution in the inferences and with allowance for attrition the conclusion of this paper is that the plans specifically the negative income tax plans in the experiment had no effect on the rate of marital dissolutions among the treatment couples relative to the control couples

an empirical test of a valuation model for american options on futures contracts pricing models for american call and put options on futures contracts are derived herein these models are used to investigate the efficiency of the market for options on standard poor 500 and german mark futures the evidence presented here indicates that market prices for these options deviate substantially from their corresponding model prices in addition it is shown that a hedging strategy originated at prices that indicate a deviation of market from model is successful in translating the observed mispricing into excess profits after transactions costs however these net profits are eliminated if the origination of the strategy is delayed by one trade or if bid ask spreads are accounted for

the term structure of volatility implied by foreign exchange options this paper illustrates regression and kalman filtering methods for estimating the time varying term structure of volatility expectations revealed by options prices short and long term expectations are estimated for four currencies using daily phlx options prices from 1985 to 1989 throughout this period there were important differences between shortand long term expectations the slope of the term structure changed frequently and there were significant variations in long term volatility expectations the expectation estimates can be used to value otc options to improve hedging strategies and to test the hypothesis that the options market overreacts

transaction data tests of s p 100 call option pricing this paper examines the pricing of s p 100 calls using 14 months of transactions data we find that market prices of s p 100 calls differ systematically from black scholes values the biases in black scholes model prices are both statistically and economically significant and correspond to biases that arise if market prices incorporate a stochastically changing volatility of the index

assessing the case for social experiments rs ecent academic debates pit two alternative approaches to policy evaluation against one another the first is the experimental approach based on the random assignment of accepted program applicants to a recipient or treatment group and a non recipient or control group the second is the nonexperimental or econometric approach that uses a variety of microdata sources statistical methods and behavioral models to compare the outcomes of participants in social programs with those of nonparticipants the central question addressed in this paper is whether or not randomized social experiments aid in securing answers to basic questions about the evaluation of social programs there are many distinct and complementary approaches to the study of the impact of public policy including full general equilibrium analysis of policy impacts tinbergen 1956 auerbach and kotlikoff 1987 shoven and whalley 1992 kydland and prescott 1991 and less ambitious partial equilibrium microeconomic structural research programs such as those designed to estimate the impact of taxes on labor supply both approaches offer answers to many interesting counterfactual policy questions but their credibility rests critically on the quality of the empirical input used to generate their answers

the informational content of implied volatility implied volatility is widely believed to be informationally superior to historical volatility because it is the markets forecast of future volatility but for s p 100 index options the most actively traded contract in the united states we find implied volatility in aggregate and across subsamples separated by maturity and strike price implied volatility has virtually no correlation with future volatility and it does not incorporate the information contained in recent observed volatility article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

conditional heteroscedasticity in time series of stock returns evidence and forecasts this article presents new evidence about the time series behavior of stock prices daily return series exhibit significant levels of second order dependence and they cannot be modeled as linear white noise processes a reasonable return generating process is empirically shown to be a first order autoregressive process with conditionally heteroskedastic innovations in particular generalized autoregressive conditional heteroskedastic garch 1 1 processes fit to data very satisfactorily various out of sample forecasts of monthly return variances are generated and compared statistically forecasts based on the garch model are found to be superior copyright 1989 by the university of chicago

economic response to a guaranteed annual income experience from canada and the united states this article reviews research from the five income maintenance experiments in canada and the united states after sketching the historical and political context of the experiments we compare their designs and discuss some important analytic difficulties our primary focus is the work incentive issue both nonstructural estimates of the experimental effects and elasticity estimates of structural labor supply functions we provide initial estimates of nonstructural and structural models for the canadian experiment we discuss more briefly some non work response findings associated with a guaranteed annual income and offer some personal comments on social experimentation and the policy process

the impact of conditional cash transfers on marriage and divorce abstracta growing number of less developed countries have introduced conditional cash transfer programs in which funds are targeted to women economic models of the family suggest that these transfer programs may lead to marital turnover among program beneficiaries data from the experimental evaluation of the progresa program in mexico is used to provide new evidence on the short run impacts of targeted transfers on couples union dissolution and individuals new union formation decisions we find that although the overall share of women in union does not change as a result of the program marital turnover increases intact families eligible for the transfers experienced a modest 0 32 percentage points increase in separation rates with most of the effect concentrated among young and relatively educated women households in contrast young single women with low educational attainment levels experienced a substantial increase in new union formation rates the marital transition patterns are consistent

racial inequality trends and the intergenerational persistence of income and family structure racial disparity in family incomes remained remarkably stable over the past 40 years in the united states despite major legal and social reforms previous scholarship presents two primary explanations for persistent inequality through a period of progressive change one highlights continuity because socioeconomic status is transmitted from parents to children disparities created through histories of discrimination and opportunity denial may dissipate slowly the second highlights change because family income results from joining individual earnings in family units changing family compositions can offset individuals changing economic chances i examine whether black white family income inequality trends are better characterized by the persistence of existing disadvantage continuity or shifting forms of disadvantage change i combine cross sectional and panel analysis using current population survey panel study of income dynamics census and national vital statistics data results suggest that african americans experience relatively extreme intergenerational continuity low upward mobility and discontinuity high downward mobility both helped maintain racial inequality yet intergenerational discontinuities allow new forms of disadvantage to emerge on net racial inequality trends are better characterized by changing forms of disadvantage than by continuity economic trends were equalizing but demographic trends were disequalizing as family structures shifted family incomes did not fully reflect labor market gains

deutsche mark dollar volatility intraday activity patterns macroeconomic announcements and longer run dependencies this paper provides a detailed characterization of the volatility in the deutsche mark dollar foreign exchange market using an annual sample of five minute returns the approach captures the intraday activity patterns the macroeconomic announcements and the volatility persistence arch known from daily returns the different features are separately quantified and shown to account for a substantial fraction of return variability both at the intraday and daily level the implications of the results for the interpretation of the fundamental driving forces behind the volatility process is also discussed the efficient market hypothesis contends that financial asset prices provide rational assessments of fundamental values and future payoffs by implication price changes should reflect the arrival and processing of all relevant new information however the proportion of return variability that can be ascribed to public news announcements is low for example cutler poterba and summers 1989 find that even the largest daily price changes in the stock market generally cannot be associated with any significant economic news 1 moreover proxies for the flow of public information e g the number of news items released by reuter s news service berry and hiowe 1994 or dow jones company mitchell and mulherin 1994 explain little of the overall variation thus if private information is ruled out proponents of rational price formation have to assert the existence of important news items

overreactions in the options market this paper examines the term structure of options implied volatilities using data on s p 100 index options because implied volatility is strongly mean reverting the implied volatility on a longer maturity option should move by less than one percent in response to a one percent move in the implied volatility of a shorter maturity option empirically this elasticity turns out to be larger than suggested by rational expectations theory long maturity options tend to overreact to changes in the implied volatility of short maturity options are investors rational do they behave like bayesian statisticians when it comes to incorporating new information into asset prices proponents of the efficient markets hypothesis would answer this question in the affirmative many others however believe that bayesian rationality is a poor description of investor behavior and that as a consequence asset prices tend to be informationally inefficient one way in which inefficiencies might arise is through the overreactions of traders to the arrival of new information 1 this possibility is raised by experimental and survey findings which indicate that people have a systematic tendency to overemphasize recent data at the expense of other information when making projections 2 the objective of this paper is to search for evidence of such overreactive behavior in a semingly peculiar place the options market options may appear to be unlikely candidates for overreaction because unlike primary securities their prices are closely tied down by arbitrage considerations as black and scholes 1973 demonstrate if stock price volatility is known options prices are completely determined any deviation from the prescribed value implies a riskless profit opportunity however given that volatility is in fact unknown and changing options do retain something of an independent nature not wholly redundant with their underlying stocks options can be thought of as reflecting a speculative market in volatility the implied volatility on a given option obtained by inverting a

forecasting stock return variance toward an understanding of stochastic implied volatilities we examine the behavior of measured variances from the options market and the underlying stock market under the joint hypotheses that markets are informationally efficient and that option prices are explained by a particular asset pricing model forecasts from time series models of the stockreturn process should not have predictive content given the market forecast as embodied in option prices both in sample and out of sample tests suggest that this hypothesis can be rejected using simulations we show that biases inherent in the procedure we use to imply variances cannot explain this result thus we provide evidence inconsistent with the orthogonality restrictions of option pricing models that assume that variance risk is unpriced these results also have implicationsfor optimal variance forecast rules

predicting currency return volatility abstract standard deviations and elasticity of variance coefficients implied in currency option prices are employed to predict subsequent currency return volatility despite documented variance non stationarity strong predictive relationships are found the predictive accuracies of standard deviations and elasticity coefficients are statistically indistinguishable finally predictive accuracy is invariant to the weighting techniques employed

analysis of the term structure of implied volatilities from various empirical work it is well known that the volatility of asset returns changes over time this might be one of the reasons that implied volatilities differ for options that only differ in time to maturity we construct models for the relation between short and long term implied volatilities based on three different assumptions of stock return volatility behavior i e mean reverting garch and egarch models we test these relations on option price data and conclude that egarch gives the best description of asset prices and the term structure of options implied volatilities

a meta analysis of general and partial equilibrium simulations of trade liberalisation under the doha development agenda model based simulation of welfare effects is commonly used to make a case for trade liberalisation and to inform participants a nd stakeholders in trade negotiations however the simulated welfare effects of trade liberalisation vary greatly even across studies that model similar liberalisation scenarios this

modeling heteroscedasticity in daily foreign exchange rates this article estimates autoregressive conditionally heteroscedastic arch and generalized arch garch models for five foreign currencies using 10 years of daily data a variety of arch and garch specifications a number of nonnormal error densities and a comprehensive set of diagnostic checks it finds that arch and garch models can usually remove all heteroscedasticity in price changes in all five currencies goodness of fit diagnostics indicate that exponential garch with certain nonnormal distributions fits the canadian dollar extremely well and the swiss franc and the deutsche mark reasonably well only one nonnormal distribution fits the japanese yen reasonably well none fit the british pound

stock returns and volatility an empirical study of the uk stock market abstract attempts to quantify the relationship between stock returns and volatility have produced conflicting conclusions in recent u s studies our paper examines this issue in the u k context for the first time using daily weekly fortnightly and monthly returns on the financial times all share index from january 1965 to december 1989 volatility estimates are obtained from monthly sample variances and arch models expected returns are shown to have had a positive though not statistically significant relationship with expected volatility the relationship between the unexpected components of the returns and volatility series is less clear we find evidence for a negative relationship but only when volatility expectations are represented by standard deviations

conditional volatility and the informational efficiency of the phlx currency options market abstract the relative performance of implied and historical volatility predictors is compared for four exchange rates from 1985 to 1991 for three currencies arch models estimated up to 1989 show that phlx implied volatilities provide specifications for daily conditional variances which can not be significantly improved by using past returns this result is consistent with the informational efficiency of the philadelphia currency options market out of sample forecasts of the average volatility over four week periods are evaluated for 1990 and 1991 once more the implied predictors are superior to historical predictors

welfare and the family the u s experience after describing the development and dimensions of the american welfare system this paper explores the relationship of illegitimacy to welfare alternative measures of illegitimacy are discussed the relationship of the welfare package and the illegitimacy ratio is examined over time and across states by race a bivariate relationship of welfare and illegitimacy exists among whites but not among blacks among blacks a strong cross state relationship exists between density of the black population and the illegitimacy ratio the relationship is robust persisting after controlling for a variety of demographic and economic variables and persisting across time

the creation and resolution of market uncertainty the impact of information releases on implied volatility we model and examine the impact of information releases on market uncertainty as mea sured by the implied standard deviation isd from option markets distinguishing between scheduled and unscheduled announcements we hypothesize that since the timing although not the content of scheduled announcements is known a priori the pre release isd will impound the anticipated impact of important releases on price volatility and that the isd will normally decline post release as this uncertainty is resolved conversely we hypothesize that the unexpected high volatility caused by major unscheduled releases will cause market participants to adjust upward their estimates of likely volatility over the remaining life of the option resulting in an increase in the isd our evidence supports both hypotheses the isds that we consider are from the t bond eurodollar and deutschemark options markets we examine scheduled macroeconomic news releases such as the employment report and the ppi we also find that the observed tendency for the isd to fall on fridays and rise on mondays is due to the weekday pattern of scheduled news releases

the effect of incomes wages and afdc benefits on marital disruption this paper uses a choice based model to estimate the effects of a broad set of economic factors including afdc benefit levels husband s earnings and a woman s wage rate on the probability of marital dissolution we find that the probability of divorce is lower for marriages in which the husband s labor income is higher we also find that while afdc income has a substantial effect on welfare receipt by a divorced woman it has a relatively small effect on the probability that a married woman will become divorced finally we find no support for the hypothesis that rising wages for women have increased marital instability

market risk in commodity markets a var approach we put forward value at risk models relevant for commodity traders who have long and short trading positions in commodity markets in a 5 year out of sample study on aluminium copper nickel brent crude oil and wti crude oil daily cash prices and cocoa nearby futures contracts we assess the performance of the riskmetrics skewed student aparch and skewed student arch models while the skewed student aparch model performs best in all cases the skewed student arch model delivers good results and its estimation does not require non linear optimization procedures as such this new model could be relatively easily integrated in a spreadsheet like environment and used by market practitioners

forecasting stock market volatility and information content of implied volatility index abstractthis study investigates the incremental information content of implied volatility index relative to the garch family models in forecasting volatility of the three asia pacific stock markets

will extending medicaid to two parent families encourage marriage several welfare programs in the united states restrict eligibility to single parent families this paper asks whether eliminating this restriction for medicaid encourages marriage i identify medicaid s effect through a series of health insurance reforms that were passed in the 1980s and 1990s targeting young children these reforms were associated with an increase in the probability of marriage of 1 7 percentage points while the expansions offered some incentives to become married they also created other incentives to become divorced known as the independence effect after controlling for the outflows from marriage due to the independence effect the estimated effect increases by 10 percent

a reassessment of the effect of income maintenance on marital dissolution in the seattle denver experiment cain and wissoker claim that income maintenance treatment had no effect on marital dissolution in the seattle denver income maintenance experiment yet parametric and nonparametric analyses reveal that there was a significant increase in the dissolution rate for blacks and whites but not chicanos this conclusion holds for many different specifications including a number that allow free form time variation in response while cain and wissoker s analyses and results differ in many ways from that of groeneveld hannan and tuma consideration of the full set of estimates including both main effects and interaction effects and analyses of the complete samples reveal that their analyses agree that the income maintenance treatment increased rates of marital dissolution for blacks and whites

stock returns and volatility most asset pricing models postulate a positive relationship between a stock portfolio s expected returns and risk which is often modeled by the variance of the asset price this paper uses garch in mean models to examine the relationship between mean returns on a stock portfolio and its conditional variance or standard deviation after estimating a variety of models from daily and monthly portfolio return data we conclude that any relationship between mean returns and own variance or standard deviation is weak the results suggest that investors consider some other risk measure to be more important than the variance of portfolio returns