tests for price effects of new issues of seasoned securities do new issues of seasoned securities cause significant price movements in the neighborhood of the issue day this paper presents an empirical comparison of three competing hypotheses the sec view that a new issue causes a permanent price decline the underwriter view that there is only a temporary price decline during the distribution period and the efficient market hypothesis emh that implies the absence of any price effects several empirical tests of the competing hypotheses using data on new issues of utility stocks traded on the nyse reject the sec and underwriter views in favor of the emh

is bitcoin really untethered this paper investigates whether tether a digital currency pegged to the u s dollar influenced bitcoin and other cryptocurrency prices during the 2017 boom using algorithms to analyze blockchain data we find that purchases with tether are timed following market downturns and result in sizable increases in bitcoin prices the flow is attributable to one entity clusters below round prices induces asymmetric autocorrelations in bitcoin and suggests insufficient tether reserves before month ends rather than demand from cash investors these patterns are most consistent with the supply based hypothesis of unbacked digital money inflating cryptocurrency prices

the brevity and violence of contractions and expansions abstract early studies of business cycles argued that contractions in economic activity were briefer shorter and more violent rapid than expansions this paper systematically investigates this claim and in the process discovers a robust new business cycle fact contractions in employment are briefer and more violent than expansions but we cannot reject the null of equal brevity and violence for expansions and contractions in output the difference arises because employment typically lags output around peaks but they coincide in their troughs we discuss the performance of existing business cycle models in accounting for this fact and conclude that none can fully account for it we then show that a business cycle model with asymmetric adjustment costs on employment and a choice of when to scrap old technologies can account for the business cycle fact both qualitatively and quantitatively

asset prices and institutional investors empirical evidence indicates that trades by institutional investors have sizable effects on asset prices generating phenomena such as index effects asset class effects and others it is difficult to explain such phenomena within standard representative agent asset pricing models in this paper we consider an economy populated by institutional investors alongside standard retail investors institutions care about their performance relative to a certain index our framework is tractable admitting exact closed form expressions and produces the following analytical results we find that institutions optimally tilt their portfolios towards stocks that comprise their benchmark index the resulting price pressure boosts index stocks while leaving nonindex stocks unaffected by demanding a higher fraction of risky stocks than retail investors institutions amplify the index stock volatilities and aggregate stock market volatility and give rise to countercyclical sharpe ratios trades by institutions induce excess correlations among stocks that belong to their benchmark index generating an asset class effect institutions finance their additional purchases of index stocks by taking on leverage a policy prescription that calls for a reduction in leverage while reducing the riskiness of institutional portfolios would also reduce the ability of institutions to tilt their portfolios towards index stocks depressing the index level

are business cycles asymmetric some european evidence economic thought has often regarded business cycles as asymmetric this study examines the existence of asymmetries over the business cycle in seven european countries france germany ireland italy luxembourg the netherlands and the united kingdom to analyse this issue industrial production in these countries from 1957 to 1998 is examined and quarterly contractions and expansions in this variable are compared the results obtained with both parametric and non parametric methods allow the existence of asymmetries in these countries to be questioned

was the recent downturn in us real gdp predictable this article uses a small set of variables real gdp the inflation rate and the short term interest rate and a rich set of models atheoretical time series and theoretical structural linear and nonlinear as well as classical and bayesian models to consider whether we could have predicted the recent downturn of the us real gdp comparing the performance of the models to the benchmark random walk model by root mean square errors the two structural theoretical models especially the nonlinear model perform well on average across all forecast horizons in our ex post out of sample forecasts although at specific forecast horizons certain nonlinear atheoretical models perform the best the nonlinear theoretical model also dominates in our ex ante out of sample forecast of the great recession suggesting that developing forward looking microfounded nonlinear dynamic stochastic general equilibrium models of the economy may prove crucial in forecasting turning points

flows price pressure and hedge fund returns the authors studied how capital flows affect hedge fund returns and found that funds with high inflows outperform funds with high outflows during the month of the flows this immediate reaction combined with feedback trading gives rise to a cycle flows exert price pressure this effect on returns induces more flows and these flows cause further price pressure the cycle is so strong that it takes two years for a full return reversal and it contributes to the observed persistence in hedge fund performance the impact of flows on returns has clear implications for performance evaluation one third of estimated hedge fund alphas are due to flows

resisting the protectionist temptation industry and the making of trade policy in france and the united states during the 1970s why were advanced industrial states able to keep their economies relatively open to foreign trade in the 1970s and the early 1980s despite declining u s hegemony and increasing economic difficulties this article argues that an international level change affected domestic trade politics and contributed to the maintenance of a liberal trading system examining the united states and france the argument proceeds in two steps showing first how domestic trade politics were changed and second how this change affected the policy process initially i argue that aspects of the increased international economic interdependence of the postwar period altered domestic trade politics by creating new anti protectionist preferences among certain firms firms with extensive international ties through exports multinational production and global intra firm trade have come to oppose protectionism since it is very costly for them evidence for these new preferences was apparent among both american and french industries despite different contexts firms in the two countries reacted similarly to the growth of interdependence next i ask whether firms preferences affected trade policy outcomes and show how these preferences were integrated into the policy process in both countries trade policy structures in neither country prevented firms preferences from affecting the policies adopted even in france a so called strong state firms preferences were a key influence on policy in the trade policy area then the french and american states did not appear to differ greatly in their susceptibility to industry influence even though their policy processes were different

the value of active investing can active institutional investors remove excess comovement of stock returns this study uses cremers and petajisto s 2009 method to separate active institutional investors from passive ones and shows that active investors can alleviate the anomalous comovement of stock returns focusing on 2 events linked to the excess comovement anomaly standard poor s 500 index additions and stock splits i find that if an event stock has more active institutional investors trading in the post event period the anomalous comovement effect disappears in contrast if an event stock experiences a massive exit of active investors this anomaly persists the exit of active institutional investors also results in a strong price synchronicity effect

complicated dynamics in a flow model of the labor market abstract we develop a worker flow model with a nonlinear and endogenous outflow rate from unemployment inconsistent claims on the output lead to changing inflation rates which feedback on job offers through the real money supply via simulations one can show that the nonlinear outflow rate causes asymmetric adjustment of unemployment to the equilibrium rate of unemployment in addition and depending on the parameters the equilibrium rate of unemployment may also become locally unstable then there is a downward sloping phillips curve but no trade off between unemployment and inflation in the short run as there is none in the long run

the effect of transaction size on off the run treasury prices this paper examines intra day trading data from the inter dealer broker market for u s treasury securities and measures the degree of price pressure in the off the run treasury market as is well known securities that would appear to be very close substitutes i e on the run and off the run treasury bonds behave as if there is some degree of market segmentation this is the first systematic study of the off the run treasury note and bond market focused entirely on a price pressure effect using intra day data the paper analyzes price pressure through matched pairs of securities that differ only in liquidity

forecasting unemployment across countries the ins and outs abstract this paper evaluates the flow approach to unemployment forecasting proposed by barnichon and nekarda 2012 for a set of oecd countries characterized by very different labor markets we find that the flow approach yields substantial improvements in forecast accuracy over professional forecasts for all countries with especially large improvements at longer horizons one year ahead forecasts for european countries moreover the flow approach has the highest predictive ability during recessions and turning points when unemployment forecasts are most valuable

market risk and asset prices abstract this paper examines the implications for the properties of asset prices of stochastic shifts in market demand which are not attributable to news about asset fundamentals this introduces an additional component of uncertainty into asset price movements and alters the trading motives of agents market risk is shown to contribute to the risk premium on assets and exacerbates asset price volatility

industry the state and the new protectionism textiles in canada and france in this article we address two questions pertinent to the debate on the relationship between industrial restructuring and the new protectionism first does the appearance of industry specific trade barriers necessarily indicate an attempt to preserve those traditional sectors in which advanced capitalist states no longer enjoy a comparative advantage second are all advanced capitalist states equally susceptible to protectionist pressures or will neomercantilist states given their established capacity for sectoral intervention find such pressures easier to resist than their liberal counterparts after analyzing recent changes in textile technology and in the pattern of international competition in the textile industry we examine the response of two states the relatively liberal canadian state and the neomercantilist french state to this complex set of changes the textile case indicates that it is a mistake to assume that states have but two options protect or adjust links may be established between hightechnology and traditional industries that make it possible for inputs from the former to restore the competitive position of the latter if such links are forged then states may use trade barriers to allow producers time to adjust french and canadian textile policies reveal the conditions under which such states although constrained by established policy networks are nevertheless induced to respond in similar fashions to contemporary changes in the world economy

intradaily price volume adjustments of nyse stocks to unexpected earnings the speed and path of adjustment in stocks to the degree of earnings surprise in their quarterly announcements are studied using price volume transactions data a differential price adjustment process was observed with stocks having large positive earnings surprises experiencing a faster adjustment compared with those stocks with negative earnings surprises volume transaction frequency and size were found to be directly related to the absolute degree of surprise but very favorable earnings surprise stocks experienced initially a large number of smaller trades while stocks with large unfavorable earnings surprises had relatively fewer transactions but higher volume per trade the stock market s microstructure has received increasing attention from researchers especially from an empirical perspective as transaction data on prices and volume have become more readily available 1 an important subset of this research has been the study of stock price adjustments to significant news events specifically publicly announced information with economic content should be quickly reflected in prices in an unbiased manner this paper contains a study of the intradaily adjustment in stocks to the informational content of earnings reports using price changes trading volume and transaction frequency and size we examine the transaction to transaction and time series stock behavior associated with different degrees of earnings surprise embedded in earnings announcements the degree of surprise is measured by a comparison of actual with forecasted earnings for 325 new york stock exchange nyse firms these firms are subdivided into five earnings surprise categories in order to determine whether the speed and path of their price volume adjustment processes are different one question of interest is whether the adjustment process for favorable versus unfavorable earnings surprises is similar or different another is whether any adjustment is distinguished by a few large trades or a large number of smaller

dynamic asymmetries in u s unemployment we examine dynamic asymmetries in u s unemployment using nonlinear time series models and bayesian methods we find strong statistical evidence in favor of a two regime threshold auto regressive model empirical results indicate that once we take into account both parameter and model uncertainty there are economically interesting asymmetries in the unemployment rate one finding of particular interest is that shocks that lower the unemployment rate tend to have a smaller effect than shocks that raise the unemployment rate this finding is consistent with unemployment rises being sudden and falls gradual

forecasting asymmetric unemployment rates asymmetric behavior has been documented in postwar quar terly u s unemployment rates this suggests that improvement over conventional linear forecasts may be possible through the use of nonlinear time series models in this note an out of sample forecasting competition is carried out for a set of leading nonlinear time series models it is shown that several nonlinear forecasts do indeed dominate the linear forecast the results are sensitive however to whether a stationarity inducing transfor mation is applied to the nonstationary unemployment rate series

is the business cycle characterized by deterministic chaos abstract tests are conducted on u s macroeconomic data for the presence of low dimensional deterministic chaos where deterministic chaos is defined as in grandmont s 1985 walras bowley lecture or in brock 1986 the idea is to test for evidence of endogenous instability causing the business cycle low order autoregressions are hard to reject with our methods evidence of chaos is weak but our tests may be too weak to detect it evidence of nonlinearity is present in employment 1950 i to 1983 iv unemployment 1949 i to 1982 iv monthly post war industrial production and pig iron production 1877 1937

the price effect of option introduction this paper examines the price effect of option introduction from 1974 to 1980 the introduction of individual options causes a permanent price increase in the underlying security beginning approximately three days before introduction the price effect appears to be associated with introduction and not announcement throughout the sample period excess returns volatility declines with option introduction systematic risk is unchanged there is a positive relation between the price increase and a measure of activity in the options market copyright 1989 by american finance association

stock reaction to dividend savings of convertible preferred calls free cash flow or price pressure effects abstract calls of in the money convertible preferred stock typically induce dividend savings for the firm since preferred dividends exceed common stock dividends prior research finds that these savings are negatively related to stock returns at call announcement and argues that the market expects managers to abuse the increased free cash flow this paper finds that dividend savings are closely related to call size suggesting other explanations larger calls experience a more negative announcement reaction consistent with temporary liquidity effects there is a price reversal during the conversion period which is greater for larger calls

comparing smooth transition and markov switching autoregressive models of us unemployment logistic smooth transition and markov switching autoregressive models of a logistic transform of the monthly us unemployment rate are estimated by markov chain monte carlo methods the markov switching model is identified by constraining the first autoregression coefficient to differ across regimes the transition variable in the lstar model is the lagged seasonal difference of the unemployment rate out of sample forecasts are obtained from bayesian predictive densities although both models provide very similar descriptions bayes factors and predictive efficiency tests both bayesian and classical favor the smooth transition model copyright 2008 john wiley sons ltd

signaling sustainability leadership empirical evidence of the value of djsi membership we explore the relationship between corporate sustainability reputation and firm value by asking whether signaling sustainability leadership through membership on a recognized sustainability index is value generating increasingly stakeholders are demanding that firms demonstrate their commitment to sustainability one signal that companies can send to stakeholders to indicate that they are sustainability leaders is membership on a recognized best in class sustainability index this article explores both the short term and the intermediary impact on north american firms of being included or removed from the dow jones sustainability world index djsi our results provide evidence that being added to the djsi results in a sustained increase in a firm s share price suggesting that the benefits of being included on the djsi outweigh the costs associated with applying this article also notes a temporary decrease in the value of firms for the first 10 days after their removal from the djsi however this effect is eliminated within the next ten trading days

are economic time series asymmetric over the business cycle it has long been argued that major cyclical variables such as the unemployment rate display an asymmetric behavior over various phases of the business cycle the paper provides a statistical test for this hypothesis using the framework of finite state markov processes i implement a test to see if the behavior of the unemployment rate is characterized by sudden jumps and slower drops it is argued that the framework provided in the paper can also be used to test other sample path properties of economic time series

testing nonlinearities in economic growth in the oecd countries an evidence from setar and star models this study estimates the self exciting threshold autoregressive setar and smooth transition autoregressive star models and examines the nonlinear and regime switching dynamics of economic growth for a set of 10 oecd countries the null of linearity in setar model is tested using the recursive polynomial f test of tsay and the bootstrap based supremum average and exponential average lagrange multiplier lm tests of hansen the f test of tsay rejects the null of linearity for all the countries except spain and switzerland the setar model of hansen reinforces the evidence and suggests the rejection of linear model the star model rejects the null of linearity against star nonlinearity for all the countries except denmark and switzerland the sequential f tests for the conditional nulls suggest the lstar nonlinearity for australia belgium france sweden and uk and the estar nonlinearity for canada spain and the usa

market microstructure and securities values evidence from the tel aviv stock exchange abstract this paper examines the value effects of improvements in the trading mechanism selected stocks on the tel aviv stock exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions this event was associated with a positive and permanent price appreciation the cumulative average market adjusted return over a period that started five days prior to the announcement and ended 30 days after the stocks started trading by the new method was approximately 5 5 in addition we find positive liquidity externalities spillovers across related stocks and improvements in the value discovery process due to the improved trading method finally there was a positive association between liquidity gains and price appreciation

presidential approval and macroeconomic conditions evidence from a nonlinear model abstractcontrary to previous empirical studies that find a linear link between economic conditions and presidential approval this study argues for and finds a nonlinear relationship a threshold regression is used to assess potential nonlinear relationships between macroeconomic variables and presidential popularity a quarterly data analysis for the 1960q1 2012q2 time period reveals that domestic factors prevail in shaping presidential approval most compelling is evidence of a threshold relationship involving economic conditions when unemployment is slightly over 7 its decline impacts significantly and favourably on presidential approval an effect that virtually disappears below the threshold value change in consumer sentiment affects presidential approval in a limited way while inflation shows no association at all these results combine to encourage further investigation of nonlinear processes in the nexus of economics and politics

the effect of short selling on bubbles and crashes in experimental spot asset markets a series of experiments illustrate that relaxing short selling constraints lowers prices in experimental asset markets but does not induce prices to track fundamentals we argue that prices in experimental asset markets are influenced by restrictions on short selling capacity and limits on the cash available for purchases restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner a simulation model based on delong et al 1990 generates average price patterns that are similar to the observed data asset market bubbles are persistent deviations of prices from fundamentals to the extent that bubbles exist they can influence investment levels and the allocation of capital and thereby have considerable economic effects in recognition of their potential importance the question of the existence and pervasiveness of bubbles has been a focus of extensive empirical investigation see e g shiller 1981 blanchard and watson 1982 diba and grossman 1988 and west 1988 these studies yield mixed results regarding the empirical relevance of bubble phenomena one source of the differences in conclusions may be that because the fundamental value of the assets cannot be observed tests of the presence of bubbles are joint tests with the particular specification of the process guiding the evolution of fundamentals also being tested the availability of short selling is widely believed to make bubble formation less likely one rationale for such a belief is the notion that the cause of asset market bubbles is a constraint on the ability of traders to speculate on future downward price movements see e g miller 1977 jarrow 1980 diamond and verrecchia 1987 or figlewski and webb 1993 in the absence of short sales traders may sell only the shares in their portfolios the availability of short sales relaxes this constraint in this paper we study empirically the effect of allowing short sales on both the incidence and magnitude of market bubbles we choose a setting in which the fundamental value of the asset is clearly and unambiguously defined and known at all times and bubbles typically occur namely we use the experimental environment that smith suchanek and williams 1988 introduce while

global standards and ethical stock indexes the case of the dow jones sustainability stoxx index the increased scrutiny of investors regarding the non financial aspects of corporate performance has placed portfolio managers in the position of having to weigh the benefits of holding the market against the cost of having positions in companies that are subsequently found to have questionable business practices the availability of stock indexes based on sustainability screening makes increasingly viable for institutional investors the transition to a portfolio based on a socially responsible investment sri benchmark at relatively low cost the increasing share of socially responsible investments may play a role in providing incentives towards a continuous upgrading of sustainability standards to the extent that their performance is not systematically inferior to that of the other funds this article examines whether these incentives have been so far detectable with particular reference to the dow jones sustainability stoxx index djssi that focuses on the european corporations with the highest csr scores among those included in the dow jones stoxx 600 index the aim of the article is twofold first we analyse the performance of the djssi over the period 2001 2006 compared to that of the surrogate complementary index sci a new benchmark that includes only the components of the dj stoxx 600 that do not belong to the ethical index to evaluate more correctly the size of possible divergent performances second we perform an event study on the same data set to analyse whether the stock market evaluation reacts to the inclusion deletion in the djssi in both cases the results suggest that the evaluation of the csr performance of a firm is a significant criterion for asset allocation activities

the only game in town stock price consequences of local bias abstract theory suggests that in the presence of local bias the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region using data on u s states and census regions we find clear cut support for this proposition most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita regions with low population density e g the deep south are home to relatively few firms per capita which leads to higher stock prices via an only game in town effect

high stock returns before holidays existence and evidence on possible causes on the trading day prior to holidays stocks advance with disproportionate frequency and show high mean returns averaging nine to fourteen times the mean return for the remaining days of the year over one third of the total return accruing to the market portfolio over the 1963 1982 period was earned on the eight trading days which each year fall before holiday market closings examination of hourly pre holiday stock returns reveals high returns throughout the day pre holiday stock returns in the post test 1983 1986 period are also examined this paper explores a seeming empirical regularity in the pattern of daily stock index returns surrounding holidays the trading day prior to holidays on average exhibits high positive returns over one third of the return earned by the market over the twenty year test period accrued on the eight trading days which annually fall before holidays intimations of the pre holiday strength have appeared in the academic literature in an examination of the frequency of dow jones industrial average advances on days surrounding weekends during the 1901 to 1932 period fields 1934 finds a disproportionate frequency of advances on trading days preceding long holiday weekends roll 1983a finds high returns accruing to small firms on the trading day prior to new year s day lakonishok and smidt 1984 note that prices also rise in all deciles of market capitalization on the last trading day before christmas and conclude that the high christmas returns of large companies might be considered another mystery a number of stock market advisors have also noted the pre holiday strength merrill 1966 finds a disproportionate frequency of dow jones industrial average advances on days preceding holidays during the 1897 to 1965 period and fosback 1976 has noted high preholiday returns in sp further hourly returns and closing bid ask data are examined to determine when high returns accrue on preholidays tests are also conducted showing that pre holiday strength is not

market created risk we develop a multiperiod rational expectations model of securities market equilibrium in which equilibrium prices may move between periods even though it is common knowledge that no new information has arrived about ultimate security payoffs this happens because investors know they have imperfect information about the endowments of other investors and this knowledge affects their probability beliefs about the prices that will prevail at the intermediate trading date these beliefs are reflected in the equilibrium at the initial trading date when investors focus on the probabilities of intermediate capital gains and losses rather than ultimate payoffs virtually all models of the pricing of securities employ some notion of market equilibrium so for prices to fluctuate something in the equilibrium must change since equilibrium in an informationally efficient market implies that market clearing prices reflect all available information about future securities payoffs it seems to be frequently assumed that observed jumps in prices ought under the efficient market hypothesis to reflect the arrival of new information about future cash payoffs to securities the major theme of this paper is to examine a multiperiod model of securities market equilibrium in which equilibrium prices may change sharply between periods even if it is common knowledge that no new information about ultimate payoffs has arrived and all investors are rational and make full use of all available information in our model the new information that leads to a price change is information about how much of the known total supply of risky securities is held by investors of different preferences for this model to produce intertemporal price fluctuation in equilibrium two phenomena must occur firstly the initially unknown composition of the market must not be revealed by equilibrium prices at the initial trading date secondly despite this the true composition of the market must at least partially determine prices at a later trading date they key to both these phenomena lies in the difference in investor behavior when they anticipate revising their current portfolio holdings in response to future price changes as compared to when they choose portfolios on the basis of receiving the ultimate cash payoffs to the securities they buy in practice few investors anticipating holding financial securities to their eventual liquidation by the issuer short term debt or debt close to maturity would be the major exception few equity securities relative to the total supply

unit root tests persistence and the unemployment rate of the u s states author affiliation diego romero avila department of economics carretera de utrera km 1 pablo de olavide university 41013 seville spain dromtor upo escarlos usabiaga professor department of economics carretera de utrera km 1 pablo de olavide university 41013 seville spain cusaiba upo es corresponding author acknowledgment the authors would like to thank seminar participants at the pablo de olavide university and dg economics at the european central bank carlos usabiaga acknowledges the financial support from centro de estudios andaluces ecod1 05 033 special thanks go to junsoo lee and nikolay gospodinov for making available to us the codes to implement some of the techniques used in the paper and to two anonymous referees for suggestions that substantially improved the paper the usual disclaimer applies 1 introductionthe high persistence in unemployment rates observed in the developed world since the first oil shock has led to a vivid debate over which paradigm can better explain the behavior of unemployment rates the traditional strand of the literature that forms the basis of the natural rate theory phelps 1967 1968 friedman 1968 assumes that the unemployment rate evolves around an equilibrium level describing stationary fluctuations this equilibrium level or natural rate is set depending on fundamentals of the economy while initially the absence of theories explaining the determination of the natural rate meant that in practice it was taken to be constant and exogenous subsequent developments have attempted to identify the structural factors behind differences across economies and over time including labor productivity technological change real interest rates real exchange rates and energy prices to name a few see phelps 1994 phelps and zoega 1998 according to the structuralist view phelps 1994 most shocks to unemployment are temporary but occasionally the natural rate permanently changes and is affected by variations in the aforementioned structural factors as a consequence the unemployment rate may be characterized as a process that is stationary once a small number of structural breaks are allowed for in contrast to the natural rate and structuralist approaches the hysteresis hypothesis see blanchard and summers 1986 1987 implies that the unemployment rate is path dependent and temporary shocks can affect unemployment permanently 1 while hysteresis is thought to imply that the natural rate is conditioned by the level of unemployment recorded in the past persistence in unemployment which is a special case of the natural rate hypothesis entails a slow adjustment process of reversion toward the mean thus hysteresis implies that unemployment is characterized by a unit root while persistence is characterized by a near unit root in the latter case shocks to unemployment though long lasting would not have a permanent effect to discriminate among theories explaining the behavior of unemployment rates unit root tests have been widely applied the hysteresis hypothesis has been formulated as a unit root process and its rejection lends support to the natural rate hypothesis if no breaks are included in the specification and the structuralist hypothesis if breaks are allowed for the purpose of this article is to investigate which theoretical paradigm most closely represents the behavior of unemployment rates in the states of the united states over the period 1976 2004 we first apply the individual lagrange multiplier lm t statistic proposed by schmidt and phillips 1992 to monthly data and we fail to reject the null hypothesis of a unit root in unemployment for forty states perron 1989 pointed out that the presence of structural changes could favor the nonrejection of the unit root null if they are not properly accounted for therefore we employ the minimum lm t statistic allowing for up to two endogenous changes in level proposed by lee and strazicich 2003

the gatt and the regulation of trade barrier regime dynamics and functions since the second world war complex and changing sets of norms and rules have governed trade relations among most countries they have largely originated from a unique and accidental international organization the general agreement on tariffs and trade gatt we have labeled these norms rules and decision making mechanisms the gatt regime or global trade barriers regime the importance that gatt members have attached to certain norms has shaped the regime s procedural mechanisms rules and implementation of rules classifying those norms as sovereignty or interdependence norms we posit that the strength or autonomy of the regime can be established by analyzing the prominence of the interdependence norms in the issue area we close by exploring some of the functions of the regime in international trade and political relations

institutional ownership and changes in the s p 500 several recent articles have provided new evidence for the existence of price pressures by examining the price and volume effects associated with changes in the s p 500 the present study extends this work by examining actual changes in institutional holdings following both additions to and deletions from the s p 500 the results show that changes in institutional holdings in response to additions or deletions from the s p 500 are positively correlated in addition to providing further evidence for the existence of price pressure effects the results also provide evidence of the very large institutional elasticities of demand for stock in two recent articles in this journal shleifer 1986 and harris and gurel 1986 present important new evidence of the existence of price pressures by examining the price and volume effects associated with changes in the composition of the standard and poor s s p 500 market index specifically these authors interpret the strong increases in trading volume and economically and statistically significant increases decreases in share prices on the first trading day following additions to or deletions from the s p 500 as the result of increased decreased demand by institutional index funds rather than from information effects concerning the future return distributions of the newly listed delisted firms the results of similar price and volume studies conducted by woolridge and ghosh 1986 and lamoureux and wansley 1987 are also generally consistent with the predictions of the price pressure hypothesis while both schleifer 1986 and harris and gurel 1986 suggest that changes in institutional index fund holdings are responsible for the observed abnormal returns in response to s p 500 changes over the years between 1966 and 1983 their joint failure to examine actual institutional ownership changes following listing or delisting from the index does not allow for direct tests of this possibility this study presents results of such tests

equilibrium prices in the presence of delegated portfolio management abstract this paper analyzes the asset pricing implications of commonly used portfolio management contracts linking the compensation of fund managers to the excess return of the managed portfolio over a benchmark portfolio the contract parameters the extent of delegation and equilibrium prices are all determined endogenously within the model we consider symmetric fulcrum performance fees distort the allocation of managed portfolios in a way that induces a significant and unambiguous positive effect on the prices of the assets included in the benchmark and a negative effect on the sharpe ratios asymmetric performance fees have more complex effects on equilibrium prices and sharpe ratios with the signs of these effects fluctuating stochastically over time in response to variations in the funds excess performance

capital gains taxes and equity trading empirical evidence individual investors have an incentive to defer selling appreciated stock until it qualifies for tax favored long term capital gains treatment shackelford and verrecchia 2002 show that these incentives can affect equity trading around public disclosures this article provides some empirical support for their theory with evidence of price increases and equity constrictions around announcements of quarterly earnings and additions to the s p 500 index we find share returns rise and trading volume falls with the incremental taxes saved by deferring the sale of appreciated property the price increases however are temporary reversing in subsequent trading days the results are consistent with buyers believing the compensation to sell before long term qualification through higher prices is less costly than holding an inappropriately weighted portfolio this finding that personal capital gains taxes affect equity trading adds to a growing literature that challenges longstanding assumptions that firm value is independent of shareholders and their taxes

anatomy of a government intervention in index stocks price pressure or information effects in a massive intervention designed to deter speculators the hong kong monetary authority hkma bought hang seng index stocks in august 1998 these stocks experienced a 24 abnormal return during the intervention period the abnormal returns are not reversed over the next eight weeks refuting the hypothesis that returns are due to temporary liquidity effects cross sectional analysis of daily abnormal returns during the intervention period reveals that these returns are related to overall intervention activity rather than stock specific intervention this evidence is consistent with information effects rather than price pressure effects

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

the dartboard column second hand information and price pressure this study analyzes the effect of second hand information on the behavior of security prices and volume using analysts recommendations published in the monthly dartboard column of the wall street journal for the two days following the publication of the recommendations average positive abnormal returns of 4 percent nearly twice the level of abnormal returns documented in previous research on analyst recommendations and average volume double normal volume levels on the two days following publication of the recommendations are documented the positive abnormal return on announcement is partially reversed within 25 trading days the authors conclude that the positive abnormal return on announcement of the recommendations is a result of naive buying pressure as well as the information content of the analysts recommendations

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

price and volume effects of changes in msci indices nature and causes abstract using changes in the msci standard country indices for 29 countries between 1998 and 2001 we document that stock returns and volumes exhibit index effects in international markets similar to those detected by the studies of us stocks the stocks added to the indices experience a sharp rise in prices after the announcement and a further rise during the period preceding the actual change though part of the gain is lost after the actual change date the stocks that are deleted from the indices on the other hand witness a steady and marked decline in their prices trading volumes increase significantly and remain at high levels after the change date for the added stocks there are also considerable cross country variations in these effects tests using data on various measures reflecting the different hypotheses fail to turn up any evidence in support of information effects our evidence appears to be more supportive of the downward sloping demand curve hypothesis there is some evidence of price pressure and mild evidence of liquidity effect particularly in japan and uk

why are convertible bond announcements associated with increasingly negative issuer stock returns an arbitrage based explanation while convertible offerings announced between 1984 and 1999 induce average abnormal stock returns of 1 69 convertible announcement effects over the period 2000 2008 are more than twice as negative 4 59 we hypothesize that this evolution is attributable to a shift in the convertible bond investor base from long only investors towards convertible arbitrage funds these funds buy convertibles and short the underlying stocks causing downward price pressure consistent with this hypothesis we find that the differences in announcement returns between the traditional investor period 1984 1999 and the arbitrage period 2000 september 2008 disappear when controlling for arbitrage induced short selling associated with a range of hedging strategies post issuance stock returns are also in line with the arbitrage explanation average announcement effects of convertibles issued during the global financial crisis are even more negative 9 12 due to a combination of short selling price pressure and issuer issue and macroeconomic characteristics associated with these offerings

financial asset demand is elastic evidence from new issues of federal home loan bank debt abstract we estimate the slope of the demand curve for newly auctioned fhlb discount notes and investigate the impacts of arbitrage risk and heterogeneity of investor beliefs on demand elasticity our unique dataset of roughly 2900 observations of two price quantity pairs the first from a pre auction dealer survey the second from actual auction results provides the quantity shift necessary to identify demand in contrast to previous findings of downward sloping demand curves for equities we show that demand for newly issued fhlb notes is nearly perfectly elastic during normal market conditions we find however that frictions like arbitrage risk and to a lesser extent heterogeneity of investor beliefs negatively affect elasticity and explain the nearly 50 drop in elasticity observed during the recent financial crisis

s p 500 index additions and earnings expectations stock price increases associated with addition to the s p 500 index have been interpreted as evidence that demand curves for stocks slope downward a key premise underlying this interpretation is that index inclusion provides no new information about companies future prospects we examine this premise by analyzing analysts earnings per share eps forecasts around index inclusion and by comparing postinclusion realized earnings to preinclusion forecasts relative to benchmark companies companies newly added to the index experience signi cant increases in eps forecasts and signi cant improvements in realized earnings these results indicate that s p index inclusion is not an information free event studies that examine the prices of common stocks when they become included in the standard poor s s p 500 index have appeared regularly in leading nance journals since 1986 fascination with the eiect of s p index inclusion on stock prices appears to stem from the possibility that inclusion in the index is an information free eventfinformation free in the sense that s p makes no claim that inclusion represents an endorsement of the newly included stock s future prospects 1 indeed s p makes an a rmative claim to the contrary company

index composition changes and the cost of incumbency abstract this paper provides evidence of information effects and portfolio rebalancing effects that occur when stocks are added to or excluded from the sp however the portfolio rebalancing effects dominate the industry information effects

stock price effects and costs of secondary distributions abstract this study does not support the view that a large number of shares can be sold at the prevailing market price and at a small cost a significant stock price decrease is observed at the initial announcement of secondary distributions the price declines are greater for offerings by officers and directors and for larger offerings but are significant for all types of sellers and for large and small offerings there is no significant price decline at the offering when secondaries are announced in advance underwriting and other selling costs are substantial and are positively related to relative offering size

price reaction of ethically screened stocks a study of the dow jones islamic market world index this paper investigates the short term effects on the price of the ethically screened stocks of the dow jones islamic market world index djimwi quarterly revisions using a sample of 8 250 stocks from may 1999 through june 2012 we find a significant price reaction of the ethically screened stocks following additions and deletions the results show that additions deletions from emerging stock markets tend to experience a greater and significantly positive negative price response than additions deletions from the developed markets further tests reveal that the price reactions following djimwi revisions are likely to be driven by shifts in investor sentiment rather than changes in firm fundamentals

price and volume effects associated with changes in the s p 500 list new evidence for the existence of price pressures attempts to identify price pressures caused by large transactions may be inconclusive if the transactions convey new information to the market this problem is addressed in an examination of prices and volume surrounding changes in the composition of the s p 500 since these changes cause some investors to adjust their holdings of the affected securities and since it is unlikely that the changes convey information about the future prospects of these securities they provide an excellent opportunity to study price pressures the results are consistent with the price pressure hypothesis immediately after an addition is announced prices increase by more than 3 percent this increase is nearly fully reversed after 2 weeks the efficient market hypothesis emh predicts that security prices reflect all publicly available information therefore one corollary of the emh is that you can sell or buy large blocks of stock at close to the market price as long as you can convince other investors that you have no private information 1 this statement assumes that securities are near perfect substitutes for each other if so the excess demand for a single security will be very elastic and the sale or purchase of a large number of shares will have no impact on price in contrast to the emh scholes 8 kraus and stoll 5 hess and frost 4 and others propose two hypotheses which predict that a large stock sale purchase will cause the price to decrease increase even if no new information is associated with the transaction the imperfect substitutes hypothesis ish also known as the distribution effect hypothesis assumes that securities are not close substitutes for each other and hence that long term demand is less than perfectly elastic under this hypothesis equilibrium prices change when demand curves shift to eliminate excess demand price reversals are not expected because the new price reflects a new equilibrium distribution of security holders the price pressure hypothesis pph assumes that investors who accommodate demand shifts must be compensated for the transaction costs and portfolio risks that they bear when they agree to immediately buy or sell securities which they otherwise would not trade these passive suppliers of liquidity are attracted by immediate price drops rises associated with large sales purchases they are compensated for their liquidity service when prices rise drop to their fullinformation levels the pph like the emh assumes that long run demand is

drips and the dividend pay date effect on the day that dividends are paid we find a significant positive mean abnormal return that is completely reversed over the following days this dividend pay date effect has strengthened since the 1970s and is consistent with the temporary price pressure hypothesis the pay date effect is concentrated among stocks with dividend reinvestment plans drips and is larger for stocks with a higher dividend yield greater drip participation and greater limits to arbitrage over time profits from a trading strategy that exploits this behavior are positively related to the dividend yield and spread and negatively associated with aggregate liquidity

the russell reconstitution effect significant returns were associated with the annual reconstitution of the russell equity indexes from 1996 through 2002 which can be explained by both transitory price pressure and the permanent effects of index membership on the one hand the return effects represent a significant cost to index funds that rebalance on the reconstitution date on the other hand supplying immediacy at this time can be highly profitable this strategy is typically undiversified however and involves high trading costs and price risk as positions are unwound indeed dramatic intraday return volatility characterizes the day of reconstitution these factors explain the persistence of the reconstitution effects documented here

do demand curves for currencies slope down evidence from the msci global index change traditional portfolio balance theory derives a downward sloping currency demand function from limited international asset substitutability historically this theory enjoyed little empirical support we provide direct evidence by examining the exchange rate effect of a major redefinition of the msci international equity index in 2001 and 2002 the index changes implied large changes in the representation of different countries in the msci world index and therefore produced strong exogenous equity flows by index funds our event study shows a strong announcement effect in which countries with a decreasing equity representation vis a vis the u s depreciated against the dollar

presidential address asset price dynamics with slow moving capital i describe asset price dynamics caused by the slow movement of investment capital to trading opportunities the pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade such as search costs for trading counterparties or time to raise capital by intermediaries i discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions which subsided afterward after presenting examples of price reactions to supply shocks in normal market settings i offer a simple illustrative model of price dynamics associated with slow moving capital due to the presence of inattentive investors i address the implications for asset price dynamics of the apparent slow movement of investment capital to trading opportunities the arrival of new capital to an investment opportunity can be delayed by fractions of a second in some markets for example an electronic limit order book market for equities or by months in other markets such as that for catastrophe risk insurance accordingly prices respond to supply or demand shocks with a sharp reaction because of the relatively small subset of capital and thus risk bearing capacity that is immediately available to absorb a shock on short notice such a price impact is substantially reversed over time as additional capital becomes available the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of attention costs to trade as well as institutional impediments to capital movement such as search costs for trading

the s p500 index effect reconsidered evidence from overnight and intraday stock price performance and volume abstract this study focuses on s p500 inclusions and deletions examining the impact of potential overnight price adjustment after the announcement of an s p500 index change we find evidence of a significant overnight price change that diminishes the returns available to speculators although there are still profits available from the first day after announcement until a few days after the actual event more importantly observing the tick by tick stock price performance and volume effects on the key days during the event window for the first time we find evidence of consistent trading patterns during trading hours a separate analysis of nasdaq and nyse listed stocks allows for a detailed examination of the price and volume effect at an intra day level we find that index funds appear to cluster their rebalancing activities near to and after the close on the event date suggesting that they are more concerned with tracking error than profit

asymmetric labour force participation decisions this article finds compelling evidence of asymmetric labour force participation decisions across demographic groups in response to changes in labour market conditions this behaviour is consistent with predictions from the standard labour leisure choice model and suggests that asymmetry in individual behaviour plays some role in the observed asymmetry of the aggregate unemployment rate it is estimated that the weighted average difference in response to a one percentage point change in unemployment rates is sizeable when compared to the average monthly change in the aggregate labour force

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