why do farmers have so little interest in futures markets a farm financial model with leverage and investment in two farm enterprises is specified the model is extended to incorporate futures hedging and the separation theorem is used to show that optimal hedging is zero the assumption of a risk free asset is relaxed and while this leads to a violation of the separation theorem the result that optimal hedging is zero is maintained providing that futures markets are efficient it is concluded that if capital markets are efficient then farmers will have little interest in futures markets except to speculate

on the accuracy of the mean variance approximation for futures markets abstract simple approximate fomulae for the volume and gains from futures trading are derived using the mean variance model the errors involved are exactly quantified and shown to be negligible for the futures price and welfare gains though potentially larger for volumes

stabilising commodity earnings when there is uncertainty about the price and production distributions most of the literature on risk reduction associated with price and production uncertainties has been concerned with the welfare justification for and welfare consequences of market stabilisation this article deals with the important problem of how to stabilise earnings in a market where prices are volatile and production is uncertain once the welfare case for doing so had been accepted based on a sample of four representative commodity markets the study found significant scope for stabilising earnings by hedging or by price stabilisation

the effect of macroeconomic news on stock returns new evidence from newspaper coverage abstract previous literature has produced weak evidence to support the hypothesis that real economic news affects stock returns this is in part attributed to the difficulty of measuring how investors interpret macroeconomic announcements in different economic environments in this paper we choose a different approach of measuring macroeconomic news to better estimate its effect on stock returns since newspaper stories provide an interpretation of the statistical releases we choose newspaper stories as our measure of news our findings indicate that news about gdp and unemployment does affect stock returns

the determination of spot and futures prices with storable commodities this paper analyzes the effects of futures trading in a market for a storable commodity in which producers and speculators are assumed to be risk averse and specifications of the aggregate supply and inventory demand functions are derived from explicit optimization a critical aspect is how the parameters of these functions change with the introduction of the future market as it is through these induced parameter changes that the futures market exerts its influence on the spot price the effects of the futures market on both the long run average spot price and its variance are analyzed while we are unable to draw any definitive conclusions on this issue we find that in all cases considered the futures market stabilizes the spot price as well as lowering its long run mean for many years now the question of the effects of futures trading on the stability of spot prices has been extensively debated this topic has been discussed at various levels for example farmers and agricultural interest groups have claimed that futures trading destabilizes spot prices thereby imposing welfare losses on the economy in the united states congress has decided that futures trading can cause price destabilization and has subjected futures trading to the regulation of the commodity futures trading commission at a more analytical level economists have been investigating the issue both empirically and more recently theoretically as well

stock prices and economic news this paper examines the daily response of stock prices to announcements about the money supply inflation real economic activity and the discountrate except for the discount rate survey data on market participants expectations of these announcements are used to identify the unexpected component of the announcements in order to test the efficient markets hypothesis that only the unexpected part of any announcement the surprise moves stock prices the empirical results support this hypothesis and indicate further that surprises related to monetary policy significantly affect stock prices there is only limited evidence of an impact from inflation surprises and no evidence of an impact from real activity surprises on the announcement days there is also only weak evidence of stock price responses to surprises beyond the announcement day this abstract was borrowed from another version of this item

the reaction of stock prices to unanticipated changes in money a note much of the past work on the money stock market relationship centered on the question of whether money is a leading indicator of stock prices studies by sprinkel 22 homa and jaffee 10 and hamburger and kochin 8 supported the view that past increases in money lead to increases in equity prices the implication of this work was that investors could earn above normal proflts by using a trading strategy based on the observed behavior of the money stock this contradicts the efficient markets hypothesis which asserts that current asset prices reflect all available information so that no such trading strategy can exist subsequent research by cooper 3 pesando 17 rozeff 21 and rogalski and vinso 19 has shown that past money changes do not contain predictive information on stock prices upholding the efficient markets view this paper investigates whether the response of common stock prices to weekly money announcements is consistent with the efflcient markets hypothesis unlike the above research therefore the focus is on the very short run response of stock prices to both anticipated and unanticipated announced changes in money recent work by berkman 1 grossman 7 urich and wachtel 25 and roley 20 indicates that short term interest rates respond only to the unexpected component of the announcement with short term rates rising when the announced change in money exceeds the expected change berkman also examined the reaction of stock prices finding that an unanticipated increase in the money supply depressed share prices lynge 13 found that positive money announcements lowered stock prices but since he did not distinguish expected from unexpected money growth his results do not bear directly on the efficient markets issue in investigating the response of stock prices to weekly money announcements survey data on market participants forecasts of the announced weekly change

response of hourly stock prices and trading volume to economic news this paper examines hourly stock returns and trading volume response to announcements about the money supply consumer price index cpi producer price index industrial production and the unemployment rate the empirical results indicate that surprises in announcements about money supply and cpi are significantly associated with stock price changes the announcements of the other three variables do not affect stock prices significantly trading volume is not affected by any of the five economic variable announcements indicating that market participants do not differ substanti ally in the interpretations of the effects of announcements the spee d of adjustment analysis indicates that the effect of information on stock prices is reflected in a short period of one hour or so copyright 1988 by the university of chicago

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

dependence structure between the equity market and the foreign exchange market a copula approach abstract this paper investigates the dependence structure between the equity market and the foreign exchange market by using copulas in particular several copulas with different dependence structure are compared and used to directly model the underlying dependence structure we find that there exists significant symmetric upper and lower tail dependence between the two financial markets and the dependence remains significant but weaker after the launch of the euro our findings have important implications for both global investment risk management and international asset pricing by taking into account joint tail risk

futures trading and the welfare evaluation of commodity price stabilisation it is notorious that commodity prices are volatile and there is a substantial literature on the wisdom of complete or partial elimination of this volatility the modern academic literature starts from waugh i944 who argued that consumers benefit from price volatility since they can take advantage of low prices by increasing consumption and oi i96i who argued the parallel proposition for producers massell i969 noting that waugh had assumed supply side disturbances whilst oi had assumed demand side disturbances provided an integrated model in the same spirit samuelson i972 showed that notwithstanding the contributions of waugh and oi it will not be beneficial within a standard competitive market clearing model to destabilise prices the literature is surveyed in turnovsky i978 this raises the question of whether stabilisation can be justified in the context of a competitive free market in which private agents make optimal stockholding decisions wright and williams i982 a number of authors see for example johnson i967 ch 5 have suggested that the fundamental theorem of welfare economics rules out such intervention standard arguments that would qualify this conclusion are superior governmental access to capital markets or information and the assertion that stabilisation may result in a favourable redistribution of income newbery and stiglitz i98i have stressed the rather more powerful argument that application of the fundamental theorem of welfare economics in an uncertain and explicitly intertemporal context requires the existence of a complete set of forward and contingent contracts markets futures or forward markets do exist for delivery of many important primary commodities at near dates but this is far from sufficient to satisfy the prerequisites of the theorem since agents will use those markets which do exist as substitutes for those that are absent since for example moral hazard considerations prevent widespread trading of crop insurance contracts farmers are obliged to obtain insurance against poor crops through the imperfect substitute of hedging on futures markets the limited range of futures and contingent claims markets invalidates the argument that intervention can never be justified in welfare terms but at the same time this only establishes the possibility of a justification for intervention a specific case must be made for each market futures trading allows market transactors to fix their prices in advance of delivery for example a farmer may completely hedge by selling his entire

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

information and efficiency in tender offers we analyze tender offers where privately informed shareholders are uncertain about the raider s ability to improve firm value the raider suffers a lemons problem in that for any price offered only shareholders who are relatively pessimistic about the value of the firm tender their shares consequently the raider finds it too costly to induce shareholders to tender when their information is positive in the limit as the number of shareholders gets arbitrarily large when private benefits are relatively low the tender offer is unsuccessful if the takeover has the potential to create value the takeover market is therefore inefficient in contrast when private benefits of control are high the tender offer allocates the firm to any value increasing raider but may also allow inefficient takeovers to occur unlike the case where all information is symmetric shareholders cannot always extract the entire surplus from the acquisition

pre tender offer share acquisition strategy in takeovers this paper models the strategic pre tender offer share acquisition problem faced by po tential bidders in takeovers the model provides a rational explanation for the seemingly anomalous empirical evidence that the information about the impending tender offers is not fully conveyed through the potential bidders pre tender offer trades and for the evidence that a large fraction of bidders do not hold any target shares prior to launching the tender offers additional testable implications are also provided

when does the stock market listen to economic news new evidence from copulas and news wires we study association between macroeconomic news and stock market returns using the statistical theory of copulas and a new comprehensive measure of news based on textual review and classification of news wires we find the impact of economic news on equity returns to be nonlinear and asymmetric in particular controlling for economic conditions and surprises associated with releases of economic data we find that the market reacts strongly and negatively to the most unfavourable macroeconomic news but appears to largely discount the good news further the most unfavorable news creates price drift and we document that selling stocks short in the wake of unusually bad news yields annual abnormal gross returns greater than four percent

the market for news we investigate the market for news under two assumptions that readers hold beliefs which they like to see confirmed and that newspapers can slant stories toward these beliefs we show that on the topics where readers share common beliefs one should not expect accuracy even from competitive media competition results in lower prices but common slanting toward reader biases on topics where reader beliefs diverge such as politically divisive issues however newspapers segment the market and slant toward extreme positions yet in the aggregate a reader with access to all news sources could get an unbiased perspective generally speaking reader heterogeneity is more important for accuracy in media than competition per se

the impact of oil price shocks on u s bond market returns abstract this paper examines the effect of the demand and supply shocks driving the global crude oil market on aggregate u s bond index real returns a positive oil market specific demand shock is associated with significant decreases in aggregate bond index real returns for 8 months following the shock a positive innovation in aggregate demand has a negative effect on real bond return that is statistically significant and becomes more adverse over 24 months structural shocks driving the global oil market jointly account for 27 1 of the variation in real bond returns at 24 month horizon a spillover index from rolling svar models is used to identify the interdependence between the oil market and bond returns the mean for this spillover index is 0 381 over 2001 01 2011 12 and 0 476 over september through december 2008 during the height of the global financial crisis

futures hedging under price basis and production risk we consider the hedging problem of a firm that has three sources of risk price basis and yield uncertainty an exact solution for the optimal futures hedge is derived under the assumption that the three random variables are jointly normally distributed and that utility is of the cara type unlike the mean variance approximation applied in previous research we show that the optimal hedge does depend on risk attitudes even when the agent perceives the futures price as being unbiased the theoretical results are applied empirically to the problem of hedging soybean production in iowa the exact solution relying on cara and normality is compared with numerical solutions under lognormal distributions and crra utility

cartels storage and the suppression of futures markets abstract the main demand for futures markets is to hedge storage without which futures markets may collapse the paper proves that a risk neutral cartel would benefit from suppressing a futures market and if it suffered no cost disadvantage would find it profitable to monopolize storage unhedged this might cause the futures markets to collapse but if not and the cartel had sufficient market share it might find it profitable to undertake excessive storage and price stabilization to undermine the futures market the ensuing rise in average price would harm consumers

the dependence structure between the canadian stock market and the usd cad exchange rate a copula approach this paper investigates the dependence structure between the real canadian stock returns and the real usd cad exchange rate returns using the symmetrized joe clayton sjc copula function we estimate the sjc copula with monthly data over the period 1995 1 to 2006 12 our results show significant asymmetric static and dynamic tail dependence between the real stock returns and the real exchange rate returns such that the two returns are more dependent in the left than in the right tail of their joint distribution we explain this asymmetric dependence in terms of an asymmetric interest rate policy by canadian monetary authorities in response to changes in the real exchange rate during sub periods of falling and rising commodity prices le texte analyse la structure de dependance entre les rendements reels sur les actions canadiennes en bourse et les taux de rendements reels sur le taux de change entre le canada et les etats unis en utilisant la fonction a copule symetrisee joe clayton sjc on calibre cette fonction a l aide de donnees mensuelles pour la periode allant de 1995 1 a 2006 12 les resultats montrent une dependance asymetrique statique et dynamique significative entre les rendements reels sur les actions et les taux de rendements reels sur le taux de change telle que les deux rendements reels sont davantage dependants l un de l autre a l extremite gauche qu a l extremite droite de leur distribution conjointe on explique cette dependance asymetrique en termes d une politique asymetrique du taux d interet par les autorites canadiennes en reponse aux changements dans le taux de change reel durant les sous periodes de prix croissants et decroissants des denrees

information in tender offers with a large shareholder we study takeovers of firms whose ownership structure is a mixture of minority block holders and small shareholders we show that the combination of dispersed private information on the side of small shareholders and the presence of a large shareholder can facilitate profitable takeovers furthermore our analysis implies that even if some model of takeovers predicts a profit for the raider for example due to private benefits the profit will be underestimated unless the large shareholder and the dispersion of information among the small shareholders are modeled

determinants of hedging and risk premia in commodity futures markets this paper examines the determinants of commodity futures hedging and of risk premia arising from covariation of the futures price with stock market returns and with the reve nues of producers owing to supply shocks that stochastically redistribute real wealth surplus between producers and consumers and to limited participation in the futures market the total risk premium in the model is not proportional to the contract s covariance with aggregate consumption stock market variability interacts with the incentive to hedge causing the producer hedging component of the risk premium to increase de crease with income elasticity for a normal inferior good production costs that depend on output raise the premium we argue that output and demand shocks will typically be positively correlated raising the premium high supply elasticity reduces the absolute heding premium by reducing the variability of spot price and revenue