occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

a theory of trading volume a theory of trading volume is developed based on assumptions that market agents frequently revise their demand prices and randomly encounter potential trading partners the model describes two distinct ways informational events affect trading volume one is consistent with conjectures made by empirical researchers that investor disagreement leads to increased trading but the observation of abnormal trading volume does not necessarily imply disagreement and volume can increase even if investors interpret the information identically if they also have had divergent prior expectations simulation tests support the model and are used to contrast the random pairing environment with costless market clearing volume is lower in the costly market and volume increases caused by an informational event persist after the event period this is consistent with existing empirical evidence and suggests that markets do not immediately clear all orders or that investors have demands to recontract

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

the long run determinants of inequality what can we learn from top income data this paper studies determinants of income inequality using a newly assembled panel of 16 countries over the entire twentieth century we focus on three groups of income earners the rich p99 100

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

empirical of the taiwan stock index option price forecasting model applied artificial neural network this work presents a novel neural network model for forecasting option prices using past volatilities and other options market factors out of different approaches to estimating volatility in the option pricing model this study uses backpropagation neural network to forecast prices for taiwanese stock index options the ability to develop accurate forecasts of grey prediction volatility enables practitioners to establish an appropriate hedging strategy at in the money option

a direct test of the mixture of distributions hypothesis measuring the daily flow of information this paper proposes and conducts direct tests of the mixture of distributions model for stock prices by exploiting the model s bivariate conditional normality of price changes and trading volume these restrictions can be tested under very weak assumptions regarding the daily flow of information to the market as a technical by product important parameters governing the distribution of this unobservable information flow are estimated

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

finance and income inequality what do the data tell us although there are distinct conjectures about the relationship between finance and income inequality little empirical research compares their explanatory power we examine the relationship between finance and income inequality for 83 countries between 1960 and 1995 because financial develop ment might be endogenous we use instruments from the literature on law finance and growth to control for this our results suggest that in the long run inequality is less when financial development is greater consistent with galor and zeira 1993 and banerjee and newman 1993 although the results also suggest that inequality might increase as financial sector development increases at very low levels of financial sector development as suggested by greenwood and jovanovic 1990 this result is not robust we reject the hypothesis that financial development benefits only the rich our results thus suggest that in addition to improving growth financial development also reduces inequality

the circular relationship between inequality leverage and financial crises in this paper we put into perspective the recent literature which points to inequality as a possible cause of credit bubbles by reintegrating it into a more general analysis on the two way relationship between inequality and finance we focus more specifically on situations where high inequalities and widespread access to credit coexist and argue that even when institutions maintain more or less equal access to finance there may be a dynamic positive circular relationship between inequality and financial development however even if there is some evidence in the literature of a positive causal impact of inequality on credit this does not preclude other important cofounding factors the conclusions concerning the distributional impact of finance are more ambiguous a survey of the empirical literature highlights several issues that must be tackled first endogeneity reverse causality and coincidental factors are major concerns second the choice of consistent measurements for the key variables both credit and inequality has strong empirical implications and must be grounded on relevant theoretical channels third those circular dynamics have substantial policy implications for emerging economies since an increasing number face a joint increase in inequality and credit

volatility and trading activity in short sterling futures the objective of the present study is to examine the interplay between information trading volume and volatility in short sterling futures more specifically the paper concentrates on the role of liquidity variables as conduits of information arrival and whether such variables could be an exclusive platform of the market s information set the analytical framework employed to examine the interaction among those factors is based on the conditional volatility family of techniques the approach is well suited as it naturally leads to examine the interaction among volatility and sources of information in an attempt to identify proxies of information and their role in determining volatility four main conclusions have emerged first the empirical findings suggest that both volume and open interest exhibit a positive correlation with volatility second based on the current methodology one can observe the persistence and importance of garch effects after accounting for liquidity third the liquidity varia

top indian incomes 1922 2000 this article presents data on the evolution of top incomes and wages for 1922 2000 in india using individual tax return data the data show that the shares of the top 0 01 percent 0 1 percent and 1 percent in total income shrank substantially from the 1950s to the early to mid 1980s but then rose again so that today these shares are only slightly below what they were in the 1920s and 1930s this u shaped pattern is broadly consistent with the evolution of economic policy in india from the 1950s to the early to mid 1980s was a period of socialist policies in india whereas the subsequent period starting with the rise of rajiv gandhi saw a gradual shift toward more pro business policies although the initial share of the top income group was small the fact that the rich were getting richer had a nontrivial impact on the overall income distribution although the impact is not large enough to fully explain the gap observed during the 1990s between average consumption growths shown in national sample survey based data and the national accounts based data it is sufficiently large to explain a non negligible part of it

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

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

differential interpretation of public signals and trade in speculative markets most models of trade in speculative markets assume that agents interpret public information identically we provide empirical evidence on the relation between the volume of trade and stock returns around public announcements and we argue that the evidence is inconsistent with this assumption we then develop a model of trade around public announcements that incorporates differential interpretations and is consistent with the observed volume return relation then we test the standard model of belief revision underlying most models of trade using stock brokerage research analysts earnings forecasts the hypthesis of identical interpretations seems inconsistent with the forecast revisions in these data

finance and inequality a study of indian states although a large literature exists on finance and economic growth few studies have empirically examined the relationship between finance and inequality using grouped national household sample survey data on monthly household consumption expenditure at the sub national level for the years 1999 2000 to 2006 2007 we examine the relationship between financial development fd and rural and urban inequality in india the results indicate that fd is associated with a reduction in inequality but only in the urban areas further inequality is found to be higher in the richer states compared to less developed and low income states and as state income increases inequality also increases both in the rural and urban areas finally our results show that increase in population per bank branch leads to higher inequality in urban areas but decline in rural areas

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

finance and inequality the case of india although theory emphasizes the role of financial market frictions in explaining income inequality there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality this article examines how finance impacts income inequality in india using annual time series data for over half a century the results indicate that while financial development helps reduce income inequality financial liberalization seems to exacerbate it the results are robust to the use of different measures for financial development and financial liberalization although the relationship between financial development and economic growth has been extensively studied in the literature see for example king and levine 1993 demetriades and hussein 1996 arestis and demetriades 1997 levine loayza and beck 2000 bell and rousseau 2001 ang and mckibbin 2007 little is known about how finance impacts income inequality the importance of the finance inequality relationship has recently been highlighted in an insightful survey article by claessens and perotti 2007 they indicate that while financial development can help reduce income inequality financial liberalization captured by established interests may do the opposite the theoretical predictions of the effects of finance on income inequality are controversial rajan and zingales 2003b argue that improvements in the formal financial sector primarily benefit the rich greenwood and jovanovic 1990 predict a nonlinear relationship between financial development and income inequality where it is hypothesized that income inequality first increases with the degree of sophistication in the financial systems then stabilizes and eventually declines others propose that the presence of financial market imperfections deters the poor from borrowing adequately to invest in human and physical capital implying that financial development helps alleviate income inequality banerjee and newman 1993 galor and zeira 1993 aghion and bolton 1997 mookherjee and ray 2003 2006 given that theories provide ambiguous predictions regarding the effects of finance on the distribution of income it is useful to approach the issue at the empirical level this could facilitate our understanding of the relationship between finance and inequality and help us to assess the validity of each theoretical model despite the important role of financial market frictions in the theories of poverty and income inequality researchers so far have not adequately addressed whether financial

post independence india a case of finance led industrialization abstract this paper examines whether financial intermediaries have played a leading role in influencing india s economic performance after describing the evolution and functions of the financial sector we construct a set of vector autoregressive var and vector error correction models vecm to evaluate the strength and direction of the links between measures of formal intermediation and various economic aggregates the results suggest that i the financial sector was instrumental in promoting aggregate investment and output but also in the steady shift toward industry that has characterized india s development ii the operative channel was one of debt accumulation rather than improvements in total factor productivity and iii its contributions went beyond the passive support of fiscal policy

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

a model of competitive stock trading volume a model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives i examine the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics it is found that volume is positively correlated with absolute changes in prices and dividends i show that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

ronald coase and methodology ronald coase wrote two great theoretical articles that earned him the nobel prize the nature of the firm in 1937 and the problem of social cost in 1960 he also wrote many articles dealing with the methodology of economics often in the setting of a discussion of a particular economist such as adam smith or alfred marshall the methodological articles will be my particular focus here

futures price variability a test of maturity and volume effects a number of previous studies have examined the contemporaneous relation between asset price variability and volume traded for example clark 1973 cornell 1981 and tauchen and pitts 1983 have investigated this relation for futures markets and epps and epps 1976 harris 1984a 1984b and smirlock and starks 1984 for the stock market underlying this empirical research is a theoretical framework that suggests that price variability or the absolute change in prices and volume traded should be positively correlated according to this theoretical framework the so called mixture of distributions hypothesis mdh 1 the correlation between price variability and volume should be positive because of joint dependence on a common directing variable or event this study uses contract disaggregated data on futures prices to obtain evidence on the relation between price variability and volume of trading strong positive contemporaneous correlations between trading volume and price volatility are documented consistent with the mixture of distributions hypothesis it is concluded that maturity is not a suitable surrogate for the common directing variable specifically while maturity has a strong effect on volume no such relation is found for price variability finally while in the majority of cases price variability and trading volume are contemporaneously correlated there are a significant number of cases in which a sequential relation appears to be present an earlier version of this paper was presented at the 1984 meeting of the european finance association in manchester england and at southern methodist university the university of wisconsin madison duke university mcgill university and the university of toronto we wish to thank the seminar participants and an anonymous referee from this journal for constructive comments and criticism all remaining errors are of course our responsibility we would also like to thank the columbia center for the study of futures markets and the interactive data corp for providing some of the data used in the study 1 see clark 1973 and harris 1984a 1984b

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

heteroskedasticity in stock return data volume versus garch effects this paper provides empirical support for the notion that autoregressive conditional heterqskedasticity arch in daily stock return data reflects time dependence in the process generating information flow to the market daily trading volume used as a proxy for information arrival time is shown to have significant explanatory power regarding the variance of daily returns which is an implication of the assumption that daily returns are subordinated to intraday equilibrium returns furthermore arch effects tend to disappear when volume is included in the variance equation the autoregressive conditiqnal heteroskedasticity arch process of engle 1982 has been shown to provide a good fit for many financial return time series 1 arch imposes an autoregressive structure on conditional variance allqwing volatility shocks to persist over time this persistence captures the propensity of returns of like magnitude to clu ter in time and can explain the well documented nonnormality and nonstability of empirical asset return distributions see especially fama 1965 an appealing explanation for the presence of arch is based upon the hypothesis that daily returns are generated by a maiture of distributions in which the rate of daily information arrival is the stochastic mixing variable as suggested by diebold 1986 gallant hsieh and tauchen 1988 and stock 1987 1988 arch might capture the time series properties e g serial correlation of this mixing variable hqwever this linkage has not been broadly documented with the datia the objective of this study is to examine the validity of this explanation for daily stock returns the empirical strategy exploits the implication of the mixture model that the variance of daily price increments is heteroskedastic specifically positively related to the rate of daily information arrival using daily trading volume as a proxy for the mixing variable we show that for a sample of 20 common stocks arch effects vanish when volume is included as an explanatory variable in the conditional variance equation

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research