wage mobility in the united states this paper examines the mobility of individuals through the wage and earnings distributions using 1979 1991 data from the national longitudinal survey of youth lifetime wages will be more equally distributed than wages from any single year if individuals change position in the wage distribution over time the results suggest that mobility is predominantly within group mobility reducing wage inequality by 12 26 over a four year horizon a detailed examination of within group mobility using year to year estimates of transition probabilities among quintiles of the distribution reveals similar general patterns across all skill groups mobility declined significantly over the years especially at the lower end of the wage and earnings distributions

comparing income mobility in germany and the united states using generalized entropy mobility measures based on a derivation of the asymptotic sampling distribution of the generalized entropy mobility measures this paper provides a statistically rigorous analysis of income mobility in germany and the united states using the panel data set psid soep equivalent data file several alternative measures of income aggregation inequality measures and groupings are considered to establish robustness we find that to a high degree of statistical confidence post government income mobility is much higher in germany possible reasons for these findings are revealed through disaggregation of the samples by population subgroups

on measuring the risk of common stocks implied by options prices a note this paper examines the implied standard deviation isd estimated from transactons data on options using the black scholes pricing model it was found that the distribution of the isd is symmetric though not normal also the isd based on the last daily observation deviates significantly from the daily average isd it is suggested that the daily average is a more reliable estimate of the standard deviation

implied interest rates one of the most important assumptions in financial economics models is the existence of a risk free rate available for borrowing and lending in any economy however the borrowing rate does not coincide with the lending rate even for the short run the difference between the rates is considered a compensation for intermediation that is necessary in the imperfect real world in a well functioning financial market this difference would be small and the smaller it is the better off is the economy the two short term rates that best approximate riskless lending and borrowing rates are the treasury bill rate and the brokers loan call rate respectively with the introduction of put and call options a new risk free instrument has been created using options alone or options combined with the underlying asset one could turn to these markets for his borrowing or lending needs thereby with the introduction of put and call options a new risk free asset has been created the objective of this study is to estimate the rate implied in option prices and compare it to other riskless instruments we have used transactions data on chicago board options exchange options taking into account the american feature of these options we find that options markets provide rates that are competitive with other short term rates these rates are closer to the borrowing rate than to the lending rate

labor earnings mobility and inequality in the united states and germany during the growth years of the 1980s recent years have witnessed increased interest in issues of inequality and mobility in the labor market using data from the panel study of income dynamics and the german socio economic panel we compare the labor earnings mobility of prime age men and women in the united states and germany during the growth years despite major differences in labor market institutions we find very similar patterns in the two countries our formal models of labor earnings dynamics suggest a great deal of persistence in both countries in the united states this may derive from permanent individual specific differences among men while in germany random shocks are found to persist longer for men women in germany and the united states have similar earnings dynamics copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a cross national comparison of permanent inequality in the united states and germany traditional cross sectional measures find greater inequality in the united states than in industrialized western european countries but are unable to distinguish transitory from permanent inequality with longitudinal data we measure cross sectional inequality during the 1980s using the shorrocks measure of income stability to find the degree to which single period measures exaggerate permanent inequality surprisingly given the smaller social welfare system and the less restrictive labor markets in the united states we find that both single period inequality and the share of that inequality that persists over time are greater in the united states than in germany

the ex ante and ex post price effects of quarterly earnings announcements reflected in option and stock prices the subject of this study is the effect of investors anticipations of impending informative disclosures on the behavior of option and stock prices our approach introduced in a previous paper patell and wolfson 1979 and substantially extended here represents the following significant departure from traditional information content studies instead of analyzing security price reactions to announcements we analyze preannouncement option prices in order to discern investors beliefs about the range of possible stock price reactions expected to accompany a forthcoming disclosure whose actual content is not yet known in the tests reported here we focus on quarterly earnings announcements as disclosure events whose timing is predictable and we attempt to detect their systematic influence on the relationship between stock and option prices our operational definition of information content emphasizes changes in the variability of common stock returns in response to earnings disclosures while market efficiency precludes investors from predicting the direction of the stock price change which will accompany a future earnings announcement it is likely that investors will anticipate increased price variability at the time of disclosure and indeed several studies have documented announcement date increases in stock price volatility

on the evaluation of economic mobility this paper presents a framework for the evaluation and measurement of reversal and origin independence as separate aspects of economic mobility we show how that evaluation depends on aversion to multi period inequality aversion to inter temporal fluctuations and aversion to future risk we construct extended atkinson indices that allow us to quantify the relative impact of reversal and origin independence on welfare we apply our approach to the comparison of income mobility in germany and in the united states when aversion to inequality is the only consideration the us gains more from mobility than germany this reflects similar gains from reversal in the two countries but greater gains in the us from origin independence the introduction of aversion to intertemporal fluctuations and aversion to future risk makes the impact of mobility in the two countries more similar

statistical inference for the measurement of the incidence of taxes and transfers we establish the asymptotic sampling distribution of general functions of quantile based estimators computed from samples that are not necessarily independent the results provide the statistical framework within which to assess the progressivity of taxes and benefits their horizontal inequity and the change in the inequality of income which they cause by the same token these findings characterise the sampling distribution of a number of popular indices of progressivity horizontal inequity and redistribution they can also be used to assess welfare and inequality changes using panel data and to assess poverty when it depends on estimated population quantiles we illustrate these results using micro data on the incidence of taxes and benefits in canada

the simulation of option prices with application to liffe options on futures we build a framework for modelling the deviation of observed option prices from the black scholes prices we use a flexible model for a density a two sided switching weibull to capture the implied volatility the model can be used to generate prices it can take into account no arbitrage bounds for option prices and is capable of generating such stylised facts as the smile effect we apply this methodology to liffe options on german government bond futures

implications of the discreteness of observed stock prices stock prices on the organized exchanges are restricted to be divisible by 1 8 therefore the true price usually differs from the observed price this paper examines the biases resulting from the discreteness of observed stock prices it is shown that the natural estimators of the variance and all of the higher order moments of the rate of returns are biased an approximate set of correction factors is derived and a procedure is outlined to show how the correction can be made the natural estimators of the beta and of the variance of the market portfolio on the other hand are nearly unbiased the behavior of stock prices has been an issue of interest to the financial economist for many years this interest resulted in a growing number of empirical studies which attempt to estimate this behavior e g blattberg and gonedes 2 fama 6 fama and roll 7 8 barnea and downes 1 to date stock price behavior is estimated under the assumption that the observed trading price is the true equilibrium price however observed stock prices and stock price changes on the organized exchanges are restricted to multiples of 1 8 of a dollar 1 therefore if the true distribution of stock prices is continuous an observed trading price can be different from the true price this paper examines the biases in estimating the moments of stock price changes caused by the discreteness of observed stock prices the major focus of the paper is in noting this problem providing a model which explains the source of these biases and quantifying their size section i demonstrates that due to the discrete nature of observed stock prices the natural estimators for the variance and for the higher order moments of the rate of returns are biased upward this bias is larger for stocks with lower prices and smaller standard deviation for instance assuming that the standard deviation a is 0 001 the stock price is one dollar the true probability distribution of stock prices is lognormal and the observed prices are as close as possible to the true prices then the natural estimator of r has expectation 0 01400 hence it is biased upward by 1300 significant biases have important implications in option pricing we derive an approximate set of correction factors which can be applied to the

the comparison of multi dimensioned distributions of economic status the literature on inequality measurement has been largely concerned with single dimensioned indicators this paper explores some of the issues which arise when there are several dimensions to inequality and these are not readily reduced to a single index concentrating particularly on the two dimensioned case we make use of results on multi variate stochastic dominance in portfolio theory extending these and applying them to the measurement of inequality the use of the dominance conditions is illustrated by an application to the international distribution of income and life expectancy

market risk and the concept of fundamental volatility measuring volatility across asset and derivative markets and testing for the impact of derivatives markets on financial markets this paper proposes an unobserved fundamental component of volatility as a measure of risk this concept of fundamental volatility may be more meaningful than the usual measures of volatility for market regulators fundamental volatility can be obtained using a stochastic volatility model which allows us to filter out the signal in the volatility information we decompose four ftse100 stock index related volatilities into transitory noise and unobserved fundamental volatility our analysis is applied to the question as to whether derivative markets destabilise asset markets we find that introducing european options reduces fundamental volatility while transitory noise in the underlying and futures markets does not show significant changes we conclude that for the ftse100 index introducing a new options market has stabilised both the underlying market and existing derivative markets

on the valuation of american call options on stocks with known dividends both the roll and the geske equations for the valuation of the american call option on a stock with known dividends are incorrectly specified this note presents the corrected valuation formula explains the misspecifications and provides a numerical example

inequality adjusted income growth we introduce and characterize a new measure of aggregate income growth that allows us to give more weight to individuals with lower individual income growth our measure includes several important measures of directional mobility encountered in the literature the empirical application compares the measure of income growth between the usa and germany and finds that giving more weight to individuals with lower income growth reverses the ranking

an international comparison of lifetime inequality how continental europe resembles north america we compare earnings inequality and mobility across the united states canada france germany and the united kingdom during the late 1990s a flexible model of earnings dynamics that isolates positional mobility within a stable earnings distribution is estimated earnings trajectories are then simulated and lifetime annuity value distributions are constructed earnings mobility and employment risk are found to be positively correlated with base year inequality taken together they produce more equalization in countries with high cross section inequality such that the countries in our sample have more similar lifetime inequality levels than cross section measures suggest

local versus global assessment of mobility mobility indices are popular tools designed to quantify the extent of income changes by aggregating local distributional change into a global scalar according to some rule for some mobility measures this aggregation rule is only implicit in their standard definition we derive an insightful approximation to the statistical aggregation rule for the important class of mobility indices introduced by shorrocks journal of economic theory 19 1978 376 93 and further generalized by maasoumi and zandvakili economic letters 22 1986 97 102 which enables us to characterize their normative properties we also develop methods for estimation and inference a substantive empirical contribution emerges from the comparison of mobility between the united states and germany our methods reveal why income mobility is higher in germany than in the united states higher german mobility in the bottom of the distribution is combined with an implicitly higher weighting by the mobility index at the bottom

option pricing and implicit volatilities abstract this paper demonstrates that black scholes implied volatilities can be used to value options in many situations where the assumptions of the black scholes model are violated including i alternative stock processes ii stochastic interest rates and iii market frictions given its computational simplicity this procedure provides an attractive alternative to the more complex models with a direct estimation procedure

standard deviations implied in option prices as predictors of future stock price variability abstract standard deviations implied in option prices have recently been introduced as being better than average predictors of future stock price variability this article specifically studies the predictive ability of implicit standard deviations taking into account the dividend problem and the problem of optimal weighting schemes of the standard deviations when there are several options on the same stock transaction data information was used to study the importance of non simultaneities in observing stock and option prices