information acquisition and under diversification if an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests which assets should he learn about the best assets to acquire information about are ones the investor expects to hold but the assets the investor holds depend on the information he observes we build a framework to solve jointly for investment and information choices with general preferences and information cost functions although the optimal research strategies depend on preferences and costs the main result is that the investor who can first collect information systematically deviates from holding a diversified portfolio information acquisition can rationalize investing in a diversified fund and a concentrated set of assets an allocation often observed but usually deemed anomalous copyright wiley blackwell

distinguishing between equilibrium and integration in spatial price analysis this article introduces a new spatial price analysis methodology based on maximum likelihood estimation of a mixture distribution model incorporating price transfer cost and trade flow data this method permits differentiation between market integration and competitive market equilibrium and derivation of intuitive measures of intermarket tradability competitive market equilibrium perfect integration segmented equilibrium and segmented disequilibrium one can also use these estimates to derive semiparametric measures of time varying regime probabilities to track changing market conditions an application to trade in soybean meal among pacific rim economies demonstrates the usefulness of the method copyright 2002 oxford university press

monetary transmission through bank loans or bank liabilities interest in the transmission of monetary fluctuations to real output has dominated macroeconomics since at least the eighteenth century since then many observers have noted the tendency of a monetary expansion to be followed initially by an expansion of real output and later by an increase in prices while the reason for the long run price change is well understood understanding the short run impact of money on nominal output remains an active unresolved research topic most theoretical models explain the transmission of monetary fluctuations to real output as a consequence of sticky prices or expectations the stickiness is either due to informational imperfections or to contractual rigidities while the policy implications of the two types of stickiness differ both types of model predict a transitory response of real output to a shock in nominal money balances neither the informational imperfection nor the contractual rigidity story is completely compelling and both rely on the central role played by movements in real balances and perceived real interest rates yet for thirty five years following world war ii neither significant movements in the anticipated real rate nor large interest elasticities of spending were apparent despite this the empirical correlation of money and output fluctuations has been found in most time periods and countries consequently the need for alternative explanations of monetary transmission or a credible reverse causation story remains strong

risk aversion revisited in order to supply additional empirical evidence of the effect of wealth on relative risk aversion this study investigates households demand for risky assets using analysis of covariance techniques applied to the asset holdings of canadian individual households the extent and pattern of life cycle effects are also examined results generally point to decreasing relative risk aversion when housing is either excluded from the definition of wealth or treated as a riskless asset the investor s life cycle plays a prominent role in portfolio selection behavior with risk aversion increasing uniformly with age tax differentials do not seem to be an important element in investment decisions with respect to risk when the sample and wealth definitions are censored in order to approximate those of previous empirical studies their findings on relative risk aversion are generally corroborated this study presents an empirical investigation of the demand for risky assets of individual canadian households using data from the survey of consumer finances the results generally point to decreasing relative risk aversion when housing is either excluldied from the definition of wealth or treated as a riskless asset even when life cycle effects are controlled the investor s life cycle plays a prominent role in portfolio selection behavior with risk aversion increasing uniformly with age cohn lewellen schlarbaum 6 also found evidence of decreasing relative risk aversion using a restricted sample of stockowning investors while friend blume 12 concluded that constant relative risk aversion characterized household behavior the present study also finds that by restricting the sample and the wealth definitions to approximate those of cohn lewellenschlarbaum and those used by friend blume their empirical findings on relative risk aversion are generally corroborated the paper is divided into five sections the first reviews the literature on risk aversion and the second briefly describes the theory underlying the empirical tests the third section describes the data and statistical techniques used the empirical results are presented and discussed in the fourth section where the aggregate demand for risky assets is estimated and where the role of life cycle variables is examined the final section summarizes the main conclusions of the study

portfolio choices of parents and their children as young adults asset accumulation by african american families the portfolio composition decision often is stylized as either a life cycle choice to allocate income to consumption or as a choice along a risk return locus with the locus derived from the underlying market equilibrium of asset returns and prices empirical work on household financial behavior has identified large differences in wealth levels and in portfoliocomposition choices of different demographic groups well beyond income and risk tolerance by far the most striking difference in this literature emerges when the population is subdivided by race for example given the strong performance of the u s equity market in the past decade portfolio choices of stocks have been key to wealth building yet africanamerican families have been less likely to have held stocks as of the mid 1980 s and less likely to have become shareholders over the period 1989 1994 erik hurst et al 1998 this paper attempts to resolve this puzzle by examining cross generational influences on current portfolio composition decisions

the pricing effects of ambiguous private information when private information is observed by ambiguity averse investors asset prices may be informationally inefficient in rational expectations equilibrium this inefficiency implies lower asset prices as uninformed investors require a premium to hold assets and higher return volatility relative to informationally efficient benchmarks moreover asset returns are negatively skewed and may be leptokurtic inefficiency also leads to amplification in price of small changes in news relative to informationally efficient benchmarks public information affects the nature of unrevealed private information and the informational inefficiency of prices asset prices may be lower higher with good bad public information

the recovery of risk preferences from actual choices since its introduction the expected utility hypothesis has been widely used in the construction of economic models more recently attention has focused on the conditions under which it is possible in principle to recover individual investors risk preferences from their demand for assets dybvig and polemarchakis 2 this paper represents a first attempt to recover preferences operationally from data on the actual demand for assets numerous difficulties are encountered in attempting to measure preferences toward risk in a real world setting preferences are revealed through the choices of an individual but in an uncertain world these choices also depend on his expectations of future events hence an immediate problem arises in separating the influences of each on such decisions problems can also arise in measuring other variables such as wealth which influence choices because of these difficulties efforts to classify and measure an individual s risk preferences have been confined to direct assessments in hypothetical environments e g kahneman and tversky 4 and keeney and raiffa 5 pp 203 212 2 in these studies the authors assumed that stated preferences are accurate indicators of actual behavior the question remains however whether individuals actually behave in the way their assessments predict the purpose of this note is to make some progress in answering this question in it an experiment is described which infers an individual s risk preferences from his actual choices in a real world environment specifically the risk aversion of a dealer in u s government securities is assessed directly and then estimated statistically from his actual demand for bills in the weekly treasury auctions the distribution of returns used in the analysis are calculated from the forecasts made by the dealer himself in addition to introducing new procedures for measuring preferences this study provides insights into the reliability of direct assessments in predicting the actual behavior

estimation of farmers risk attitude an econometric approach abstract an econometric procedure for estimating arrow pratt coefficients of risk aversion is derived the model of farmers allocating land among different crops and time between leisure and labor allows for testing arrow s hypotheses of decreasing absolute risk aversion and increasing relative risk aversion the empirical results support these hypotheses

wealth and portfolio composition theory and evidence we examine a survey of 6010 u s households and estimate a model for household portfolio allocation we extend the conventional portfolio choice model in order to capture the observed incompleteness of household portfolios we show that the empirical specification of the joint discrete and continuous choice that characterizes household portfolio behavior is a switching regressions model with endogenous switching we go on to examine the impact of taxes on portfolio composition using detailed survey data to calculate precisely the marginal tax rate facing each household finally we estimate wealth elasticities of demand for a range of assets and liabilities

erratum wealth information acquisition and portfolio choice a correction there is an error in my 2004 paper wealth information acquisition and portfolio choice this note shows how to correct it by adjusting the hypotheses of the model specifically it assumes that agents learn about the stock s mean payoff rather than about its realization all the conclusions of the paper remain valid there is a mistake in the derivation of agents unconditional expected utility in wealth information acquisition and portfolio choice review of financial studies 17 3 2004 pages 879 914 some formulas need to be corrected and some assumptions adjusted but all the conclusions of the paper remain valid in particular it remains the case that wealthier investors collect more information and that as a result they hold a larger fraction of their wealth in stocks even though their relative risk aversion is not lower the unconditional expected utility is approximated using a taylor series expansion in which higher order terms are dropped in fact these terms cannot be neglected under the payoff structure postulated in the paper as a result the demand for information cannot be evaluated for arbitrary preferences in this note we offer a solution to the issue which relies on a slight modification of the stock s payoff structure and supports all the conclusions of the paper 1 the problem the expression for the conditional expected utility ej u w2j fj stated on page 906 is correct however equation 12 obtained by taking its unconditional expectation is not to see why we rewrite ej u w2j fj as ej u w2j fj u w0j u w0j ej w fj 1 2 u w0j ej w 2 fj o z 1

twin picks disentangling the determinants of risk taking in household portfolios this paper investigates risk taking in the liquid portfolios held by a large panel of swedish twins we document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth leading to different risk sensitivities across investors human capital which we estimate directly from individual labor income also affects risk taking positively while internal habit and expenditure commitments tend to reduce it our microfindings lend strong support to decreasing relative risk aversion and habit formation preferences furthermore heterogeneous risk sensitivities across investors help reconcile individual preferences with representative agent models

the value of diffusing information abstract how does the speed by which information diffuses affect its value to a stock market investor in a structural model solved in closed form this speed has two opposing effects on the empirically dominant term of the value of information faster diffusing information means quicker and less noisy profits but also increases competing informed trading impounding more information into prices and eroding profits structural empirical analysis of stock market reaction to drug approvals using media coverage as a proxy for the transmission rate of information finds that the value of information is hump shaped in its future transmission rate moreover the estimated amount of noise trading is small

should we regulate financial information regulations that require asset issuers to disclose payoff relevant information to potential buyers sound like obvious measures to increase investor welfare but in many cases such regulations harm investors in an equilibrium model asset returns compensate investors for risk by making payoffs less uncertain disclosure reduces risk and therefore reduces return as high risk high return investments disappear investor welfare falls of course information is still valuable to each individual investor but acquiring information is like a prisoners dilemma each investor is better off with the information but collectively investors are better off if they remain uninformed the only cases in which providing information improves investors welfare are ones where there would otherwise be severe asymmetric information using a model of information markets the paper explores when such outcomes are likely to arise when we extend the model so that financial markets with information allocate the real capital stock more efficiently these conclusions do not change disclosure improves efficiency but more efficient firms do not have more risk and therefore do not offer investors higher return instead they simply command a higher price which only benefits the asset issuer since the efficiency gains are fully internalized by asset issuers who can choose to disclose without disclosure being mandatory the efficiency argument is not a logical rationale for regulation

the costs and beliefs implied by direct stock ownership this paper develops and estimates an economic model of the costs and beliefs required to rationalize household direct stock ownership in the model investors believe they can learn information about individual stock returns through costly research the model identifies the distributions of both research costs and beliefs about the predictability of individual stock returns identification depends only on households wealth and portfolio choices the model also provides a novel explanation for many empirical features of household portfolios parameter estimates suggest that most households have modest beliefs about the benefits of individual stock research although a minority must expect extraordinary returns data are available at https doi org 10 1287 mnsc 2017 2791 this paper was accepted by neng wang finance

predisclosure information firm capitalization and security price behavior around earnings announcements several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month e g ball and brown 1968 and brown and kennelly 1972 this has been attributed at least partly to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release the evidence above reflects an average finding across all firms one question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific firm characteristics that lead to differential amounts of predisclosure information this study focuses on firm size capitalization as one such characteristic a firm

do firms get the financing they want measuring credit rationing experienced by small businesses in the u s this paper measures the extent to which small businesses in the united states in the late 1980s were able to access the external credit finance they desired we argue that a comprehensive definition of credit rationing must account for both a creditworthy firms that apply for and are denied financing and b creditworthy firms that decide not to apply for desired external financing given expectations about how long it may take to obtain financing and the evolution of investment opportunities

on existence and uniqueness of equilibrium in a class of noisy rational expectations models i study a general class of noisy rational expectations models that nests the standard grossman and stiglitz 1980 and hellwig 1980 models but relaxes the usual assumption of joint normality of asset pay offs and supply and allows for more general signal structures i provide a constructive proof of existence of equilibrium characterize the price function and provide sufficient conditions for uniqueness within the class of equilibria with continuous price functions which are met by both the grossman and stiglitz 1980 models and the hellwig 1980 models with a continuum of investors my solution approach does not rely on the typical conjecture and verify method and i exhibit a number of non normal examples in which asset prices can be characterized explicitly and in a closed form the results presented here open up a broad class of models for applied work to illustrate the usefulness of generalizing the standard model i show that in settings with non normally distributed pay offs shocks to fundamentals may be amplified purely due to learning effects price drifts can arise naturally and the disagreement return relation depends in a novel way on return skewness

estimating the value of information we derive a general expression for the value of information to a price taking investor in a dynamic environment and provide a framework for its estimation we study the value of both private and public information and break it into its instrumental and psychic parts to illustrate we estimate and rank the values of leading macroeconomic indicators gdp employment etc using variations in option prices we find that consumer investors with conventional preference parameters would pay 3 to 5 bps of their wealth for a one time private peek into these indicators such signals provide substantial instrumental value but a minor psychic value received august 29 2016 editorial decision june 6 2018 by editor itay goldstein authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

optimal investment in transportation infrastructure when middlemen have market power a developing country analysis transportation costs and buyer market power reduce prices and income received by farmers in developing countries transportation costs directly affect the marketing margin and also exacerbate market power by limiting farmers access to buyers this article develops a multistage spatial model to determine optimal investment in transportation improvements taking account of impacts on marketing costs and competition the beneficial impact of investments from farmers perspective is mainly through enhanced competition meaning significant under investment may occur if this effect is ignored however the optimal investment depends on the relative importance of transportation costs in some settings transportation improvements reduce farm prices because buyers rationally over compensate farmers for these costs

earnings news and small traders an intraday analysis abstract this study separates trading volume into buyer and seller initiated activities and examines the directional volume reaction in small and large trades to different types of earnings news good bad news triggers brief but intense buying selling in the large trades however a persistent period of unusually high buying activity is observed in the small trades irrespective of the news this anomalous proclivity of small traders to buy is robust across firm size trading volume and different earnings expectation models several explanations are discussed although the behavior does not seem fully explained by existing theories

information expected utility and portfolio choice we study the consumption investment problem of an agent with a constant relative risk aversion preference function who possesses noisy information about the future prospects of a stock we also solve for the value of information to the agent in closed form we find that information can significantly alter consumption and asset allocation decisions for reasonable parameter ranges information increases consumption in the vicinity of 25 information can shift the portfolio weight on a stock from 0 to around 70 thus de pending on the stock beta the weight on the market portfolio can be considerably reduced with information causing the appearance of underdiversification the model indicates that stock holdings of informed agents are positively related to wealth unrelated to systematic risk and negatively related to idiosyncratic uncertainty we also show that the dollar value of information to the agent depends linearly on his wealth and decreases with both the propensity to intermediate consumption and risk aversion

wealth inequality and asset pricing in an arrow debreu exchange economy with identical agents except for their initial endowment we examine how wealth inequality affects the equilibrium level of the equity premium and the risk free rate we first show that wealth inequality raises the equity premium if and only if the inverse of absolute risk aversion is concave in wealth we then show that the equilibrium risk free rate is reduced by wealth inequality if the inverse of the coefficient of absolute prudence is concave we also prove that the combination of a small uninsurable background risk with wealth inequality biases asset pricing towards a larger equity premium and a smaller risk free rate the model of the representative consumer a la lucas 1978 failed to explain observed security prices more specifically as first stated by mehra and prescott 1985 the model predicts an equity premium that is too low and a risk free rate that is too high given the observed low variability of consumption growth a recent strand of the literature with papers by constantinides and duffie 1996 heaton and lucas 1996 and krusell and smith 1997 for example explores whether incomplete asset markets and heterogeneity among consumers can explain these puzzles constantinides and duffie 1996 in particular conclude that it is at least in principle possible to generate larger equity premia when such ingredients are introduced the aim of this paper is not to provide another explanation of the puzzles but rather to better understand the relationship between asset prices the heterogeneity of consumers wealth and the market incompleteness when markets are complete heterogeneous consumers are able to equalize their marginal rates of substitution across states and across time as shown by constantinides 1982 this implies that the equilibrium of the heterogeneous consumer economy can be duplicated by the equilibrium in a lucas economy with a representative agent this means that taking account of the heterogeneity in the population alone cannot explain why the representative agent model is rejected hansen and singleton 1982 this does not mean however that the distribution of wealth in the population for example has no effect on asset prices in general in order to understand this consider the departure from an egalitarian distribution of wealth by introducing a mean preserving transfer of endowment under decreasing absolute risk aversion poorer agents will be more risk averse whereas wealthier people will be less risk averse there is no reason a priori for that the group s attitude towards risk be unaffected by this transfer we first show that if absolute risk tolerance i e the inverse of the arrow pratt coefficient of absolute risk aversion is concave then the risk aversion of the agent with the mean wealth will be smaller than the risk aversion of the representative agent thus if an outside observer overlooks wealth inequality he consequently underestimates the aversion to risk of society this leads to

education and saving the long term effects of high school financial curriculum mandates abstract over the last 40 years a majority of states have adopted consumer education policies and a sizable minority have mandated that high school students receive instruction on topics related to household financial decision making in this paper we attempt to determine whether these mandates have had any effect on subsequent decisions we exploit the variation in requirements both across states and over time to identify the effects of interest the evidence indicates that mandates have raised both exposure to financial curricula and subsequent asset accumulation once exposed students reached adulthood the estimated effects are gradual probably due to implementation lags

banking crises and nonlinear linkages between credit and output in this article we analyse the asymmetric causality linkages between credit growth and output growth during banking crises we employ a recently developed procedure based on a bivariate markov switching model to test the hypotheses of independence causality and asymmetric causality between credit and output using a sample of 103 banking crises around the world we find that neither credit nor output takes precedence as a variable in calm and crisis periods although there is evidence of instantaneous interdependence between the banking and real sector during crises the results suggest that shocks propagate mostly within a year between the banking sector and the real economy the linear link between credit growth and output growth is also regime dependent

credit and economic activity credit regimes and nonlinear propagation of shocks in this paper we examine empirically whether credit plays a role as a nonlinear propagator of shocks this propagation takes the form of a threshold vector autoregression in which a regime change occurs if credit conditions cross a critical threshold using nonlinear impulseresponse functions we evaluate the dynamics implied by the threshold model these suggest that shocks have a larger effect on output in the tight credit regime than is normally the case and that contractionary monetary shocks typically have a larger effect than expansionary shocks finally using a nonlinear version of historical decompositions we attempt to determine the relative contribution to output growth of shocks and the nonlinear structure

bliss catastrophe and rational policy lotteries with infinite expected utility are inconsistent with the axioms of expected utility theory to rule them out either the set of permissible lotteries must be restricted to exclude at a minimum fat tailed distributions such as that underlying the st petersburg paradox and power laws that are popular in models of climate change or the utility function must be bounded this note explores the second approach and proposes a number of tractable specifications leading to utility functions that are bounded both from above and below this property is intimately related to that of increasing relative risk aversion as first hypothesized by arrow 1965

the association between accounting earnings and security returns for large and small firms abstract the differential information hypothesis advanced by atiase 1980 states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size this study examines two corollaries of that hypothesis first security prices of large firms anticipate accounting earnings earlier than security prices of small firms second for a given level of unexpected earnings the cumulative abnormal returns of small firms exceed those of large firms the results are generally consistent with atiase s hypothesis

recent trends in the size distribution of household wealth based on the survey of consumer finances the distribution of wealth in the united states became much more unequal in the 1980s and that trend continued albeit at a slower pace in the 1990s the only households that saw their mean net worth rise in absolute terms between 1983 and 1995 were those in the top 20 percent and the gains were particularly strong for the top one percent all other groups were particularly strong for the top one percent all other groups suffered real wealth losses including the median household and declines were particularly precipitous at the bottom racial disparities widened and young households also lost out over this period

naive diversification strategies in defined contribution saving plans there is a worldwide trend toward defined contribution saving plans and growing interest in privatized social security plans in both environments individuals are given some responsibility to make their own asset allocation decisions raising concerns about how well they do at this task this paper investigates one aspect of the task namely diversification it is shown that some investors follow the 1 n strategy they divide their contributions evenly across the funds offered in the plan consistent with this naive notion of diversification it is found that the proportion invested in stocks depends strongly on the proportion of stock funds in the plan

portfolio choices firm shocks and uninsurable wage risk assessing the importance of uninsurable wage risk for individual financial choices faces two challenges first the identification of the marginal effect requires a measure of at least one component of risk that cannot be diversified or avoided moreover measures of uninsurable wage risk must vary over time to eliminate unobserved heterogeneity secondly evaluating the economic significance of risk requires knowledge of the size of all the wage risk actually faced existing estimates are problematic because measures of wage risk fail to satisfy the non avoidability requirement this creates a downward bias which is at the root of the small estimated effect of wage risk on portfolio choices to tackle this problem we match panel data of workers and firms and use the variability in the profitability of the firm that is passed over to workers to obtain a measure of uninsurable risk using this measure to instrument total variability in individual earnings we find that the marginal effect of uninsurable wage risk is much larger than estimates that ignore endogeneity we bound the economic impact of risk and find that its overall effect is contained not because its marginal effect is small but because its size is small and the size of uninsurable wage risk is small because firms provide substantial wage insurance

potential of and constraints to the rice green revolution in mozambique a case study of the chokwe irrigation scheme abstract this paper investigates the potential of and constraints to a lowland rice green revolution in mozambique using data from an agro climatically favorable area the chokwe irrigation scheme our data show that although the potential is high the insufficient supply of irrigation water excessively expensive chemical fertilizer and moderately costly labor hinder the scheme from achieving that potential first of all an improvement in irrigation is crucial as it increases yield not only directly but also indirectly through its complementary relationship to chemical fertilizer we also find that an improvement in credit access is important as it can increase the application of chemical fertilizer and labor by making the acquisition of these expensive inputs through markets possible the unavailability of hired and exchange labor during peak seasons is another constraint to the intensive use of labor the introduction of rice varieties with a shorter maturity duration would relax the timing of transplanting and thus spread out the peak seasons labor demand

firm size and the information content of prices with respect to earnings abstract beaver lambert and morse 1980 suggest that prices may be useful in forecasting future earnings we explore the information content of prices with respect to earnings by focusing on firm size and its relation to the predictive accuracy of price based earnings forecasts firm size proxies for the amount of information and for the number of traders and professional analysts processing the available information about an enterprise our empirical results are consistent with the hypothesis that price based earnings will outperform univariate time series forecasts by a greater margin for larger firms than for smaller firms

weather shocks and spatial market efficiency evidence from mozambique the aim of this paper is to study the association between weather shocks droughts and floods and agricultural market performance in mozambique to do so we employ a dyadic regression analysis on

a test of a keynesian alternative to hercowitz s aggregate supply theory abstract hercowitz 1986 estimates aggregate output and hours equations which are derived from a new classical model of aggregate supply under an alternative interpretation his aggregate supply equation is in fact an is curve with one omitted variable while his hours equation is best interpreted as an okun s law relationship when the hercowitz equations are nested in more general formulations which incorporate these alternatives the new classical restrictions are rejected resoundingly

effects of the us monetary policy shocks during financial crises a threshold vector autoregression approach abstractthis article analyzes the impact of monetary policy during periods of low and high financial stress in the us economy using a threshold vector autoregression model there is evidence that expansionary monetary policy is effective during periods of high financial stress with larger responses having a higher proportionate effect on output the existence of a cost channel effect during periods of high financial stress implies the existence of a short run output inflation trade off during financial crises large expansionary monetary shocks also increase the likelihood of moving the economy out of a high financial stress regime

the relation between return and income this paper presents evidence that the corporate stock owned by high income investors appreciates substantially faster than the stock owned by investors with lower incomes the evidence indicates that the differences are large and that they have persisted for a long period of time some potential explanations of this phenomenon are discussed and it seems that the best explanation is that the rich have a higher tendency to invest in risky stock

information value and investor wealth the case of earnings announcements this paper empirically investigates the relation between investor wealth and the value of annual and quarterly earnings announcements as implied by 1 the behavior of mean stock trade transaction sizes at announcement dates and 2 transaction size stratified trading activity in postannouncement time periods announcement period mean transaction sizes are found to exceed expected mean transactions sizes estimated from trading activity occurring in nonannouncement periods this result is attributed to a greater relative trading response to earnings announcements by wealthier investors consistent with ohlson s 1975 proposition that information value increases with investor wealth in a security market setting further evidence of a positive relation between value and wealth is found when postearnings announcement stock transactions are stratified by share size into three strata where the first stratum small stratum is transactions of 100 and 200 shares the second stratum large stratum is transactions of 300 to 900 shares and the third stratum institutional

durable consumption and asset management with transaction and observation costs this paper provides a contribution to the recent growing literature on rational inattention we start by testing the implications of recent rational inattention models of asset management liquidity holdings and savings using two novel datasets some predictions of these models are at odds with the data which motivates us to introduce a new model that shifts the focus from non durable to durable consumption and features both information and adjustment costs the focus on non durable consumption which departs from the previous literature is key to improve the fit of the model the investor s behavior in our setup combines elements of what the literature refers to as state dependent and time dependent adjustments the model allows us to quantify the information and transactions costs that are consistent with observed patterns of information review and asset trades a calibration of the model shows that very small information costs are sufficient to reproduce the relatively high frequency of observation that is found in the data we test a novel prediction of the model on the relationship between assets trades and durable goods trades and find it aligned with the data

measuring the impact of road rehabilitation on spatial market efficiency in maize markets in mozambique this article analyzes the impact of road rehabilitation on the spatial market efficiency of maize markets in mozambique we estimate a modified version of the parity bounds model pbm that allows us to test the impact of road rehabilitation on spatial efficiency this article seeks to contribute to the existing literature in three ways first a unique data set where road rehabilitation episodes between market pairs are identified is developed second special care is devoted to estimation of transaction costs due to the sensitivity of the pbm model to the quality of transaction costs estimates finally as opposed to most existing literature that focuses on relatively distant markets the article focuses on spatially closed markets we find that maize markets tend to be segmented due to high transport costs following road rehabilitation inefficiency and average absolute price differentials tend to decrease and market pairs have tended to shift toward autarky regimes overall while the results point broadly toward a positive impact of road rehabilitation on spatial efficiency they are not as strong or as robust as one would like large increases in fuel prices likely offset the positive impacts of road rehabilitation on transaction costs contributing to the increase in the probability of being in an autarky regime

participation and investment decisions in a retirement plan the influence of colleagues choices abstract this paper investigates whether peer effects play an important role in retirement savings decisions we use individual data from employees of a large university to study whether individual decisions to enroll in a tax deferred account plan sponsored by the university and the choice of the mutual fund vendor for people who choose to enroll are affected by the decisions of other employees in the same department to overcome the identification problems we divide the departments into sub groups along gender status age and tenure lines and we instrument the average participation of each peer group by the salary or tenure structure in this group our results suggest that peer effects may be an important determinant of savings decisions

endogenous acquisition of information and the equity home bias this paper investigates the extent to which differences in information costs can explain the equity home bias puzzle in a model where information costs are higher for the foreign asset than for the home asset i show that if cost functions are convex and the assets have identical return characteristics the expected size of the home bias in terms of differences in expected demands is positive and increasing in expected excess returns and risk but decreasing in risk aversion however a calibration to us data suggests that information costs can explain only a small fraction of the observed home bias

risk aversion wealth and background risk we use household survey data to construct a direct measure of absolute risk aversion based on the maximum price a consumer is willing to pay for a risky security we relate this measure to consumer s endowments and attributes and to measures of background risk and liquidity constraints we find that risk aversion is a decreasing function of the endowment thus rejecting cara preferences we estimate the elasticity of risk aversion to consumption at about 0 7 below the unitary value predicted by crra utility we also find that households attributes are of little help in predicting their degree of risk aversion which is characterized by massive unexplained heterogeneity we show that the consumer s environment affects risk aversion individuals who are more likely to face income uncertainty or to become liquidity constrained exhibit a higher degree of absolute risk aversion consistent with recent theories of attitudes toward risk in the presence of uninsurable risks jel d1 d8

ratings shopping and asset complexity a theory of ratings inflation abstract many identify inflated credit ratings as one contributor to the recent financial market turmoil we develop an equilibrium model of the market for ratings and use it to examine possible origins of and cures for ratings inflation in the model asset issuers can shop for ratings observe multiple ratings and disclose only the most favorable before auctioning their assets when assets are simple agencies ratings are similar and the incentive to ratings shop is low when assets are sufficiently complex ratings differ enough that an incentive to shop emerges thus an increase in the complexity of recently issued securities could create a systematic bias in disclosed ratings despite the fact that each ratings agency produces an unbiased estimate of the asset s true quality increasing competition among agencies would only worsen this problem switching to an investor initiated ratings system alleviates the bias but could collapse the market for information

investor sophistication and capital income inequality abstract capital income inequality is large and growing fast accounting for a significant portion of total income inequality we study its growth in a general equilibrium portfolio choice model with endogenous information acquisition and heterogeneity across household sophistication and asset riskiness the model implies capital income inequality that grows with aggregate information technology investors differentially adjust both the size and the composition of their portfolios as unsophisticated investors retrench from trading risky securities and shift their portfolios to safer assets technological progress also reduces aggregate returns and increases the volume of transactions features that are consistent with recent u s data

differential information and dynamic behavior of stock trading volume this article develops a multiperiod rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock investors trade competitively in the stock market based on their private information and the information revealed by the market clearing prices as well as other public news we examine how trading volume is related to the information flow in the market and how investors trading reveals their private information article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

market emergence and transition arbitrage transaction costs and autarky in china s grain markets using trimonthly chinese provincial grain prices from 1988 to 1995 we estimate a parity bounds model of interregional trade for four subperiods to characterize how multiple aspects of market performance change during the process of economic transition for each period we estimate the extent to which arbitrage opportunities are realized by traders the transaction costs between location pairs and the likelihood that regions do not trade trade restrictions cannot explain the pattern of uneven market development over time infrastructure bottlenecks managerial incentive reforms and production specialization policies all were likely important factors affecting market performance

testing for spatial market integration evidence for colombia using a pairwise approach we examine the extent of spatial market integration in colombia using consumer price index data for 153 consumer goods in 13 cities an econometric analysis of the time series properties of all the possible city price differentials reveals that market integration tends to occur more frequently in unprocessed food products as opposed to processed foods other traded and nontraded products the results also support the view that except for nontraded products the speed at which prices adjust to the long run equilibrium is slower for cities that are farther apart

decreasing relative risk aversion and tests of risk sharing the relative risk aversion rra coefficient of a household whose consumption is close to the subsistence level may be very high for example if consumption is exactly at the subsistence level the household may not be willing to bear any risk if this is the case then the rra coefficient must be a decreasing function of wealth for poor households therefore we should allow the possibility of decreasing rra drra in testing the full risk sharing hypothesis however existing tests in the empirical literature are derived using preferences that exhibit either increasing or constant rra even when they are applied to data containing low income households we therefore use a hyperbolic absolute risk aversion hara utility which implies increasing constant and decreasing rra as special cases to test full risk sharing hypothesis using the international food policy research institute ifpri and the international crops research institute of the semi arid tropics icrisat household level data sets we find evidence in support of the drra hypothesis along with evidence favoring full risk sharing hypothesis at the village level and evidence against the hypothesis at the inter village level when rra is restricted to be constant we replicate the previous results in the literature reject the full risk sharing hypothesis at both levels our tests however reject this restriction and favor drra in almost all cases these results suggest that it is important to allow for drra in testing the full risk sharing hypothesis when data containing low income households are investigated this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this this abstract was borrowed from another version of this item

transfer costs spatial arbitrage and testing for food market integration conventional tests for food market integration ask often misleadingly whether prices in different locations move together in this paper an alternative methodology the parity bounds model pbm is developed which uses information on transfer costs in addition to food prices to assess the efficiency of spatial arbitrage monte carlo experiments using data generated by a point space spatial price equilibrium model show the pbm to be statistically reliable an application to philippine rice markets demonstrates that the pbm detects efficient arbitrage when other tests do not

hedging familiarity and portfolio choice we exploit the restrictions of intertemporal portfolio choice in the presence of non nancial income risk to design and implement tests of hedging that use the information contained in the actual portfolio of the investor we use a unique dataset of swedish investors with information broken down at the investor level and into various components of wealth investor income tax positions and investor demographic characteristics portfolio holdings are identi ed at the stock level we show that investors do not engage in hedging but invest in stocks closely related to their non nancial income we explain this with familiarity that is the tendency to concentrate holdings in stocks with which the investor is familiar in terms of geographical or professional proximity or that he has held for a long period we show that familiarity is not a behavioral bias but is information driven familiarity based investment allows investors to earn higher returns than they would have otherwise earned if they had hedged

market integration efficiency of arbitrage and imperfect competition methodology and application to u s celery this paper develops and applies a methodology to test for efficiency of interregional commodity arbitrage application of the methodology requires only time series data on prices for alternative cities regions countries or product forms yet the approach is capable of generating evidence on a number of market parameters including market integration arbitrage efficiency the magnitude of marketing margins product substitutability and competitiveness of markets estimation is based on a switching regression model with three regimes efficient arbitrage relative shortage and relative glut results from application of the model to u s celery marketing indicated significant departures from efficient arbitrage for both california and florida celery

credit rationing and the monetary transmission mechanism according to alan blinder s 1987 model of credit rationing a tightening of monetary policy may have strong effects on the real sector when credit is already tight but weak effects when credit is initially plentiful p 343 the tighter the state of recent monetary policy the more likely it is that the economy s credit constraint will be binding and hence the greater will be the output effects of monetary policy this paper provides a test of the blinder proposition using postwar quarterly u s data and the results are then used to estimate the importance of credit rationing as a channel through which monetary policy influences the economy i consider three alternative criteria for determining when the economy is creditrationed the first criterion states that the economy is credit rationed if recent monetary policy as measured by one of two alternative monetary variables has been substantially tighter than average the second method draws on work by otto eckstein 1983 and allen sinai 1976 who developed estimates of periods of credit crunch based on a wide variety of indicators of credit market conditions the third and final approach is based on stephen king s 1986 estimates of the excess demand for commercial bank lending section i develops the specification of the tests section ii reports regressions and analyzes the implications for the monetary transmission mechanism and section iii presents conclusions

portfolio rebalancing and asset pricing with heterogeneous inattention can households inattention to the stock market quantitatively account for the inertia in portfolio rebalancing i address this question by introducing an observation cost into a production economy with heterogeneous agents in this environment inattention changes endogenously over time and across agents i find that inattention explains the inertia in portfolio rebalancing and its heterogeneity across households inattention also rationalizes the limited stock market participation observed in the data and improves the asset pricing performance of the model finally i present a novel testable implication linking the effects of inattention on portfolio choices and asset prices to households funding liquidity

rare shocks vs non linearities what drives extreme events in the economy some empirical evidence abstract a small scale vector autoregression var is used to shed some light on the roles of extreme shocks and non linearities during stress events observed in the economy the model focuses on the link between credit financial markets and the real economy and is estimated on us quarterly data for the period 1984 2013 extreme shocks are accounted for by assuming t distributed reduced form shocks non linearity is allowed by the possibility of regime switch in the shock propagation mechanism strong evidence for fat tails in error distributions is found moreover the results suggest that accounting for extreme shocks rather than explicit modeling of non linearity contributes to the explanatory power of the model finally it is shown that the accuracy of density forecasts improves if non linearities and shock distributions with fat tails are considered

wealth information acquisition and portfolio choice i solve with an approximation a grossman stiglitz economy under general preferences thus allowing for wealth effects because information generates increasing returns decreasing absolute risk aversion in conjunction with the availability of costly information is sufficient to explain why wealthier households invest a larger fraction of their wealth in risky assets one no longer needs to resort to decreasing relative risk aversion an empirically questionable assumption furthermore i show how to distinguish empirically between these two explanations finally i find that the availability of costly information exacerbates wealth inequalities copyright 2004 oxford university press

firm characteristics and analyst following abstract this paper examines the major determinants of the number of analysts following a firm a simple model of analyst following is proposed and several firm characteristics are suggested that are likely to influence the extent of a firm s analyst following by either affecting the aggregate demand for or supply of analyst services or both for the firm almost all of these characteristics are found to be strongly significant in affecting the extent of analyst following of firms and the empirical results generally accord well with economic intuition

credit rationing and threshold effects in the relation between money and output the possibility that the effect of monetary policy on output may depend on whether credit conditions are tight or loose can be expressed as a non linearity in the relation between real money supply and output of which a simple case is a threshold effect in this case consistent with the credit rationing model of blinder 1987 the monetary variable has a more powerful effect if it is below some threshold than when it is above testing for the importance of this threshold is straightforward if the appropriate threshold value is known a priori but where the value is not known and must be chosen based on the sample the testing problem becomes more difficult we apply recently developed tests applicable in this situation to both us and canadian data and find substantial evidence of a threshold effect particularly in us data however the estimated threshold values are high copyright 1996 by john wiley sons ltd

credit rationing and effective supply failures the topic of this paper is among the oldest and most fundamental in monetary theory how and why does monetary policy affect real economic activity traditional answers hold that the central bank can manipulate aggregate demand by engineering expansions or contractions of the medium of exchange in its monetarist variant this story posits a direct link between something called m and aggregate spending in its keynesian variant the story holds that adjustments in asset prices brought about by a change in m lead to more spending especially on capital goods in either case short run stickiness of prices is needed to translate some of the changes in demand into movements of real output in recent years these conventional stories have become increasingly implausible as stiglitz and i blinder and stiglitz i 983 have argued elsewhere with money becoming more and more difficult to define it is becoming increasingly difficult to believe that the central bank can cause a recession by contriving a shortage of an arbitrary subset of assets called m put differently the point seems both simple and compelling if there are ready substitutes for money control of money will not give the authorities much leverage over the real economy hence this paper develops an explanation for how central bank policy affects

spatial price efficiency in mozambique s post reform maize markets maize zea mays shortages and maize price instability continue to occur in mozambique in spite of policy reforms and great capacity for increased production in northern mozambique this study measured the efficiency of spatial maize price arbitrage in mozambique s post reform period spatial price inefficiency does not seem to explain why food shortages continue to occur in mozambique suggesting nonprice market constraints such as poor infrastructure and poor market institutions as more likely explanations baulch s spatial efficiency test indicated that it is not profitable to ship maize from northern surplus maize regions to southern mozambique records of interregional maize shipments show that indeed grain is not being shipped from the north to the south market liberalization may have improved spatial price efficiency but high transfer costs still limit trade and potential benefits from freeing markets under these circumstances food shortages and price instability are likely to continue

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed