seasonality and the production smoothing model abstract the debate over whether firms smooth production relative to demand continues in this paper we find that results obtained in blinder quarterly journal of economics 101 3 1986 431 453 and blinder and maccini journal of economic surveys 5 4 1991 293 328 indicating that firms do not smooth production are greatly influenced by the seasonal adjustment of the census data for us manufacturing using seasonally adjusted data we find significant evidence of production smoothing in 10 of 14 manufacturing industries for the years 1982 1997 further the prevalence of production smoothing has increased over time which we attribute either to fundamental changes in the collection of the data or to the advent of improved methods of inventory management

stock returns implied volatility innovations and the asymmetric volatility phenomenon we study the dynamic relation between daily stock retums and daily innovations in optionderived implied volatilities by simultaneously analyzing innovations in index and firmlevel implied volatilities we distinguish between innovations in systematic and idiosyncratic volatility in an effort to better understand the asymmetric volatility phenomenon our results indicate that the relation between stock retums and innovations in systematic volatility idiosyncratic volatility is substantially negative near zero these results suggest that asymmetric volatility is primarily attributed to systematic market wide factors rather than aggregated firm level effects we also present evidence that supports our assumption that innovations in implied volatility are good proxies for innovations in expected stocic volatility

absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth abstract this study examines the effects of foreign direct investment fdi and equity foreign portfolio investment efpi on economic growth using data on 80 countries from 1979 through 1998 the results largely suggest that lagged fdi and efpi do not have direct unmitigated positive effects on growth but some data are consistent with the view that the effects of fdi and efpi are contingent on the absorptive capacity of host countries with particular respect to financial or institutional development moreover extreme bound analysis eba of significant results indicates that the estimates are robust compared to other empirical studies on growth

speed of convergence to market efficiency for nyse listed foreign stocks abstract this paper contributes to the cross listing literature by documenting the speed of convergence to market efficiency for foreign stocks listed on the nyse we find that on average it takes 30 60 minutes for a foreign stock to achieve market efficiency for a comparable us stock it takes only 10 15 minutes the significant difference between foreign and us stocks remains robust when the speed is measured by the number of transactions rather than in calendar time after relevant firm characteristics are controlled for the time that it takes for foreign stocks to reach efficiency is significantly negatively related to the quality of their home country institutions we find that one possible channel through which institutions affect the speed is through their impact on information asymmetry

sensitivity analyses of anomalies in developed stock markets abstract the literature on anomalies in developed stock markets produces no consensus on specification this study uses extreme bound analysis eba to evaluate the robustness of 15 stock return anomalies given data covering 16 developed markets from may 1984 to march 1999 two factors are sturdy according to the extreme decision rule in the panel design d p and momentum under a less stringent eba criterion long run lagged returns country risk and the january effect are also robust time series eba for individual markets produces one robust result according to relaxed decision rules across a majority of cases long run government bond yields

economic growth and institutions some sensitivity analyses 1961 2000 do institutions help explain macroeconomic performance this article addresses two issues first especially given the practical implications of the literature measurement of institutions should avoid tautologies and therefore this study uses econometrics to estimate the effect of objectively measurable institutions such as labor market organization financial development fiscal federalism and political regime type second the growing literature on these promising factors in turn is unfortunately incommensurable because previous studies fail to control for other institutional and in some cases standard economic variables given data on up to ninety four countries from 1961 through 2000 extreme bound analysis eba an econometric technique that addresses the sensitivity of previous findings to alternative assumptions about model specification suggests that some institutions associated with the organization of labor and capital are robust correlates of investment few data support the view that variables related to the organization of the state including fiscal federalism and political regime type affect macroeconomic performance without implication the author thanks richard nelson doug chalmers robert shapiro alessandra casella brendan o flaherty geoffrey garrett alexander hicks brett hammond mark kesselman the editor lisa martin and two anonymous referees for helpful comments also ross levine peter rousseau geoffrey garrett and torben iversen were very helpful in locating data the views expressed in this article do not necessarily reflect those of the board of governors of the federal reserve system or any member of its staff

classical and variance bounds tests of the production smoothing hypothesis in this paper we test the controversial production smoothing role of inventories by applying both classical econometric techniques and variance bounds tests we use seasonally unadjusted data measured in physical units for five industries the model used is a version of the familiar holt et al 1960 inventory model we also use the data on one industry disaggregated at the district level to investigate potential bias which may arise from aggregation overall the empirical evidence suggests production smoothing in the great majority of the industries examined

decision making under uncertainty a field study of cumulative prospect theory abstract the presented research tests cumulative prospect theory cpt kahneman d tversky a 1979 prospect theory an analysis of decision under risk econometrica 47 263 291 tversky a kahneman d 1981 the framing of decisions and the psychology of choice science 211 453 480 in the financial market using us stock option data option prices possess information about actual investors preferences in such a way that an exploitation of conventional option analysis along with theoretical relationships makes it possible to elicit investor preferences the option data in this study serve for estimating the two essential elements of the cpt namely the value function and the probability weighting function the main part of the work focuses on the functions simultaneous estimation under cpt original parametric specification the shape of the estimated functions is found to be in line with theory comparing to results of laboratory experiments the estimated functions are closer to linearity and loss aversion is less pronounced

can foreign firms bond themselves effectively by renting u s securities laws abstract the study tests the functional convergence hypothesis which states that foreign firms can leapfrog their countries weak legal institutions by listing equities in new york and agreeing to follow u s securities law evidence shows that the sec and minority shareholders have not effectively enforced the law against cross listed foreign firms detailed evidence from mexico further shows that while some insiders exploited this weak legal enforcement with impunity others that issued a cross listing and passed through an economic downturn with a clean reputation went on to receive privileged long term access to outside finance as compared with legal bonding reputational bonding better explains the success of cross listings

making retirement income last a lifetime to enable investors to spend down the assets in their defined contribution accounts more easily the authors propose a decumulation benchmark comprising a laddered portfolio of tips for the first 20 years consuming 88 percent of available capital and a deferred life annuity purchased with the remaining 12 percent this portfolio can be used directly by the investor akin to indexing or as a benchmark for evaluating the performance of a more aggressive strategy

the impact of trading floor closure on market efficiency evidence from the toronto stock exchange we are the first to evaluate the impact of the trading floor closure on the corresponding efficiency of the stock price formation process on the toronto stock exchange tsx utilizing short horizon return predictability as an inverse indicator of market efficiency we demonstrate that while the switch to all electronic trading resulted in higher volume and lower trading costs the information asymmetry among investors increased as more informed and uninformed traders entered the market the tsx trading floor closure resulted in a significant decrease in informational efficiency and it took about six years for efficiency to return to its pre all electronic trading level in multivariate setting we provide evidence that changes in information asymmetry and increased losses to liquidity demanders due to adverse selection account for the largest variations in the deterioration of the aggregate level of informational efficiency our results suggest that electronic trading should complement rather than replace the exchange trading floor

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

seasonality aggregation and the testing of the production smoothing hypothesis one of the leading hypotheses concerning the dynamics of production over time is the production smoothing hypothesis given a planning horizon which spans a number of production periods the firm need not produce in each period an amount equal to expected sales rather resorting to inventory accumulation and liquidation the firm may follow a production plan temporally smoother than the path of demand if firms faced with convex cost functions chose to smooth the rate of output in order to minimize costs one would expect to observe that the rate of output would vary less than the rate of sales with variations in inventory stocks absorbing some of the fluctuations in sales recently work on the testing of the production smoothing hypothesis has cast doubt on its empirical validity the evidence presented by alan blinder seems to indicate that the variance of production exceeds that of sales in seven out of eight two digit retail industries 1981 and in eighteen out of twenty two digit manufacturing industries 1983 and 1986 the purpose of this paper then is to examine the validity of such tests when seasonally adjusted aggregated data are used the evidence presented show that the relative size of the variances of the seasonally adjusted production and sales does not provide valid tests of the production smoothing hypothesis in addition aggregating over firms where the seasonal patterns differ may also distort tests of production smoothing blinder realized that the use of seasonally adjusted data may not provide an adequate test of the hypothesis stating had they been available i would have preferred to use data that were not seasonally adjusted since the production smoothing model presumably applies to seasonal fluctuations in sales however such data are not available 1983 fn 19 in this paper i focus on the cement industry because the unadjusted disaggregated data are available for the direct testing of the conjecture that aggregate seasonally adjusted data mask production smoothing phenomenon aggregate monthly data on five other industries will also be examined

the dynamics of the volatility skew a kalman filter approach abstract much attention has been devoted to understanding and modeling the dynamics of implied volatility curves and surfaces this is crucial for both trading pricing and risk management of option positions we suggest a simple yet flexible model based on a discrete and linear kalman filter updating of the volatility skew from a risk management perspective we assess whether this model is capable of producing good density forecasts of daily returns on a number of option portfolios we also compare our model to the sticky delta and the vega gamma alternatives we find that it clearly outperforms both alternatives given its ability to easily account for movements of different nature in the volatility curve

a behavioral explanation for the negative asymmetric return volatility relation abstract we examine the short term dynamic relation between the s p 500 nasdaq 100 index return and changes in implied volatility at both the daily and intraday level neither the leverage hypothesis nor the volatility feedback hypothesis adequately explains the results alternatively we propose that the behavior of traders from the representativeness affect and extrapolation bias concepts of behavioral finance is consistent with our empirical results of a strong daily and intraday negative return implied volatility relation moreover both the presence and magnitude of the negative relation and the asymmetry between return and implied volatility are most closely associated with extreme changes in the index returns we also show that the strength of the relation is consistent with the implied volatility skew

the determinants of asymmetric volatility volatility in equity markets is asymmetric contemporaneous return and conditional return volatility are negatively correlated in this article i develop an asymmetric volatility model where dividend growth and dividend volatility are the two state variables of the economy the model allows both the leverage effect and the volatility feedback effect the two popular explanations of asymmetry the model is estimated by the simulated method of moments i find that both the leverage effect and volatility feedback are important determinants of asymmetric volatility and volatility feedback is significant both statistically and economically the relationship between stock price and its volatility has long interested financial researchers empirically returns and conditional variance of next period s returns are negatively correlated that is negative positive returns are generally associated with upward downward revisions of the conditional volatility this empirical phenomenon is often referred to as asymmetric volatility in the literature see engle and ng 1993 zakoian 1994 and wu and xiao 1999 the presence of asymmetric volatility is most apparent during stock market crashes when a large decline in stock price is associated with a significant increase in market volatility formal econometric models have been developed by researchers to capture asymmetric volatility for example asymmetric arch models of nelson 1991 and glosten jagannathan and runkle 1993 have been found to significantly outperform their counterparts that do not accommodate the asymmetry moreover continuous time stochastic volatility models generally produce estimates of a negative correlation between return and return volatility bakshi cao and chen 1997 and bates 1997 for a review of the literature on asymmetric volatility see bekaert

rationality of negative stock price responses to strong economic activity monthly quarterly and annual data between 1956 and 1995 were used to examine the effects of real economic variables on stock returns future corporate cash flows and future inflation in general relative effects of various economic variables on stock returns are justified by their effects on future corporate cash flows and on inflation in particular employment growth shows the strongest negative effect on stock returns compared with other variables employment growth is related more negatively with future corporate cash flows and more positively with future inflation these effects are most pronounced in annual data which reflect long term relationships based on these results negative stock price responses to strong economic activity seem to be rational

irrational exuberance and option smiles disagreement among investors is pervasive some investors see a trend and predict continuation others see the same trend and predict reversal some investors overreact others underreact i explain how disagreement can and does cause markets to be inefficient and i argue that option markets are particularly vulnerable in this respect the volatility smile associated with index options is one manifestation of inefficiency stemming from heterogeneous beliefs as part of the argument i discuss an event study about irrational exuberance the term alan greenspan chair of the u s federal reserve board used in late 1996 to describe stock market sentiment to study this event i combined the information gleaned from option pricing data with other information about market sentiment to assess the impact of heterogeneous beliefs on market efficiency

the asymmetric return volatility relationship of commodity prices abstract there is a well documented asymmetric return volatility effect of equity returns that is negative shocks increase volatility by more than positive shocks this paper analyzes the return volatility relationship of commodity prices and finds a positive inverted asymmetric effect with a tendency to weaken and converge towards an equity like effect since the mid 2000s and particularly during the global financial crisis a comparison of the findings with equity prices also reveals a strengthening of the asymmetric effect in equity markets the change in the asymmetric volatility effect is consistent with the financialization of commodity markets and has strong portfolio implications

political risk in emerging and developed markets using analyst estimates of political risk we show that political risk represents a more important determinant of stock returns in emerging than developed markets average returns in emerging markets experiencing decreased political risk exceed those of emerging markets experiencing increased political risk by approximately 11 per quarter in contrast the difference is only 2 5 per quarter for developed markets further the difference between the impact of political risk in emerging and developed markets is statistically significant we also document a global convergence in political risk over the last 10 years political risk has decreased in emerging markets and increased in developed markets if this trend continues the differential impact of political risk in emerging vs developed markets may narrow

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

world war ii events and the dow jones industrial index abstract this paper investigates which events of world war ii wwii the us investors at that time considered as turning points structural breaks of the war the empirical study employs daily dow jones industrial average stock index and volatility from january 1939 to december 1945 and applies structural shift oriented test to determine endogenously the structural breaks during the wwii period results show that the majority of the wartime events on and off the battlefield labelled important by historians did result in structural breaks in both price movement and stock returns volatility risk these results have major implications for investors of the present and future

momentum strategies based on reward risk stock selection criteria abstract in this paper we analyze momentum strategies that are based on reward risk stock selection criteria in contrast to ordinary momentum strategies based on a cumulative return criterion reward risk stock selection criteria include the standard sharpe ratio with variance as a risk measure and alternative reward risk ratios with the expected shortfall as a risk measure we investigate momentum strategies using 517 stocks in the s p 500 universe in the period 1996 2003 although the cumulative return criterion provides the highest average monthly momentum profits of 1 3 compared to the monthly profit of 0 86 for the best alternative criterion the alternative ratios provide better risk adjusted returns measured on an independent risk adjusted performance measure we also provide evidence on unique distributional properties of extreme momentum portfolios analyzed within the framework of general non normal stable paretian distributions specifically for every stock selection criterion loser portfolios have the lowest tail index and tail index of winner portfolios is lower than that of middle deciles the lower tail index is associated with a lower mean strategy the lowest tail index is obtained for the cumulative return strategy given our data set these findings indicate that the cumulative return strategy obtains higher profits with the acceptance of higher tail risk while strategies based on reward risk criteria obtain better risk adjusted performance with the acceptance of the lower tail risk

production smoothing in the japanese vehicle industry abstract physical data from the japanese vehicle industry covering monthly observations from 1985 1 to 1994 12 are investigated across nine goods ranging from bicycles to large buses smaller variance of production is found relative to sales across all goods for unadjusted data and in 17 out of 18 cases for seasonally adjusted data such evidence in favor of the production smoothing model psm is confirmed by full information maximum likelihood employed jointly on inventories and sales equations the estimates suggest the industry operates in the range of increasing marginal costs in six out of nine goods positive costs of being away from targeted inventory are also present in six out of these nine goods which make the psm a good description of this industry

nonconvex costs and the behavior of inventories this paper explores one possible explanation for the apparent excess volatility of production relative to sales nonconvexities in the technology facing firms it is shown that if firms operate in a region of declining marginal costs then small shifts in demand can cause production to jump substantially estimates for six production to stock industries as well as the automobile industry suggest that all these industries behave as if they were operating in the region of nonconvex costs the results have important implications not only for inventory investment but also for the cyclical behavior of productivity and prices

the resurgence of inventory research what have we learned abstract recent empirical and theoretical research on business inventories is surveyed and critically evaluated while most inventory research has had macroeconomic motivations we focus on its microtheoretic basis and on potential conflicts between theory and evidence the paper asks two principal questions first how can inventories which are allegedly used by firms to stabilize production nonetheless be a destabilizing factor at the macroeconomic level second why if firms are following the production smoothing model is production more variable than sales in many industries we suggest that the so called s s model may help answer both questions

gain loss and asset pricing we develop an approach to asset pricing in incomplete markets that bridges the gap between the two fundamental approaches in finance model based pricing and pricing by no arbitrage we strengthen the absence of arbtrage assumption by precluding investment opportunities whose attractiveness to a benchmark investor exceeds a specified threshold in our framework the attractiveness of an investment opportunity is measured by the gain loss ratio we show that a restriction on the maximum gain loss ratio is equivalent to a restriction on the ratio of the maximum to minimum values of the pricing kernel by limiting the maximum gainloss ratio we can restrict the admissible set of pricing kernels which in turn allows us to restrict the set of prices that can be assigned to assets we illustrate our methodology by computing price bounds for call options in a black scholes economy without intermediate trading when we vary the maximum permitted gainloss ratio these bounds can range from the exact prices implie

destocking the bullwhip effect and the credit crisis empirical modeling of supply chain dynamics in this paper we analyze the strong sales dip observed in the manufacturing industry at the end of 2008 following the bankruptcy of lehman brothers and the subsequent collapse of the financial world we suggest that firms desire to retain liquidity during these times prompted a reaction characterized by the reduction of working capital which materialized as a synchronized reduction in target inventory levels across industries we hypothesize that such a reaction effectively acted as an endogenous shock to supply chains ultimately resulting in the bullwhip effect kind of demand dynamics observed to test this proposition we develop a system dynamics model that explicitly takes into account structural operational and behavioral parameters of supply chains aggregated at an echelon level we calibrate the model for use in 4 different business units of a major chemical company in the netherlands all situated 4 5 levels upstream from consumer demands in their respective supply chains we show that the model gives a very good historical fit of the sales developments during the period following the lehman collapse we test the model s robustness to behavioral parameter estimation errors through sensitivity analysis and the de stocking hypothesis against an alternative model finally we observe that the empirical data is aligned with experimental observations regarding human behavioral mechanisms concerning target adjustment times

on the efficiency of intra industry information transfers the dilution of the overreaction anomaly abstract we revisit the stock market anomaly documented by thomas and zhang 2008 and show that the apparent mispricing of information transfers has decayed over time as the us markets experienced rapid improvements in the efficiency of the underlying price formation processes utilizing recent advancements in market microstructure research to estimate firm specific proxies for market efficiency we demonstrate that the existence of the overreaction anomaly where stock prices of late announcers in response to the earnings reported by early announcers in the same industry are negatively related to subsequent price responses of late announcers to their own earnings reports is specific to an earlier sample period and results from the inefficient incorporation of information into prices largely attributable to an environment with high barriers to arbitrage our results indicate that the pricing efficiency of intra industry information transfers has increased in the recent years of increased liquidity and markedly higher trading activity

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

what will take the con out of econometrics the paper begins with the question of whether leamer s extreme bounds analysis eba really does take the con out of econometrics by analytically demonstrating that the extreme bounds are simply functions of the f statistic for the deletion of variables from a regression we conclude that the information provided by eba represents no advance over that available from traditional methods furthermore there is a degree of arbitrariness in eba which exactly parallels the selective reporting of regressions it was designed to supplant the last part of the paper attempts a positive response to its title by following a well defined series of modelling steps we maintain that cooley and le roy s eba derived conclusions concerning the interest elasticity of money demand owe more to a faulty methodology than to the data this abstract was borrowed from another version of this item

intraday technical analysis of individual stocks on the tokyo stock exchange abstract this paper conducts an intraday technical analysis of individual stocks listed on the nikkei 225 in addition to the price based technical rules popularly examined in the literature we uniquely propose and statistically investigate technical rules that utilize information regarding 1 the order flow imbalance and 2 the order book imbalance technical analysis using the imbalance based trading rules is motivated by the evidence presented first in this paper that short term returns can be predicted from the information regarding the order flow and order book imbalances for more than half of nikkei 225 listed stocks however we demonstrate that no strategies including limit order trading where trading signals are derived from the order book imbalance beat the buy and hold strategy within our sample the results imply that past prices and demand supply imbalances do not contribute to profiting in intraday trading and that non execution and picking off risks are too large for limit order trading to be profitable in our sample

the fear and exuberance from implied volatility of s p 100 index options i study the relation between option traders risk perception and contemporaneous market conditions risk perception tends to increase when downside volatility increases more than upside volatility the risk return relation is asymmetric and nonlinear best described as a downward sloping reclined s curve that prior gains appear to have some mitigating effect on the fear of loss relative to prior losses points to a house money effect broader market conditions influence the perception of risk in a manner consistent with the keeping up with the joneses effect leverage is a weak explanation for the risk return relation

forecasting eur usd implied volatility the case of intraday data abstract this study models and forecasts the evolution of intraday implied volatility on an underlying eur usd exchange rate for a number of maturities to our knowledge we are the first to employ high frequency data in this context this allows the construction of forecasting models that can attempt to exploit intraday seasonalities such as overnight effects results show that implied volatility is predictable at shorter horizons within a given day and across the term structure moreover at the conventional daily frequency intraday seasonality effects can be used to augment the forecasting power of models the type of inefficiency revealed suggests potentially profitable trading models

a global stock and bond model six fundamental risk factors four for stocks and two for bonds explain most of the common volatility of individual stocks and bonds worldwide some of the risk factors have a strong international component and others are more purely national the cross national component of the risk factors tends to be stronger within the european union than worldwide the model proposed in this article can be used for integration of worldwide asset selection and asset allocation decisions

from boom til bust how loss aversion affects asset prices this article studies the impact of heterogeneous loss averse investors on asset prices in very good states loss averse investors become gradually less risk averse as wealth rises above their reference point pushing up equity prices when wealth drops below the reference point the investors become risk seeking and demand for stocks increases drastically eventually leading to a forced sell off and stock market bust in bad states heterogeneity in reference points and initial wealth of the loss averse investors does not change the salient features of the equilibrium price process such as a relatively high equity premium high volatility and counter cyclical changes in the equity premium

macroeconomic variables and corporate performance increased economic and financial integration and substantial macroeconomic fluctuations require that corporate managers and investment analysts pay more attention than in the past to the link between the noise that these fluctuations represent and the company s performance past and future for many reasons company managers must weed out the effects of the noise to obtain a clear picture of the company s intrinsic competitiveness and long term sustainable profits the question is to what extent can outside shareholders and investment analysts adopt this approach to corporate performance current reporting practice does not provide these outsiders with an adequate idea of the character and magnitude of the impact of macroeconomic variables on the company the recommendations of international accounting standard 1 presentation of financial statements as revised in 1997 however offer an improvement in this important area this article presents four levels of implementation of ias 1 and what these lev

convergence to market efficiency of top gainers abstract this study investigates the convergence process toward efficiency of daily top gainers the convergence process toward efficiency is much clearer as a result of using a garch 1 1 model compared to the ols model and exhibits a monotonic decline as the time interval increases the relationship between volatility and order imbalances is however not strong enough suggesting that market makers do have the capability to reduce price volatility this study develops an imbalance based trading strategy which earns a positive profit but fails to outperform the buy and hold strategy i e open to close returns a nested causality approach which examines the dynamic return order imbalance relationship during the price formation process confirms the results

an empirical test of the efficiency of the adr market abstract this study examines the weak form efficiency of foreign equities american depository receipts traded in the u s the results of serial correlation and runs tests on a sample of listed and nasdaq adrs for the years 1974 1978 were consistent with weak form efficiency

quantifying the bullwhip effect using two echelon data a cross industry empirical investigation the bullwhip effect denotes the phenomenon whereby demand variability is amplified from a downstream site buyer to an upstream site supplier in the supply chain this paper contributes to the literature that empirically investigates the bullwhip effect by providing new evidence regarding its prevalence and magnitude in contrast to previous work we use a two echelon approach which allows us to observe variations at both the upstream and the downstream sites by drawing on a financial accounting standard regarding information disclosure about major customers we are able to link 5494 buyers and suppliers in the u s between 1976 and 2009 we merge this information with quarterly financial accounting data to form a sample of 14 933 buyer supplier dyad observations we correct for sample selection bias using propensity score matching and estimate the average bullwhip effect in our sample to be 1 90 i e 90 demand variability amplification between echelons a significant bullwhip effect is observed across industries mining manufacturing wholesale and retail and is supported by several robustness checks we investigate and discuss how these results can be generalized beyond our sample

do market capitalization and stocks traded converge new global evidence abstract in this paper we examine convergence of stock markets our empirical exercise is based on 11 different panels which together consist of 120 countries the richness of the dataset allows us to disaggregate countries into panels such as high income middle income low income oecd csi and developing country panels in addition we construct regional panels such as those representing the arab states east asia and the pacific south asia latin america and the caribbean and sub saharan africa our main finding is that based on the conditional convergence model convergence of stock market capitalization and stocks traded is found for four panels namely the high and low income panels the oecd panel and the sub saharan african panel the speed of convergence is high in most cases between 20 and 30

intraday volume and volatility relations with and without public news this paper reexamines the dynamic relation between intraday trading volume and return volatility of large and small nyse stocks in two partitioned samples with and without identifiable public news we argue that the sequential information arrival hypothesis siah can be tested only in periods containing public news after partitioning the sample into periods with and without public news we find bi directional granger causality between volume and volatility in the presence of public information as hypothesized by the siah our analysis further suggests that return volatility is higher in the periods with public news while trading volume is significantly higher in the no news period perhaps owing to the importance of private information for trading stocks using the sample without public news we find evidence that volume granger causes volatility without feedback these results are broadly consistent with behavioral models like the overconfidence and biased self attribution model of daniel k hirshleifer d subrahmanyam a 1998 investor psychology and security market under and over reactions journal of finance 53 1839 1885 it appears that overconfident investors overrate the precision of their private news signals and therefore trade too aggressively in the absence of public news when public news arrives investors biased self attribution triggers excessive return volatility

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

the persistence of volatility and stock market fluctuations this paper examines the potential influence of changing volatility in stock market prices on the level of stock market prices it demonstrates that volatility is only weakly serially correlated implying that shocks to volatility do not persist these shocks can therefore have only a small impact on stockmarket prices since changes in volatility affect expected required rates of return for relatively short intervals these findings lead us to be skeptical of recent claims that the stock market s poor performance during the 1970 s can be explained by volatility induced increases in risk premia 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 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 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 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 item this abstract was borrowed from another version of this item

irrational exuberance and option smiles disagreement among investors is pervasive some investors see a trend and predict continuation others see the same trend and predict reversal some investors overreact others underreact i explai

a pension promise to oneself saving for retirement is not hopeless well run db pension plans provided retirement income for generations when plans failed it is because they broke the rules the same applies to individuals by understanding a set of rules on how much to save and how to invest and then sticking to those rules that is by making a pension promise to oneself retirement income goals can be met fulfilling this promise requires more saving than most people are accustomed to

sources of liquidity for nyse listed non us stocks abstract we examine the components of displayed quoted liquidity and the amount of non displayed liquidity on the nyse for a sample of non us stocks consistently with prior work non us stocks have less displayed liquidity than similar us stocks extending prior research we find that this is true both in the limit order book and on the floor as domowitz et al domowitz i glen j madhavan a 1998 international cross listing and order flow migration evidence from and emerging market journal of finance 53 2001 2027 posit non us stocks from transparent linked home markets have more displayed nyse liquidity when the home market is open but non us stocks from opaque non linked home markets have more nyse displayed liquidity when the home market is closed non us and us stocks have similar supplies of non displayed liquidity consistent with the idea that the conditional nature of non displayed liquidity allows nyse traders to mitigate adverse selection problems inherent in trading non us stocks our results imply that non us stocks have less total displayed plus non displayed liquidity than us stocks

implied volatility surface predictability the case of commodity markets abstract recent literature seek to forecast implied volatility derived from equity index foreign exchange and interest rate options using latent factor and parametric frameworks motivated by increased public attention borne out of the financialization of futures markets in the early 2000s we investigate if these extant models can uncover predictable patterns in the implied volatility surfaces of the most actively traded commodity options between 2006 and 2016 adopting a rolling out of sample forecasting framework that addresses the common multiple comparisons problem we establish that for energy and precious metals options explicitly modeling the term structure of implied volatility using the nelson siegel factors produces the most accurate forecasts

the only spending rule article you will ever need after examining an array of approaches to determining a spending rule for retirees the authors propose the annually recalculated virtual annuity each year one should spend at most the amount that a freshly purchased annuity with a purchase price equal to the then current portfolio value and priced at current interest rates and number of years of required cash flows remaining would pay out in that year investors who behave in this way will experience consumption that fluctuates with asset values but they can never run out of money

order flow and exchange rate comovement abstract this paper extends the literature on the linkage between order flows and exchange rates from the univariate to the multivariate framework we examine how order flow differentials drive exchange rate comovements using data on five major exchange rates and at three different intraday frequencies we also control for bid ask spreads and the possible effects of order flow on returns and return volatility and employ alternative order flow measures our results show that the effect of order flow on exchange rate comovements is significantly negative during the tranquil period but can become positive during the turbulet period this negative effect lessens as the intraday frequency lowers generally over the entire sample period exchange rate correlations are stronger during joint appreciations than joint depreciations

can the production smoothing model of inventory behavior be saved the production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework but actually to argue that the basic idea of production smoothing is all wrong most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales this paper first documents the stylized facts then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts finally it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

stock prices asset portfolios and macroeconomic variables in ten european countries abstract this paper investigates the relationship between stock indices asset portfolios and macroeconomic variables in ten european countries it is shown that employment imports inflation and interest rates are inversely related to stock prices expectations about future real activity measures for money and the u s yield curve are positively related to stock prices a portfolio of european stock indices was constructed and it is shown that this portfolio is the variable that most strongly explains the variation in the stock prices the associations between stock prices and macroeconomic variables are shown to be strongest in germany the netherlands switzerland and the united kingdom there is a high degree of similarity between the effects in the first three of these countries in several instances the stock prices are related to historic value of economic variables indicating that predictive models can be constructed