bank reserve requirements as an impediment to signaling bank reserve requirements as an impediment to signaling effective legal reserve requirements may hamper the private capital market s ability to price bank deposits in the model developed here the market has less information about bank assets than the banks have and a bank can therefore signal its superior information through its choice of excess reserves mandatory reserves can inhibit such signaling and therefore result in inefficient deposit pricing i introduction although the basic of fractional reserve banking were explained by edgeworth 1888 the rationale for legal reserve requirements as well as the details of their design have continued to evolve and the impetus for reform has been gathering momentum in recent years the time honored liquidity motivations as well as the more contemporary monetary control consideration have been widely debated and while the latter remains popular increasing skepticism has been expressed by benston 1978 greenbaum and kanatas 1982 laurent 1979 1981 robertson and phillips 1974 and starleaf 1975 among others like many of these papers this one questions the benefits of reserve requirements whereas most dispute their value as a monetary policy instruments however a new argument presented here shows that reserve requirements may subvert efficient deposit pricing and thereby aggravate asset quality and bank solvency problems the argument relates to the recent proposal that the private capital markets should play an expanded role in monitoring the exposure of banks we examine the potential of a commercial bank s excess reserves to signal asset quality in an environment without deposit insurance the results apply so long as deposit insurance remains incomplete and where the risk of each bank s assets is a priori unknown to all except the bank in such a setting the efficient pricing of deposit depends on a depositor s ability to ascertain the risk characteristics of the bank s assets it is shown that excess reserves can signal the unknown risk and thus resolve the informational asymmetry the ability to signal using excess reserves varies inversely however with reserve requirements thus reserve requirements may impede the ability of excess reserves to inform market participants reserve requirements are likely to impede signaling when i loan rates and reserve requirements are high or ii reserve requirements are low but a bank s deposit base is large reserve requirements are unlikely to impede signaling when banks are similar in their asset characteristics the underlying intuition is discussed in section iii excess reserves based signaling may be important because of its potential in facilitating the private sector s monitoring of banks we show that any effort to expand the private market s monitoring of bank asset quality through more accurate deposit pricing presupposes an appropriate regulatory milieu exposing large depositors to losses may be a precondition for expanding the role of the private capital markets but this analysis indicates that reserve requirements and or inappropriate discount window pricing can subvert such efforts the potential for conflict between the federal reserve focusing on monetary policy and the deposit insurers seeking to mitigate their monitoring burden and exposure is palpable thus the model clarifies the conditions necessary to engage the private market in monitoring bank asset quality through deposit pricing these requirements are formidable and the interdependence of regulatory constraints used for monetary policy and bank soundness purposes could frustrate programs based on piecemeal reform the model posits a risk neutral two period economy where each bank issues deposits and makes risky loans at the outset although asset quality varies across bank the choice of assets is not endogenous this is an important simplification since in general a bank s asset choice will impinge on the posited signaling problem

the effect of changes in reserve requirements on bank stock prices abstract the present study re examines the tax burden effects of reserve requirements on bank profitability it differs from previous work in two ways 1 changes in stock prices rather than accounting data are used to measure profitability effects and 2 emphasis is placed on changes in reserve requirements as opposed to their level regarding the latter distinction two kinds of changes are considered 1 temporary changes in reserve requirements for the purpose of discretionary monetary policy and 2 more permanent changes in reserve requirement levels based on the event study methodology temporary changes were found to have little effect on security prices whereas more permanent changes had a stronger influence on bank stock prices reflecting a tax burden effect

employer search and employment subsidies in this paper insights into the literature on employment subsidy evaluation and that on employer search are merged to explore uncharted territory the firm and job characteristics leading to deadweight loss in employment subsidy schemes a model is developed which integrates various arguments found in the existing employer search literature using a survey of dutch firms for 1999 the model predictions are confirmed the richness of the data set enables one to construct some measures of deadweight loss which are new to the existing literature it turns out that firms which experience low screening costs large firms firms that forego substantial production due to unfilled jobs vacancies for full time jobs and firms operating in slack labour market conditions cause significantly more deadweight loss

day of the week effects and asset returns the number of empirical studies using daily stock returns is rapidly increasing researchers generally assume that the distribution of stock returns is identical for all days of the week a convenient statistical assumption but not a necessary condition of market equilibrium nevertheless there are reasons to suspect that the distribution of returns may vary according to the day of the week the most obvious is the impact of weekends on monday s return since monday s return is calculated over three instead of one calender day the mean and variance may well be higher on monday compared with any other daily return perhaps three times as large previous research has examined the daily distribution of stock returns for a monday effect while fama 1965 does not compare daily mean returns he does report that monday s variance is about 20o greater than other daily returns with a traditional distributional assumption regarding the returns on a financial asset specifies that the expected returns are identical for all days of the week contrary to this plausible assumption this paper discovers that the expected returns on common stocks and treasury bills are not constant across days of the week the most notable evidence is for monday s returns where the mean is unusually low or even negative several explanations of the results are investigated but none proves satisfactory aside from documenting significant day of the week effects the implications of the results for tests of market efficiency are examined while market adjusted returns continue to exhibit day of the week effects these effects are no longer concentrated on monday during the last year we have had many conversations with our colleagues throughout the professions we are particularly thankful to the participants at sessions of the western and american finance associations where preliminary versions of this paper were presented special thanks are due to gene fama gailen hite jon ingersoll robert jarrow merton miller clifford smith and rex thompson the expert research assistance of frank rabinovitch and youngsup yun is gratefully acknowledged 1 the list of papers using daily stock returns is too long to name recent examples include charest 1978 dodd 1980 banz 1981 and reinganum 1981

a note on interest on required reserves as an instrument of monetary control abstract the purpose of this paper is to evaluate the potential role of interest on required reserves as a monetary control instrument it is found that an increase in the interest rate paid on reserves held at the federal reserve has counteracting effects on the variability of the money stock hence there is an optimal setting for the interest rate on required reserves that theoretically may include or lie anywhere between the extreme cases of no interest payment and the payment of interest at the maximum feasible level

intraweek and intraday trade anomalies evidence from forex market in this article we search for the evidence of intraweek and intraday anomalies on the spot foreign exchange forex market having in mind the international scope of this market empirical evidence against market efficiency i e market anomalies will have important consequences for the substantial number of forex investors all around the globe we explore intraweek intraday and interaction between days and hour trade anomalies on the forex market over the period of 10 years using hourly time series data of euro and us dollar eur usd exchange rate on swiss forex market from 1 january 2004 to 11 january 2014 we compare by analysis of variance test all pairs of mean returns on a daily hourly and daily hourly basis t test is used to test whether intraday returns are significantly different from zero we employ tukey s honestly significant difference test to explore which intraday pairs of hourly mean returns are significantly greater than zero we find that intraday and interaction between day and ho

portfolio rebalancing and the turn of the year effect this paper finds that for the 1935 1986 period the market s risk return relation does not have a january seasonal the findings differ from those of other studies due to the use of value weighted rather than equally weighted portfolios inferences are sensitive to the weighting procedure because of the small firm return patterns in january in particular even in those januaries for which the market return is negative small firm returns are positive and they are more positive the higher is beta this is consistent with the portfolio rebalancing explanation of the turn of the year effect since at least 1926 the average return on small firms in january has been unusually high a phenomenon known as the turn of the year effect in this paper we present new evidence regarding the risk return characteristics of small firms in january we find that for small firms there is a positively sloped riskreturn relation in both up and down markets this pattern is difficult to reconcile with the belief that the high return on small firms in january is equilibrium compensation for risk bearing we show how these patterns in small firms returns have led others to conclude that the market s risk return relation has a january seasonal in particular rozeff and kinney 21 and tinic and west 22 23 among others using equally weighted portfolios formed on the basis of historical betas have found a steeper slope for the capm s risk return relation in january than in other months we demonstrate that this pattern exists only for small firms consequently statistical inferences about the risk return relation are heavily dependent upon whether equally weighted or value weighted portfolio returns are used in the estimation we show that for 1935 86 when monthly cross sectional regressions are estimated using value weighted portfolio returns there is no more of a statistically significant difference in the estimated return to risk bearing in january than in the other eleven months of the year the notion that there is a january seasonal in the capm s risk return relation for the us has rapidly become accepted knowledge for example corhay hawawini and michel 6 accept this conclusion and investigate whether other

lessons from the u s unemployment insurance experiments recent social experiments have evaluated two reforms of the unemployment insurance ui system reemployment bonuses and job search programs the bonus experiments show that economic incentives affect the length of ui receipt and provide weak evidence that an earlier return to work does not decrease earnings the experiments do not show the favorability of a permanent bonus program as they ignore its effect on the number of the claimants the job search experiments test several more promising reforms nearly all of the combinations of services and increased enforcement reduce ui receipt and have favorable cost benefit analyses earnings often increase though the estimates are imprecise

the distribution of foreign exchange price changes trading day effects and risk measurement a comment in their 1982 study mcfarland pettit and sung 16 mps found that consecutive daily foreign exchange rates conform to neither a normal nor a nonnormal stable process and that day of the week data could be adequately described by a series of different stable distributions the authors have also documented a weekday effect in the foreign exchange market mondays and wednesdays offered higher average price changes than did thursdays and fridays in a more recent study jaffe and westerfield 9 documented negative monday returns for the currencies of the u k canada and australia in estimating the parameters of the distribution mps have utilized the fama and roll 5 6 method which assumes a symmetric distribution jaffe and westerfield 9 report only estimates of the sample moments the sample moments reported in mps s table ii part of which is reproduced in table i here reveal that most currencies especially the minor currencies the australian dollar the spanish peseta and the swedish krona have significant skewness the results indicate that the asymmetric stable paretian distribution may be more appropriate for the overall daily returns this hypothesis is consistent with

the distribution of foreign exchange price changes trading day effects and risk measurement this study investigates the nature of price changes in a variety of major and minor foreign exchange markets the results suggest that the log of price changes over one trading day intervals seems to follow a non normal stable distribution function different measures of location and to lesser extent scale are present for different days of the week dollar denominated price changes are high on mondays and wednesdays and low on thursdays and fridays for all currencies the wednesday thursday result is consistent with the settlement procedures used in foreign exchange transactions in the dollar the friday monday result is consistent with an increase in demand for the dollar prior to the weekend this study offers some previously unavailable results on the nature of price changes in a certain set of speculative markets in particular this is a study of the distributional characteristics of daily and weekly price changes for a number of major and minor foreign exchange markets the results document the existence of non normal stable distributions for price changes in foreign exchange markets these price change distributions differ by day of the week in ways that are only partly attributable to the institutional structure of the market the results of the study are interpreted within the context of understanding how foreign exchange markets operate and within the context of prior studies of stock market data concerned with summarizing the probability distribution of price changes for different intervals including days of the week since bachelier s 1 original treatise that contained the proposition that speculative market prices follow a process that could be described by a normal distribution there have been numerous alternative attempts to describe the stochastic processes which characterize speculative market prices these studies have not resulted in any generalized description of the probability distribution of price changes in such markets indeed the evidence suggests substantial differences in the process among various types of financial instruments the failure to achieve consensus can be traced to the lack of robustness in the statistical procedures employed to estimate processes and to differences in the underlying institutional or economic arrangements which are unique to that market the possibility of differences in the information set used to assess value or differences in technology for transmitting information makes it important to secure additional

day of the week effect in the taiwan foreign exchange market abstract this study uses stochastic dominance with and without risk free assets to examine whether trading days can affect patterns of the day of the week effect in the taiwan foreign exchange market our results generally indicate that higher returns appear on the first three days of the week across different trading day regimes in the taiwan foreign exchange market confirming day of the week effect allocating part of investors assets in risk free assets is useful in distinguishing returns among weekdays for all currencies

how capital regulation and other factors drive the role of shadow banking in funding short term business credit abstract this paper empirically analyzes how capital regulation risk and other factors altered the relative use of shadow banking funded short term business debt since the early 1960s results indicate that the share was affected over the long run not only by changing information and reserve requirement costs but also by shifts in relative regulation of bank versus nonbank credit sources such as basel i in 1990 and reregulation in 2010 in the short run the shadow bank share rose when deposit interest rate ceilings were binding on traditional banks the economic outlook improved or risk premia declined and fell when event risks arose

job additionality and deadweight spending in perfectly competitive industries the case for optimal employment subsidies abstract this paper links the old literature on employment subsidies with the current theories of contract and regulation one important source of inefficiency of employment subsidies is non additional employment and deadweight spending which occur when private firms receive a subsidy for jobs that would have been created without the subsidy we identify the asymmetry of information between the government and the private firm as the source of these problems when the government proposes optimal incentive contracts to promote employment we show that all employment creations are additional and that the deadweight spending is equal to the information rent which may be null when firms types are discrete

a further investigation of the weekend effect in stock returns this study uses a longer time period and additional stocks to further investigate the weekend effect we find consistently negative monday returns 1 for the s p composite as early as 1928 2 for exchange traded stocks of firms of all sizes and 3 for actively traded over the counter otc stocks the otc results are based on bid prices and therefore appear to reject specialist related explanations for the 30 individual stocks of the dow jones industrial index the average correlation between friday and monday returns is positive and the highest of all pairs of successive days the latter finding is inconsistent with fairly general measurement error explanations some of the most puzzling empirical findings reported in recent years indicate that the distribution of common stock returns varies by day of the week most notably the average return for monday close friday to close monday is significantly negative cross 3 and french 6 find negative monday returns using the standard and poor s composite index and gibbons and hess 7 find negative monday returns for the 30 individual stocks of the dow jones industrial index 1 this negative monday return or weekend effect has yet to be explained this study undertakes a further investigation of the weekend effect in stock returns we examine additional time periods extending the total period covered to 55 years we examine additional stocks such as those of small low capitalization firms and those traded over the counter in all cases the data exhibit a weekend effect that is at least as strong as that reported in previous studies the study also readdresses potential explanations for the effect such as measurement error but concludes that none of these explanations is satisfactory the first section presents a history of the weekend effect from 1928 through 1982 based on the standard and poor s composite index we essentially double the length of the period beginning in 1953 examined by french 6 the results indicate consistently negative monday returns throughout the 55 year period during much of the 25 year period from 1928 through 1952 the new york stock exchange was open on saturdays so monday s return is then computed from saturday s close to monday s close 2 these returns for one day weekends are consistently negative and not significantly different from the two day weekend

bank reserve requirements and monetary aggregates the paper criticizes the traditional belief in the usefulness of reserve requirements for the control of monetary aggregates it is shown that the efficacy of this policy tool is maintained only if the incentive it provides for financial innovations is ignored if the relevant monetary aggregate is broader than that which is reserve constrained we show that reserve requirements may be counter productive an alternative policy involving the payment of interest on voluntarily held reserves is proposed and analyzed it is shown that this approach has the stabilization effects attributed to reserve requirements but without any of the latter s adverse incentives

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

the wandering weekday effect in major stock markets this paper reports a wandering weekday effect the pattern of day seasonality in stock market returns is not fixed as assumed in the monday or weekend effects but changes over time analysing daily closing prices in eleven major stock markets during 1993 2007 our results show that the wandering weekday is not conditional on average returns in the previous week the twist in the monday effect nor does it diminish through the period of analysis the results have important implications for market efficiency and help to reconcile mixed findings in previous studies including the reported disappearance of the weekday effect in recent years

converting unemployment benefits into employment subsidies although unemployment benefit systems vary widely among oecd countries they all tend to increase the unemployment whose effects they are meant to mitigate the reasons are well known they push up wages by improving workers fall back positions in wage negotiations and they discourage job search for when unemployed people find jobs their unemployment benefits are withdrawn and they have to pay taxes thereby many unemployment benefit systems not only generate inefficiencies and inequities in their own right but also augment common labor market failures particularly those highlighted by the efficiency wage insider outsider and union theories these market failures have serious dynamic consequences for the longer people are unemployed the more their skills erode and the more discouraged and stigmatized they become in the job search process when unemployment benefit systems amplify these dynamic effects they put the long term unemployed at a greater disadvantage in competing for jobs this disadvantage is augmented by market failures in the provision of training the long term unemployed often have had relatively little opportunity to acquire firmspecific skills and thus in imperfectly com

vouchers as a way to finance unemployment benefits abstract instead of financing unemployment benefits through payroll taxes we propose to finance them through the sale of vouchers to firms unemployment benefits act as employment subsidies and dismissal penalties aggregate unemployment is lower and may remain constant and displacement effects are smaller than in alternative proposals

public finance solutions to the european unemployment problem public finance solutions a tax shift away from low paid labour may fight unemployment unemployment in europe is heavily concentrated among low skilled workers it has therefore been suggested that structural unemployment could be reduced by shifting the tax burden away from low skilled labour and away from the production of consumer services which are intensive in the use of such labour this paper finds that a tax shift away from low paid labour may raise aggregate employment and welfare but only if wage formation is sufficiently responsive to changing tax incentives the analysis also suggests that non negligible employment and welfare gains could be reaped by offering tax concessions or subsidies to those parts of the consumer service sector which compete most directly with low productivity home production and with underground economic activity peter birch sorensen

a transaction data study of weekly and intradaily patterns in stock returns abstract weekly and intradaily patterns in common stock prices are examined using transaction data for large firms negative monday close to close returns accrue between the friday close and the monday open for smaller firms they accrue primarily during the monday trading day for all firms significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens on monday mornings prices drop while on the other weekday mornings they rise otherwise the pattern of intraday returns is similar on all weekdays most notable is an increase in prices on the last trade of the day