a note on foreigners trading and price effects across firms abstract we study the investment behavior of foreign investors in association with an equity market liberalization and find a strong link between foreigners trading and local market returns in the period following the liberalization net purchases by foreign investors induced a permanent increase in stock prices suggesting that local firms reduced their cost of equity capital we also find a strong link between a firm s fraction of foreign ownership and the magnitude of the cost reduction foreign investors seem to prefer large and well known firms and these firms realize the largest reduction in capital cost furthermore our analysis suggests that foreigners increase their net holding in firms that have recently performed well analyzing foreigners performance we find very little evidence of informed trading suggesting that risk sharing is the most plausible explanation for the reduction of the cost of equity capital

some aspects of the taxation of capital gains abstract the analysis of the effects of capital gains taxation requires a careful modelling both of the details of the tax code and the imperfections in the capital market under the standard assumptions concerning perfect capital markets and under the standard idealizations of the tax code there are several strategies by which rational investors can avoid note only all taxes on their capital income but also all taxes on their wage income these strategies leave individuals consumption and bequests in each state of nature and at each date unchanged from what they would have been in the absence of taxes although certain detailed provisions of the tax code may limit the extent to which rational investors can avail themselves of these tax avoidance activities there are ways in a perfect capital market by which the effects of these restrictions can be ameliorated accordingly any analysis of the effects of capital taxation must focus on imperfect capital markets if individuals face limitations on the amounts which they can borrow and or if there are limitations on short sales then under some circumstances there is a locked in effect individuals do not sell securities which they would have sold in the absence of taxation but under other circumstances individuals are induced to sell securities that they otherwise would have held in order to take advantage of the asymmetric treatment of short term losses and long term gains a policy of realizing gains as soon as they become eligible for long term treatment dominates the policy of postponing the realization of capital gains provided the gains are not too large a simple general equilibrium model is constructed within which it is shown that the taxation of capital gains may increase the volatility of asset prices and lead individuals not to trade when they otherwise would while the analysis casts doubt on the significance of the welfare losses resulting from these exchange inefficiencies there are circumstances in which the tax leads to production inefficiencies e g terminating projects at other than the socially optimal date finally we argue that the focus of some recent policy debates on the short run revenue impact of a decrease in the tax rate on capital gains is misplaced even when the short run revenue impact is positive consumption may increase thus exacerbating inflationary pressures and private savings may decrease thus leading to a lower level of investment in the private sector moreover there is some presumption that the long run revenue impact is negative our analysis has some important implications for empirical research in particular it suggests that the impact of the tax is not adequately summarized by a single number such as the effective tax rate representing the average ratio of tax payments to capital gains moreover the impact of the tax cannot be assessed by looking only at reported capital gains and losses

do renewable energy technology innovations promote china s green productivity growth fresh evidence from partially linear functional coefficient models abstract renewable energy technology innovation can benefit the environment by promoting green productivity as proposed by existing theoretical studies however recent uneven developments of both environmental performance and renewable energy technology among regions in china remind us to revisit the above theoretical link in this paper we relax the hypothesized homogeneity and linearity in traditional empirical models to investigate the effects of renewable energy technology innovation on china s green productivity the results of the partially linear functional coefficient models show that the effect of renewable energy technological innovation on green productivity is significant only when the relative income level of a province passes a critical turning point beyond the turning point such an effect increases with the growth of relative income levels finally we provide provincial specific policy implications based on the estimated nonparametric relationship between renewable energy technology innovation and green productivity

the low carbon technology characteristics of china s ferrous metal industry abstract the ferrous metal industry is the largest energy consuming industrial sector in china this paper examines the low carbon production characteristics of this industry during the period 1980 2013 we employ the duality theory of the weighted russell directional distance function to propose a general procedure for modeling production characteristics with carbon emissions being considered the undesirable output using the weighted russell directional distance function model we measure the carbon adjusted technical efficiency and environmental regulatory costs for this industry to investigate policy effects we test the porter hypothesis using the granger causality between regulatory cost and technical efficiency by using the dual model of weighted russell directional distance function we estimate the carbon shadow pricing and inter factor substitution possibilities results show that the carbon adjusted technical efficiency and environmental regulation costs of the chinese ferrous metal industry have significantly increased in recent decades however the latter does not significantly cause the improvement of former the indirect morishima elasticities of substitution reflect that the increase of fixed assets will effectively improve the carbon emissions performance of the chinese ferrous metal industry finally some policy implications are suggested

the scope and limits of financial liberalisation in developing countries a critical survey this article reviews the growing literature on financial reform in developing countries we draw both on the theoretical contributions outlining the case for and against liberalisation as well as on the experience of many developing countries with liberalisation we argue that the existence of market failures in financial markets hampers the liberalisation process and indeed suggests that the simple liberalising strategy envisaged in much of the literature is inappropriate we argue instead for an alternative strategy which integrates some aspects of liberalisation with the development of appropriate financial institutions designed to serve best the needs of the real economy

the swedish banking crisis roots and consequences the article analyses the swedish banking crisis in the early 1990s newly deregulated credit markets after 1985 stimulated a competitive process between financial institutions where expansion was given priority combined with an expansive macro policy this contributed to an asset price boom the subsequent crisis resulted from a highly leveraged private sector being simultaneously hit by three major exogenous events a shift in monetary policy with an increase in pre tax interest rates a tax reform that increased after tax interest rates and the erm crisis combined with some overinvestment in commercial property high real interest rates contributed to breaking the boom in real estate prices and triggering a downward price spiral resulting in bankruptcies and massive credit losses the government rescued the banking system by issuing a general guarantee of bank obligations the total direct cost to the taxpayer of the salvage has been estimated at around 2 per cent of gdp copyright 1999 by oxford university press

optimal innovation of futures contracts this article presents a simple model of the innovation of new futures contracts by transaction volume maximizing futures exchanges in incomplete markets under uncertainty with mean variance preferences and proportional transactions costs we characterize the set of nash equilibria for a number of exchanges simultaneously or sequentially choosing contracts the optimal monopolistic contract design is shown to be pareto optimal an example shows the failure of pareto optimality for aparticularnash equilibrium likewise in a monopolistic multiperiod setting an example shows the failure of pareto optimality given an incentive for the exchange to induce turnover

recent trends in aggregate concentration in the united kingdom economy the extent to which large corporations dominate economic activity and the design of ap propriate policies towards them have been the subject of an extensive debate in the uk in recent years trends in concentration in manufacturing have played an important role in fuelling this debate recent studies however suggest that the unprecedented increases in overall or aggregate concentration in manufacturing which took place in the 1960s have not been repeated in the 1970s on the contrary concentration seems to have stabilised or fallen in the first half of the 1970s 1 in our view such estimates are not necessarily a good guide to the size and role of big business in the economy as a whole the discussion needs to be extended beyond the confines of manufacturing non manufacturing activity in the uk in the 1970s accounted for around 70 of gdp and over two thirds of employ ment 2 many of the largest uk companies including the oil companies the clearing banks and insurers and major retailers operate principally outside manufacturing and many of those within manufacturing have substantial non manufacturing interests as their consoli dated annual accounts reveal 3 mergers provide a more dramatic indication of this pattern in 1983 bat industries one of the ten largest industrial companies in the uk made a takeover bid for eagle star the sixth largest insurer whilst this may be an extreme example it is certainly the case that in the 1970s conglomerate mergers have generally become of far greater relative importance than they were in the 1960s 4 our object in this paper is therefore to provide recent estimates of aggregate concen tration which extend beyond manufacturing industry and cover the years 1968 82 this involves major problems because there are no official statistics to guide us we have there fore had to use a variety of published sources principally based on company accounts

how might china achieve its 2020 emissions target a scenario analysis of energy consumption and co2 emissions using the system dynamics model abstract according to the chinese government s co 2 reduction commitment the production and consumption of traditional and renewable energy in china from 2001 to 2012 this paper forecasts the energy consumption gross co 2 emissions and co 2 emission intensity in china from 2013 to 2020 via system dynamics simulation coupled with the energy system and renewable energy policy factors the effects of different economic growth rates and policy factors on the energy consumption were estimated the results showed that in different economic growth rates scenarios total energy consumption and co 2 emissions increased by 36 140 75 kwh and more than 10 000 billion kg in 10 gdp growth rate scenario than in the 7 scenario in 2020 the co 2 emission per gdp decreased by 52 in 2020 as compared to 2005 under the scenario of 10 gdp growth rate under different renewable energy policy factors scenarios the coal energy consumption decreased by 2 3 in scenario of 5 policy factor as compared to 1 policy factor scenario the co 2 emissions reduced by 3321 94 billion kg in 2020 under the scenario of 5 policy factor as compared to that in the scenario of 1 policy factor the co 2 emission per gdp reduced by 47 50 based on the 2005 level in different scenarios of renewable energy policies we found that with an increase in gdp total energy consumption and co 2 emissions increased in the base scenario higher economic growth rates led to an increase in energy consumption including both the traditional and renewable energy resources in stark contrast to total co 2 emission however co 2 emission intensity decreased with an increase in economic growth rate the renewable energy policy improved the renewable energy development reduced co 2 emissions and co 2 emission intensity it was more effective in energy saving and co 2 reduction than the high growth rate scenarios the results indicated that china is highly likely to achieve its co 2 emission reduction goal under different simulated scenarios besides the energy distribution was similar in different scenarios coal was the major energy source which amounted to more than 70 of the total energy consumption finally we conclude with important policy implications according to our simulations results

does foreign direct investment lead to lower co2 emissions evidence from a regional analysis in china abstract existing studies have been concerned with the relationship between foreign direct investment and co2 emissions in recent years however little attention has been paid to regional differences in china this paper investigates the impact of fdi on china s co2 emissions at the national and regional levels using provincial panel data from 1995 to 2010 the stochastic impacts by regression on population affluence and technology stirpat model was adopted the results suggest that fdi contributes to co2 emission reductions in china fdi s impact on co2 emissions decreases from the western region to the eastern and central regions our findings support the pollution halo hypothesis which claims that foreign firms can export greener technologies from developed to developing countries and conduct business in an environmentally friendly manner

a theory of mandatory convertibles abstract the objective of this paper is to develop a theoretical analysis of mandatory convertibles which are securities that automatically mandatorily convert to common stock on a pre specified date we consider a firm facing a financial market characterized by asymmetric information and significant costs in the event of financial distress the firm can raise capital either by issuing mandatory convertibles or by issuing more conventional securities like straight debt ordinary convertibles or equity we show that in equilibrium the firm issues straight debt or ordinary convertibles if the extent of asymmetric information facing it is large but the probability of being in financial distress is relatively small it issues mandatory convertibles if it faces a smaller extent of asymmetric information but a greater probability of financial distress our model provides a rationale for the three commonly observed features of mandatory convertibles mandatory conversion capped or limited capital appreciation and a higher dividend yield compared to common stock we also characterize the equilibrium design of mandatory convertibles

financial innovations and arbitrage pricing in economies with frictions revisited abstract existing literature points to the role of market frictions in providing motivations for financial innovations in this paper we study the effectiveness of the arbitrage pricing approach and the design and pricing of innovated securities in economies with restrictions on short sales in the process we also define the no arbitrage conditions that is appropriate for such economies the differences between our results and chen s 3 are pointed out when appropriate journal of economic literature classification numbers c61 g10 g12 g20

why there are organized futures markets i shall present an explanation of the existence of organized futures markets with more predictive power than the two prevailing rival views my explanation briefly is this an organized futures market facilitates trade among strangers one of the rival prevailing views is a defense of futures trading it asserts that an organized futures market furnishes legitimate businessmen with a means of hedging so that they can obtain insurance against price risk the other prevailing view is an attack on organized futures markets it asserts that such markets enable speculators to manipulate prices to the detriment of outsiders who are less well informed and to the detriment of legitimate businessmen such as farmers the attack on organized futures markets likens them to gambling casinos the defense sees them as a form of insurance neither the attack nor the defense is valid the correct explanation is closely related to why we conduct trade using money instead of by barter

the peak of co2 emissions in china a new approach using survival models abstract chinese government proposed the target that china s co2 emissions could peak by 2030 under this background this paper focused on when and how can china s co2 emissions reach peak by analyzing the survival data of 91 countries from 1960 to 2014 this paper adopted the survival models to explore the factors that could influence the timing of emissions peaking and predicted the conditional probability of realizing the peak of co2 emissions the empirical results indicated that the total factor productivity tfp plays a very important role with the average marginal effect of 0 012 and 0 066 for oecd organization for economic co operation and development and non oecd countries respectively it was estimated that china would peak in 2030 2028 and 2025 in three different scenarios with the probability of 50 the probability of peaking will increase to 98 in 2037 2034 and 2030 under the these scenarios these findings could help policy makers to reduce carbon emissions and achieve the co2 emissions target

the information in swedish short maturity forward rates in this paper we empirically study the relationship between implicit forward rates and corresponding interest rates in the short end of the swedish term structure the interest rates and forward ra

the role of financial innovation in raising capital evidence from deep discount debt offers abstract we investigate the market s reaction to original issue deep discount oid bonds which are issued at prices well below par and with coupons set below the market rate until july 1982 oid debt offered large tax advantages before that date stock price responses to announcements of oid debt are significantly positive in contrast to the negative albeit insignificant responses associated with par debt announcements no stock price gains are observed for oid debt issued after the tax advantages are removed we conclude that in 1981 82 opportunities provided by financial innovation offset the negative information effects typically associated with debt financing announcements

corporate issues of foreign currency exchange warrants a case study of financial innovation and risk management abstract we argue that hedging and risk management activities of modern corporations arise as a direct consequence of attempts to create shareholder wealth through financial innovation we formalize this argument by examining in detail corporate issues of foreign currency exchange warrants we then focus on one multiple issuer to demonstrate how the foreign exchange risk created by the sale of the warrants can be eliminated the use of off balance sheet risk management techniques to lock in the benefits of selling overpriced securities raises questions about the information content of innovative corporate financing decisions

age size growth and survival uk companies in the 1980s this paper examines growth and survival amongst quoted and unquoted u k companies in the period 1975 85 and compares the results with earlier u k and u s studies an examination of death rates shows that smaller companies had higher death rates but the largest and smallest companies were least vulnerable to takeover careful attention is therefore paid to problems of sample selection bias it is shown that smaller companies grew faster than larger companies that gibrat s law does not hold amongst smaller firms that age is negatively related to growth and that these results are not an artifact of sample selection bias copyright 1994 by blackwell publishing ltd

boom and bust patterns in the adoption of financial innovations we develop a dynamic model of the adoption of financial innovations each period firms decide whether or not to adopt an innovation of uncertain value and the profitability of each period s adoptions reveals information about the innovation s value we show that characteristics of financial innovation waves cited by critics as evidence of irrational excess are in fact consistent with fully rational behavior we also show that social welfare is enhanced when more firms adopt innovations of questionable value and that financial intermediaries base an incentive to encourage such adoption article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

market structure and inefficiency in the foreign exchange market abstract this paper investigates the intradaily operational efficiency of the us foreign exchange market by conducting computer simulation experiments with market structure the numbers of market makers brokers and customers the results indicate significant operational inefficiencies which can be explained by temporary inventory imbalances inherent in a decentralized market the results also suggest that much of this inefficiency could be alleviated through a centralization of price information jel f31 g15

the capitalization of interest subsidies evidence from sweden we analyze by far the most extensive database yet employed in estimating capitalization of below market interest rates into asset prices nearly 300 000 sales of owner occupied homes in sweden from 1981 to 1993 with 27 000 including government subsidized interest rates our estimates indicate very clearly that interest subsidies are capitalized into house prices the below market financing parameter is consistently significant in all model specifications irrespective of assumptions about the degree of foresight representation of the age structure and interest rate measure for all ten regions that we have studied in our favored model specification the estimated capitalization coefficients center on unity indicating full capitalization of after tax interest rate subsidies

household savings and debts the experience of the nordic countries the paper discusses the development of savings and household debt in the nordic countries during the last two decades the main conclusion is that the timing of political reforms in the 1980s and 1990s was fundamental for the development of consumption and household savings in general financial deregulation took place before tax reforms and lifting of foreign exchange controls the wrong timing of these reforms resulted in households accumulating high debt burdens which in turn led to a deep and longer recession or process of debt deflation than might otherwise have occurred copyright 1994 by oxford university press

the emergence and regulation of contingent commitment banking abstract in but a relatively few years banking has changed considerably now it is very much a business of making contingent promises or commitments and even just a decade ago it was not recognizing change is apparently easier though than accounting for it or than not worrying about it in this paper an attempt is made to account for the change from traditional to contingent commitment banking an attempt which must however be regarded as less than brilliantly successful and responding to the concern that has been expressed by among others federal reserve officials it is argued that even if banking keeps on changing until the last vestige of the traditional has disappeared the federal reserve need not in the end be less effective as the u s monetary authority than it is at present there is also a concern shared by some federal reserve officials that if change persists then unless bank regulatory policy is altered appropriately financial stability will be increasingly threatened that could be but as is argued in the paper it is far from obvious that more capital and or a risk adjusted capital requirement will make bank failures rarer than they otherwise would be

financial innovation the last twenty years and the next the word revolution is entirely appropriate for describing the changes in financial institu tions and instruments that have occurred in the past twenty years the major impulses to successful financial innovations have come from regulations and taxes the outlook for the future is for a slowing down of the rate of financial innovation but much growth and improvement are still in prospect

spain s fulfillment of its kyoto commitments and its fundamental greenhouse gas ghg emission reduction drivers abstract this paper has two main aims to offer an overview of spain s strategy for fulfilling its kyoto commitments and to analyze the main drivers that have influenced the recent trend in its greenhouse gas ghg emissions with special emphasis on the spanish power sector first the use of the kyoto flexibility mechanisms in spain and the role of the different subsectors of the country s economy in fulfilling the aforesaid commitment are explored focusing on the sectors affected by the european union emission trading scheme eu ets then based on the stochastic impacts by regression on population affluence and technology stirpat model and on the analysis of trends in spain s primary and final energy intensity ratios the main drivers in ghg emission trends are identified with a distinction being drawn between strategic and non strategic drivers the results show that the trend in the level of the economy is the main non strategic driver while increased penetration of renewable energies in the spanish power mix and improvements in final energy efficiency are the main new strategic drivers which explain the downward trend observed in ghg emissions from 2006 onwards however changes in legislation introduced in 2012 are negatively affecting the new renewable installed power generation capacity they seem to mean a step backward in the future spanish strategy to reduce or limit ghg emissions

a model for designing callable bonds and its solution using tabu search abstract we formulate the problem of designing callable bonds as a non linear global optimization problem the data of the model are obtained from simulations of holding period returns of a given bond design which are used to compute a certainty equivalent return viz some target assets the design specifications of the callable bond are then adjusted so that the certainty equivalent return is maximized the resulting problem is multi modal and a tabu search procedure implemented on a distributed network of workstations is used to optimize the bond design the model is compared with the classical portfolio immunization model and the tabu search solution technique is compared with simulated annealing for solving the global optimization program it is shown that the global optimization model yields higher returns than portfolio immunization it is also shown that tabu search is computationally more efficient than simulated annealing in solving the model and it produces better solutions

market power in a non monetarist inflation model for greece a post keynesian inflation model for greece is constructed and tested the model consists of three equations including a cost demand price equation for the gross domestic expenditure deflator cost demand functions have been occasionally estimated in the past the equation presented is a more systematic test since the effect of industry concentration is examined both theoretically and empirically a collective bargaining equation for the first time in greece was simultaneously estimated the role of public deficit was investigated and it was found that this exerts a moderate influence on inflation

strategy complexity and economic rent this paper discusses important friction forces that future theories of strategy must incorporate some of these are technological and environmental but the most important ones it is argued are psychological the view is developed that strategy at its core concerns the development and testing of heuristics for high stake decisions in environments too unstable and complex to be optimized the paper especially highlights the behavioral dimension in the belief that strategies should incorporate both the rational and suboptimal aspects of human behavior the rational approach is in many ways the easier as there may be only one way to be right yet the great variety in which people and companies can err gives strategy its creative and real world challenge the tension between the rational and behavioral components is what the field of strategy should seek to exploit

does financial deregulation cause a consumption boom according to a growing number of critics the process of financial liberalisation in the 1980s is to blame for the volatile macroeconomic development in a number of countries including the u k and the nordic economies we examine how financial deregulation affected one important component of aggregate demand private consumption a main finding is that the swedish consumption boom of the late 1980s can be explained along other lines than financial deregulation the mid 1980s also constituted a period when real wage growth picked up and our data are consistent with the simple idea that permanent income dynamics was an important factor

unemployment in open economies the impact of trade finance and european integration this article compares variations in the level of unemployment in four small open economies austria belgium the netherlands and sweden rather than focusing on the political institutional differences between these four countries the article examines international economic variables such as the role of the european monetary system the structure of foreign trade and linkages to international markets to understand the greater deterioration of employment in belgium and the netherlands in turn the decision to join the european community and to seek firmer integration into financial markets is attributed to the relatively greater influence of banking capital or the financial sector in the systems of economic policy making of belgium and the netherlands the article concludes that the detachment of the austrian and swedish economies from the european experience in economic integration has greatly helped the social democrats in these countries in fulfilling their promises of full employment

the impact of urbanization on co2 emissions evidence from developing countries abstract this paper analyzes the impact of urbanization on co2 emissions in developing countries from 1975 to 2003 it contributes to the existing literature by examining the effect of urbanization taking into account dynamics and the presence of heterogeneity in the sample of countries the results show an inverted u shaped relationship between urbanization and co2 emissions indeed the elasticity emission urbanization is positive for low urbanization levels which is in accordance with the higher environmental impact observed in less developed regions among our contributions is the estimation of a semi parametric mixture model that allows for unknown distributional shapes and endogenously classifies countries into homogeneous groups three groups of countries are identified for which urbanization s impact differs considerably for two of the groups a threshold level is identified beyond which the emission urbanization elasticity is negative and further increases in the urbanization rate do not contribute to higher emissions however for the third group only population and affluence but not urbanization contribute to explain emissions the differential impact of urbanization on co2 emissions should therefore be taken into account in future discussions of climate change policies

social housing finance in sweden sweden historically had a highly subsidised housing construction and rehabilitation subsidies were mainly channelled through an interest subsidy system which reduced initial capital expenditures a boom in the housing market in the late 1980s turned into a bust in the early 1990s this was due to a combination of factors a lower inflation rate a deep economic recession and reduced interest subsidies in combination with a tax reform the effect was to create a large price fall vacancies a low construction rate and large defaults the bank crisis was counteracted by a tighter credit market with a more thorough screening of borrowers municipal housing companies lost their protected position on the credit market in the early 1990s many of the companies were severely hurt by an increasing number of vacancies and had an insufficient safeguard in terms of a low equity it is thus anticipated that municipal housing companies will be an important target for bank screening in the future and it is antic

residential electricity demand in taiwan this paper examines the residential demand for electricity in taiwan as a function of household disposable income population growth the price of electricity and the degree of urbanization short and long term effects are separated through the use of an error correction model in the long run the income elasticity is unit elastic the own price effect is negative and inelastic in an error correction framework the short run income and price effects are small and less than the long run effects cooling degree day effects have a positive impact on short run consumption we have used a proxy variable urbanization to capture economic development characteristics and changes in electricity using capital stocks not explained by income the variable provides significant explanatory power to the model both in the short and long run we interpret it as controlling for economic development factors not captured by the pure income effect and we think it holds promise for explaining residential electricity consumption in other developing countries

is the environmental kuznets curve hypothesis a sound basis for environmental policy in africa achieving economic development and environmental sustainability simultaneously is one of the most important development challenges for africa today the relationship between economic growth and environmental sustainability is founded on the environmental kuznets curve ekc this paper examines the validity of the hypothesis and the driving factors of carbon dioxide co2 emission in five african countries using the stirpat empirical model panel cointegration and fully modified ordinary least squares unlike previous studies economic development is disaggregated into agriculture and industrial economic development the results show that there is no evidence of the validity of the hypothesis in africa regardless of whether economic development is driven by agriculture or industrialisation energy structure and energy intensity are the two major driving forces of co2 emissions in africa population growth and urbanisation have negative relationship with co2 emissions from our results the ekc is not a sound basis for environmental policy in africa rather environmental policy in africa specifically for co2 emissions mitigation should focus on encouraging energy efficiency enhancing the use of clean energy incorporating the impact of population growth and harnessing the positive impacts of urbanisation

the role of liquidity in futures market innovations i characterize the optimal design of a new futures market an innovation by an exchange in the presence of market frictions futures markets am characterized by both the contract and the level of trader participation both can be determined by an exchange a game in which exchanges simultaneously design markets is c onsidered and a particular equilibrium not necessarily unique is constructed a game in which exchanges sequentially design markets and incur design costs is also considered and the generically unique equilibrium is constructed the nature of equilibrium with multiple exchanges is discussed in these simultaneous and sequential settings illustrating the role played by liquidity considerations both in market design and in the nature of competition between exchanges

consumption and capital market imperfections an international comparison the excess sensitivity of consumption to current income fluctuations is higher in countries where consumers borrow less low levels of consumer debt can result either from capital market imperfections or from a low demand for loans the evidence suggests that the former view is more appropriate than the latter and thus supports the hypothesis that excess sensitivity may be attributed to liquidity constraints rather than to other factors copyright 1989 by american economic association

collateral motivated financial innovation collateral frictions have a profound effect on our economic landscape ranging from the design of financial securities laws and institutions to various rules and regulations we analyze a model with disagreement where securities and collateral requirements are endogenous it shows that the security that isolates the variable with disagreement is optimal in the sense that alternative securities cannot generate any trading in an economy with n states investors may introduce more than n securities and markets are still incomplete the model has several novel predictions on the behavior of basis the spread between the prices of an asset and its replicating portfolio

optimal patenting and licensing of financial innovations recent court decisions starting with the state street decision in 1998 allow business methods to be patentable and now give financial institutions the option to seek patent protection for financial innovations this new patentability paradigm and the heterogeneity of characteristics associated with financial innovations pose an immediate decision problem for senior management what to patent we present a parsimonious decision framework that answers this question we show that for innovations with certain characteristics it is optimal not to patent even if the option of patenting and licensing is available our model emphasizes the role of embedded real options that arise from certain types of financial innovations the model provides an explanation of observed patenting behavior of financial institutions and the success of a wide class of innovations including swaps credit derivatives and pricing algorithms