overreaction and underreaction in analysts forecasts abstract we examine hypotheses derived from behavioral decision theory regarding conditions that lead to overreaction and conditions that lead to underreaction in analysts earnings forecasts we argue that three heuristics jointly influence earnings forecasts leniency representativeness and anchoring and adjustment we present a model for the concurrent influence of these heuristics on forecast errors and examine three predictions of this model 1 that there is a tendency towards overreaction in forecast changes and underreaction in forecast revisions 2 that there is overreaction to positive forecast modifications and underreaction to negative forecast modifications and 3 that these biases increase with the forecast horizon

estimating the social cost of pesticide use an assessment from acute poisoning in brazil abstract the intensive use of pesticides in countries like brazil has ignored structural and institutional shortfalls such as the lack of workforce training for the new difficult to implement technologies and the institutional vulnerability of the environmental protection health and safety sectors as a result we have invisible or social environmental and health costs which end up being socialised with the farmer in general having no incentives to recognise and internalise them this study is intended to review and develop this problem in the light of the brazilian reality to this end we make use of an empirical exercise to illustrate estimation of the social cost associated with acute poisoning by pesticide using the prevs ibge data harvest forecast research in the state of parana brazil the results suggest that for maize the costs of acute poisoning could represent 64 of the benefits of using herbicides and insecticides and in the best of hypotheses when some risk factors are eliminated they may reach 8 of the benefits of the use of these products similarly when we examine future scenarios for five and ten years we find less encouraging results as in ten years the costs of acute poisoning could reach around 85 of the benefit of using insecticides and herbicides for maize however there is the encouraging news that if preventive measures were taken during this time the gains would be considerable about 6 5 times greater we conclude that an assessment of the real benefits involved with pesticides in brazil is required principally in regard to the smallholder where farmers need more training in the use or even the elimination of these hazardous substances there are sustainable technological options available which are economically efficient especially if we consider the social environmental and health costs in this context it is worth highlighting the role of regulatory measures as a mechanism which can reorient generation of negative external costs through the reduction of current incentives in the socialisation of private costs

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

the emergence of market monitoring in japanese banks evidence from the subordinated debt market abstract this paper uses a unique data set on the spreads of subordinated debts issued by japanese banks to investigate the presence of market monitoring the results show that subordinated debt investors punished weak banks by requiring higher interest rates moreover i find that the spreads and the sensitivity of spreads to moody s bank ratings both increased dramatically after the japanese government allowed a large city bank hokkaido takushoku bank to fail and passed the financial reform act and the rapid revitalization act in the late 1990s these results suggest that the decline of conjectural guarantee led to the emergence of market monitoring in addition i find the relationship between spreads and accounting measures of bank risk to be quite fragile

testing bayesian updating with the associated press top 25 most studies of bayesian updating use experimental data this article uses a non experimental data source the voter ballots of the associated press college football poll a weekly subjective ranking of the top 25 teams to test bayes rule as a descriptive model i find that voters sometimes underreact to new information sometimes overreact and at other times their behavior is consistent with estimated bayesian updating a unifying explanation for the disparate results is that voters are more responsive to information that is more salient i e noticeable in particular voters respond in a more bayesian way to losses and wins over ranked teams as compared to wins over unranked teams and voters seem unaware of subtle variation in the precision of priors jel d80 d83 d84

transmission of the financial and sovereign debt crises to the emu stock prices cds spreads and exchange rates abstract this paper tests for the transmission of the 2007 2010 financial and sovereign debt crises to fifteen emu countries we use daily data from 2003 to 2010 on country financial and non financial stock market indexes to analyze the stock market returns for three country groups within emu north south and small the following results hold for both the north and south european countries while the smallest countries seem to be relatively isolated from international events first we find strong evidence of crisis transmission to european non financials from us non financials but not for financials second in order to test how the sovereign debt crisis affects stock market developments we split the crisis in pre and post lehman sub periods results show that financials become significantly more dependent on changes in the difference between the greek and german cds spreads after lehman s collapse compared to the pre lehman sub period however this increase is much smaller for non financials third before the crisis euro appreciations coincide with european stock market decreases whereas this relationship reverses during the crisis finally this reversal seems to be triggered by lehman s collapse

rolling sampled parameters of arch and levy stable models in this paper an asymmetric autoregressive conditional heteroskedasticity arch model and a levy stable distribution are applied to some well known financial indices dax30 ftse20 ftse100 and sp500 using a rolling sample of constant size in order to investigate whether the values of the estimated parameters of the models change over time although there are changes in the estimated parameters reflecting that structural properties and trading behaviour alter over time the arch model adequately forecasts the one day ahead volatility a simulation study is run to investigate whether the time variant attitude holds in the case of a generated arch data process revealing that even in that case the rolling sampled parameters are time varying

money market integration we use transaction level data and detailed modeling of the high frequency behavior of federal funds eurodollar spreads to provide evidence of strong integration of the u s markets for federal funds and eurodollars the two core components of the dollar money market our evidence of negligible federal funds eurodollar premia contrasts with previous findings of large and predictable premia which have been interpreted as evidence of segmentation between the markets for federal funds and eurodollars our results however are consistent with possible persistent segmentation within the global eurodollar market we document several patterns in the behavior of federal funds eurodollar spreads including liquidity effects from trading volume to yield spreads volatility

the statistical properties of daily foreign exchange rates 1974 1983 abstract this paper examines the statistical properties of daily rates of change of five foreign currencies from 1974 to 1983 the main purpose is to discriminate between two competing explanations for the observed heavy tails of the distribution that the data are independently drawn from a heavy tail distribution which remains fixed over time and that the data come from distributions which vary over time evidence point to the rejection of the first hypothesis further investigations show that the rejection can be attributed to changing means and variances in the data which can be described by a simple statistical model

a broadened causality in variance approach to assess the risk dynamics between crude oil prices and the jordanian stock market within the new developed causality in variance approach this paper builds up a broad methodological framework to more accurately capture the risk spillover effects between global oil prices and jordanian stock market returns during the period 1 march 2003 31 january 2014 the sample period is divided on the basis of the 2008 financial crisis into pre crisis and post crisis periods results for the pre crisis period show a lack of risk spillovers between global oil and the jordanian stock market after the crisis however we find evidence for one way risk spillover running from the oil market these findings have implications for the design of appropriate asset allocation and regulatory policies to manage risk spillover effects

sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate a garch m model abstract the objective of this paper is to employ the generalized autoregressive conditionally heteroskedastic in the mean garch m methodology to investigate the effect of interest rate and its volatility on the bank stock return generation process this framework discards the restrictive assumptions of linearity independence and constant conditional variance in modeling bank stock returns the model presented here allows for shifts in the volatility equation in response to the changes in monetary policy regime in 1979 and 1982 to be estimated arch garch and volatility feed back effects are found to be significant interest rate and interest rate volatility are found to directly impact the first and the second moments of the bank stock returns distribution respectively the latter also affects the risk premia indirectly the degree of persistence in shocks is substantial for all the three bank portfolios and sensitive to the nature of the bank portfolio and the prevailing monetary policy regime

dynamic relations between international equity and currency markets the role of currency order flow previous research on the dynamic linkages between international financial markets focused on bivariate interequity or intercurrency relationships and do not allow a specific role for the currency or equity market respectively in this paper we hypothesize that there are important yet not well understood dynamic relationships between international equity and currency markets and these are driven by information spillover via the mechanism of currency order flow using a trivariate asymmetric garch framework we find that the relationships between equity and currency markets are significant bidirectional and pervasive these relationships which coexist with the relationships between u s and foreign equity markets are much stronger in the volatilities than in the means importantly we find strong support for our information spillover hypothesis where currency order flow is the economic mechanism by which information is transmitted

the international transmission of financial shocks the case of japan one of the more dramatic financial events of the late 1980s and early 1990s was the surge in japanese stock prices that was immediately followed by a very sharp decline of more than 50 percent while the unprecedented fluctuations in japanese stock prices were domestic financial shocks the unique institutional characteristics of the japanese economy produce a framework that is particularly suited to the transmission of such shocks to other countries through the behavior of the japanese banking system the large size of japanese bank lending operations in the united states enables us to use u s banking data to investigate the extent to which this domestic japanese financial shock was transmitted to the united states as well as to identify a supply shock to u s bank lending that is independent of u s loan demand we find that binding risk based capital requirements associated with the decline in the japanese stock market resulted in a decline in commercial lending by japanese banks in the united states that was both economically and statistically significant this finding has added importance given the severe real estate loan problems currently faced by japanese banks how japanese bank regulators decide to resolve these problems will have significant implications for credit availability in the united states as well as in other countries with a significant japanese bank presence

market discipline and deposit insurance reform in japan abstract on april 1 2002 the japanese government lifted a blanket guarantee of all deposits and began limiting the coverage of time deposits this paper uses this deposit insurance reform as a natural experiment to investigate the relationship between deposit insurance coverage and market discipline i find that the reform raised the sensitivity of interest rates on deposits and that of deposit quantity to default risk in addition the interest rate differentials between partially insured large time deposits and fully insured ordinary deposits increased for risky banks these results suggest that the deposit insurance reform enhanced market discipline in japan i also find however that too big to fail tbtf policy became a more important determinant of interest rates and deposit allocation after the reform thereby partially offsetting the positive effects of the deposit insurance reform on overall market discipline

the threshold effect in expected volatility a model based on asymmetric information this article develops theoretical insight into the threshold effect in expected volatility which means that large shocks are less persistent in volatility than small shocks the model uses the kyle admati pfleiderer setup with liquidity traders informed traders and a market maker information is modeled as a garch process it is shown that the garch process for information is transformed into a tarch process for threshold garch for the market price changes working with information flows allows one to derive implications for trading volume and market liquidity which provide the basis for a more complete test of the model article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

municipal bond pricing and the new york city fiscal crisis this paper s findings suggests that the new york city fiscal crisis by itself did not lead to a fundamental change in risk perceptions of investors resulting in higher interest rates in the municipal bond market the monthly prediction errors generated by time series tests were relatively small and none were statistically significant only the signs on the prediction errors for june july and august were consistent with a new york city effect thus if the new york city default had an impact on aggregate interest rates it was at most small and of short duration a great deal of controversy has arisen in recent years over the impact of the new york city default upon the municipal bond market during 1975 municipal borrowing costs rose to historically high levels with most issues carrying their highest interest cost during the summer of 1975 it was during this period that new york city experienced the worst of its 15 year history of financial problems while most observers argue that the problems of new york city represent a special case of fiscal mismanagement many conclude that the high market rates of interest in the municipal bond market were caused by the new york city default research by forbes and peterson 3 and gramlich 5 supports the latter contention in addition others contend that the impact of the default was not just temporary but was felt long after 1975 8 these contentions if true have significant policy implications not only do they suggest that all municipalities suffered immediate as well as long term higher interest cost due to the fiscal irresponsibility of new york city but they are important arguments for the provision of federal aid to prevent the failures of other large municipalities or corporate entities 1 the purpose of this paper is to examine whether the new york city default by itself caused risk perceptions of investors to change resulting in higher interest rates to other municipal borrowers the hypothesis is tested by applying a random coefficients model to aggregate time series interest rate data the major finding of the study is that there is little evidence consistent with the hypothesis that the new york city crisis had a fundamental or long lasting impact on municipal borrowing costs this paper is organized as follows section i describes how the new york city fiscal crisis may have raised municipal borrowing costs

taxes default risk and yield spreads this paper develops a model of bond prices and yield spreads that incorporates the effect of both taxes and differences in default probabilities the tax loss consequences of default are recognized traditionally tax free municipal bond yields have been viewed as linearly related to taxable yields with a slope coefficient equal to one minus the tax rate and the intercept representing differences in default risk while our model supports the linearity assumption it implies that the slope and intercept are both functions of both the break even tax rate and the default probability ies clientele effects among both municipal and taxable bonds are demonstrated finally the implied marginal tax rates and the implied default probabilities are estimated for different categories of municipal bonds students of financial markets cannot help but be impressed by the number of new financial instruments that have been introduced successfully in recent years the fixed income market has been particularly innovative as bonds carrying a whole host of specific features have been successfully marketed bonds with small or zero coupons variable coupon rates or detachable warrants are three examples from among an expanding list of such features not surprisingly there has developed a large and expanding literature attempting to explain the rate spreads between different fixed income securities this literature has evolved much as one would expect early empirical work was in general not well founded in theory and was not based on an underlying expected return price model later empirical research has tended to be more careful in its specification of factors affecting yield spreads and as a consequence better founded in valuation

credit derivatives premium as a new japan premium at the height of the japanese banking crisis of 199798 a popular indicator of weakness was the so called japan premium that is the premium in the interest rate charged to japanese banks in the interbank market the internationally active japanese banks had to pay a premium in borrowing us dollars and to a much lesser extent japanese yen from western banks the japan premium was considered to reflect western banks skepticism on opaque accounting and supervision ihe japan premium disappeared after the second capital injection to major banks in march 1999 l by the end of 2001 the vulnerability of japanese banks became obvious due to low earnings newly emerged nonperforming loans and deflation the core capital tier i capital was depleted and was supplemented only by deferred tax credit which has no liquidation value however it was noted by banking experts and researchers that the japan premium did not reappear it was a puzzle why the premium was not demanded this time the focus of this letter is to explain why the japan premium apparently disappeared and to report on an alternative indicator for japanese bank vulnerability that would replace the japan premium we will assert that the japan premium the

segmentation and time of day patterns in foreign exchange markets abstract this paper sheds light on a puzzling pattern in spot foreign exchange markets domestic currencies appreciate depreciate systematically during foreign domestic working hours this phenomenon spans many years and several exchange rates and overrides calendar effects we argue that it is mainly due to liquidity and inventory patterns that emerge from the combination of two factors domestic agents tend to be net buyers of foreign currency and to trade mostly in their country s working hours the prevalence of domestic foreign traders demanding the counterpart currency during domestic foreign working hours implies sell price buy price pressure on the domestic currency during domestic foreign working hours

valuing environmental and health risk in agriculture a choice experiment approach to pesticides in italy abstract the widespread use of pesticides in agriculture shows a complex ramification of multiple negative externalities ranging from food safety related effects to the deterioration of farmland ecosystems recent research has demonstrated that the assessment of the economic implications of such negative processes is fraught with many uncertainties this paper presents the results of an empirical study recently conducted in northern italy aimed at estimating the economic value of reducing the wide ranging impacts of pesticide use by deploying a choice experiment approach the experimental design provides a meaningful tool to assign monetary values to the negative environmental effects associated with agrochemicals use in this connection the paper addresses in particular the reduction of farmland biodiversity groundwater contamination and harm to human health the resulting estimates confirm that on average respondents demonstrate a substantial willingness to pay a premium for agricultural goods in particular foodstuffs produced in environmentally benign ways

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 impact of the new york city fiscal crisis on the interest cost of new issue municipal bonds the default of a major corporation or municipality generates debate over the impact these failures have on the borrowing cost of other issuers theory suggests that in efficient markets individual failures by themselves should not increase the level of interest rates in a market unless the default provides unanticipated information about other issuers the default of new york city in the summer of 1975 was believed by many to have provided information that increased the perceived risk of investors and consequently increased new issue borrowing costs in the municipal bond market empirical research by forbes and peterson 2 and gramlich 3 supports this contention reporting that borrowers paid as much as 119 basis points more because of the new york city crisis a study by hoffland 6 suggests that the impact of the default was not just temporary but was felt long after 1975 though less scientific others note that during 1975 municipal borrowing costs rose to record high levels with most issues carrying their interest cost during the summer of 1975

the global configuration of a speculative trading operation an empirical study of foreign exchange trading this paper proposes a theory of firm boundaries based on fore knowledge development and exploitation in speculative or informed trading foreign exchange trading provides this study s empirical context from research on information economics we suggest optimal speculative trading operations are multiunit and globally dispersed alternatively transaction cost economics suggests atomistic actors prevail in the market for fungible commodities like currencies we also develop competing hypotheses about information technology s effects on foreign exchange trading operations speculation arguments predict that the global scope of trading operations will expand after the introduction of generic information technologies transaction cost economics proposes that when atomistic actors do not prevail trading operations will contract after this introduction we test competing predictions with models of the expansion contraction and net change in a firm s global dispersion we estimate these models with data from the population of banks worldwide engaged in interbank foreign exchange currency fx trading from 1974 to 1993 our results uncover two types of firms those that approach the atomistic actor of transaction cost economics and those that resemble the globally dispersed multiunit configuration from our speculation discussion these results encourage reflection on how the theory of the firm differs when firms trade to produce versus speculate

market specific and currency specific risk during the global financial crisis evidence from the interbank markets in tokyo and london abstract this paper investigates how international money markets reflected credit and liquidity risk during the global financial crisis after matching the currency denomination we examine how the tokyo interbank offered rate tibor was synchronized with the london interbank offered rate libor we find remarkably asymmetric responses in market specific and currency specific risk during the crisis the regression results suggest that market specific credit risk increased the difference across markets whereas liquidity risk caused the difference across currency denominations they also support the view that liquidity shortage of the us dollar occurred in international money markets during the crisis coordinated central bank liquidity provisions were useful in reducing the liquidity shortage of the us dollar but their effectiveness was asymmetric across markets

earnings expectations revisions and realizations during the spring and the fall of 1993 respondents to a national household survey were asked to report expectations of spring 1994 weekly earnings elicited in the form of subjective probabilities these data are potentially much more informative than are typical reports of economic expectations subjective probability distributions of future weekly earnings are estimated for each respondent based on his or her reports of a series of subjective probabilities this paper analyzes the cross sectional variation in expectations revisions of expectations between the spring and the fall of 1993 and the relationship between 1993 expectations and the distribution of spring 1994 earnings realizations generally positive findings on the validity of the data bode well for the prospects of eliciting expectations in future surveys

the new york city fiscal crisis what happened and what is to be done the new york city fiscal crisis as it was played out in the nation s newspapers this year had all the elements of a first class drama there was first of all the tension would the city make it through its periodic financial hurdles would the ford administration blink what would happen if the city defaulted then there were the accusations was it the fault of wagner lindsay beame rockefeller ford the unions or economic and social forces beyond the city s control then the controversy the issue seemed ideally suited to split deficit spenders from budget balancers soft headed liberals from hardheaded accountants eastern establishment intellectuals from the silent majority finally though it did not capture as much press coverage the crisis also graphically illustrated several basic issues in the economics of federalism that are now creeping into public finance textbooks the proper role of local and national governments in stabilizing the economy and redistributing income whether the federal or the state government has an obligation to protect the financial integrity of local governments whether public expenditures can be effectively controlled in the short run this paper discusses the city s fiscal plight in the context of all of these issues i how big are the deficits

state restrictions on local debt their role in preventing default abstract default by a local government can impose a negative externality upon other localities within a state because the state s ability to enforce debt repayment depends upon the proportion of municipalities favoring repayment localities benefit from maintaining their state s reputation for enforcement hence jurisdictions not wishing to default favor enforcement of repayment by other jurisdictions a debt limit increases support for enforcement by reducing the proportion of municipalities preferring default we characterize when such a limit is optimal we also examine the role of special districts which typically neither are subject to a debt ceiling nor fully backed by the jurisdiction

arch models properties estimation and testing abstract the aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity arch model since its inception in a seminal paper by engle 1982 this model takes account of many observed properties of asset prices and therefore various interpretations can be attributed to it we start with the basic arch models and discuss their different interpretations arch models have been generalized in different directions to accommodate more and more features of the real world we provide a comprehensive treatment of many of the extensions of the original arch model next we discuss estimation and testing for arch models and note that these models lead to some interesting and unique problems there have been numerous applications and we mention some of these as we present different models the paper includes a glossary of the acronyms for the models we describe

municipal debt and marginal tax rates is there a tax premium in asset prices we study the marginal tax rate incorporated into short term municipal rates using municipal swap market data using an affine model we identify the marginal tax rate and the credit liquidity spread in 1 week tax exempt rates as well as their associated risk premia the marginal tax rate averages 38 0 and is related to stock bond and commodity returns the tax risk premium is negative consistent with the strong countercyclical nature of after tax fixed income cash flows these results demonstrate that tax risk is a systematic asset pricing factor and help resolve the muni bond puzzle

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

an assessment of path dependence in collective decisions evidence from football polls while the topic of path dependence has reappeared in some macroeconomic circles the existence of path dependence of voting outcomes is still more a matter of speculation than of evidence in spite of its importance to arrow s impossibility theorem this analysis considers the empirical relevance of path dependence drawing data from associated press college football polls in major college football the primary measure of success is a team s year end ranking by sports writers and or coaches ostensibly based on performance this article examines the degree to which the year end orderings for teams r ik are influenced by initial pre season rankings ri 1 and mid season rankings rim using these top 20 votes for 1980 1989 while accounting for various measures of team performance in addition to ols estimates cumulative logit models clm and censored logistic regression clr are used to deal with ordinality and sample problems the results in section iii indicate a relationship between pre and p

the resiliency of the high yield bond market the ltv default this paper investigates the resiliency of the new issue high yield bond market by examining the changes in implied default rates of such bonds before and after the largest high yield bond default i e the ltv bankruptcy specifically the paper compares implied default probabilities of high yield bonds during the post ltv period calculated from actual new issue yields with instrumental default probabilities calculated on the assumption that the default had not occurred a comparison of these probabilities reveals that the market s perception of default on the hjgh risk segment of the bond market increased significantly after the ltv bankruptcy however the effect was transitory lasting only six months thus the market was resilient to a major default in recent years high yield debt has become a significant segment of the corporate bond market the main source of the growth has come from new issues of high yield corporate bonds rather than an increase in fallen angels 1 the driving force behind this new breed of high yield debt growth has been its use as a means to tap the capital markets to finance increasingly common leveraged buyouts hostile takeovers and major corporate restructurings the market acceptance of high yield bonds was further enhanced by empirical evidence that net returns on a diversified portfolio of low grade bonds exceeded those on highgrade bonds while the volatility of their monthly returns was no greater 2 the frenzied pace of growth in the high yield debt market however has been accompanied by increasing concerns from various quarters 3 critics have char

political influence and declarations of bank insolvency in japan this paper investigates how politics affects bank supervision by examining determinants of bank failures in japan during 1999 2002 a period during which bank regulators were called upon to resolve insolvent banks in preparation for the lifting of a blanket deposit guarantee the empirical results suggest that japan s bank regulators had tendency to delay declarations of insolvency in prefectures that supported senior politicians of the ruling liberal democratic party ldp this result which is robust to a host of bank level and prefecture level controls suggests that bank supervision is prone to political influence that delays efficient resolution of insolvency

long swings in exchange rates are they really in the data several authors have reported evidence of long swings in u s dollar exchange rates by rejecting the random walk in favor of a markov regime switching model we show that this evidence is not robust to an extension of the sample period one should however not conclude that long swings are thus absent because the tests may have insufficient power a possible reason for this is the low data frequency because existing tests are based on quarterly data and we find that the power can be increased substantially by raising the data frequency indeed weekly data reject the random walk so we conclude that long swings are in the data this conclusion is supported by significant superiority of regime switching over random walk out of sample forecasts of the direction of change

econometric tests of american college football s conventional wisdom college football fans coaches and observers have adopted a set of beliefs about how college football poll voters behave i document three pieces of conventional wisdom in college football regarding the timing of wins and losses the value of playing strong opponents and the value of winning by wide margins using a unique data set with 25 years of associated press ap poll results i use a hedonic regression to test college football s conventional wisdom in particular i test 1 whether it is better to lose early or late in the season 2 whether teams benefit from playing stronger opponents and 3 whether teams are rewarded for winning by large margins contrary to conventional wisdom i find that 1 it is better to lose later in the season than earlier 2 ap voters do not pay attention to the strength of a defeated opponent and 3 the benefit of winning by a large margin is negligible i conclude by noting how these results inform debates about a potential playoff in college football

market interactions in returns and volatilities between spot and forward shipping freight markets abstract the lead lag relationship in both returns and volatilities between spot and futures markets has been investigated extensively in the financial economics literature only a limited number of such studies have appeared on forward markets primarily due to the lack of easy access to empirical data this paper uses a unique database in over the counter forward freight agreements ffa to investigate the issue the underlying commodity is non storable being that of a shipping service with the additional feature of transactions costs being higher in the spot market in comparison to the forward market these features have interesting implications for the markets at the practical level the better understanding of the mean and variance dynamics can improve risk management and budget planning decisions

measuring network systemic risk contributions a leave one out approach abstract the aim of this paper is to propose a new network measure of systemic risk contributions that combines the pair wise granger causality approach with the leave one out concept this measure is based on a conditional granger causality test and consists of measuring how far the proportion of statistically significant connections in the system breaks down when a given financial institution is excluded we analyse the performance of our measure of systemic risk by considering a sample of the largest banks worldwide over the 2003 2018 period we obtain three important results first we show that our measure is able to identify a large number of banks classified as global systemically important banks g sibs by the financial stability board fsb second we find that our measure is a robust and statistically significant early warning indicator of downside returns during the last financial crisis finally we investigate the potential determinants of our measure of systemic risk and find similar results to the existing literature in particular our empirical results suggest that the size and the business model of banks are significant drivers of systemic risk

meteor showers or heat waves heteroskedastic intra daily volatility in the foreign exchange market this paper seeks to explain the causes of volatility clustering in exchange rates careful examination of intra daily exchange rates provides a test of two hypotheses heat waves and meteor showers the heat wave hypothesis is that the volatility has only country specific autocorrelation alternatively the meteor shower is a phenomenon of intra daily volatility spillovers from one market to the next using the garch model to specify the heteroskedasticity across intra daily market segments we find that the empirical evidence is generally against the null hypothesis of the heat wave using a volatility type of vector autoregression we examine the impact of news in one market on the time path of per hour volatility in other markets

pesticides productivity and farmer health a philippine case study health is recognized as one of the most important components of the human capital of rural people in developing countries there is a growing body of literature showing the productivity effects of health associated with nutrition e g bliss and stern 1978 strauss 1986 deolalikar 1988 pitt rosenzweig and hassan 1990 in this literature the productivity effects of health are inferred either by correlating health indicators with wages or by including health indicators in an agricultural production function the human capital literature also has demonstrated that farmer education plays an important role in the allocative and technical efficiency of farmers welch 1970 schultz 1975

unnatural selection perverse incentives and the misallocation of credit in japan we examine the misallocation of credit in japan associated with the perverse incentives faced by banks to provide additional credit to the weakest firms firms are more likely to receive additional bank credit if they arein poor financial condition because troubled japanese banks have an incentive to allocate credit to severely impaired borrowers in order to avoid the realization of losses on their own balance sheets this evergreening behavior is more prevalent among banks that have reported capital ratios close to the required minimum and is compounded by the incentives arising from extensive corporate affiliations

does the japanese stock market price bank risk evidence from financial firm failures the ability of the japanese stock market to appropriately price the riskiness of japanese financial firms has been frequently questioned particularly in light of japan s widespread financial distress in recent years and poor disclosure requirements this paper examines the response in equity returns of japanese banks to the failure of four commercial banks and two securities firms between 1995 and 1998 using event study methodology the analysis finds that share prices of surviving banks on the whole responded unfavorably to the failures and that financially weaker survivors were more adversely affected this suggests that despite the distress and alleged opaqueness bank shareholders were able to use available indicators of financial condition both to incorporate new information quickly into stock prices and to differentiate among banks

volatility spillovers and cross hedging between gold oil and equities evidence from the gulf cooperation council countries the paper examines the return and volatility spillovers between crude oil gold and equities and investigates the usefulness of the two commodities in hedging equity portfolios using daily data from january 20043 to may 2016 for the gulf cooperation council countries a dcc garch model is used to estimate dynamic correlations and hedge ratios we find significant spillovers from oil to equities highlighting the heavy dependence of the local economies on oil moreover the spillovers of gold on the stock markets are insignificant suggesting that gold price fluctuations do not necessarily influence equity investment decisions in the opposite direction we find that equities do not exert significant influence on the two commodities which we attribute to the relatively small capitalisation of the exchanges our results reveal low dynamic correlations and hedge ratios with a few spikes during crises indicating that oil and gold are cheap hedges for stocks albeit not good ones while they could be considered as weak safe havens but at a considerable cost

from turmoil to crisis dislocations in the fx swap market before and after the failure of lehman brothers abstract this paper investigates dislocations in the foreign exchange fx swap market between the us dollar and three major european currencies after the failure of lehman brothers in september 2008 deviations from covered interest parity cip were negatively associated with the creditworthiness of us financial institutions as well as that of european institutions consistent with the deepening of a dollar liquidity problem into a global phenomenon us dollar term funding auctions by the ecb snb and boe as well as the us federal reserve commitment to provide unlimited dollar swap lines are found to have ameliorated the fx swap market dislocations

a yen is not a yen tibor libor and the determinants of the japan premium pricing in the euroyen market is based on libor the london interbank offered rate set at 11 00am london time or tibor the tokyo interbank offered rate set at 11 00am tokyo time the changing tibor libor spread reflects the credit risk associated with japanese banks or the japan premium the spread is modeled as a function of determinants of bank default and firm value systematic variation in the spread can be explained by interest rate and stock price effects along with public information flows of good and bad news regarding japanese banking with a separate role for bank credit downgrades and upgrades

determinants of the japan premium actions speak louder than words abstract since august 1995 japanese banks have had to pay a premium on eurodollar and euroyen interbank loans relative to their u s and u k competitors this so called japan premium provides a market indicator of investor anxiety about the ability of japanese banks to repay loans we examine the determinants of the japan premium and find that government announcements not associated with concrete actions had little impact on the other hand announcements of concrete actions by the japanese government such as injections of funds into the banking system tended to have an effect on the size of the japan premium

volume autocorrelation information and investor trading this study investigates whether the widely documented daily correlated trading volume of stocks is driven by individual investor trading institutional trading or both we find that at least 95 of nyse and amex stocks exhibit statistically significant positive serial correlation volume autocorrelation decreases with the level of institutional ownership of a stock we also show that the rate of arrivals of new information to the market contributes to the clustering of trades when there is high information flow to the market institutional trading generates a more pronounced effect on volume autocorrelation than individual investor trading our results are broadly consistent with the predictions of trading volume patterns suggested by most theoretical models of stock trading and by empirical research on investor trading

the roles of inter fuel substitution and inter market contagion in driving energy prices evidences from china s coal market abstract coal has been dominating energy supply and consumption in china with the country becoming the largest energy supplier and consumer worldwide due to inter fuel substitution of crude oil and inter market contagion of international coal market china s coal price might be interrelated with crude oil price and international coal price however the precise roles of these two effects in determining china s coal price are unknown this paper contributes to previous literature by investigating this issue we find that co movements between china s coal price and crude oil price largely hinge on the shares of oil and coal in china s energy mix while its co movements with international coal price depend on scales of coal trade inter fuel substitution dominated the interaction of china s coal market with other energy types but the importance of inter market contagion has been increasing we also find that china might have become an originator for driving the returns of crude oil and international coal in particular after 2008 furthermore china s coal market is still a net volatility recipient for shocks from both crude oil market and international coal market given the increased integration of global energy markets we anticipate this paper to provide a better understanding on the dynamic changes in china s coal prices

intraday volatility in international stock index futures markets meteor showers or heat waves the international transmission of intraday price volatility among the united states united kingdom and japanese stock index futures markets in the period 1988 1994 is investigated in this paper the empirical results based on extreme value estimators and vector autoregression indicate the rapid transmission of information between markets the volatilities of the u s and u k futures markets appear to follow a meteor shower rather than a heat wave type of process this means that these volatilities react to shocks from other markets i e they cannot be described only by their past values however the heat wave hypothesis is not rejected for the japanese market meaning that the shocks to japanese volatility are mostly country specific a multivariate garch model supports the u k and japanese but not the u s results

news from the u s and japan which moves the yen dollar exchange rate abstract intra daily movements in the yen dollar exchange rate are examined in four non overlapping segments within each business day from january 1980 to september 1985 the results indicate that the dollar tended to appreciate in the new york segment and depreciate in the european segment in three of the four subsamples considered the tokyo segment made virtually no contribution to annual yen dollar rate movements the volatility of the exchange rate also differed across markets finally in examining the relative effects of news from the u s and japan explicitly u s money announcement surprises had the most consistent effects

impact of bt cotton on pesticide poisoning in smallholder agriculture a panel data analysis while substantial research on the productivity and profit effects of bt cotton has been carried out recently the economic evaluation of positive and negative externalities has received much less attention here we focus on farmer health impacts resulting from bt related changes in chemical pesticide use previous studies have documented that bt cotton has reduced the problem of pesticide poisoning in developing countries but they have failed to account for unobserved heterogeneity between technology adopters and non adopters we use unique panel survey data from india to estimate unbiased effects and their developments over time bt cotton has reduced pesticide applications by 50 with the largest reductions of 70 occurring in the most toxic types of chemicals results of fixed effects poisson models confirm that bt has notably reduced the incidence of acute pesticide poisoning among cotton growers these effects have become more pronounced with increasing technology adoption rates bt cotton now helps to avoid several million cases of pesticide poisoning in india every year which also entails sizeable health cost savings

conditional variance and the risk premium in the foreign exchange market abstract we investigate the existence of a risk premium in the foreign exchange market based on the conditional variance of market forecast errors the forecast errors are assumed to follow the arch process introduced by engle 1982 estimation and diagnostic testing of the model are discussed and results are presented for the currencies of the united kingdom france germany japan and switzerland