further evidence on segmentation in the treasury bill market abstract this paper shows that differences in supplies of 13 and 12 week treasury bills have statistically significant and economically meaningful effects on their yield differentials from january 1985 through october 1991 controlling for the general slope of the treasury bill yield curve the tendency of bills maturing at month ends to have lower yields and the tendency of bills whose supply is augmented by cash management bills to have higher yields the finding that market participants do not arbitrage away yield differentials that owe to differences in supplies indicates that demand curves for individual bills are downward sloping and that segmentation in the treasury bill market is more pervasive than previously documented

the term structure of very short term rates new evidence for the expectations hypothesis abstract empirical researchers have frequently rejected the expectations hypothesis the expectations hypothesis however has seldom if ever been tested at the extreme short end of the term structure where maturities are measured in days or weeks using overnight weekly and monthly repo rates i find that term rates are almost unbiased estimates of the average overnight rate this evidence provides new support for the expectations hypothesis

analysing the effects of labour standards on us export performance a time series approach with structural change the empirical effects of different measures of labour standards on the export performance of the united states are analysed using annual data for the period 1950 1998 applying a time series approach based on the structural change literature hence a model with endogenous breaks is estimated following the methodology proposed by bai and perron econometrica 66 47 78 1998 the results show that the labour standards represented by the number of hours worked the rate of occupational injuries and the unionization rate are all very important to explain the behaviour of exports for the united states in particular it is found that low labour standards may both improve or lead to a deterioration in export performance

the expectations hypothesis of the term structure the uk interbank market using a high quality weekly data set the author provides several tests of the expectations hypothesis using the vector autoregression and cointegration methodologies for several maturities between one week and twelve months for the u k interbank market on the basis of the johansen cointegration analysis there appears to be a break in the term structure when both the six month and twelve month maturities are included as a pair the latter may be due to either the presence of liquidity constraints or market segmentation or a time varying term premium all of which would invalidate the assumptions underlying the expectations hypothesis the author provides some tentative explanations of these diverse results copyright 1996 by royal economic society

seasonality in daily bond returns this paper tests for seasonal patterns in corporate bond returns using the dow jones com posite bond average each seasonal pattern documented for equities is investigated for the period 1963 1986 corporate bond returns exhibit january turn of the year and weekof the month effects but no significant day of the week or turn of the month effects in contrast for the s p 500 stock index the turn of the month and day of the week ef fects are highly significant but the week of the month effect is less significant and the january and turn of the year effects are insignificant the behavior of an equity index constructed using companies in the bond index is similar to that of the s p except the turn of the year effect is significant

preferred habitat for liquidity in international short term interest rates abstract risk shifting window dressing and a preferred habitat for liquidity have been offered as possible explanations as to why us money market rates are higher before the year end than afterwards the two hypotheses differ in the timing of the rate decline at the year end and the evidence on the timing of the decline supports the preferred habitat hypothesis in us money markets this paper extends this line of research to the behavior of international short term interest rates at year ends and quarter ends using london interbank offer rates libor for 11 different currencies the results suggest that the behavior of libor for five currencies the us dollar euro japanese yen swiss franc and german mark is consistent with year end or quarter end preferred habitats for liquidity other currencies do not demonstrate consistently distinct patterns in turn of the year and turn of the quarter yields none of the results provides any support for risk shifting window dressing

day of the week effects in federal funds rates further empirical findings abstract we extend the spindt and hoffmeister 1988 model of the daily operation of an institution s federal reserve account to show strong inter and intra period incentives to borrow and lend in the federal funds market at predictable points in the 10 trading day settlement period using intraday high and low prices we demonstrate changes in the federal funds rate consistent with our model s predictions we provide evidence of predictable changes in the variance of fed funds returns on a daily and intraday basis our analysis confirms that federal reserve requirements result in daily and intraday variances which are not constant

the puzzling price behavior of treasury bills that mature at the turn of calendar months abstract this paper documents the unusual price behavior of treasury bills that mature at the turn of calendar months there is a kink in the yield curve as it crosses calendar months and this kink is most pronounced as the yield curve crosses between calendar years potential seasonality in the spot rate of interest could not explain these results nor could they be explained by the mispricing of either the last bill or first bill in a month the exceptionally large premium on the first bill in a month tended to be earned throughout the lifetime of the bill

parallelism in information production moral hazard and relative performance evaluations we analyse how to design incentive schemes for agents producing information the agents may for example be divisional managers market researchers or consultants financial analysts corporate auditors research scientists or political pollsters we show that an agent should be compensated more for making a correct rather than an incorrect prediction and for agreeing rather than disagreeing with colleagues depending on the environment correctness should be compensated more or less than agreement also compensation should increase with the difficulties of making correct or conforming predictions one consequence of the result is that it may sometimes reduce a principal s total incentive costs to engage with more information producers performing parallel investigations because the possibility to make relative performance evaluations of the agents may substantially reduce the costs of motivating the agents in performing their duties as desired

portfolio disclosures and year end price shifts commercial paper sells at an extra discount if it matures in the next calendar year but treasury bills do not the discount is apparent in downward price shifts before the year end and upward price shifts at the turn of the year that are significantly correlated with the simultaneous returns to small stocks and that cannot reflect tax loss selling cross sectional and time series tests on prices as well as flow of funds evidence on trades by institutional investors indicate that both the debt and equity patterns reflect agency problems related to portfolio disclosures financial research has brought considerable analysis to bear on the turn of the year in the equity market but not the money market extant literature starting with keim and stambaugh 1986 reports similarities between equity market and money market price shifts in january but has not examined time series and cross sections of money market prices at the high resolution common in studies of the equity market repeating tests from the equity literature on money market prices this article finds a more precise and robust characterization of the price shifts this characterization combined with observations of year end shifts in money market holdings supports the view that intermediaries move prices with strategic responses to portfolio disclosures the main empirical result is that commercial paper pays a higher yield if it matures across the end of the year that is it imputes a forward premium for the holding period from the last trading day of one year to the first trading day of the next this premium is even higher for issues with more default risk and longer maturity as measured at the end of the year and has a substantial impact on yield spreads i argue that the forward premium reflects an abnormally high market price for bearing risk across the year end and that this high price reflects the disutility to intermediaries of showing risky portfolios to claimholders or regulators the connection between portfolio disclosures and price shifts was proposed by haugen and lakonishok hl 1988 as an explanation of the equity market january effect as originally documented by keim 1983 with monthly data

recent trends and structural breaks in us and eu15 labour productivity growth this article examines shifts in labour productivity growth in the us and in europe between 1970 and 2007 based on econometric tests of structural breaks additionally it makes use of time series based projections of labour productivity growth up to 2009 in order to detect breaks depending on confidence intervals of the projections the identification of structural breaks in the us labour productivity growth is far from obvious a statistically significant break is found in the late 1990s only if at least the 97 5th percentile of forecasts materializes in the future which means that despite a clear pick up in productivity growth in the second half of the 1990s the size of the hump is not large enough compared with past variations to make this change a statistically significant break however a significant break point is detected in the mid 1990s for the difference in labour productivity growth between the us and the eu15 even when controlling for the convergence of europe towards the us productivity l

the term structure spread and future changes in long and short rates in the g7 countries abstract according to the expectations hypothesis when the spread between long and short rates widens next quarter s long rate should rise in the united states however long rates decline instead of rising this anomaly is also present in canada the uk germany and japan four of the additional six g7 countries nevertheless in contrast to the us where long rates appear to overreact to expected future developments the anomalous short run movement of long rates in these other g7 countries is caused by an additive white noise error on long rates that does not materially affect the information in their term structure

volume and turn of the year behavior abstract this paper studies the trading characteristics of listed companies by size and year end behavior there were no transactions on nearly 25 of the days for the smallest decile even at the turn of year which is an active trading period for small companies as a result of low levels of trading and the regulations governing exchange specialists transaction prices and quotations of small listed companies may require several days to fully reflect equilibrium price changes the data confirm the existence of a year end seasonal pattern in rates of return for small companies and suggest that there may be a seasonal pattern for large companies as well

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

around and around the expectations hypothesis we show how to construct models of the term structure of interest rates in which the expectations hypothesis holds mcculloch 1993 presents such a model thereby contradicting an assertion by cox ingersoll and ross 1981 but his example is gaussian and falls outside the class of finite dimensional markovian mode ls we generalize mcculloch s model in three ways i we provide an arbitrage free characterization of the unbiased expectations hypothesis in terms of forward rates ii we extend this characterization to a whole class of expectations hypotheses and iii we show how to construct finite dimensional markovian and non gaussian examples in one form or another the expectations hypothesis has played a central role in the analysis of the term structure of interest rates perhaps the most common form of the expectations hypothesis is the so called unbiased expectations hypothesis u eh which asserts that forward rates equal the conditional expectations of future spot rates but other forms exist as well cox ingersoll and ross cir 1981 characterize a number of mutually incompatible forms of the expectations hypothesis besides the u eh including the local expectations hypothesis l eh under which the expected rate of return on all zero coupon bonds on all assets in fact equals the short term risk free rate see jarrow 1981 for a similar analysis of the various expectations hypotheses they consider cir claim that only the l eh is consistent with general equilibrium in continuous time models as well as in discrete time models with continuous compounding of yields mcculloch 1993 provides a counterexample to cir s claim his example is in the spirit of heath jarrow and morton hjm 1992 in the sense that it does not admit a representation in terms of a finite number of markovian state variables the setting in cir indeed mcculloch suggests that cir s claim may be true within their setting as we show it is not there is a weak version of the u eh according to which forward rates are biased predictors of future spot rates but the bias or term premium is a constant that only depends on the forecast horizon a regression of future spot rates on current forward rates produces a slope coefficient equal to fisher is with the board of governors of the federal reserve system and gilles is with bear stearns co the views expressed herein are the authors and do not necessarily reflect those of the board of governors or the federal reserve system we thank greg duffee and huston mcculloch for extensive comments and an anonymous referee for suggesting improvements in the exposition

anticipations of monetary policy in financial markets in recent years financial markets appear better able to anticipate federal open market committee fomc policy changes beginning in the late 1980s and early 1990s longer term interest rates and futures rates have tended to incorporate movements in the federal funds rate several months in advance in contrast to the largely contemporaneous response typically observed before that time after identifying these emerging trends the paper parses the enhanced predictability into a component that can be attributed to the autoregressive behavior of the funds rate and a nonautoregressive component the paper considers institutional developments in fomc policy making that may have contributed to each of these components including gradualism in adjusting the federal funds rate target and transparency regarding the setting of the target and future policy intentions

explaining the failures of the term spread models of the rational expectations hypothesis of the term structure contrary to the predictions of the rational expectations hypothesis of the term structure of interest rates empirical evidence suggests that the term spread between long and short rates fails to forecast future movements of long term rates although its forecasts of future short term rates are in the correct direction in this paper the authors show that this puzzling behavior of the term spread alone can be explained by a time varying term premium that is correlated with the term spread once this is accounted for neither expression of the expectations hypothesis is against the predictions of the theory copyright 1997 by ohio state university press

the turn of the year in money markets tests of the risk shifting window dressing and preferred habitat hypotheses musto 1997 identifies a turn of the year effect in the commercial paper market and offers risk shifting window dressing as an explanation we revisit this market with different methods and find strong evidence rejecting the risk shifting hypothesis we extend our analysis to other private issue money market instruments and find similar results we find further corroborating evidence in the 1 month t bill market and aggregate demand deposit data our results are consistent with a year end preferred habitat for liquidity associated with year end cash flow obligations