speculative investor behavior and learning as traders learn about the true distribution of some asset s dividends a speculative premium occurs as each trader anticipates the possibility of reselling the asset to another trader before complete learning has occurred small differences in prior beliefs lead to large speculative premiums during the learning process this phenomenon helps explain a paradox concerning the pricing of initial public offerings the result casts light on the significance of the common prior assumption in economic models

a simple model of voice we think of voice as a means of information aggregation within groups operating in a variety of settings we explore how the characteristics of groups and their leaders influence voice in relatively homogeneous groups members farthest away from the leader have the best incentives to provide information and their voice tends to moderate policy decisions in large heterogeneous groups where leaders cannot identify individual members the possibilities for informational exchange are severely limited and any communication that exists pushes policies farther to the extreme

the wealth effects of deregulation of canadian financial institutions abstract canada like other industrial countries recently introduced various financial reforms to remove the barriers separating the operations and ownership of banks from non bank financial institutions this study analyzes the wealth effects of the reforms on the banks and non bank financial institutions and the changes in their systematic risk resulting from financial deregulation over the period 1984 to 1991 the results indicate that while there was a significant cumulative gain for the insurance industry unlike a number of u s studies there was no evidence of wealth transfer among the institutions during the period of deregulation of the canadian financial system additional tests indicate that although the regulatory changes did not have a significant effect on the risk of the banks the systematic risk of the non bank financial institutions increased significantly during the period of regulatory reforms

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

optimal stalling when bargaining this paper analyzes an alternating offer model of bargaining over the sale of an asset in a market such as that for housing in which another agent may come and compete for the right to strike a deal the analysis allows the buyer and seller to have possibly differing views as to how likely such a competition is hence the buyer and the seller disagree about their respective bargaining powers these views adjust to market realizations as the parties learn it is shown that there exists a unique subgame perfect equilibrium which can be explicitly constructed hence conditional on market conditions equilibrium prices and optimal stall lengths that is delay can be found bargaining delay can only occur if there is optimism not pessimism and only if the parties are open to learning as time elapses this delay can occur even for very small levels of optimism and the delay can be for economically significant periods

changes in interstate banking laws the impact on shareholder wealth this study examines the impact on shareholder wealth of changes in interstate banking laws the research demonstrates that changes in state statutes which allow interstate banking have a positive impact on the stock prices of regional banking organizations and a negative impact on the stock prices of money center banks interstate banking statutes initially exclude those states in which the money center banks are headquartered the findings provide evidence that by excluding money center banks from expansion across state lines the competition from the regional banks may have an adverse competitive effect on the money center banks from june 1982 to september 1986 44 states and the district of columbia passed some form of interstate banking legislation this study measures the impact of these legislative changes on the wealth of bank shareholders when legislation is enacted each state s banks are given the opportunity to engage in interstate merger activity the market s perception of the impact on the affected banks should be reflected in the equity returns of shareholders the results show that while there are no announcement effects for the entire sample there are significant effects among a subsample of the data set money center banks experience negative returns throughout the sample period whereas regional banking organizations experience positive abnormal returns section i reviews the literature section ii describes the data used in this study and defines the event the methodological issues are addressed in section iii the empirical results are in section iv the conclusions are in section v

divergent expectations as a cause of disagreement in bargaining evidence from a comparison of arbitration schemes the fact that settlement rates are much higher where final offer arbitration rather than conventional arbitration is the dispute settlement procedure is used as the basis of a test of the role of divergent and relatively optimistic expectations in causing disagreement in negotiations calculations of identical expectations contract zones using existing estimates of models of arbitrator behavior yield larger identical expectations contract zones in conventional arbitration than in final offer arbitration this evidence clearly suggests that divergent expectations alone are not an adequate explanation of disagreement in labor management negotiations a number of alternative explanations for disagreement are suggested and evaluated

the gains from takeover deregulation evidence from the end of interstate banking restrictions this paper uses interstate banking deregulation to explore the benefits of takeover deregulation and how these benefits are distributed across different firms we find large and significant abnormal returns around the interstate banking and branching efficiency act of 1994 which imply it created 85 billion of value in the banking industry consistent with an active market for corporate control allowing beneficial consolidation and providing needed discipline there is a strong negative relationship between banks abnormal returns and their prior performance consistent with managerial entrenchment limiting takeover discipline banks with higher insider ownership lower outside block ownership and or less independent boards have lower abnormal returns imagine an economy in which strict regulation has prohibited all takeover activity and the governing body suddenly announces that the restrictions on mergers and acquisitions will be eliminated in one year the capital market response to this announcement would establish the aggregate value added from an active corporate control market and differences between individual firms stock price reactions would reveal which firms benefit most from unrestricted consolidation and takeover discipline in some ways this hypothetical situation became reality for the u s banking industry in 1994 when congress wrote and passed the interstate banking and branching efficiency act ibbea this legislation liberalized the bank takeover market by eliminating the various state laws restricting bank mergers across state lines the ibbea was widely expected to accelerate the consolidation already occurring within the banking industry see for example american banker 10 11 94 a more active takeover market should increase firm values in at least two ways first unrestricted consolidation would allow firms to better utilize

bargaining without a common prior an immediate agreement theorem in sequential bargaining models without outside options each player s bargaining power is ultimately determined by which player will make an offer and when this paper analyzes a sequential bargaining model in which players may hold different beliefs about which player will make an offer and when excessive optimism about making offers in the future can cause delays in agreement the main result states that despite this if players will remain sufficiently optimistic for a sufficiently long future then in equilibrium they will agree immediately this result is also extended to other canonical models of optimism

correlated equilibrium as an expression of bayesian rationality if it is common knowledge that the players in a game are bayesian utility maximizers who treat uncertainty about other players actions like any other uncertainty then the outcome is necessarily a correlated equilibrium random strategies appear as an expression of each player s uncertainty about what the others will do not as the result of willful randomization use is made of the common prior assumption according to which differences in probability assessments by different individuals are due to the different information that they have where information may be interpreted broadly to include experience upbringing and genetic makeup copyright 1987 by the econometric society

over confidence may reduce negotiation delay abstract when a seller negotiates with multiple buyers how does over confidence affect the timing of trade in this paper we distinguish between over confidence about trade opportunities and over confidence about the terms of trade in bargaining environments without externalities both types of over confidence can cause delays in agreement if externalities are present the two forms of subjective bias have very different impacts on delay in particular over confidence about trade opportunities may reduce bargaining delay

waiting to persuade i analyze a sequential bargaining model in which players are optimistic about their bargaining power measured as the probability of making offers but learn as they play the game i show that there exists a uniquely predetermined settlement date such that in equilibrium the players always reach an agreement at that date but never reach one before it given any discount rate if the learning is sufficiently slow the players agree immediately i show that for any speed of learning the agreement is delayed arbitrarily long provided that the players are sufficiently patient therefore although excessive optimism alone cannot cause delay it can cause long delays if the players are expected to learn

a non cooperative bargaining model with strategically timed offers abstract rubinstein s alternating offers bargaining model is enriched by allowing players to choose when and whether or not to make an offer time is continuous and players make offers whenever they wish it is assumed that upon making an offer players must wait a fixed amount of time before making another it is shown that if players can react arbitrarily quickly to their opponent s offers then all subgame perfect equilibrium outcomes are rubinstein like in particular efficient however if it takes time to react then some delay can be supported this potential delay becomes arbitrarily large as reaction times increase journal of economic literature classification numbers c78 c72

do idiosyncratic jumps matter abstract we show that idiosyncratic jumps are a key determinant of mean stock returns from both an ex post and ex ante perspective ex post the entire annual average return of a typical stock accrues on the four days on which its price jumps ex ante idiosyncratic jump risk earns a premium a value weighted weekly long short portfolio that buys sells stocks with high low predicted jump probabilities earns annualized mean returns of 9 4 and four factor alphas of 8 1 this strategy s returns are larger when there are greater limits to arbitrage these results are consistent with investor aversion to idiosyncratic jump risk

state passage of interstate banking legislation an analysis of firm legislative and economic characteristics abstract forty nine states and the district of columbia enacted legislation reducing interstate banking restrictions between july 1982 and april 1993 for these 50 banking bills deregulation increased the average price of bank stocks returns vary cross sectionally by firm characteristics regulatory features and economic conditions returns are positively related to the characteristics of acquisition targets furthermore returns are positively related to legislative features that increase the bargaining power of potential targets and economic conditions that are likely to encourage bank acquisition these findings are consistent with the relaxation of geographic restrictions increasing activity in the corporate control market

option values and bargaining delays abstract we consider a version of rubinstein bargaining in which both parties possess symmetric information about an asset s value but the value may change over time when players can wait to learn new information before responding to a given offer each offer carries an implicit option value when the players are patient it is optimal for them to make conservative offers to minimize the option value but such offers are rejected when the value of the asset increases multiple equilibrium outcomes also support the construction of further equilibria in which the players wait many periods before making a serious offer unlike other complete information models waiting in our model is built from stationary asymmetric equilibria in a limiting case waiting can become arbitrarily long and the payoffs arbitrarily small journal of economic literature classification number 026

markov bargaining games i consider an alternating offer bargaining game which is played by a risk neutral buyer and seller where the value of the good to be traded follows a markov process for these games the existence of a perfect equilibrium is proved and the set of equilibrium payoffs and strategies are characterised the main results are a if the buyer is less patient than the seller then there will be delays in the players reaching an agreement the buyer is forced into a suboptimal consumption policy and the equilibrium is ex ante inefficient and b if the buyer is more patient than the seller then there is a unique and efficient equilibrium where agreement is immediate

differential impact on bank valuation of interstate banking law changes abstract by 1988 forty seven states and the district of columbia had enacted legislation liberalizing interstate banking restrictions this study systematically investigates the market impact of these law changes on bank stock prices using an event parameter event study methodology we assess the differential impact on in state and out of state banks to a given state law change we also assess the differential impact of law changes upon banks included in or excluded from any regional compacts among states money center banks are treated as a special class of out of state or excluded banks we find that out of state and out of region banks excluding money center banks have profited most from these law changes and money center banks have been least positively affected both at the time of enactment and at the effective date of the law changes we attribute these findings to the opening of interstate banking opportunities to other than money center and foreign banks thus leveling the playing field

on the computation of returns in tests of the stock market overreaction hypothesis abstract a number of recent studies have attempted to find out whether investors overreact we argue that in many of these studies the method used to compute cumulative returns the arithmetic method is flawed and we show that estimates of portfolio performance can be affected our findings are relevant not only to tests of the overreaction hypothesis but to other areas in finance where the arithmetic method and event study approach are used

strategic delay in bargaining this paper analyses a bargaining model with incomplete information in which the time between offers is an endogenous strategic variable we find equilibria involving a delay to agreement that is due to the use of strategic time delay by bargainers to signal their relative strength under some specifications of the parameters delay is present in the unique sequential equilibrium whose beliefs satisfy one intuitive restriction this delay does not vanish as the minimal time between offers becomes small