similarities and convergence in g 7 cycles this paper examines the properties of g 7 cycles using a multicountry bayesian panel var model with time variations unit specific dynamics and cross country interdependences we demonstrate the presence of a significant world cycle and show that country specific indicators play a much smaller role we detect di erences across business cycle phases but apart from an increase in synchronicity in the late 1990s find little evidence of major structural changes we also find no evidence of the existence of an euro area specific cycle or of its emergence in the 1990s

the role of transaction costs for financial volatility evidence from the paris bourse this paper analyzes the causal linkage between transaction costs and financial volatility under two methodological improvements over the existing literature first we use panel data in which exogenous transaction cost differences in the french stock market are induced by price level dependent minimum price variation rules tick size rules unlike in previous studies based on one time regulatory tick size changes like the u s decimalization we can separately identify and control for marketwide volatility changes second we avoid the pitfalls of biased volatility measurement across regimes by using the range as a tick size robust volatility metric panel regressions controlling for marketwide volatility effects show at high levels of statistical significance that the hourly range volatility of individual stocks increases by more than 30 for a 20 exogenous increase in transaction costs due to tick size variations in the french trading system in the light of this evidence higher transaction costs in general and security transaction taxes in particular should be considered as volatility increasing jel f3 g1 g14

price discovery and learning during the preopening period in the paris bourse before the opening of the paris bourse traders place orders and indicative prices are set this offers a laboratory to study empirically the t tonnement process through which markets discover equilibrium prices since preopening orders can be revised or canceled before the opening indicative prices could be noise we test this against the hypothesis that preopening prices reflect learning early in the preopening the noise hypothesis is not rejected as the opening gets closer the informational content and efficiency of prices increase and the learning hypothesis is not rejected we also propose a gmm based estimate of the speed of learning

minimum price variations discrete bid ask spreads and quotation sizes exchange minimum price variation regulations create discrete bid ask spreads if the minimum quotable spread exceeds the spread that otherwise would be quoted spreads will be wide and the number of shares offered at the bid and ask may be large a cross sectional discrete spread model is estimated by using intraday stock quotation spread frequencies the results are used to project 1 16 spread usage frequencies given a 1 16 tick projected changes in quotation sizes and in trade volumes are obtained from regression models for stocks priced under 10 the models predict spreads would decrease 38 percent quotation sizes would decrease 16 percent and daily volume would increase 34 percent article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

housing wealth and consumption growth evidence from a large panel of households this article uses a large panel dataset that tracks the housing wealth and credit card spending of 12 793 individuals in hong kong to study the relationship between housing wealth and household consumption i identify a significant effect of housing wealth on consumption a pure wealth effect can explain part of the sensitivity households with multiple houses have much stronger consumption responses consistent with a relaxation of the credit constraints mortgage refinancing significantly increases households consumption sensitivities however for the majority of the households that do not refinance consumption sensitivity appears to be due to a reduction in precautionary saving jel e21 g21

trading volume and asset liquidity since the depth and liquidity of a market depend on the entry decisions of all potential participants each trader assesses them according to conjectures about entry by others if trade is equally costly across markets this externality leads to the concentration of trade on one market if not it can produce multiple conjectural equilibria some where trade concentrates on one market and others where large traders resort to a separate market or to search for a trading partner while fragmentation is welfare reducing in the two market case no such ranking is possible if it involves off exchange search

the impact of the financial crisis on new firm registration the authors use panel data on the number of new firm registrations in 95 countries to study the impact of the business environment and 2008 financial crisis on new firm registration the data show that more dynamic formal business creation occurs in countries that provide entrepreneurs with a stable legal and regulatory regime fast and inexpensive business registration process more flexible employment regulations and low corporate taxes the data also show that nearly all countries experienced a sharp drop in business entry during the crisis this drop is more pronounced in countries with higher levels of financial development and countries more affected by the crisis

trading mechanisms and stock returns an empirical investigation this paper examines the effects of the mechanism by which securities are traded on their price behavior we compare the behavior of open to open and close to close returns on nyse stocks given the differences in execution methods applied in the opening and closing transactions opening returns are found to exhibit greater dispersion greater deviations from normality and a more negative and significant autocorrelation pattern than closing returns we study the effects of the bid ask spread and the price adjustment process on the estimated return variances and covariances and discuss the associated biases we conclude that the trading mechanism has a significant effect on stock price behavior

an experimental examination of the walrasian tatonnement mechanism this is a systematic experimental comparison of the efficiency and competitive properties of a computerized multiunit tatonnement with or without a dynamic improvement rule with or without publicity of order flow information all versions of the tatonnement are comparatively less efficient than the continuous double auction the tatonnement yields competitive prices but both sides tend to underreveal demand supply causing inefficiency only the full information no improvement rule version of the tatonnement procedure approaches the efficiency of the double auction

overnight information and stochastic volatility a study of european and us stock exchanges abstract this paper provides a comprehensive evaluation of the predictive ability of information accumulated during nontrading hours for a set of european and us stock indexes we introduce a stochastic volatility model which conditions on lagged overnight information distinguishes between the nontrading periods of weeknights weekends holidays and long weekends and allows for an asymmetric leverage effect on the impact of overnight news we implement bayesian methods for estimation and ranking of the empirical models and find two key results i there is substantial predictive ability in financial information accumulated during nontrading hours and ii the performance of stochastic volatility models improves considerably by separating the asymmetric impact of positive and negative news made available over weeknights weekends holidays and long weekends

fiscal policy and financial market movements abstract this paper estimates fiscal policy reaction function in order to investigate the links between financial market movements and fiscal policy outcomes an increase in asset prices affects in a positive and significant manner primary balances with the response reflecting both an increase in government revenues and a fall in government spending the most important impact on fiscal balances is due to changes in residential property prices changes in equity and commercial property prices are also important determinants of fiscal balances our findings suggest that the steepening of the slope of the yield curve contributes to expenditure based fiscal discipline

bank regulation property prices and early warning systems for banking crises in oecd countries abstract early warning systems ews for banking crises generally omit bank capital bank liquidity and property prices most work on ews has been for global samples dominated by emerging market crises where time series data on bank capital adequacy and property prices are typically absent we estimate logit crisis models for oecd countries finding strong effects from capital adequacy and liquidity ratios as well as property prices and can exclude traditional variables higher capital adequacy and liquidity ratios have a marked effect on the crisis probabilities implying long run benefits to offset some of the costs that such regulations may impose

walrasian tâtonnement auctions on the tokyo grain exchange the tokyo grain exchange tge s itayose mechanism provides the opportunity to analyze functioning walrasian t tonnement auctions wta in 15 677 auctions conducted over 1997 1998 for corn and redbean futures contracts price formation is unexpectedly similar to that observed in continuous double auctions provisional prices and pledges are informative in contrast to behavior observed in experiments few pledges are deceptive because the traders participate repeatedly and because the auctioneer has flexibility when changing the provisional price and ending the auction both the risk of the auction ending and the more equitable dispersion of information increase depth and the speed at which information is embodied in price

nonparametric nonlinear cotrending analysis with an application to interest and inflation in the united states given the assumption that the components of a vector time series are stationary around nonlinear deterministic time trends nonlinear cotrending is the phenomenon that one or more linear combinations of the time series are stationary around a linear trend or a constant hence the series have common nonlinear deterministic time trends in this article i develop nonparametric tests for nonlinear cotrending and i derive nonparametric estimators of the cotrending vectors i apply this approach to the federal funds rate and the consumer price index inflation rate in the united states using monthly data to analyze the price puzzle

the margin of safety and turning points in house prices observations from three developed markets using quarterly data from 1960 united kingdom 1963 united states and 1977 japan through the second quarter q2 of 2010 all three markets the authors examined long run mean reverting relationships between house prices and inflation disposable income gdp and rents at the end of q2 2010 u s prices were below their mean reverting levels and at the lower end of their historical range equivalent u k and japanese prices were at or slightly above their mean reverting levels

tax subsidies to owner occupied housing an asset market approach inflation reduces the effective cost of homeownership and raises the tax subsidy to owner occupation this paper presents an asset market model of the housing market and estimates how changes in the expected inflation rate affect the real price of houses and the equilibrium size of the housing capital stock simulation results suggest that the accelerating inflation of the 1970s which substantially reduced homeowners user costs could have accounted for as much as a 30 percent increase in real house prices persistent high inflation rates could lead ultimately to a sizable increase in the stock of owner occupied housing

the switch from continuous to call auction trading in response to a large intraday price movement some european exchanges e g euronext frankfurt and madrid make use of a mechanism to moderate price volatility that was proposed by madhavan 1992 as preferable to a trading halt in times of market stress it consists of a temporary switch from continuous to call auction trading in an individual security whenever its price moves beyond predetermined limits this article studies whether this mechanism sharpens the information content of prices dampens volatility and normalizes trading volume and intensity taking intraday data for the madrid order driven continuous market i find post switch improvements in the information content of prices and reductions in volatility especially for thinly traded stocks trading volume and intensity peaked around auctions but soon returned to preevent levels

bargaining with deadlines and imperfect player control anecdotal and experimental evidence suggests that bargaining sessions subject to deadlines often begin with cheap talk and rejected proposals agreements if they are reached at all tend to be concluded near the deadline we attempt to capture and explain these phenomena in a strategic bargaining model that incorporates a bargaining deadline the possibility of strategic delay and a lack of perfect player control over the timing of offers imperfect player control is generated by an exogenous uniformly distributed random delay in offer transmission our model has a symmetric markov perfect equilibrium unique at almost all nodes in which players adopt strategic delay early in the game make and reject offers later on and reach agreements late in the game if at all in equilibrium players miss the deadline with positive probability the expected division of the surplus is unique and close to an even split

rational expectations and the aggregation of diverse information in laboratory security markets the idea that markets might aggregate and disseminate information and also resolve conflicts is central to the literature on decentralization hurwicz 1972 and rational expectations lucas 1972 we report on three series of experiments all of which were predicted to have performed identically by the theory of rational expectations in two of the three series one in which participants trade a complete set of arrow debreu securities and a second in which all participants have identical preferences double auction trading leads to efficient aggregation of diverse information and rational expectations equilibrium failure of the third series to exhibit such convergence demonstrates the importance of market institutions and trading instruments in achievement of equilibrium

information disclosure and price manipulation during the pre closing session evidence from an order driven market on 20 february 2012 the taiwan stock exchange corporation launched an order matching simulation mechanism for five minutes during the start of the pre closing session in order to increase information disclosure during this period 13 25 13 30 pre closing information disclosure significantly reduces both trading costs and closing price volatility as well as price manipulation the decrease in price manipulation found in this work is due to pre closing information disclosure not the behaviour of investors shifting to an earlier time further if a stock price rises or falls by more than 3 5 in the simulation in the last minute during the closing session trading of the stock will be suspended for two minutes from 13 31 to reduce volatility however this trading mechanism suspended closing does not seem to have achieved the intended goals of the authorities as it has not been able to significantly reduce closing price volatility and price manipulation

regulation and growth why some countries grow faster than others is one of the most important questions in economics solving this puzzle has the obvious appeal of improving the living standards for a significant proportion of the world population we go further towards answering this question by studying a major determinant of growth regulations governing business activity our results also have significant implications for policy they suggest that countries should put priority on reforming their business regulations when designing growth policies measures of institutions currently used in the growth literature indicate the extent of problems but not how to resolve them by contrast the indicators in the doing business database are directly linked to specific reforms for example the procedures to register a business or property can be cut by combining them at a one stop shop for businesses establishing a credit bureau or reducing mandated severance pay for workers will also improve performance on the business regulations index our findings imply that identifying and implementing such reforms can accelerate economic growth

interaction between housing prices and household borrowing the finnish case abstract employing time series econometrics this study shows that there has been a significant two way interaction between housing prices and housing loan stock in finland since the financial liberalization in the late 1980s before the financial deregulation the interaction was substantially weaker furthermore housing appreciation has a notable positive impact on the outstanding consumption loan stock it appears that there is no similar relationship between stock prices and credit understanding the two way interaction between housing prices and credit is of importance since the interdependence is likely to augment boom bust cycles in the economy and increase the fragility of the financial sector

bargaining under incomplete information this paper presents and analyzes a bargaining model of bilateral monopoly under uncertainty under the bargaining rule proposed the buyer and the seller each submit sealed offers that determine whether the good in question is sold and the transfer price the nash equilibrium solution of this bargaining game implies an offer strategy of each party that is monotonic in its own reservation price and depends on its assessment of the opponent s reservation price issues of relative bargaining advantage and efficiency are examined for a number of special cases finally we discuss the appropriateness of the nash solution concept

order flow and liquidity around nyse trading halts we study order f low and liquidity around nyse trading halts we find that market and limit order submissions and cancellations increase significantly during trading halts that a large proportion of the limit order book at the reopen is composed of orders submitted during the halt and that the market clearing price at the reopen is a good predictor of future prices depth near the quotes is unusually low around trading halts though specialists and0or f loor traders appear to provide additional liquidity at these times finally specialists appear to spread the quote prior to imbalance halts to convey information to market participants the costs and benef its associated with new york stock exchange trading halts are the subject of continuous debate the stated purpose of trading halts is to allow investors a chance to react to new information and to facilitate the orderly emergence of a new equilibrium price see e g nyse 1999 however little is known about the extent or nature of investor reactions to trading halts furthermore it is unclear whether these reactions support or confound attempts to reach a new equilibrium price to address these issues we use nonpublic nyse data on all superdot electronic orders to analyze the effects of trading halts on order f low spreads and the limit order book we also examine the relationships between the limit order book and the reopening price and between liquidity and post halt volatility information on order f low is an important missing element in the ongoing debate about the usefulness of trading halts one argument against trading halts is that they impede price formation because trading aggregates information that is distributed across market participants however submissions and cancellations of orders during a halt may provide an alternative source of information that combined with published indications of possible reopening prices may assist with price formation an argument in favor of trading halts is that when traders are given an opportunity to cancel orders

learning from trading the incorporation of diverse information into asset prices is empirically examined in an actual securities market with multiple rounds of trade using prices of israeli index and nominal bonds of equal maturity we calculate implied expectations of inflation that has already occurred butfor which the official statistic has not yet been announced learning is defined as the convergence of these expectations to the actual level of infzation in the period after the end of the month but before the announcement of the official statistic wefind that the variance of the injiation expectation errors decreases with trading days in this period the decline in the variance suggests that investors learn by repeatedly observing prices about the distribution of other investors information we also find a positive relation between the dispersion of relative price changes and the size of the inflation expectation errors on thefirst round of trade the correlation diminishes as

manipulation in the vix at the settlement time of the vix volatility index volume spikes on sp editorial decision june 19 2017 by editor robin greenwood

start up costs limited enforcement and the hidden economy abstract this paper examines how much of the difference in the size of the informal sector and in per capita income across countries can be accounted by regulation costs and enforcement of financial contracts it constructs and solves numerically a general equilibrium model with credit constrained heterogenous agents occupational choices over formal and informal businesses financial frictions and a government sector which imposes taxes and regulations on formal firms the benefit from formalization is better access to outside finance the quantitative exercises suggest that i regulation costs and not the level of enforcement account for differences in the size of the informal sector between united states and mediterranean europe ii for a developing country like peru however contract enforcement and regulation costs are equally important in accounting for the size of the informal sector and iii regulation costs and contract enforcement do not account for most of the income differences observed among countries

who benefits from an open limit order book the nyse opened the limit order book to off exchange traders during trading hours we address the welfare implications of this change in market structure we model a market similar to the auction that the exchange uses to open the trading day we consider two different environments in the first only the specialist sees the limit order book while in the second the information in the book is available to all traders we compare equilibria and find that traders who demand liquidity are better off when the book is open while liquidity suppliers are better off when the book is closed

opening and closing the market evidence from the london stock exchange we investigate the performance of call markets at the open and close using a unique natural experiment provided by the london stock exchange where traders can choose between a call and an off exchange dealership system although the call market dominates dealers in terms of price discovery it suffers from a high failure rate to open and close trading especially when trading conditions are difficult the call s trading costs increase with asymmetric information slow trading order flow imbalances and uncertainty traders resort to use of call auctions is negatively correlated with firm size implying that the call may not be the optimal method for opening and closing trading of medium and small sized stocks

a dynamic model of expectations equilibrium abstract this paper describes a dynamic information adjustment process which achieves rational expectations equilibria for stochastic exchange environments an informational temporary equilibrium is an exchange equilibrium in which agents expectations are conditioned on their initial information and market data generated in previous informational temporary equilibria an equilibrium is a temporary equilibrium which reveals no further information this process leads to an equilibrium even when the data observed by agents is insufficient to permit the existence of an expectations equilibrium

when will housing recover an interesting perspective on recent trends in the u s housing market is gained by noting how housing prices correspond to per capita income a traditional measure of affordability the ratio of housing prices to per capita income is high but close to historical norms in many regional markets however notable exceptions do exist in california housing prices recently reached levels relative to per capita income far above historical norms a significant pricing correction has begun in that market similarly housing prices are correcting sharply in arizona florida and nevada investors need to be mindful of the potential for housing market related losses and the potential for contagion among asset classes see comments and response on this article

stock market structure and volatility the procedure for opening stocks on the nyse appears to affect price volatility an analytical framework for assessing the magnitude of the structurally induced volatility is presented the ratio of variance of open to open returns to closeto close returns is shown to be consistently greater than one for nyse common stocks during the period 1982 through 1986 tbe greater volatility at the open is not attributable to the way in which public information is released since both the opento open return and the close to close return span the same period of time instead the greater volatility appears to be attributable to private information revealed in trading and to temporaryprice deviations induced by specialist and other traders the implied cost of immediacy at the open is significantly higher than at the close other empirical evidence in this article documents the volume of trading at the open the time delays between the exchange opening and the first transaction in a stock the difference in daytime volatility versus overnight volatility and the extent to which volatility is related to trading volume

screening peers softly inferring the quality of small borrowers this paper examines the performance of new online lending markets that rely on nonexpert individuals to screen their peers creditworthiness we find that these peer lenders predict an individual s likelihood of defaulting on a loan with 45 greater accuracy than the borrower s exact credit score unobserved by the lenders who only see a credit category moreover peer lenders achieve 87 of the predictive power of an econometrician who observes all standard financial information about borrowers screening through soft or nonstandard information is relatively more important when evaluating lower quality borrowers our results highlight how aggregating over the views of peers and leveraging nonstandard information can enhance lending efficiency this paper was accepted by amit seru finance

the impact of business environment reforms on new registrations of limited liability companies panel data for 91 countries are used to study how the ease of registering a business and the magnitude of registration reforms affect new registrations of limited liability companies llcs the costs days and procedures required to start a business are found to be important predictors of new llc registration panel regressions also show important synergies in multiple reforms of two or more business environment indicators these results are consistent with the intuition that to be effective reforms should be sufficiently large so that the costs of registration are lower than the expected benefits in addition countries with relatively weaker business environments prior to reforms require relatively larger reforms to impact the number of newly registered llcs

how much is a tulip worth the kind of passion to possess tulip bulbs that gripped holland some 350 years ago may be alive and well today among certain u s equity investors

price discovery in auction markets a look inside the black box opening mechanisms play a crucial role in information aggregation following the overnight nontrading period this article examines the process of price discovery at the new yorkstockexchange single price opening auction we develop a theoretical model to explain the determinants of the opening price and test the model using order level data we show that the presence of designated dealers facilitates price discovery relative to a fully automated call auction market this is consistent with specialists extracting information from observing the evolution of the limit order book in addition the specialist s opening trade reflects noninformational factors such as price stabilization requirements

liquidity commonality in order driven trading evidence from the athens stock exchange abstractwe examine the presence of liquidity commonality in the order driven athens stock exchange ase unlike the majority of liquidity commonality studies that focus on the bid ask spread our analysis extends deeper in the limit order book providing insight on the price impact of both small and large trades we utilize a 6 month ftse athex 20 intraday data set to estimate the liquidity factor model of chordia et al 2000 to this end we conduct single equation analysis as well as panel data analysis with the use of two way clustered errors correcting for simultaneous firm and time correlations moreover we apply standard principal component analysis on stock liquidities to extract the marketwide liquidity component we find that liquidity commonality is low at the bid ask spread whereas it increases deeper in the book consequently large traders face liquidity risks associated with both individual stock and marketwide illiquidity moreover our empirical evidence hints that liquidity commonal

asymmetric effects of the business cycle on bank credit risk abstract prior empirical research on the relation between credit risk and the business cycle has failed to properly investigate the presence of asymmetric effects to fill this gap we examine this relation both at the aggregate and the bank level exploiting a unique dataset on italian banks borrowers default rates we employ threshold regression models that allow to endogenously establish different regimes identified by the thresholds over below which credit risk is more less cyclical we find that not only are the effects of the business cycle on credit risk more pronounced during downturns but cyclicality is also higher for those banks with riskier portfolios

the speed of information revelation in a financial market mechanism abstract the paper studies the rate at which dispersed private information about the value v of a risky financial asset is incorporated into prices in an information adjustment mechanism the mechanism in the presence of competitive market makers aggregates the information of risk averse agents at a rate of n 1 2 where n is the number of rounds of the adjustment process without market makers convergence of prices to v is much slower in any case the asymptotic precision of prices is negatively related to the degree of risk aversion and the amount of noise in the system journal of economic literature classification numbers d83 g14

entry industry growth and the microdynamics of industry supply entry is widely discussed but rarely subjected to empirical study this study develops a competitive theory of entry with primary focus on the relationship between entry and industry growth the main ingredients are adjustment costs to firms already in the industry and the distribution of fixed entry cost to potential entrants the theory suggests sufficient conditions under which the entry rate is an increasing convex function of the industry growth rate a regression model correcting for severe heteroscedasticity is applied to data from swedish manufacturing industries the results are consistent with the theoretical prediction for growth and other key variables expected to influence entry significantly

why markets should not necessarily reduce the tick size abstract this paper studies the consequences of a tick size change on the paris bourse thus providing a natural experiment on an order driven market the change raised the tick size for some stocks and lowered it for other in contrast with us exchanges results this generated neither a reduction in liquidity provision for large trades nor a change in the spread based on this paper and on us results it appears an increasing but convex relationship between the relative tick size and the relative spread thus it implies that a new pricing grid does not necessarily lead to change execution costs but it changes the level of transparency in the liquidity supply

regional spillover and rising connectedness in china s urban housing prices regional housing prices may be dynamically linked and converge to a long run equilibrium the level of connectedness can be used to describe systemic risk in the housing market this paper uses a r

credit channel trade credit channel and inventory investment evidence from a panel of uk firms abstract in this paper we use a panel of 609 uk firms over the period 1980 2000 to test for the existence of a trade credit channel of transmission of monetary policy and for whether this channel plays an offsetting effect on the traditional credit channel we estimate error correction inventory investment equations augmented with the coverage ratio and the trade credit to assets ratio differentiating the effects of the latter variables across firms more or less likely to face financing constraints and firms making a high or low use of trade credit our results suggest that both the credit and the trade credit channels operate in the uk and that the latter channel tends to weaken the former

red tape and delayed entry does cutting red tape foster entrepreneurship in industries with the potential to expand we address this question by combining the time needed to comply with government entry procedures in 45 countries with industry level data on employment growth and growth in the number of establishments during the 1980s our main empirical finding is that countries where it takes less time to register new businesses have seen more entry in industries that experienced expansionary global demand and technology shifts our estimates take into account that proxying global industry shifts using data from only one country or group of countries with similar entry regulations will in general yield biased results

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

monetary policy in a data rich environment abstract most empirical analyses of monetary policy have been confined to frameworks in which the federal reserve is implicitly assumed to exploit only a limited amount of information despite the fact that the fed actively monitors literally thousands of economic time series this article explores the feasibility of incorporating richer information sets into the analysis both positive and normative of fed policymaking we employ a factor model approach developed by stock j h watson m w diffusion indices journal of business economic statistics 2002 20 2 147 forecasting inflation 1999 journal of monetary economics 44 2 293 that permits the systematic information in large data sets to be summarized by relatively few estimated factors with this framework we reconfirm stock and watson s result that the use of large data sets can improve forecast accuracy and we show that this result does not seem to depend on the use of finally revised as opposed to real time data we estimate policy reaction functions for the fed that take into account its data rich environment and provide a test of the hypothesis that fed actions are explained solely by its forecasts of inflation and real activity finally we explore the possibility of developing an expert system that could aggregate diverse information and provide benchmark policy settings

de stabilizing speculation on futures markets an alternative view point abstract this paper offers a new interpretation for possible destabilizing effects of opening futures markets in our model adapted from stein 1987 speculation on futures markets reduces the likelihood of occurrence of a rational expectations equilibrium although the equilibrium price is less volatile after the futures market is opened which is usually viewed as a stabilizing effect traders may find it more difficult or even impossible to coordinate their expectations in order to implement this equilibrium

do traders strategically time their pledges during real world walrasian auctions abstract experimental research suggests the walrasian t tonnement auction encourages traders to under reveal preferences even encouraging initial pledges contrary to true desires because pledges are not binding we analyze the timing and characteristics of individual pledges and trades during 9604 auctions for redbeans conducted by the tokyo grain exchange we find no evidence of contrarian pledging and little evidence of under revelation as many traders over reveal as under reveal most traders pledge seriously from the beginning despite the considerable heterogeneity in pledging behavior across individual traders these differences appear to have no relationship with traders profits nor do they appear to affect the achievement of equilibrium

liquidity externalities and adverse selection evidence from trading after hours this paper examines liquidity externalities by analyzing trading costs after hours there is less than 1 20 as many trades per unit time after hours as during the trading day the reduced trading activity results in substantially higher trading costs quoted and effective spreads are three to four times larger than during the trading day the higher spreads reflect greater adverse selection and order persistence but not higher dealer profits because liquidity provision remains competitive after hours the greater adverse selection and higher trading costs provide a direct measure of the magnitude of the liquidity externalities generated during the trading day understanding network effects and liquidity externalities is one of the most important outstanding issues in market design madhavan 2000 and market regulation macey and o hara 1999 liquidity externalities arise from bringing traders together in space and time to reduce search and trading costs bringing traders together creates liquidity externalities because the additional traders arriving in the marketplace reduce trading costs for all investors to date attention has focused almost exclusively on spatial network effects by examining the trading of securities in different markets at the same time lee 1993 hasbrouck 1995 and others in contrast this paper studies the effects of temporal consolidation of trades by analyzing trading during and outside of exchange trading hours a well known liquidity externality arises from asymmetric information rational informed traders break up their orders across markets and over time this provides incentives for liquidity traders to consolidate their trades geographically garbade and silber 1979 mendelson 1982 1987 pagano 1989a 1989b and intertemporally admati and pfleiderer 1988 and foster and viswanathan 1990 it has been difficult to document the importance of these liquidity externalities however unless there are barriers that restrict the flow of orders from one trading venue to another in equilibrium contemporaneous

alternative mortgage instruments the tilt problem and consumer welfare mortgage instrument in the united states for the last 50 years and for much of this period it has performed well however during periods of high and volatile rates of inflation the sfpm suffers from severe weaknesses 1 foremost among these problems from the standpoint of the borrower is the tilt in the stream of real mortgage payments toward the initial years of the mortgage for consumers unconstrained by capital market imperfections this tilt is unimportant however a consumer is typically unable to borrow against expected higher future income or against the nominal capital gains that accrue to the owner of a house over the life of the mortgage in addition common practices of mortgage lenders often limit mortgage payments to some fraction of income at the time of purchase together these liquidity constraints create a mismatch between the time se quence of mortgage payments and income a mismatch that reduces the number of borrowers who qualify for financing and that limits the value of the house purchased by those who do obtain financing 2 in an attempt to reduce the problems created by this mismatch a variety of alternative mortgage instruments amis has been suggested three of the most important are the graduated payment mortgage gpm the shared appreciation mortgage sam and the price level adjusted mortgage plam 3 with the gpm mortgage payments rise at some specified rate during a portion of the mortgage life the sam enables the lender to share in the appreciation of the university of colorado boulder and syracuse university respectively this paper was writ ten while the first author was at syracuse university funding for the research was shared by the office of the comptroller of the currency the federal horne loan bank board and the department of housing and urban development mary anne beeman served as research assistant and the manu

equilibrium discovery and preopening mechanisms in an experimental market we experimentally analyze how to design preopening mechanisms facilitating coordination on high equilibrium liquidity and gains from trade we allow a call auction to be preceded by a preopening or not preopening orders to be binding or not and the opening time to be deterministic or random when the preopening is nonbinding traders place manipulative orders reducing the credibility of preplay communication random market opening deters manipulation but also hinders communication by making it costly gains from trade are maximized when preopening orders are binding this enables some traders to place early limit orders attracting further liquidity data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1787 this paper was accepted by wei xiong finance

credit booms monetary integration and the new neoclassical synthesis abstract credit to the private sector has risen rapidly in many new central and eastern european eu member states nms in recent years the lending boom has recently been particularly strong in the segment of loans to households primarily mortgage based housing loans and in those countries that operate currency boards or other forms of hard pegs the main aim of this paper is to propose a conceptual framework to analyze the observed developments with a view to exploring some policy implications at a stage in which these countries are preparing for their prospective integration with the euro area to achieve this we first use a stylized new neoclassical synthesis nns framework which has recently been advanced by goodfriend goodfriend m 2002 monetary policy in the new neoclassical synthesis a primer federal reserve bank of richmond july and goodfriend and king goodfriend m king r 2001 the case for price stability nber working paper 8423 we then discuss the implications of the nns model for credit dynamics and ensuing monetary policy challenges specifically we emphasize consumption smoothing as an important channel of the observed credit expansion and we show how it is related to and how it affects the monetary policy making in ms in doing so we place our discussion in the context of the monetary integration process in general and the nominal convergence process in particular

new market socialism a case for rejuvenation or inspired alchemy the aim of this paper is to examine the relative merits and drawbacks of two recent models of market socialism proposed by bardhan and roemer this is done first by putting these models into the perspective of the history of economic thought thus after presenting the basic elements of the early lange model as well as the austrian and new information economics critiques the necessary comparisons and contrasts are made to see what new light these new models bring into this debate in addition the internal consistency and coherence of these models is checked in terms of their own proclaimed goals last a more radical methodological critique is provided copyright 2003 oxford university press

sale of price information by exchanges does it promote price discovery exchanges sell both trading services and price information we study how the joint pricing of these products affects price discovery and the distribution of gains from trade in an asset market a wider dissemination of price information reduces pricing errors and the transfer from liquidity traders to speculators this effect reduces the fee that speculators are willing to pay for trading therefore to raise its revenue from trading a for profit exchange optimally charges a high fee for price information so that only a fraction of speculators buy this information as a result price discovery is not as efficient as it would be with free price information this problem is less severe if the exchange must compensate liquidity traders for a fraction of their losses this paper was accepted by wei xiong finance

anchoring in experimental asset markets we investigate the relationship between anchoring and the emergence of bubbles in experimental asset markets we show that setting a visual anchor at the fundamental value fv in the first period only is sufficient to eliminate or to significantly reduce bubbles in laboratory asset markets if no fv anchor is set bubble crash patterns emerge our results indicate that bubbles in laboratory environments are primarily sparked in the first period if prices are initiated around the fv they stay close to the fv over the entire trading horizon our insights can be related to initial public offerings and the interaction between prices set on pre opening markets and subsequent intra day price dynamics

the great recession us dynamics and spillovers to the world economy abstract this paper provides an empirical investigation of both the within us and international channels of transmission of macroeconomic and financial shocks by means of a 50 country macroeconometric model estimated over the 1980 2009 period including measures of excess liquidity and financial fragility specifically designed in order to evaluate the relevance of the boom bust credit cycle view put forward as an interpretation of the recent great recession episode we find that such a view is consistent with the empirical evidence moreover concerning the real effects of financial shocks within the us we detect stronger evidence of an asset prices channel rather than a liquidity channel concerning the spillovers to the world economy we find that while financial disturbances are transmitted to foreign countries through us house and stock price dynamics as well as excess liquidity creation the trade channel is the key trasmission mechanism of real shocks

international house prices and macroeconomic fluctuations abstract the paper investigates linkages between general macroeconomic conditions and the housing market for the g 7 area among the key results of the paper we find that the us are an important source of global fluctuations not only for real activity nominal variables and stock prices but also for real housing prices secondly albeit distinct driving forces for real activity and financial factors can be pointed out sizeable global interactions are also evident in particular global supply side shocks are an important determinant of g 7 house prices fluctuations the linkage between real housing prices and macroeconomic developments is however bidirectional with investment showing in general a stronger reaction than consumption and output to housing price shocks implications for the real effects of the sub prime crisis are also explored

the effects of price risk on housing demand empirical evidence from u s markets this article examines how price risk affects housing demand it identifies two relevant channels a financial risk effect that reduces demand and a hedging effect that increases demand since current homes may hedge future housing costs the latter dominates when hedging incentives are strong namely when the likelihood of moving up the housing ladder is high and the tendency to move across markets is low for households with weak hedging incentives the article finds negative effects of price risk on the timing and size of home purchases but positive effects for households with strong hedging incentives

informed speculation with imperfect competition competitive rational expectations models have the unsatisfactory property dubbed the schizophrenia problem by hellwig that each trader takes the equilibrium price as given despite the fact that he influences that price an examination of information aggregation in a non competitive rational expectations model using a nash equilibrium in demand functions shows that the schizophrenia problem is avoided by having each trader take into account the effect his demand has on the equilibrium price given a distribution of private information across traders prices reveal less information than in the competition equilibrium and prices no longer become fully informative in the limit as noise trading vanishes or as traders become risk neutral with small traders the model may become one of monopolistic competition not perfect competition in contrast to the competitive model a reasonable model of endogenous acquisition of costly private information is obtained even when traders are risk neutral

walras s theories of tatonnement it is shown that leon walras developed two separate theories of tatonnement one is a disequilibrium production model the other is a pledges model in which transactions and production occur only at the equilibrium set of prices these models are explained and the manner in which they appear in the vari ous editions of walras s elements is used to account for the developm ent of conflicting interpretations of his writings on tatonnement it is shown that the disequilibrium production model is more representa tive of walras s work than the pledges model and that the latter is i ncompatible with the theories of particular aspects of economic behav ior on which the elements depends for its verisimilitude and explanat ory power copyright 1987 by university of chicago press

entry regulation and business start ups evidence from mexico the authors estimate the effect on business start ups of a program that significantly speeds up firm registration procedures the program was implemented in mexico in different municipalities at different dates authors estimates suggest that new start ups increased by about 4 percent in eligible industries and the authors present evidence that this is a causal effect most of the effect is temporary concentrated in the first 10 months after implementation the effect is robust to several specifications of the benchmark control group time trends the authors find that the program was more effective in municipalities with less corruption and cheaper additional procedures