after hours stock prices and post crash hangovers after hours pricing in foreign equity markets of multiple listed u s securities appeared to be efficient in predicting new york prices in the weeks immediately following the october 1987 crash but relatively uninformative in succeeding months by contrast daily changes in new york prices appear to be efficiently incorporated in after hours trading on both the tokyo and london exchanges throughout the sample period this paper suggests that the asymmetry and temporal variations in cross market correlations are consistent with rational investor behavior in equity markets with nonzero transaction costs and time varying share price volatility in the wake of the october 1987 crash a number of studies have provided evidence of significant international linkages among national equity markets where high frequency movements in the share price indices of national exchanges appear to induce sympathetic price movements in subsequent trading on other national exchanges however the cross market correlations are generally much larger in periods of extreme volatility and appear to subside to modest or even negligible associations during periods of more normal trading activity since the constituent stocks of national exchange indices are not identical it may be that the episodic increases in correlated movements of the indices are due to changes in the actual or perceived relative importance of common factors in periods of unusual volatility the thrust of this paper is to remove the issue of the disparate composition of the price indices of national exchanges by examining the prices of a set of

an equilibrium model of asset trading with sequential information arrival in an effort to better understand the dynamic market price adjustment process this paper develops a model which describes the impact of new information on a financial market the primary emphasis is on the price change volume relationship in the presence of a margin requirement we find that the margin requirement significantly affects the relation of price change to volume furthermore this relationship is shown to be affected by the number of investors in the market the degree of information dissemination differences in interpretation of information and the implicit cost of the margin requirement

models of inflation expectations formation a comparison of household and economist forecasts the recent appreciation of the critical role played by expectations of inflation in the behavior of macromodels has stimulated empirical studies of the formation of expectations by different groups time series survey data on expectations of inflation exist now for economists households and businesses these data have been used as independent variables in explaining wage behavior gordon 16 turnovsky and wachter 34 and de menil and bhatta 5 prices turnovsky and wachter 34 and wachtel 36 interest rates gibson 14 hendershott and van horne 19 pearce 30 and mishkin 27 and consumption wachtel 36 generally with a significant improvement in explanatory power they have also been used as dependent variables in attempts to determine how expectations are formed by gordon 15 mullineaux 28 jacobs and jones 20 and figlewski and wachtel 9 for the economist survey van duyne 35 for the household survey and leonard 23 and de leeuw and mckelvey 4 for businesses given their different levels of knowlege of economics and perspectives one might expect that the models used by the different groups to forecast inflation would

inflation real economic growth and unemployment expectations an empirical analysis based on the ecb survey of professional forecasters expectations are at the centre of modern macroeconomic theory and policymakers in this article we examine the predictive ability and the consistency properties of macroeconomic expectations using

a theory of trading volume a theory of trading volume is developed based on assumptions that market agents frequently revise their demand prices and randomly encounter potential trading partners the model describes two distinct ways informational events affect trading volume one is consistent with conjectures made by empirical researchers that investor disagreement leads to increased trading but the observation of abnormal trading volume does not necessarily imply disagreement and volume can increase even if investors interpret the information identically if they also have had divergent prior expectations simulation tests support the model and are used to contrast the random pairing environment with costless market clearing volume is lower in the costly market and volume increases caused by an informational event persist after the event period this is consistent with existing empirical evidence and suggests that markets do not immediately clear all orders or that investors have demands to recontract

where is the market evidence from cross listings in the united states we analyze the location of stock trading for firms with a us cross listing the fraction of trading that occurs in the united states tends to be larger for companies from countries that are geographically close to the united states and feature low financial development and poor insider trading protection for companies based in developed countries trading volume in the united states is larger if the company is small volatile and technology oriented while this does not apply to emerging country firms the domestic turnover rate increases in the cross listing year and remains higher for firms based in developed markets but not for emerging market firms domestic trading volume actually declines for companies from countries with poor enforcement of insider trading regulation

endogeneity in brand choice models applications of random utility models to scanner data have been widely presented in marketing for the last 20 years one particular problem with these applications is that they have ignored possible correlations between the independent variables in the deterministic component of utility price promotion etc and the stochastic component or error term in fact marketing mix variables such as price not only affect brand purchasing probabilities but are themselves endogenously set by marketing managers this work tests whether these endogeneity problems are important enough to warrant consideration when estimating random utility models with scanner panel data our results show that not accounting for endogeneity may result in a substantial bias in the parameter estimates

a probabilistic choice model for market segmentation and elasticity structure marketing scholars commonly characterize market structure by studying the patterns of substitution implied by brand switching though the approach is useful it typically ignores the destabilizing

testing the rationality of inflation forecasts from survey data another look at the src expected price change data this paper develops a unified econometric approach for testing the rationality of expectations from survey data series the paper employs the estimation techniques of hansen 1982 and eichenbaum hansen and singleton 1982 to conduct tests of unbiasedness efficiency and orthogonality for the src expected price change data in contrast to the existing literature the analysis takes careful account of serial correlation and conditional heteroskedasticity in the disturbance terms the results do not reject the properties of unbiasedness efficiency or othogonality for this survey data series copyright 1989 by mit press

trade credit and cross country predictable firm returns we investigate the role of trade credit links in generating cross border return predictability between international firms using data from 42 countries from 1993 to 2009 we find that firms with high trade credit located in producer countries have stock returns that are strongly predictable by the returns of their associated customer countries this behavior is especially prevalent for firms with high levels of foreign sales and is robust to a variety of controls to better understand this effect we develop an asset pricing model in which firms in different countries are connected by trade credit links the model has further predictions about this phenomenon including stronger predictability during periods of high credit constraints and high uninformed trading volume we find supportive empirical evidence for these results

do actions speak louder than words household expectations of inflation based on micro consumption data survey data on household expectations of inflation are routinely used in economic analysis yet it is not clear how accurately households are able to articulate their expectations in survey interviews we propose an alternative approach to recovering households expectations of inflation from their consumption expenditures we show that these expectations measures have predictive power for consumer price index cpi inflation they are better predictors of cpi inflation than household survey responses and more highly correlated with professional inflation forecasts except for highly educated consumers consistent with the view that more educated consumers are better able to articulate their expectations we also document that households inflation expectations respond to inflation news as measured by the unpredictable component of inflation predictions in the survey of professional forecasters the response to inflation news tends to increase with households level of education consistent with the existence of constraints on household s ability to process this information

survey measures of expected u s inflation of real interest rates and cash flows for decisions concerning investment expenditures international capital flows and exchange rate movements hinge in large part on expected real yield differentials across countries the federal reserve needs reliable measures of expected inflation to formulate and gauge the thrust of monetary policy in fact inflation expectations have become more important to the fed given the diminished stability of the link between the monetary aggregates and gdp expenditures since the early 1980s and the greater role which has been thrust upon expected real short term interest rates in the implementation of federal reserve policy the issue of rationality of inflation expectations that is the extent to which agents form expectations without making systematic mistakes in their beliefs about what inflation will be is important if inflation expectations are formed rationally labor and financial markets will strongly tend to neutralize the potential redistributive effects of inflation over time financial capital will flow efficiently within and across national borders moreover some of the stronger claims of new classical macroeconomics like the claim that only unexpected monetary policy actions will

some relations between volatility and serial correlations in stock market returns this article explores the relation between serial correlation and volatility for several different stock return series at daily and weekly frequencies it is found that serial correlations are changing over time and are related to stock return volatility an extension to the garch model is proposed and estimated revealing parameters consistent with other findings in this article copyright 1992 by university of chicago press

information trading volume and international stock return comovements evidence from cross listed stocks we investigate the joint dynamics of returns and trading volume of 556 foreign stocks cross listed on u s markets heterogeneous agent trading models rationalize how trading volume reflects the quality of traders information signals and how it helps to disentangle whether returns are associated with portfolio rebalancing trades or information motivated trades based on these models we hypothesize that returns in the home u s market on high volume days are more likely to continue to spill over into the u s home market for those cross listed stocks subject to the risk of greater informed trading our empirical evidence provides support for these predictions which confirms the link between information trading volume and international stock return comovements that has eluded previous empirical investigations

investigating heterogeneity in brand preferences in logit models for panel data in analyzing panel data the issue of heterogeneity across households is an important consideration if heterogeneity is present but is ignored in the analysis it will result in biased and inconsi

correlations in price changes and volatility across international stock markets the short run interdependence of prices and price volatility across three major international stock markets is studied daily opening and closing prices of major stock indexes for the tokyo london and new york stock markets are examined the analysis utilizes the autoregressive conditionally heteroskedastic arch family of statistical models to explore these pricing relationships evidence of price volatility spillovers from new york to tokyo london to tokyo and new york to london is observed but no price volatility spillover effects in other directions are found for the pre october 1987 period article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the antidirector rights index revisited the antidirector rights index has been used as a measure of shareholder protection in over a hundred articles since it was introduced by la porta et al law and finance 1998 journal of political economy 106 1113 55 a thorough reexamination of the legal data however leads to corrections for thirty three of the forty six countries analyzed the correlation between corrected and original values is only 0 53 consequently many empirical results established using the original index may not be replicable with corrected values in particular the corrected index fails to support three widely influential claims that shareholder protection is higher in common than in civil law countries that shareholder protection predicts stock market size or ownership dispersion and that weak corporate governance explains the extent of exchange rate depreciation during the asian financial crisis of 1997 1998 the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

measuring the level and uncertainty of trend inflation abstract firmly anchored inflation expectations are widely viewed as playing a central role for the conduct of monetary policy this paper presents estimates of trend inflation based on information contained in monthly data on realized inflation survey expectations and the term structure of interest rates in order to assess whether inflation expectations are anchored a timevarying volatility of trend shocks is estimated as well while there is some commonality in inflation and survey based estimates of trend inflation yield based trend estimates embed a highly persistent component orthogonal to trend inflation trimmed mean inflation rates and survey forecasts are most indicative of trend inflation

trading volume definitions data analysis and implications of portfolio theory we examine the implications of portfolio theory for the cross sectional behavior of equity trading volume two fund separation theorems suggest a natural definition for trading activity share turnover if two fund separation holds share turnover must be identical for all securities if k 1 fund separation holds we show that turnover satisfies an approximately linear k factor structure these implications are examined empirically using individual weekly turnover data for nyse and amex securities from 1962 to 1996 we find strong evidence against two fund separation and a principal components decomposition suggests that turnover is well approximated by a two factor linear model if price and quantity are the fundamental building blocks of any theory of market interactions the importance of trading volume in modeling asset markets is clear although most models of asset markets have focused on the behavior of returns predictability variability and information content their implications for trading volume have received far less attention in this article we derive the implications of various asset market models for volume and quantify their importance using recently available volume data for individual securities from the center for research in security prices crsp although the volume literature is voluminous 1 we hope to add to this literature in two ways first we develop the volume implications of popular asset market models rather than construct more specialized and often stylized models to

an information theoretic analysis of stock returns volatility and trading volumes information theory is used to examine the dynamic relationships between stock returns volatility and trading volumes for s p500 stocks this provides an alternative approach to traditional granger causality tests when dealing with nonlinear relationships the article highlights the dominant role played by trading volumes in all of these relationships even in the return volatility relation and finds evidence of a market level feedback effect from index returns to the return volatility relation at the stock level the article also produces a number of stylized facts from an information theoretic perspective

competitive price discrimination strategies in a vertical channel using aggregate retail data we explore opportunities for targeted pricing for a retailer that only tracks weekly store level aggregate sales and marketing mix information we show that it is possible using these data to recover essential features of the underlying distribution of consumer willingness to pay knowledge of this distribution may enable the retailer to generate additional profits from targeting by using choice information at the checkout counter in estimating demand we incorporate a supply side model of the distribution channel that captures important features of competitive price setting behavior of firms this latter aspect helps us control for the potential endogeneity generated by unmeasured product characteristics in aggregate data the channel controls for competitive aspects both between manufacturers and between manufacturers and a retailer despite this competition we find that targeted pricing need not generate the prisoner s dilemma in our data this contrasts with the findings of theoretical models due to the flexibility of the empirical model of demand the demand system we estimate captures richer forms of product differentiation both vertical and horizontal as well as a more flexible distribution of consumer heterogeneity

a likelihood approach to estimating market equilibrium models this paper develops a new likelihood based method for the simultaneous estimation of structural demand and supply models for markets with differentiated products we specify an individual level discrete choice model of demand and derive the supply side assuming manufacturers compete in prices the proposed estimation method considers price endogeneity through simultaneous estimation of demand and supply allows for consumer heterogeneity and incorporates a pricing rule consistent with economic theory the basic idea behind the proposed estimation procedure is to simulate prices and choice probabilities by solving for the market equilibrium by repeating this many times we obtain an empirical distribution of equilibrium prices and probabilities the empirical distribution is then smoothed and used in a likelihood procedure to estimate the parameters of the model the advantage of this method is that it avoids the need to perform a transformation of variables if the tastes of consumers are independent across market periods our approach yields maximum likelihood estimates otherwise it yields consistent but not fully efficient partial likelihood estimates

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

inflationary expectations and rationality revisited abstract we find evidence indicating cointegration between each of three survey measures of inflation expectations and actual inflation using johansen s framework we confirm weak form rationality for each survey and estimate significant speeds of adjustment for both inflation and inflation expectations

a multivariate garch model of international transmissions of stock returns and volatility the case of the united states and canada this study examines the short run dynamics of returns and volatility for stocks traded on the new york and toronto stock exchanges the main finding is that inferences about the magnitude and persistence of return innovations that originate in either market and that transmit to the other market depend importantly on how the cross market dynamics in volatility are modeled moreover much weaker cross market dynamics in returns and volatility prevail during later subperiods and especially for canadian stocks with shares dually listed in new york implications for international asset pricing hedging strategies and regulatory policy are discussed

volume and autocovariances in short horizon individual security returns this article tests for the relations between trading volume and subsequent returns patterns in individual securities short horizon returns that are suggested by such articles as blume easley and o hara 1994 and campbell grossman and wang 1993 using a variant of lehmann s 1990 contrarian trading strategy we find strong evidence of a relation between trading activity and subsequent autocovariances in weekly returns specifically high transaction securities experience price reversals while the returns of low transactions securities are positively autocovarying overall information on trading activity appears to be an important predictor of the returns of individual securities

international transmission of stock market movements this paper investigates the international transmission mechanism of stock market movements by estimating a nine market vector autoregression var system using simulated responses of the estimated var system we i locate all the main channels of interactions among national stock markets and ii trace out the dynamic responses of one market to innovations in another generally speaking a substantial amount of multi lateral interaction is detected among national stock markets innovations in the u s are rapidly transmitted to other markets in a clearly recognizable fashion whereas no single foreign market can significantly explain the u s market movements also the dynamic response pattern is found to be generally consistent with the notion of informationally efficient international stock markets

risk aversion uncertain information and market efficiency abstract this paper develops and tests the uncertain information hypothesis as a means of explaining the response of rational risk averse investors to the arrival of unanticipated information the theory predicts that following news of a dramatic financial event both the risk and expected return of the affected companies increase systematically and that prices react more strongly to bad news than good an empirical investigation of over 9000 marketwide and firm specific events produces results consistent with these predictions we conclude that the market reacts to uncertain information in an efficient if not instantaneous manner

stock prices and volume the authors undertake a comprehensive investigation of price and volume co movement using daily new york stock exchange data from 1928 to 1987 they adjust the data to take into account well known calendar effects and long run trends to describe the process they use a seminonparametric estimate of the joint density of current price change and volume conditional on past price changes and volume four empirical regularities are found 1 positive correlation between conditional volatility and volume 2 large price movements are followed by high volume 3 conditioning on lagged volume substantially attenuates the leverage effect and 4 after conditioning on lagged volume there is a positive risk return relation article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

an investigation of transactions data for nyse stocks using transactions data the behavior of returns and characteristics of trades at the micro level is examined a minute by minute market return series is formed and tested for normality and autocorrelation evidence of differences in return distributions is found among overnight trades trades during the first 30 minutes following the market opening trades at the close and trades during the remainder of the day the latter distribution is found to be normal unusually high returns and standard deviations of returns are found at the beginning and the end of the trading day when the beginningand end of the day effects are omitted autocorrelation in the market return series is reduced substantially a number of patterns in trading are reported this paper empirically investigates the nature of the return generating process and the characteristics of trade size price changes trading frequency and trading interval at the level of individual trades for a large sample of nyse stocks previous studies of market indices have used daily weekly or monthly

structural analysis of manufacturer pricing in the presence of a strategic retailer consumer goods manufacturers usually sell their brands to consumers through common independent retailers theoretical research on such channel structures has analyzed the optimal behavior of channel members under alternative assumptions of manufacturer retailer interaction vertical strategic interaction research in empirical industrial organization has focused on analyzing the competitive interactions between manufacturers horizontal strategic interaction decision support systems have made various assumptions about retailer pricing rules e g constant markup category profit maximization the appropriateness of such assumptions about strategic behavior for any specific market however is an empirical question this paper therefore empirically infers 1 the vertical strategic interaction vsi between manufacturers and retailer 2 the horizontal strategic interaction hsi between manufacturers simultaneously with the vsi and 3 the pricing rule used by a retailer the approach is particularly appealing because it can be used with widely available scanner data where there is no information on wholesale prices researchers usually have no access to wholesale prices even manufacturers who have access to their own wholesale prices usually have limited information on competitors wholesale prices in the absence of wholesale prices we derive formulae for wholesale prices using game theoretic solution techniques under the specific assumptions of vertical and horizontal strategic interaction and retailer pricing rules we then embed the formulae for wholesale prices into the estimation equations while our empirical illustration is using scanner data without wholesale prices the model itself can be applied when wholesale prices are available early research on the inference of hsi among manufacturers in setting wholesale prices using scanner data e g kadiyali et al 1996 1999 made the simplifying assumption that retailers charge a constant margin this assumption enabled them to infer wholesale prices and analyze competitive interactions between manufacturers in this paper we show that this model is econometrically identical to a model that measures retail price coordination across brands hence the inferred cooperation among manufacturers could be exaggerated by the coordinated pricing category management done by the retailer we find empirical support for this argument this highlights the need to properly model and infer vsi simultaneously to accurately estimate the hsi when using data at the retail level functional forms of demand have been evaluated in terms of the fit of the model to sales data but recent theoretical research on channels lee and staelin 1997 tyagi 1999 has shown that the functional form has serious implications for strategic behavior such as retail passthrough while the logit and linear model implies equilibrium passthrough of less than 100 lee and staelin call this vertical strategic substitute vss the multiplicative model implies optimal passthrough of greater than 100 vertical strategic complement vsc because passthrough rates on promotions have been found to be below or above 100 chevalier and curhan 1976 armstrong 1991 we empirically test the appropriateness of the logit vss and the multiplicative vsc functional form for the data we perform our analysis in the yogurt and peanut butter categories for the two biggest stores in a local market we found that the vss implications of the logit fit the data better than the multiplicative model we also find that for both categories the best fitting model is one in which 1 the retailer maximizes category profits 2 the vsi is manufacturer stackelberg and 3 manufacturer pricing hsi is tacitly collusive the fact that the retailer maximizes category profits is consistent with theoretical expectations the inference that the vsi is manufacturer stackelberg reflects the institutional reality of the timing of the game retailers set their retail prices after manufacturers set their wholesale prices note that in the stores and product categories that we analyze the two manufacturers own the dominant brands with combined market shares of about 82 in the yogurt market and 65 in the peanut butter market the result is also consistent with a balance of power argument in the literature the finding that manufacturer pricing is tacitly collusive is consistent with the argument that firms involved in long term competition in concentrated markets can achieve tacit collusion managers use decision support systems for promotion planning that routinely make assumptions about vsi hsi and the functional form the results from our analysis are of substantive import in judging the appropriateness of assumptions made in such decision support systems

modeling multiple sources of heterogeneity in multinomial logit models methodological and managerial issues we offer a framework to specify and estimate various sources of heterogeneity in multinomial logit brand choice models we let each brand specific intercept and each parameter of the explanatory variable vector vary randomly across households in addition we distinguish loyal households from the rest our results suggest that incorporating multiple sources of heterogeneity improves the model fit and suggests higher impact of marketing mix elements on brand choice we highlight the importance of incorporating multiple sources of heterogeneity the model we implement yields valuable managerial insights

evolution in dynamic linkages across daily national stock indexes abstract this article investigates how dynamic linkages among the daily rates of return of eight national stock indexes have evolved since 1972 a dynamic simultaneous equations model is estimated to describe the contemporaneous and lead lag relationships across national equity markets over three different years 1972 1980 and 1987 results reveal growing market interdependence within the same geographical region over time while there are many significant intermarket relationships within the same 24 hour period there are few significant lagged responses across markets beyond 24 hours this suggests a high degree of international market efficiency furthermore japan s market influence has been growing to rival that of the usa

nonparametric regression techniques in economics this introduction to nonparametric regression emphasizes techniques that might be most accessible and useful to the applied economist the paper begins with a brief overview of the class of models under study and central theoretical issues such as the curse of dimensionality the bias variance trade off and rates of convergence the paper then focuses on kernel and nonparametric least squares estimation of the nonparametric regression model and optimal differencing estimation of the partial linear model constrained estimation and hypothesis testing is also discussed empirical examples include returns to scale in electricity distribution and hedonic pricing of housing attributes

investigating dynamic multifirm market interactions in price and advertising diagnosing the nature and magnitu de of competitive interactions among firms is important for developing effective marketing strategies in this paper we formulate a game theoretic model of firm interaction to analyze the dynamic price and advertising competition among firms in a given p roduct market firm or brand level demand functions account for the contemporaneous and carry over effects of these marketing activities and also allow for the effects of competitor actions firms take into consideration the actions of their rivals as well as their own demand and cost functions both production and advertising when determining the profit maximizing price and advertising levels our formulation enables us to quantify not only the direction and magnitude of competitive reactions but also to identify the underlying form of market conduct that generates the particular pattern of interaction we specify and estimate a fully structural econometric model for three firms constituting a distinct sub market within a personal care product category we estimate the demand and competitive interaction parameters as well as the production and advertising cost functions for each firm we then derive implications for competitive interactions and market structure interestingly we find that while firms seem to compete on advertising they price cooperatively thereby enhancing their price cost margins

differential interpretation of public signals and trade in speculative markets most models of trade in speculative markets assume that agents interpret public information identically we provide empirical evidence on the relation between the volume of trade and stock returns around public announcements and we argue that the evidence is inconsistent with this assumption we then develop a model of trade around public announcements that incorporates differential interpretations and is consistent with the observed volume return relation then we test the standard model of belief revision underlying most models of trade using stock brokerage research analysts earnings forecasts the hypthesis of identical interpretations seems inconsistent with the forecast revisions in these data

how important is the financial media in global markets this article studies differences in the information content of 870 000 news announcements in 56 markets around the world in most developed markets a firm s stock price moves much more on days with public news about the firm in contrast in many emerging markets volatility is similar on news and non news days we examine several hypotheses for our findings cross country differences in stock price reactions are best explained by insider trading followed by differences in the quality of the news dissemination mechanism our findings are useful for quantifying the extent of insider trading and how the financial media affects international markets jel g14 g15 public news announcements are a major mechanism for disseminating information to investors each day the financial media releases thousands of articles covering companies in markets worldwide investors use this news to estimate assets fundamental values despite the perceived importance of the

testing for linear and nonlinear granger causality in the stock price volume relation linear and nonlinear granger causality tests are used to examine the dynamic relation between daily dow jones stock returns and percentage changes in new york stock exchange trading volume we find evidence of significant bidirectional nonlinear causality between returns and volume we also examine whether the nonlinear causality from volume to returns can be explained by volume serving as a proxy for information flow in the stochastic process generating stock return variance as suggested by clark s 1973 latent common factor model after controlling for volatility persistence in returns we continue to find evidence of nonlinear causality from volume to returns

cross border listings and price discovery evidence from u s listed canadian stocks we examine the contribution of cross listings to price discovery for a sample of canadian stocks listed on both the toronto stock exchange tse and a u s exchange we nd that priceson the tse and u s exchange are cointegrated and mutually adjusting the u s share of price discovery ranges from 0 2 percent to 98 2 percent with an average of 38 1 percent the u s share is directly related to the u s share of trading and to the ratio of proportions of informative tradeson the u s exchange and the tse and inversely related to the ratio of bid ask spreads with the enhanced globalization of nancial markets the number of non u s rms cross listing shares on a u s exchange has substantially increased attracting non u s listings is now a top priority of the u s stock exchanges at the end of 2000 420 non u s rmswere listed on the new york stock exchange nyse the number of foreign rmslisted on nasdaq waseven higher the popularity of international cross listings has prompted many academic studies on the topic 1 most of these studies focus on the bene ts of international cross listings including the reduced cost of capital and the enhanced liquidity of a rm s stock studiessuch asalexander eun and janakiramanan 1987 1988 and foerster and karolyi 1993 suggest that the cost of capital declines because the portion of the risk premium that compensates for cross border investment barriers dissipates miller 1999 and foerster and karolyi 1999 propose increased investor recognition as another possible explanation several studies examine changes in trading volume and costs due to international cross listing foerster and karolyi 1998 nd that the bid ask spreads in canada decrease after the cross listing of canadian stocks in the united states domowitz glen and madhavan 1998 suggest that the impact of cross listing is complex and depends on the degree of quote transparency that is the extent to which price information is observable in the two markets smith and so anos 1997 examine if cross listing is a zerosum game with increased trading in the united states being oiset by reduced

common volatility in international equity markets in this article we take advantage of the time varying structure of stock returns variances to investigate whether two international stock markets share the same volatility process we use a test recently developed by engle and kozicki this test is also used to assess the validity of a one factor autoregressive conditional heteroscedasticity model we find that some international stock markets have the same time varying volatility

time varying international stock market interaction and the identification of volatility signals abstract this paper investigates the dependency of international stock market interaction on financial volatility we show in a stylized economic model that volatility dependent cross market spillovers can be interpreted in two different ways as indicating information flow or uncertainty if higher volatility in one market leads to higher lower reactions in another market volatility reflects information uncertainty we apply a simultaneous time varying coefficient model where structural arch type variances serve two purposes governing the time variation of spillovers and ensuring statistical identification we analyze data of us and further stock markets indeed we find strong nonlinear volatility dependent spillovers

market efficiency around the clock some supporting evidence using foreign based derivatives abstract this paper examines whether information across international markets is rationally incorporated into stock prices we find that japanese nikkei index based futures traded in the u s provide complete information about contemporaneous overnight japanese returns moreover existing cross dependence between the u s and japanese stock index returns is subsumed by the information content of the derivative securities our findings cast doubt on trading models based on irrational traders who either overreact or only partially adjust to movements in foreign stock markets

do liquidity measures measure liquidity abstract given the key role of liquidity in finance research identifying high quality proxies based on daily as opposed to intraday data would permit liquidity to be studied over relatively long timeframes and across many countries using new measures and widely employed measures in the literature we run horseraces of annual and monthly estimates of each measure against liquidity benchmarks our benchmarks are effective spread realized spread and price impact based on both trade and quote taq and rule 605 data we find that the new effective realized spread measures win the majority of horseraces while the amihud 2002 illiquidity and stock returns cross section and time series effects journal of financial markets 5 31 56 measure does well measuring price impact

beyond the endogeneity bias the effect of unmeasured brand characteristics on household level brand choice models we investigate the role of potential weekly brand specific characteristics that influence consumer choices but are unobserved or unmeasurable by the researcher we use an empirical approach based on the estimation methods used for standard random coefficients logit models to account for the presence of such unobserved attributes using household scanner panel data we find evidence that ignoring such time varying latent to the researcher characteristics can lead to two types of problems first consistent with previous literature we find that these unobserved characteristics may lead to biased estimates of the mean price response parameters this argument is based on a form of price endogeneity if marketing managers set prices based on consumer willingness to pay then the observed prices will likely be correlated with the latent to the researcher brand characteristics we resolve this problem by using an instrumental variables procedure our findings suggest that simply ignoring these attributes may also lead to larger estimates of the variance in the heterogeneity distribution of preferences and price sensitivities across households this could overstate the benefits from marketing activities such as household level targeting we resolve the problem by using weekly brand intercepts embedded in a random coefficients brand choice model to control for weekly brand specific characteristics while accounting for household heterogeneity overall our results extend the finding on the endogeneity bias from the mean of the heterogeneity distribution i e the price effect to include the variance of that distribution

hourly volatility spillovers between international equity markets abstract this paper examines the timing of mean and volatility spillovers between new york and london equity markets using an arch model it is found that the evidence of volatility spillovers between these markets is minimal and have a duration which lasts only an hour or so the most significant effects surround the movement of share prices around the new york opening but these results are not strong several new arch models are estimated including an asymmetric or leverage model and a non linear model which allows big shocks to have a different impact from small shocks

logit demand estimation under competitive pricing behavior an equilibrium framework discrete choice models of demand have typically been estimated assuming that prices are exogenous since unobservable to the researcher product attributes such as coupon availability may impact consumer utility as well as price setting by firms we treat prices as endogenous specifically prices are assumed to be the equilibrium outcomes of nash competition among manufacturers and retailers to empirically validate the assumptions we estimate logit demand systems jointly with equilibrium pricing equations for two product categories using retail scanner data and cost data on factor prices in each category we find statistical evidence of price endogeneity we also find that the estimates of the price response parameter and the brand specific constants are generally biased downward when the endogeneity of prices is ignored our framework provides explicit estimates of the value created by a brand i e the difference between consumers willingness to pay for a brand and its cost of production we develop theoretical propositions about the relationship between value creation and competitive advantage for logit demand systems and use our empirical results to illustrate how firms use alternative value creation strategies to accomplish competitive advantage

has new york become less competitive than london in global markets evaluating foreign listing choices over time abstract we study the determinants and consequences of cross listings on the new york and london stock exchanges from 1990 to 2005 this investigation enables us to evaluate the relative benefits of new york and london exchange listings and to assess whether these relative benefits have changed over time perhaps as a result of the passage of the sarbanes oxley act in 2002 we find that cross listings have been falling on us exchanges as well as on the main market in london this decline in cross listings is explained by changes in firm characteristics instead of by changes in the benefits of cross listing we show that after controlling for firm characteristics there is no deficit in cross listing counts on us exchanges related to sox investigating the valuation differential between listed and non listed firms the cross listing premium from 1990 to 2005 we find that there is a significant premium for us exchange listings every year that the premium has not fallen significantly in recent years and that it persists when allowing for time invariant unobservable firm characteristics in contrast no premium exists for listings on london s main market in any year firms increase their capital raising activities at home and abroad following a cross listing on a major us exchange but not following a cross listing in london our evidence is consistent with the theory that an exchange listing in new york has unique governance benefits for foreign firms

the geography of equity listing why do companies list abroad this paper documents aggregate trends in the foreign listings of companies and analyzes their distinctive prelisting characteristics and postlisting performance in 1986 1997 many european companies listed abroad mainly on u s exchanges while the number of u s companies listed in europe decreased european companies that cross list tend to be large and recently privatized firms and expand their foreign sales after listing abroad they differ sharply depending on where they cross list the u s exchanges attract high tech and export oriented companies that expand rapidly without significant leveraging companies cross listing within europe do not grow unusually fast and increase their leverage after cross listing foreign listings are becoming an increasingly important strategic issue for companies and stock exchanges alike as companies become global in their product market and investment strategies direct access to foreign capital markets via an equity listing can yield important benefits at the same time the international integration of capital markets has led to unprecedented levels of competition among stock exchanges in this competitive struggle the winners are the exchanges that manage to attract more foreign listings and the attendant trading volume and business opportunities despite the importance of these issues still little is known about which exchanges succeed in capturing more listings from abroad and why this question is intimately related to a second issue namely which advantages companies expect to get from a foreign listing securing cheap equity capital for new investment allowing controlling shareholders to divest on a liquid market preparing for foreign acquisitions or simply enhancing the compa

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

the exchange rate exposure of u s multinationals this article examines the exposure of u s multinationals to foreign currency risk evidence is presented that the relationship between stock returns and exchange rates differs systematically across multinationals given these results the study focuses on the determinants of exchange rate exposure the comovements between stock returns and the value of the dollar is found to be positively related to the percentage of foreign operations of u s multinationals copyright 1990 by the university of chicago

a model of competitive stock trading volume a model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives i examine the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics it is found that volume is positively correlated with absolute changes in prices and dividends i show that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns

simultaneous equations bias in disaggregated econometric models with the language of econometrics agents may be said to take prices as exogenously given which suggests that prices are econometrically exogenous in individual behavioural equations this involves semantic confusion between different meanings of the word exogenous simultaneity problems cannot generally be dispelled by working with disaggregated data in particular nothing is gained by disaggregating the dependent variable in a regression equation if the micro and macro equations use the same regressors however there may be substantial gains from disaggregation of the regressors in the theory of competitive markets agents act as if they do not affect equilibrium market prices by analogy with the language of econometrics agents may be said to take prices as exogenously given having thus stated the price taking assumption it may seem that prices are econometrically exogenous in behavioural equations for individual agents such as labour demand curves this involves semantic confusion between two different meanings of the word exogenous for example even if each buyer has a negligible influence on the market price there may still be an important correlation between the price and the disturbance in an individual demand equation so that treating price as econometrically exogenous gives biased coefficient estimates the price taking assumption has been used to justify ols estimates of import demand functions for small countries leamer and stern 1970 pointed out that the estimated slope in an import demand function is generally an average of the slopes of the demand and supply functions for imports but

transactions volume and volatility we show that the positive volatility volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions thus it is the occurrence of transactions per se and not their size that generates volatility trade size has no information beyond that contained in the frequency of transactions our results suggest that theoretical research needs to entertain scenarios in which 1 both the frequency and size of trades are endogenously determined yet 2 the size of trades has no information content beyond that contained in the number of transactions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

an empirical analysis of stock and bond market liquidity this article explores cross market liquidity dynamics by estimating a vector autoregressive model for liquidity bid ask spread and depth returns volatility and order flow in the stock and treasury bond markets innovations to stock and bond market liquidity and volatility are significantly correlated implying that common factors drive liquidity and volatility in these markets volatility shocks are informative in predicting shifts in liquidity during crisis periods monetary expansions are associated with increased liquidity moreover money flows to government bond funds forecast bond market liquidity the results establish a link between macro liquidity or money flows and micro or transactions liquidity a number of important theorems in finance rely on the ability of investors to trade any amount of a security without affecting the price however there exist several frictions 1 such as trading costs short sale restrictions and circuit breakers that impact price formation the influence of market imperfections on security pricing has long been recognized liquidity in particular has attracted a lot of attention from traders regulators

evidence that trading volume sustains stock price changes 1994 evidence that trading volume sustains stock price changes financial analysts journal vol 50 no 6 pp 57 67

the dynamic relationship between stock returns and trading volume domestic and cross country evidence abstract this paper examines the dynamic relations causal relations and the sign and magnitude of dynamic effects between stock market trading volume and returns and volatility for both domestic and cross country markets by using the daily data of the three largest stock markets new york tokyo and london major findings are as follows first trading volume does not granger cause stock market returns on each of three stock markets second there exists a positive feedback relationship between trading volume and return volatility in all three markets third regarding the cross country relationships us financial market variables in particular us trading volume contains an extensive predictive power for uk and japanese financial market variables fourth sub sample analyses show evidence of stronger spillover effects after the 1987 market crash and an increased importance of trading volume as an information variable after the introduction of options in the us and japan

inflationary expectations and rationality abstract evidence of a cointegrating vector of 1 1 between actual and expected inflation rates supports the rational expectations hypothesis the paper also illustrates the caution one must exercise when applying modern time series econometrics techniques in finite samples

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

components of short horizon individual security returns abstract in this paper we present a simple model which relates security returns to three components an expected return a bid ask error and white noise the relative importance of the various components is empirically assessed and the model s ability to explain the various time series properties of individual security and portfolio returns is tested time varying expected returns and bid ask errors are found to explain substantial proportions up to 24 of the variance of security returns we also reconcile the typically negative autocorrelation in security returns with the strong positive autocorrelation in portfolio returns

perceived inflation persistence this article constructs and estimates a measure called perceived inflation persistence that can be used to determine if professional forecasters inflation forecasts indicate there has been a change in inflation persistence this measure is built via the implied autocorrelation function that follows from the estimates obtained using a forecaster specific state space model findings indicate that u s perceived inflation persistence has changed since the mid 1990s with more consensus among forecasters at lower levels of persistence when compared to the autocorrelation function for actual inflation forecasters typically react less to shocks to inflation than the actual inflation data would suggest

why do markets move together an investigation of u s japan stock return comovements this article explores the fundamental factors that affect cross country stock return correlations using transactions data from 1988 to 1992 we construct overnight and intraday returns for a portfolio of japanese stocks using their nyse traded american depository receipts adrs and a matched sample portfolio of u s stocks we find that u s macroeconomic announcements shocks to the yen dollar foreign exchange rate and treasury bill returns and industry effects have no measurable influence on u s and japanese return correlations however large shocks to broadbased market indices nikkei stock average and standard and poor s 500 stock index positively impact both the magnitude and persistence of the return correlations stock return cross country covariances play a key role in international finance changes in these covariances affect the volatility of portfolios and asset prices as these covariances increase one expects that a fewer domestic risks are internationally diversifiable so portfolio volatility increases b the risk premium on the world market portfolio increases 1 c the cost of capital increases for individual firms and d the domestic version of the capm becomes increasingly inadequate 2 despite the important economic consequences of changes in cross country covariances the determinants of the levels and dynamics of these covariances have been little studied from an academic

trading volume and serial correlation in stock returns this paper investigates the relationship between aggregate stock market trading volume and the serial correlation of daily stock returns for both stock indexes and individual large stocks the first order daily return autocorrelation tends to decline with volume the paper explains this phenomenon using a model in which risk averse market makers accommodate buying or selling pressure from liquidity or noninformational traders changing expected stock returns reward market makers for playing this role the model implies that a stock price decline on a high volume day is more likely than a stock price decline on a low volume day to be associated with an increase in the expected stock return

models of inflation expectations formation a comparison of household and economist forecasts comment in the third section of his paper models of inflation expectations formation a comparison of household and economist forecasts gramlich 1983 presents statistics suggesting that two survey measures of inflation expectations are biased and inefficient in this comment we show that the main results presented in his table 1 are generated using a misspecified model when the specification error is corrected we find that the michigan survey of household inflation expectations passes the standard tests for unbiasedness and weak tests for efficiency 1 however there remains doubt about the properties of the inflation expectation series derived from the livingston survey of professional economists 2 the particular results we review were presumably generated from ordinary leastsquares ols estimation of the following equation equation 2 in gramlich