a globally flexible almost ideal demand system the almost ideal demand system is combined with the fourier expenditure system subject to the assumption that preferences are of the price independent generalized logarithmic class the resulting demand system has the desirable features of each of its components aggregate demand equations are consistent with preferences of a representative consumer and consistent estimates of elasticities are obtained for all observed prices application of the new demand system to u s consumption of meats and fish reveals that it fits the data well and that the restriction to the usual specification is rejected

a risk return measure of hedging effectiveness with the formation of a formal market for the trading of financial futures in october 1975 a renewed interest in the futures contract as an investment vehicle has emerged the traditional approach was to view investing in futures as a way of off setting potential price risk associated with a given spot position while these descriptive scenarios see 3 6 10 12 13 14 and 19 adequately illustrate the traditional hedging strategy their simplifying assumptions introduce a lack of realism into the investment process the implication drawn from many of these articles is that if one is interested in risk reduction one should simply take the opposite position in the appropriate number of futures contracts to totally offset one s existing spot position

statistical moments analysis of production and welfare in multi product cournot oligopoly abstract our context involves n cournot oligopolists producing m products at constant marginal costs when preferences are quasi linear we identify relationships between second moments of unit costs and second moments of firm level production for example a larger variance in unit costs of a product increases own output variance and the variance of any other output we also investigate how second moments of unit costs affect industry cost efficiency industry costs can rise if the wrong firm secures a cost reduction for quadratic preferences it is shown that zhao s zhao j 2001 a characterization for the negative welfare effects of cost reduction in cournot oligopoly international journal of industrial organization 19 455 469 3 4 march share criteria for an increase in unit costs to increase welfare extend to the multi product setting

demand elasticities for food products in brazil a two stage budgeting system the object of this article is to estimate demand elasticities for a basket of staple food important for providing the caloric needs of brazilian households these elasticities are useful in the measurement of the impact of structural reforms on poverty a two stage demand system was constructed based on data from household expenditure surveys pof produced by ibge the brazilian bureau of statistics in 1987 88 and 1995 96 we have used panel data to estimate the model and have calculated income own price and cross price elasticities for eight groups of goods and services and in the second stage for 11 sub groups of staple food products we estimated those elasticities for the whole sample of consumers and for two income groups

advertising effects in complete demand systems a rationale for including advertising in complete demand systems is presented an advertising analogue of the slutsky equation is derived and properties of the expenditure and indirect utility functions characterized empirical estimates of a complete demand system incorporating dynamic advertising effects support neoclassical restrictions we do not reject homogeneity or symmetry at the 1 level this represents surprisingly strong support for neoclassical theory relative to prior parametric studies

realignment risk and currency option pricing in target zones abstract this paper extends the krugman target zone model by including a realignment mechanism various properties of that realignment mechanism are discussed the movement of the exchange rate is governed both by a wiener process on fundamental and by a poisson jump process with endogenous realignment size the realignment mechanism is such that except in cases where a speculative attack occurs no jump in fundamental is needed to accompany the jump in the exchange rate a risk neutral valuation of currency options is constructed some properties of option values under realignment risk are illustrated by numerical results

consumer response to commodity specific and broad based promotion programs for fruits and vegetables generic promotion activities have traditionally been used for individual agricultural commodities yet there is renewed interest in implementing a mandatory broad based promotion program for all fruits and vegetables here we use data from an experiment that introduce subjects to various promotional efforts for fruits and vegetables to estimate the shift and rotational effects of advertising econometric results indicate that commodity specific promotional efforts may not be effective at increasing demand for fruits and vegetables after controlling for various demographic differences among treatments our results show that consumers valuation of fruits and vegetables was highest among subjects exposed to broad based advertisements copyright 2011 oxford university press

forward and futures prices with markovian interest rate processes the authors derive a closed form expression for the differences between forward and futures prices in the framework of a lucas equilibrium model they calculate this difference for fixed income securities in two ways using historic interest rate data to calibrate the matrix of nominal state prices and testing a large sample of randomly generated state price matrices in both cases the authors find few meaningful differences between forward and futures prices larger differences are generated from highly diagonal state price matrices the authors conclude that in economically relevant circumstances the costs of marking to market for fixed income securities are negligible copyright 1994 by university of chicago press

on the simple economics of advertising marketing and product design we propose a framework for analyzing transformations of demand such transformations frequently stem from changes in the dispersion of consumers valuations which lead to rotations of the demand curve in many settings profits are a u shaped function of dispersion high dispersion is complemented by niche production and low dispersion is complemented by mass market supply we investigate numerous applications including product design advertising marketing and sales advice and the construction of quality differentiated product lines we also suggest a new taxonomy of advertising distinguishing between hype which shifts demand and real information which rotates demand

interest rate volatility and the term structure a two factor general equilibrium model we develop a two factor general equilibrium model of the term structure the factors are the short term interest rate and the volatility of the short term interest rate we derive closed form expressions for discount bonds and study the properties of the term structure implied by the model the dependence of yields on volatility allows the model to capture many observed properties of the term structure we also derive closed form expressions for discount bond options we use hansen s generalized method of moments framework to test the cross sectional restrictions imposed by the model the tests support the two factor model there are essentially two approaches to the modeling of the term structure of interest rates in continuous time the equilibrium approach pioneered by

generic advertising in an asymmetric cournot oligopoly we examine how benefits of mandated generic advertising vary with firm size in an asymmetric cournot oligopoly market generic advertising funded through a mandatory assessment changes demand but also increases firms costs the effect on a firm s profits depends upon the nature of the change in demand and the company s market share situations are identified in which generic advertising 1 disproportionately favors large small firms 2 decreases profits and 3 increases decreases social welfare our findings explain the concerns that are often raised on small firms being disadvantaged by generic advertising we discuss implications for policy and for firms advertising strategies copyright 2010 oxford university press

some evidence on the performance of size correction factors in testing consumer demand models abstract simulation experiments with the rotterdam model show that restricting the covariance matrix and using its unbiased estimate is quite helpful when performing the wald test while application of italianer s correction factor works quite well when using the likelihood ratio test

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

measuring and testing advertising induced rotation in the demand curve advertising can rotate the demand curve if it changes the dispersion of consumers valuations we provide an elasticity form measure of the advertising induced demand curve rotation in five demand models and test for its presence in the us nonalcoholic beverage market the almost ideal demand system aids model reveals that doubling advertising spending rotates the demand curves clockwise for milk and coffee and tea with associated slope changes of 7 and 12 soft drink advertising rotates its demand curve counterclockwise our policy suggestion is that milk and soft drink firms time advertising to coincide with high and low price periods respectively

the effect of expenditure aggregation on hypothesis tests in consumer demand systems in this paper cluster analysis is used to identify stochastic hicksian aggregates sha such aggregates comprise goods for which relative prices are constant up to a random element the need to identify such aggregates arises since inappropriate aggregation could influence subsequent estimation and tests results evidence is found that inappropriate aggregation of expenditures influences the outcome of hypothesis tests furthermore cluster analysis appears to identify goods which can be treated as sha it would thus appear that these methods should be used to identify the appropriate goods to aggregate prior to the estimation or testing of demand models

maintaining and testing separability in demand systems we derive a general elasticity representation of the necessary and sufficient conditions for direct weak separability of the utility function parametric restrictions required to implement the separability conditions are presented for three common demand systems the almost ideal translog and rotterdam our empirical application uses the rotterdam model to test a few separable structures within a complete u s demand system emphasizing food commodities results based on size corrected likelihood ratio tests provide support for commonly used separability assumptions about food and meat demand

on price indices in the almost ideal demand system a number of papers have discussed the relationship between the almost ideal demand system aids and its linear approximation la aids in this paper it is shown that if the prices in the system are normalized to one the aids and la aids representations are identical at the point of normalization also at the point of normalization the expressions for price and expenditure elasticities from both systems are identical

optimal generic advertising in an imperfectly competitive food industry with variable proportions abstract this paper determines the impact of food industry market power on farmers incentives to promote in a situation where funds for promotion are raised through a per unit assessment on farm output and food industry technology is characterized by variable proportions specifically building on earlier studies by azzam am j agric econ 80 1998 76 and holloway am j agric econ 73 1991 979 muth s oxford econ papers 16 1965 221 model is extended to consider the farm level impacts of generic advertising when downstream firms possess oligopoly and or oligopsony power and advertising expenditure is endogenous at the market level applying the model to the us beef industry we find that for plausible parameter values market power reduces farmers incentives to promote however the disincentive is moderated by factor substitution and effectively vanishes as the factor substitution elasticity approaches the retail demand elasticity this suggests that the dorfman steiner theorem suitably modified to account for factor substitution suffices to indicate optimal advertising intensity in the us beef sector

estimating a demand system with nonnegativity constraints mexican meat demand a new information based approach for estimating systems of many equations with nonnegativity constraints is presented this approach called generalized maximum entropy gme is more practical and

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

optimal commodity promotion when downstream markets are imperfectly competitive we investigate the optimal collection and expenditure of funds for agricultural commodity promotion in markets where the processing and distribution sectors may exhibit oligopoly and or oligopsony power the conditions that characterize optimal advertising intensity under perfect competition for funds generated from either per unit or lump sum taxes do not in general hold when marketing is imperfectly competitive simulation analyses show that imperfect competition always reduces farmers optimal advertising expenditure and that an imperfectly competitive marketing sector may capture half or more of the benefits from the funds that are expended copyright 2002 oxford university press

habit formation and demand for sugar sweetened beverages using scanner data we estimated demand for nine nonalcoholic beverages under habit formation we found strong evidence for habit formation although demand for sugar sweetened beverages by low income households is less elastic to own price changes compared with high income households there is evidence that high income households consider beverages to be more substitutable than low income households do a half cent per ounce tax on store purchased sugar sweetened beverages will result in a moderate reduction in consumption of sugar sweetened beverages for both income strata because of habit formation long run national tax revenue from a sugar sweetened beverage tax is about 15 to 20 lower than short run revenue

modelling milk purchasing behaviour with a panel data double hurdle model in this study the double hurdle model typically used in cross sectional data is extended to panel data structures the new double hurdle model can account not only for the censored nature of commodity purchases but also for the dynamics of the purchase process in this model a flexible error structure is assumed to account for state dependence and household specific heterogeneity in the empirical application for milk purchases it is found that generic advertising increases the probability of market participation as well as the purchase quantity and incidence temporal dependence is also found in both purchase and participation equations

demand for beef and chicken products separability and structural change several studies have indicated that the recent shift from beef to poultry in consumption is not entirely caused by changes in rela tive prices or income braschler chavas dahlgran hudson and vertin moschini and meilke frank thurman most studies of structural change have focused on red meat consumption only thurman has looked closely at the poultry market and no one has considered poultry products yet the mix of chicken products marketed changed dramat ically during the last twenty years and should have influenced aggregate meat demand the share of broiler slaughter marketed as whole birds declined from 74 in 1965 to 28 in 1985 while cut up parts and processed chick en products increased from 26 to 72 whole birds are inferior goods and cut up parts and processed chicken are normal goods haidacher et al the shift in chicken prod uct mix away from whole birds should have increased the preference for total chicken in this article two related questions are ad dressed first do consumers allocate expendi tures among meats by animal origin or by product type second does disaggregation of meat into products in a meat demand model give insight into the causes of structural

optimal currency hedge ratios and interest rate risk abstract the objective of this article is to provide a framework for the interpretation of the optimal currency hedge ratios on foreign investments taking into account interest rate risk this is made possible by using a continuous time setting in the spirit of merton 1969 we focus on the importance of the interest rate differential forward basis in setting the optimal currency hedge because of the influence of interest rates on exchange rates more specifically we consider two discount bonds a domestic and a foreign one which follow stochastic processes possibly correlated with the other state variables of the model it is shown that the optimal hedge ratio can be split into five components a a macro economic component which is a function of the volatility of the interest rate differential and its covariance with currency movements this term depends on the currency considered but not on the asset being hedged b an asset specific term which is directly related to the covariance of the foreign currency asset return with exchange and interest rate movements c a speculative term function of the investor s risk preference and of the conditional risk premium on the exchange rate and d two stochastic opportunity set hedging terms the analysis of the optimal hedge ratio is illustrated on the period december 1970 1989 for stock and bond investments in seven countries jel g15 f31

pricing foreign currency options under stochastic interest rates abstract in this paper we build a general framework to price contingent claims on foreign currencies using the heath et al 1987 model of the term structure closed form solutions are obtained for european options on currencies and currency futures assuming that the volatility functions determining the term structure are deterministic as such this paper provides an example of a bond price process for both the domestic and foreign economies consistent with grabbe s 1983 formulation of the same problem

assessing the value of wind generation in future carbon constrained electricity industries this paper employs a novel monte carlo based generation portfolio assessment tool to explore the implications of increasing wind penetration and carbon prices within future electricity generation portfolios under considerable uncertainty this tool combines optimal generation mix techniques with monte carlo simulation and portfolio analysis methods to determine expected overall generation costs associated cost uncertainty and expected co2 emissions for different possible generation portfolios a case study of an electricity industry with coal combined cycle gas turbines ccgt open cycle gas turbines ocgt and wind generation options that faces uncertain future fossil fuel prices carbon pricing electricity demand and plant construction costs is presented to illustrate some of the key issues associated with growing wind penetrations the case study uses half hourly demand and wind generation data from south eastern australia and regional estimates of new build plant costs and characteristics results suggest that although wind generation generally increases overall industry costs it reduces associated cost uncertainties and co2 emissions however there are some cases in which wind generation can reduce the overall costs of generation portfolios the extent to which wind penetration affects industry expected costs and uncertainties depends on the level of carbon price and the conventional technology mix in the portfolios

equilibrium valuation of foreign exchange claims this article studies the equilibrium valuation of foreign exchange contingent claims within a continuous time lucas 1982 two country model exchange rates interest rates and in particular factor risk prices are all endogenously and jointly determined this guarantees the internal consistency of these price processes with a general equilibrium in the same model closed form valuation formulas are presented for currency options and currency futures options common to these formulas is that stochastic volatility and stochastic interest rates are admitted hedge ratios and other comparative statics are also provided analytically it is shown that most existing currency option models are included as special cases this article studies the equilibrium valuation and hedging of foreign exchange contingent claims the framework for analysis is the continuous time counterpart of the well known two country monetary model of lucas 1982 1 that is we use the modeling structure of lucas 1982 and adopt his representativeagent perfect pooling equilibrium notion rather than extending the lucas setup to a cox ingersoll and ross 1985a henceforth cir production economy as is done in nielsen and saa requejo 1993 for our purpose the lucas framework offers the desired simplicity and tractability we assume a stochastic structure for the international economy such that the resulting nominal interest rates and exchange rate dynamics exhibit similar empirically plausible features as the corresponding ones in nielsen and saa requejo 1993 for example the endogenous interest rates are positively correlated across national borders campbell and clarida 1987 and ilmanen 1995 as a predictor of future spot exchange rates the equilibrium forward exchange rate is biased in a direction consistent with the forward premium puzzle

advertising and us alcoholic beverage demand system wide estimates the effects of advertising on consumption of alcoholic beverages in the us are analysed the goal is to obtain evidence on the importance of advertising at the level of beverage demand beer wine spirits and for total consumption of alcohol per capita gallons of ethanol a three equation conditional demand system is estimated that includes own and cros beverage advertising as explanatory variables four models of the differential demand system are estimated including the rotterdam aid cbs and nbr models using annual us data for the period 1964 90 on beverage consumption prices expednitures and real advertising estimates are obtained of the complete matrix of own and cross elascities for each beverage price and advertising at the beverage level the results indicate a positive butr very small effect of advertising on beverage consumption with most of the impact due to wine advertising and non due to beer advertising there is no efect of advertising in the composite demand function for al

a risk return measure of hedging effectiveness a reply in this reply we point out that chang and shankar s measure of hedging performance which they label he is not an adequate measure we describe an alternative measure labeled hbs which has a number of desirable ex ante and expost statistical properties

estimating and testing the compensated double log demand model in spite of the proliferation of flexible functional forms for consumer demand systems the double log demand model continues to be popular especially in applied work calling for single equation models it is usually estimated in uncompensated form it can also be estimated in compensated form by deflating the income variable alone using stone s price index the compensated form has the same right hand side as a single equation version of the popular linear approximation to the almost ideal demand model facilitating the construction of a test for choosing between the two alternatives this paper demonstrates these results develops the specification test and illustrates its application using us meat consumption data simulations suggest that the test is well behaved with good power in typical applications

economics of nuclear and renewables abstract this paper provides an assessment of the economic challenges faced by both nuclear power and new renewable electricity technologies the assessment reflects the need to incorporate new renewables into power grids and issues faced in dispatching power and their effect on traditional electricity technologies as well as the need for transmission extension and or grid reinforcement wider introduction of smart grids and the likely demise of nuclear in some oecd countries are bound to enhance the future prospects for new renewables however their immediate future expansion will depend on continued subsidies which are becoming difficult to sustain in present economic circumstances development of large energy storage facilities and carbon pricing could significantly enhance future renewable energy prospects correspondingly expanding renewable energy in spite of their popularity with some governments and sections of the public is likely to face challenges which will slow their present rapid progress nuclear is now shied away from in many industrialized countries and having mixed prospects in developing economies in many instances it suffers from high initial costs long lead times and often excessive construction delays nuclear power also faces challenging risks investment as well as regulatory in contrast to renewables its share of global energy consumption is declining

aids translog and the gorman polar form abstract all budget share models that are linear in the log of income can be derived from gorman polar form subutility functions implications of this result for two stage budgeting lifetime utility maximization and social welfare calculations are discussed

currency hedging for international portfolios this paper examines the benefits from currency hedging both for speculative and risk minimization motives in international bond and equity portfolios the riskreturn performances of globally diversified portfolios are compared with and without forward contracts over the period 1974 to 1990 inclusion of forward contracts results in statistically significant improvements in the performance of unconditional portfolios containing bonds conditional strategies are also implemented both in sample and out of sample and are shown to both significantly improve the risk return tradeoff of global portfolios and to outperform unconditional hedging strategies whether international portfolios should be hedged against currency risks is the subject of an active debate the theoretical side of the debate has been closely associated with two strands in the academic literature international asset pricing and optimal hedging in the futures markets in the international asset pricing model iapm of solnik 1974 optimal portfolios contain positions in forward contracts or equivalently foreign currency denominated bills these positions which can differ from the positions in foreign stocks have since been termed hedges black 1990 shows that under additional assumptions the hedge ratios should be identical for all investors regardless of their nationality universality and that investors should never fully hedge their foreign currency exposures similarly theoretical models from the futures literature produce demands for hedging instruments that contain both speculative and hedging components the empirical issue unanswered so far is whether adding forward contracts to international portfolios significantly improves the risk return profile of global investments empirical research has barely begun to respond to the challenges of theoretical models there exists little empirical evidence on either the relevance of black s universal hedge ratios or the optimality of hedge ratios less than one instead researchers have concentrated on the benefits of fully hedging exchange risk for example eun and resnick 1988 indicate that stock portfolios perform better when fully hedged but offer no statistical tests

the market value of variable renewables the effect of solar wind power variability on their relative price this paper provides a comprehensive discussion of the market value of variable renewable energy vre the inherent variability of wind speeds and solar radiation affects the price that vre generators receive on the market market value during windy and sunny times the additional electricity supply reduces the prices because the drop is larger with more installed capacity the market value of vre falls with higher penetration rate this study aims to develop a better understanding on how the market value with penetration and how policies and prices affect the market value quantitative evidence is derived from a review of published studies regression analysis of market data and the calibrated model of the european electricity market emma we find the value of wind power to fall from 110 of the average power price to 50 80 as wind penetration increases from zero to 30 of total electricity consumption for solar power similarly low value levels are reached already at 15 penetration hence competitive large scale renewable deployment will be more difficult to accomplish than as many anticipate

alcohol consumption and alcohol advertising bans the purpose of this paper is to empirically examine the relationship between alcohol advertising bans and alcohol consumption most prior studies have found no effect of advertising on total alcohol consumption a simple economic model is provided which explains these prior results the data set used in this study is a pooled time series of data from 20 countries over 26 years the empirical model is a simultaneous equations system which treats both alcohol consumption and alcohol advertising bans as endogenous the primary conclusions of this study are that alcohol advertising bans decrease alcohol consumption and that alcohol consumption has a positive effect on the legislation of advertising bans the results indicate that an increase of one ban could reduce alcohol consumption by 5 to 8 the alcohol price elasticity is estimated at about 0 2 the results suggest that recent exogenous decreases in alcohol consumption will decrease the probability of enactment of new bans and undermine the continuance

an examination of dynamic hedging abstract i compare garch modeled dynamic hedging strategies with traditional ols modeled strategies to determine which perform better i find that dynamic hedging reduces risk more than static hedging but only slightly this is consistent with some previous findings that more complex hedging methods may not improve the performance much briys and solnik s 1992 static comparison of the macroeconomic and asset specific components of the hedge ratio is extended to a dynamic setting to examine how the relative importance of these two components evolves through time cointegrating relationship between the spot and forward rates in the macroeconomic component is also considered but its effect is minimal the asset specific component has effect in the out of sample period especially under dynamic strategies and under short term hedging horizons

nuclear power understanding the economic risks and uncertainties abstract this paper identifies the fundamental elements and critical research tasks of a comprehensive analysis of the costs and benefits of nuclear power relative to investments in alternative baseload technologies the proposed framework seeks to i identify the set of expected parameter values under which nuclear power becomes cost competitive relative to alternative generating technologies ii identify the main risk drivers and quantify their impacts on the costs of nuclear power iii estimate the nuclear power option value iv assess the nexus between electricity market structure and the commercial attractiveness of nuclear power v evaluate the economics of smaller sized nuclear reactors vi identify options for strengthening the institutional underpinnings of the international safeguards regime and vii evaluate the proliferation resistance of new generation reactors and fuel cycles

implicit separability characterisation and implications for consumer demands abstract we characterize a general form of separability which we call implicit separability it is more general than all known types of separability and contains them as special cases we provide complete characterisations in terms of the direct preference ordering its dual expenditure function the demand functions and the slutsky

discrete exchange rate hedging strategies abstract in this paper we compare the effect of alternative currency hedging strategies on the variance of the terminal value of the firm the main focus is on the time at which the hedge is put down and the frequency with which it is adjusted we show that commonly used strategies such as one period cash flow hedges and long term fixed hedges may leave them firm very exposed to foreign exchange risk one possible explanation for the popularity of one period cash flow hedges is that the firm may shift its operations in response to an exchange rate change we argue that the opportunity for such shifts may help to explain the use of short term hedges

testing restrictions on a model of japanese meat demand tests for quasi separability net substitutability and perfect substitutability are developed and implemented on an almost ideal demand system model of the japanese meat sector the data set satisfies both symmetry and homogeneity there is evidence of net complimentarity between chicken and dairy beef and chicken and pork the tests indicate that japanese wagyu beef is considered a separate commodity to both imported beef and dairy beef the results also indicate that fish can be treated as separable in the japanese meat demand system

currency risk hedging futures vs forward abstract the objective of this paper is to address the issue of choosing between currency forward and currency futures contracts when hedging against currency risk within a stochastic interest rates environment we compare between the hedging effectiveness of the two derivative assets both within a narrow sense i e volatility minimization and within a wide sense i e risk return trade off when judging hedging effectiveness in the narrow sense forward and futures contracts give identical results even if they do not have identical prices when judging hedging effectiveness in the wide sense the choice between the two contracts is determined by the correlation between the domestic and the foreign term structures dynamics

a comparison of forward and futures prices of an interest rate sensitive financial asset this paper focuses on contractual distinctions as an explanation for the price divergence between futures and forward contracts specifically it investigates the effect of marking to market on the observed price differences using the pricing model described in cox ingersoll and ross cir 1981 journal of financial economics 9 321 346 using previously unavailable data this paper employs eurodollars an interest rate sensitive financial asset to test the cir model unlike prior empirical studies test results support both the weak prediction concerning the sign of the average price difference and the stronger prediction that specific covariances explain the variation in the price differences futures contracts and forward contracts are fundamentally similar both contracts are agreements between two parties to trade a specific good or asset at a future date at a price determined today these agreements facilitate the transfer of risk between contracting parties permitting the creation of hedging strategies in spite of their conceptual similarity the implementation of these two contracts is quite different participants in futures markets trade highly standardized contracts by open outcry on organized exchanges clearing associations tor the exchanges control default risk by assuming the opposite side of each transaction guaranteeing payment to reduce traders incentive to default the exchanges mark positions to market by settling contract gains and losses daily in contrast to the futures market the market for forward contracts is mostly an over the counter market in the absence of a clearinghouse trader reputation helps control default risk unlike futures contracts no markingto market occurs the parties in the contract make no payments until maturity of the contract the forward market for financial interest rate instruments departs even further from the futures market format a trader can use the cash market for interest rate instruments to establish a forward position for example a trader can secure a forward position for a three month t bill beginning three months in the future by buying a t bill with a six month maturity and selling a t bill with a three month maturity

pricing continuously resettled contingent claims abstract this paper is a study of continuously resettled contingent claims prices in a stochastic economy as special cases the relationship between futures and forward prices is analyzed and a preference free expression is derived for these prices as well as the price of a continuously resettled futures option whose formula differs from black s futures option pricing formula due to the effects of marking to market the changes in the futures option premium

optimal hedging in a dynamic futures market with a nonnegativity constraint on wealth abstract this paper examines the issue of optimal hedging demands for futures contracts from an investor who cannot freely trade his portfolio of primitive assets in the context of lognormal rather than normal returns and of a constant absolute risk aversion utility function in this context the nonnegativity constraint on wealth is binding and the optimal hedging demands are not identical with those encountered in the bulk of the literature which has largely overlooked this problem negative results concerning the derivation of equilibrium in the futures markets and the computation of the open interests then follow

elasticities in aids models in the literature a variety of approaches have been used to calculate demand elasticities in almost ideal demand system aids models of demand it is common to estimate the linear approximate almost ideal demand system la aids instead of the aids when the la aids is estimated all of the previously reported approaches to compute elasticities are theoretically incorrect this paper presents correct formulas for la aids elasticities and illustrates the potential errors from using incorrect computing the almost ideal demand system aids of deaton and muellbauer 1980a b has become popular in recent years anderson and blundell blanciforti and green 1983a b blanciforti green and king chalfant eales and unnevehr fujii khaled and mak fulponi heien and willett murray parsons ray a variety of approaches to computing elasticities has been used and some of the approaches may lead to significant errors this paper clarifies the differences between alternative approaches to estimating demand elasticities in aids models

advertising and consumer demand a differential approach abstract this paper uses a differential approach to derive demand equations to deal with advertising and show that the demand equations are natural extensions of the usual differential demand equations

the us national tobacco settlement the effects of advertising and price changes on cigarette consumption this paper provides an econometric analysis of the effects of cigarette price and advertising changes stemming from the united states tobacco settlement of 1998 this is done by estimation of a demand function for cigarettes based on data from both before and after the settlement the model is estimated using monthly time series data for the period 1990 2000 results show that the increase in cigarette prices stemming from the settlement reduced per capita cigarette consumption in the usa by 8 3 however the cigarette companies also increased advertising in the years immediately preceding and following the settlement this study estimates that this increased advertising partially offsets the effects of the higher prices increasing cigarette consumption by 2 7 to 4 7 and hence blunting the effects of the price increase by 33 57

whither armington trade models the armington trade model distinguishes commodities by country of origin and import demand is determined in a separable two step procedure this framework has been applied to numerous international agricultural markets with the objective of modeling import demand in addition computable general equilibrium cge models commonly employ the armington formulation in the trade linkage equations the purpose of this paper is to test the armington assumptions of homotheticity and separability with data from the international cotton and wheat markets both parametric and nonparametric tests were performed and the empirical results reject the armington assumptions this has important implications for international trade modeling and cge modeling

estimating threshold effects of u s generic fluid milk advertising this paper addresses the issues of threshold effects pertaining to u s generic fluid milk advertising a threshold delineates the level of advertising intensity that has to be met to generate a specific level of sales effect given that promotional organizations face budget constraints it is of particular interest to ascertain if there exists a minimum threshold that an advertising campaign has to cross to yield a non trivial sales effect despite strong beliefs among market practitioners the existence of advertising threshold effects has rarely been studied by researchers interested in agricultural commodity promotions adopting a spline threshold estimation procedure this paper represents the first attempt to identify thresholds in the sales effect of generic advertising and the impacts the thresholds may have on consumers reactions to changes in important economic variables such as own price and income using quarterly u s generic fluid milk advertising data from 1975 to 2004 a regime dependent fluid milk demand equation is estimated the results support the existence of advertising thresholds and show that generic advertising has the effect of rendering fluid milk demand less elastic with respect to own price and more elastic with respect to income the results of policy simulation further highlight the importance of accounting for the threshold effects of advertising in evaluating promotion program effectiveness

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

consumption and portfolio policies with incomplete markets and short sale constraints the infinite dimensional case abstract we employ a martingale approach to study a dynamic consumption portfolio problem in continuous time with incomplete markets and short sale constraints we introduce a notion of minimax local martingale and transform the dynamic problem into a static problem of maximizing expected utility over the consumption bundles that satisfy a single budget constraint formed using that measure we establish the existence of and characterize the minimax local measure provide sufficient conditions for the dynamic consumption portfolio problem to have a solution and relate the optimal policies to the solution of quasi linear partial differential equation

forward and futures prices evidence from the foreign exchange markets empirical studies of the treasury bill markets have revealed substantial differences between the futures price and the implied forward price these differences have been attributed to taxes transaction costs and the settling up procedure employed in the futures market this paper examines the forward and futures prices in foreign exchange in an attempt to distinguish between the competing explanations empirical studies of the treasury bill market have revealed differences between the futures price or rate and the implicit forward price derived from the term structure of interest rates 1 these differences have generally been attributed to market imperfections such as taxes and transaction costs see for example arak 1 capozza and cornell 2 and rendelman and carabini 6 recently however cox ingersoll and ross 3 henceforth cir derived a model in which forward and futures prices need not be equal even in perfect markets without taxes as long as interest rates are stochastic the significance of the cir effect may be hard to investigate using only data from the bill market because of the potentially complicating effects of taxes and transaction costs unique to this market by using data from the foreign exchange market we are able to eliminate the tax effect and reduce the impact of transaction costs the question we address is whether the discrepancies observed in the treasury bill market are also observed in the foreign exchange market if they are then we have evidence that the differences are due to a combination of the cir effect and the transaction costs common to both markets if they are not then either the magnitude of the cir effect is much less in the foreign exchange market or the treasury bill results are due to the unique tax treatment and transaction costs of that market this paper is organized as follows in section i the trading mechanics of the forward and futures markets in foreign exchange are discussed section ii reviews the explanations for the discrepancies between the forward and futures prices for treasury bills the institutional differences between the foreign exchange and bill markets are also summarized to show which of these explanations cannot apply to the foreign exchange market in section iii the data are decribed and the empirical results are presented the conclusions are summarized in the final section

implied volatility functions in arbitrage free term structure models abstract we test six term structure models in the heath jarrow and morton 1992 class using eurodollar futures and options data from 1987 1992 we study the time series of implied interest rate volatilities from these models using one day lagged implied volatilities our one and two parameter models simultaneously price an average of 18 5 options each day with an average absolute error of one and a half to two basis points although the models fit well we document systematic strike price and time to maturity biases for all models we also implement simple trading strategies to test whether the models identify genuine biases

exchange rate shocks currency options and the siegel paradox abstract this note explores the relationship between risk and premium in foreign exchange rates we show that investors in different countries demand different premiums for the same source of risk the difference in the premiums is related only to the volatility of the source of risk and not to investor risk attitudes we show how this difference is consistent with arbitrage pricing and that any contingent claim on the exchange rate has a unique price even when the exchange rate can jump in particular we resolve the seeming inconsistency reported by dumas et al 1993a for jump models of exchange rates