day of the week effects and asset returns the number of empirical studies using daily stock returns is rapidly increasing researchers generally assume that the distribution of stock returns is identical for all days of the week a convenient statistical assumption but not a necessary condition of market equilibrium nevertheless there are reasons to suspect that the distribution of returns may vary according to the day of the week the most obvious is the impact of weekends on monday s return since monday s return is calculated over three instead of one calender day the mean and variance may well be higher on monday compared with any other daily return perhaps three times as large previous research has examined the daily distribution of stock returns for a monday effect while fama 1965 does not compare daily mean returns he does report that monday s variance is about 20o greater than other daily returns with a traditional distributional assumption regarding the returns on a financial asset specifies that the expected returns are identical for all days of the week contrary to this plausible assumption this paper discovers that the expected returns on common stocks and treasury bills are not constant across days of the week the most notable evidence is for monday s returns where the mean is unusually low or even negative several explanations of the results are investigated but none proves satisfactory aside from documenting significant day of the week effects the implications of the results for tests of market efficiency are examined while market adjusted returns continue to exhibit day of the week effects these effects are no longer concentrated on monday during the last year we have had many conversations with our colleagues throughout the professions we are particularly thankful to the participants at sessions of the western and american finance associations where preliminary versions of this paper were presented special thanks are due to gene fama gailen hite jon ingersoll robert jarrow merton miller clifford smith and rex thompson the expert research assistance of frank rabinovitch and youngsup yun is gratefully acknowledged 1 the list of papers using daily stock returns is too long to name recent examples include charest 1978 dodd 1980 banz 1981 and reinganum 1981

evolution in games with randomly disturbed payoffs we consider a simple model of stochastic evolution in population games in our model each agent occasionally receives opportunities to update his choice of strategy when such an opportunity arises the agent selects a strategy that is currently optimal but only after his payoffs have been randomly perturbed we prove that the resulting evolutionary process converges to approximate nash equilibrium in both the medium run and the long run in three general classes of population games stable games potential games and supermodular games we conclude by contrasting the evolutionary process studied here with stochastic fictitious play

regime switching in the reactions of stock markets in saudi arabia to oil price variations the study revisits the stock oil nexus by examining the reactions of equity markets to oil price shocks at national and sectoral levels for saudi arabia in a time varying framework by employing the markov switching egarch model developed by henry 2009 journal of banking and finance 33 405 based on weekly data the findings reveal that the behaviour of all stock markets switches between an expansion regime and a recession regime with more persistence for the expansion state additionally influential international events associated with stock market drops are clearly identified in the recession regime furthermore there is evidence of asymmetric reactions of the equity index returns and the probabilities of transition from one state to another to oil price variations with heterogeneous impacts across sectors and regimes the stock markets are more sensitive to oil price decreases than to oil price increases although the evidence of relatively slight differences in some findings across weekdays the study allows investors and policymakers to understand well the interactions of stock sector markets vis a vis the world oil market in a regime switching framework in order to make the right decision as regards portfolio diversification and regulation of the stock markets

adjustment dynamics and rational play in games when a given strategic situation arises repeatedly the possibility arises that equilibrium predictions can be justified by a dynamic adjustment process we examine myopic adjustment dynamics a class that includes replicator dynamics from evolutionary game theory simple models of imitation models of experimentation and adjustment and some simple learning dynamics we present a series of theorems showing conditions under which behavior that is asymptotically stable under some such dynamic is strategically stable in the sense of kohlberg and mertens this behavior is thus as if the agents in the economy satisfied the extremely stringent assumptions that game theory traditionally makes about rationality and beliefs journal of economic literature classification number c72

dynamic capacity management with substitution we examine a multiperiod capacity allocation model with upgrading there are multiple product types corresponding to multiple classes of demand and the firm purchases capacity of each product before the first period within each period after demand arrives products are allocated to customers customers who arrive to find that their product has been depleted can be upgraded by at most one level we show that the optimal allocation policy is a simple two step algorithm first use any available capacity to satisfy same class demand and then upgrade customers until capacity reaches a protection limit so that in the second step the higher level capacity is rationed we show that these results hold both when all capacity is salvaged at the end of the last demand period as well as when capacity can be replenished in the latter case an order up to policy is optimal for replenishment although finding the optimal protection limits is computationally intensive we describe bounds for the optimal protection limits that take little effort to compute and can be used to effectively solve large problems using these heuristics we examine numerically the relative value of strictly optimal capacity and dynamic rationing the value of perfect demand information and the impact of demand and economic parameters on the value of optimal substitution

a static approximation for dynamic demand substitution with applications in a competitive market we propose a static approximation of dynamic demand substitution behavior based on a fluid network model and a service inventory mapping this approximation greatly enhances our ability to analyze the interdependent inventory service price and product assortment decisions in noncompetitive and competitive scenarios with demand substitution we demonstrate that the approximation is well behaved and then apply it to two previously intractable applications first we study a price and service competition between single product retailers after establishing a unique pure strategy nash equilibrium we find that competition results in lower price higher demand and a higher level of inventory we also observe that the aggregate profit and inventory level increase to positive constants as the number of retailers goes to infinity second we study a duopolistic competition on price service and product assortment we establish a pure strategy nash equilibrium for the product assortment competition and identify a condition for uniqueness we find that competition on both price and product assortment results in lower price and less variety for each competitor but the total number of products and the aggregate inventory level in a duopoly market are both likely to be higher than in a monopolistic market

the projection dynamic and the geometry of population games abstract the projection dynamic is an evolutionary dynamic for population games it is derived from a model of individual choice in which agents abandon their current strategies at rates inversely proportional to the strategies current levels of use the dynamic admits a simple geometric definition its rest points coincide with the nash equilibria of the underlying game and it converges globally to nash equilibrium in potential games and in stable games

a note on best response dynamics we investigate the relationship between the continuous time best response dynamic its perturbed version and evolutionary dynamics in relation to mixed strategy equilibria we find that as the level of noise approaches zero the perturbed best response dynamic has the same qualitative properties as a broad class of evolutionary dynamics that is stability properties of equilibria are robust across learning dynamics of quite different origins and motivations journal of economic literature classification numbers c72 d83

day of the week effect on the paris bourse abstract we present evidence on the day of the week effect on a stock market with a particular settlement procedure the paris bourse a strong and persistent negative return is found on tuesdays a similar result was previously found for japan and australia the settlement procedure is shown to have an effect on the distribution of daily returns consistent with forward pricing theory it cannot explain the negative tuesday return after adjusting for this settlement effect the mean return on mondays is the largest in the week a result at odds with the evidence in the u s a

a further investigation of the weekend effect in stock returns this study uses a longer time period and additional stocks to further investigate the weekend effect we find consistently negative monday returns 1 for the s p composite as early as 1928 2 for exchange traded stocks of firms of all sizes and 3 for actively traded over the counter otc stocks the otc results are based on bid prices and therefore appear to reject specialist related explanations for the 30 individual stocks of the dow jones industrial index the average correlation between friday and monday returns is positive and the highest of all pairs of successive days the latter finding is inconsistent with fairly general measurement error explanations some of the most puzzling empirical findings reported in recent years indicate that the distribution of common stock returns varies by day of the week most notably the average return for monday close friday to close monday is significantly negative cross 3 and french 6 find negative monday returns using the standard and poor s composite index and gibbons and hess 7 find negative monday returns for the 30 individual stocks of the dow jones industrial index 1 this negative monday return or weekend effect has yet to be explained this study undertakes a further investigation of the weekend effect in stock returns we examine additional time periods extending the total period covered to 55 years we examine additional stocks such as those of small low capitalization firms and those traded over the counter in all cases the data exhibit a weekend effect that is at least as strong as that reported in previous studies the study also readdresses potential explanations for the effect such as measurement error but concludes that none of these explanations is satisfactory the first section presents a history of the weekend effect from 1928 through 1982 based on the standard and poor s composite index we essentially double the length of the period beginning in 1953 examined by french 6 the results indicate consistently negative monday returns throughout the 55 year period during much of the 25 year period from 1928 through 1952 the new york stock exchange was open on saturdays so monday s return is then computed from saturday s close to monday s close 2 these returns for one day weekends are consistently negative and not significantly different from the two day weekend

the macroeconomic sources of systemic risk in the banking sectors of five new eu member states abstract rapid credit growth has been one of the most pervasive developments in recent years in central and eastern europe our estimates support the hypothesis that the growth of credit and the amount of available finance might harm banking performance and deteriorate non performing loans npl dynamics most probably due to the overheating of economies in the five nmss the procyclicality of banking sector performance and high economic activities growth is a signal of an economy overheating and therefore a slowdown in economic activity is likely to accelerate the growth of the npl ratio

excess payoff dynamics and other well behaved evolutionary dynamics abstract we consider a model of evolution in games in which agents occasionally receive opportunities to switch strategies choosing between them using a probabilistic rule both the rate at which revision opportunities arrive and the probabilities with which each strategy is chosen are functions of current normalized payoffs we call the aggregate dynamics induced by this model excess payoff dynamics we show that every excess payoff dynamic is well behaved regardless of the underlying game each excess payoff dynamic admits unique solution trajectories that vary continuously with the initial state identifies rest points with nash equilibria and respects a basic payoff monotonicity property we show how excess payoff dynamics can be used to construct well behaved modifications of imitative dynamics and relate them to two other well behaved dynamics based on projections

evolutionary implementation and congestion pricing we consider an implementation problem faced by a planner who manages a roadway network the problem entails both hidden information and hidden actions we solve the planner s problem by introducing a new class of mechanisms and a new notion of implementation the mechanisms called price schemes attach transfers to the available routes they do not involve direct revelation the method of implementation is evolutionary requiring that players who follow any reasonable myopic adjustment process eventually learn to behave as the planner desires we show that efficient behaviour can be guaranteed using simple decentralized price schemes

systemic risk and international portfolio choice returns on international equities are characterized by jumps moreover these jumps tend to occur at the same time across countries leading to systemic risk we capture these stylized facts using a multivariate system ofjump diffusion processes where the arrival of jumps is simultaneous across assets we then determine an investor s optimal portfolio for this model of returns systemic risk has two effects one it reduces the gains from diversification and two it penalizes investors for holding levered positions we find that the loss resulting from diminished diversification is small while that from holding very highly levered positions is large returns on international equities are characterized by jumps 1 moreover these jumps tend to occur at the same time across countries implying that conditional correlations between international equity returns tend to be higher in periods of high market volatility or following large downside moves 2 our objective in

long memory and structural changes in the forward discount an empirical investigation abstract we analyze the evidence for long memory and structural changes in the five g7 countries forward discount we establish evidence for long memory by estimating the long memory parameter without allowing for structural breaks we also document evidence for multiple structural breaks in the mean of the forward discount we then adjust for structural changes in the forward discount rate and re estimate the long memory parameter after removing the breaks we still find evidence of stationary long memory in each country s forward discount

evolutionary drift and equilibrium selection this paper develops an approach to equilibrium selection in game theory based on studying the learning process through which equilibrium is achieved the differential equations derived from models of interactive learning typically have stationary states that are not isolated instead nash equilibria that specify different out of equilibrium behaviour appear in connected components of stationary states the stability properties of these components can depend critically on the perturbations to which the system is subjected we argue that it is then important to incorporate such drift into the model a sufficient condition is provided for drift to create stationary states with strong stability properties near a component of equilibria applications to questions of forward and backward induction are developed

is the efficient market hypothesis day of the week dependent evidence from the banking sector in this article we propose a new hypothesis that the efficient market hypothesis is day of the week dependent we apply the test to firms belonging to the banking sector and listed on the nyse we find significant evidence that the efficient market hypothesis is day of the week dependent overall for only 62 of firms the unit root null hypothesis is rejected on all the five trading days we also discover that when investors do not account for unit root properties in devising trading strategies they obtain spurious profits

combined pricing and inventory control under uncertainty this paper addresses the simultaneous determination of pricing and inventory replenishment strategies in the face of demand uncertainty more specifically we analyze the following single item periodic review model demands in consecutive periods are independent but their distributions depend on the item s price in accordance with general stochastic demand functions the price charged in any given period can be specified dynamically as a function of the state of the system a replenishment order may be placed at the beginning of some or all of the periods stockouts are fully backlogged we address both finite and infinite horizon models with the objective of maximizing total expected discounted profit or its time average value assuming that prices can either be adjusted arbitrarily upward or downward or that they can only be decreased we characterize the structure of an optimal combined pricing and inventory strategy for all of the above types of models we also develop an efficient value iteration method to compute these optimal strategies finally we report on an extensive numerical study that characterizes various qualitative properties of the optimal strategies and corresponding optimal profit values

social stability and equilibrium in the field of noncooperative game theory nash equilibrium nash 1951 has played a central role as a solution concept in bold strokes one may discern two major interpretations of nash equilibrium in the context of rational players the first which is close to the eductive interpretation of binmore 1987 1988 and the complete information interpretation of kaneko 1987 assumes that the game is played exactly once if it is a repeated game the repetition occurs once and the players have sufficient knowledge and ability to analyze the game in a rational manner sometimes it is assumed that all players have consistent hierarchies of beliefs where the game and their priors are common knowledge bayesian interpretation such as proposed by aumann 1987 advanced this idea to the level that the players have a common prior from this point of view however nash equilibrium seems far from being satisfactory

optimal production pricing and substitution policies in continuous review production inventory systems abstract we consider the optimal production pricing and substitution policies of a continuous review production inventory system with two products a high end product and a low end product each product has its associated customer stream however the demands for the low end product may be satisfied by the high end product we formulate the problem as a markov decision process and characterize the structure of the optimal control policy which specifies when to produce for each product when to use the high end product as a substitute and how to set the optimal prices we show that a base stock production policy is optimal however the optimal base stock level for each product depends on the inventory level of the other product and it features a monotonic property we also demonstrate that the optimal substitution policy is a rationing policy with the rationing level depending on the total inventory amount we find that the optimal prices can be either decreasing or increasing in the inventory levels depending on the forms of demand functions furthermore we utilize numerical experiments to investigate the impact of different system characteristics on the benefits of using substitution and dynamic pricing finally we investigate when the dynamic pricing strategy and the substitution strategy are complements or substitutes

exploring the nexus between banking sector reform and performance evidence from newly acceded eu countries abstract the aim of this study is to examine the relationship between banking sector reform and bank performance measured in terms of efficiency total factor productivity growth and net interest margin accounting for the effects through competition and bank risk taking to this end we develop an empirical model of bank performance which is consistently estimated using recent econometric techniques the model is applied to bank panel data from ten newly acceded eu countries the results indicate that both banking sector reform and competition exert a positive impact on bank efficiency while the effect of reform on total factor productivity growth is significant only toward the end of the reform process finally the effect of capital and credit risk on bank performance is in most cases negative while it seems that higher liquid assets reduce the efficiency and productivity of banks

detecting structural breaks and identifying risk factors in hedge fund returns a bayesian approach abstract extending previous work on asset based style factor models this paper proposes a model that allows for the presence of structural breaks in hedge fund return series we consider a bayesian approach to detecting structural breaks occurring at unknown times and identifying relevant risk factors to explain the monthly return variation exact and efficient bayesian inference for the unknown number and positions of the breaks is performed by using filtering recursions similar to those of the forward backward algorithm existing methods of testing for structural breaks are also used for comparison we investigate the presence of structural breaks in several hedge fund indices our results are consistent with market events and episodes that caused substantial volatility in hedge fund returns during the last decade

the week end effect in common stock returns the international evidence this paper examines the daily stock market returns for four foreign countries we find a so called week end effect in each country in addition the lowest mean returns for the japanese and australian stock markets occur on tuesday the remainder of the paper answers four questions are seasonal patterns in foreign stock markets independent of those previously reported in the u s do japan and australia exhibit a seasonal one day out of phase due to different time zones do settlement procedures across countries bias week end effects does the seasonal pattern in foreign exchange offset the week end effect in stocks for americans investing overseas some of the most anomalous empirical findings in finance are associated with the sample distributions of daily common stock returns cross 1 french 2 gibbons and hess 3 and keim and stambaugh 4 have documented that the average return on friday is abnormally high and the average return on monday is abnormally low to our knowledge this so called day of the week effect or week end effect has yet to be explained because this anomaly has been reported primarily for u s stock returns it is appropriate to investigate whether similar results occur for other countries positive findings would strongly support the proposition that the weekly seasonal effect is a general world wide phenomenon rather than the result of a special type of institutional arrangement in the u s to shed more light on this proposition our paper examines stock market returns in the u k japan canada and australia since we find a week end effect in each country we can examine a set of interesting questions for example are these seasonals independent of the previously reported seasonal in the u s due to different time zones do far eastern countries exhibit a seasonal one day out of phase do different settlement procedures across countries influence weekend effects does the seasonal in foreign exchange fluctuations see mcfarland pettit and sung 7 and levi 6 offset the week end effect in stock market returns for americans investing overseas

infection and immunization a new class of evolutionary game dynamics abstract building upon a central paradigm of evolutionary game theory namely the invasion barrier we propose the new infection and immunization dynamics infimmdyn modelling a plausible adaptation process in a large population for general games this yields a novel refinement of the nash equilibrium concept based on dynamical arguments close in spirit to nash s original mass action idea in his ph d thesis for partnership games infimmdyn exhibits a better asymptotic behavior compared to other popular procedures like fictitious play and replicator dynamics we establish even support separation of infimmdyn in finite time which can never be achieved by any interior point method like those mentioned above in fact this property has not yet been established for any other evolutionary game dynamics

how resilient is the german banking system to macroeconomic shocks abstract macroeconomic stress testing studies often rely on rather short sample periods due to the limited availability of banking data they may fail to appropriately account for the cyclicality in the interaction between the banking system and macroeconomic developments in this paper we use a newly constructed data set on german banks income and loss statements over the past 39 years to model the interaction between the banking sector and the macroeconomy our var analysis indicates that the level of stress in the banking sector is strongly affected by monetary policy shocks the results rationalize the active behavior of central banks observed during periods of financial market crises

a twist on the monday effect in stock prices evidence from the u s and foreign stock markets abstract one of the most unusual empirical results in finance is the significantly negative average return on the stock market on mondays the present paper documents a twist on this effect we find that abnormally low returns on monday seem to follow stock market declines in fact the monday effect virtually disappears when the market has previously risen cross keim stambaugh and jaffe westerfield point out that monday s return is positively correlated with the previous friday s return surprisingly our findings hold even after one accounts for this friday monday correlation

systemic risk and bank consolidation international evidence abstract this paper analyzes the systemic risk effects of bank mergers to test the concentration fragility hypothesis we use the marginal expected shortfall as well as the lower tail dependence between a bank s stock returns and a relevant bank sector index to capture the merger related change in an acquirer s contribution to systemic risk in our empirical analysis of a dataset of international domestic and cross border mergers we find clear evidence for a significant increase in the merging banks the combined banks as well as their competitors contribution to systemic risk following mergers thus confirming the concentration fragility hypothesis

coordinating inventory control and pricing strategies with random demand and fixed ordering cost the finite horizon case we analyze a finite horizon single product periodic review model in which pricing and production inventory decisions are made simultaneously demands in different periods are random variables that are independent of each other and their distributions depend on the product price pricing and ordering decisions are made at the beginning of each period and all shortages are backlogged ordering cost includes both a fixed cost and a variable cost proportional to the amount ordered the objective is to find an inventory policy and a pricing strategy maximizing expected profit over the finite horizon we show that when the demand model is additive the profit to go functions arek concave and hence an s s p policy is optimal in such a policy the period inventory is managed based on the classical s s policy and price is determined based on the inventory position at the beginning of each period for more general demand functions i e multiplicative plus additive functions we demonstrate that the profit to go function is not necessarilyk concave and an s s p policy is not necessarily optimal we introduce a new concept the symmetrick concave functions and apply it to provide a characterization of the optimal policy

optimal and approximate policies in multiperiod multilocation inventory models with transshipments this paper examines the effects on the optimal ordering policy and its cost of allowing for interactions among retail outlets specifically transshipments are allowed as recourse actions occurring after demands are realized but before they must be satisfied the resultant savings in holding and shortage costs are balanced against the costs of transshipment a base stock ordering policy is optimal for this model if the final period base stock order up to point is nonnegative then it will be the base stock order up to point for all periods unfortunately it can be found analytically only for two special cases where either the cost parameters are equal at every outlet or there are only two outlets these two special cases are used to validate a heuristic solution technique employing monte carlo integration which is then compared to an easily calculated base policy in order to gauge the contribution of this model the additional savings from using this heuristic policy are significant particularly for problems with many retail outlets and low transshipment costs

calendar anomalies abnormal returns at calendar turning points 1988 calendar anomalies abnormal returns at calendar turning points financial analysts journal vol 44 no 6 pp 28 39

flexible service capacity optimal investment and the impact of demand correlation we consider a firm that provides multiple services using both specialized and flexible capacity the problem is formulated as a two stage single period stochastic program the firm invests in capacity before the actual demand is known and optimally assigns capacity to customers when demand is realized sample applications include a car rental company s use of mid sized cars to satisfy unexpectedly high demand for compact cars and an airline s use of business class seats to satisfy economy class demand we obtain an analytical solution for a particular case when services may be upgraded by one class the simple form of the solution allows us to compare the optimal capacities explicitly with a solution that does not anticipate flexibility given that demand follows a multivariate normal distribution we analytically characterize the effects of increasing demand correlation on the optimal solution for the case with two customer classes the effects of demand correlation are intuitive increasing correlation induces a shift from flexible to dedicated capacity when there are three or more classes there are also adjustments to the resources not directly affected by the correlation change as correlation rises these changes follow an alternating pattern for example if the optimal capacity of one resource rises then the optimal capacity of the adjacent resource falls these results make precise conjectures based on numerical experiments that have existed in the literature for some time

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

pricing and operational recourse in coproduction systems coproduction systems in which multiple products are produced simultaneously in a single production run are prevalent in many industries such systems typically produce a random quantity of vertically differentiated products this product hierarchy enables the firm to fill demand for a lower quality product by converting a higher quality product in addition to the challenges presented by random yields and multiple products coproduction systems often serve multiple customer classes that differ in their product valuations furthermore the sizes of these classes are uncertain employing a utility maximizing customer model we investigate the production pricing downconversion and allocation decisions in a two class stochastic demand stochastic yield coproduction system for the single class case we establish that downconversion will not occur if prices are set optimally in contrast we show that downconversion can be optimal in the two class case even if prices are set optimally we consider the benefit of postponing certain operational decisions e g the pricing or allocation rule decisions until after uncertainties are resolved we use the term recourse to denote actions taken after uncertainties have been resolved we find that recourse pricing benefits the firm much more than either downconversion or recourse allocation do implying that recourse demand management is more valuable than recourse supply management special cases of our model include the single class and two class random yield newsvendor models

weekend effects on stock returns a note some researchers have apparently been surprised to discover that the distribution of stock returns depends on the day of the week kenneth french 3 for example in testing whether daily stock returns are generated by a trading time or calendar time hypothesis provided convincing evidence of a negative market return on mondays as french carefully notes this finding runs counter to both hypotheses since a trading time view would have expected stock returns equal on different days and a calendar time view would have higher expected returns on monday to compensate for the longer holding period in this paper we offer a partial explanation for the apparently puzzling discovery of different daily returns we argue that the expected stock returns as measured for example from closing to closing prices should depend on the day of the week in general we argue that the expected returns on mondays should be lower than would be implied simply by a trading time or calendar time model and the returns on fridays should be higher in addition we anticipate that holidays will have complex effects on stock returns on other days of the week our argument is based on the delay between trading and settlements in stocks and in clearing checks the explanation that we offer for different measured daily returns does not contradict the efficient market hypothesis as correctly adjusted expected returns should not differ according to the day of the week

negative externalities and evolutionary implementation in this paper we model externality abatement as an implementation problem our model incorporates techniques from evolutionary game theory assuming that agents dynamically adjust their choices in response to the incentives they currently face we offer a simple condition on aggregate payoffs under which a planner with limited information about preferences can nevertheless ensure that efficient behaviour is globally stable finally we present a series of applications that show that our sufficient condition holds in a variety of models involving negative externalities