acquisitions and investment we derive a simple theoretical framework in which acquisitions are treated as an alternative way of obtaining capital goods our framework predicts that both investment and acquisitions are positively related to a firm s shadow value of capital we transform our theoretical specification into an econometric model which we then estimate using a long panel data set spanning 503 us firms over 15 consecutive years our results indicate that an increase in the shadow value of capital has approximately the same proportionate effect on the level of acquisitions as it does on investment this result proves to be robust to a variety of alternative specifications recent years have witnessed a dramatic increase in the number of corporate takeovers this tide of activity raises a number of questions about the causes and consequences of acquisitions what effects do takeovers have on research and development spending do takeovers reduce employment how important are tax considerations in motivating acquisitions do management objectives and or the availability of free cash flow play a role in acquisitions although these questions have been addressed in previous research no specific optimizing model has been put forward to explain the fundamental nature of the acquisition decision in this paper we propose such a model when a firm makes an acquisition it obtains assets in this way acquisitions and investment are similar activities which one might expect to be guided at least to a substantial extent by similar economic principles in this paper we specify and estimate a simple model that explicitly links a firm s acquisition activities to its investment choices the only unusual feature of this model is that these goods can be either purchased directly investment or obtained by taking over another firm acquisitions our model is based on the firm s intertemporal optimization problem under what are with this one exception standard assumptions our specification yields a pair of equations in which a firm s choices regarding acquisitions and investment are jointly determined and are influenced by the shadow value of capital as in many models of investment we assume that firms face convex costs of adjusting their capital stocks consequently the shadow value of capital may exceed its replacement cost firms for which the shadow value of capital is high relative to its purchase price will have an incentive to make relatively large capital purchases in relation to their existing capital stock under standard assumptions the shadow value of capital is reflected in the firm s stock market

the 1985 86 oil price collapse and afterwards what does game theory add this paper focuses on the strategies used by opec to generate cartel profits over the period 1983 90 the evidence supports the hypothesis that opec adopted a swing producer strategy from 1983 to 1985 but when saudi arabia s profits fell below the level of coumot profits in the summer of 1985 it abandoned the role of swing producer driving prices to the cournot level subsequently saudi arabia appears to have adopted a tit for tat strategy designed to punish excessive cheating by other opec members based on these findings the strengths and limitations of game theory are assessed

small firms and the merger mania empirical research has found an average or even superior performance of small firms this seems to be at variance with the secular concentration process and the recurrent merger waves this paper tries to integrate size and merger research higher profitability of small firms is explained by their incentive structure and shorter decision lags but also by lower wages and higher individual risk premia their faster growth in the eighties was in addition fostered by diversification of demand miniaturization of technology and a need for flexibility under uncertainty the merger wave on the other hand does not necessarily prove that large firms are superior managers and shareholders may be seduced by stockmarket optimism a sizeable industry of banks agents and lawyers have their own interests in mergers mergers may be important in declining markets and for the acquisition of technology on average mergers do not improve efficiency profits or internal growth small and large firms serve different purposes performance depends on the market incentives and technology the establishment growth and closure of small firms as well as mergers are attempts to find the optimal organization for utility maximization in a world of severe uncertainty and diverse needs

the out of sample success of term structure models as exchange rate predictors a step beyond abstract a large literature suggests that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate however there is evidence that the term structure of forward premia contains valuable information for forecasting future spot exchange rates and that exchange rate dynamics display nonlinearities this paper proposes a term structure forecasting model of exchange rates based on a regime switching vector equilibrium correction model which is novel in this context our model significantly outperforms both a random walk and to a lesser extent a linear term structure vector equilibrium correction model for four major dollar rates across a range of horizons

short run forecasting of the euro dollar exchange rate with economic fundamentals abstract we propose a fundamentals based econometric model for the weekly changes in the euro dollar rate with the distinctive feature of mixing economic variables quoted at different frequencies the model obtains good in sample fit and more importantly encouraging out of sample forecasting results at horizons ranging from one week to one month specifically we obtain statistically significant improvements upon the hard to beat random walk model using traditional statistical measures of forecasting error at all horizons moreover our model obtains a great improvement when we use the direction of change metric which has more economic relevance than other loss measures with this measure our model performs much better at all forecasting horizons than a naive model that predicts the exchange rate as an equal chance to go up or down with statistically significant improvements

on the relationship between aggregate merger activity and the stock market abstract this paper presents substantial evidence to show that the well documented correlation between aggregate merger activity and indices of share prices is unstable and thus of little predictive value further granger causality testing suggests that such correlations are spurious reflecting other more fundamental forces which jointly determine movements in both series

the efficiency of the dollar sterling gold standard 1890 1908 the gold standard in 1890 1908 period was efficient by any criterion the number of gold point violations was small violations did not persist gold movements occurred in the predictable profitable direction in response to violations and the mean absolute exchange rate for 1881 1900 was at exactly half the average of the gold points the actions of the bank of england and u s treasury in manipulating gold points were consistent with the rules of the game and in fact facilitated the efficiency of the gold standard in contrast the operations of banking syndicates were of a nature to generate inefficiencies but the evidence is that they did not have this effect

covered interest rate arbitrage in the interwar period and the keynes einzig conjecture keynes 1923 conjectured that deviations from covered interest rate parity would not be arbitraged unless a profit of at least a half of one percent on an annualized basis was available and that larger deviations would still be moderately persistent because of less than perfect elasticity of supply of arbitrage funds this two part conjecture was given further emphasis by other writers on this period notably einzig 1937 we apply nonlinear econometric techniques to a previously unexploited weekly data base for the 1920s london and new york markets and find strong support for the conjecture

a note on interest parity and the supply of arbitrage funds the divergence of the actual forward premium on foreign exchange from that dictated by the principle of interest rate parity can arise from two separately identifiable causes 1 an equilibrium position as indicated by the interest parity principle has not been reached or 2 that the principle itself is not a correctly specified equilibrium condition it is the purpose of this note to offer a revised specification of the interest parity condition and to determine whether this version approximates more closely the actual premium as determined in the market it should be made clear however that this is a partial analysis and does not deal with the impact of other forces for example speculation on the forward premium as a result a complete model of the spot and forward markets for foreign exchange such as stein s 1965 is not attempted here in general the principle of interest parity maintains that in equilibrium

what motivates merger and acquisition activities in the upstream oil gas sectors in the u s abstract the u s oil and gas o g industry has experienced a tremendous amount of growth in the last decade or so due to the development of horizontal drilling and fracking technology in the meantime the industry has experienced heavy merger and acquisition m a activity especially in the upstream sectors while these m a activities may be related to the aggregate m a waves in the country they are unique in their own respect we recognize that the m a activities in the energy industry in general and the o g sectors in particular can be different from the traditional sense of m a activities in this paper we provide some stylized facts on the m a patterns in the upstream o g sectors focusing on the factors that influenced these patterns our empirical evidence suggests that among the variables we studied oil price and o g production are the most important factors that influence m a activities while other variables do not show consistent effect across regions and definitions of m a in addition the m a activities had momentum building periods and had patterns consistent with a wave hypothesis our findings support the notion that industry specific factors are more important than general economic conditions in determining m a in the o g industry we find evidence supporting both the behavioral and neoclassical theories on m a

nonrenewable resource scarcity nonrenewable resource theory often is summarized by hotelling s rule this paper reviews theoretical extensions and empirical investigations of resource extraction models observed data are often inconsistent with the hotelling rule suggesting that other characteristics of nonrenewable resource supply including exploration heterogeneous ore quality technological progress and capital investment are important determinants of the dynamic behavior of resource prices given the persistent recurrence of concern about nonrenewable resource scarcity measures of nonrenewable resource scarcity and the empirical evidence for the time trends of those measures are reviewed finally the implications of nonrenewable resource scarcity for economic growth are examined

the forward premium puzzle in the interwar period and deviations from covered interest parity we revisit the forward premium puzzle in the interwar period and find that as the deviation from covered interest rate parity increases the coefficient on the forward premium in the standard fama regression tends towards zero

nonlinear adjustment to purchasing power parity in the post bretton woods era abstract this paper models the dynamics of adjustment to long run purchasing power parity ppp over the post bretton woods period in a nonlinear framework consistent with the presence of frictions in international trade we estimate exponential smooth transition autoregressive estar models of deviations from ppp which are obtained using the johansen cointegration method for both consumer price index cpi and wholesale price index wpi based measures and a broad set of us trading partners in several cases we find clear evidence of a mean reverting dynamic process for sizable deviations from ppp with the equilibrium tendency varying nonlinearly with the magnitude of disequilibrium analysis of impulse response functions also supports a nonlinear dynamic structure but convergence to long run ppp in the post bretton woods era is very slow

a time series analysis of causality between aggregate merger and stock prices the case of canada it is widely agreed that a positive relationship exists between measures of aggregate merger activity and measures of stock market performance at least for the usa evidence from other countries is relatively sparse in this paper we pursue the causality question using canadian data most of the previous studies used only a bivariate system merger and stock prices we have extended the analysis to trivariate system merger stock prices and interest rate to better reflect the capital market conditions argument for changes in merger activity the results suggest a bidirectional causality between mergers and stock prices

economic cost scale efficiency and competitive viability in banking this paper addresses the issue of the competitive viability of banks of different scales and scopes of operation and the implications that this may have for the evolving structure of the banking and financial services industry unlike previous papers this paper is the first to include both production and opportunity costs in an empirical evaluation of bank efficiency no consistent evidence is reported to suggest that banking organizations can achieve further gains in either production or economic efficiency by expanding beyond 2 billion dollars of total assets thus it is likely that smaller less diversified banking organizations will remain competitively viable copyright 1996 by ohio state university press

sets arbitrage activity and stock price dynamics this paper provides an empirical description of the relationship between the trading system operated by a stock exchange and the trading behaviour of heterogeneous investors who use the exchange the recent introduction of sets in the london stock exchange provides an excellent opportunity to study the impact of an electronic trading system upon traders who use the exchange using the cost of carry model of futures prices we estimate non linearly the transaction costs and trade speeds faced by arbitragers who take advantage of mispricing of ftse100 futures contracts relative to the spot prices of the stocks that make up the ftse100 stock index we divide the sample period into pre sets and post sets sample periods and conduct a comparative study of arbitrager behaviour under different trading systems the results indicate that there has been a significant reduction in the level of transaction costs faced by arbitragers and in the degree of transaction cost heterogeneity finally generalised impulse response functions show that both spot and futures prices adjust more quickly in the post sets period these results suggest that both spot and futures markets have become more efficient under sets

long run relations and short run dynamics among coal natural gas and oil prices we examine the long run relations and short run dynamics among the three primary energy prices coal natural gas and crude oil using the annual and monthly us data for the post 1970 period the results are consistent with the view that oil prices are determined globally natural gas prices are determined regionally and coal prices are set by long term contracts

foreign exchange market efficiency and cointegration in this note we examine an implication of the cointegration literature for the efficiency of foreign exchange markets in particular if foreign exchange markets are efficient then two spot exchange rates cannot be cointegrated this proposition is tested for 10 dollar bilateral exchange rates over the period january 1973 december 1985

covered interest arbitrage and market turbulence the covered interest parity theorem states that the covered interest differential between two similar assets denominated in different currencies should be zero this paper utilizes high quality data recorded by the dealers at the bank of england to test covered interest parity during certain historical periods in which there is known to have been turbulence as well as during a relatively calm control period the data is high frequency and allowance is made for the bid offer spread brokerage costs and other considerations the results have three main implications firstly profitable arbitrage opportunities do occasionally occur and sometimes persist during turbulent periods secondly the degree of efficiency of the relevant markets appears to have increased over time thirdly there appears to be a maturity effect whereby the existence and size of profitable arbitrage opportunities appear to be positive functions of the length of maturity a rationalization of this phenomenon is offered in terms of the existence of credit limits copyright 1989 by royal economic society

purchasing power parity over two centuries trends and nonlinearity in two recent contributions lothian and taylor and cuddington and liang produced empirical evidence that annual data for the dollar sterling real exchange rate spanning two centuries exhibited a non linear deterministic trend this trend could be proxying harrod balassa samuelson effects lothian and taylor showed that a linear stationary autoregressive mode which embodied a cubic trend implied much faster mean reversion of the real exchange rate to shocks than a model that excluded the trend this article shows that both non linearity and a deterministic trend can be allowed for in a theoretically appealing manner and that the fitted models provide a parsimonious explanation of both the dollar sterling and franc sterling real exchange rates over the two centuries of data generalized impulse response function analysis of the models demonstrates that the speed of adjustment to shocks can be even faster when trends are considered

the foreign exchange market a random walk with a dragging anchor this paper explores some anomalies in the foreign exchange market it is hard to find evidence of either short term overshooting or of longer term reversion to an equilibrium the forward exchange rate contains virtually no information on future spot rates discussions with practitioners indicate that longer term speculation based on fundamentals is strictly limited and survey data and other evidence suggest that expectations and speculation are based on a variety of models the interplay between speculation based on fundamentals and on a random walk or chartist approach influences the outcome this endorses the prior model of j a frankel and k a froot copyright 1988 by the london school of economics and political science

long term covered interest parity evidence from currency swaps abstract this paper constructs long term arbitrage conditions using a now well developed mechanism for hedging long term currency positions the currency swap using the arbitrage conditions bond yields denominated in different currencies are compared across the onshore markets of canada japan germany switzerland the united kingdom and the united states and within the euromarket the evidence indicates that long term financial capital is as mobile across these markets as is short term capital this appears to be the case both within the euromarket and across political jurisdictions

what do we learn from the price of crude oil futures summary despite their widespread use as predictors of the spot price of oil oil futures prices tend to be less accurate in the mean squared prediction error sense than no change forecasts this result is driven by the variability of the futures price about the spot price as captured by the oil futures spread this variability can be explained by the marginal convenience yield of oil inventories using a two country multi period general equilibrium model of the spot and futures markets for crude oil we show that increased uncertainty about future oil supply shortfalls under plausible assumptions causes the spread to decline increased uncertainty also causes precautionary demand for oil to increase resulting in an immediate increase in the real spot price thus the negative of the oil futures spread may be viewed as an indicator of fluctuations in the price of crude oil driven by precautionary demand an empirical analysis of this indicator provides evidence of how shifts in the uncertainty about future oil supply shortfalls affect the real spot price of crude oil copyright 2010 john wiley sons ltd

political vs currency premia in international real interest differentials a study of forward rates for 24 countries abstract different approaches to quantifying the degree of capital mobility for a cross section of currencies particularly saving investment correlations and tests of real interest parity have appeared to show a surprisingly low degree of financial integration we use a new data set forward rate data for 24 countries including many small industrialized countries and seven ldcs to decompose the real interest differential into two parts the covered interest differential or political premium and the real forward discount or currency premium the latter in turn can be decomposed into the exchange risk premium and expected real depreciation we find a high degree of capital mobility across political boundaries for most of the g 11 countries plus hong kong and singapore for our sample period of 1982 to 1987 even for most of the other ldcs and smaller industrialized countries for which covered interest parity clearly fails the political premium is not as big a component of the real interest differential as the currency premium france would appear to have higher capital mobility than most by the criterion of real interest differentials but is seen in fact to have low capital mobility by the criterion of covered interest differentials a clear example of the superiority of the latter criterion

economic behavior in institutional environments the corporate merger wave of the 1980s over the last 100 years the united states has experienced four waves of corporate merger activity the first occurred at the turn of the century then again in the 1920s the 1960s and the 1980s most research on merger waves has focused on individual mergers within a wave our research focuses on the wave itself we develop a theoretical model that centers on the actors who promote the mergers and on those changes in the political and economic environments that provide the resources these actors need to act specifically we argue that a permissive state combined with increased access to capital market funds encourages fringe players to initiate the innovations that enable them to execute mergers merger waves occur when these actors become increasingly successful and their innovations are imitated throughout the business community we provide empirical support for the model using data from the 1980 s merger wave

how does anwr exploration affect opec behavior a simulation study of an open loop cournot nash game exploring petroleum reserves in the alaskan arctic national wildlife refuge anwr has been proposed to reduce the dependence on foreign oil and to ease the energy shortage in the united states to investigate the impacts of the anwr exploration on strategic behavior of opec members a calibrated dynamic model of oligopolistic competition and cartel collusion in the u s petroleum market is built in this paper numerical simulations on an open loop game are used here to examine the scope and magnitude of strategic interactions between opec s decisions and anwr exploration the simulation results show that opec s strategic postures have much stronger effects on the u s petroleum market than the anwr exploration the simulations in this paper indicate that preventing cartel collusion by opec is more effective than the anwr exploration in alleviating short petroleum supplies of the united states in the near future

a threshold error correction model for intraday futures and index returns index futures arbitragers only enter into the market if the deviation from the arbitrage relation is sufficiently large to compensate for transaction costs and associated interest rate and dividend risks we estimate the band around the theoretical futures price within which arbitrage is not profitable for most arbitragers using a threshold autoregression model combining these thresholds with an error correction model we show that the impact of the mispricing error is increasing with the magnitude of that error and that the information effect of lagged futures returns on index returns is significantly larger when the mispricing error is negative 1998 john wiley sons ltd

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

personal versus market logics of control a historically contingent theory of the risk of acquisition this paper develops and tests a theory of the historical contingency of the risk of acquisition using data from the higher education publishing market from 1958 1990 interviews and historical analyses are combined to identify two forms of capitalism personal and market and in particular to publishing to identify the institutional logics identified with each form of capitalism an editorial and a market logic hazard rate models are used to test for differences in the effects of these two logics on the organization and market determinants of acquisition publishers with relational network forms of organization in production and distribution were at a higher risk of acquisition in the market period but not in the editorial period competition in the product market increased the risk of acquisition in the market period but not the editorial period the covariates explaining the risk of acquisition change as a consequence of the evolution of capitalism and as a result of a firm s strategic and structural conformity with the institutional logic of the prevailing form of capitalism

international capital mobility in developing countries theory and evidence despite the importance of international capital mobility in influencing the outcome of stabilization policies there is little research on the issue in developing countries this paper tests the degree of capital mobility in nine developing countries using the intertemporal consumption smoothing framework we find considerable evidence to suggest that capital is sufficiently mobile in the countries under examination to facilitate consumption smoothing in the event of shocks to the national cash flow national income net of private investment and government spending our findings also suggest that the impact of shocks to one or more components of the national cash flow on the current account is offset by dynamic responses of other components such that the current account balance is preserved from drastic movements over time

on the relationship between aggregate merger activity and the stock market some further empirical evidence abstract this letter presents the results of an econometric investigation relating two measures of merger activity in the uk and the london stock market index the study shows that real stock market prices granger cause both numbers and real values of mergers

market structure and inefficiency in the foreign exchange market abstract this paper investigates the intradaily operational efficiency of the us foreign exchange market by conducting computer simulation experiments with market structure the numbers of market makers brokers and customers the results indicate significant operational inefficiencies which can be explained by temporary inventory imbalances inherent in a decentralized market the results also suggest that much of this inefficiency could be alleviated through a centralization of price information jel f31 g15

covered interest arbitrage profits the role of liquidity and credit risk we study the profitability of covered interest parity cip arbitrage violations and their relationship with market liquidity and credit risk using a novel and unique dataset of tick by tick firm quotes for all financial instruments involved in the arbitrage strategy the empirical analysis shows that positive cip arbitrage deviations include a compensation for liquidity and credit risk once these risk premia are taken into account small arbitrage profits only accrue to traders who are able to negotiate low trading costs the results are robust to stale pricing and the nonsynchronous trading occurring in the markets involved in the arbitrage strategy

combining mean reversion and momentum trading strategies in foreign exchange markets abstract the literature on equity markets documents the existence of mean reversion and momentum phenomena researchers in foreign exchange markets find that foreign exchange rates also display behaviors akin to momentum and mean reversion this paper implements a trading strategy combining mean reversion and momentum in foreign exchange markets the strategy was originally designed for equity markets but it also generates abnormal returns when applied to uncovered interest parity deviations for five countries i find that the pattern for the positions thus created in the foreign exchange markets is qualitatively similar to that found in the equity markets quantitatively this strategy performs better in foreign exchange markets than in equity markets also it outperforms traditional foreign exchange trading strategies such as carry trades and moving average rules

the re emergence of ppp in the 1990s abstract in this paper we investigate purchasing power parity ppp in a panel with 17 countries for the period 1972 through 1996 the novel feature of our panel methodology is that results are invariant to the choice of a benchmark on numeraire currency in the panel we allow individual country effects in the relation between prices and exchange rates in this way we can identify the currency pairs for which ppp holds or does not hold we conclude that there is substantive evidence for ppp although not to the same extent for every currency evidence in favor of ppp is strongest for many exchange rates relative to the dmark and weakest for the japanese yen for this currency a trend like variable like productivity growth is missing

index arbitrage and nonlinear dynamics between the s p 500 futures and cash we use a cost of carry model with nonzero transaction costs to motivate estimation of a nonlinear dynamic relationship between the s p 500 futures and cash indexes discontinuous arbitrage suggests that a threshold error correction mechanism may characterize many aspects of the relationship between the futures and cash indexes we use minute by minute data on the s p 500 futures and cash indexes the results indicate that nonlinear dynamics are important and related to arbitrage and suggest that arbitrage is associated with more rapid convergence of the basis to the cost of carry than would be indicated by a linear model article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

nonlinear permanent temporary decompositions in macroeconomics and finance we suggest a method of decomposing univariate and multivariate nonlinear processes into their permanent and temporary components extending the analysis of beveridge and nelson 1981 and stock and watson 1987 we provide applications in the univariate nonlinear case to recent work on nonlinearities in the us business cycle and in the multivariate nonlinear case to recent work on asymmetric nonlinear adjustment in the term structure of interest rates for the us the business cycle results suggest that the method may be particularly useful in future research on output fluctuations

long run purchasing power parity in the 1920s abstract this paper presents an empirical analysis of long run purchasing power parity ppp during the 1920s float using recently developed methodology on the cointegration of economic time series our results are generally supportive of ppp as a long run equilibrium condition on which exchange rates tended to converge over the period for dollar sterling however there is some evidence of a non stationary drift away from fundamentals during the last year or so before britain s return to the gold standard perhaps due to speculation our results also appear to reconcile some apparently conflicting evidence in the literature

mergers stock prices and industrial production further evidence abstract economic theory has been developed to correlate mergers and stock prices and mergers and industrial production this study tests for significant relations among annual mergers stock prices and industrial production and examines whether multiple time series models can forecast annual mergers more accurately than a univariate merger model we do not find that the mean square forecasting error of the multivariate time series model is significantly less than the mean square forecasting error of the univariate merger model the stock price series does not aid in forecasting mergers

a time series analysis of aggregate merger activity the study of merger activity has been of long standing interest to economists as well as the financial community references to merger activity in american industry generally acknowledge three major merger movements the first one occurred during the turn of the century the second one during the 1920s stigler 1950 describes the second merger wave as being mergers for oligopoly in contrast with the earlier mergers for monopoly movement increased market power through consolidation and corporate concentration and operating economies of scale were identified as motives for mergers during these two waves horizontal mergers i e mergers between direct competitors were relatively more important during the first merger wave with vertical mergers i e mergers between firms with prior buyer seller relationships being significant in the second wave currently the united states is in the midst of its third major merger wave which began after the end of world war ii this has become known as the conglomerate merger wave because of the emphasis on mergers between unrelated firms or firms seeking product extension objectives i e mergers between firms functionally related in terms of distribution and or production facilities but whose products are not directly competing 2 the direction of the current merger wave can be partially explained by the fact that the celler kefauver amendment to the clayton act in 1950 discourages horizontal and vertical mergers while many authors have engaged in the study of mergers in the united states the empirical examination of changes in aggregate merger activity has been limited both as to type and time period covered nelson 1959 first examined changes in quarterly merger activity during the 1895 1920 period and found a high positive correlation between changes in merger activity and changes in stock prices and a positive but lower correlation between mergers and industrial activity further study by nelson however showed that for the 1919 1954 period the relationship between mergers and stock prices was considerably weaker in a follow up study which extended aggregate merger data through 1962 nelson 1966 concluded that merger activity exhibited a positive and highly consistent response to changes in business activity as measured by the reference or business cycle in addition to the efforts by nelson weston 1961 examined annual changes in merger activity during the interwar period between world war i and world war ii using a multiple regression model weston found merger activity to be significantly related to stock prices but not significantly related to industrial production activity previous studies provide only limited insights into the structural especially lead lag relationships between aggregate merger activity and macroeconomic market factors the literature is particularly void of empirical studies which investigate such relationships during the current merger period 3 it is this subject which we address in this paper we employ a data based multiple time series approach to develop an explanatory model for describing changes in the incidence of received for publication july 14 1981 revision accepted for publication december 17 1982 university of colorado university of iowa and university of denver respectively computer facility support from the university of iowa along with multiple time series programs provided by the university of wisconsin madison are gratefully acknowledged we also wish to thank the referees for their helpful comments these two merger waves or movements were extensively studied either separately or together by eis 1969 markham 1955 nelson 1959 stigler 1950 thorp 1941 and weston 1961 as well as others 2 the current merger movement either separately or in conjunction with the earlier movements or waves was analyzed by lintner 1971 lynch 1971 markham 1973 nelson 1966 reid 1968 and steiner 1975 3 international investigation of aggregate merger activity during the 1960s and 1970s is reported in mueller 1980 visual examination of the movement of mergers gnp and stock prices in belgium suggested generally positive relationships aggregate merger activity was compared individually against economic activity gdp gross fixed investment and share prices in west germany during the 1960s mergers tended to move in step with changes in economic activity and investment while lagging share prices however in the 1970s merger activity tended to lead the other aggregate measures the best overall relationship was between merger activity and share prices

opec and the u s oil import tariff open loop nash extraction plans of exhaustible resource producers in which producers take the plans of others as given are time consistent but proposed open loop oil import tariffs are almost always time inconsistent the paper derives a time consistent open loop nash tariff that can be readily computed for both competitive and a nash cournot specification of the oil market the authors illustrate the time sequence of the optimal import tariff for a simple model of the united states facing a duopolistic version of opec and a comparative fringe of oil producers and compare the outcome with the competitive equilibrium copyright 1991 by royal economic society

opec behavior a test of alternative hypotheses since interpretations of past and future oil price patterns depends on the model chosen the author tests and compares alternative theories of opec as a first step in validating the choice on any one model the results show that among opec countries the partial market sharing cartel model is the only model not rejected by at least some of the 11 members and gives the best explanation of production in comparison with 11 non opec countries the competitive model could not be rejected for 10 of the 11 non opec producers this raises the question of why if opec is a cartel friedman s predictions have not come true and introduces new questions for future research 19 references 3 tables

exchange rate theory and practice this volume grew out of a national bureau of economic research conference on exchange rates held in bellagio italy in 1982 in it the world s most respected international monetary economists discuss three significant new views on the economics of exchange rates rudiger dornbusch s overshooting model jacob frenkel s and michael mussa s asset market variants and pentti kouri s current account portfolio approach their papers test these views with evidence from empirical studies and analyze a number of exchange rate policies in use today including those of the european monetary system

exogeneity tests of market boundaries applied to petroleum products us antitrust law makes market definition and the calculation of marketshare statistics an integral part of the determination of the anticompetitive impact of a merger because markets frequently overlap however market definition is rarely an easy task a statistical test that can be used as an aid in defining markets is proposed here time series techniques are used to test if price in one region is exogenous to the process that determines price in another the rejection of exogeneity can be an indication that the two regions are economically linked and thus may belong to a common geographic market the test is applied to petroleumproduct prices from various regions of the united states time series techniques have long been appreciated by macroeconomists the uses to which they have been put range from testing for the exogeneity of variables used in the construction of macroeconomic models sims 1972 for example to discovering empirical regularities in macroeconomic data without imposing a priori structure on the observations ashenfelter and card 1982 for example in contrast these techniques have not been so

the term structure of the forward premium abstract most studies of the efficiency of the foreign exchange market focus on a single maturity usually a one month forward exchange rate however one observes that forward contracts of many maturities are simultaneously traded in the foreign exchange market the hypothesis that the foreign exchange market uses all available information has implications for the joint behavior of forward exchange rates of various maturities this paper proposes an equilibrium theory of the term structure of the forward premium the model is tested using data on the german and canadian exchange rates the results indicate that the data are consistent with the theory for germany and inconsistent with the theory for canada

when and how us dollar shortages evolved into the full crisis evidence from the cross currency swap market abstract this paper investigates when and how the us dollar shortages evolved into the full crisis in the cross currency swap market between major european currencies and the us dollar during the turmoil of 2007 2009 using the dynamic factor model with regime switching coefficients of each swap price with respect to the latent common factor the 1 year market entered the high crisis regime soon after the onset of the subprime problem in august 2007 the 10 year market entered that regime following the collapse of bear sterns in mid march 2008 financial credit spreads have significant predictive power for switches between high and low regimes

covered interest parity a high frequency high quality data study profitable deviations from covered interest parity cip represent riskless arbitrage opportunities and so indicate market ineffic iency previous empirical work on cip uses noncontemporaneously sampl ed data and reports mixed results this paper uses high frequency te n minute high quality data gathered personally by the author in th e london foreign exchange market to test the cip condition the resu lts overwhelmingly support the market efficiency hypothesis copyright 1987 by the review of economic studies limited

momentary exchange rate locked in a triangular mechanism of international currency this study uses two way quoted data on major and nonmajor currencies to test the exchange rate dynamics particular attention is paid to the arbitrage and the spread in triangular foreign exchange trades there is only one possible triangle when a bilateral exchange rate equals its trilateral rate otherwise any third currency would potentially create arbitrage opportunities empirical testing evidence supports that small but possibly exploitable profitable arbitrage has significantly occurred over the very short haul of uncertainty and turbulence in other words we are convinced that the bilateral exchange rate could be diverged from one common currency side of the trilateral basket rates until markets function efficiently this helps in better explaining foreign exchange rate movements in addition we find that the currency correlating decreases slightly but the volatility increases over time as we expected

the dynamic relationship between the prices of adrs and their underlying stocks evidence from the threshold vector error correction model this paper sets out to estimate the dynamic relationship that exists between the prices of adrs and their underlying stocks in both the short run and the long run using a number of recent developments of the threshold cointegration framework the empirical results support the notion of nonlinear mean reversion of the prices of adrs and their underlying stocks

does the law of one price hold in international financial markets evidence from tick data abstract this paper investigates the validity of the law of one price lop in international financial markets by examining the frequency size and duration of inter market price differentials for borrowing and lending services one way arbitrage using a unique data set for three major capital and foreign exchange markets that covers a period of more than seven months at tick frequency we find that the lop holds on average but numerous economically significant violations of the lop arise the duration of these violations is high enough to make it worthwhile searching for one way arbitrage opportunities in order to minimize borrowing costs and or maximize earnings on given funds we also document that such opportunities decline with the pace of the market and increase with market volatility

the law of one price in the eurocurrency market abstract this paper studies the interest rate parity arbitrage condition in the eurocurrency market in the period 1967 to 1980 the results suggest that this market is relatively efficient with few opportunities for arbitrage profits turbulance associated with external shocks to this market is relatively short lived the evidence indicates that the foreign exchange and eurocurrency markets respond rapidly to monetary shocks

smooth transition models and arbitrage consistency slow adjustment of real exchange rate towards equilibrium in linear models has long puzzled researchers stimulating the adoption of nonlinear models the exponential smooth transition model has been particularly successful providing faster adjustment speeds this paper discusses some of its theoretical limitations for example that expectations are adaptive we propose a new nonlinear model conceptually superior to the estar model since it is consistent with rational expectations one of its advantages is that it can be solved and estimated by nonlinear least squares using monthly post 1973 real exchange rate data we show that the model implies even faster speeds of adjustment

market frictions and real exchange rates abstract one explanation for the failure of purchasing power parity ppp is that market frictions impede trade allowing departures from ppp to grow quite large without precipitating goods arbitrage if this explanation is correct then other things equal large deviations from ppp should be less persistent than small differences this paper examines this prediction over the modern floating rate era the outcome is surprising between most countries large deviations from ppp appear to be at least as persistent as small deviations and perhaps even more so the exceptions are for some intra ec real exchange rates the implication is that market frictions alone do not explain the chimerical nature of ppp

short term and long term government debt and nonresident interest withholding taxes abstract this paper examines the incidence of nonresident interest withholding taxes in the international 3 month treasury bill market and the international 5 year government bond market the approach is one of pooled cross section time series regressions the evidence suggests that the yields on national treasury bills and on 5 year government bonds fully reflect the nonresident interest withholding taxes imposed on american or japanese investors nonresident interest withholding taxes on short term and long term government debt thus do not appear to be borne by the international investor

testing for threshold cointegration and error correction evidence in the petroleum futures market this article examines the existence of threshold cointegration between futures and spot prices for the brent petroleum market we then estimate the asymmetric error correction specification utilizing the momentum threshold autoregressive consistent m tar c approach particularly proposed by enders and siklos 2001 we find that for the daily data over 2 january 2001 through 15 october 2006 the petroleum futures prices are cointegrated with the spot prices this effectively confirms the expectations hypothesis and that asymmetric adjustments for the futures basis towards the long run value display a negative basis from the long run equilibrium level more persistently than a positive basis from that level the empirical result suggests that short run arbitrages manipulating buy long sell short futures contracts be profitable when a positive basis is weakening a negative basis is strengthening

rethinking an old empirical puzzle econometric evidence on the forward discount anomaly using both semiparametric and parametric estimation methods this paper corroborates earlier findings of fractionally integrated behaviour in the forward premium two new explanations are also proposed to help reconcile earlier conflicting empirical evidence on the time series properties of the forward premium traditional regression approaches used to test the forward rate unbiasedness hypothesis are then evaluated including regression in levels in returns fama s 1984 regression and in error correction format interesting statistical and or interpretive implications are found in all three cases for example the predictions of the appropriate nonstandard limit theory are consistent with many of the standard empirical results reported from fama s regression including the commonly occurring yet puzzling negative correlations between spot returns and the forward premium it is suggested that the principal failure of unbiasedness may be due instead to the difference in persistence between these two series copyright 2001 john wiley sons ltd

aggregate merger activity new evidence on the wave hypothesis the conventional opinion is that aggregate merger activity occurs in waves an early proponent of this view was nelson 13 14 who concluded that merger behavior could be described by bursts of high activity followed by long periods of low activity numerous other authors have advanced similar interpretations of the data including scherer and ross 16 blair lane and schary 1 and golbe and white 7 in fact some have argued that merger waves remain an important but as yet not totally resolved puzzle brealey and myers 2 weston chung and hoag 21 figure 1 presents a plot of the annual number of u s mergers over the period 1895 1994 it is not difficult to see from the figure how the popular belief about merger waves arose the view that mergers come in waves has been the subject of considerable interest since nelson s work first appeared however the formal statistical evidence regarding the wave hypothesis is mixed shughart and tollison 17 examine several time series of merger activity and generally do not reject the null hypotheses that each of the series examined follows either a random walk or an ar 1 process with first order autocorrelation close but not equal to 1 0 they argue that such processes are not consistent with the wave hypothesis golbe and white 7 on the other hand fit a sine wave based model to a similar aggregate merger series and conclude that there is a close correspondence between the data and their specification in this paper we examine the issue of waves in merger activity through formal tests of the hypothesis that aggregate merger activity follows a stationary regime switching process specifically we argue that shifts in an unobservable state variable ignite shifts in the characteristics of the process driving mergers the appeal of this specification is threefold first it provides an intuitively plausible model which generates waves in merger activity second as we show later it provides an explanation for the results in shughart and tollison while at the same time providing an interpretation of the data which adds content to the findings of golbe and white thus reconciling the evidence within an intuitive framework third the model also provides a foundation for further considerations of the factors which might ignite merger waves 2

global political risk and currency momentum using a measure of political risk relative to the united states that captures unexpected political conditions we show that political risk is priced in the cross section of currency momentum and contains information beyond other risk factors our results are robust after controlling for transaction costs reversals and alternative limits to arbitrage the global political environment affects the profitability of the momentum strategy in the foreign exchange market investors following such strategies are compensated for the exposure to the global political risk of those currencies they hold that is the past winners and exploit the lower returns of loser portfolios the risk compensation is mainly justified by the different exposures of foreign currencies in the momentum portfolio to u s political shocks which is the main component of global political risk

covered interest arbitrage then versus now we introduce a new weekly database of spot and forward us uk exchange rates and interest rates to examine the integration of forward exchange markets during the classical gold standard period 1880 1914 using threshold autoregressions tars we estimate the transaction cost band of covered interest differentials cids and compare our results with studies of more recent periods we find that cids for the us uk rate were generally largest during the classical gold standard we argue that slower information and communications technology during the gold standard period led to fewer short term financial flows higher transaction costs and larger cids

the role of the mergers and monopolies commission in merger policy costs and alternatives the purpose of this paper is threefold first we offer an overview of uk merger activity and the role of the mergers and monopolies commission mmc in takeovers second we estimate costs to shareholders arising from referrals of proposed mergers to the mmc finally we discuss broader concerns about the aggregate level of merger activity and suggest how institutional changes might be more effective alternatives to merger as a way of removing inefficiencies

dynamic hedge ratio for stock index futures application of threshold vecm this study represents one of the first papers in stock index futures arbitrage literature to investigate the effects of arbitrage threshold on stock index futures hedging effectiveness by using threshold vector error correction model hereafter threshold vecm moreover in contrast to prior studies focusing on examining case studies involving mature stock markets this study not only adopts us s p 500 stock market as the sample but also adds an analysis of one emerging stock market hungarian bsi and examines the differences between them finally this investigation employs a rolling estimation process to examine the impact of arbitrage threshold behaviours on the setting of futures hedging ratio the empirical findings of this study are consistent with the following notions first arbitrage behaviour reduces co movement between futures and spot markets and increases the volatility of both futures and spot markets second this article denotes the outer regime of futures spot market for the case of hung

transactions costs and covered interest arbitrage theory and evidence the extent to which deviations from covered interest parity can be attributed to transactions costs has been exaggerated in the economic literature because the swap market in foreign exchange has been ignored it is shown that such deviations should be no greater than the lowest of the transactions costs in one of three markets the swap market or either of the two relevant securities markets this reconciles the theory with the data which show spreads of no more than a few basis points however the empirical results have no direct bearing on the conventional market efficiency hypothesis

the triggers and clustering properties of merger waves abstractthis article studies the triggers and the agglomeration of mergers and acquisitions m a activity within clusters constituted by time market and industry based on almost 500 000 individual transactions we find that industry factors play a significant role in triggering activity and that m a agglomerates strongly across related industries while clustering in time turns out to be insignificant stock market effects can be either an attracting or a repelling force depending on the type of deal examined this supports the view that merger waves are largely driven by industry shocks

a general equilibrium model of international portfolio choice we investigate in a two country general equilibrium model whether a bias in consumption towards domestic goods will necessarily lead to a preference for domestic securities we develop a model where investors are constrained to consume only from their domestic capital stock and where it is costly to transfer capital across countries in this model investors less risk averse than an investor with log utility bias their portfolios towards domestic assets investors more risk averse than log however prefer foreign assets thus this model suggests that it is unlikely that the portfolios observed empirically can be explained by the high proportion of domestic goods in total consumption we investigate in a two country general equilbrium model whether a bias in consumption toward domestic goods will necessarily lead to a preference for domestic assets in an investor s optimal portfolio we constrain investors to consume only from their domestic capital stock and introduce a proportional cost for transferring goods from one country this cost gives rise to endogenous deviations from the law of one price lop thus the home and foreign investors do not hold identical portfolios we show that an investor s optimal portfolio is biased towards domestic equity only if she is less risk averse than an investor with log utility investors with relative risk aversion greater than one exhibit a preference for the foreign asset this is because the exchange rate derived endogenously is negatively correlated with the return on the foreign asset and therefore the translated return on the foreign stock is less risky than that on the domestic stock thus the results of this model suggest that it is unlikely that the preference for domestic assets that is observed empirically can be explained by the high proportion of domestic goods in total consumption there exists a considerable body of literature documenting the gains from international diversification grubel 1968 was the first to propose that international diversification allows investors to attain lower return variances than those achievable by diversifying domestically this proposition relies on the correlation between stock indices across countries being significantly less

from turmoil to crisis dislocations in the fx swap market before and after the failure of lehman brothers abstract this paper investigates dislocations in the foreign exchange fx swap market between the us dollar and three major european currencies after the failure of lehman brothers in september 2008 deviations from covered interest parity cip were negatively associated with the creditworthiness of us financial institutions as well as that of european institutions consistent with the deepening of a dollar liquidity problem into a global phenomenon us dollar term funding auctions by the ecb snb and boe as well as the us federal reserve commitment to provide unlimited dollar swap lines are found to have ameliorated the fx swap market dislocations

foreign exchange market efficiency tests implications of recent empirical findings abstract the recent empirical literature on the efficiency of the foreign exchange market has been characterized by strikingly contradictory conclusions drawn from similar empirical evidence these contradictions result because 1 different maintained hypotheses are held and 2 different criteria e g micro versus macroeconomic are used to judge the evidence in this survey we organize the empirical literature under several headings the presence of risk premiums empirical regularities in regression tests profitable trading rules and advanced econometric techniques in integrating this material we consider the implications of the current evidence for investors forecasters policy makers and theorists

transactions costs and nonlinear adjustment in real exchange rates an empirical investigation eolquilibrium models of real exchange rate determination in the presence of transactions costs imply a nonlinear adjustment process toward purchasing power parity ppp conventional cointegration tests which ignore the effect of transactions costs may be biased against the long run ppp hypothesis our results using both monthly data for the interwar period and annual data spanning two centuries clearly reject the linear framework in favor of an exponential smooth transition autoregressive process the systematic pattern in the estimates of the nonlinear models provides strong evidence of mean reverting behavior for ppp deviations and helps explain the mixed results of previous studies

interest rate parity tests switzerland and some major western countries abstract this article reviews briefly the interest rate parity ip theory and possible divergences between covered interest rates on two assets denominated in different currencies from direct ip tests involving pairs of assets denominated in sfr and dm using monthly data on 3 month treasury bills and on 3 month euro deposits it appears that the theory holds better for euro currency pairs of assets than for domestic pairs further investigation uncovers significant occurence of autocorrelation for domestic pairs possibly indicating left out explanatory factors in the standard ip formulation and points to the non normality of the distrbution of arbitrage margins thus casting doubts on most statistical results in such tests

are there waves in merger activity after all this paper investigates the merger wave hypothesis for the us and the uk employing a markov regime switching model using quarterly data covering the last thirty years for the us we identify the beginning of a merger wave in the mid 1990s but not the much discussed 1980s merger wave we argue that the latter finding can be ascribed to the refined methods of inference offered by the gibbs sampling approach as opposed to the us mergers in the uk exhibit multiple waves with activity surging in the early 1970s and the late 1980s

the determinants of merger waves an international perspective article i nfo one of the most conspicuous features of mergers is that they come in waves that are correlated with increases in share prices and price earnings ratios we use a natural way to discriminate between pure stock market influences on firm decisions and other influences by examining merger patterns for both listed and unlisted firms if real changes in the economy drive merger waves as some neoclassical theories of mergers predict both listed and unlisted firms should experience waves we find significant differences between listed and unlisted firms as predicted by behavioral theories of merger waves

rates of return on corporate investment in the last two decades productivity has lagged in the united states markets have been lost to foreign competition real income per capita has grown slowly this experience has led to considerable discussion of possible causes 7 one possible cause often mentioned is the quality of managerial investment decisions managers have been accused of overinvesting in obsolete technologies of underinvesting in risky projects with long run payoffs of undertaking unprofitable mergers and of overall poor judgment in their investment policies 39 this paper presents evidence on the returns on investment over the 1970 88 period for a sample of 699 large corporations that is consistent with this view

imperfect cartelization in opec a model of global oil production is applied to study cartelization by opec countries we define a measure for the degree of cooperation analogous to the market conduct parameter of cyert et al 1973 geroski et al 1987 lofaro 1999 and symeonidis 2000 this parameter is used to assess the incentives of different opec members to collude we find that heterogeneity in opec and the supplies of the non opec fringe create strong incentives against collusion more specifically opec s supply strategy although observed to be substantially more restrictive than that of a cournot nash oligopoly is found to still be more accommodative than that of a perfect cartel the strategy involves allocating larger than proportionate quotas to smaller and relatively costlier producers as if to bribe their participation in the cartel this is in contrast to predictions of the standard cartel model that such producers should be allocated relatively more stringent quotas furthermore we demonstrate that cartel collusion is more likely to be sustained for elastic than for inelastic demand since global oil demand is well known to be inelastic this observation provides another structural explanation for why opec behavior is inconsistent with that of a perfect cartel our study points to multiple headwinds that limit opec s ability to mark up the oil price 2016 elsevier b v

the term structure of forward exchange premiums and the forecastability of spot exchange rates correcting the errors we develop a framework to extract information regarding subsequent spot rate movements from the term structure of forward exchange premiums while admitting possible deviations from rationality and