the effect of democracy and press freedom on corruption an empirical test this paper tests the effect of democracy and press freedom on corruption the empirical investigation carried out in this paper suggests that democracy and press freedom can have significant impact on corruption

portfolios in disguise window dressing in bond fund holdings abstract this paper builds on the limited body of research on window dressing by bond mutual funds our monthly bias free sample allows us to undertake a more comprehensive study than is possible with the quarterly data traditionally employed in otherwise similar studies we test window dressing in a straightforward manner using monthly undisclosed portfolios which makes it possible to compare changes in public debt allocations around quarterly disclosures our results support the hypothesis that window dressing patterns vary with market conditions we also conduct thorough tests that indicate the significant influence of fund size on window dressing individual analyses provide evidence that this cosmetic practice is not a widespread behaviour in the spanish bond fund industry

a portfolio balance rational expectations model of the dollar mark exchange rate abstract a model is developed in which current account imbalances can be financed through transfers of bonds denominated in either currency the reduced form links the current spot rate to the expected future spot rate via a risk premium which depends on the global currency mix of outside assets that governments impose on private portfolios through budget deficits and interventions and on the global distribution of private wealth among regions with different portfolio preferences an iterative procedure generates rational expectations forecasts of the dollar mark rate which perform somewhat better than forward rates in predicting monthly changes in the spot rate

investment decisions depend on portfolio disclosures a weekly database of retail money fund portfolio statistics is uneconomical for retail investors to observe so it allows direct comparison of disclosed and undisclosed portfolios this makes possible a more direct and unambiguous test for window dressing than elsewhere in the literature the analysis shows that funds allocating between government and private issues hold more in government issues around disclosures than at other times consistent with the theory that intermediaries prefer to disclose safer portfolios cross sectional comparisons locate the most intense rebalancing in the worst recent performers money managers are typically required to disclose their portfolios on prearranged dates whether investors receive new information depends on whether managers are influenced by the disclosure requirement managers can ignore the disclosure schedule when they invest in which case the disclosed portfolios will be unbiased albeit noisy estimates of their investing strategies alternatively they can plan their investing around the schedule by moving briefly into and out of the portfolios they prefer to disclose thereby reducing or destroying the power of the disclosures to reveal anything meaningful the goal of this paper is to establish which scenario best describes the behavior of money market mutual fund managers the idea that portfolio weights interact with disclosure dates surfaces now and again in the academic and trade literature surviving on circumstantial evidence rather than direct observation the odd behavior of asset prices around common disclosure dates particularly the end of the year comprises

further analysis of the expectations hypothesis using very short term rates abstract longstaff longstaff f 2000 the term structure of very short term rates new evidence for the expectations hypothesis journal of financial economics 58 397 415 finds support for the expectations hypothesis at the very short end of the repurchase agreement repo term structure while other studies find calendar time based regularities cause rejection of the expectations hypothesis using longstaff s methods on a sample of repo rates that pre dates longstaff s sample we reject the expectations hypothesis for every maturity the pre longstaff sample repo data comes from a time period where the behavior of short term interest rates is similar to the long run average behavior of short term interest rates our results imply that expectations hold when rates are less volatile and or that we may be entering a period of lower volatility

does quality of openness affect corruption abstract we propose and construct a quality of openness index and demonstrate its impact on corruption the results indicate that the quality as well as the level of openness can have a significant impact on corruption

the turn of the year in money markets tests of the risk shifting window dressing and preferred habitat hypotheses musto 1997 identifies a turn of the year effect in the commercial paper market and offers risk shifting window dressing as an explanation we revisit this market with different methods and find strong evidence rejecting the risk shifting hypothesis we extend our analysis to other private issue money market instruments and find similar results we find further corroborating evidence in the 1 month t bill market and aggregate demand deposit data our results are consistent with a year end preferred habitat for liquidity associated with year end cash flow obligations

does the buck stop here a comparison of withdrawals from money market mutual funds with floating and constant share prices recent reform proposals call for an elimination of the constant net asset value nav or buck in money market mutual funds to reduce the occurrence of runs outside the united states there are several countries that have money market mutual funds with and without constant navs using daily data on individual fund flows from these countries this paper evaluates whether the reliance on a constant nav is associated with higher fund redemptions the data suggest that funds with a constant nav experienced more negative net flows during the period of the run on the reserve primary fund even after controlling for measures of fund risk and risk aversion however i do not find convincing support for the hypothesis that the effect of sponsor strength on fund flows was stronger for constant nav money market funds

the evolution of a financial crisis collapse of the asset backed commercial paper market this paper documents runs on asset backed commercial paper abcp programs in 2007 we find that one third of programs experienced a run within weeks of the onset of the abcp crisis and that runs as well as yields and maturities for new issues were related to program level and macro financial risks these findings are consistent with the asymmetric information framework used to explain banking panics have implications for commercial paper investors degree of risk intolerance and inform empirical predictions of recent papers on dynamic coordination failures

mutual fund tournaments the sorting bias and new evidence previous findings regarding the risk shifting behavior of mid year underperforming mutual fund managers are mixed in this article i show that this is due to a sorting bias which is caused by the sorting of first half risk levels when establishing relative mid year performance even without risk shifting behavior mean reversion of these sorted risk levels results in the detection of tournament behavior after correcting for this bias i find evidence supporting the hypothesis that first half underperforming managers increase portfolio risk during the second half of the year and that this tournament behavior is not dependent on first half market conditions the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

preferred habitat for liquidity in international short term interest rates abstract risk shifting window dressing and a preferred habitat for liquidity have been offered as possible explanations as to why us money market rates are higher before the year end than afterwards the two hypotheses differ in the timing of the rate decline at the year end and the evidence on the timing of the decline supports the preferred habitat hypothesis in us money markets this paper extends this line of research to the behavior of international short term interest rates at year ends and quarter ends using london interbank offer rates libor for 11 different currencies the results suggest that the behavior of libor for five currencies the us dollar euro japanese yen swiss franc and german mark is consistent with year end or quarter end preferred habitats for liquidity other currencies do not demonstrate consistently distinct patterns in turn of the year and turn of the quarter yields none of the results provides any support for risk shifting window dressing

y2k options and the liquidity premium in treasury markets financial institutions around the world expected the millennium date change y2k to cause an aggregate liquidity shortage responding to the concern the federal reserve bank of new york auctioned y2k options to primary dealers the options gave the dealers the right to borrow from the fed at a predetermined interest rate using the implied volatilities of y2k options and the on off the run spread we demonstrate that the fed s action eased the fears of bond dealers contributing to a drop in the liquidity premium of treasury securities our analysis shows the link between the microstructure of government debt markets and the central bank s provision of liquidity we argue that y2k options and their effects on liquidity premium broadly conform to the economic theory on public provision of private liquidity

market making costs in treasury bills a benchmark for the cost of liquidity abstract we focus on market making costs by examining the daily bid ask spreads for off the run one month treasury bills around two liquidity changing events event one salomon brothers supply shock results in a roughly 2 5 basis point increase in the spread because of an increase in ask prices and event two the long term capital management demand shock results in a doubling of the spread because of a decrease in bid prices our results provide a benchmark for researchers examining bid ask spreads of securities that include a liquidity premium a risk premium and an asymmetric information premium

market valuation of tax timing options evidence from capital gains distributions we examine a distribution that is taxed as a capital gain rather than as a dividend since the distribution induces a realized capital gain while the price change is an unrealized gain ex day return behavior provides evidence of the value of tax timing capital gains we show that investors are compensated 7c in unrealized gains for each dollar of realized capital gains that is 1 of realized capital gains is equivalent to 93c of unrealized gains an investor with a tax rate on realized gains of 15 has an effective tax rate on unrealized capital gains of 8 6 capital gains taxes can be deferred until assets are sold this feature provides the investor who purchases a security with an option regarding the timing of the realization of capital gains and losses this option can be used to lower one s expected tax liability even if capital gains tax rates remain constant for different holding periods an investor who delays the realization of a gain effectively enjoys compound returns on the postponed taxes if capital losses are tax deductible or partially tax deductible tax timing is even more valuable since investors can follow the strategy of selling stocks with capital losses early while postponing the sale of winners recent evidence lends support to the contention that some investors respond to this tax timing option for example odean 1998 shows that u s investors are more likely to sell losers in december than other months similarly grinblatt and keloharju 2002 show that at the end of the tax year finnish investors are more likely to realize losses than gains this type of tax motivated trade seems to affect market returns as shown by poterba and weisbenner 2001 who demonstrate that end of year tax loss selling is related to return variation in the month of january

the turn of the year effect and tax loss selling by institutional investors prior studies attribute the turn of the year effect whereby small capitalization stocks earn unusually high returns in early january to tax loss selling by individual investors and window dressing by institutional investors my results suggest that a significant portion of the effect on turn of the year returns that prior studies attribute to window dressing is actually attributable to tax loss selling by institutional investors among small capitalization stocks i find that institutional investors with strong tax incentives and weak window dressing incentives realize significantly more losses in the fourth quarter than in the first three quarters of the calendar year and that their fourth quarter realized losses have a significant impact on turn of the year returns a one percentage point change in these institutional investors fourth quarter realized losses scaled by a firm s market capitalization results in an increase of 47 basis points in the firm s average daily return over the first three trading days of january which represents a 46 percent change for the mean firm

the federal funds market and the overnight eurodollar market abstract this paper investigates the effect of daily management of federal reserve accounts by us depository institutions on the interest rate outside the us spindt and hoffmeister journal of financial and quantitative analysis 23 1988 401 griffiths and winters journal of banking and finance 19 1995 1265 and hamilton journal of political economy 104 1996 22 found that the fed funds rate exhibited calendar day effects caused by federal reserve regulations i find that the overnight eurodollar rate shows similar predictable daily changes as does the fed funds rate although the absolute magnitudes are slightly less the empirical results support the hypothesis that the tendencies in daily changes in the two overnight interest rates are caused by the characteristics of the fed funds market

institutions and the turn of the year effect evidence from actual institutional trades abstract using a large proprietary database of institutional trades we investigate whether institutional investors drive the turn of the year toy effect institutions that engage in window dressing tax loss selling or risk shifting will contribute to the toy effect by selling small poorly performing stocks at the end of december and or buying those same stocks at the beginning of january we find abnormal pension fund selling in small stocks with poor past performance during the final trading days in december providing some support for the window dressing hypothesis however we find little evidence that institutional tax loss selling or risk shifting trading strategies contribute to toy returns furthermore stocks with no institutional trading around the year end exhibit considerably stronger toy return patterns than stocks in which institutions trade taken together our results suggest that institutions play a limited role in driving the toy effect

portfolio disclosures and year end price shifts commercial paper sells at an extra discount if it matures in the next calendar year but treasury bills do not the discount is apparent in downward price shifts before the year end and upward price shifts at the turn of the year that are significantly correlated with the simultaneous returns to small stocks and that cannot reflect tax loss selling cross sectional and time series tests on prices as well as flow of funds evidence on trades by institutional investors indicate that both the debt and equity patterns reflect agency problems related to portfolio disclosures financial research has brought considerable analysis to bear on the turn of the year in the equity market but not the money market extant literature starting with keim and stambaugh 1986 reports similarities between equity market and money market price shifts in january but has not examined time series and cross sections of money market prices at the high resolution common in studies of the equity market repeating tests from the equity literature on money market prices this article finds a more precise and robust characterization of the price shifts this characterization combined with observations of year end shifts in money market holdings supports the view that intermediaries move prices with strategic responses to portfolio disclosures the main empirical result is that commercial paper pays a higher yield if it matures across the end of the year that is it imputes a forward premium for the holding period from the last trading day of one year to the first trading day of the next this premium is even higher for issues with more default risk and longer maturity as measured at the end of the year and has a substantial impact on yield spreads i argue that the forward premium reflects an abnormally high market price for bearing risk across the year end and that this high price reflects the disutility to intermediaries of showing risky portfolios to claimholders or regulators the connection between portfolio disclosures and price shifts was proposed by haugen and lakonishok hl 1988 as an explanation of the equity market january effect as originally documented by keim 1983 with monthly data

business cycle and corruption abstract in studying the great depression galbraith asserts that the higher the transitory income the higher the corruption for a panel of 39 countries over 13 years 1995 2007 galbraith s claim holds regression analyses also confirm that the higher the permanent income the lower the corruption

tax loss selling and the january effect evidence from municipal bond closed end funds this paper provides direct evidence supporting the tax loss selling hypothesis as an explanation of the january effect examining turn of the year return and volume patterns for municipal bond closed end funds which are held mostly by tax sensitive individual investors we document a january effect for these funds but not for their underlying assets we provide evidence that this effect can be largely explained by tax loss selling activities at the previous year end moreover we find that funds associated with brokerage firms display more tax loss selling behavior suggesting that tax counseling plays a role among the numerous stock return anomalies probably none has generated more interest than that of the turn of the year or january effect the phenomenon in which small capitalization stocks realize unusually high returns in early january 1 the literature offers a number of hypotheses to explain this phenomenon including the tax loss selling hypothesis the window dressing hypothesis the insider trading information release hypothesis and the seasonality of the risk return relation hypothesis given existing evidence in some support for the first two hypotheses the debate continues with respect to which of these the tax loss selling of individual investors or the window dressing of

the effect of holdings data frequency on conclusions about mutual fund behavior abstract a number of articles in financial economics have used quarterly or semi annual mutual fund holdings data to test hypotheses about investment manager behavior this article reexamines four well known hypotheses in finance to determine whether the results of prior tests of these hypotheses remain valid when higher frequency monthly holdings data are employed the areas examined are momentum trading tax motivated trading window dressing and tournament behavior we find that the use of monthly holdings data rather than quarterly holdings data or in the case of tournament behavior holdings data rather than monthly return data change and in some cases reverse previous results this occurs because monthly holdings data capture a large number of trades missed by quarterly data 18 5 of the trades and permit a more precise estimation of the timing of trades

institutions and individuals at the turn of the year this article evaluates the tax loss selling hypothesis against the window dressing hypothesis as explanations for turn of the year anomalies we examine differences between securities dominated by individual investors versus those dominated by institutional investors and find that the effect is more pervasive in the former controlling for capitalization we find that in early january late december stocks with greater individual investor interest outperform underperform stocks with greater institutional investor interest these results hold for both stocks that previously appreciated in value and stocks that previously depreciated in value the results are most consistent with the tax loss selling hypothesis as an explanation for the turn of the year effect

regional redistribution and stabilization by the center in canada france the uk and the us abstract this paper re examines earlier estimates of regional redistribution and stabilization through the central government budget in the us and produces new estimates of this redistribution and stabilization in the us canada france and the uk the new estimates rest on panel data econometrics and an adherence to certain accounting principles that have occasionally been violated in the past as a result of the accounting the peak estimates for the us and canada in the earlier literature are never attained regional stabilization of personal income through the central government budget emerges as close to 20 in the us france and the uk but only 10 to 14 in canada in case of gross product instead of personal income accounting regional stabilization is closer to 10 in the us as regards france and the uk the use of panel data econometrics proves essential

collateral values by asset class evidence from primary securities dealers using data on repurchase agreements by primary securities dealers we show that three classes of securities treasury securities securities issued by government sponsored agencies and mortgage backed securities can be formally ranked in terms of their collateral values in the general collateral gc market we then show that gc repurchase agreement repo spreads across asset classes display jumps and significant temporal variation especially at times of predictable liquidity needs consistent with the safe haven properties of treasury securities these jumps are driven almost entirely by the behavior of the gc repo rates of treasury securities estimating the collateral rents earned by owners of these securities we find such rents to be sizable for treasury securities and nearly zero for agency and mortgage backed securities finally we link collateral values to asset prices in a simple no arbitrage framework and show that variations in collateral values explain a significant fraction of changes in short term yield spreads but not those of longer term spreads our results point to securities role as collateral as a promising direction of research to improve understanding of the pricing of money market securities and their spreads jel g12 g23

the term structure of commercial paper rates this paper tests the expectations hypothesis in the market for commercial paper our main dataset which is new to the literature consists of daily indexes constructed from the actual market yields for nearly all commercial paper issued by u s corporations between january 1998 and august 2003 we show that the term premia built into commercial paper yields rise dramatically at year end causing the expectations hypothesis to be rejected however once we control for these predictable year end eects we nd the reverse that commercial paper yields largely conform with the expectations hypothesis