a theory of commerce abstract the theory of commerce advanced here captures prominent features of retail trade large employment congestion effects anonymous posted prices and quantity discounts this theory is built around a directed search model where buyers preferences are private information the analytical solution is easily inserted in a neoclassical growth framework in this framework the parameters of retail trade are calibrated using commercial margins and employment welfare properties depend on the sellers ability to charge two tier prices with two tier prices the directed search equilibrium is efficient otherwise it is not this contrasts with the full information benchmark where directed search is always efficient

limited commitment and the demand for money understanding money demand is important for our comprehension of macroeconomics and monetary policy its instability has made this a challenge common explications for the instability are financial regulations and financial innovations that shift the money demand function we provide a complementary view by showing that a model where borrowers have limited commitment can significantly improve the fit between the theoretical money demand function and the data limited commitment can also explain why the ratio of credit to m1 is currently so low despite that nominal interest rates are at their lowest recorded levels this article is protected by copyright all rights reserved

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

program trading and expiration day effects the arbitrage between index futures and the underlying cash index and the cash settlement feature of index futures contracts which requires arbitrageurs to unwind positions in the stock market are thought to be at the heart of the abnormal stock price movements during the triple witching hour the last hour of trading on days on which index futures index options and options on index futures expire simultaneously during 1984 and 1985 volume was substantially higher than normal in the last hour of trading on those quarterly fridays open interest in the expiring futures contracts on the expiration day amounted to about 40 per cent of the average month end open interest the incremental stock market volume however was approximately one third the volume that would be inmplied if the entire expiration day open interest were traded in the stock market analysis of stock market price changes in the last hour of expiration days and the first halfhour of the following day indicates that the volatility of price changes was significantly higher on expiration days with the stock market tending to fall stocks not in the sp index option expirations themselves did not lead to abnormal market movements when the magnitude of price effects was measured by the degree of reversal in prices on the morning after the expiration day the average magnitude of the price effect in the 10 most recent quarterly futures contract expirations examined was about 0 4 per cent of the closing index value at expiration the average expiration day price effect of 0 4 per cent is not large considering that a price impact of approximately 0 25 per cent of the value of the transaction can be expected on the basis of the bid ask spread once this market impact cost is drawn out the average expiration day price impact falls to about 0 15 per cent of the value of the transaction an amount representing the additional cost of liquidity furthermore price impacts in excess of those found on expiration days are frequently encountered in large block transactions where the cost of providing liquidity also increases on expiration days however transactions in many stocks occur simultaneously so the market as a whole is affected

precautionary demand for money in a monetary business cycle model we investigate the quantitative implications of precautionary demand for money for business cycle dynamics of velocity of money and other nominal aggregates there is a standing challenge in monetary macroeconomics to account for business cycle dynamics of nominal variables as previous business cycle models that have tried to incorporate demand for money have failed to generate realistic predictions in this regard our stance is that part of this failure results from the fact that demand for money in those previous models is deterministic since agents in them face only aggregate risk whereas we believe idiosyncratic risk to be important as well we conduct the exercise inside a monetary search model as our additional goal is to put to the test a recent generation of such frictional models to examine whether their quantitative predictions are realistic and whether they generate additional insight into business cycle data that non search models of money cannot generate on the first question our results suggest that precautionary demand for money plays a substantial role in accounting for business cycle behavior of velocity of money and other nominal variables such as inflation and nominal interest rates on the second question our preliminary results indicate that the search frictions generate discernible though small quantitative effects helping the model account for relevant properties of the data but not very significantly the biggest quantitative potential for search frictions in this setting is in the dynamic implications they generate for inventories and markups in the retail sector assessment of this potential is in progress

the sustainability of government deficits implications of the present value borrowing constraint this paper introduces a new methodology for evaluating the sustainability of fiscal policy the new methodology is distinguished from most existing tests in two important respects first it allows for stochastic real interest rates and second it is both necessary and sufficient results from the application of the new test suggest that recent fiscal policy in the united states has not been sustainable the paper contrasts its findings with those of james d hamilton and marjorie a flavin 1986 copyright 1989 by ohio state university press

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

budget deficits and national saving are politicians exogenous during the thirty five year period following world war ii the federal budget deficit averaged less than one percent of net national product never once exceeding five percent for the five year period from 1982 86 the budget deficit never once fell below five percent of net national product there have been some modest cutbacks recently and the deficit is likely to fall to about four percent of net national product in 1988 further declines are now projected in the congressional budget office 1988 baseline forecast of the implications of present policies but both 1988 presidential candidates suggested many more policies that would increase than decrease the deficit these numbers indicate that after years of relative abstinence the united states has experimented with persistent budget deficits on a rather massive scale in the 1980s economists have generally been quite critical of this fiscal policy though there are at least three respectable minority views arguing that federal deficits are not so bad and quite possibly better than likely corrective measures the rationale for economists general opposition comes from those who hold what is called the neoclassical view of deficits according to this view if the united states should be treated as a closed economy persistent deficits will raise interest rates and lower investment if the united states should be treated as a small open economy persistent deficits will leave real interest rates and investment unchanged but the drop in national saving would be financed by higher foreign borrowing accomplished through a rise in the dollar and a drop in net exports either way net national saving falls and consumption rises at the expense of some combination of investment and net exports as a result living standards are higher in the present but lower in the future compared to what they would be in a world of no deficits

the capital gains and losses on u s government debt 1942 1987 the capital gains and losses on u s treasury securities are calculated and reported on a quarterly basis over the 1942 87 period these data are then used to calculate an adjusted measure of the federal budget deficit for the years 1975 87 whereas the rising trend in interest rates over the 1975 81 period substantially reduced the federal deficit this study shows that the reversal of that trend over the 1981 86 period contributed even more greatly to an increase in the deficit also calculated and reported are holding period rates of return on overall marketable treasury debt providing a contrast to existing interest rate series copyright 1989 by mit press

a divisible search model of fiat money this paper extends the kiyotaki wright search model of fiat money to allow for divisible money and goods the extension allows me to examine the standard issues in monetary economics such as the neutrality and superneutrality of money by severing the artificial link in the kiyotaki wright model between the money supply and the number of money holders it is shown that money is neutral but not superneutral money growth generates a trading opportunity effect it changes the fraction of different agents in the economy and hence changes the probability with which agents have a successful match in addition money growth has a negative effect on the real money balance that is familiar in walrasian monetary models the balance of the two effects can imply a positive optimal money growth rate

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

a transactions data analysis of the variability of common stock returns during 1980 1984 abstract using transactions data for a large sample of nyse stocks for six months in 1971 1972 and calendar year 1982 wood mcinish and ord 1985 wmo show that the graph of the variability of index returns across days against time of day has a crude u shaped pattern this study demonstrates that relatively high variability of returns at the beginning and end of the trading day also occurs during calendar years 1980 1981 1983 and 1984 in addition the variability of intra minute returns across stocks is shown to have a crude u shaped pattern when plotted against time of day a model is developed and tested that explains this pattern of variability of intra minute returns in terms of variability of market returns over the trading day the empirical results are consistent with this explanation

precautionary balances and the velocity of circulation of money the observed low velocity of circulation of money implies that households hold more money than they normally spend a natural explanation for this behavior is that households face uncertain expenditure needs so they have a precautionary motive for holding money we investigate the precautionary demand for money in a search model where households are subject to preference shocks the model predicts that the velocity of circulation of money is not only low but also interest elastic the model closely fits united states data on the velocity of circulation of money and interest rates that span the period 1892 2003 the empirical analysis reveals a dramatic reduction in precautionary balances towards the end of our sample probably linked to innovations in the information technology this drop in precautionary balances is crucial for important issues of monetary economics such as the elasticity of the demand for money and the welfare cost of inflation

inflation and welfare a search approach this paper extends recent findings in the search theoretic literature on monetary exchange regarding the welfare costs of inflation we present first estimates of the welfare cost of inflation using the welfare triangle methodology of bailey 1958 and lucas 2000 we then derive a money demand function from the search theoretic model of lagos and wright 2005 and we estimate it from u s data over the period 1900 2000 we show that the welfare cost of inflation predicted by the model accords with the welfare triangle measure when pricing mechanisms are such that buyers appropriate the social marginal benefit of their real balances for other mechanisms welfare triangles underestimate the true welfare cost of inflation because of a rent sharing externality we also point out other inefficiencies associated with noncompetitive pricing which matter for estimating the cost of inflation we then illustrate how endogenous participation decisions can mitigate or exacerbate the cost of inflaion and we provide calibrated examples in which a deviation from the friedman rule is optimal finally we discuss distributional effects of inflation

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

whither monetary economics i argue that monetary economics should be pursued by applying implementation theory to models which contain explicit frictions that make money essential the argument has two parts first i argue that models in which real balances are assumed to be productive models with money in utility or production functions or with cash in advance constraints contain hidden inconsistencies second i argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics the effects of monetary shocks the welfare cost of inflation and the roles of inside and outside money

money in search equilibrium in competitive equilibrium and in competitive search equilibrium we compare three market structures for monetary economies bargaining search equilibrium price taking competitive equilibrium and price posting competitive search equilibrium we also extend work on the microfoundations of money by allowing a general matching technology and entry we study how equilibrium and the effects of policy depend on market structure under bargaining trade and entry are both inefficient and inflation implies first order welfare losses under price taking the friedman rule solves the first inefficiency but not the second and inflation may actually improve welfare under posting the friedman rule yields the first best and inflation implies second order welfare losses

financial innovations money demand and the welfare cost of inflation in the 1990s the empirical relation between money demand and interest rates began to fall apart we analyze to what extent improved access to money markets can explain this break down for this purpose we construct a microfounded monetary model with a money market which provides insurance against liquidity shocks by offering short term loans and by paying interest on money market deposits we calibrate the model to u s data and find that improved access to money markets can explain the behavior of money demand very well furthermore we show that by allocating money more efficiently better access to money markets decrease the welfare cost of inflation substantially

on the instability of long run money demand and the welfare cost of inflation in the united states we evaluate the policy implications of measuring the welfare cost of inflation accounting for instabilities in the long run money demand for the u s over the period 1900 2013 we extend the analysis and reassess the results reported in lucas 2000 and ireland 2009 also considering the recent theoretical contributions of lucas and nicolini 2015 and berentsen et al 2015 breaks in the long run money demand give rise to regime dependent welfare cost estimates we find that the welfare cost is about 0 1 of annual income over 1976 2013 as compared to 0 8 over 1945 1975 overall these values are substantially lower than those reported in the literature

public investment and its effects on the burden of the public debt few problems in economics have been so thoroughly debated without being resolved as the question about whether the burden of the public debt is passed on to the future the key issue in the debate is whether taxation and debt are equivalent in their real effects as methods of raising public revenues the question in this form is an old one and both sides of the debate were eloquently discussed by ricardo 2 the purpose of this paper is to present a framework within which the choices facing the many different individuals in the society can be analyzed as is explained below the nature of the economy s adjustment to debt issue cannot be fully understood without first understanding that different individuals will adjust differently to the issuance of additional debt it is unlikely that a single paper could end a debate that is well over two centuries old hence our goal is more modestly to extend the framework of the debate adding some more realistic features to a barro like model illustrates that there are areas of commonality that unite both sides of the debate this study extends the current debate in two ways first it examines the intergenerational transfer of public sector wealth by including the effects of intergenerational bequests of assets in addition to the intergenerational transfer of debt after all when individuals consider the well being of their heirs they must consider the value of the assets that are passed from one generation to the next in addition to the stock of public debt 3 second it

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

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

the redistributive effects of inflation and the shape of money demand abstract i quantify the distributional effects of expected inflation in a sample of oecd countries using a microfounded model of money where agents differ in their consumption risk against which they can insure using money and government bonds the model is calibrated using harmonized wealth microdata from the luxembourg wealth study i find that the inflation tax is progressive for low inflation levels but it becomes regressive as inflation increases cut off points vary across countries and depend on discount factors and heterogeneity in consumption risk across agents moreover i find that the magnitude of inflation s distributional impact depends not only on wealth distribution but also and importantly on the curvature and height of the money demand curve indeed a higher and less elastic money demand leads to more regressive effects of inflation thus implying such effects are not necessarily stronger in a country with a more unequal wealth distribution

on the efficiency of monetary exchange how divisibility of money matters abstract we use alternative assumptions about the divisibility of goods and money and the ability of agents to use lotteries on money to investigate to what extent the indivisibility of money is the cause for the typically inefficient production and consumption decisions in search theoretic models of money our framework potentially generates three types of inefficiencies the no trade inefficiency where no trade takes place even though it would be socially efficient to trade and the too much trade and too little trade inefficiencies where the quantities produced and exchanged are either larger or smaller than what the solution to a social planner s problem would mandate it is shown that while the no trade and the too much trade inefficiencies are caused by the indivisibility of money the too little trade inefficiency remains even when money is divisible unless it is sufficiently valued

budget deficits rhetoric and reality w v t hatever the real or imagined ills of the economy the news media most politicians and a fair proportion of the economics profession are quick to point to the culprit the budget deficit no matter that few appear to know or care precisely what deficit they are talking about or how it is measured no matter that few bother to explain in terms of a relevant model just how government deficits may be expected to impact the economy no matter that few offer any empirical data to sustain their judgments so budget deficits cause inflation budget deficits raise interest rates budget deficits bring on the trade deficits budget deficits crowd out investment budget deficits are an irresponsible mortgage on the future and budget deficits caused the october 1987 stock market crash and now threaten further financial cataclysms is there truth in any of these assertions or does it all depend budget deficits do matter and their effects contrary to barro s ricardian equivalence theorem can be substantial as most economists have recognized for at least half a century budget deficits can however be too small as well as too large to know which you have to measure them right and you have to analyze their role in the world in which we live pure walrasian and rational expectation market clearing models may prove more useful for academic advancement than for promotion of economic health i need not repeat many of the objections to the equivalence theorem raised by bernheim and gramlich and addressed by barro in this symposium however there is

new findings regarding day of the week returns over trading and non trading periods a note this paper decomposes daily close to close returns into trading day and non trading day returns we discover that all of the average negative returns from friday close to monday close documented in the literature for stock market indexes occurs during the non trading period from friday close to monday open in addition average trading day returns open to close are identical for all days of the week january firm size turn of the year anomalies are shown to be interrelated with day of the week returns

money and asset prices in a cash in advance economy an asset pricing model with money introduced via a cash in advance constraint is presented the monetary velocity is variable hence money demand does not obey the trivial quantity equation the effects of disturbances in output and money growth on real balances the price level and interest rates are examined monetary policy has effects on real asset prices the fisher relation and the premium on nominal bonds are discussed the precise role of the timing of information and transactions for properties of price levels and interest rates are clarified

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

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

endogenous buyer seller choice and divisible money in search equilibrium abstract in the lagos wright model r lagos r wright a unified framework for monetary theory and policy analysis j polit economy 113 2005 463 484 the quasi linear preferences assumption is not necessary to generate simple distributions of money holdings if individuals choose endogenously to go to the search market as buyers or as sellers the non convex buyer seller choice provides an incentive for gambling in lotteries and as a result the value function has a linear interval as long as this interval is the relevant one for evaluating their future utilities individuals behave as if their preferences were quasi linear in the stationary equilibrium individuals remain inside this linear interval if the money supply does not decline

the welfare costs of expected and unexpected inflation the monetary search model by lagos and wright 2005 is extended with imperfect information about nominal shocks as in lucas 1972 an analytical solution exists with logarithmic preferences in general individuals hold precautionary balances calibrated to united states postwar data the welfare cost of the monetary cycle is calculated to be small below 0 0003 of gdp compared to the welfare cost of the inflation tax around 0 25 of gdp the main reason for the minute welfare cost of the monetary cycle is its low amplitude in 1947 2007 but monetary crashes such as those experienced during the great depression can generate important welfare costs

the welfare costs of deficit finance we analyze the welfare consequences of deficit finance in a general equilibrium model fit to the us economy current spending may be financed with current and or future distortionary taxes the economy is open to international capital flows the welfare costs of financing marginal current spending are substantial and are sensitive to the timing of the required taxes postponing a tax on labor income is advantageous but postponing a tax on asset income is not ricardian equivalence poorly approximates the economy we consider

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

equilibrium analysis of portfolio insurance a martingale approach is used to characterize general equilibrium in the presence of portfolio insurance insurers sell to noninsurers in bad states and general equilibrium requires that the risk premium rises to induce noninsurers to increase their holdings we show that portfolio insurance increases price volatility causes mean reversion in asset returns raises the sharpe ratio and volatility in bad states and causes volatility to be correlated with volume we also explain why out of the money sp that is the demand for an absolute level of price protection is equivalent to a demand for put options 1 we show that a similar argument can be used in a

information trading and stock returns lessons from dually listed securities this paper compares the intra day patterns on the nyse and amex of volatility trading volume and bid ask spreads for european and japanese dually listed stocks with american stocks of comparable average trading volume and volatility it is shown that the intra day patterns for these stocks are remarkably similar even though public information flows differ markedly across these stocks during the trading day in the early morning all stocks have higher volatility than later in the day but this phenomenon is most pronounced for japanese stocks and affects american stocks the least we argue that these patterns are consistent with markets reacting to the overnight accumulation of public information but are inconsistent with the view that early morning volatility can be attributed to monopolistic specialist behavior

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

the welfare effect of access to credit i present a model in which credit and outside money can be used as means of payment in order to analyze how access to credit aects welfare when credit markets feature limited participation allowing more agents to use credit has an ambiguous eect on welfare because it may make consumption risk sharing more ine cient i calibrate the model using u s data on credit card transactions and show that the increase in access to credit from 1990 to the near present has had a slightly negative impact on welfare

an analysis of transactions data for the toronto stock exchange abstract using transactions data for all stocks traded on the toronto stock exchange this study shows that returns and number of shares traded have a u shaped pattern when plotted against time of the trading day these results confirm that the findings of wood mclnish and ord 1985 harris 1986 mclnish and wood 1988 and jain and joh 1989 for the new york stock exchange nyse also hold for both another exchange and another country and are not due to peculiarities of united states securities markets further evidence is provided to support the view of harris 1989 and terry 1986 that these relatively high end of day returns are due at least in part to an increase in the proportion of trades at the ask relative to trades at the bid

money is memory abstract this paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible following myerson 8 the standard definition of feasibility is adapted to take account of the lack of commitment the environments feature either memory or money memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past money is defined as an object that does not enter utility or production functions and is available in fixed supply the main proposition is that any allocation that is feasible in an environment with money is also feasible in the same environment with memory depending on the environment the converse may or may not be true hence from a technological point of view money is equivalent to a primitive form of memory journal of economic literature classification numbers e40 c73 d82

an examination of stock market return volatility during overnight and intraday periods 1964 1989 this paper examines the variance of hourly market returns during 1964 89 results indicate that return volatility falls from the opening hour until early afternoon and rises thereafter and is significantly greater for intraday versus overnight periods market variance is also shown to change significantly over time rising after nasdaq began in 1971 rising after trading in stock options began in 1973 falling after fixed commissions were eliminated in 1975 rising after trading in stock index futures was introduced in 1982 and falling after margin requirements for stock index futures became larger in 1988 copyright 1990 by american finance association

a transaction data study of weekly and intradaily patterns in stock returns abstract weekly and intradaily patterns in common stock prices are examined using transaction data for large firms negative monday close to close returns accrue between the friday close and the monday open for smaller firms they accrue primarily during the monday trading day for all firms significant weekday differences in intraday returns accrue during the first 45 minutes after the market opens on monday mornings prices drop while on the other weekday mornings they rise otherwise the pattern of intraday returns is similar on all weekdays most notable is an increase in prices on the last trade of the day

the weekly pattern in stock returns cash versus futures a note this paper presents tests designed to determine whether the weekly pattern in stock returns continues after the introduction of futures trading on stock indexes and whether the pattern carries over to the futures market using data for the sp500 i find that the monday effect does persist in the cash market but there is no evidence of a similar pattern in the futures market among the growing array of market anomalies one of the most widely documented but least understood is the day of the week effect detailed research by french 2 gibbons and hess 3 lakonishok and levi 6 and keim and stambaugh 5 clearly shows that the mean return on monday is less than that

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

volume and turn of the year behavior abstract this paper studies the trading characteristics of listed companies by size and year end behavior there were no transactions on nearly 25 of the days for the smallest decile even at the turn of year which is an active trading period for small companies as a result of low levels of trading and the regulations governing exchange specialists transaction prices and quotations of small listed companies may require several days to fully reflect equilibrium price changes the data confirm the existence of a year end seasonal pattern in rates of return for small companies and suggest that there may be a seasonal pattern for large companies as well

autocorrelation of daily index returns intraday to intraday versus close to close intervals abstract first order autocorrelation coefficients of 1 daily equally weighted open to open returns 2 daily equally weighted intraday to intraday returns terminating at each of 23 successive 15 minute intervals of the trading day beginning at 10 15 a m and 3 daily equally weighted and value weighted close to close returns interval 24 are examined a number of findings concerning the behavior of these autocorrelations are reported first order autocorrelation is shown to follow a crude u shaped pattern when plotted against the time of the trading day but there is no significant difference in the behavior of autocorrelations based on open to open returns and 24 hour returns terminating at 10 15 a m evidence that intraday patterns in autocorrelation cannot be explained fully by trading delays also is presented

fiscal deficits and long term interest rates further evidence from annual data much debate has recently centered on the popular view that large u s budget deficits financed by the sale of bonds cause high interest rates if valid this view implies that deficits crowd out efficient private investment and adversely affect economic growth however bailey 2 and barro 3 have challenged this conventional view on theoretical grounds based on the ricardian equivalence proposition bailey and barro contend that rational economic agents interpret government deficits as postponed tax liabilities and thus will have no effects on private wealth or interest rates such theoretical ambiguity in regards to the impact of budget deficits has also been matched by an equally conflicting empirical evidence for example barth iden and russek 4 deleeuw and holloway 8 hutchison and pyle 20 makin 24 makin and tanzi 25 and zahid 35 have found a positive and significant effect of deficits on interest rates on the other hand evans 11 12 13 hoelscher 17 motley 28 and plosser 29 30 have all failed to find any systematic support for a significant positive impact of deficits on interest rates it should be observed that the above empirical studies have employed either monthly or quarterly data however some researchers e g hoelscher 18 have recently charged that monthly or quarterly data bias the results in favor of finding no significant linkage between deficits and interest rates they reasoned that portfolio adjustment lags are too long for monthly or even quarterly observations to reflect the actual correlation between deficits and interest rates to eliminate this problem of periodicity annual data was instead advocated 2 using annual data hoelscher 18 concluded that deficits have caused positive and significant changes in long term interest rates in the united states

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