the forecasting approach to efficiency in the wool market this paper develops and presents estimates of a simultaneous equations model of the australian wool market the world s largest producer and exporter of fine wool the model contains functional relationships for unhedged inventories consumption of raw wool and the activities of both hedgers and speculators in wool futures expectations are represented by the adaptive hypothesis this model extends the work of leuthold and hartmann 1979 and leuthold and garcia 1988 by including expectations in the spot futures model and that of goss and giles 1986 by including composite equations for hedger speculators extending the expectations hypothesis to the consumption equation and by using the model to test the efficient markets hypothesis wald tests and likelihood ratio tests for unit roots in wool cash prices are conducted and in no case can the hypothesis of a single unit root be rejected estimation is by three stage least squares with correction for first order serial correlation the model provide

a decision theoretic model of public opinion guns butter and european common defense why do individuals support the public policies they do we argue that individuals can have quite sophisticated policy preferences and that not correctly modeling those preferences can lead to critically misspecified empirical models to substantiate this position we derive and test a decision theoretic model that relies upon three critical assumptions 1 policies affect the provision of multiple goods about which individuals care 2 individuals have diminishing returns to scale in those goods and 3 preferences over at least some subset of those goods are correlated using this model we demonstrate that arbitrarily small secondary policy effects can confound predictions over primary policy effects thus not considering even arbitrarily small policy effects can cause one to conclude that evidence is consistent with one s theory when in fact it is inconsistent or vice versa testing this theory on support for forming a european common defense we find evidence consistent with our model

unemployment dynamics and duration dependence in france the netherlands and the united kingdom this paper analyzes unemployment dynamics in the french dutch and u k labor market it presents a method to distinguish between the effects of duration dependence and unobserved heterogeneity on the exit rate out of unemployment it turns out that for british male unemployed there is strong genuine negative duration dependence for french unemployed there is no strong duration dependence during the first year of unemployment while for dutch unemployed there is nonmonotonic duration dependence for all groups of french and dutch individuals significant unobserved heterogeneity is found for u k male unemployed heterogeneity seems to be empirically unimportant copyright 1994 by royal economic society

are unemployment and out of the labor force behaviorally distinct labor force states this paper tests the hypothesis that the classifications unemployed and out of the labor force are behaviorally meaningless distinctions this hypothesis is rejected distinct behavioral equations govern transitions from out of the labor force to employment and from unemployment to employment the evidence reported in this paper is broadly consistent with versions of search theory in which unemployment is a state that facilitates the job search process in an appendix we demonstrate that log concavity of the wage offer distribution implies that the exit rate from unemployment is an increasing function of the rate of arrival of job offers

gulliver untied entry deterrence under unipolarity that the anarchic system generates incentives for states to balance each other s power is conventional wisdom in international relations as such the contemporary unipolar system is an anomaly observers explain its existence in several ways including the benevolence of us hegemony and the constraints international institutions impose on the exercise of us power none of them however explain what is perhaps the most puzzling outcome of the soviet collapse the decision of the united states to maintain its level of military spending to explain its choice we extend the seminal argument waltz advanced long ago to a dynamic setting using a simple model we show that the interest of the unipole in deterring a challenge to its power can induce it to continue to invest in guns rather than to shift its resources to the production of butter this strategy can enable the incumbent unipole to pre empt the balancing process that has long been thought to be central to state survival under anarchy

option markets and implied volatility past versus present abstract traders in the nineteenth century appear to have priced options the same way that twenty first century traders price options empirical regularities relating implied volatility to realized volatility stock prices and other implied volatilities including the volatility skew are qualitatively the same in both eras modern pricing models and centralized exchanges have not fundamentally altered pricing behavior but they have generated increased trading volume and a much closer conformity in the level of observed and model prices the major change in pricing is the sharp decline in implied volatility relative to realized volatility evident immediately upon the opening of the cboe

discounting the free ride alliances and security in the postwar world the collective goods theory of alliances and neorealist theory yield conflicting expectations about the security policies of states the former emphasizes the temptation to ride free on the efforts of others while the latter emphasizes the incentives for self help in the cases of britain china and france during the early cold war the constraints identified by neorealist theory reinforced by the advent of nuclear weapons prevailed each discounted the value of the security benefits superpower partners could provide the second ranking powers decisions to shoulder the burden of developing independent nuclear forces are at odds with collective goods arguments that portray especially strong temptations to ride free in the circumstances that prevailed at that time an international system dominated by two superpowers each possessing large nuclear deterrent arsenals that could easily be employed on behalf of allies this analysis suggests that present efforts to discourage additional states from acquiring nuclear weapons by offering them international security guarantees are unlikely to succeed

the market for equity options in the 1870s the introduction of exchange traded options in 1973 led to explosive growth in the stock options market but put and call options on equity securities have existed for more than a century prior to the listing of option contracts trading was conducted in an order driven over the counter market from 1873 to 1875 quotes for options contracts were published weekly in the commercial and financial chronicle during a period that saw extensive marketing efforts by a number of brokerage firms in this article we examine these quotes to determine why this seemingly sophisticated market existed for only a brief period in financial history in 1973 exchange traded options were introduced and for the first time a central marketplace was available for the trading of standardized option contracts in addition the creation of the options clearing corporation provided an intermediary to all contracts the volume of options traded has exploded during the past twenty three years as has our understanding of the pricing of options and other derivative securities put and call options on equity securities however have been available to american investors for more than a century following the civil war an active market in privileges the term then used for options1 developed in new york city with numerous brokerage firms offering put call and double privilege contracts this market reached the height of its activity in the period from 1873 through 1875 during that time indicative price quotes from a particular broker for options on about a dozen equity securities were generally published every saturday in the commercial and financial chronicle these quotes were placed along with the other financial data for the week including daily high and low stock prices bond prices gold prices money

wages work and unemployment this paper provides new evidence on unemployment durations for individuals in great britain using a three state markov framework in a competing risk setting and a nationally representative data set the analysis is based on the premise that an individual s movements between labour market states can be represented by a markov process the modelling procedure combines the dynamic properties of the search approach to unemployment while using the labour supply decision at each moment in time in response to the expected wage to include participation decisions using this framework we are able to determine the effect of individual characteristics including the expected wage on labour market behaviour the model is estimated separately for men and women and for young and mature workers to investigate whether labour market behaviour differs for these groups the validity of the markov assumptions are tested using different model specifications and changes in the model over calendar time are also presented

chain gangs and passed bucks predicting alliance patterns in multipolarity contemporary balance of power theory has become too parsimonious to yield determinate predictions about state alliance strategies in multipolarity kenneth waltz s theory predicts only that multipolarity predisposes states to either of two opposite errors which this article characterizes as chain ganging and buck passing to predict which of these two policies will prevail it is necessary to complicate waltz s theory by adding a variable from robert jervis s theory of the security dilemma the variable of whether offense or defense is perceived to have the advantage at least under the checkerboard geographical conditions in europe before world wars i and ii perceived offensive advantage bred unconditional alliances whereas perceived defensive advantage bred free riding on the balancing efforts of others

futures market efficiency in the soybean complex 13 1 rev division of agricultural sciences university of ifornla working paper no 139 r i j futures market efficiency in the soybean complex gordon c rausser and colin carter giannini foundation of agricultural economics l ibraili v im california agric u l tural elqieriment station giannini foundation of agricultural economics march 1982

earnings unemployment and the allocation of time over time since an individual s labour market history can be described by a markov chain in state space it is possible to calculate the steady states it is natural to interpret the steady state proportion in unemployment for a group of identical workers as the natural rate of unemployment for this group i e it is the expected proportion that would be employed if the environment were to remain constant it is shown how the natural rate of unemployment is different for different groups the model is estimated using data from a large u s income maintenance experiment the predictions of the model with some exceptions bear up well to confrontation by data the empirical findings also accord well with existing evidence on cross section studies of labour supply we find that labour force participation rates implied by the estimated models are positively related to earnings for all age sex and race groups as expected we demonstrate that the elasticities of the unemployment rates for all groups with respect to expected wage rates are negative and large in absolute value in the case of adults while the role of the wage in allocation of time is not novel the existing neoclassical labour literature uses static labour supply models to interpret participation rate studies

the theory of collective action and burden sharing in nato mancur olson s theory of collective action could account for much of the variance in the defense burdens of the allied nations of the north atlantic treaty organization nato in the early years of the cold war but the association between economic size gross domestic product or gdp and defense burden the ratio of military expenditures to gdp has declined to insignificant levels two influences are shown to be important in producing this change the increased pursuit of private goods by greece turkey and portugal and the growing cooperation among the other european allies since cooperation in the military realm has not provided the europeans with credible means of self defense it appears to be a consequence of the general growth of interdependence in europe during the postwar period nato is still essentially a uniquely privileged group producing a relatively pure public good accordingly the theory of collective action continues to provide valuable insights into the operation of the alliance

interest rates and efficiency in medieval wool forward contracts while it is commonly believed that derivative instruments are a recent invention we document the existence of forward contracts for the sale of wool in medieval england around 700 years ago the contracts were generally entered into by english monasteries who frequently sold their wool for up to 20 years in advance to mostly foreign and particularly italian merchants employing a unique source of data collected by hand from the historical records we determine the interest rates implied in these transactions and we also examine the efficiency of the forward and spot markets the calculated interest rates average around 20 in accordance with available information concerning the interest rates used in other types of transactions at that time perhaps surprisingly we also find little evidence of informational inefficiencies in these markets

interrelafionships between spot and futures markets some implications of rational expectations the view that futures contract prices for storable agricultural commodities are rationally held expectations of subsequent cash prices has been widely accepted since holbrook working first explained commodity market intertemporal price behavior in these terms in 1958 subsequent analyses by brennan weymar tomek and gray and others adopted and extended working s interpretation yet despite its acceptance implications of the rational expectations view have been all but ignored in econometric modeling efforts directed at explaining and predicting intertemporal price relations the purpose of this paper is a to propose an econometric modeling approach that recognizes the role of rational expectation formation in joint determination of commodity cash and futures prices and b to explore the implications of such an approach for the following issues i the direction and magnitude of changes in cash and futures prices occurring in response to changes in economic information and the direction of causality between cash and futures prices and ii the function of futures markets as agencies for forecasting price and the probable forecasting performance of futures contract prices some issues addressed here have implications for all futures traded commodities the arguments presented however relate most clearly to storable continuously inventoried commodities the nature of storage behavior and thus the relation between cash and futures prices for some commodities livestock in particular has not yet been resolved satisfactorily but these issues are not addressed here working s theory of anticipatory prices 1958 asserts that decisions on cash and futures prices take into account all available and relevant information concerning historical relationships as well as current and expected supply demand conditions according to this theory the current period futures price for a contract maturing in time t t is the current market expectation of the subsequent cash market price in t t with only slight modification this interpretation can be considered equivalent to the more current rational expectations or equally redundant efficient market hypothesis formally stated the rational expectations hypothesis muth s extended version asserts that expectations of individual market participants the subjective probability distribution of price outcomes tend to be distributed for the same information set about the predictions of the theory the objective probability distribution of price outcomes in another interpretation it is simply asserted that economic agents use the appropriate economic model in forming their expectations of future prices if valid this latter interpretation has clear implications for the construction of econometric models of futures traded commodities to explore these implications we posit a model which assumes rational expectation formation

improving the parkinson method of estimating security price volatilities the author proposes a new method for estimating the volatility parameters of security prices which is an improvement of the estimation method by m parkinson 1980 the author assumes that the security prices follow the geometric brownian motion however contrary to the setting of parkinson the geometric brownian motion may have nonzero drift terms the author shows that the efficiency of his estimator is about 10 in comparison with the standard sample variance estimator since the efficiency of the estimator by parkinson is about 4 91 his estimation method may considerably improve the estimation methods already known in financial economics copyright 1992 by university of chicago press

does long term unemployment reduce a person s chance of a job a time series test long term unemployed are less likely to leave unemployment than short term unemployed to what extent is this due to an effect of duration and to what extent to heterogeneity on reasonable assumptions heterogeneity on its own with no duration dependence would imply that if over time the exit rate of new entrants fell by a given multiple the overall exit rate from unemployment should fall by the same multiple however over the last twenty years in the uk the overall exit rate has fallen by 60 per cent more than the fall in the exit rate of new entrants another test of pure heterogeneity based on more general assumptions also fails hence we explain the overall fall in exit rates from unemployment by the combined effect of 1 a fall in the ratio of vacancies to unemployed and 2 a higher proportion of the unemployed being long term unemployed and hence demoralized and stigmatized in the eyes of employers

temporal patterns in foreign exchange returns and options although the foreign exchange market is believed to be one of the most efficient financial markets in the world there is significant evidence that technical analysis is profitable in this market in this study we investigate the ability of information from the options market to supplement the commonly used information on past prices to predict temporal patterns in foreign exchange returns we find that information from the options market improves the performance of technical trading strategies strategies using information from at the money options were more consistently profitable than the most commonly used strategies based on only historical spot exchange rates past prices our results hold out of sample as well as in the late nineties a period when few sources of information have proven reliable consequently options appear to contain valuable information regarding future spot exchange rate movements

intertemporal allocation in the corn and soybean markets with rational expectations this paper addresses the intertemporal allocation of supplies and the simultaneous determination of spot and futures prices in the u s corn and soybeans markets these markets were selected for study because of their importance in the u s grain trade and in u s futures markets on the chicago board of trade in 1981 these two grains accounted for 81 26 of all trading in grain futures simultaneous equations models of commodity futures markets have received some attention in the literature stein 1961 1964 developed a two equation simultaneous model comprising functional relationships for discretionary hedging and speculation in commodity markets more recently dewbre estimated a two equation model of spot and futures price determination in commodity markets with rational expectations our study however constitutes the first application of a simultaneous equations model to a comparative study of u s commodity markets with separate functional relationships for long and short hedgers long and short speculators in futures and consumers and holders of unhedged inventories this model is based on peston and yamey although that model did not account explicitly for the activities of long hedgers and short speculators the next section discusses the specification of the equations and the third section outlines the data and estimation method employed the results and validation of the model are discussed in the fourth section the conclusions are stated in the last section while cash and futures prices are endogenous variables in this model the variances of these prices are not treated as endogenous moreover the model is estimated separately for the corn and soybeans markets rather than as a joint model for corn and soybeans products both these matters may be worthwhile extensions of the approach employed here although they go beyond what is attempted in this paper

unit roots tests evidence from the foreign exchange futures market in this paper tests are conducted for the presence of unit roots in the autoregression representation of foreign exchange currency futures price series the results obtained from five different currency futures over the 1977 1983 period suggestthat foreign currency futures rates have autoregressive representations with a singleunit root i e borderline nonstationarity in view of this result it appears thatthe process generating the natural logarithm of foreign currency futures rates may well be approximated by random walks

rational deterrence in an imperfect world this chapter applies recent economic research on games with incomplete information to the calculus of deterrence 1 we do not attempt to provide a complete theory of rational deterrence the focus is on the role of reputation and signaling in establishing deterrence we show how strategic players signal a reputation for strength from the perspective of an internally consistent equilibrium model

derivative pricing 60 years before black scholes evidence from the johannesburg stock exchange we obtain daily data for warrants traded on the johannesburg stock exchange between 1909 and 1922 and for a broker s call option quotes on stocks from 1908 to 1911 we use this new data set to test how close derivative prices are to black scholes 1973 prices and to compute profits for investors using a simple trading rule for call options we examine whether investors exercised warrants optimally and how they reacted to extensions of the warrants durations we show that long before the development of the formal theory investors had an intuitive grasp of the determinants of derivative pricing