spinoffs and wealth transfers the marriott case abstract this paper examines changes in bondholder and shareholder wealth resulting from the 1993 marriott spinoff it documents a wealth transfer from bondholders to shareholders and a decline in the total value of the firm following the spinoff announcement subsequent modifications to the spinoff plan reduced the bondholders loss but the value of marriott s notes and debentures remained 194 6 million below their pre announcement level on the distribution date industry adjusted shareholder gains during the same period were only 80 6 million transaction costs and inefficiencies resulting from the spinoff explain much of the decline in the total value of the firm

the structure of asset prices and socially useless useful information this paper relates the value of additional information to asset prices in a pure exchange setting the price structure of interest revolves around a pricing hypothesis the prices in an economy with less information are unbiased estimators of the prices that would obtain in a more informative economy two basic results are developed first if the incremental information is useless then the pricing hypothesis applies second if the pricing hypothesis is assumed valid then the information is valuable in a weak sense the results are also considered in the context of empirical research the case is made for viewing statistical tests of association between prices and signals as tests of the social value of information

adaptive versus rational expectations and the fisher effect substantial controversy remains over the causes of interest rate fluctuations this controversy frequently focuses on the role of expected inflation the theoretical determinats of the nominal rate are examined usig the is lm as model and it is shown that the augmented fisher equation is sensitive to the expectations generating mechanism the model assumes that the nominal rate ceteris paribuschanges one for one with expected inflation the total impact however may take any value from zero to one the empirical analysis sequentially estimates reduced form equations based on adaptive and rational expectations the results confirm prior findings that nominal rates do not adjust one for one with inflation the results also yield some insight on the applicability of the assumption of rational versus adaptive expectations

a respecified tax adjusted fisher relation how much will a 1 increase in expected inflation increase nominal interest rates irving fisher s famous equation implies that nominal interest rates will rise in proportion to an increase in expected inflation darby and feldstein correcting the fisher equation for taxation predict a nominal interest rate increase of 1 1 t where t is the marginal tax rate i e if t 3 then a 1 increase in expected inflation should cause a 1 4 rise in interest rates empirical evidence however suggests that the rise in interest rates is much smaller than the darby feldstein prediction estimates are around 9 varying mostly between 5 and 1 15 which is much closer to fisher s original prediction it is important to know the size of the interest rate response to inflation expectations in a world in which inflation and interest rates are volatile and in which tax laws are designed to influence savings and investment through interest rates in this paper we attempt to close the gap between theorized and estimated effects of inflation by incorporating into the fisher equation two important aspects of the u s tax code historic cost depreciation and the lower tax rate on capital gains our model shows that the effect of expected inflation on interest rates is dampened by the lower benefits from depreciation deductions arid the capital gains tax our corrected fisher equation predicts a 1 12 nominal interest rate increase rather than the 1 4 increase implied by the darby feldstein model the our model closes about 56 of the gap between theory and empirical evidence the remainder could be closed by additional refinements in the model or better empirical modeling

the purchasing power of money and nominal interest rates a re examination while it has been known for some time that under uncertainty the original version of the fisher hypothesis is not precisely correct empirical researchers have largely ignored this fact such an omission has possibly resulted in erroneous conclusions concerning other hypotheses most notably the impact of prices on the real economy this paper clarifies some of the previous interpretations of the existing empirical literature and provides a theoretical version of the relation between prices and interest rates empirical tests based on both the livingston survey data and data from time series forecasting models provide support for the fisher effect and the hypothesis that only covariance risk is priced in the treasury bill market one of the basic hypotheses concerning rationality in financial markets is based on statements generally attributed to fisher 18 fisher argued that the nominal or money rate of return on an asset should compensate an investor for his or her required real rate of return and changes in the purchasing power of money for the uncertainty case fisher replaced known purchasing power changes with the expected inflation rate whereas the fisher relationship under certainty is well defined his basic theorem under uncertainty is not precise as fama 15 has argued it is changes in the purchasing power of money not the inflation rate that should concern investors under uncertainty the expected value of one is not by jensen s inequality the inverse of the expected value of the other moreover fama and farber 16 grauer and litzenberger 20 and benninga and protopapadakis 3 have shown that when investors are risk averse the fisher relationship will generally not hold even after adjustment has been made for the distinction between purchasing power changes and the inflation rate in particular these authors show that an adjustment must be made for the fact that the real rate of return on nominal bonds is random while these issues have been discussed in the theoretical literature they have largely been ignored in the empirical work on this topic given the fact that nominal rates do not seem to adjust as rapidly to price changes as fisher hypothesized numerous empirical researchers have expanded the basic fisher model in an attempt to explain this empirical anomaly these extensions include the incorporation of a inflation rate variability and the growth in real output

the effect of fiscal policy on the short run relation between nominal interest rates and inflation this paper presents a simple empirical model of the relation between the inflation rate and the nominal interest rate we show that previous results found in the literature may be attributed to specification error and that there are natural explanations for the observed signs of previous fisher equation estimates our results show that fiscal policy shocks may generate short run negative correlations between changes in inflation and changes in the nominal interest rates these results illustrate the difficulty in discussing the relation between inflation and nominal interest rates without conditioning the analysis with specific assumptions on the course of the economy

the energy efficiency paradox revisited through a partial observability approach the present paper examines the energy efficiency paradox demonstrated in greek manufacturing firms through a partial observability approach the data set used has resulted from a survey carried out among 161 energy saving technology firm adopters maximum likelihood estimates that arise from an incidental truncation model reveal that the adoption of the energy saving technologies is indeed strongly correlated to the returns of assets that are required in order to undertake the corresponding investments the source of the energy efficiency paradox lies within a wide range of factors policy schemes that aim to increase the adoption rate of energy saving technologies within the field of manufacturing are significantly affected by differences in the size of firms finally mixed policies seem to be more effective than policies that are only capital subsidy or regulation oriented

evidence on the varying effect of expected inflation on interest rates boskin michael j mark gertler and charles taylor the impact of inflation on u s productivity and international competitiveness washington d c national planning association 1980 carlton dennis w the disruptive effect of inflation on the organization of markets in robert e hall ed inflation causes and effects chicago the university of chicago press 1982 fama eugene short term interest rates as predictors of inflation american economic review 65 june 1975 269 282 freund william c and paul b manchester productivity and inflation in john d hogan ed dimensions of productivity research vol i houston american productivity center 1980 53 71 geweke john richard meese and warren t dent comparing alternative tests of causality in temporal systems analytic results and experimental evidence journal of econometrics 21 feb 1983 161 194 granger c w j investigating causal relations by econometric models and cross spectral methods econometrica 37 july 1969 424 438 guilkey david k and michael k salemi small sample properties of three tests for granger causal ordering in a bivariate stochastic system this review 64 nov 1982 668 680 houthakker hendrik s growth and inflation analysis by industry brookings papers on economic a ctivity 1979 241 256 hsiao cheng autoregressive modelling and money income causality detection journal of monetary economics 7 1981 85 106 autoregressive modeling and causal ordering of economic variables journal of economic dynamics and control 4 1982 243 259 jarrett j peter and jack g selody the productivity inflation nexus in canada 1963 1979 this review 64 aug 1982 361 367 kendrick john w and elliot s grossman productivity in the united states trends and cycles baltimore the johns hopkins university press 1980 sims christopher a money income and causality american economic review 62 sept 1972 540 552 u s department of commerce bureau of economic analysis the national income and product accounts of the united states 1929 76 statistical tables washington d c superintendent of documents 1981 u s department of labor bureau of labor statistics tables headed industry analytical ratios for the business sector all persons indexes 1977 100 and basic industry data for the business sector all persons printout dated april 27 1983

changes in the financial market welfare and price effects and the basic theorems of value conservation this paper analyzes the impact on both welfare and equilibrium prices of changes in the financial market in a general equilibrium two period context previous papers have focussed on the securities effect tending to essentially ignore the equally important endowment effect that arises when market structure changes are implemented two forms of endowment neutrality and market structure changes which either preserve expand or shift allocational feasibility differentiate the main theorems which are based on arbitrary preferences and beliefs and substantially extend and modify extant results in particular earlier statements identified with value conservation are sharply moderated very roughly the paper yields the following implications for some of the more common changes in the market nonsynergistic corporate spinoffs and the opening of option markets have on balance strongly positive welfare effects nonsynergistic mergers tend to have strong negative welfare effects while the welfare effects of alternative risky debt structures tend to be ambiguous all of the preceding however may under plausible conditions be redistributive changes in the structure of the financial market have long been of interest to financial economists while such changes may take many forms it is perhaps surprising that only a few of the more common ones have been systematically studied foremost among these are changes which involve the firm s capital structure the relative amounts of debt and equity mergers and other special recapitalizations this paper analyzes the impact on both welfare and equilibrium prices of changes in the financial market in a two period context it differs from previous studies primarily in that it is based on a fully integrated general equilibrium approach similar to that employed in international trade analysis thus while the resulting mosaic contains previous studies as clearly recognizable fragments such as the classic paper of modigliani and miller 33 it also provides the necessary framework and tools for an evaluation of market structure changes of any type such as changes involving subordinated debt convertibles warrants mergers spinoffs and the opening of option markets

long term behaviour of co2 emissions from cement production in spain scenario analysis using an energy optimisation model abstract during the past decade the spanish cement production industry has experienced constant technological updates nevertheless meeting current and future environmental policy goals requires extra efforts the spanish case is significant because cement production went down dramatically due to the last economic crisis this brought an important but temporary reduction of co2 emissions therefore there is an interesting opportunity for cement producers and policymakers to adjust the long term targets this work discusses the evolution of the cement industry in spain from a realistic point of view using recent cement demand projections and the times spain energy optimisation model several environmental friendly options were implemented in times spain following a literature review these measures aimed at contributing to the decrease of emissions to meet the established policy goals include energy efficiency improvements substitution scenarios both for fuel and materials and co2 capture post combustion and oxyfuel from a policy approach the deployment of the eu ets directive entails that co2 emissions from cement production will decrease by 8 mt per year from 2030 with respect to the case without directive in a more technology specific analysis a remarkable decrease of 2 2 4 mt co2 was obtained in the material substitution scenario beyond 2030 additionally taking into account current projections for cement demand co2 capture technology does not emerge as a feasible option only if cement demand grew back to the pre crisis level by 2050 and the co2 emission allowances remained fixed would the co2 capture via post combustion start to be a reasonable alternative

the fisher hypothesis and international capital markets in a closed economy with interest taxes at rate and with a constant real et rate of interest the nominal rate of interest should rise by 1 1 points for every point rise in the expected rate of inflation however a large body of empirical work examines the determinants of nominal interest rates and generally finds that the coefficient of expected inflation is close to or less than one we model the determination of interest rates in an open economy with taxes under plausible conditions increases in inflation cause the nominal interest rate to rise roughly point for point this suggests that open capital market considerations are central for understanding aggregate economic behavior the analysis also suggests that inflation is not neutral with respect to the real net interest rate earned by domestic savers or paid by domestic borrowers

developments of the payback method abstract in spite of its theoretical deficiencies the payback pb method is commonly used for appraisals of capital investments in companies sometimes the method is used when aspects such as liquidity and project time risk are focused but it is also commonly used in pure profit evaluations as a single criterion the two main deficiencies of the pb method are that it does not measure the time value of money in a correct manner and that it ignores cash flows after the payback period pp these deficiencies can be reduced if the maximum acceptable pp is chosen in a somewhat more sophisticated way in practice the maximum acceptable pp is often chosen as a fixed value e g three years in some cases the limit value of the pp has been related to the economic life of the investment e g a pp shorter than half the economic life if these two rules of thumb are combined a more theoretically correct evaluation of investments can be achieved such a combined pb method is based on the assumption of constant yearly cash flows however the method can be developed to handle cases with varying cash flows but then some of its simplicity is lost due to the fact that the decision situations in the evaluation of capital investments typically are uncertain concerning the time pattern and the duration of the cash flows this can justify the use of a simple but more robust pb method even if there would be time for more advanced analyses

the role of policy instruments in the innovation and diffusion of environmentally friendlier technologies popular claims versus case study experiences abstract moving towards sustainability will require that new environmentally friendlier technologies are developed and widely adopted policy instruments that promote eco efficiency are therefore necessary some claims frequently made in the literature on the relationship between policy instruments and technological development are examined the claims concern regulations environmental taxation and funding of research and development the claims are explored on the basis of empirical evidence from two sectors the pulp and paper industry and the marine engine industry little support was found for some of the claims in some cases even contradictory findings and for some claims the findings differed between the sectors and even within a sector depending on the issue

an analysis of growth of u s farmland prices 1963 82 increases in expected inflation or real growth in net rental income to land have been proposed as alternative explanations of the dramatic real growth in u s farmland prices in the 1970s in this paper the effect of inflation is shown to be theoretically ambiguous an empirical analysis using u s and international farmland prices suggests that most of the real land price growth can be explained by real growth in net rental income to land increases in expected inflation have had a negative effect on real land prices but the effect of inflation has been comparatively small

barriers to industrial energy efficiency investments in greece abstract this paper sets out to investigate the main determinants of industrial decision making process with respect to energy efficiency investments based on a survey among greek industries in the empirical analysis probit models are employed the results support that an energy saving campaign should regard industries as subgroups with different needs and different managerial aspects the importance of qualified employees is also established from this survey an energy conservation framework would be more effective if the diffusion of information with regard to industrial energy saving investments is based on investment in human capital

tax rate effects on interest rates abstract this paper investigates empirically the effects of personal and corporate taxes on taxable interest rates the results suggest that the effective tax rate of marginal investors in the treasury bill market is that of households as opposed to that of tax exempt institutions or corporations

the price effect of option introduction this paper examines the price effect of option introduction from 1974 to 1980 the introduction of individual options causes a permanent price increase in the underlying security beginning approximately three days before introduction the price effect appears to be associated with introduction and not announcement throughout the sample period excess returns volatility declines with option introduction systematic risk is unchanged there is a positive relation between the price increase and a measure of activity in the options market copyright 1989 by american finance association

real interest rates anticipated inflation and unanticipated money a multi country study a bstractin this paper we examine real interest rate behavior in canada west germany the united states and the united kingdom using a model that yields a semi reduced form equation linking the real interest rate to monetary growth shocks anticipated inflation and expected inflation variance the estimator used in our analysis accommodates regressors from other regressions ensuring that accurate inferences are obtained in all countries we find that increases in anticipated inflation initially dampen real interest rates in addition a significant and negative relationship between unanticipated money shocks and real interest across all countries is discovered inflation variance typically exhibits little explanatory power

government deficits capital flows and interest rates 1988 government deficits capital flows and interest rates applied economics vol 20 no 6 pp 753 765

interest rates income taxes and anticipated inflation some new evidence abstract this paper re examines the effect of taxes on the fisher hypothesis using a procedure first proposed by peek and using data through the 1980s and a new data set on expected inflation for the us the tax adjusted hypothesis is rejected in favor of the no tax adjusted hypothesis for the period 1968 iv to 1979 iv for the full sample both hypotheses are accepted these results are thus quite different from those reported by peek a brief discussion of the factors responsible for these differences is provided

measuring welfare effects of unbundling financial innovations the case of collateralized mortgage obligations abstract the proposition that market extending financial innovations enhance welfare has strong theoretical support however quantification of these welfare benefits has previously been unavailable in this paper we demonstrate that such quantification is possible for market extending innovations that unbundle an existing asset by selling its cash flows in two or more parts we apply this approach to a prominent recent example of an unbundling innovation collateralized mortgage obligations and find the benefits to have been substantial

bankruptcy limited liability and the modigliani miller theorem this paper examines the validity of the modigliani miller theorem in the presence of bankruptcy the theorem asserts that the value of a firm and the set of return patterns that the capital markets offer to private investors are independent of firm debt equity ratios the usual proof of the theorem is based on the presumption that in perfect capital markets borrowing by firms and borrowing by individuals can be perfect substitutes it is unclear whether this presumption is valid when there is a positive probability that either the firm or the individual who borrows to invest in the firm goes bankrupt on the one hand joseph stiglitz 1969 and robert merton have argued that the modigliani miller theorem remains valid even with bankruptcy if agents who borrow to invest in a firm can limit their liability to the amount of collateral they put up on the other hand vernon smith 1972 has argued that a margin loan which is secured by a pure equity collateral has a different return pattern from a direct loan to the firm and cannot serve as a substitute for the latter see also david baron smith s argument raises a number of issues first it brings out the important fact that return patterns for limited liability borrowing and lending depend on the composition of the portfolio that serves as collateral if a firm goes bankrupt a pure equity collateral is worthless whereas a collateral that contains some bonds may still earn a positive return because the bonds have a privileged claim to the firm s remaining assets in general margin contracts with different collateral compositions will generate different return patterns both for the borrower and the lender given this multiplicity of return patterns on margin loans one would not expect that all margin loans can be used as substitutes for direct loans to the firm this intuition is confirmed by smith s demonstration that a particular margin loan namely the loan on pure equity collateral cannot serve this purpose the question remains open whether this is actually needed for the modiglianimiller theorem it might be enough if some appropriate margin loan could be used as a substitute for lending to the firm in pursuing this problem one finds a gap in the standard proof of the modiglianimiller theorem usually one applies an arbitrage argument to show that as a firm changes its debt equity ratio investors in shares and bonds adjust their portfolios so as to leave their overall return patterns unchanged no such arguments are given for other securities related to the firm in particular for margin investments and for margin loans that serve to finance those margin investments without an analysis of professor of economics university of bonn research on this paper was supported by nsf grant soc 75 13437 at princeton university and by the deutsche forschungsgemeinschaft i have benefited from the advice of dwight jaffee and an anonymous referee in a similar vein stiglitz 1972 asserts the value of the firm decregses because there is a divergence in the estimation of the chances of bankruptcy between the lender and the borrower p 467 this analysis rests upon a form of market segmentation that is without economic merit in his model there are two groups of agents optimists and pessimists the optimists invest all their wealth in the firm s equity valued to make the rate of return equal to that on the riskless asset the pessimists are indifferent between the risky firm s bonds and the riskless asset it follows that the optimists being more optimistic than the pessimists must prefer the risky bond to the riskless asset and hence to the equity yet stiglitz assumes that the optimists invest in the equity and not in the risky bond of course if one group invests all its wealth into one asset that asset need not satisfy a marginal equality condition at all a correct analysis of his model leads to the results of this paper

a general equilibrium analysis of option and stock market interactions the traditional pricing methodology in finance values derivative securities as redundant assets that have no impact on equilibrium prices and allocations this paper demonstrates that when the market is incomplete primary and derivative asset markets generically interact the valuation of derivative and primary security prices depend on the contractual characteristics of the derivative assets available in a version of the mossin mean variance model the authors analyze an equilibrium in which a call option derivative asset is traded and the equilibrium stock price primary asset increases when the options market is opened copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

interest rates and inflationary expectations abstract the relationship between inflation and the rate of interest for the united states is examined within a dynamic specification framework which yields direct estimates of the long run as distinct from the short run coefficients the fisher hypothesis as a long run proposition is supported by the data the results are shown to be robust with respect to the choice of the interest rate

the postwar stability of the fisher effect most research concerning the fisher relationship has concentrated on the magnitude and significance of the response of nominal interest rates to anticipated inflation recently attention has shifted to the stability of that response according to previous estimates the impact of anticipated inflation on interest rates varies substantially over time by extending a standard model to include tax and aggregate supply shock effects we are able to reduce such instability considerably our results also reveal that increased foreign demand for bonds lowers the interest rate

the fisher effect in a signal extraction framework the recent brazilian experience abstract this paper derives a signal extraction framework for examining all testable implications of the fisher equation the signal is the net of taxes nominal interest rate which under the fisher model equals inflation expectation plus the real rate assumed to be constant or a constant plus a martingale difference all alternative linear models can be represented as noise added to the signal the international and brazilian literature are briefly reviewed and the empirical tests reinterpreted in the signal extraction framework the model is tested with brazilian data for the period 1973 1990 using interest rate data on non indexed certificates of deposit from a sample of major brazilian banks the framework detects little noise i e the fisher equation seems to reasonably fit the brazilian evidence this result carries the policy implication that the government cannot have the burden of financing its fiscal deficits ameliorated by issuing non indexed debt in periods when inflation is escalating given the large fluctuations observed in ex post real rates in brazil the reasonable success of the fisher equation also implies the existence of large inflation forecast errors which suggest the need for further research on how agents form inflation expectations when inflation escalates rapidly as it did in the late 1980s in brazil price indices lag behind true inflation this generates a fisher effect even for indexed securities the empirical evidence also corroborates the existence of this fisher effect for indexed securities

a note on the welfare consequences of new option markets this note extends existing results on the conditions under which the opening of option markets permits a pareto improvement in welfare specifically conditions supplementary to those set forth in dybvig and ingersoll 4 and hakansson 5 are identified these results thus expand the universe of known cases in which trading in options has no negative welfare consequences welfare effects arise from changes in investors choice sets the opening of option markets can affect the choice sets of investors in two ways1 first by augmenting the existing financial market structure and second by altering the equilibrium relative prices of assets in general the two are not separable thus welfare effects should be considered within the context of an equilibrium model2 hakansson examines the nature of redistributive effects in an equilibrium model where investors utilities are arbitrary he identifies necessary and sufficient conditions for there to be no redistributive welfare effects following the opening of option markets for this result either the endowment in the richer market structure must be the equilibrium allocation in the original structure his theorem 6 or the two equilibria must share a common implicit state contingentclaim price vector theorem 7 in the model set forth below the conditions of theorem 6 are not satisfied and the conditions of theorem 7 are satisfied trivially dybvig and ingersoll examine the effect on capm equilibrium relative prices of the addition of an option market section iii they examine two cases in the first equilibrium relative prices are not affected when investors have homogeneous quadratic utilities in the second with heterogeneous utilities the capm pricing relationships break down in the model presented here equilibrium pricing relationships are preserved even though there is heterogeneity among investors

fisher s paradox and the theory of interest irving fisher s theory of interest has proved to be a most durable and influential contribution to economic theory a central element of fisher s contribution is the fisher hypothesis that over the longer term the real rate of interest is approximately constant being determined largely by time preference with movements in the nominal interest rate reflecting movements in the rate of inflation one for one the paradox of the fisher hypothesis is that despite its wide acceptance as the cornerstone of interest rate theory most empirical evidence appears to be inconsistent with the hypothesis at least in its strictest form this empirical anomaly was noted by fisher himself who attributed it to money illusion in the fifty years following the publication of the theory of interest a considerable literature has evolved around this paradox the unifying theme of this literature is a common acceptance of the essence of fisher s hypothesis most of the energy in this literature has been devoted to explaining systematic movements in the real rate of interest and to providing reasons why the relationship between the nominal interest rate and inflation may only be approximate in

comparative assessment of policies targeting energy use efficiency in lithuania abstract energy efficiency is an important issue of european climate policy energy efficiency is measured by the energy intensity of an economy showing how much energy expressed in kilograms of oil equivalent kgoe is used for the production of one unit 1000 eur of gdp there are huge differences between eu old and new member states though there are some trends of energy intensity convergence between eu member states however the achieved decrease in energy intensity is attributable mostly to a loss of energy intensive industrial capacities in the transformation process there is a crucial difference between whether the energy intensity of a given economy decreases as a result of downscaling energy intensive activities or because of increased energy efficiency in activities that are maintained it is important to make sure that this distinction is made within the policy framework which at present is not the case the aim of the paper is to assess policies targeting energy intensity decrease in lithuania in terms of efficiency effectiveness and efficacy and to select the best policies able to increase energy efficiency in activities that are maintained

the impact of the listing of options in the foreign exchange market abstract this paper documents the impact of the introduction of foreign currency options and options on foreign currency futures on the underlying securities we find that the volatility of exchange rates decreases following the listing of options for a majority of the currencies under consideration in addition we find that trading volume and open interest in currency futures increases after option introduction this evidence is consistent with the notion that derivative securities are important innovations for stabilizing and increasing liquidity in the market for the underlying assets

the potential for improvements in energy efficiency and co2 emissions in the eu27 cement industry and the relationship with the capital budgeting decision criteria this paper performs a cost effectiveness analysis of some of the best available technologies bat that can contribute to decreasing the energy consumption and co2 emissions in the european union s eu27 cement industry several capital budgeting decision criteria have been used the payback period the net present value and the internal rate of return to study whether or not an investment should be considered worthwhile the results show that independent of the capital budgeting decision criteria used the number of cost effective retrofitting possibilities available is large compared to the rate of improvements that the industry undertakes annually this shows the insensitivity of the industry to financial criteria when it comes to making their investment decisions the possible thermal energy improvement in the clinker production if all these bats were implemented has been quantified to be around 10 this achievement would place the cement industry in the upper bound of the benchmark range for clinker manufacture however considering the delays observed nowadays in terms of diffusion of bats in the cement industry it requires a conducive policy environment that combines support for both technology development and to their deployment

the fisher hypothesis under different monetary regimes we examine the relation between inflation and nominal interest rates under the various monetary regimes in effect in the united states since the turn of the century our data include a newly constructed time series of short term municipal bond yields observed annually since 1902 the results generally support the hypothesis that after tax nominal yields adjust point for point with rationally forecasted inflation for the postwar years but strongly reject that hypothesis for the preceding years we suggest and offer supporting evidence that the difference between the two subperiods may be attributable to differences in the optimal forecasting technique for each era when forecasting is a costly endeavor

the spinoff and merger ex date effects this article shows that some of the wealth gains from financial decisions involving changes in security form occur on predictable ex dates for a sample of 113 spinoffs during 1964 to 90 we document an average excess return of 3 0 percent on ex dates roughly the same magnitude as the average announcement date return we conjecture that the spinoff ex date return arises because the parent and subsidiary stocks attract different investors who prefer to buy the separated shares after the ex date we also document that on average the target shareholders in stock for stock mergers earn an excess return of 1 5 percent on merger ex dates recent years have witnessed a large increase in restructuring programs that include divestitures for example kaplan and weisbach 1992 report that 44 percent of a sample of large acquisitions completed in the 1970s and early 1980s had already been divested by the end of the 1980s most divestitures are accomplished by selling an unwanted subsidiary or division to another company or a group of investors for cash based on a casual survey of transactions reported in the mergers and acquisitions magazine this divestiture form is commonly known as a selloff in many cases however the parent company relinquishes control of a subsidiary by simply distributing the subsidiary shares as a nontaxable stock dividend to current stockholders this latter divestiture form is known as a spinoff and has been gaining

exploring the limits for co2 emission abatement in the eu power and industry sectors awaiting a breakthrough this study assesses the prospects for presently available abatement technologies to achieve significant reductions in co2 emissions from large stationary sources of co2 in the eu up to year 2050 the study covers power generation petroleum refining iron and steel and cement production by simulating capital stock turnover scenarios that assume future developments in the technology stock energy intensities fuel and production mixes and the resulting co2 emissions were generated for each sector the results confirm that the eu goal for reductions in greenhouse gas emission in the sectors covered by the eu emission trading system i e 21 reduction by 2020 as compared to the levels in 2005 is attainable with the abatement measures that are already available however despite the optimism regarding the potential for and implementation of available abatement strategies within current production processes our results indicate that the power and industrial sectors will fail to comply with more stringent reduction targets in both the medium term 2030 and long term 2050 deliberate exclusion from the analysis of mitigation technologies that are still in the early phases of development e g co2 capture and storage provides an indirect measure of the requirements for novel low carbon technologies and production processes

more flexible use of survey data on expectations in macroeconomic models a flexible procedure is proposed whereby both the random and systematic errors in measurement of survey data on inflation expectations can be appropriately handled when these surveys are used in the estimation of macroeconomic models during the period 1952 1980 livingston s two expectations series and the src series systematically underestimated inflation expectations by nearly 25 the asa nber survey however does not exhibit such underestimation thus the use of the livingston or src data as an unbiased measure of the true expectations of inflation would result in overestimation of the fisher effect and the ex ante real interest rate

government borrowing and tax adjusted real and nominal interest rates the purpose of this paper is to test for the effect of federal government budget deficits on one year tax adjusted nominal and real interest rates in an is lm as model the results suggest that the specification of the dependent variable is a crucial issue in the debate over the linkage between deficits and interest rates the evidence shows a positive and significant effect of various measures of the federal government deficit and debt on the real tax adjusted treasury bill rate in both the levels and the first differenced equations but not on the nominal tax adjusted rate the positive and significant deficit debt coefficients are also confirmed when the first differenced equation is estimated by instrumental variables and when the equation is estimated over various time periods thus there is robust evidence of a positive linkage between federal government borrowing and the tax adjusted real but not nominal interest rates

reassessing the impact of option introductions on market quality a less restrictive test for event date effects prior research concludes that option introductions improve the average liquidity of the underlying stocks we develop an improved generalizable test to assess whether market quality changes occur on or near an event date applying this method to option listing events we conclude that options do not systematically improve the market quality of the underlying security rather the market quality of the underlying security improves before the listing decision hazard model tests indicate that improving liquidity is a selection criterion in the option listing decision moreover these tests suggest that the size of a stock s bid ask spread is the single most important option listing determinant this study reexamines the impact of equity option introductions on stock market liquidity previous studies find an improvement in market quality charac teristics after option introductions and conclude that options improve the quality of the underlying market 1 in this paper we make several new contributions first we present and adopt a more flexible empirical tool for identifying regime shifts when event selection may be endogenously determined second using this method we reverse two major findings of the existing literature that option in troductions reduce spreads and increase volume finally we find that the bid ask spread is an important and perhaps the most important determinant of the option

the impact of energy derivatives on the crude oil market we examine the effects of energy derivatives trading on the crude oil market there is a common public and regulatory perception that derivative securities increase volatility and can have a destabilizing effect on the underlying market consistent with this view we find an abnormal increase in volatility for three consecutive weeks following the introduction of nymex crude oil futures while there is also evidence of a longer term volatility increase this is likely due to exogenous factors such as the continuing deregulation of the energy markets subsequent introductions of crude oil options and derivatives on other energy commodities have no effect on crude oil volatility we also examine the effects of derivatives trading on the depth and liquidity of the crude oil market this analysis reveals a strong inverse relation between the open interest in crude oil futures and spot market volatility specifically when open interest is greater the volatility shock associated with a given unexpected increase in volume is much smaller

models of technology diffusion abstract the literature on new technology diffusion is vast and it spills over many conventional disciplinary boundaries this paper surveys the literature by focusing on alternative explanations of the dominant stylized fact that the usage of new technologies over time typically follows an s curve the most commonly found model which is used to account for this model is the so called epidemic model which builds on the premise that what limits the speed of usage is the lack of information available about the new technology how to use it and what it does the leading alternate model is often called the probit model which follows from the premise that different firms with different goals and abilities are likely to want to adopt the new technology at different times in this model diffusion occurs as firms of different types gradually adopt it there are actually many ways to generate an s curve and the third class of models which we examine are models of density dependence popularized by population ecologists in these models the twin forces of legitimation and competition help to establish new technologies and then ultimately limit their take up finally we look at models in which the initial choice between different variants of the new technology affect the subsequent diffusion speed of the chosen technology such models often rely on information cascades which drive herd like adoption behaviour when a particular variant is finally selected

security price reactions around corporate spin off announcements abstract we examine security price reactions around the announcements of 123 voluntary spin offs by 116 firms between 1963 and 1981 involving a pro rata distribution of the common stock of a subsidiary to the stockholders of the parent firm the median spin off in the sample is 6 6 of the original equity value and is associated with an abnormal return of 7 0 from 50 days prior to the announcement through completion of the spin off no evidence is found to indicate the gains to stockholders represent wealth transfers from senior securityholders over the entire event period we find positive gains for firms engaging in spin offs to facilitate mergers or to separate diverse operating units but negative returns to firms responding to legal and or regulatory difficulties in the two day interval surrounding the first press announcement we find positive average excess returns for all groups

the impact of derivatives hedging on the stock market evidence from taiwan s covered warrants market abstract we examine the impact of derivatives hedging on the spot market using accurate hedge ratios of covered warrants traded in the taiwan stock exchange twse results present significant positive abnormal returns and trading volumes before the announcement of a warrant s issuance and the effect is stronger when the hedging demand is larger moreover a significantly positive relationship exists between stock return volatility and the price elasticity of hedging demand finally we observe a significantly negative price effect upon the underlying stock after a call warrant has expired in the money due to the liquidation of hedging portfolios

class shares and economies of scope abstract this paper examines the allocative role of class shares that pay dividends based upon the performance of the individual activities of multi activity firms the firms considered operate under economies of scope and technological uncertainty in an incomplete asset market investor unanimity about the choice of production plans and a constrained pareto optimum are attained when all firms in the economy issue a class of shares for each of their activities partial issuance of class shares leads to a pareto superior allocation if the ensuing changes in production plans are individually rational

the adjustment of the real interest rate to inflation this paper reports tests of carmichael and stebbing s 1983 inverted fisher hypothesis that it is the real rather than the nominal interest rate which adjusts to changes in the expected inflation rate unlike the earlier analysis the results presented here are based on a properly specified estimating equation derived from a short run open economy macro model the results support the inverted fisher hypothesis in the short run but indicate that there is some overshooting of the real interest rate so that after four quarters about 75 of the effect of an expected inflation change is reflected in real rates while the remainder leads to an increase in the nominal rate

the effect of federal deficits and debt on the tax adjusted short term real interest rate the stock versus flow effect of the federal debt deficit on a real interest rate is examined in a reduced form equation the evidence shows a positive and significant linkage between the federal debt and an ex post tax adjusted short term real interest rate

expectations surprises and treasury bill rates 1960 82 changes in six month bill rates over semiannual periods in the 1960s and 1970s are successfully related to expected changes and to surprises the latter include unanticipated changes in expected inflation in the growth of industrial production and base money and in inflation uncertainty estimation of the basic equation through the middle of 1983 does not suggest any change in structure moreover the equation explains 60 percent of the extraordinarily high level of real rates since late 1980 largely owing to an excess of unexpected net increases in anticipated inflation over actual increases our estimates provide some support for the expectations theory there appears to be information content in six month forward rates while this content is swamped by the impact of surprises in equations explaining rate changes in terms of forward rates alone the content is clear when proxies for the surprises are included in the equations the height and volatility of interest rates in the early 1980s spectacularly exceeded that of the past half century various researchers have attributed this to the sharp increase and decline in inflation the special characteristics of recent monetary the monetarist experiment and fiscal the structural deficit policies and mysterious or unidentified forces see clarida and friedman 1982 and makin and tanzi 1983 the present paper estimates the relationship between the six month treasury bill rate and its determinants in the 1960s and 1970s the purpose is to test various hypotheses regarding interest rate determination and to determine whether this relationship was altered markedly in the early 1980s the short term bill rate is chosen for investigation for two reasons first the yield on a short term instrument is independent of longer term expectations regarding inflation output growth and fiscal and monetary policies longerterm yields should depend heavily on such variables while reasonably accurate measures of expectations over say a six month horizon can probably be deduced are in fact available from survey data longer term expectations are both more uncertain and vary more widely across market participants second analysis of a short term bill rate allows an easy test of the expectations theory of interest rates recent studies by shiller campbell and schoenholtz 1983 and by mankiw and summers 1983 suggest that observed interest rate movements are unrelated to expected changes in rates extracted from the term structure of short term rates calling into question the validity of the expectations theory but see fama 1983 for an alternative view the six month bill rate is analyzed because it meshes best with the livingston survey data

the effects of inflation and income taxes on interest rates some new evidence this paper reexamines the empirical relation between inflation and interest rates concentrating on the tax effect proposed by darby and feldstein using the random walk intercept model relative responses of taxable yields and tax exempt yields to expected infla tion are estimated the results show that for the sample period 1953 1982 the nominal yields on treasury bills rise at a rate greater than one for one with expected inflation while the nominal yields on default free municipal bonds rise approximately one for one with expected inflation thus the tax adjusted fisher hypothesis by darby and feldstein is empirically supported the components of treasury bills are also extracted and their variances are compared it is shown that variation of expected inflation is not overwhelmingly larger than that of the after tax real rate therefore on an after tax basis changes in the real rate explain a substantial portion of changes in the nominal rate of interest

sustainability in the eu cement industry the italian and german experiences cement manufacturing is a high volume process with large quantities of substances turned into commercial products in the process consuming non renewable resources and energy it is one of the most material and energy intensive industrial processes as well as being co2 emissions intensive the latter is due in large part to the production of clinker the key component in cement over the last decades the european cement industry has applied a variety of solutions for improving environmental performance and cost competitiveness the co processing of alternative raw materials and fuels in particular has played a pivotal role producing a triple win emissions reductions decreases in the extraction of natural resources and fossil fuels and enhancement of waste management operations this paper outlines characteristics of the european cement industry in order to pinpoint trends and performance improvements and to assess the suitability of sustainability routes adopted and programmes launched finally the paper compares the experiences of the industry in italy and germany the two most important european manufacturers of cement evaluating their different industrial approaches with regard to the use of alternative raw materials and fuels and improvements in resource efficiency results indicate the need for a collaborative approach between the business community policy makers and institutions in order to embrace sustainability as a business imperative adopting models that facilitate systemic change towards circular economy goals