third market reforms the overlooked goal of the sec s order handling rules in 1997 the securities and exchange commission enacted significant reforms in u s markets several studies document that the new order handling rules increased competition for nasdaq stocks but the reforms were designed with an additional goal in mind to increase quote competition for the trading of nyse listed securities on nasdaq i e third market trading an evaluation of the reforms in the third market indicates that they did not achieve this objective instead both quote quality and quoting frequency were diminished due primarily to elimination of the excess spread rule this suggests that more significant changes are needed to increase inter exchange competition

oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases this paper analyzes the effect of volatility in oil prices on the degree of asymmetry in the response of gasoline prices to oil price increases and decreases several time series measures of the asymmetry between the responses of gasoline prices to oil price increases and decreases and several measures of the oil price volatility are constructed in all models the degree of asymmetry in gasoline prices declines with an increase in oil price volatility the results support the oligopolistic coordination theory as a likely explanation of the observed asymmetry and are not consistent with the standard search theory and the search theory with bayesian updating

one security many markets determining the contributions to price discovery when homogeneous or closely linked securities trade in multiple markets it is often of interest to determine where price discovery the incorporation of new information occurs this article suggests an econometric approach based on an implicit unobservable efficient price common to all markets the information share associated with a particular market is defined as the proportional contribution of that market s innovations to the innovation in the common efficient price applied to quotes for the thirty dow stocks the technique suggests that the preponderance of the price discovery takes place at the new york stock exchange nyse a median 92 7 percent information share although most of the classic paradigms in market microstructure concern a security that trades in a single centralized market such situations are becoming increasingly rare in practice fragmentation the dispersal of trading in a security to multiple sites has emerged as a dominant institutional trend this process is of concern to financial economists and regulators because price information and price discovery the impounding of new information into the security price arguably the most important products of a security market have many attributes of public goods as the process of fragmentation accelerates it may be important to determine where the price information and price discovery are being produced 1 this paper suggests a practical econometric approach to this problem the technique is illustrated with an application to u s equity markets many stocks listed on the new york stock exchange nyse trade concurrently on the regional exchanges and the national association of securities dealers national market system nasd nms since a share of ibm stock is the same security whether purchased on the midwest or pacific exchange this is a particularly clear instance of multiple markets nevertheless the expres

arbitrage and existence of equilibrium in infinite asset markets this paper develops a framework for a general equilibrium analysis of asset markets when the number of assets is infinite such markets have been studied in financial economics in the context of asset pricing theories a distinctive feature of an equilibrium model of asset markets is that investors portfolio choice sets are typically not bounded below we prove that an equilibrium exists under a condition that markets are arbitrage free the markets are arbitrage free if there is a price system under which no investor has an arbitrage opportunity the concept of an arbitrage opportunity used in this paper differs from the standard concept on an arbitrage portfolio in financial markets which is a portfolio that guarantees a non negative payoff in every event a positive payoff in some event and has zero price we provide an extensive discussion of concepts of an arbitrage opportunity

fragmentation versus consolidation of securities trading evidence from the operation of rule 19c 3 stock exchanges defend their rules requiring members to trade listed stocks on an exchange floor as a means of achieving consolidation of trading which it is argued minimizes trading costs to investors by virtue of the securities and exchange commission s rule 19c 3 however these exchange rules cannot apply to stocks newly listed after april 26 1979 the objective of the securities and exchange commission rule was to end what was viewed as restraint of desirable competition that would more than compensate for any cost saving resulting from consolidation by comparing the cost of trading measured by bid ask spreads and returns variance for the two distinct groups of stocks those listed before april 26 1979 and those listed after we test these competing views we find that rule 19c 3 has not caused any reduction in spreads but may have caused an increase and has had no effect on returns variance

the effects of petroleum product price regulation on macroeconomic stability in china abstract china has undertaken measures to regulate the prices of petroleum products since 1998 in order to deal with the world oil price shocks on its macro economy however the effects of price regulation are yet unknown especially when the world oil price fluctuates in different regimes the study first analyses the mechanisms of petroleum product price ppp regulation in the case of gasoline and the crude oil gasoline price fluctuation transmission followed by the identification of regimes and their time intervals using regime switching vector autoregressive model and then estimates the effects of gasoline price regulation in reducing macroeconomic volatility it is found that the world crude oil fluctuates in different regimes the mild fluctuation regime and the violent fluctuation regime the ppp regulation can reduce oil price volatility and then macroeconomic volatility but it is more effective in the mild fluctuation regime the findings present a deeper understanding of the stabilization effect of ppp regulation on the macroeconomy provide an evidence for sustaining china s ppp regulation for the purpose of macroeconomic stability and offer policymakers new information for petroleum product pricing reforms

the dynamics pattern of price dispersion in retail fuel markets abstract this paper empirically investigates the dynamics of price dispersion in retail fuel markets as a response to the corresponding wholesale price changes for this purpose we take advantage of a daily dataset of prices fixed by gas stations in two spanish regions it is consistently found that retail price dispersion is temporarily enlarged as a consequence of wholesale price increases while it is reduced due to decreases the presence of asymmetries in the short run dynamics is also revealed the impact of positive changes in the wholesale price is in the first days of adjustment clearly greater the dynamics pattern could be explained at least in part by the faster response of prices in the stations associated with the two vertically integrated companies that have the largest market share i e repsol and cepsa

asymmetric error correction models for the oil gasoline price relationship abstract the existing literature on price asymmetries does not systematically investigate the sensitivity of the empirical results to the choice of a particular econometric specification this paper fills this gap by providing a detailed comparison of the three most popular models designed to describe asymmetric price behavior namely asymmetric ecm autoregressive threshold ecm and ecm with threshold cointegration each model is estimated on a common monthly data set for the gasoline markets of france germany italy spain and uk over the period 1985 2003 all models are able to capture the temporal delay in the reaction of retail prices to changes in spot gasoline and crude oil prices as well as some evidence of asymmetric behavior however the type of market and the number of countries which are characterized by asymmetric oil gasoline price relations vary across models the asymmetric ecm prescribes that long run price asymmetries are most likely to be found in the second stage of the transmission chain conversely the ecm with threshold cointegration suggests that long run price asymmetries vary across countries and markets short run price asymmetries are captured by the asymmetric ecm specification and the tar ecm the latter model suggests that all european countries are likely to be affected by asymmetries at the distribution stage while the results obtained with the asymmetric ecm are mixed

rockets and feathers the asymmetric speed of adjustment of uk retail gasoline prices to cost changes abstract the paper develops a quadratic quantity adjustment model to test the hypothesis put forward in the recent monopolies and mergers commission report that the speed of adjustment of uk retail gasoline prices to cost changes is more rapid when costs rise than when they fall and that the adjustment path is more concentrated around the mean value on the upswing using data from 1982 to 1989 evidence of faster and more concentrated responses to cost increases were found

competition among markets the repeal of rule 390 abstract the new york stock exchange repealed its rule 390 on may 8 2000 the rule disallowed exchange members from trading stocks listed prior to april 26 1979 outside of an exchange we examine the implications of the rule s repeal on the competition for order flow as well as on measures of market quality such as spreads depth and price improvement for stocks impacted by the rule we use a second sample of stocks not subject to rule 390 rule 19c 3 stocks to control for market wide trends we have three important findings 1 quoted spreads decrease by about 18 for rule 390 stocks three times more than the reduction for rule 19c 3 stocks 2 effective spreads do not change and 3 the nyse lost little market share even in smaller trades that were supposed to migrate following the repeal our results indicate a paradigm shift in the way the nyse specialists make a market prior to the repeal the specialists set wider quotes but provided extensive price improvement following the repeal the specialists set tighter quotes with lesser price improvement possibilities we believe that this shift is a strategic response by the specialists to retain market share not by improving market quality but by making order flow internalization and payment for order flow less profitable as a result competition improves market quality but not in the way we would generally expect

sticky prices inventories and market power in wholesale gasoline markets a model with costly adjustment of production and costly inventories implies that wholesale gasoline prices will respond with a lag to crude oil cost shocks unlike explanations that rely upon menu costs imperfect information or long term buyer seller relationships this model predicts that futures prices for gasoline will adjust incompletely to crude oil price shocks that occur close to the expiration date of the futures contract we test and confirm this implication examining wholesale price responses in 188 gasoline markets we also find that firms with market power adjust prices more slowly than do competitive firms consistent with the model

prices rise faster than they fall output prices tend to respond faster to input increases than to decreases this tendency is found in more than two of every three markets examined it is found as frequently in producer goods markets as in consumer goods markets in both kinds of markets the asymmetric response to cost shocks is substantial and durable on average the immediate response to a positive cost shock is at least twice the response to a negative shock and that difference is sustained for at least five to eight months unlike past studies which documented similar asymmetries in selected markets gasoline agricultural products etc this one uses large samples of diverse products 77 consumer and 165 producer goods accordingly the results suggest a gap in an essential part of economic theory as a start on filling this gap the study finds no asymmetry in the resonse of an individual decision maker a supermarket chain to its costs but it finds above average asymmetry where a cost shock is filtered through a fragmented w

anticipated and unanticipated effects of crude oil prices and gasoline inventory changes on gasoline prices abstract this paper examines the effect of anticipated and unanticipated changes in oil prices and gasoline inventory on us gasoline prices we estimate empirical responses to anticipated and unanticipated changes in oil prices and gasoline inventory and show that gasoline price adjustments are faster and stronger for anticipated changes in oil prices and inventory levels than for unanticipated changes furthermore this difference is statistically significant we use these findings to evaluate the cost of adjustment hypothesis suggested by borenstein and shephard 2002 we also find that there is an asymmetry in the effect of gasoline inventory on gasoline and oil prices this finding complements a well known result that positive and negative changes in oil prices have asymmetric effect on gasoline prices

arbitrage bubbles and valuation the standard present value rule of asset pricing may fail in financial markets when infinitely many assets can be traded i provide an example of asset payoffs and prices such that prices are arbitrage free and could be equilibrium prices in frictionless markets using valuation theory methods i show that asset prices can be meaningfully decomposed into a fundamental value and a pricing bubble the fundamental value obeys the present value rule

quote based competition and trade execution costs in nyse listed stocks abstract this study examines quotations order routing and trade execution costs for seven markets that compete for orders in large capitalization nyse listed stocks the competitiveness of quote updates from each market varies with measures of the profitability of attracting additional order and with volatility and inventory measures the probability of a trade executing on each market increases when the market posts competitive quotes execution costs for non nyse trades when the local market posts competitive non competitive quotes are virtually the same substantially exceed costs for matched nyse trades collectively these results imply a significant degree of quote based competition for order flow and are consistent with off nyse liquidity providers using competitive quotations to signal when they are prepared to give better than normal trade executions

oil and pump prices testing their asymmetric relationship in a robust way abstract the aim of this study is to provide a novel method to assess whether retail fuel prices respond asymmetrically to changes in the international crude oil prices to do so we consider the whole supply chain we use daily data and we depart from the current practice in the literature that focuses on prices rather we consider the mark ups of both the refineries and retailers hence we show that we first need to assess whether the refineries mark up responds asymmetrically to the international crude oil prices and subsequently whether the retailers mark up shows an asymmetric behaviour relatively to changes in the refined fuel prices focusing in greece as our case study our findings show that greek fuel retailers do not change their mark up behaviour based on changes of the refined fuel price by contrast the asymmetric behaviour is evident in the refineries mark up relatively to changes in the international crude oil prices which is then passed through to the retailers and consumers finally we provide evidence that weekly and monthly data mask any such asymmetric relationship thus we maintain that unless the appropriate data frequency fuel price transformations and the whole supply chain are considered misleading findings could be revealed

detecting money market bubbles the existence of a self financing trading strategy that replicates the money market account at a fixed future date at a lower cost than the current value of this account constitutes a money market bubble mmb understanding whether a market exhibits an mmb is crucial in particular for derivative pricing an mmb precludes the existence of a risk neutral probability measure the benchmark approach allows to study mmbs and is formulated under the real world probability measure it does not require the existence of a risk neutral probability measure using a range of well known stochastic volatility models we study the existence of an mmb in the us economy and find that the us market exhibits an mmb for all models considered that allow it this suggests that for derivative pricing and hedging care should be taken when making assumptions pertaining to the existence of a risk neutral probability measure less expensive portfolios are likely to exist for a wide range of long term derivatives as typical for pensions

asymmetric and nonlinear pass through of crude oil prices to gasoline and natural gas prices in this article we use the recently developed nonlinear autoregressive distributedlags nardl model to examine the pass through of crude oil prices into gasoline and natural gas prices our approach allowsus to simultaneously test the short and long run nonlinearities through positive and negative partial sum decompositions of the predetermined explanatory variables it also offers the possibility to quantify the respective responses of gasoline and natural gas prices to positive and negative oil price shocks from the asymmetric dynamic multipliers the obtained results indicate that oil prices affect gasoline prices and natural gas prices in an asymmetric and nonlinear manner but the price transmission mechanism is not the same important policy implications can be learned from the empirical findings

competition and collusion in dealer markets this article develops a game theoretic model to analyze market makers intertemporal pricing strategies we show that dealers who adopt noncooperative pricing strategies may set bid ask spreads above competitive levels this form of implicit collusion differs from explicit collusion where dealers cooperate to fix prices price discreteness or asymmetric information are not required for collusion to occur rather institutional arrangements that restrict access to the order flow are important determinants of the ability to collude because they reduce dealers incentives to compete on price public policy efforts to increase interdealer competition should focus on such restrictions

price regulation and relative price convergence evidence from the retail gasoline market in canada this paper explores price regulation and relative price convergence in the canadian retail gasoline market we use monthly data 2000 2010 on retail gasoline prices in 60 canadian cities to investigate i whether the retail gasoline market in canada has experienced a relative price convergence to the mean which is expected given the increased economic integration across canadian provinces and ii whether the introduction of price regulation mechanisms in new brunswick and nova scotia in july 2006 had any impact on the price convergence in these provinces we use a nonlinear panel unit root test and find solid evidence that canadian retail gasoline markets are well integrated across locales however the share of converging cities reveals a significant decline since july of 2006 the impact of price regulation on price convergence is mixed our results indicate that since the enactment of the regulation in all new brunswick cities 9 included in the dataset gasoline prices converge to the national mean volatility of price is also significantly reduced in contrast in the wake of price regulation in nova scotia all 6 cities of the province are non convergent to the mean with increased volatility and overall price level

does order preferencing matter 1we would like to thank david easley eugene kandel the referee g william schwert the editor participants at the dealer markets conference at ohio state university and an anonymous referee for helpful comments we gratefully acknowledge financial support from the johnson graduate school of management and the national science foundation 1 abstract this study examines how order preferencing affects the competitiveness and efficiency of laboratory financial markets we operationalize preferencing by allowing some dealers to execute a portion of the order flow by matching the most favorable quotes available increasing the proportion of order flow that is preferenced can increase bid ask spreads reduce the informational efficiency of prices and benefit dealers at the expense of liquidity traders preferencing has none of these effects however when two or more dealers are not receiving preferencing orders preferencing may significantly degrade market performance if preferencing arrangements affect all or virtually all dealers

arbitrage and the existence of competitive equilibrium a general equilibrium model of markets for commodities and assets is considered the author develops the notion of a price system that admits no arbitrage opportunity and demonstrates the fundamenta l role of this concept for the theory of the existence of a competiti ve equilibrium a price system admits no arbitrage opportunity for a consumer if every bundle of desired commodities has a positive market value the author proves that the existence of a price system that a dmits no arbitrage opportunity for all consumers is sufficient for th e existence of an equilibrium copyright 1987 by the econometric society

quotes order flow and price discovery the goal of this article is to examine the impact of 1975 congressional mandate to integrate the trading of nyse listed stocks the conclusions are most of the time the new york stock exchange nyse quote matches or determines the best displayed quote and the nyse is the most frequent initiator of quote changes non nyse markets attract a significant portion of their volume when they are posting inferior bids or offers indicating they obtain order flow for other reasons such as payment for order flow yet when a non nyse market does post a better bid or offer it does attract additional order flow

liquidity and asset market dynamics this study analyzes economies with an essential role for liquid assets in the exchange process the model can generate multiple stationary equilibria across which asset prices market participation capitalization output and welfare are positively related it can also generate a variety of nonstationary equilibria even when fundamentals are deterministic and time invariant including periodic chaotic and stochastic sunspot equilibria with recurrent market crashes some equilibria have asset price trajectories that resemble bubbles growing and bursting endogenous private and public liquidity is also introduced sometimes it is efficient to provide enough liquid assets to satiate demand other times it is not

third market broker dealers cost competitors or cream skimmers this article compares the bid ask spread for new york stock exchange nyse listed securities before and after a major third market broker dealer bernard l madoff investment securities madoff begins to selectively purchase and execute orders in those securities tests reveal the quoted bid ask spread tightens when madoff enters the market furthermore trading costs as measured by the difference between the transaction price and the midpoint of the contemporaneous bid ask spread do not increase together these results suggest that the adverse selection problem associated with allowing agents to selectively execute orders in exchange listed securities may be economically insignificant

eighths sixteenths and market depth changes in tick size and liquidity provision on the nyse using limit order data provided by the nyse we investigate the impact of reducing the minimum tick size on the liquidity of the market while both spreads and depths quoted and on the limit order book declined after the nyse s change from eighths to sixteenths depth declined throughout the entire limit order book as well the combined e ect of smaller spreads and reduced cumulative limit order book depth has made liquidity demanders trading small orders better o however traders who submitted

stochastic dominance pareto optimality and equilibrium asset pricing pricing a factor subspace contains the market portfolio and is such that every marketed contingent claim is second order stochastically dominated by a claim from the factor subspace conditions are given for the existence of equilibrium and it is shown how apt and capm can be interpreted in the framework of the paper if sufficiently many call options on the market portfolio are traded then the space spanned by these options can be used as the factor subspace we consider markets in which a collection of financial assets are traded the collection may be finite or infinite markets are frictionless and short sales of assets are permitted asset payoffs are random variables which are elements of a space of contingent claims by forming portfolios of the marketed assets payoffs in a certain linear subspace of the space of all contingent claims can be attained we call this subspace a space of marketed claims we say that a closed subspace of the space of marketed claims is a factor subspace if two conditions are satisfied first the market portfolio payoff i e the payoff of an aggregate endowment of portfolios per capita belongs to this subspace second every marketed contingent claim is dominated in the sense of second order stochastic dominance by some contingent claim in the factor subspace we demonstrate that for each asset market economy there is a well defined minimal factor subspace in the sense that no proper subspace of it can be a factor subspace if markets are complete i e if a full set of arrow securities are traded then the price of any given asset can be expressed in terms of prices of arrow securities or state prices breeden and litzenberger 1978 have shown that state prices can be replaced by the values of options thus in a complete market asset prices are determined either by state prices or call options it is established in this paper that these ideas and methods are applicable to asset pricing theories even when markets are incomplete making use of the argument of second order stochastic dominance we show that every constrained pareto optimal portfolio allocation consists exclusively of portfolios which generate the factor subspace the same holds for an equilibrium portfolio allocation thus for an economy with a factor subspace only a partial set of arrow securities which is large enough to generate the factor subspace is required to price assets this paper establishes that there exists an equilibrium in which the price of a portfolio equals the price of the dominating portfolio with the same expected return in the factor subspace since the dominating

an examination of changes in specialists posted price schedules new york stock exchange specialists disseminate information to market participants by displaying price schedules consisting of bid prices ask prices bid depths and ask depths we examine how specialists update these price schedules in a simultaneous equations model we find that changes in the best prices and depths on the limit order book have a significant impact on the posted price schedule while the effects of transactions and order activity are secondary furthermore we show that specialists revise prices and depths differently but find no evidence that they revise the price schedule in response to changes in inventory article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

bubbles and constraints on debt accumulation it is commonly thought tirole econometrica 50 1982 1163 1182 that bubbles cannot occur in deterministic sequential market economies with a finite number of infinitely lived agents this paper shows that the constraint on debt accumulation which make possible the existence of equilibrium can cause bubbles if agents face a wealth constraint bubbles can exist if and only if the assest is in zero net supply if agents face exogenous short sales constraints bubbles can exists if and only if some agent s endowment grows at a rate larger than the rate of return and the short sales constraint binds that agent infinitely often

a threshold cointegration analysis of asymmetric price transmission from crude oil to gasoline prices abstract this study provides new supportive evidence for asymmetric adjustment in u s retail gasoline prices the asymmetric transmission is found to occur not just through the spot markets of crude oil and refinery gasoline but also through their future markets further evidence also shows that the observed asymmetry in price transmission primarily occurs downstream not upstream of the transmission process

on fragility of bubbles in equilibrium asset pricing models of lucas type abstract in this paper we study the existence of bubbles for pricing equilibria in a pure exchange economy a la lucas with infinitely lived homogeneous agents the model is analyzed under fairly general assumptions no restrictions either on the stochastic process governing dividends distribution or on the utilities possibly unbounded are required we prove that the pricing equilibrium is unique as long as the agents exhibit uniformly bounded relative risk aversion a generic uniqueness result is also given regardless of agent s preferences a few pathological examples of economies exhibiting pricing equilibria with bubble components are constructed finally a possible relationship between our approach and the theory developed by santos and woodford on ambiguous bubbles is investigated the whole discussion sheds more insight on the common belief that bubbles are a marginal phenomenon in such models journal of economic literature classification numbers c61 c62 d51 g12

are there rational bubbles in foreign exchange markets evidence from an alternative test abstract this paper employs the kalman filter technique to estimate and test for stochastic bubbles for exchange rates between the us dollar and the british pound the japanese yen and the deutsche mark i find no significant evidence of bubbles my results are in sharp contrast with previous findings on exchange rate bubble testing and cast some doubt on those claims that the dollar exchange rates were driven by speculative bubbles in the post bretton woods period

asymmetric pass through of oil prices to gasoline prices evidence from a new country sample abstract this paper investigates the asymmetric pass through of oil prices to gasoline prices under the non linear autoregressive distributed lags nardl model the analysis adds to the unsettled discussion of whether retail gasoline prices respond asymmetrically to oil prices and it is carried out for the us the uk spain italy and greece spanning the period january 2009 to july 2016 these countries have been selected on the basis that fuel markets are differentiated by the structure of retail markets oligopolistic behavior production lags and market competition which depends on extraction refinery and distribution the analysis considers markets that differ in terms of their structure both short and long run non linearity are tested by deriving both the positive and negative partial sum decompositions of the dependent variable in addition it was feasible to quantify the responses to positive and negative oil price shocks from the asymmetric dynamic multipliers the findings indicate that oil and gasoline prices provide mixed evidence of an asymmetric behavior short run asymmetry is found in the italian market while in the spanish market there is evidence of both short and long run asymmetry the remaining cases greece u k u s illustrate a symmetric pass through scheme of oil to retail gasoline prices

increasing returns in infinite horizon economies this paper shows that in a general equilibrium model with an infiniite holizonl in whichi productionl may exhibit increasing returns to scale or non conivexities marginal cost pricing equilibria exist anid are essential that is stable witlh respect to small perturbationis of the economily as in many important models of mairket imperfections marginal cost pricinig equilibria need not be pareto optimal in the presence of noni convexities so the systematic approaches to equilibrium analysis in infinite dimenisionial commodity spaces which rely crucially oln the first welfare theorem cainnot be used instead this paper introduces leray schauder degree theory the extension of degree theor y to banacih and locally convex spaces as the natural methodology for showinlg that equilibria exist and for anialyzing qualitative features of equilibria such as local uniqueness or essentiality

rational asset pricing bubbles this paper provides a fairly systematic study of general economic conditions under which rational asset pricing bubbles may arise in an intertemporal competitive equilibrium framework our main results are concerned with nonexistence of asset pricing bubbles in those economies these results imply that the conditions under which bubbles are possible including some well known examples of monetary equilibria are relatively fragile this paper is concerned with the conditions under which asset prices in an intertemporal competitive equilibrium are equal to the present value of the streams of future dividends to which each asset represents a claim according to a central result of the theory of finance this is very generally true in the case of economies with trading at only a finite sequence of dates as long as there are no restrictions upon transactions other than that associated with possible incom pleteness of the set of securities that are traded the result is sometimes called the fundamental theorem of asset pricing here we consider the extent to which such a result continues to be valid in the case of trading over an infinite horizon it has often been observed in the econometric literature on asset pricing bubbles that it is possible in principle for the price of a perpetuity and the dividends on that security to satisfy at all times a present value relation for one period holding returns while the security s price nonetheless does not equal the present value of the stream of dividends expected over the infinite future in such a case the price of the perpetuity is said to involve a bubble component 2 joint stochastic processes for which this component is nonzero are sometimes argued to characterize existing assets for a recent example see froot and obstfeld 1991 but such an inference depends upon aspects of the stochastic

confidence and the real value of money in an overlapping generations economy we demonstrate that stochastic bubbles which have a constant exogenous probability of collapsing may exist in general equilibrium on an intrinsically useless and unbacked asset money this may happen provided that the probability q that the bubble will persist next period is large enough and exceeds a threshold level q which we call the minimum rate of confidence this condition is always violated when the economy without bubble is dynamically efficient it is more likely to be satisfied in dynamically inefficient economies the larger the size of the inefficiency as measured by the excess of the growth rate over the no bubble interest rate we study both exchange and production economies

an empirical study of the effect of rule 19c 3 the extent to which all orders for common stocks should be consolidated that is sent to a single marketplace and the effect of consolidation on competition in the securities markets have been the subject of much debate in the past quarter century this debate has focused on offboard trading restrictions for member firms for example new york stock exchange nyse rule 390 and american stock exchange amex rule 5 and on the institution of appropriate intermarket linkages for example the consolidated transactions tape the consolidated quotations system and the intermarket trading system while the securities and exchange commission sec has attempted to promote competition in the securities markets the results of its efforts are uncertain consequently the consolidation fragmentation debate continues in this article we examine a very specific case in which the sec tried to increase the degree of competition in market making rule 19c 3 allowed off board trading of nyse listed stocks by exchange members as we will show this rule had both beneficial and adverse effects section i describes rule 19c 3 the environment which led to its introduction and the controversy surrounding it in section ii we examine the effect of rule 19c 3 on over the counter otc market making activity we find that for about 34 percent of the eligible stocks the introduction of exchange member market makers increased the total level and also the continuity of otc market making activity in section iii we find that rule 19c 3 has had a statistically significant effect in reducing percentage bidask spreads which ceteris paribus is desirable in section iv our analysis shows that rule 19c 3 has led to an increase in returns variance which ceteris paribus is undesirable finally our summary and conclusion are presented in section v

asymmetry in retail gasoline and crude oil price movements in the united states an application of hidden cointegration technique abstract there is a common belief that gasoline prices respond more quickly to crude oil price increases than decreases some economists and politicians believe that asymmetry in oil and gasoline price movements is the outcome of a non competitive gasoline market requiring that governments take policy action to address unfair pricing there is no consensus as to the existence or nature of the asymmetric relationship between prices of gasoline and crude oil much of this literature specifies asymmetry in the speed of adjustment and short run adjustment coefficients in contrast granger and yoon s granger c w and yoon g hidden cointegration university of california san diego department of economics working paper 2002 crouching error correction model cecm identifies asymmetry of the cointegrating vectors between components cumulative positive and negative changes of the series applying the cecm to retail gasoline and crude oil prices for the u s we find that there is only evidence of cointegration between positive components of crude oil prices and negative components of gasoline prices in contrast to the literature which attributes asymmetric price movements to market power of refiners these findings suggest that gasoline prices in the long run are more influenced by the technological changes on the demand side than crude oil price movements on the supply side

food scares in an uncertain world we develop a model that explains the stylized facts of food scares an immediate and sharp decline in consumption of the product followed by a slow and frequently partial recovery of demand after the scare passes the model is used in conjunction with the natural experiment afforded by the mad cow crisis to elicit empirical information on decision makers perception of uncertainty our theoretical and quantitative results suggest that observed behavior is consistent with sharp changes in beliefs and the presence of knightian uncertainty as measured by the degree of imprecision in our model

effects of market reform on the trading costs and depths of nasdaq stocks the relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate on january 20 1997 the securities and exchange commission began implementing reforms that would permit the public to compete directly with nasdaq dealers by submitting binding limit orders additionally superior quotes placed by nasdaq dealers in private trading venues began to be displayed in the nasdaq market we measure the impact of these new rules on various measures of performance including trading costs and depths our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality

new evidence on asymmetric gasoline price responses in a 1997 paper borenstein cameron and gilbert bcg claim that gasoline prices rise quickly following an increase in the price of crude oil but fall slowly following a decrease this note estimates an error correction model with daily spot gasoline and crude oil price data over the period 1985 1998 and finds no evidence of asymmetry in wholesale gasoline prices the sources of the difference in results are twofold first we use the standard engle granger two step estimation procedure whereas bcg used a nonstandard estimation methodology second even using bcg s nonstandard specification the use of daily rather than weekly data yields little evidence of price asymmetry

a unified beta pricing theory abstract this paper derives ross s mutual fund separation theory and a new equilibrium version of ross s arbitrage pricing theory as special cases of a general theory the paper also reveals that the two theories are identical in their predictions of asset prices and portfolio returns the capital asset pricing model a restricted case of the mutual fund separation theory receives special treatment

quasi equilibria for growth economies abstract we find preferences that discount utility from future consumption yet violate the standard growth condition in representative agent endowment economies such economies have no competitive equilibria but have quasi equilibria the supporting price systems include a type of speculative bubble

diversification and equilibrium in securities markets abstract diversification is the strategy of investing small fractions of wealth in each of a large number of securities and thereby reducing risk the basic argument in support of diversification is an appeal to the law of large numbers a portfolio in which an investor s wealth is invested in equal fractions in each ofnsecurities with i i d returns has a return that converges to a riskless return asnincreases indefinitely any risk averse investor would prefer the limit riskless return to the return of any portfolio in this paper we use the space ba of all finitely additive signed measures on the set of natural numbers the index set for securities to model the set of portfolios from which an investor may choose this portfolio space contains arbitrary finite portfolios and a nontrivial portfolio which is the limit of the sequence of portfolios having the fraction of wealth 1 ninvested in each ofnsecurities we identify a class of portfolios which we call perfectly diversified these portfolios are described by purely finite additive measures in a perfectly diversified portfolio wealth invested in each individual security is a negligible fraction of the total wealth of the portfolio we show that the return of every perfectly diversified portfolio of securities with uncorrelated returns is riskless it is shown that modeling of the portfolio space as the space ba makes possible a rigorous derivation of a general equilibrium version of the arbitrage pricing theorem apt the apt provides a good illustration of the implications of diversification for equilibrium prices of securities journal of economic literatureclassification numbers d52 g20

the pass through of oil prices into euro area consumer liquid fuel prices in an environment of high and volatile oil prices abstract crude and refined oil prices have been relatively high and volatile on a sustained basis since 1999 this paper considers the pass through of oil prices into consumer liquid i e petrol diesel and heating fuel prices in such an environment the pass through of oil prices into consumer liquid fuel prices has already been addressed extensively in the literature nonetheless much of this literature has either focused on the united states or on a time period when oil prices were relatively stable or has used monthly data the main contribution of this paper is a comprehensive combination of many features that have been considered before but rarely jointly these features include 1 the analysis of the euro area as an aggregate and a large number of countries the initial 12 member states 2 the consideration of different time periods 3 the modelling of the data in raw levels rather than in log levels this turns out to have important implications for our findings 4 the use of high frequency weekly data which as results will suggest are the lowest frequency one should consider 5 the investigation of the different stages of the production chain from crude oil prices to retail distribution refining costs and margins distribution and retailing costs and margins 6 the examination of prices including and excluding taxes excise and value added 7 the modelling of prices for three fuel types passenger car petrol and diesel separately and home heating fuel oil 8 lastly we also address the issue of possible asymmetries allowing for the pass through to vary according to a whether price are increasing or decreasing and b whether price levels are above or below their equilibrium level the main findings are as follows first as distribution and retailing costs and margins have been broadly stable on average the modelling of the relationship between consumer prices excluding taxes and upstream prices in raw levels rather than in logarithms has important implications for the stability of estimates of pass through when oil price levels rise significantly second considering spot prices for refined prices improves significantly the fit of the estimated models relative to using crude oil prices it also results in more economically meaningful results concerning the extent of pass through third oil price pass through occurs quickly with 90 occurring within three to five weeks fourth using a relatively broad specification allowing for asymmetry in the pass through from upstream to downstream prices there is little evidence of statistically significant asymmetries furthermore even where asymmetry is found to be statistically significant it is generally not economically significant lastly these results generally hold across most euro area countries with few exceptions

general equilibrium wariness and efficient bubbles abstract wary consumers overlook gains but not losses in remote sets of dates or states as preferences are upper but not lower mackey semi continuous bewley s 1972 4 result on existence of equilibrium whose prices are not necessarily countably additive holds wariness is related to lack of myopia and to ambiguity aversion and therefore to bewley s 1986 6 work on knightian uncertainty wary infinite lived agents have weaker transversality conditions allowing them to be creditors at infinity and for bubbles to occur in positive net supply assets completing the markets there are efficient allocations that can only be implemented with asset bubbles

arbitrage martingales and bubbles abstract viability of security prices implies linear valuation of payoffs but if there exist an infinite number of securities or trading dates does not imply the existence of a risk neutral probability since countable additivity may fail an example is given

optimism and pessimism in games this paper considers the impact of ambiguity in strategic situations it extends the earlier literature by allowing for optimistic responses to ambiguity ambiguity is modelled by ceu preferences we propose a new solution concept for players who may express ambiguitypreference then we study comparative statics of changes in ambiguity attitude in games with strategic complements this gives a precise statement of the impact of ambiguity on economic behaviour

an empirical investigation of the determinants of asymmetric pricing abstract this article empirically investigates the cause of asymmetric pricing retail prices responding faster to cost increases than decreases using daily price data for over 11 000 retail gasoline stations i find that prices fall more slowly than they rise as a consequence of firms extracting informational rents from consumers with positive search costs premium gasoline prices are shown to fall more slowly than regular fuel prices which supports theories based upon competition with consumer search further testing also rejects focal price collusion as an important determinant of asymmetric pricing

rockets and feathers revisited an international comparison on european gasoline markets this paper re examines the issue of asymmetries in the transmission of shocks to crude oil prices onto the retail price of gasoline relative to the previous literature the distinguishing features of the present paper are i use of updated and comparable data to carry out an international comparison of gasoline markets ii two stage modeling of the transmission of oil price shocks to gasoline prices first refinery stage and second distribution stage in order to assess possible asymmetries at either one or both stages iii use of asymmetric error correction models to distinguish between asymmetries that arise from short run deviations in input prices and from the speed at which the gasoline price reverts to its long run level iv explicit possibly asymmetric role of the exchange rate as crude oil is paid for in dollars whereas gasoline sells for different sums of national currencies v bootstrapping of f tests of asymmetries in order to overcome the lowpower problem of conventional testing procedures in contrast to several previous findings the results generally point to widespread differences in both adjustment speeds and short run responses when input prices rise or fall

sequential two player games with ambiguity if players beliefs are strictly non additive the dempster shafer updating rule can be used to define beliefs off the equilibrium path we define an equilibrium concept in sequential two person games where players update their beliefs with the dempster shafer updating rule we show that in the limit as uncertainty tends to zero our equilibrium approximates bayesian nash equilibrium by imposing context dependent constraints on beliefs under uncertainty

an alternative semiparametric approach to the modelling of asymmetric gasoline price adjustment in this paper we revisit the wholesale and retail gasoline price adjustments to fluctuations in the input cost prices for a monthly panel dataset of 48 us states over the period 1994 to 2011 in doing so we employ for the first time in the empirical literature nonlinear semiparametric models with local generalized method of moments gmm estimators our findings indicate that wholesale and retail gasoline prices adjust more rapidly in an upward than a downward direction confirming the rockets and feathers hypothesis

on the different notions of arbitrage and existence of equilibrium in this paper we first prove an equilibrium existence theorem for finite dimensional economies with unbounded below consumption sets we only assume that the individually rational utility set is compact and use the demand approach instead of the standard negishi s approach we next compare the different concepts of no arbitrage that have been used in the literature and give conditions for equivalence between absence of arbitrage and existence of equilibrium lastly we introduce the concept of strong unbounded arbitrage and show that the absence of strong unbounded arbitrage implies the compactness of the individually rational utility set journal of economic literature classification numbers c62 d50

asymmetric pass through of oil prices to gasoline prices with interval time series modelling abstract modelling and analyzing the pass through of crude oil prices to retail gasoline prices has received an increasing attention in existing literature however most of the ongoing efforts focus on point valued data which may suffer from the informational loss this paper first employs the threshold autoregressive interval valued tari models developed recently by sun et al 2018a to investigate this transmission and proposes a novel consistent interval based test to detect threshold effects and derives its asymptotic properties these interval based tari model and test superior to traditional point based methods can produce more efficient parameter estimation and more powerful inference due to the informational gain of interval data that is interval data simultaneously contain more information e g trend and volatility than point valued data during the same period empirical results suggest that retail gasoline prices are adjusted upwards faster than downwards and this short run asymmetry is statistically significant during the whole sample our findings reveal that both the level and volatility of oil prices have a positive impact on the price of gasoline which contributes to the asymmetries in the transmission of oil price shocks these results are robust before and after financial crisis furthermore it is interesting to find that after financial crisis both the error correction adjustment speeds and the asymmetries decrease

bubbles and charges the definitions of fundamental value and speculative bubbles that are standard in macroeconomics and finance are given formal representations as the countably additive part and the purely finitely additive part a measure and a pure charge respectively of the supporting price system when the commodity space is lx examples illustrate that rational bubbles can occur in standard general equilibrium models with complete markets and a finite number of agents even in the absence of uncertainty consider an economy which includes securities or capital goods which are claims to cash flows over countably infinite time and also includes markets for all goods conduct the following thought experiment for each security add the present value of the first n elements of the cash flow and take the limit as n gets large this limit represents the fundamental value of the security the difference if any between the price of the security and its fundamental value is termed a speculative bubble this use of the terms fundamental and speculative bubble is we believe one of those that are generally accepted blanchard and fischer 1989 pp 218 221 for example used the terms precisely in this way yet confusion persists about what factors generate bubbles fads and irrationality have always figured prominently and the hypothesis that these factors are important has gained some empirical support from the literature on asset price volatility another bubbleproducing factor is the structure of information in the market in a partialequilibrium setting allen and gorton 1988 showed that rational bubbles can exist with a finite number of agents who have asymmetric information although fads and asymmetric information can undeniably produce bubbles here we focus exclusively on the phenomenon of speculative bubbles in general equilibrium models with optimizing agents rational expectations and symmetric information an important source of confusion we believe is that the term fundamental is used in connection with sunspot equilibria as well as bubble equilibria a sunspot equilibrium is one in which prices and allocations depend on irrelevant sunspots as well as exogenous variations in fundamentals preferences technology and endowments bubbles on this usage reflect the effect of extrinsic uncertainty on equilibrium prices and allocations this use of the term fundamental in connec

do gasoline prices respond asymmetrically to crude oil price changes the authors test and confirm that retail gasoline prices respond more quickly to increases than to decreases in crude oil prices among the possible sources of this asymmetry are production inventory adjustment lags and market power of some sellers by analyzing price transmission at different points in the distribution chain the authors attempt to shed light on these theories spot prices for generic gasoline show asymmetry in responding to crude oil price changes which may reflect inventory adjustment effects asymmetry also appears in the response of retail prices to wholesale price changes possibly indicating short run market power among retailers

existence of equilibrium in capm abstract in the mean variance capital asset pricing model capm non monotonicity of preferences may lead to satiation and short selling as well as satiation may lead to non existence of equilibrium this paper identifies several sets of sufficient conditions for equilibrium to exist the nature of the central conditions is to impose bounds on the investors degree of risk aversion as measured by the marginal rate of substitution between mean and standard deviation of return these bounds do not need to hold globally but only in a relevant range of portfolios or combinations of mean and standard deviation