a fiscal reform for increasing employment and mitigating co2 emissions in europe this article discusses the possibility of promoting a fiscal reform which would at a european level permit a double dividend to be obtained the mitigation of co 2 emissions and stimulation of employment creation in this respect a co2 energy tax is considered in the light of financing cuts in social contributions equivalent to 1 of the european gdp simulations carried out with six european countries reveal that under certain conditions this hypothesis could be verified even if the net impact on unemployment and co 2 is rather limited

mean reversion in short horizon expected returns this article develops and estimates a simple model for monthly expected stock returns that relies on the rapidly decaying structure of shorter horizon weekly expected returns the most striking aspect of our findings is that the rapid mean reversion in short horizon expected returns implies much greater variation through time in monthly expected returns than has been documented in earlier studies for instance during the 1962 to 1985 period over 25 percent of the return variance of small firms can be explained by time variation in expected returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

liquidity dynamics and cross autocorrelations this paper examines the relation between information transmission and cross autocorrelations we present a simple model where informed trading is transmitted from large to small stocks with a lag in equilibrium large stock illiquidity induced by informed trading portends stronger cross autocorrelations empirically we find that the lead lag relation increases with lagged large stock illiquidity further the lead from large stock order flows to small stock returns is stronger when large stock spreads are higher in addition this lead lag relation is stronger before macro announcements when information based trading is more likely and weaker afterward when information asymmetries are lower

technical evidence for assessing the performance of markets affecting energy efficiency abstract this paper focuses on the empirical basis for skepticism about the effectiveness of the market mechanism in promoting cost effective energy efficiency improvements we present a framework for evaluating engineering economic evidence on the diffusion of energy efficiency improvements and then present a series of examples within this framework that provide evidence for the existence of market imperfections related to energy efficiency we conclude with a challenge to economists policy analysts and technologists to take this empirical evidence seriously and sponsor further collaborative research in this area

carbon trading in the policy mix the kyoto protocol is stimulating the development of emissions trading schemes at the national and international levels these are being introduced alongside existing policy instruments such as carbon taxes and negotiated agreements leading to complex problems of policy interaction but the topic of policy interaction remains under researched this paper aims to improve understanding of such interactions by examining the conditions under which a cap and trade scheme for carbon dioxide emissions may usefully coexist with carbon energy taxes support mechanisms for renewable electricity and policies to promote energy efficiency the paper argues that each of these instrument combinations may be acceptable provided they contribute to either improving the static or dynamic efficiency of the trading scheme or delivering other valued policy objectives but since the coexisting instruments may raise overall abatement costs while contributing nothing further to emission reductions the objectives and trade offs within the policy mix must be explicit

a further investigation of the weekend effect in stock returns this study uses a longer time period and additional stocks to further investigate the weekend effect we find consistently negative monday returns 1 for the s p composite as early as 1928 2 for exchange traded stocks of firms of all sizes and 3 for actively traded over the counter otc stocks the otc results are based on bid prices and therefore appear to reject specialist related explanations for the 30 individual stocks of the dow jones industrial index the average correlation between friday and monday returns is positive and the highest of all pairs of successive days the latter finding is inconsistent with fairly general measurement error explanations some of the most puzzling empirical findings reported in recent years indicate that the distribution of common stock returns varies by day of the week most notably the average return for monday close friday to close monday is significantly negative cross 3 and french 6 find negative monday returns using the standard and poor s composite index and gibbons and hess 7 find negative monday returns for the 30 individual stocks of the dow jones industrial index 1 this negative monday return or weekend effect has yet to be explained this study undertakes a further investigation of the weekend effect in stock returns we examine additional time periods extending the total period covered to 55 years we examine additional stocks such as those of small low capitalization firms and those traded over the counter in all cases the data exhibit a weekend effect that is at least as strong as that reported in previous studies the study also readdresses potential explanations for the effect such as measurement error but concludes that none of these explanations is satisfactory the first section presents a history of the weekend effect from 1928 through 1982 based on the standard and poor s composite index we essentially double the length of the period beginning in 1953 examined by french 6 the results indicate consistently negative monday returns throughout the 55 year period during much of the 25 year period from 1928 through 1952 the new york stock exchange was open on saturdays so monday s return is then computed from saturday s close to monday s close 2 these returns for one day weekends are consistently negative and not significantly different from the two day weekend

market serial correlation on a small security market a note this note reports on an empirical investigation into the relative importance of different explanations of market serial correlation market serial correlation taken as the first order serial correlation in the logarithmic differences of a market index may apparently be explained by the serial correlation of individual stock returns the other less apparent explanation advanced in the literature concerns nonsynchronous trading in individual stocks recently perry 9 and atchinson butler and simonds 1 1 have shown that there seems to be yet an additional unexplained component present that tends to induce serial correlation in portfolio returns at least in u s data in this paper the actual contribution of these explanations to the first order autocorrelation of changes in the value weighted market index on a markedly thin security market the helsinki stock exchange hese 2 in finland will be examined the hese is a specific case in the sense that its trading procedure may create additional first order market serial correlation we will show that the rules of the exchange produce additional intraday nonsynchroneity in stock returns and thus aggravate the problem of market serial correlation an attempt to assess the importance of this additional cause of market serial correlation will also be made in 1966 lawrence fisher 7 observed that an index return calculated on the basis of the latest recorded trading prices will tend to be serially correlated if share prices tend to react similarly to certain types of news this will be the case when some share prices react almost immediately whereas others simply because of an absence of trading will experience a reaction delay if nonsynchronous trading is taken to be the first cause of market serial correlation the second one is the serial correlation of individual stock returns cohen hawawini maier schwartz and whitcomb 6 review the literature on why individual stock returns especially in thin markets may be serially corre

luck versus forecast ability determinants of trader performance in futures markets statistical techniques are used to demonstrate that the fortunes of individual futures traders are determined by luck not forecast ability even though a large number of traders appear to exhibit significantly superior forecast ability the investigation strongly supports three conclusions there are fewer participants with significantly superior skill than expected if participants trade randomly there are more traders exhibiting no skill than expected if participants trade randomly and forecast ability is not correlated over time superior forecasters in the early period are only average forecasters in the later period therefore it is luck that determines trader performance copyright 1991 by university of chicago press

market microstructure and securities values evidence from the tel aviv stock exchange abstract this paper examines the value effects of improvements in the trading mechanism selected stocks on the tel aviv stock exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions this event was associated with a positive and permanent price appreciation the cumulative average market adjusted return over a period that started five days prior to the announcement and ended 30 days after the stocks started trading by the new method was approximately 5 5 in addition we find positive liquidity externalities spillovers across related stocks and improvements in the value discovery process due to the improved trading method finally there was a positive association between liquidity gains and price appreciation

market quality changes in the london stock market this paper examines the impact that the introduction of a closing call auction had on market quality at the london stock exchange using estimates from the partial adjustment with noise model of amihud and mendelson amihud y mendelson h 1987 trading mechanisms and stock returns an empirical investigation journal of finance 42 533 553 we show that opening and closing market quality improved for participating stocks when we stratify our sample securities into five groups based on trading activity we find that the least active securities experience the greatest improvements to market quality a control sample of stocks are not characterized by discernable changes to market quality

measuring financial asset return and volatility spillovers with application to global equity markets we provide a simple and intuitive measure of interdependence of asset returns and or volatilities in particular we formulate and examine precise and separate measures of return spillovers and volatility spillovers our framework facilitates study of both non crisis and crisis episodes including trends and bursts in spillovers and both turn out to be empirically important in particular in an analysis of sixteen global equity markets from the early 1990s to the present we find striking evidence of divergent behavior in the dynamics of return spillovers vs volatility spillovers return spillovers display a gently increasing trend but no bursts whereas volatility spillovers display no trend but clear bursts

stale prices and strategies for trading mutual funds we demonstrate that an institutional feature of numerous mutual funds funds managing billions in assets generates fund net asset values that reflect stale prices because investors can trade at these navs with limited transaction costs in many cases obvious trading opportunities exist these opportunities are especially prevalent in funds that buy japanese or european equities simple feasible strategies generate sharpe ratios excess return divided by standard deviation that are many times greater than the sharpe ratio of the underlying fund we illustrate the potential of the strategy for three vanguard group mutual funds a particular issue to keep in mind is that when the strategies are implemented the gains from these strategies are matched by offsetting losses incurred by buy and hold investors in these funds

cheaper oil a turning point in paris climate talk abstract the 2015 paris climate conference is designed to achieve a legally binding agreement on climate change for the first time in over 20 years however the participants face a much tougher task in striking a new deal after the disappointing preparatory climate change talks in lima however falling oil prices have created more room to maneuver for the forthcoming global climate talks than previously thought average global oil prices have plunged from usd 110 per barrel in june 2014 to approximately usd 60 per barrel in may 2015 with the sharply falling oil prices and the downward pressure on gas and coal prices both the removal of fossil fuel subsidies ffs and the implementation of a carbon tax could be conducted without raising energy costs a growing body of research suggests that removing ffs and implementing a carbon tax could significantly reduce carbon emissions thus the approximately 50 drop in oil prices has provided a window of opportunity to reduce carbon emissions by removing ffs and internalizing climatic externalities worldwide as this window will not last forever both these measures should be implemented quickly and be considered central to the paris climate change conference compared with the lack of success in the previous two decades of climate diplomacy these two measures constitute technical and economic factors that will make a difference in the 2015 un climate change conference

the energy efficiency gap what does it mean abstract as renewed attention has been given by policy makers to energy conservation issues it has frequently been asserted that an energy efficiency gap exists between actual and optimal energy use the critical questions is how to define the optimal level of energy efficiency this paper seeks to disentangle some confusing strands of argument that are frequently brought to bear on this question by identifying the major conceptual issues that determine the set of feasible answers we identify five separate and distinct notions of optimality the economists economic potential the technologists economic potential hypothetical potential the narrow social optimum and the true social optimum each of these has associated with it a corresponding definition of the energy efficiency gap our analysis demonstrates that necessary preconditions for identifying the right measure of the energy efficiency gap include understanding and disentangling market failure and non market failure explanations for the gradual diffusion of energy efficient technologies

components of short horizon individual security returns abstract in this paper we present a simple model which relates security returns to three components an expected return a bid ask error and white noise the relative importance of the various components is empirically assessed and the model s ability to explain the various time series properties of individual security and portfolio returns is tested time varying expected returns and bid ask errors are found to explain substantial proportions up to 24 of the variance of security returns we also reconcile the typically negative autocorrelation in security returns with the strong positive autocorrelation in portfolio returns

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

common asset pricing factors in volatilities and returns in futures markets abstract factor based asset pricing models have been used to explain the common predictable variation in excess asset returns this paper combines means with volatilities of returns in several futures markets to explain their common predictable variation using a latent variables methodology tests do not reject a single factor model with a common time varying factor loading the single common factor accounts for up to 53 of the predictable variation in the volatilities and up to 14 of the predictable variation in the means s p500 futures volatility predicted by the factor model is highly correlated with volatility implied in s p500 futures options but both the factor and implied volatilities are significant in predicting future volatility in derivatives pricing both implied volatility from options and factors extracted from asset pricing models should be employed

market barriers to energy efficiency abstract discussions of energy policy in an environmentally constrained world often focus on the use of tax instruments to internalize the external effects of energy utilization or achieve specified reductions in energy use in the most cost effective manner a substantial literature suggests however that significant opportunities exist to reduce energy utilization by implementing technologies that are cost effective under prevailing economic conditions but that are not fully implemented by existing market institutions this paper examines the theory of the market for energy using equipment showing that problems of imperfect information and transaction costs may bias rational consumers to purchase devices that use more energy than those that would be selected by a well informed social planner guided by the criterion of economic efficiency consumers must base their purchase decisions on observed prices and expectations of post purchase equipment performance if it is difficult or costly for individuals to form accurate and precise expectations the level of energy efficiency achieved by competitive markets will vary from the socially efficient outcome such market barriers suggest a role for regulatory intervention to improve market performance at prevailing energy prices

trading mechanisms and stock returns an empirical investigation this paper examines the effects of the mechanism by which securities are traded on their price behavior we compare the behavior of open to open and close to close returns on nyse stocks given the differences in execution methods applied in the opening and closing transactions opening returns are found to exhibit greater dispersion greater deviations from normality and a more negative and significant autocorrelation pattern than closing returns we study the effects of the bid ask spread and the price adjustment process on the estimated return variances and covariances and discuss the associated biases we conclude that the trading mechanism has a significant effect on stock price behavior

sets arbitrage activity and stock price dynamics this paper provides an empirical description of the relationship between the trading system operated by a stock exchange and the trading behaviour of heterogeneous investors who use the exchange the recent introduction of sets in the london stock exchange provides an excellent opportunity to study the impact of an electronic trading system upon traders who use the exchange using the cost of carry model of futures prices we estimate non linearly the transaction costs and trade speeds faced by arbitragers who take advantage of mispricing of ftse100 futures contracts relative to the spot prices of the stocks that make up the ftse100 stock index we divide the sample period into pre sets and post sets sample periods and conduct a comparative study of arbitrager behaviour under different trading systems the results indicate that there has been a significant reduction in the level of transaction costs faced by arbitragers and in the degree of transaction cost heterogeneity finally generalised impulse response functions show that both spot and futures prices adjust more quickly in the post sets period these results suggest that both spot and futures markets have become more efficient under sets

trading volume and autocorrelation empirical evidence from the stockholm stock exchange abstract in accordance with studies for other markets swedish index returns exhibit high autocorrelation a after days of above average performance of the stock market b after low absolute returns c when trading volume is low and d following fridays contrary to the non synchronous trading and the transaction cost hypotheses all results extend to individual stock returns it is concluded that autocorrelation patterns are related to the trading patterns of individual investors and not the cross security information processing of the market in particular the observed autocorrelation structure corresponds to feedback trading

rethinking the costs related to global warming a survey of the issues one approach to the economic analysis of global warming seeks to balance the costs of damage from or adaptation to it with the costs of mitigating it the costs of adaptation and damage have been estimated using techniques of environmental evaluation but are subject to a wide margin of uncertainty the costs of mitigation principally by reducing the emissions of co2 have been estimated using different kinds of economic models some of the results of which have suggested that very little abatement of carbon emissions is justified before the costs of abatement exceed the benefits of it in terms of foregone damage and adaptation costs the paper analyses the extent to which this conclusion is a function of the modelling assumptions and techniques used rather than likely practical outcomes with regard to the models treatment of unemployed resources revenue recycling prior distortions in the economy due to the tax system and possible dynamic effects from the introduction of a carbon energy tax it concludes that with different and arguably more appropriate treatment of the above issues especially when the secondary benefits of reducing co2 emissions are also taken into account it is not clear that even substantial reductions in the use of fossil fuels will incur net costs especially if there is the prospect of even moderate costs from global warming

informed trading and portfolio returns we solve a multi period model of strategic trading with long lived information in multiple assets with correlated innovations in fundamental values market makers in each asset can only condition their price functions on trading in the that asset but not on trading in the other asset using daily non public data from the new york stock exchange we test the model s predictions on the lead lag relations of institutional order ows and returns within portfolios we flnd support for the model prediction of positive autocorrelations in portfolio returns as well as the predictions for how informed order ow positively predicts future returns and future informed order ow as the model predicts we flnd these relations strengthen for portfolios formed from assets with higher correlation of fundamental values

variance ratio tests of random walk an overview this paper reviews the recent developments in the field of the variance ratio vr tests of the random walk and martingale hypothesis in particular we present the conventional individual and multiple vr tests as well as their improved modifications based on power transformed statistics rank and sign tests subsampling and bootstrap methods among others we also re examine the weak form efficiency for five emerging equity markets in latin america

the inefficiency of bitcoin revisited a dynamic approach abstract this letter revisits the informational efficiency of the bitcoin market in particular we analyze the time varying behavior of long memory of returns on bitcoin and volatility 2011 until 2017 using the hurst exponent our results are twofold first r s method is prone to detect long memory whereas dfa method can discriminate more precisely variations in informational efficiency across time second daily returns exhibit persistent behavior in the first half of the period under study whereas its behavior is more informational efficient since 2014 finally price volatility measured as the logarithmic difference between intraday high and low prices exhibits long memory during all the period this reflects a different underlying dynamic process generating the prices and volatility

globalizing carbon lock in this paper extends the arguments surrounding carbon lock in elaborated in unruh energy policy 28 2000 817 30 2002 317 to countries currently undergoing industrialization it argues that for numerous reasons industrializing countries are unlikely to leapfrog carbon intensive energy development on the contrary carbon lock in may be globalizing and could further constrain climate change mitigation options it is then argued that many policy recommendations ignore carbon lock in possibly limiting their potential for successful implementation the paper then discusses four policy approaches that appear to have advantages given lock in conditions it is recognized however that relative ease of implementation does not necessarily equate with superiority instead it is merely a path dependent outcome of past development decisions pursuing policies on the basis of relative implementation ease may help address the issue of climate change but could also result in sub optimal outcomes along other dimensions of sustainable development

stock return cross autocorrelations and market conditions in japan we show that changes in market conditions significantly affect cross autocorrelations and speed of adjustment in weekly stock returns we find significant positive cross autocorrelations between weekly returns on a portfolio of small firms and lagged large firm portfolio returns only when the lagged aggregate market has experienced a decline in value these positive return cross autocorrelations are also associated with lower abnormal portfolio trading volume and greater delays in the adjustment of individual stock prices to negative market wide information particularly for small firms the effect of lagged market states cannot be explained by market microstructure biases such as nonsynchronous trading or thin trading

are us stock index returns predictable evidence from automatic autocorrelation based tests this article re examines the evidence of return predictability for three major us stock indices using two recently developed data driven tests namely the automatic portmanteau box pierce test and the wild bootstrapped automatic variance ratio test in tracking the time variation of return predictability via rolling estimation window we find that those periods with significant return autocorrelations can largely be associated with major exogenous events theoretically the documented time varying nature of predictable patterns is consistent with the adaptive markets hypothesis

overreaction delayed reaction and contrarian profits this paper presents a decomposition of short horizon contrarian profits into various sources based on an analysis os stock price reactions to common factors an firm specific information in sharp contrast with the conclusions in the extant literature we find that the lead lag structure in stock prices contributes less than 5 of the observed contrarian profits with most of the profits being attributable to stock price overreaction

indexing and stock market serial dependence around the world abstract we show a striking change in index return serial dependence across 20 major market indexes covering 15 countries in north america europe and asia while many studies find serial dependence to be positive until the 1990s it switches to negative since the 2000s this change happens in most stock markets around the world and is both statistically significant and economically meaningful further tests reveal that the decline in serial dependence links to the increasing popularity of index products e g futures exchange traded funds and index mutual funds the link between serial dependence and indexing is not driven by a time trend holds up in the cross section of stock indexes is confirmed by tests exploiting nikkei 225 index weights and standard poor s 500 membership and in part reflects the arbitrage mechanism between index products and the underlying stocks

on macroeconomic equilibrium with stochastic rationing the purpose of this paper is to apply the ideas of stochastic rationing mechanisms to a simple disequilibrium macroeconomic model it has been shown that effective demands with stochastic rationing as opposed to those derived from deterministic constraints the clower benassy or dreze effective demand are consistent with the maximization of expected utility and are also capable of producing unsatisfied demand and supply in a quantity constrained equilibrium the well known regime classification of quantity constrained equilibria i e keynesian unemployment classical unemployment repressed inflation and underconsumption is shown to be relevant in a macroeconomic framework with stochastic rationing comparative statics of quantity constrained equilibria are worked out for different regimes

return autocorrelations around nontrading days we document a pattern in the serial dependence of security returns around nontrading days the correlation of returns the second day after a weekend or holiday with returns the first day after is unusually low and in many return series is negative implying a reversal of price movements we also document unusually large positive return autocorrelations the last day before and the first day after weekends and holidays the pattern has existed in equity returns for over 100 years and also exists in several futures markets implying that the pattern is robust to alternative market microstructures article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

nonparametric retrospection and monitoring of predictability of financial returns we develop and evaluate sequential testing tools for a class of nonparametric tests for predictability of financial returns that include in particular the directional accuracy and excess profitability tests our sequential methods consider in a unified framework both retrospection of a historical sample and monitoring newly arriving data to this end we focus on linear monitoring boundaries that are continuations of horizontal lines corresponding to retrospective critical values elaborating on both two sided and one sided testing we run a simulation study and illustrate the methodology by testing for directional and mean predictability of returns in young stock markets in eastern europe

the october 1987 s p 500 stock futures basis five minute changes in the s p 500 index and futures contract are examined over a ten day period surrounding the october 1987 stock market crash since nonsynchronous trading problems are severe in these data new index estimators are derived and used the estimators use the complete transaction history of all 500 stocks nonsynchronous trading explains part of the large absolute futures cash basis observed during the crash the remainder may be due to disintegration of the two markets even after adjustment for nonsynchronous trading the index displays more autocorrelation than does the futures and the futures leads the index

partial adjustment or stale prices implications from stock index and futures return autocorrelations we investigate the relation between returns on stock indices and their corresponding futures contracts to evaluate potential explanations for the pervasive yet anomalous evidence of positive short horizon portfolio autocorrelations using a simple theoretical framework we generate empirical implications for both microstructure and partial adjustment models the major findings are i return autocorrelations of indices are generally positive even though futures contracts have autocorrelations close to zero and ii these autocorrelation differences are maintained under conditions favorable for spot futures arbitrage and are most prevalent during low volume periods these results point toward microstructure based explanations and away from explanations based on behavioral models

stationary keynesian equilibria equilibria with keynesian unemployment are studied in the framework of a simple macroeconomic model assuming that they result from a non t tonnement at fixed prices and wages

stock market microstructure and return volatility evidence from italy abstract this paper studies the impact of the stock market microstructure on return volatility and on the value discovery process in the milan stock exchange the primary trading mechanism employed by this exchange is a call market which is usually preceded and followed by trading in a continuous market we find that the opening transaction in the continuous market has the highest volatility and that opening the market with the call transaction seems to produce relatively lower volatility in the closing transaction investors correct perceived errors or noise in the prices set at the call the implications of the results for market design are examined

market microstructure of the pink sheets abstract we study the microstructure of the pink sheets and assess the ability of existing theory to capture salient features of this relatively unstructured and unregulated market clustering patterns in quotes quoted spreads and trade prices indicate that market participants have selected price dependent tick sizes for different stocks clustering intensity varies across stocks as a function of proxies for information availability similarly the bid ask spread varies as a function of volatility and liquidity these results suggest 1 microstructure research has established robust predictions of market attributes and 2 unstructured markets are able to develop at least some effective behavioral norms endogenously

are price limits really bad for equity markets despite widely documented criticisms price limit rules are present in many equity markets around the world using a game theoretic model we argue that if the cost of monitoring a market is high price limit rules are beneficial empirical tests based on a cross section of 43 equity markets across five continents support our theoretical prediction we find that the probability of the existence of price limit rules is greater in markets that incur higher monitoring costs due to poorer business disclosure more corruption and less efficiency in legal regulatory and technological environments

a comparative analysis of the informational efficiency of the fixed income market in seven european countries abstract this letter investigates the time varying behavior of long memory in sovereign and corporate bond indices of seven european union countries from july 1998 to november 2011 we compute the hurst exponent and detect that the current financial crisis affects more the informational efficiency of the corporate bond market than the sovereign bond market

return autocorrelation and institutional investors abstract we propose and test the hypothesis that trading by institutional investors contributes to serial correlation in daily returns our results demonstrate that nyse particles and individual security daily return autocorrelationsare an increasing function of the level of institutional ownership moreover the results are consistent with the hypothesis that institutional trading reflects information and increases the speed of price adjustment the relation between autocorrelation and institutional holdings does not however apparent to be driven by market frictions or rational time varying required rates of return we conclude that institutional investors correlated trading patterns contribute to axial correlation in daily returns

portfolio return autocorrelation abstract this paper investigates whether portfolio return autocorrelation can be explained by time varying expected returns nontrading state limit orders market maker inventory policy or transaction costs evidence is consistent with the hypothesis that transaction costs cause portfolio autocorrelation by slowing price adjustment i develop a transaction cost model which predicts that prices adjust faster when changes in valuation are large in relation to the bid ask spread cross sectional tests support this prediction but time series tests do not

portfolio serial correlation and nonsynchronous trading common stock portfolios of large heavily traded firms exhibit daily first order serial correlation in excess of what would be expected given the individual security coefficients further this correlation rises as the number of securities in the portfolio increases the direct implication of this finding is that nonsynchronous trading is not the only cause of correlation in daily market indices related implications are also discussed

a transactions data analysis of nonsynchronous trading weekly returns of stock portfolios exhibit substantial autocorrelation analytical studies suggest that nonsynchronous trading is capable of explaining from 5 to 65 of the autocorrelation the varying importance of nonsynchronous trading in these studies arises primarily from differing assumptions regarding nontrading periods of stocks we simulate the effects of nonsynchronous trading by sampling stock returns from a return generating process using transactions data to obtain the precise time of each stock s last trade we find that simulated weekly portfolio returns exhibit autocorrelations that are roughly 25 that of their observed crsp weekly returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

multifractality in asset returns theory and evidence this paper investigates the multifractal model of asset returns mmar a class of continuous time processes that incorporate the thick tails and volatility persistence exhibited by many financial time series the simplest version of the mmar compounds a brownian motion with a multifractal time deformation prices follow a semi martingale which precludes arbitrage in a standard two asset economy volatility has long memory and the highest finite moments of returns can take any value greater than 2 the local variability of a sample path is highly heterogeneous and is usefully characterized by the local holder exponent at every instant in contrast with earlier processes this exponent takes a continuum of values in any time interval the mmar predicts that the moments of returns vary as a power law of the time horizon we confirm this property for deutsche mark u s dollar exchange rates and several equity series we develop an estimation procedure and infer a parsimonious generating mechanism for the e

a policy approach to the environmental impacts of technological lock in abstract the broadening spectrum of environmental problems the uncertainty regarding their scale and duration and their possible irreversibility in the context of the growing social preference for environmental quality make it necessary to undertake an ex ante approach to the link between productive activity and environmental quality this link lies in technology and the right approach is to understand how the process of technological change can lead towards sustainability the added value of evolutionary economics in the context of environmental policy resides mainly in the fact that it warns that certain inferior environmental technologies may be locked in to the economic system the results of our model show that it would be advisable to undertake policies expressly aimed at the process of sustainable technological change applying an ex ante precautionary approach in a way that is complementary to the conventional equilibrium oriented environmental policies the nature of these policies and how they might be implemented are questions we will address from this novel approach to the concept of sustainable development in short the main objectives of this paper are to understand more fully the dynamics of the process of technological change its role in sustainable development and to assess the implications of this dynamic approach to techno environmental policy to achieve these goals we have developed an agent based model abm using distributed artificial intelligence dai concepts drawn from the general methodology of social simulation

delegated trading and the speed of adjustment in security prices abstract institutional trading arrangements often involve the portfolio manager delegating the task of trade execution to a separate division within the firm we model the agency conflict that arises in this setting and show that optimal performance benchmarks often create an incentive to execute orders contrary to concurrent information flow we hypothesize that aggregate contrarian trading resulting from widespread application of such benchmarks leads to delays in the assimilation of information in security prices using institutional trading data we document the hypothesized contrarian trading pattern and relate the pattern to price adjustment delays in the response of individual stocks to index futures returns the evidence supports the assertion that delegated institutional trading contributes to these delays

understanding carbon lock in abstract this paper narrative argues that industrial economies have been locked into fossil fuel based energy systems through a process of technological and institutional co evolution driven by path dependent increasing returns to scale it is asserted that this condition termed carbon lock in creates persistent market and policy failures that can inhibit the diffusion of carbon saving technologies despite their apparent environmental and economic advantages the notion of a techno institutional complex is introduced to capture the idea that lock in occurs through combined interactions among technological systems and governing institutions while carbon lock in provides a conceptual basis for understanding macro level barriers to the diffusion of carbon saving technologies it also generates questions for standard economic modeling approaches that abstract away technological and institutional evolution in their elaboration the question of escaping carbon lock in is left for a future paper

on the assessment of utility demand side management programs abstract we compare the total resource cost and willingness to pay accounting methods of calculating demand side management benefits and costs after a review of massachusetts electric company s process evaluation data we conclude that the total resource cost method more accurately represents actual program results however even the total resource cost method may be incomplete since it fails to account for savings associated with efficient equipment purchased independent of the utility program but as a direct result of participants positive educational experiences in the program

testing for market timing ability abstract in this paper we examine the henriksson merton test of market timing and its potential usefulness in evaluating investment advice the paper proposes a natural extension of the test that is valid under more general assumptions about the distribution of asset returns we show that the henriksson merton test and its more general counterpart are special cases of standard tests of market rationality and efficiency both tests are applied to a group of foreign exchange advisory services

the costs of mitigating carbon emissions a review of methods and findings from european studies abstract conventional wisdom has it that top down studies of mitigation costs are too pessimistic while bottom up studies are too optimistic in examining mitigation cost studies for western europe this paper finds this interpretation to be flawed the paper expands the analytical framework for interpreting mitigation cost studies evaluates the treatment of no regrets options and other input assumptions in the various studies and includes findings from recent integrated top down bottom up modeling assessments not covered in the ipcc report based on these new elements it is found that mitigation costs tend to be overestimated not only in top down studies but also in bottom up studies given this pervasive bias toward pessimism the body of existing mitigation cost assessments for western europe can be read as follows over the next three to four decades a combination of tax shifts market transformation instruments and policies to reform subsidies and internalize non climatic externalities could cut carbon emissions in western europe by 40 50 relative to the base year at no loss or at a gain in gdp averaged over the medium term and including a phase in period an economically optimal rate of implementing western europe s no regrets potentials is found to be in the neighborhood of 2 per year relative to base year levels

nonsynchronous security trading and market index autocorrelation the theoretical portfolio autocorrelation due solely to nonsynchronous trading is estimated from a derived model this estimated level is found to be substantially less than that observed empirically the theoretical and empirical relationship between portfolio size and autocorrelation also is investigated the results of this study suggest that other price adjustment delay factors in addition to nonsynchronous trading cause the high autocorrelations present in daily returns on stock index portfolios

index futures arbitrage and the behavior of stock index futures prices this article examines intraday transaction datafor s p 500 stock indexfutures prices and the intraday quotes for the underlying index the data indicate that thefutures price changes are uncorrelated and that the variability of these price changes exceeds the variability ofprice changes in the s p 500 index this excess variability of the futures over the index remains even after controlling for the nonsynchronous prices in the index quotes which induces autocorrelation in the index changes we advance and examine empirically two hypotheses regarding the difference between the futures price and its theoretical value that this mispricing increases on average with maturity and that it is path dependent evidence supporting these hypotheses is presented

monitoring structural change in dynamic econometric models the classical approach to testing for structural change employs retrospective tests using a historical data set of a given length here we consider a wide array of fluctuation type tests in a monitoring situation given a history period for which a regression relationship is known to be stable we test whether incoming data are consistent with the previously established relationship procedures based on estimates of the regression coefficients are extended in three directions we introduce a procedures based on ols residuals b rescaled statistics and c alternative asymptotic boundaries compared to the existing tests our extensions offer better power against certain alternatives improved size in finite samples for dynamic models and ease of computation respectively we apply our methods to two data sets german m1 money demand and u s labor productivity

price dynamics in a market with heterogeneous investment horizons and boundedly rational traders this paper studies the effects of multiple investment horizons and investors bounded rationality on the price dynamics we consider a pure exchange economy with one risky asset populated with agents maximizing crra type expected utility of wealth over discrete investment periods an investor s demand for the risky asset may depend on the historical returns so that our model encompasses a wide range of behaviorist patterns the necessary conditions under which the risky return can be a stationary iid process are established the compatibility of these conditions with different types of demand functions in the heterogeneous agents framework are explored we find that conditional volatility of returns cannot be constant in many generic situations especially if agents with different investment horizons operate on the market in the latter case the return process can display conditional heteroscedasticity even if all investors are so called fundamentalists and their demand for the risky asset is subject to exogenous iid shocks we show that the heterogeneity of investment horizons can be a possible explanation of different stylized patterns in stock returns in particular mean reversion and volatility clustering

a parametric nonlinear model of term structure dynamics recent nonparametric estimation studies pioneered by ait sahalia document that the diffusion of the short rate is similar to the parametric function r superscript 1 5 estimated by chan et al whereas the drift is substantially nonlinear in the short rate these empirical properties call into question the efficacy of the existing affine term structure models and beg for alternative models which admit the observed behavior this article presents such a model our model delivers closed form solutions for bond prices and a concave relationship between the interest rate and the yields we show that in empirical analyses our model outperforms the one factor affine models in both time series as well as cross sectional tests article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

on the perils of financial intermediaries setting security prices the mutual fund wild card option economic distortions can arise when financial claims trade at prices set by an intermediary rather than direct negotiation between principals we demonstrate the problem in a specific context the exchange of open end mutual fund shares mutual funds typically set fund share price nav using an algorithm that fails to account for nonsynchronous trading in the fund s underlying securities this results in predictable changes in nav which lead to exploitable trading opportunities a modification to the pricing algorithm that corrects for nonsynchronous trading eliminates much of the predictability however there are many other potential sources of distortion when intermediaries set prices copyright the american finance association 2001

a tale of three schools insights on autocorrelations of short horizon stock returns this article reexamines the autocorrelation patterns of short horizon stock returns we document empirical results which imply that these autocorrelations have been overstated in the existing literature based on several new insights we provide support for a market efficiency based explanation of the evidence our analysis suggests that institutional factors are the most likely source of the autocorrelation patterns

normal markets market imperfections and energy efficiency abstract the conventional distinction between economic and engineering approaches to energy analysis obscures key methodological issues concerning the measurement of the costs and benefits of policies to promote the adoption of energy efficient technologies the engineering approach is in fact based upon firm economic foundations the principle of lifecycle cost minimization that arises directly from the theory of rational investment thus evidence that so called market barriers impede the adoption of cost effective energy efficient technologies implies the existence of market failures as defined in the context of microeconomic theory problems of imperfect information and bounded rationality on the part of consumers for example may lead real world outcomes to deviate from the dictates of efficient resource allocation a widely held contrary view that the engineering view lacks economic justification is based on the fallacy that markets are normally efficient

trading volume and cross autocorrelations in stock returns this paper finds that trading volume is a significant determinant of the lead lag patterns observed in stock returns daily and weekly returns on high volume portfolios lead returns on low volume portfolios controlling for firm size nonsynchronous trading or low volume portfolio autocorrelations cannot explain these findings these patterns arise because returns on low volume portfolios respond more slowly to information in market returns the speed of adjustment of individual stocks confirms these findings overall the results indicate that differential speed of adjustment to information is a significant source of the cross autocorrelation patterns in short horizon stock returns both academics and practitioners have long been interested in the role played by trading volume in predicting future stock returns 1 in this paper we examine the interaction between trading volume and the predictability of short horizon stock returns specifically that due to lead lag cross autocorrelations in stock returns our investigation indicates that trading volume is a significant determinant of the cross autocorrelation patterns in stock returns 2 we find that daily or weekly returns of stocks with high trading volume lead daily or weekly returns of stocks with low trading volume additional tests indicate that this effect is related to the tendency of high volume stocks to respond rapidly and low volume stocks to respond slowly to marketwide information

a trading approach to testing for predictability we propose a market timing test for conditional mean independence of financial returns the new excess predictability ep test statistic has an interpretation of a properly normalized return of a certain trading strategy we discuss similarities of the ep test to the popular directional accuracy da test of pesaran and timmermann power properties of the ep test are advantageous and size properties are comparable to those of the da test we illustrate application of the test using weekly data on the s p500 index

strategies for cost effective carbon reductions a sensitivity analysis of alternative scenarios analyses of alternative futures often present results for a limited set of scenarios with little if any sensitivity analysis to identify the factors affecting the scenario results this approach creates an artificial impression of certainty associated with the scenarios considered and inhibits understanding of the underlying forces this paper summarizes the economic and carbon savings sensitivity analysis completed for the scenarios for a clean energy future study iwg 2000 its 19 sensitivity cases provide insight into the costs and carbon reduction impacts of a carbon permit trading system demand side efficiency programs and supply side policies impacts under different natural gas and oil price trajectories are also examined the results provide compelling evidence that policy opportunities exist to reduce carbon emissions and save society money

simulation based tests of forward looking models under var learning dynamics in this paper we propose a simulation based technique to investigate the finite sample performance of likelihood ratio lr tests for the nonlinear restrictions that arise when a class of forward looking fl models typically used in monetary policy analysis is evaluated with vector autoregressive var models we consider one shot tests to evaluate the fl model under the rational expectations hypothesis and sequences of tests obtained under the adaptive learning hypothesis the analysis is based on a comparison between the unrestricted and restricted var likelihoods and the p values associated with the lr test statistics are computed by monte carlo simulation we also address the case where the variables of the fl model can be approximated as non stationary cointegrated processes application to the hybrid new keynesian phillips curve nkpc in the euro area shows that i the forward looking component of inflation dynamics is much larger than the backward looking component and ii the sequence of restrictions implied by the cointegrated nkpc under learning dynamics is not rejected over the monitoring period 1984 2005 copyright 2010 john wiley sons ltd

effects of a carbon price in the u s on economic sectors resource use and emissions an input output approach abstract despite differences in their implementation most carbon policies aim to have similar outcomes effectively raising the price of carbon intensive products relative to non carbon intensive products while it is possible to predict the simple broad scale economic impacts of raising the price of carbon intensive products the demand for non carbon intensive products will increase understanding the economic and environmental impacts of carbon policies throughout the life cycle of both types of products is more difficult using the example of a carbon tax this study proposes a methodology that integrates short term policy induced consumer demand changes into the input output framework to analyze the environmental and economic repercussions of a policy environmental repercussions include the direct and the indirect impacts on emissions materials flow in the economy and the reliance on various ecosystem goods and services the approach combines economic data with data about physical flow of fossil fuels between sectors consumption of natural resources and emissions from each sector it applies several input output modeling equations sequentially and uses various levels of aggregation disaggregation it is illustrated with the data for the 2002 u s economy and physical flows the framework provides insight into the short term complex interactions between carbon price and its economic and environmental effects

the inadequacy of linear autoregressive model for real exchange rates empirical evidence from asian economies utilizing the formal linearity test of luukkonen saikkonen and terasvirta biometrika 75 491 499 1998 as diagnostic tool the empirical finding suggests that the linear autoregressive ar model is inadequate in describing the real exchange rates behaviour of 11 asian economies it is noted that the conventional battery of diagnostic tests is capable of identifying the inadequacy of the linear model in only three of these series moreover the linearity nature of this behaviour has been formally rejected in favour of the non linear smooth transition autoregressive star model the finding of non linearity in the data generating process of these real exchange rates warrants that the use of linear framework in empirical modelling and statistical testing procedures in the field of exchange rates may lead to an inappropriate policy conclusions

a note on efficiency of australian and new zealand stock markets in this article we re examine efficiency of the australia s and new zealand s stock markets extending recent work of narayan 2005 for this purpose we apply the nonlinear unit root test procedure recently developed by kapetanios et al 2003 the nonlinear unit root tests reject the null hypothesis of unit root suggesting that the both stock markets are not weak form efficient contrary to the findings of narayan 2005

research frontiers in the economics of climate change academic and policy debates over climate change risks and policies have stimulated economic research in a variety of fields in this article i briefly discuss eight overlapping areas of current research in which further effort is particularly warranted these areas include decision criteria for policy risk assessment and adaptation uncertainty and learning abatement cost and the innovation and diffusion of technology and the credibility of policies and international agreements further analysis in these areas not only will advance academic understanding but also will provide insights of considerable importance to policymakers

the small business capital market behavior in athens stock exchange financing small and medium enterprises smes especially business investments and growth is a composite and particular complicated affair in the greek entrepreneurial reality this paper examines the significance of secondary capital markets as an alternative source of financing small medium enterprises new entrepreneurial plans cointegration technique is applied to test the relationship between the secondary capital market and the dominant sectors in athens stock exchange ase causality tests are also used to provide evidence on the existence of interdependence between the cointegrated series the results indicate that there is significant uni directional causality between primary and secondary capital market in greece enhancing us to suggest valuable policy implications

efficient market hypothesis evidence from a small open economy this article studies the efficient market hypothesis for the istanbul stock exchange national 100 isen 100 price index within the lumsdaine and papell two structural breaks unit root test framework the main finding of the article shows that the isen 100 index is characterized by a unit root with two structural breaks which is consistent with the efficient market hypothesis in addition the article applies the augmented dickey fuller test runs test and the variance ratio test to test the weak form efficiency of the isen 100 the analyses are repeated for three sub periods delineated in view of the endogenously determined break points

opening and closing the market evidence from the london stock exchange we investigate the performance of call markets at the open and close using a unique natural experiment provided by the london stock exchange where traders can choose between a call and an off exchange dealership system although the call market dominates dealers in terms of price discovery it suffers from a high failure rate to open and close trading especially when trading conditions are difficult the call s trading costs increase with asymmetric information slow trading order flow imbalances and uncertainty traders resort to use of call auctions is negatively correlated with firm size implying that the call may not be the optimal method for opening and closing trading of medium and small sized stocks

macroeconomic and sectoral impacts of carbon taxation a case for the japanese economy it is now commonly recognized that a carbon tax is one of the most effective and economically efficient policy instruments to reduce carbon dioxide co2 emissions if cost effective however carbon taxes might impose widely distributed economic burdens among industrial sectors or firms particularly when factor mobilities are imperfect in the short run since high economic performance could be hindered by a serious implementation of the polluter pays principle we examine and compare a trade off relationship between the expected macroeconomic costs and sectoral impacts in a simplified general equilibrium framework attempts are also made to evaluate a government subsidy financed by tax revenues to investments in new energy efficient technologies as a complementary mitigation policy to carbon taxation

asymmetric predictability of conditional variances we show that there is an asymmetry in the predictability of the volatilities of large versus small firms using both univariate and multivariate arma garch m parameterizations we find that volatility surprises to large market value firms are important to the future dynamics of their own returns as well as the returns of smaller firms conversely however shocks to smaller firms have no impact on the behavior of either the mean or the variance of the returns of larger capitalization companies article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

examining the first stages of market performance a test for evolving market efficiency abstract a new test of whether markets evolve through detecting changes in weak form efficiency is proposed the test is evaluated through monte carlo simulations empirical examples are provided for both developed and emerging markets

complex dynamics in a simple macro disequilibrium model abstract this study analyzes disequilibrium dynamics in a simple macro economic model constructed with micro foundation in which the behavior of individual economic agents concerning consumption labor supply employment output supply and the formation of expectation can be described by very simple and conventional monotonic functions it is demonstrated that despite that simplicity complex nonlinear dynamics may appear through the interaction of those individual behavior in different markets

a pure jump transaction level price model yielding cointegration we propose a new transaction level bivariate log price model that yields fractional or standard cointegration the model provides a link between market microstructure and lower frequency observations the two ingredients of our model are a long memory stochastic duration process for the waiting times k between trades and a pair of stationary noise processes ek and k which determine the jump sizes in the pure jump log price process our model includes feedback between the disturbances of the two log price series at the transaction level which induces standard or fractional cointegration for any fixed sampling interval t we prove that the cointegrating parameter can be consistently estimated by the ordinary least squares estimator and we obtain a lower bound on the rate of convergence we propose transaction level method of moments estimators of the other parameters in our model and discuss the consistency of these estimators

estimating bounds on the economy wide effects of the cef policy scenarios abstract the scenarios for a clean energy future study relied primarily on bottom up technology based methods to estimate costs associated with its scenarios these methods however do not allow for calculation of economy wide or general equilibrium effects of the policies considered we propose and apply a means of combining the bottom up estimates with estimates of the costs associated with a carbon charge obtained from computable general equilibrium models our approach is based on the concept of production inefficiency the economy lies within its production frontier with respect to the provision of energy services the cef technology policies are interpreted as moving the economy toward its frontier as well as moving the frontier outward while the carbon charge induces a substitution effect along the frontier this perspective allows a synthesis of the two sets of calculations

measuring the degree of time varying market inefficiency abstract we estimate a time varying autocorrelation of stock returns as a degree of market inefficiency the relative inefficiency of the u s stock market varies from 1955 to 2006

a closing call s impact on market quality at euronext paris abstract the paris bourse currently euronext paris refined its trading system to include electronic call auctions at market closings in 1996 for its less liquid continuous b stocks and in 1998 for its more actively traded continuous a stocks this paper analyzes the effects of the innovation on market quality our empirical analysis of price behavior for two samples of firms 50 b stocks and 50 a stocks for two different calendar dates 1996 and 1998 indicates that introduction of the closing calls has lowered execution costs for individual participants and sharpened price discovery for the broad market we further observe that market quality is improved at market openings albeit to a lesser extent we suggest that a positive spillover effect explains the closing call s more pervasive impact

industry information diffusion and the lead lag effect in stock returns i argue that the slow diffusion of industry information is a leading cause of the lead lag effect in stock returns i find that the lead lag effect between big firms and small firms is predominantly an intra industry phenomenon moreover this effect is driven by sluggish adjustment to negative information and is robust to alternative determinants of the lead lag effect small less competitive and neglected industries experience a more pronounced lead lag effect the lead lag effect is related to the post announcement drift of small firms following the earnings releases of big firms within the industry