rational panics and stock market crashes abstract this paper offers an explanation for stock market crashes which focuses on the role of rational but uninformed traders we show that uninformed traders can precipitate a price crash because as prices decline they surmise that informed traders received negative information which leads them to reduce their demand for assets and drive the price of stocks even lower the model yields several implications such as that crashes can occur even when the fundamentals are strong and that the magnitude of the crash depends on the fraction of uninformed investors and the amount of unsophisticated passive investing present in the market

information acquisition and under diversification if an investor wants to form a portfolio of risky assets and can exert effort to collect information on the future value of these assets before he invests which assets should he learn about the best assets to acquire information about are ones the investor expects to hold but the assets the investor holds depend on the information he observes we build a framework to solve jointly for investment and information choices with general preferences and information cost functions although the optimal research strategies depend on preferences and costs the main result is that the investor who can first collect information systematically deviates from holding a diversified portfolio information acquisition can rationalize investing in a diversified fund and a concentrated set of assets an allocation often observed but usually deemed anomalous copyright wiley blackwell

when transparency improves must prices reflect fundamentals better no in the presence of speculative opportunities investors can learn about both asset fundamentals and the beliefs of other traders we show that this learning exhibits complementarity learning more along one dimension increases the value of learning about the other as a result regulatory changes may be counterproductive first increasing transparency i e making fundamental information cheaper to acquire can make prices less informative when investors respond by learning relatively more about others second public disclosures discourage private learning about fundamentals while encouraging information acquisition about others accordingly disclosing more fundamental information can decrease overall informational efficiency by decreasing price informativeness received april 20 2016 editorial decision september 30 2017 by editor itay goldstein

the possibility of informationally efficient markets abstract a rational expectations equilibrium with positive demand for financial information does exist under fully revealing asset price contrary to a wide held conjecture whereas a continuum of investors is inconsistent with fully revealing equilibrium finitely many investors with average portfolios demand information in equilibrium if they can adjust portfolio size in an additive signal return model more information diminishes the expected excess return of a risky asset so that investors who only have a choice of portfolio composition or whose asset endowments strongly differ from the average portfolio are worse off under fully revealing price information market equilibria both with and without information acquisition are pareto efficient

does child labor decline with improving economic status between 1993 and 1997 child labor in vietnam declined by nearly 30 percent while the country s gdp grew by nearly 9 percent per year on average using a simple nonparametric decomposition i investigate the relationship between improvements in per capita expenditure and child labor with a panel data set that spans this episode of growth in vietnam improvements in per capita expenditure can explain 80 percent of the decline in child labor that occurs in households whose expenditures improve enough to move out of poverty this finding suggests a previously undocumented role for economic growth in the amelioration of child labor

complementarities multiplicity and supply information if traders can obtain private information about the payoff and the supply of a stock then there can exist i complementarity in information acquisition and ii multiple equilibria in the financial and information markets the additional dimension of supply information increases coordination possibilities in the financial market leading to multiple equilibria the existence of two information sources can lead to information acquisition being complementary the multiplicity of equilibria is suggestive of excess volatility and crashes the different financial market equilibria imply differing patterns of cost of capital and volume of trade 2009 by the european economic association

information acquisition dissemination and transparency of monetary policy this paper examines the role of transparency in a benevolent monetary author ity s policies each firm s payoff depends on unobservable macroeconomic conditions and firms may incur a cost to acquire private information about macroeconomic conditions the policy authority attempts to infer the underlying macroeconomic conditions from a noisy measure of aggregate actions and makes a public announcement to inform firms of this inference high quality announcements provide firms the incentive not to gather private information and base actions solely on information contained in policy announce ments however this makes the observed actions of firms less informative to the policy authority jel classification e52 e58

speculation and hedging in segmented markets we analyze a model in which traders have different trading opportunities and learn information from prices the difference in trading opportunities implies that different traders may have different trading motives when trading in the same market some trade for speculation and others for hedging and thus they may respond to the same information in opposite directions this implies that adding more informed traders may reduce price informativeness and therefore provides a source for learning complementarities leading to multiple equilibria and price jumps our model is relevant to various realistic settings and helps to understand a variety of modern financial markets

the value of diffusing information abstract how does the speed by which information diffuses affect its value to a stock market investor in a structural model solved in closed form this speed has two opposing effects on the empirically dominant term of the value of information faster diffusing information means quicker and less noisy profits but also increases competing informed trading impounding more information into prices and eroding profits structural empirical analysis of stock market reaction to drug approvals using media coverage as a proxy for the transmission rate of information finds that the value of information is hump shaped in its future transmission rate moreover the estimated amount of noise trading is small

an econometric view on the estimation of gravity models and the calculation of trade potentials this paper presents an ar 1 model in the spirit of hausman and taylor zero differences between actual and in sample predicted trade flows large systematic differences between observed and in sample predicted trade flows only indicate model misspecification and econometric problems out of sample predictions make sense if countries of interest are in an early stage of the transformation process the gravity model remains an interesting tool for the calculation of counterfactuals e g the impact of catching up in gdp per capita in the ceec or of the reduction of trade costs via infrastructure investments or tariffs on bilateral trade etc for this line of research the difference between short term and long term influences could provide interesting insights

conditional cash transfers schooling and child labor micro simulating brazil s bolsa escola program a growing number of developing economies are providing cash transfers to poor people that require certain behaviors on their part such as attending school or regularly visiting health care facilities a simple ex ante methodology is proposed for evaluating such programs and used to assess the bolsa escola program in brazil the results suggest that about 60 percent of poor 10 to 15 year olds not in school enroll in response to the program the program reduces the incidence of poverty by only a little more than one percentage point however and the gini coefficient falls just half a point results are better for measures more sensitive to the bottom of the distribution but the effect is never large

knowing what others know coordination motives in information acquisition we explore how optimal information choices change the predictions of strategic models when a large number of agents play a game with strategic complementarity information choices exhibit complementarity as well if an agent wants to do what others do they want to know what others know this makes heterogeneous beliefs di cult to sustain and may generate multiple equilibria in models with substitutability agents prefer to difierentiate their information choices we use these theoretical results to examine the role of information choice in recent price setting models and to propose modeling techniques that ensure equilibrium uniqueness

economic growth and the persistence of child labor evidence from an indian city abstract this paper examines features of child labor in an area of high economic growth in western india growth was associated with an increase in the number of child workers over the last 15 years the analysis shows that children work at simple repetitive manual tasks that do not require long years of training or experience the work is low paying involves drudgery and is hazardous work forecloses the option of school education for most children in this context i argue that economic growth alone is not sufficient to eradicate child labor

the economics of child labor if child labor as a mass phenomenon occurs not because of parental selfishness but because of the parents concern for the household s survival the popular argument for banning child labor loses much of its force however this assumption about parental decision making coupled with the assumption of substitutability in production between child and adult labor could result in multiple equilibria in the labor market with one equilibrium where children work and another where adult wage is high and children do not work the paper establishes this result and discusses its policy implications copyright 1998 by american economic association

market composition and price informativeness in a large market with endogenous order types we analyse the joint determination of price informativeness and the composition of the market by order type in a large asset market with dispersed information the market microstructure is one in which informed traders may place market orders or full demand schedules and where market makers set the price market order traders trade less aggressively on their information and thus reduce the informativeness of the price in a full market order market price informativeness is bounded whatever the quality of traders information about the asset s dividend when traders can choose their order type and demand schedules are even marginally costlier than market orders then market order traders overwhelm the market when the precision of private signals goes to in nity this is because demand schedules are substitutes at high levels of precision a residual fraction of demand schedule traders is sufficient to take the trading price close to traders signals while the latter is itself well aligned with the dividend hence the gain from trading conditional on the price as demand schedule traders do in addition to one s own signal as all informed traders do vanishes

on existence and uniqueness of equilibrium in a class of noisy rational expectations models i study a general class of noisy rational expectations models that nests the standard grossman and stiglitz 1980 and hellwig 1980 models but relaxes the usual assumption of joint normality of asset pay offs and supply and allows for more general signal structures i provide a constructive proof of existence of equilibrium characterize the price function and provide sufficient conditions for uniqueness within the class of equilibria with continuous price functions which are met by both the grossman and stiglitz 1980 models and the hellwig 1980 models with a continuum of investors my solution approach does not rely on the typical conjecture and verify method and i exhibit a number of non normal examples in which asset prices can be characterized explicitly and in a closed form the results presented here open up a broad class of models for applied work to illustrate the usefulness of generalizing the standard model i show that in settings with non normally distributed pay offs shocks to fundamentals may be amplified purely due to learning effects price drifts can arise naturally and the disagreement return relation depends in a novel way on return skewness

information markets and the comovement of asset prices traditional asset pricing models predict that covariance between prices of difierent assets should be lower than what we observe in the data this model generates high covariance within a rational expectations framework by introducing markets for information about asset payofis when information is costly rational investors will not buy information about all assets they will learn about a subset because information production has high flxed costs competitive producers charge more for low demand information than for high demand information a price that declines in quantity makes investors want to purchase a common subset of information if investors price many assets using a common subset of information then a shock to one signal is passed on as a common shock to many asset prices these common shocks to asset prices generate excess covariance the cross sectional and time series properties of asset price covariance are consistent with this explanation

estimating the value of information we derive a general expression for the value of information to a price taking investor in a dynamic environment and provide a framework for its estimation we study the value of both private and public information and break it into its instrumental and psychic parts to illustrate we estimate and rank the values of leading macroeconomic indicators gdp employment etc using variations in option prices we find that consumer investors with conventional preference parameters would pay 3 to 5 bps of their wealth for a one time private peek into these indicators such signals provide substantial instrumental value but a minor psychic value received august 29 2016 editorial decision june 6 2018 by editor itay goldstein authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

an equilibrium analysis of information aggregation and fluctuations in markets with discrete decisions abstract this paper shows how the interaction between decentralized information gathering and discreteness of investment decisions at the individual level can generate random fluctuations in aggregate investment that involve occasionally large allocation errors this interaction is illustrated in a model in which private information is costly to acquire and prices reveal information the unique rational expectations equilibrium outcome of the model is shown to always be noisy and characterized by investment levels which may be high simply because uninformed investors are buying under the impression that the high price is a signal of good investment opportunities

learning and complementarities in speculative attacks we study a model where the aggregate trading of currency speculators reveals new information to the central bank and affects its policy decision we show that the learning process gives rise to coordination motives among speculators leading to large currency attacks and introducing non fundamental volatility into exchange rates and policy decisions we show that the central bank can improve the ex ante effectiveness of its policy by committing to put a lower weight ex post on the information from the market and that transparency may either increase or decrease the effectiveness of learning from the market depending on how it is implemented

insider trading without normality in this paper we analyse the existence and uniqueness of equilibrium in a particular class of monopolistic rational expectations models we show the equivalence between the kyle 1985 model of insider trading where the insider observes the amount of noise trading and the kyle 1989 model of informed speculation when there is one risk neutral insider and many risk neutral market makers we show that in these two equivalent models i there exists a unique equilibrium independently of the distribution of uncertainty ii this equilibrium minimizes the expected gains of the informed agent under incentive compatibility constraints we extend our results to a class of signalling games

reprint of information percolation in segmented markets we study equilibria of dynamic over the counter markets in which agents are distinguished by their preferences and information over time agents are privately informed by bids and offers investors differ with respect to information quality including initial information precision and also in terms of market connectivity the expected frequency of their bilateral trading opportunities we characterize endogenous information acquisition and show how learning externalities affect information gathering incentives more liquid markets lead to higher equilibrium information acquisition when the gains from trade and market duration are sufficiently large on the other hand for a small market duration the opposite may occur if agents vary sufficiently in terms of their market connectivity c 2014 published by elsevier inc

child labor and coordination failures abstract in this note we show that a technology based coordination failure may explain the emergence of laws restricting child labor child labor may arise because of the lack of a coordination mechanism between parental decisions to invest in the human capital of their children and firms decisions to invest in skill biased technologies legislative intervention in many cases helps coordinate expectations towards a pareto superior outcome with investments both in human capital and in skill biased technologies

wealth crucial but not sufficient evidence from pakistan on economic growth child labor and schooling the relationship between wealth and child labor has been widely examined this paper uses three rounds of time series cross sectional data to examine the relationship between wealth and child labor and schooling the paper finds that wealth is crucial in determining a child s activities but that this factor is far from being a sufficient condition to enroll a child in school this is particularly the case for rural girls nonparametric analysis shows a universal increase in school enrollment for rural girls from 1998 to 2006 this increase is independent of wealth measured by per capita expenditure multinomial logit regression further shows that wealth is insignificant in determining rural girls activity decisions thus interventions to increase school enrollment should incorporate broad targeted demand side interventions as well as supply side interventions

duopoly information equilibrium cournot and bertrand abstract in a duopoly model where firms have private information about an uncertain linear demand it is shown that if the goods are substitutes not to share information is a dominant strategy for each firm in bertrand cournot competition if the goods are complements the result is reversed furthermore the following welfare results are obtained 1 i with substitutes in cournot competition the market outcome is never optimal with respect to information sharing but it may be optimal in bertrand competition if the products are good substitutes with complements the market outcome is always optimal 2 ii bertrand competition is more efficient than cournot competition 3 iii the private value of information to the firms is always positive but the social value of information is positive in cournot and negative in bertrand competition

the effect of public information and competition on trading volume and price volatility in a one period model of market making with many exogenously informed traders we first show that the variance of prices and expected trading volume depend on the public information released at the start of trading this is accomplished by representing beliefs with elliptically countoured distributions for which the form of optimal decision rules does not depend on the specific distribution used second if the model is altered so that the decision to become informed is made endogenous then the decision rules of the market maker and infomed traders depend on the public information third in a multiperiod model with many informed traders and long lived private information recursion formulas similar to those of kyle 1985 hold for all elliptically contoured distributions trading volume is autocorrelated and unless per period liquidity trading is bounded away from zero as new trading periods are added informed traders profits vanish article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

information percolation in segmented markets we study equilibria of dynamic over the counter markets in which agents are distinguished by their preferences and information over time agents are privately informed by bids and offers investors differ with respect to information quality including initial information precision and also in terms of market connectivity the expected frequency of their bilateral trading opportunities we characterize endogenous information acquisition and show how learning externalities affect information gathering incentives more liquid markets lead to higher equilibrium information acquisition when the gains from trade and market duration are sufficiently large on the other hand for a small market duration the opposite may occur if agents vary sufficiently in terms of their market connectivity c 2014 published by elsevier inc

causes of world trade growth in agricultural and food products 1951 2000 a demand function approach the objective of the present study is to analyse the causes of the growth of international agricultural and food trade in volume terms from 1951 to 2000 the results suggest that income growth has been the principal reason for this expansion while exchange rate stability and the real price of agricultural products played only a minor role multilateral trade liberalization and trade costs given their long term stability are not elements that could have stimulated their growth finally the intensive liberalization of trade which took place in various economic regions especially in europe became a key factor in promoting agricultural trade among the countries participating in regional trade agreements the study results also indicate that the determinants of trade growth for these goods were different to those for other goods and other periods

on acquisition of information in financial markets in their paper information acquisition in financial markets this journal 2000 barlevy and veronesi present a model of a one period financial market and claim that for an open set of parameter values the value of information increases with the mass of informed agents that claim is shown here to be false the property of strategic substitution is robust in their model

economic growth a panacea for child labor summary in this paper we test whether economic growth decreases child labor by bringing together data from the national sample survey of india and state level macrodata to estimate a bivariate probit model of schooling and labor our results lead us to conclude that contrary to popular wisdom growth actually increases rather than decreases child labor because it increases the demand for child workers the level of state ndp village wages and household incomes are seen as the conduits through which growth influences the supply side of the child labor market

liquidity provision contracts and market quality evidence from the new york stock exchange we exploit a discontinuity in the new york stock exchange designated market maker dmm contract to identify causal effects of dmm participation on equilibrium market outcomes we document that contractual features that enhance dmm participation are associated with increased depth narrower bid ask spreads and higher rates of price improvement with most of the improvements attributable to increases in liquidity provision on markets other than the nyse these results cannot be attributed to the mechanical effects of the contractual changes and support the interpretation that market making is characterized by strategic complementarity received october 7 2017 editorial decision december 10 2018 by editor itay goldstein

child labor and schooling decisions in urban and rural areas comparative evidence from nepal peru and zimbabwe summary this study sheds some light on the causes of child labor using crosscountry empirical data we find that while poverty is the main cause of child labor in rural areas there is a general lack of support for the poverty hypothesis in urban areas similarly improving access to credit has a greater potential for alleviating child labor and enhancing school attendance in rural areas on the other hand availability of alternative childcare options promises greater impact in urban areas finally the evidence from all countries suggests that efforts to bolster adult educational level and wage will help curb the prevalence and intensity of child labor and improve the likelihood that children stay in school

a model of competitive stock trading volume a model of competitive stock trading is developed in which investors are heterogeneous in their information and private investment opportunities and rationally trade for both informational and noninformational motives i examine the link between the nature of heterogeneity among investors and the behavior of trading volume and its relation to price dynamics it is found that volume is positively correlated with absolute changes in prices and dividends i show that informational trading and noninformational trading lead to different dynamic relations between trading volume and stock returns

ratings shopping and asset complexity a theory of ratings inflation abstract many identify inflated credit ratings as one contributor to the recent financial market turmoil we develop an equilibrium model of the market for ratings and use it to examine possible origins of and cures for ratings inflation in the model asset issuers can shop for ratings observe multiple ratings and disclose only the most favorable before auctioning their assets when assets are simple agencies ratings are similar and the incentive to ratings shop is low when assets are sufficiently complex ratings differ enough that an incentive to shop emerges thus an increase in the complexity of recently issued securities could create a systematic bias in disclosed ratings despite the fact that each ratings agency produces an unbiased estimate of the asset s true quality increasing competition among agencies would only worsen this problem switching to an investor initiated ratings system alleviates the bias but could collapse the market for information

informed traders and limit order markets abstract we consider a dynamic limit order market in which traders optimally choose whether to acquire information about the asset and the type of order to submit we numerically solve for the equilibrium and demonstrate that the market is a volatility multiplier prices are more volatile than the fundamental value of the asset this effect increases when the fundamental value has high volatility and with asymmetric information across traders changes in the microstructure noise are negatively correlated with changes in the estimated fundamental value implying that asset betas estimated from high frequency data will be incorrect

information acquisition in financial markets tions agents have exponential utility and random variables are normally distributed these assumptions are often necessary to obtain closed form solutions we present an example with alternative assumptions and demonstrate that some of the conclusions from previous literature fail to hold in particular we show that in our example as more agents acquire information prices do not necessarily become more informative and agents may have greater incentive to acquire informatioln learning can therefore be a strategic complement allowing for the possibility of multiple equilibria

the gatt wto has promoted trade but only in capital intensive commodities this article uses gravity models to explore the impact of the general agreement on tariffs and trade gatt world trade organization who on bilateral trade in a sample of 46 countries over the period 1965 to 1997 our data enable us to disaggregate trade by broad commodity aggregates the results for total trade are similar to those reported by rose 2004 however the disaggregated estimates reveal that the gatt wto has had a positive and statistically significant impact on trade in capital intensive commodities but no statistically significant impact on trade in other commodities the article demonstrates that simple modifications of rose s approach lead to results that are much more common sense than his jel f10 f15

the divergent effects of joining international organizations trade gains and the rigors of wto accession governments have joined the world trade organization wto in vastly different ways some have taken mere days to join without undertaking any trade liberalization while others have taken more than a decade and been forced to undergo significant liberalization we argue that the more rigorous a state s accession to an international organization io and thus the greater policy change required to join the greater the benefits it will receive from membership in the organization in the trade context states facing greater scrutiny from the wto and thus engaging in greater trade liberalization as part of the wto accession process should experience greater trade on joining compared to those who face little scrutiny and engage in little if any liberalization we develop a three part classification of wto members based on type of accession early automatic and rigorous and then compile detailed original data on the accession experiences of each relevant state including length of time number of veto players rounds of questions and tariff and nontariff commitments results of exhaustive quantitative tests on all countries from 1950 to 2006 which are robust to estimator sample period and model specification choices consistently demonstrate that those who engage in the greatest amount of accession driven liberalization experience the greatest trade increases from wto membership particularly in the years right after joining in contrast those who do little or nothing to join do not see any trade gains from being a wto member these findings reconcile previous findings on the effects of wto membership on trade highlight the causal importance of io accession and illuminate the conditions under which ios will have beneficial effects for member states

agricultural trade and the gatt wto does membership make a difference recent empirical studies have estimated the trade flow effect of membership in the world trade organization wto and its predecessor the general agreement on tariffs and trade gatt one important although largely untested conclusion from this literature is that the gatt wto works well if we ignore trade in agriculture one of the institutions seemingly apparent failures this article investigates this conclusion using a large panel of agricultural and non agricultural trade flows the results are impressive the multilateral institution has delivered significant positive effects on members agricultural trade despite its sensitive nature and the reluctance of members to undertake serious reform these findings are robust to various slices of the data and recent advances in the specification and estimation of the gravity equation to account for sample selection issues and the extensive margin of trade copyright 2012 oxford university press

information quality and options microstructure researchers have long understood that information quality has an effect on price formation in the underlying asset market however option researchers have largely ignored the fact that information quality might also impact the options market this article characterizes the nature of the impact by showing how option prices and implied volatility levels are related to the forward looking information quality path this result follows from a noisy rational expectations model that abandons the normal distribution in favor of the gamma distribution but maintains the standard assumption of exponential utility thus the new model bridges the gap between the microstructure literature that relies so heavily on the normal exponential framework and the options literature that relies exclusively on models that are consistent with the limited liability of stock prices the model s tractability allows for a robustness check against the standard framework and provides a viable setting for analyzing the empirical implications of information quality for the options market jel d8 gl

informed speculation with imperfect competition competitive rational expectations models have the unsatisfactory property dubbed the schizophrenia problem by hellwig that each trader takes the equilibrium price as given despite the fact that he influences that price an examination of information aggregation in a non competitive rational expectations model using a nash equilibrium in demand functions shows that the schizophrenia problem is avoided by having each trader take into account the effect his demand has on the equilibrium price given a distribution of private information across traders prices reveal less information than in the competition equilibrium and prices no longer become fully informative in the limit as noise trading vanishes or as traders become risk neutral with small traders the model may become one of monopolistic competition not perfect competition in contrast to the competitive model a reasonable model of endogenous acquisition of costly private information is obtained even when traders are risk neutral

partially revealing rational expectations equilibrium in a competitive economy abstract a class of pure exchange economies is considered in which some agents are informed of private information and others are uninformed existence of a partially revealing rational expectations equilibrium ree is proved without restricting attention to particular functional forms for utility functions and probability distributions without introducing noise into the model and without departing from the standard definition of ree the equilibrium is robust in the sense that if the primitives of the economy are slightly perturbed the economy continues to have a qualitatively similar ree with somewhat stronger assumptions placed on the economy the equilibrium is also the unique measurable ree

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed