mutual fund misclassification evidence based on style analysis an iterative application of william sharpe s method of style analysis is applied to the classification of equity mutual funds a new methodology for creating purified mutual fund style indexes is used to verify existing classifications results suggest that 9 percent of all equity funds are seriously misclassified and another 31 percent are somewhat misclassified two factors emerge as the most likely reasons for misclassification 1 the ambiguity of the current classification system and 2 competitive pressures in the mutual fund industry and compensation structures that reward relative performance monte carlo simulations on out of sample data show that this misclassification has a significant effect on investors ability to build diversified portfolios of mutual funds

scale economies perverse comparative statics results the marshallian stability and the long run equilibrium for a small open economy abstract using a simple general equilibrium model we show that the perverse comparative statics results can occur under scale economies these paradoxes disappear iff the equilibrium is marshallian stable and the latter holds iff it is a stable long run equilibrium under capital adjustment

an empirical analysis of life cycle fertility and female labor supply this paper examines us household fertility and female labor supply over the life cycle using data from the panel study of income dynamics the authors investigate how maternal time inputs and market expenditures on offspring as well as the benefits they yield their parents vary with ages of offspring and influence female labor supply and contraceptive behavior the econometric framework combines a female labor supply model and a contraceptive choice index function it also accounts for the fact that conceptions are not perfectly controllable events using longitudinal data on married couples the authors estimate these equations and test alternative specifications of the technologies governing child care the findings suggest that while parents cannot perfectly control conceptions variations in child care costs do affect life cycle spacing of births furthermore the results demonstrate the gains of modeling the linkages between female labor supply and fertility behavior at the household level authors modified

variable returns to scale and the global correspondence principle in the theory of international trade abstract the global correspondence principle is applied to obtain global theorems on the price output response and the rybczynski and stolper samuelson effects for an economy with variable returns to scale the marshallian output adjustment process is used to obtain these results

on the welfare effects of a duty free zone abstract the analysis extends and corrects the results of an earlier paper by hamada two problems are analyzed 1 how is location of production affected by opening up of a free zone taking into account different kinds of trade barriers and zones implications for production consumption and welfare in a number of different cases are analyzed 2 what are the effects of capital inflow either into the zone or into the host country our results show that both types of capital inflow diminish welfare and welfare diminishes comparatively more when imported into the zone repatriated income as well as its composition is explicitly incorporated

quantitative restrictions and the welfare effects of capital inflows abstract this paper explores the welfare effects of capital inflows when some imports are subject to quantitative restrictions it is shown that in a heckscher ohlin model where all imports are restricted by quotas and some fraction of the initial domestic capital stock is foreign owned a capital inflow is welfare improving regardless of the ranking of sectoral factor intensities with sector specific capital stocks and both tariff ridden and quota restricted imports the consequences of direct foreign investment in any sector are uncertain and depend upon whether the two imports are compensated substitutes or complements as well as the characteristics of production

on the concepts of returns to scale abstract we clarify various concepts of returns to scale scattered in the literature by presenting their six different concepts we find the global relationship among them and apply some of the results to determine the shape of the average cost curves

a theory of trading volume a theory of trading volume is developed based on assumptions that market agents frequently revise their demand prices and randomly encounter potential trading partners the model describes two distinct ways informational events affect trading volume one is consistent with conjectures made by empirical researchers that investor disagreement leads to increased trading but the observation of abnormal trading volume does not necessarily imply disagreement and volume can increase even if investors interpret the information identically if they also have had divergent prior expectations simulation tests support the model and are used to contrast the random pairing environment with costless market clearing volume is lower in the costly market and volume increases caused by an informational event persist after the event period this is consistent with existing empirical evidence and suggests that markets do not immediately clear all orders or that investors have demands to recontract

asset prices and institutional investors empirical evidence indicates that trades by institutional investors have sizable effects on asset prices generating phenomena such as index effects asset class effects and others it is difficult to explain such phenomena within standard representative agent asset pricing models in this paper we consider an economy populated by institutional investors alongside standard retail investors institutions care about their performance relative to a certain index our framework is tractable admitting exact closed form expressions and produces the following analytical results we find that institutions optimally tilt their portfolios towards stocks that comprise their benchmark index the resulting price pressure boosts index stocks while leaving nonindex stocks unaffected by demanding a higher fraction of risky stocks than retail investors institutions amplify the index stock volatilities and aggregate stock market volatility and give rise to countercyclical sharpe ratios trades by institutions induce excess correlations among stocks that belong to their benchmark index generating an asset class effect institutions finance their additional purchases of index stocks by taking on leverage a policy prescription that calls for a reduction in leverage while reducing the riskiness of institutional portfolios would also reduce the ability of institutions to tilt their portfolios towards index stocks depressing the index level

on the choice between capital import and labor export abstract the paper analyses some questions arising in connection with inflow of foreign capital into a host country and its free zone when capital is mobile between sectors capital import into any part of the economy decreases welfare with sector specific capital import of capital into the protected sector export sector decreases increases welfare if capital import into the export sector of the domestic zone is infeasible there may be a case for establishing a free zone and allowing capital import exclusively there with a suitable tax policy capital import into the free zone will always be beneficial

protection and the harmful effects of endogenous capital flows abstract assume a country has in place a binding tariff and is a price taker on world markets in which capital is internationally mobile and unimpeded regardless of trade patterns possible specificity of capital or factor intensities an increase in the tariff harms the country if capital is frozen and harms the country even more when capital mobility brings rates of return into line among countries

tariffs capital export and immiserizing growth abstract the purpose of this paper is to show how the brecher diaz 1977 and minabe 1974 propositions on the capital inflow from a tariff apply symmetrically to capital outflow that is when the home country continues to import the labor intensive goods while remaining incompletely specialized the capital outflow must reduce the home country s real income this will be so when the net return to home capital is greater than the home value of its marginal product at internal prices but less than the home value of its marginal product at world prices

gains from trade under variable returns to scale recently several trade theorists have investigated the welfare consequences of international trade under variable returns to scale for example kemp and negishi 11 using the revealed preference arguments obtain the sufficient conditions under which the opening of trade and an improvement in the terms of trade are nonharmful in the presence of variable returns to scale production subsidies and consumption taxes eaton and panagariya 7 reexamine these issues in the context of pareto welfare criterion it is noteworthy that the assumption of constant returns to scale is retained in their discussions on production subsidies and consumption taxes 1 the purpose of this paper is to explore the welfare implications of tariffs and consumption taxes as well as the welfare rankings of these policy instruments under variable returns to scale we obtain several interesting results for example social welfare for a small country can be maximized by introducing in addition to free trade a policy of production tax cum subsidy such that the output of the industry exhibiting greater smaller returns to scale is pushed to the maximum minimum a higher tariff rate needs not result in a lower welfare whereas a higher rate of consumption tax necessarily leads to a lower welfare furthermore a tariff may be superior to an equivalent consumption tax the paper evolves as follows the model and assumptions are presented in section ii section iii is the analysis regarding non optimality of free trade free trade versus no trade

a cohort analysis of the association between work hours and wages among men the results of some recent ingenious labor supply research may appear incompatible with the notion that uncompensated wage elasticities for men are small perhaps negative this paper argues there is no incompatibility the methodology in this recent research results in computing wage responses that come closer to measuring intertemporal wage elasticities than to uncompensated wage elasticities to demonstrate this i use pseudopanel data constructed from the march current population surveys from 1967 to 1998 to measure both intertemporal wage elasticities and uncompensated wage elasticities the latter appear sensitive to the particular specification of the hours equation

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

portfolios in disguise window dressing in bond fund holdings abstract this paper builds on the limited body of research on window dressing by bond mutual funds our monthly bias free sample allows us to undertake a more comprehensive study than is possible with the quarterly data traditionally employed in otherwise similar studies we test window dressing in a straightforward manner using monthly undisclosed portfolios which makes it possible to compare changes in public debt allocations around quarterly disclosures our results support the hypothesis that window dressing patterns vary with market conditions we also conduct thorough tests that indicate the significant influence of fund size on window dressing individual analyses provide evidence that this cosmetic practice is not a widespread behaviour in the spanish bond fund industry

capital inflows and economic welfare for a small open economy with variable returns to scale abstract in the presence of a production subsidy a tariff and or variable returns to scale this paper shows that a capital inflow improves welfare under certain conditions and that only temporary production subsidy tariff may be needed to generate capital inflows even if the domestic rental rate is initially lower than the world rental rate

systematic share price fluctuations after bankruptcy filings and the investors who drive them beginning in the 1990s firms often continue to trade on the major national exchanges after chapter 11 bankruptcy filings for bankruptcies filed from 1993 2003 we find that the more negative the filing period price reaction the more favorable the immediate post filing returns on average this reversal is not attributable to bid ask bounce it holds after controlling for other factors associated with post filing returns and it appears more attributable to the activities of large traders than to small traders supplementary tests reveal that the pattern of post filing returns differs significantly for bankruptcies filed in bull versus bear markets bankruptcies filed during the 1993 to 1999 bull market enjoy substantial but short lived reversals averaging one third of the filing period price plunge these reversals are inconsistent with efficient assimilation of the bankruptcy information in contrast we find no evidence of post filing reversals for bankruptcies filed from 2000 to 2003

investment decisions depend on portfolio disclosures a weekly database of retail money fund portfolio statistics is uneconomical for retail investors to observe so it allows direct comparison of disclosed and undisclosed portfolios this makes possible a more direct and unambiguous test for window dressing than elsewhere in the literature the analysis shows that funds allocating between government and private issues hold more in government issues around disclosures than at other times consistent with the theory that intermediaries prefer to disclose safer portfolios cross sectional comparisons locate the most intense rebalancing in the worst recent performers money managers are typically required to disclose their portfolios on prearranged dates whether investors receive new information depends on whether managers are influenced by the disclosure requirement managers can ignore the disclosure schedule when they invest in which case the disclosed portfolios will be unbiased albeit noisy estimates of their investing strategies alternatively they can plan their investing around the schedule by moving briefly into and out of the portfolios they prefer to disclose thereby reducing or destroying the power of the disclosures to reveal anything meaningful the goal of this paper is to establish which scenario best describes the behavior of money market mutual fund managers the idea that portfolio weights interact with disclosure dates surfaces now and again in the academic and trade literature surviving on circumstantial evidence rather than direct observation the odd behavior of asset prices around common disclosure dates particularly the end of the year comprises

trade in producer services a heckscher ohlin approach trade in services has become topical but little theory has been developed this paper assumes that one commodity and the services of capital are tradable and examines the traditional trade results service trade can produce the same equilibrium as commodity trade but substantial differences exist depending on whether the tradable commodity is capital or labor intensive tariffs on either commodity have the same commodity price effects and will always increase the welfare of the immobile factor labor factor income taxes can also affect trade patterns when both goods and capital services are tradable there is an indeterminacy in trade patterns and tariffs while reducing commodity trade may not reduce welfare

agents watching agents evidence from pension fund ownership and firm value abstract this paper examines the valuation effects associated with the incentive structures of different types of institutional investors using the ownership levels of public and private pension funds in a firm the results suggest that institutional monitoring is associated with valuation effects when both observable and unobservable aspects of the relationship between institutions and firms are taken into account moreover the valuation effects vary according to the objective functions of institutions administrators thus other shareholders do not necessarily benefit from relationships between institutions and managers and they could be hurt when the institutional agents watching firm agents have conflicts of interest with other shareholders

capital and technology movements and economic welfare economists have long valued capital mobility as an aid to international efficiency robert mundell has shown that under certain conditions the capital movement induced by tariffs on goods will substitute for trade and enable the tariff impeded international economy to reach essentially the same equilibrium as would a completely free international economy it will also except possibly for the case when the optimal tariff is non zero benefit both countries but if perfect unlimited capital mobility is a good thing for the borrowing country it does not follow as this paper demonstrates that any limited amount of capital mobility however small is a good thing if the capital movement is due to discrepancies in returns due solely to a tariff then a small amount of capital inflow will actually diminish welfare in the recipient country thus countries which take a few cautious steps toward liberalization of capital flow may find their welfare diminished this conclusion is related to the intuitive notion that perhaps it might not be a good idea to allow only a few foreign investors to reap high rates of return in capital short countries if foreign investment is allowed enough should be allowed to depress the rate of return so that excessive profits are not taken otut of the country by a few privileged investors on the other hand however this paper shows that if differences in returns are due to a technological advantage in the capital importing country so that the country with initially high return to capital nonetheless exports the capital intensive good and if these differences in returns are accompanied but not caused by tariffs then even short hesitant steps toward liberalization of capital inflow will improve the borrowing country s welfare this paper also shows that the home country s welfare may be improved or diminished by importing the advanced country s technology when the home country levies a tariff and pays royalties for the technology the critical point is that a movement of technology may either increase or diminish economic welfare depending on whether the technological progress is of the capital saving type or of the labor saving type in the fixed production coefficients case in the same case when the technological progress is hicksian neutral technology inflow will reduce or have no effect on the home country s economic welfare depending on whether the foreign country s technological progress occurs in the home country s inmport competing or export industries similarly capital or technology inflow will never increase the borrowing country s welfare when the country specializes completely in a single industry some of these results should be modified when we treat the possibility that changes in factor prices alter factor proportions

welfare gains from capital inflows under import quotas abstract the presence of tariffs was assumed in the literature which examined the effect of additional foreign investment on the welfare of the host country in the small country setting however this paper analyzes the case of import quotas and shows that additional inflows of foreign capital improve the host country s welfare when import quotas are kept constant

tariff induced capital inflow and welfare under variable returns to scale abstract this paper extends recent studies on tariff immiserization in the presence of internationally mobile sector specific capital to include the possibility of non constant returns to scale it is shown that brecher and diaz alejandro s 1977 proposition does not necessarily hold that is under certain conditions tariff induced capital inflow improves the host country s welfare even if the foreign capital receives the full untaxed value of its marginal product

investor attention overconfidence and category learning abstract motivated by psychological evidence that attention is a scarce cognitive resource we model investors attention allocation in learning and study the effects of this on asset price dynamics we show that limited investor attention leads to category learning behavior i e investors tend to process more market and sector wide information than firm specific information this endogenous structure of information when combined with investor overconfidence generates important features observed in return comovement that are otherwise difficult to explain with standard rational expectations models our model also demonstrates new cross sectional implications for return predictability

strategic interactions and portfolio choice in money management theory and evidence the author study portfolio choice of strategic fund managers in the presence of a peer based under performance penalty while the penalty generates herding behavior correlated trading among managers is exacerbated when a strategic setting is considered the equilibrium portfolios are driven by the least restricted manager who may vary according to the realization of returns the author compare model predictions to evidence from the colombian pension fund management industry where six asset managers are incharge of portfolio allocation for the mandatory contributions of the working population these managers are subject to a peer based under performance penalty known as the minimum return guarantee mrg the author study trading behavior by managers before and after a change in the strictness of the mrg in june 2007 the evidence suggests that a tighter mrg results in more trading in the direction of peers a behavior that is more pronounced for under performing managers is how that these findings areconsistent with the qualitative and quantitative predictions of the theoretical model

mutual fund tournaments the sorting bias and new evidence previous findings regarding the risk shifting behavior of mid year underperforming mutual fund managers are mixed in this article i show that this is due to a sorting bias which is caused by the sorting of first half risk levels when establishing relative mid year performance even without risk shifting behavior mean reversion of these sorted risk levels results in the detection of tournament behavior after correcting for this bias i find evidence supporting the hypothesis that first half underperforming managers increase portfolio risk during the second half of the year and that this tournament behavior is not dependent on first half market conditions the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

anomalies or illusions evidence from stock markets in eighteen countries abstract this paper examines five seasonal patterns in stock markets of eighteen countries the weekend turn of the month end of december monthly and friday the thirteenth effects we find a daily seasonal in nearly all the countries but a weekend effect in only nine countries interestingly the daily seasonal largely disappears in the 1980s the last trading day of the month has large returns and low variance in most countries many countries have large december pre holiday and inter holiday returns the january returns are large in most countries and a significant monthly seasonal exists in ten countries

the home bias is here to stay over the last 15 years dramatically decreasing foreign investment costs have not reduced the home bias we show that the home bias induced by a given cost is proportional to the factor 1 where is the average correlation between markets this factor is very sensitive to the correlation especially when the correlation is high empirically correlations have been steadily increasing from 0 4 in the 90 s to about 0 9 today thus the decreasing extra costs are increasingly magnified explaining the persistence of the home bias and predicting its continuation

on the effects of barriers to international investment a simple model is presented in which it is costly for domestic investors to hold foreign assets the implications of the model for the composition of optimal portfolios at home and abroad are derived it is shown that all foreign assets with a beta larger than some beta plot on either one of two security market lines some foreign assets with a beta smaller than are not held by domestic investors even if their expected return is increased slightly while it is obviously not true that asset markets are completely segmented between countries there is evidence of barriers to international investment although reality seems to lie in that grey area between complete segmentation and no segmentation at all most international asset pricing models are concerned with the extreme case of no barriers to international investment no effort seems to have been made to study the effect on portfolio choice of such barriers which make it costly to hold foreign securities as opposed to domestic securities but which do not in general render international diversification so onerous that investors avoid foreign securities completely casual empiricism suggests that models without barriers to international investment should be suspect those models cannot explain why it appears that in every country investors on average hold more domestic securities than would be required if they held the world market portfolio 2 this paper constructs a model of international asset pricing in which there is a cost associated with holding either long or short risky foreign securities for the sake of simplicity in most of the paper we assume that while domestic investors face barriers to international investment foreign investors face no such barriers it turns out that nothing significant is lost with such an assumption the main conclusions of this paper for the case in which foreign investors face no barriers to international investment are 1 in the presence of barriers to international investment some risky foreign

preferred habitat for liquidity in international short term interest rates abstract risk shifting window dressing and a preferred habitat for liquidity have been offered as possible explanations as to why us money market rates are higher before the year end than afterwards the two hypotheses differ in the timing of the rate decline at the year end and the evidence on the timing of the decline supports the preferred habitat hypothesis in us money markets this paper extends this line of research to the behavior of international short term interest rates at year ends and quarter ends using london interbank offer rates libor for 11 different currencies the results suggest that the behavior of libor for five currencies the us dollar euro japanese yen swiss franc and german mark is consistent with year end or quarter end preferred habitats for liquidity other currencies do not demonstrate consistently distinct patterns in turn of the year and turn of the quarter yields none of the results provides any support for risk shifting window dressing

inheritance and labor supply using data from the michigan panel study of income dynamics and from federal estate tax returns this paper investigates the labor disincentive caused by inheritance the results are of interest for several reasons whether or not inheritances are a strong labor disincentive figures prominently in the controversy surrounding the relative importance of inheritances and life cycle savings as sources of u s wealth also the size of the disincentive is important in determining the relationship between inheritance and inequality our results indicate that inheritances do not lead to large reductions in the labor supply of men and married women family consumption increases after an inheritance but again the effect is small

revisiting the stolper samuelson and rybczynski theorems with production externalities by using duality theory this paper reexamines the validity of the stolper samuelson and rybczynski theorems with intra and or interindustrial externalities in particular the author states conditions for the validity of both theorems in terms of the patterns of production externalities and price output responses this paper also examines the second and third assumptions of r w jones 1968 to show that they are equivalent without interindustrial externalities with the assumption the normal price output response is a necessary and sufficient condition for the validity of the theorems while without it the normal price output response is a necessary condition

portfolio preferences of foreign institutional investors the authors examine the relationship between foreign investment and the attributes of emerging market countries and firms in which investment is made their findings indicate that countries with higher levels of economic development and floating exchange rate regimes tend to have greater ability to obtain foreign capital after controlling for the country s level of economic development they find that firms in countries with stronger shareholder rights and legal framework attract more foreign capital the authors also find that foreign institutions allocate more of their assets to firms with better corporate governance after controlling for other country and firm attributes the main firm level measures of corporate governance are derived from accounting quality variables their results imply that steps can be taken both at the country and the firm level to create an environment conducive to foreign portfolio investment the analysis is based on a unique dataset consisting of equity positions of u s mutual funds in emerging markets

trade factor prices and the gains from trade with increasing returns to scale existing analyses seem to suggest that national increasing returns to scale are not a very useful tool for analysing trade owing to problems such as multiple equilibria and the tendency towards complete specialization the purpose of this paper is to construct a model in which there are in fact determinant relationships among country size the direction of trade the gains from trade and international factor price differences in the model differences in country size determine the direction of trade which in turn determines factor price differences and limits the possible distribution of the gains from trade commerce international prix des facteurs de production et les gains de l change dans un contexte de rendements croissants a l echelle les analyses conventionnelles semblent suggerer que les rendements croissants h l 6chelle au niveau national ne constituent pas une avenue prometteuse dans l analyse du commerce international parce que de tels rendements creent une presomption en faveur de la specialisation complete et conduisent a des situations d 6quilibres multiples le but de ce m6moire est de construire un mod le dans lequel il existe des rapports determinants entre la dimension du pays la direction des 6changes les gains de l echange et les differentiels internationaux entre les prix des facteurs de production dans ce mod le les differences entre les pays en termes de dimension d6terminent la direction du commerce international laquelle d6termine le differentiel entre les prix des facteurs de production et limite l eventail des r6partitions possibles des gains de l echange

trade and investment with constant and increasing returns to scale it has been well known since the seminal paper by mundel that in a heckscher ohlin model with constant returns to scale factor flows can be perfect substitutes for com modity trade this paper extends the analysis to differentiate between factor movements and investment and considers the possibility of trade and investment occurring simultaneously the analysis is carried out in models with constant and increasing returns to scale in the crs model it is shown that it is important whether the returns to capital are repatriated in terms of commodity x or commodity y the country well endowed with capital could export the labour intensive good and generally the pattern of trade cannot be predicted by endowment differences between countries with both investment and trade tariffs need not produce a welfare loss with irs it is shown that there can be no presumption as to the direction of investment in the no trade world trade patterns however are predictable as investment will be after trade has taken place thus the direction of investment may depend on whether trade or investment occurs first

stress testing the equity home bias a turnover analysis of eurozone markets abstract shifts in equity turnover happen on and around holidays because rationally bounded investors become distracted their pattern reveals a persistent equity home bias even in the eurozone a stress test case for the survival of this bias given the high level of economic and financial development and integration in this area the bias is greater for small caps because investors are reluctant to hold this class of foreign asset our study corroborates calendar anomalies in trading volumes but refutes the hypothesis regarding turnover sensitivity to stock returns common in the empirical and theoretical literature based on investor heterogeneity and short sale constraints our results reveal vanishing cost asymmetries in taking long rather than short positions

of tournaments and temptations an analysis of managerial incentives in the mutual fund industry we test the hypothesis that when their compensation is linked to relative performance managers of investment portfolios likely to end up as losers will manipulate fund risk differently than those managing portfolios likely to be winners an empirical investigation of the performance of 334 growth oriented mutual funds during 1976 to 1991 demonstrates that mid year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid year winners furthermore we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time

window dressing by pension fund managers this paper takes a first look at investment strategies of managers of 769 pension funds with total assets of 129 billion at the end of 1989 the data show that managers of these funds tend to oversell stocks that have performed poorly relative sales of losers accelerate in the fourth quarter when funds portfolios are closely examined by the sponsors this result supports the view that fund managers window dress their portfolios to impress sponsors and suggests that managers are evaluated on their individual stock selections and not just aggregate portfolio performance this abstract was borrowed from another version of this item

the turn of the year effect and tax loss selling by institutional investors prior studies attribute the turn of the year effect whereby small capitalization stocks earn unusually high returns in early january to tax loss selling by individual investors and window dressing by institutional investors my results suggest that a significant portion of the effect on turn of the year returns that prior studies attribute to window dressing is actually attributable to tax loss selling by institutional investors among small capitalization stocks i find that institutional investors with strong tax incentives and weak window dressing incentives realize significantly more losses in the fourth quarter than in the first three quarters of the calendar year and that their fourth quarter realized losses have a significant impact on turn of the year returns a one percentage point change in these institutional investors fourth quarter realized losses scaled by a firm s market capitalization results in an increase of 47 basis points in the firm s average daily return over the first three trading days of january which represents a 46 percent change for the mean firm

marginal tax rates and income inequality in a life cycle model in this paper we perform computational counterfactual experiments to examine the quantitative impact of marginal tax rates on the distribution of income our methodology builds on previous simulation models developed by auerbach and kotlikoff and fullerton and rogers and uses an algorithm that allows us to examine marginal tax rate structures in their literal form we find that distortions associated with particular marginal tax rate structures have sizable effects on income inequality in a reasonably quantified life cycle setting in our baseline experiments the change in steady state income inequality under 1989 u s income tax rates vis a vis 1984 rates is about half as large as the change actually seen in the data over those two years when measured in terms of a monetary metric derived from gini coefficients

on relative performance contracts and fund manager s incentives abstract for pension schemes mutual funds banks and other financial intermediaries large portfolio decisions are increasingly delegated to fund managers recently there has been growing concern that these managers seem to adopt extremely similar investment strategies one possible explanation for this phenomenon may be found in reward schemes based on relative performance we show how relative performance reward schemes may arise as optimal contracts our focus is the fund owners fund manager relationship in which the manager before making a portfolio decision on behalf of the owners may acquire at some cost information that is not available to the owners payment schemes based on relative performance afford the owners tighter control of their manager s activities however if two managers of different funds both accept contracts that depend on their relative as well as absolute performances then there may exist equilibria in the managers subgame that result in undesirable outcomes for the owners

estimating intertemporal labour supply elasticities using structural model in this paper the author proposes empirical models where both the intertemporal substitution elasticity and the elasticities measuring the impact of different wage profiles are estimated taking into account the restrictions derived from utility maximization she considers models assuming a stone geary utility function and also a constant elasticity of substitution across periods function the data used are a sample of men from the michigan panel of income dynamics her estimates support the low intertemporal substitution elasticity found in previous studies the estimates for the uncompensated elasticities are also small copyright 1989 by royal economic society

intertemporal substitution exogeneity and surprises estimating life cycle models for canada the authors estimate consumption and labor supply models for canada using u s variables as instruments instead of lagged canadian variables the results suggest that the endogeneity of lagged variables has not been a serious problem in previous studies they also develop estimation methods for use when the agents information sets are unknown and the model contains the realization and the innovation of an endogenous variable the authors use the approach to estimate a labor supply model combining intertemporal substitution and job search and to estimate the labor supply and consumption responses to marginal utility of income changes induced by wage price and interest rate surprises

institutions and the turn of the year effect evidence from actual institutional trades abstract using a large proprietary database of institutional trades we investigate whether institutional investors drive the turn of the year toy effect institutions that engage in window dressing tax loss selling or risk shifting will contribute to the toy effect by selling small poorly performing stocks at the end of december and or buying those same stocks at the beginning of january we find abnormal pension fund selling in small stocks with poor past performance during the final trading days in december providing some support for the window dressing hypothesis however we find little evidence that institutional tax loss selling or risk shifting trading strategies contribute to toy returns furthermore stocks with no institutional trading around the year end exhibit considerably stronger toy return patterns than stocks in which institutions trade taken together our results suggest that institutions play a limited role in driving the toy effect

tax induced intra year patterns in bonds yields the ratio of the yields on short term tax exempt and taxable bonds exhibits a sawtooth pattern that is consistent with the impacts of tax deferments from dates on which interest payments are received to dates on which the resulting tax payments are paid the effect of the tax deferment at turns of calendar years does not differ appreciably from the effect at the turn of any other tax quarter investors with tax payment schedules that differ from that of the investor that is indifferent between investing in taxable and tax exempt bolnds may benefit from tax related timing strategies for investing in these bonds issuers may benefit from tax related timing strategies for scheduling interest payments

tariffs capital export and immiserizing growth a reply it would be wrong to infer from yeong her yeh 1983 that one can exclude the possibility of immiserization from capital export if exporters of capital earn abroad an amount equal to the value of marginal product of capital at world prices immiserization may occur both in the capital exporting and importing countries when the amount of capital transfer is limited

on the merit of equal pay performance manipulation and incentive setting abstract work performance is often difficult to assess thus leaving room for manipulation of commonly used metrics we created a laboratory workplace in which we can precisely assess both work performance along with manipulation activities using two independent experiments we show that whenever pay for performance is used manipulation is pervasive leading to both a waste of organizational resources and a weakening of incentives by contrast paying organizational members equally effectively deters manipulation attempts leading to higher organizational production

the theorems of international trade with factor mobility abstract this paper addresses the relation between goods trade and international factor mobility in general terms the basic theorems of international trade suitably interpreted are shown to hold in their strong versions if the number of international markets for goods and factors is at least as large as the number of factors the crucial dimensionality issue is hence not the relative number of goods and factors per se but the number of international markets relative to the number of factors only the price version of the heckscher ohlin theorem fails to be essentially preserved by this condition

home bias at the fund level this paper presents new stylized facts on the distribution of the home bias at the fund level we find i a large heterogeneity in the degree of home bias across mutual funds ii a positive correlation between the size of funds and home bias and iii a positive correlation between the size of funds the number of foreign countries and the number of sectors in which they invest these facts constitute a challenge for existing theories this abstract was borrowed from another version of this item

accounting year end dispersion and seasonality in the japanese corporate bond market using monthly yield data on straight bonds this article investigates seasonality in the japanese corporate bond market a statistical examination of spreads between the yield of each bond and a bond market index reveals that the yield spread consistently decreases from april to august whereas it increases from september to december because accounting year ends for most investors in japan are concentrated in either march or december this seasonality supports the hypotheses of tax loss selling and window dressing moreover the seasonality becomes more pronounced as the debt rating declines consistent with the findings in previous studies investigating the us bond market

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

sovereign wealth funds the norwegian experience sovereign wealth funds have rapidly become significant international institutions the performance of funds varies substantially across countries but comprehensive and systematic analyses of funds have been hampered by the lack of transparency of most funds the relative transparency of the norway fund allows us to do an econometric analysis of the fund s performance the record resembles that of a mutual fund that has taken on greater risk over time there is no evidence that the fund has disrupted foreign financial markets more than mutual funds do there remains a question as to whether the fund and its finance ministry have been effective agents for the norwegian citizens whose assets they are managing

the dependence between hourly prices and trading volume this study provides evidence on joint characteristics of hourly common stock trading vol ume and returns on the new york stock exchange average volume traded shows signifi cant differences across trading hours of the day and across days of the week average returns differ across hours ofthe day and to some extent across days ofthe week there is a strong contemporaneous relation between trading volume and returns and also a rela tion between trading volume and returns lagged up to four hours furthermore the trading volume returns relation is steeper for positive returns than for nonpositive returns

a reconsideration of the welfare economics of a free trade zone abstract this paper presents a model of a free trade zone which incorporates the fact that such zones are often established by government subsidies designed to promote non traditional exports in our model the condition is derived under which the establishment of a free trade zone can increase welfare regardless of the relative factor intensity of a zone based industry however the relative factor intensity of a free trade zone plays a crucial role in determining the change in welfare following economic growth and foreign investment

marshallian stability long run equilibrium and the pattern of specialization under factor market distortions in the pure theory of international trade abstract using a simple general equilibrium small open economy model we show that the principal comparative statics paradoxes under factor market distortions disappear if the equilibrium is marshallian stable and that the latter holds if it is a stable long run equilibrium under capital adjustment

should export share requirements be implemented under quota protection in this paper the authors develop a model to analyze the effects of export share requirements when a quota is in place they show that when foreign capital is located in specific economic activity zones identified with the importable sector an increase in export share requirements reduces welfare owing to the price induced higher payments to foreign capital

estimating life cycle labor supply tax effects we present an econometrically tractable life cycle labor supply model for panel data including intertemporally progressive taxes on uncertai wage and nonwge incomes our two stage fixedeffects generalized method of moments approach first extimates intretemporal and then intertemporal preferences specification testing domonstrates the value of incorporating joint progressive taxation of labor and nonlabor incomes results for prime age men emphasize the roles played by hourly wage endogeneity worker specific effects the measure of the rate of pay and intemporal budget constaint nonseparability simulations indicate that recent tax reform while not self financing stimulated made labor supplied by about 3 percent and reduced deadweight loss about 16 percent

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

tariffs foreign capital and national welfare with sector specific factors abstract this paper examines the effect on national welfare of an endogenously determined inflow of foreign capital in the context of a well known model with sector specific inputs both for the case of unrestricted international trade and investment and in the presence of a tariff the second best problem of the optimal tax on foreign investment for a given tariff level is also investigated by application of the concept of shadow prices for primary factors in distorted open economies the results obtained are then related to analogous propositions derived previously for the standard heckscher ohlin model

herding on noise the case of johnson redbook s weekly retail sales data recent models of herding suggest that speculators may rationally trade on information unrelated to fundamentals when their trading horizons are short this study provides an empirical example where this appears to be the case johnson redbook s weekly retail sales figures predicted bond returns for a short time after a significant number of bond traders began purchasing and trading on the data the significant relationship between the data and bond returns disappeared just after the wall street journal started to report it mean while there was little or no change in the relationship between the data and retailers stock returns perhaps because the data have long been followed by retail stock analysts johnson redbook s original investor clientele

increasing returns and the specific factors model in recent years trade theorists have been increasingly interested in the role of economies of scale in international trade models yet the literature to date seems to lack a simple treatment of income distribution and related issues in the presence of economies of scale the present paper attempts to fill this gap by incorporating increasing returns to scale irs into the standard specific factors model trade theorists have begun to view the specific factors model as the favored vehicle for analyzing the economy wide effects of changes in commodity prices factor endowments and other exogenous variables the strongest case in favor of this model has been presented by neary 16 who argues that the model provides a rigorous general equilibrium foundation for partial equilibrium analysis as far as the supply side of the economy is concerned whereas with icm partial equilibrium reasoning will frequently be misleading 2 he further conjectures that icm is the source of all the paradoxes which are peculiar to international trade theory with the exception of those which arise from the failure to adopt first best policies in light of these views in the literature it is of interest to investigate how robust the predictions of the specific factors model are in the presence of economies of scale the analysis in this paper has important implications for the literature on irs as well as that on the specific factors model the more important of these implications may be summarized as follows first in a small open economy characterized by national intraindustry irs the condition for local dynamic stability is equivalent to the condition for a normal output price response 3 moreover in contrast with the findings of the irs models based on free intersectoral mobility of all factors as exemplified in herberg and kemp 6 this condition may be satisfied everywhere along the production possibilities frontier second stability of an equilibrium in the presence of irs is not sufficient to guarantee the validity of many results of the standard specific factors model responses of a small

increasing returns dynamic stability and international trade abstract a simple two country two good model in which economies of scale form the basis of international trade is presented it is shown that the larger country exports the good characterized by increasing returns and imports the good subject to constant returns a key feature of the paper is a comprehensive stability analysis it turns out that a normal output price response is necessary for d stability furthermore the marshall lerner condition must be satisfied in terms of the short run import demand elasticities for local dynamic stability finally if international factor mobility is permitted cross hauling of specific factors may be observed

marshallian stability and long run equilibrium in the theory of international trade with factor market distortions and variable returns to scale abstract we show that perverse comparative statistics paradoxes associated with factor market distortions and variable returns to scale vanish if the equilibrium is marshallian stable and that the equilibrium is marshallian stable iff it is a stable long run equilibrium

on the identification of frisch labor supplies abstract this paper determines which structural components of the intertemporal decision process can be recovered from labor supply estimates obtained using heckman and macurdy s approach

starting on the wrong foot seasonality in mutual fund performance abstract we document a systematic seasonal component in the aggregate underperformance of active mutual funds at the aggregate level active funds underperform the market and other passive benchmarks only in the first month of a quarter this intra quarter performance seasonality holds across fund sizes and investment styles the pattern is consistent with short term stock return reversal effects along with aggregate window dressing and to a lesser extent nav inflation practices around quarter ends we find marginal or no evidence of microstructure biases fund investor flows or cash distributions as sources of this seasonality our findings highlight new features of the active management underperformance puzzle

the effect of holdings data frequency on conclusions about mutual fund behavior abstract a number of articles in financial economics have used quarterly or semi annual mutual fund holdings data to test hypotheses about investment manager behavior this article reexamines four well known hypotheses in finance to determine whether the results of prior tests of these hypotheses remain valid when higher frequency monthly holdings data are employed the areas examined are momentum trading tax motivated trading window dressing and tournament behavior we find that the use of monthly holdings data rather than quarterly holdings data or in the case of tournament behavior holdings data rather than monthly return data change and in some cases reverse previous results this occurs because monthly holdings data capture a large number of trades missed by quarterly data 18 5 of the trades and permit a more precise estimation of the timing of trades

seasonality in daily bond returns this paper tests for seasonal patterns in corporate bond returns using the dow jones com posite bond average each seasonal pattern documented for equities is investigated for the period 1963 1986 corporate bond returns exhibit january turn of the year and weekof the month effects but no significant day of the week or turn of the month effects in contrast for the s p 500 stock index the turn of the month and day of the week ef fects are highly significant but the week of the month effect is less significant and the january and turn of the year effects are insignificant the behavior of an equity index constructed using companies in the bond index is similar to that of the s p except the turn of the year effect is significant

time varying return and risk in the corporate bond market this paper examines the pricing of exchange traded long term corporate bond portfolios observable instruments measuring the term structure of interest rates levels of bond and stock prices and a january dummy are found to predict excess returns on corporate bonds an intertemporal asset pricing model with changing expectations and unobservable factors is then estimated for the predictable excess returns using hansen s generalized method of moments the results show that a multibeta linear time varying model of con ditional expected returns with constant betas can successfully value corporate bonds spe cifically the tests indicate the presence of two time varying hedge portfolios the data however support a single latent variable specification when all january observations are excluded this result suggests the existence of a strong january seasonal in one of the latent variables

a note on tariff induced capital inflow and immiserization in the presence of taxation of foreign profits abstract this paper develops further the formal model of tariff induced capital inflow and immiserization presented by bhagwati 1973 we set down the necessary and sufficient condition under which immiserization will follow in addition it will be shown that the possibility of immiserization depends crucially on the initial amount of foreign capital as well as the rate of corporation tax on foreign capital

international capital mobility and commercial policy in an economic region abstract if two small countries are linked by capital movements then at low tariff levels any increase in capital flows induced by the commercial policy of either country will harm that country and benefit the other country while at low levels of international investment a tariff increase always harms the country levying the tariff nevertheless an increase in one country s tariff could benefit both countries by alleviating regional distortions in factor allocation if the countries liberalize factor movements within a customs union then conflicts must arise in choosing the level of the common external tariff

institutions and individuals at the turn of the year this article evaluates the tax loss selling hypothesis against the window dressing hypothesis as explanations for turn of the year anomalies we examine differences between securities dominated by individual investors versus those dominated by institutional investors and find that the effect is more pervasive in the former controlling for capitalization we find that in early january late december stocks with greater individual investor interest outperform underperform stocks with greater institutional investor interest these results hold for both stocks that previously appreciated in value and stocks that previously depreciated in value the results are most consistent with the tax loss selling hypothesis as an explanation for the turn of the year effect

accumulation of human capital in ldcs in the presence of unemployment this paper takes up an aggregative growth framework to study how human and physical capital evolve over time as households allocate their investment between the two assets in the context of unemployment of educated labor it develops a general equilibrium model of an economy with two sectors a composite good sector and a schooling sector where output is subject to increasing returns to scale a temporary equilibrium for this economy depends on the endowments of physical and human capital as well as on the output elasticity of returns to scale and the price elasticity of education the dynamic evolution of this economy is explored in terms of the accumulation of the two types of capital a rise in education subsidy increases the demand for education at the cost of investment in physical capital and could lead to inefficient substitution between skilled and unskilled workers in the long run copyright 1994 by the london school of economics and political science

changes in institutional ownership and stock returns assessment and methodology although the relation between quarterly changes in institutional investor ownership and contemporaneous stock returns is well documented the source of the relation remains unclear because institutional ownership data are unavailable at higher frequencies in this study we develop a method to generate estimates of higher frequency covariances when one variable is observed at lower frequencies e g quarterly changes in institutional ownership and monthly stock returns our method provides evidence that institutional trading has both temporary and permanent price effects and that the latter is associated with information effects

institutional trades and intraday stock price behavior abstract this paper examines the price effect of institutional stock trading using a unique data set that reports the transactions large and small of 37 large institutional money management firms the direction of each trade and the identity of the management firm behind each trade are known although institutional trades are associated with some price pressure we find that the average effect is small there is also a marked asymmetry between the price impact of buys versus sells we relate our findings to various hypotheses on the elasticity of demand for stocks the cost of executing transactions and the determinants of market impact although market capitalization and relative trade size influence the market impact of a trade the dominant influence is the identity of the money manager behind the trade