bounded price variation and rational expectations in endogenous switching model of the u s corn market a model that includes bounded price variation and rational expectations by producers is estimated for the u s corn market the resulting model specification is highly nonlinear though since the probability of market equilibrium must be determined endogenously unlike previous research the cross equation restrictions implied by the rational expectations hypothesis are incorporated in the bounded prices model by using fair and taylor s 1983 procedure for obtaining maximum likelihood estimates of nonlinear rational expectations models the resulting model is compared against a standard equilibrium model with naive expectations the results show the bounded prices model is a superior specification copyright 1989 by mit press

the effect of product introduction delays on operating performance this paper provides empirical evidence on the effect of product introduction delays on accounting based measures of operating performance based on a diverse set of 450 publicly traded firms that experienced product introduction delays we find that delays have a statistically significant negative effect on profitability depending on the method used to estimate abnormal performance the median abnormal decline in return on assets roa ranges from 2 70 to 3 44 over a three year period around the year of the delay announcement the median decline in sales over assets ranges from 5 92 to 10 99 and the median decline in return on sales ranges from 1 48 to 3 06 cross sectional regression analysis indicates that the impact of delays on abnormal roa is more negative for smaller firms and for firms that are more profitable before the delay furthermore the impact is more negative for firms that operate in industries that are larger and more profitable we also find a positive association between abnormal roa and abnormal stock price performance around the product introduction delay announcements

an empirical assessment of the residual income valuation model abstract this paper provides an empirical assessment of the residual income valuation model proposed in ohlson ohlson j a 1995 earnings book values and dividends in security valuation contemporary accounting research 11 661 687 we point out that existing empirical research relying on ohlson s model is similar to past research relying explicitly on the dividend discounting model we establish that the key original empirical implications of ohlson s model stem from the information dynamics that link current information to future residual income our empirical results generally support ohlson s information dynamics however we find that our empirical implementation of ohlson s model provides only minor improvements over existing attempts to implement the dividend discounting model by capitalizing short term earnings forecasts in perpetuity

the message in weekly exchange rates in the european monetary system mean reversion conditional heteroscedasticity and jumps weekly rates of the european monetary system ems vis a vis the deutsche mark from april 1979 to march 1991 are modeled as a combined ma 1 garch 1 1 jump process the moving average ma part accounts for mean reversion required for the rates to stay inside the target zone the generalized autoregressive conditional heteroscedasticity garch part accounts for changing volatility whereas the jump process models parity changes and other erratic movements using an adjusted pearson chi squared goodness of fit test we find similar results for the bernoulli and the poisson jump processes in those cases in which the bernoulli normal distribution does not pass the goodness of fit test a mixture of three normals does finally the ma 1 garch 1 1 bernoulli jump models are jointly estimated assuming a constant contemporaneous correlation matrix for the disturbances and a common jump probability for all the currencies

an analysis of the relation between the stewardship and valuation roles of earnings in this paper we seek a deeper understanding of how accounting information is used for valuation and incentive contracting purposes we explore linkages between weights on earnings in compensation contracts and in stock price formation a distinction between the valuation and incentive contracting roles of earnings in paul 1992 produces the null hypothesis that valuation earnings coefficients vecs and compensation earnings coefficients cecs are unrelated our empirical analyses of the relations between earnings and both stock prices and executive compensation data at the firm and industry levels over the period 1971 2000 rejects paul s 1992 hypothesis of no relation we also document an increasing weight over time on other public performance information captured by stock returns in the determination of cash compensation specifically we find that the incentive coefficient on returns is significantly higher in the second of two equal sample subperiods relative to the incentive coefficient on earnings

imperfect information and cross autocorrelation among stock prices i develop a model to explain why stock returns are positively cross autocorrelated when market makers observe noisy signals about the value of their stocks but cannot instantaneously condition prices on the signals of other stocks which contain marketwide information the pricing error of one stock is correlated with the other signals as market makers adjust prices after observing true values or previous price changes of other stocks stock returns become positively crossautocorrelated if the signal quality differs among stocks the cross autocorrelation pattern is asymmetric i show that both own and cross autocorrelations are higher when market movements are larger

nonlinear nonparametric nonessential exchange rate estimation a wide variety of empirical exchange rate mo dels have been estimated over the years but despite the considerable energies that have been devoted to this work the economics profession has remarkably little to show for itself there is little evidence that conclusively links the bilateral exchange rates of typical oecd countries to fundamental macroeconomic determinants of exchange rates such as money output relative prices or interest differentials coefficient estimates are notoriously unstable and frequently mis signed compared with theoretical predictions exchange rate equations do not fit particularly well and forecast no better than the simplest naive alternatives recently a new class of exchange rate models was introduced by paul krugman 1988 these models provide a potential reason for the poor performance of traditional exchange rate models because they are nonlinear if the exchange rate actually depends in a nonlinear way on exogenous macroeconomic fundamentals linear exchange rate models may work poorly even though the exchange rate is closely linked to fundamentals in this paper we provide a brief sketch of some of this work as well as some preliminary evidence on the actual performance of these nonlinear models in our empirical analysis we use a nonparametric estimator that can handle a wide variety of nonlinear phenomena we examine fixed exchange rate regimes where nonlinearities should be quite easy to detect however we do not find strong empirical support for the hypothesis that the incorporation of nonlinear effects significantly improves models of exchange rate determination in section i we briefly review the theoretical literature on nonlinear target zone exchange rate models linking this work to the tests for intrinsic bubbles we draw heavily on recent papers by kenneth froot and maurice obstfeld 1989a b our methodology and data are discussed in section ii section iii contains new empirical tests for nonlinearities in exchange rate models

the effects of inflation news on high frequency stock returns previous research using daily returns finds conflicting evidence about the relationship between unanticipated inflation news and stock returns we explore the relationship by looking at the response in minutes and trades of size based stock portfolios to unexpected changes in the regularly scheduled producer price index and consumer price index announcements in particular we answer the following three questions 1 do stocks respond to inflation news 2 what is the speed and path of that response 3 is the response stable or does it vary with the economy the direction of the news or time

information quality and market efficiency the purpose of this paper is to analyze the optimal individual behavior in acquiring infor mation and to determine the amount of information incorporated in a stock at equilibrium in the presence of a cost schedule in acquiring information our paper shows that at equi librium the cost to acquire information that is not already incorporated in the price de pends only on the representative investor s risk preferences it follows that the marginal information costs are the same across all stocks at equilibrium even though the stock s information costs schedules may differ this suggests that the prices of small stocks may not incorporate all publicly available information this paper also provides empirical evi dence that newspapers publication of publicly available information can affect the stock prices

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

target zones and exchange rate dynamics this paper develops a simple model of exchange rate behavior under a target zone regime it shows that the expectation that monetary policy will be adjusted to limit exchange rate variation affects exchange rate behavior even when the exchange rate lies inside the zone and is thus not being defended actively somewhat surprisingly the analysis of target zones turns out to have a strong formal similarity to problems in option pricing and investment under uncertainty

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

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

market valuation and deregulation of electric utilities abstract this study examines the effect of ongoing deregulation in the electric utility industry on the relation between market value book value and earnings we predict that deregulation decreases increases the relative importance of book value earnings in explaining price we test this prediction by examining changes in the value relevance of book value and earnings during the 1988 1996 time period for a sample of large investor owned electric utilities we find that the regression coefficients and incremental explanatory power related to book value earnings have decreased increased over this time period these results are generally robust in sensitivity analysis

exchange rate volatility and u s monetary policy an arch application this paper examines the effect of shifts in u s monetary policy regimes on the stochastic process that generates foreign exchange rates to account for the observed behavior of the data record the author models nominal dollar exchange rates as univariate autoregressive conditional heteroskedastic processes he then tests the stability of this process across u s monetary policy regimes for four of the currencies in the sample accounting for regime shifts improves the fit of the model regime shifts also appear to diminish the degree of persistence of variance making it less likely that exchange rates are integrated in variance copyright 1989 by ohio state university press

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

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

an empirical examination of information differences of opinion and trading activity abstract we investigate the relations between trading volumes and our proxies for information flows and divergences in opinions we view s p 500 index futures open interest as a useful proxy for divergences of traders opinions and find that volumes are higher on days when open interest increases than on days with declines volume in individual equities is more closely related to firm specific information flows while equity basket volume is more closely associated with market information this differential impact is greatest for small capitalization stocks where market wide news has no explanatory power

modelling probabilities of devaluations i show why when the realized rates of depreciation within the exchange rate band are regressed on a given information set and conditioned on ex post actual no realignment a la drift adjustment a peso problem is still encountered the reason is that the frequency of realignments in the data need not be the same as the frequency of the even small subjective probabilities that a realignment may take place i suggest an alternative approach to solve the peso problem and provide consistent estimates my estimates of the expected realignment rates are greater than the ones obtained using the drift adjustment method

the statistical distribution of exchange rates empirical evidence and economic implications the abundant evidence that changes in exchange rates have distributions with fatter tails than the normal distribution has led researchers to consider non normal distributions including the student the stable paretian and mixtures of distributions this paper compares the empirical fits of three non normal candidates and the normal distribution for daily changes in the logarithms of exchange rates using maximum likelihood estimation of the parameters and chi square goodness of fit tests the student and mixture of two normals provide the best fits but there is evidence that the distribution parameters may vary over time

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

cross asset speculation in stock markets in practice heterogeneously informed speculators combine private information about multiple stocks with information in prices taking into account how their trades influence the inferences of other speculators via prices we show how this speculation causes prices to be more correlated than asset fundamentals raising price volatility the covariance structure of asset fundamentals drives that of prices while the covariance structure of liquidity trade drives that of order flows we characterize how speculator profits vary with the distributions of information and liquidity trade across assets and speculators and relate the cross asset factor structure of order flows to that of returns

an interpretation of recent research on exchange rate target zones how do exchange rate bands work compared to completely fixed rates between realignments or more precisely what are the dynamics of exchange rates interest rates and central bank interventions within exchange rate bands does the difference between bands and completely fixed exchange rates matter and if so which of the two arrangements is best or more precisely what are the tradeoffs that determine the optimal bandwidth this article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones with emphasis on main ideas and results and without technical detail

permanent versus transitory components of annual earnings and estimation error in earnings response coefficients abstract previous research has generally estimated unexpected earnings as the change relative to the previous year assuming that shocks to annual earnings are purely permanent in the presence of transitory components of annual earnings we predict that using earnings changes as a proxy for unexpected earnings causes earnings response coefficients to be understated and the estimation error to be negatively cross sectionally correlated with persistence the negative correlation causes the association between earnings response coefficients and persistence to be overstated we use the ima 1 1 model to capture transitory components of annual earnings and obtain results that are consistent with our predictions

accounting earnings and future economic rents an empirical analysis abstract this study reexamines competition cost structure and growth opportunities effects on earnings response coefficients and extends this literature in several ways first it presents a more refined theoretical motivation for investigating competition and cost structure effects second it introduces new economic factor proxies that confirm prior findings with respect to competition but differ from prior findings with respect to cost structure and growth opportunities overall the evidence suggests that accounting earnings reflect information about future economic rents generated by firms assets in place the evidence also suggests contrary to prior studies that accounting earnings are not very informative about firms growth opportunities

can exchange rate predictability be achieved without monetary convergence evidence from the ems abstract the evidence presented here suggests that the european monetary system has indeed coincided with more predictable exchange rates nominal and real between france germany and italy but if increased monetary policy coordination is the main explanation then it is surprising that the conditional variance of real interest differentials between these countries does not appear to have fallen unless the disturbances are mostly real in which case fixed rates are suboptimal high onshore offshore interest differentials for franc and lira assets and the very slow convergence of intra ems inflation rates suggest that capital controls have played a large role

time varying parameters and the out of sample forecasting performance of structural exchange rate models varying parameter estimation techniques based on recursive application of the kalman filter are used to improve the predictive performance of a class of monetary exchange rate models i find that allowing estimated parameters to vary over time enhances the models forecasting performance for the dollar pound dollar mark and dollar yen exchange rates contrary to earlier results in the literature ex post forecasts for the dollar mark rate compare favorably with those obtained from the naive random walk forecasting rule

the informational role of stock and option volume this article analyzes the intraday interdependence of order flows and price movements for actively traded nyse stocks and their chicago board options exchange cboe traded options stock net trade volume buyer initiated volume minus seller initiated volume has strong predictive ability for stock and option quote revisions but option net trade volume has no incremental predictive ability this suggests that informed investors initiate trades in the stock market but not in the option market on the other hand both stock and option quote revisions have predictive ability for each other thus while information in the stock market is contained in both quote revisions and trades information in the option market is contained only in quote revisions copyright 2002 oxford university press

stock market structure and volatility the procedure for opening stocks on the nyse appears to affect price volatility an analytical framework for assessing the magnitude of the structurally induced volatility is presented the ratio of variance of open to open returns to closeto close returns is shown to be consistently greater than one for nyse common stocks during the period 1982 through 1986 tbe greater volatility at the open is not attributable to the way in which public information is released since both the opento open return and the close to close return span the same period of time instead the greater volatility appears to be attributable to private information revealed in trading and to temporaryprice deviations induced by specialist and other traders the implied cost of immediacy at the open is significantly higher than at the close other empirical evidence in this article documents the volume of trading at the open the time delays between the exchange opening and the first transaction in a stock the difference in daytime volatility versus overnight volatility and the extent to which volatility is related to trading volume

information and index arbitrage a random cash futures basis is derived in a dynamic multimarket learning game with sequential information shocks and strategic arbitrageurs who trade to exploit gaps in the basis statistical properties of the authors theoretical basis are derived both with and without index arbitrage the authors find that basis volatility a measure of intermarket mispricing may initially increase even as individual prices become more precise and that arbitrage reduces basis volatility the model is also used to analyze regulatory issues such as the possible impact of circuit breakers on the quality of the trading process copyright 1994 by university of chicago press

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

an analysis of the determination of deutsche mark french franc exchange rate in a discrete time target zone model following krugman 1 99 i recent models of exchange rates within a target zone have paid particular attention to the effect of the band on exchange rate expectations see for example miller and weller i 989 and froot and obstfeld i 989 the basic idea is that the band as long as it is credible has a stabilising effect on the exchange rate not only because the authorities when necessary would control the fundamentals in order to contain the movements of the exchange rate but also because expectations are influenced by the band these studiesby employing the continuous time stochastic setting of regulated brownian motion familiar from option pricing theory cf merton 1973 have also made a significant contribution to the theoretical analysis of the exchange rate the advantage of the continuous time framework is that in a multiperiod setting it makes the analysis of bands algebraically more manageable than a discrete formulation to illustrate the approach consider the following simple model from the literature

market behavior in a clearing house one of the most fundamental market mechanisms is the clearing house where orders are accumulated over time and the market is cleared periodically the issue addressed in this study is the statistical behavior of the market under this neutral mechanism in the framework of a tractable stochastic model which captures the underlying uncertainties and indivisibilities in the demand and supply schedules applying renewal theory we derive closed form results for the behavior of prices and quantities and pursue the implications of the possibility of no trade and the multiplicity of market clearing prices

mixed diffusion jump process modeling of exchange rate movements this study demonstrates that the mixed diffusion jump process is superior to the stable laws or a mixture of normals as a model of exchange rate changes for the british pound french franc and the we st german mark relative to the united states dollar the parameter value s for the mixed diffusion jump process are dependent on the monetary policy regime in force in the united states with the estimates for the franc and mark being intertemporally similar but different from the pound copyright 1988 by mit press

target zones and realignments recent contributions emphasize that the presence of exchange rate target zones has important effects on the within band behavior of exchange rates when agents are forward looking the authors find that the implications of available models are inconsistent with european exchange rate data and they suggest that the frequent realignments occurring in the period they consider may be responsible for this they construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence copyright 1992 by american economic association

stochastic trends and jumps in ems exchange rates abstract in this paper we study the statistical properties of ems exchange rate returns our findings show that jumps time varying parameters and conditional leptokurtosis are pertinent features in the empirical distributions of ems exchange rate returns allowance for fat tails however tends to reduce the measured frequency of jumps in the distributions to more realistic proportions most successful in capturing the relevant features of ems exchange rate returns is a combined jump garch model with conditionally t distributed innovations jel f31

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

the impact of the degrees of operating and financial leverage on systematic risk of common stock the capital asset pricing model postulates that the equilibrium return on any risky security is equal to the sum of the risk free rate of return and a risk premium measured by the product of the market price of risk and the security s systematic risk in the capital asset pricing model beta as an index of systematic risk is the only security specific parameter that affects the equilibrium return on a risky security

on jump processes in the foreign exchange and stock markets exchange rates exhibit systematic discontinuities even after allowingfor conditional heteroskedasticity in the diffusion process the results are much more significant in theforeign exchange market than in the stock market which suggests differences in the structure of these markets finally this jump component is shown to explain some of the empirically observed mispricings in the currency options market the objective of this article is to analyze and compare the empirical distribution of returns in the stock market and in the foreign exchange market there are a number of reasons why a better understanding of the stochastic processes driving prices in these markets would be useful many financial models rely heavily on the assumption of a particular stochastic process while relatively little attention is paid to the empirical fit of the postulated distribution as a result models like option pricing models are applied indiscriminately to various markets such as the stock market and the foreign exchange market when the underlying processes may be fundamentally different the foreign exchange market for instance is characterized by active exchange rate man

some economic determinants of time series properties of earnings abstract the earnings time series literature in accounting focuses on the statistical characteristics of the processes which generate corporate earnings in order to further our understanding of earnings behavior this study investigates the question whether inter firm differences in these statistical characteristics autocorrelations and variances of earnings changes can be explained by economic factors various relationships between economic factors and earnings behavior are derived from the economic literature and examined empirically in this study findings indicate that autocorrelations and variability of annual earnings and earnings over equity changes are systematically associated with the following factors the type of product the height of industry barriers to entry a surrogate for degree of competition the degree of capital intensity operating leverage and the firm size

estimating the credibility of an exchange rate target zone abstract recent breakthroughs in the theory of exchange rate target zones have not been followed by similar contributions on the empirical side the drift adjustment method of evaluating the credibility of a target zone has become common practice however the estimates of the expected rate of depreciation inside the band do not model knowledge of the band in the agents information set in this paper a rational expectations limited dependent variable method to estimate the expected rate of depreciation is used to remedy this weakness in the case of the franc mark target zone with daily data covering a 4 year period we show that expected rates of devaluation of the order of 2 5 were still present in the early 1990s their reappearance in the autumn of 1992 may thus not be surprising

modeling heteroscedasticity in daily foreign exchange rates this article estimates autoregressive conditionally heteroscedastic arch and generalized arch garch models for five foreign currencies using 10 years of daily data a variety of arch and garch specifications a number of nonnormal error densities and a comprehensive set of diagnostic checks it finds that arch and garch models can usually remove all heteroscedasticity in price changes in all five currencies goodness of fit diagnostics indicate that exponential garch with certain nonnormal distributions fits the canadian dollar extremely well and the swiss franc and the deutsche mark reasonably well only one nonnormal distribution fits the japanese yen reasonably well none fit the british pound

cross sectional dependence and problems in inference in market based accounting research this paper provides a framework and some empirical evidence to evaluate the seriousness of problems in inference that arise in stockreturn based studies when the data are cross sectionally dependent the study is motivated on the grounds that statistical procedures designed to address such problems are often infeasible and even when they can be implemented they sometimes introduce other more serious difficulties thus researchers have frequently adopted an approach that ignores the cross sectional dependence e g ordinary least squares ols the objective of this paper is to help identify the contexts in which ignoring the dependence would lead to serious misstatement of significance levels cross sectional dependence in stock returns data is likely to exist when at least some of the returns are sampled from common time periods this would be the case in all studies of the reaction of stock prices to a

further evidence on exchange rate expectations abstract this paper considers a previously unexploited survey data set of exchange rate expectations which allows us to focus on differences between ems and dollar exchange rates we corroborate the earlier finding in the literature that exchange rate forecasts are not rational and that agents do not use all available information efficiently although extrapolative and adaptive expectations formation mechanisms describe non ems exchange rate expectations to a certain extent ems exchange rates forecasts seem to follow long run fundamentals more closely and would suggest that agents believe that ems exchange rate expectations undershoot their long run equilibrium values jel f31

accounting earnings and top executive compensation abstract this paper investigates the role of accounting earnings in top executive compensation contracts it provides evidence in support of the hypothesis that earnings based incentives help shield executives from market wide factors in stock prices the paper demonstrates that earnings reflect firm specific changes in value but are less sensitive to market wide movements in equity values as a result the inclusion of earnings based performance measures in executive compensation contracts helps shield executives from fluctuations in firm value that are beyond their control the hypothesis is shown to explain cross sectional variation in the use of earnings based incentives

an income strategy approach to the positive theory of accounting standard setting choice abstract this paper is designed to provide additional evidence on the positive theory of accounting policy choice by combining individual accounting principles into firm income strategies these strategies were the dependent variable in a probit analysis where the independent variables were size management compensation industry concentration ratio systematic risk capital intensity and the total debt to total asset ratio the results indicate that four of these factors size management compensation concentration ratio and the total debt to total asset ratio have a significant association with the choice of a firm s income strategy this test provides strong evidence consistent with the positive theory of accounting standard setting choice we also present evidence that smaller firms and or firms in less concentrated industries do not appear to make accounting policy choice decisions that are consistent with this theory

persistence in variance structural change and the garch model this article examines the persistence of the variance as measured by the generalized autoregressive conditional heteroskedasticity garch model in stock return data in particular we investigate the extent to which persistence in variance may be overstated because of the existence of and failure to take account of deterministic structural shifts in the model both an analysis of daily stock return data and a monte carlo simulation experiment confirm the hypothesis that garch measures of persistence in variance are sensitive to this type of model misspecification

asymmetric information and stock return cross autocorrelations abstract using an asset pricing model under asymmetric information we show that asymmetric lead lag patterns in stock returns cannot be solely explained by information asymmetry additional frictions are necessary to produce asymmetry in return cross autocorrelations

a comparison of stock market mechanisms i analyze a multi asset market under two trading mechanisms in the first the unrestricted system traders demand for each asset depends on all equilibrium prices and prices reflect the information contained in all order flows in the second the restricted system traders demand depends on the traded asset price and prices reflect single order flow information i show that informed traders use of multidimensional private information depends on the number of prices they observe and on the price formation process i then give conditions rendering the restricted system more efficient than the unrestricted system

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