optimal regulation under fixed rules for income distribution abstract it is by now well known that if arbitrary lump sum transfers are feasible then the optimal regulation of firms involves marginal cost pricing here we consider optimal regulation in an economy in which lump sum taxation is possible but the income distribution is in some sense fixed we show that under certain conditions production efficiency and marginal cost pricing are desirable in general however this need not be the case in an economy with increasing returns it is possible that the second best utility possibility frontier is strictly dominated by the pareto frontier and none of the marginal cost pricing equilibria lie on the second best frontier

panel evidence on the ability of oil returns to predict stock returns in the g7 area abstract most studies on the ability of oil returns to predict stock returns use time series data for multiple countries the data therefore have a panel structure yet oddly enough this structure is never really exploited in the estimation but researchers tend to instead rely on country by country application of existing time series methods this practice is wasteful because it does not explore all available information the present paper can be seen as a reaction to this the purpose is to reevaluate the existing empirical evidence for the g7 countries using state of the art panel data techniques the results show that for the panel as a whole lagged oil price returns has a significantly negative effect on current stock returns the evidence at the individual country level is less strong and varies depending on the extent to which the countries rely on oil import

sensitivity analyses of anomalies in developed stock markets abstract the literature on anomalies in developed stock markets produces no consensus on specification this study uses extreme bound analysis eba to evaluate the robustness of 15 stock return anomalies given data covering 16 developed markets from may 1984 to march 1999 two factors are sturdy according to the extreme decision rule in the panel design d p and momentum under a less stringent eba criterion long run lagged returns country risk and the january effect are also robust time series eba for individual markets produces one robust result according to relaxed decision rules across a majority of cases long run government bond yields

do employee spinoffs learn markets from their parents evidence from international trade abstract it is well established that employee spinoffs learn their parents technologies but little is known about their demand side learning we exploit the identification in international trade data of parent markets countries to investigate whether exporting employee spinoffs of exporting parents have an advantage in accessing their parents markets over exporting comparison firms well positioned to learn those markets at arm s length we find that controlling for the greater overlap of spinoffs with their parents export products at entry spinoffs access 51 percent more parent markets than exporting firms in the same 4 digit industries and municipalities as the parents this advantage shrinks monotonically with time becoming statistically insignificant four years after entry indicating that intrafirm learning provides spinoffs with a four year head start over learning at arm s length spinoffs do not overlap more than comparison firms with parent markets that the parents did not serve at spinoff entry providing evidence against the alternative hypothesis that product overlap inadequately controls for greater technological similarity of spinoffs to parents firm entry into parent markets predicted by spinoff status does not lead to entry into adjacent markets the following year

yield curves and international equity returns abstract this paper examines empirical evidence on the international transmission of shocks to financial asset markets the relationships between yield curves and risk premiums of stocks for eight industrialized countries are examined only the stocks of the three largest economies germany japan and the usa show negative risk premiums during periods preceded by the inverted yield curves of their respective government bonds this is not the case for stocks of the five smaller countries in the sample however four of the five smaller countries have negative risk premiums in periods preceded by inverted german or us yield curves this is consistent with the view that a world risk factor captured by major country yield curves affects the pricing of assets in smaller economies the consumption capm is unable to explain the phenomenon of the negative risk premiums in almost all cases the conditional covariance between consumption growth and the risk premiums is statistically indifferent from zero

stock market returns and inflation evidence from other countries this paper investigates the relation between common stock returns and inflation in twenty six countries for the postwar period our results do not support the fisher hypothesis which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one to one correspondence with expected inflation there is a consistent lack of positive relation between stock returns and inflation in most of the countries

banking sector development and interest rate volatility in emerging economies over the last decades macroeconomic stability is said to be one of the major concerns of emerging economies financial sector as a core of macroeconomic stability has been under close consideration of policy makers the relationship between interest rate uncertainty and banking sector development as one of the most important indicators of financial sector development especially for emerging economies has not received enough attention in the literature perhaps this article is the most comprehensive study that investigates the relationship between interest rate uncertainty and banking sector development for a large group of emerging economies to do this the short run and long run models using a bounds testing approach to cointegration for 12 emerging economies over the period 1980 2011 have been developed estimated results from all models indicate that interest rate uncertainty has significant effect on banking sector development in both short run and long run phenomena in the majority of countries

stock returns inflationary expectations and real activity this paper tests the fisher hypothesis that real stock returns are independent of inflationary expectations on data for the finnish economy a significant negative relationship is found when stock returns are regressed on the rate of inflation a possible explanation is that higher inflation may proxy a drop in the money demand induced by a lower growth in real activity which simultaneously implies a drop in expected future profits and thus a drop in stock prices to test this hypothesis actual growth in real activity is included in the regression equation for aggregate stock returns significant negative coefficients are however still obtained for expected as well as unexpected inflation it is further shown that these relations are quite insensitive to the specification of the expectations formation mechanism

on the inefficiency of two part tariffs the partial equilibrium literature on two part tariffs suggests that if a commodity is produced under increasing returns efficiency can be achieved through marginal cost pricing and a suitable choice of entry fees fixed charge which may vary from consumer to consumer we show that this partial equilibrium intuition cannot be extended beyond some special cases even with a consumer specific fixed charge it is possible that none of the equilibria yield pareto efficiency furthermore it may be impossible to achieve pareto efficiency through any specification of taxes which are levied solely to cover losses hotelling 1939 and lerner 1944 among others see for example the surveys by ruggles 1949 1950 argued that firms operating under increasing returns to scale should be regulated to equate their marginal cost to the price of the output and the resulting losses financed through lump sum taxes being concerned primarily with efficiency issues the proponents of the marginal cost pricing principle did not advocate any particular distribution of the lump sum taxes among the consumers after the ensuing debate see for example ruggles 1950 there seems to have been a general agreement that marginal cost pricing is necessary for efficiency while admitting this coase 1946 presented an illuminating analysis of the drawbacks of what he called the hotelling lerner solution and also proposed an alternative solution it will be useful to begin by briefly recalling coase s criticism of the hotelling lerner solution apart from the practical problem of collecting lump sum taxes he emphasized two distinct drawbacks of the hotelling lerner scheme he claimed that this solution would not necessarily guarantee efficiency in the sense that it might lead to a marginal cost pricing equilibrium in which a positive amount of the commodity was produced whereas it would be better not to produce the commodity at all this can be restated simply as the argument that in the presence of non convexities marginal conditions need not guarantee global optimality there may be several marginal cost pricing equilibria some efficient and some inefficient as such this phenomenon can hardly be ruled out coase s second objection to the hotelling lerner solution was that it could effectively alter the income distribution if for instance a lump sum tax was imposed on all the consumers but only some of them consumed the commodity produced by the firm operating under increasing returns to scale then there would effectively be a redistribution in favour of those who consumed this subsidized commodity it was natural to keep the issue of efficiency separate from that of equity and coase argued that the hotelling lerner solution

cost share equilibria a lindahlian approach abstract we offer a new formalization of lindahl s equilibrium notion for public goods which yields an endogenous theory of profit distribution in line with the benefit approach to taxation increasing returns in the production of public goods are not a priori excluded our equilibrium notion coincides with kaneko s ratio equilibrium for economies with only one public good by reinterpreting the commodity space the equilibrium concept can be applied to economies with purely private goods or with externalities in the pure private good case our concept singles out allocations that are efficient and where individual net payments agree with average cost

the relation between stock prices and inflationary expectations the international evidence this paper provides empirical evidence on the relation between stock returns and inflationary expectations for nine countries over the period 1971 80 the fisherian assumption that real returns are independent of inflationary expectations is soundly rejected for each major stock market of the world using interest rates as a proxy for expected inflation our data provide consistent support for the geske and roll model whose basic hypothesis is that stock price movements signal negative revisions in inflationary expectations finally a weak real interest rate effect was found for some of these countries

short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant in an innovative and provocative paper in this review eugene fama presents evidence which appears to be consistent with the joint hypothesis that the real rate of interest ignoring taxes is a constant and that the market for u s treasury bills is efficient in the sense of embodying rational expectations those findings are strikingly at variance with a long list of previous studies which seemed to support the view that the real rate of interest varies over time and can be related to economic variables such as real output monetary policy and so forth 2 the methodologies which lead to these contradictory conclusions are quite different previous studies had followed the lead of irving fisher by relating nominal interest rates to distributed lags on past rates of inflation 3 these distributed lags are generally interpreted as approximations to the market s expected rate of inflation and thus any remaining variation is attributed to variation in the real rate 4 fama s methodology on the other hand draws on the fact that the difference between the market interest rate and the subsequently observed rate of inflation the ex post real interest rate consists by definition of the ex ante real interest rate plus a pure forecasting error 5 the hypothesis of market efficiency implies that these forecasting errors must be serially random thus observing ex post real rates is equivalent to observing ex ante real rates with random measurement error these errors of course confound the problem of identifying variation in the ex ante real rate in this paper we will argue that the relative magnitude of these measurement errors is such that the tests carried out by fama were not powerful enough to reject the joint hypothesis that the ex ante real rate is a constant and expectations are rational more powerful tests which are presented in this paper using the same data do lead to rejection of that hypothesis of course rejection

on marginal cost pricing with given tax subsidy rules we provide an existence proof for generalized marginal cost pricing with given tax subsidy rules the novelty is that our approach allows for economic environments where all the generalized marginal cost pricing equilibria are inefficient in the aggregate an example is recalled in order to suggest how non pathological these environments are

employee spinoffs and other entrants stylized facts from brazil using a comprehensive linked employer employee database from brazil for the period 1995 2001 we are able for the first time to compare firms founded as employee spinoffs to new firms without parents and to diversification ventures of existing firms entering a new industry employee spinoffs are defined either as the director manager having moved from a parent in the same industry or as one quarter of the employees having shifted from a common parent depending on definition employee spinoffs account for between one sixth and one third of the new firms in brazil s private sector during this period regardless of definition size at entry is larger for employee spinoffs than for new firms without parents but smaller than for diversification ventures of existing firms similarly exit rates for employee spinoffs are less than for new firms without parents and comparable to those for diversification ventures of existing firms these results suggest that we can think of some part of a firm s productivity draw in the jovanovic 1982 model as embodied in the firm s employees and portable by them to a new firm

stock returns and output growth in emerging and advanced economies abstract this paper studies the correlation between output growth and lagged stock returns in a panel of emerging market economies and advanced economies it finds that the proportion of countries in which this correlation is significant is the same for emerging market economies as it is for advanced economies using yearly data and somewhat lower using quarterly data asset prices therefore seem to contain valuable information to forecast output also in emerging market economies moreover the paper finds that the strength of the correlation between output growth and lagged stock returns is significantly related to a number of stock market characteristics such as a high market capitalization to gdp ratio and less robustly english legal origin and the number of listed domestic companies and initial public offerings

firm spin offs in denmark 1981 2000 patterns of entry and exit abstract this paper adds large sample evidence on the extent to which the likelihood of business failure or success is related to relationships between parent firms and their off spring for this purpose we make use of an exhaustive matched employer employee data set covering the entire danish private sector in years 1981 to 2000 to study firm entry and exit special focus is on spin offs a particular group of small entrants which are founded by groups of persons originating from the same former workplace we estimate a multinomial logit model in order to examine which characteristics of the founders and the parent firms increase the probability of spinning off next we carry out a duration analysis of the subsequent transitions of the spin offs and compare their exit risks with those of other entrant firms which have less strong parent progeny relationships in terms of worker flows

rational expectations and macroeconomic forecasts the article presents extensive results from testing for bias and serially correlated errors in a collection of time series of quarterly multiperiod forecasts for six variables including real gnp growth inflation and unemployment the analysis covers responses by 79 frequent participants in economic outlook surveys conducted regularly since 1968 it shows much greater incidence of apparently systematic errors for inflation than for the other variables also the tests are more favorable to composite group forecasts than to most of the individual forecast sets

should asean 5 monetary policy makers act pre emptively against stock market bubbles stock market rises and asset price inflation in asean economies have raised the question of whether monetary authorities in these economies should act pre emptively against these rising trends to prevent impending financial crises using structural vector error correction models svecms which incorporate mixed data characteristics we examine the effects and interactions between monetary policy and stock market shocks for singapore malaysia thailand indonesia and the philippines the results suggest that monetary policy focused on the stock market detracts from price stability objectives in particular because containing a stock market bubble may inadvertently depress output and inflation

the association between financial accounting measures and real economic activity a multinational study abstract we investigate how cross country differences in financial accounting standards affect the relation between financial accounting earnings and real economic value relevant events that underlie those earnings based on previous research and economic theory we hypothesize that because of differences in legal systems and the demand for accounting information differences in legal protection for external shareholders and differences in the degree of tax conformity in our sample countries accounting earnings in the uk and the us will be more closely related to underlying economic activity than will accounting earnings in france and germany empirical results are generally consistent with our hypothesis

an examination of the relationship between australian industry equity returns and expected inflation this paper analyses the relationship between inflation and equity returns in australia over the period january 1974 to march 1996 analysis is based on monthly and quarterly data using value weighted equity indices at both the aggregate market and industry level three price indices the consumer price index cpi quarterly and the manufactured materials used index mmu and the manufacturing articles produced index map both monthly and quarterly are used to measure inflation results provide little evidence of the statistically significant negative relationship observed in the us for the full study period analysis is also conducted on three subperiods monetary targeting july 1976 january 1985 checklist approach february 1985 december 1989 and anti inflation january 1990 march 1996 at the market level the anti inflation subperiod does provide some evidence of a negative relationship between inflation and equity returns though statistical significance is not apparent with quarterly tim

the relative importance of common factors across the european equity markets abstract in this paper we try to shed additional light on the question of integration or segmentation of european equity markets by studying the statistical relevance of some intuitively appealing international factors of return the relevance of these factors is also investigated through time in order to evaluate a possible increase in market integration over the recent past

stock prices asset portfolios and macroeconomic variables in ten european countries abstract this paper investigates the relationship between stock indices asset portfolios and macroeconomic variables in ten european countries it is shown that employment imports inflation and interest rates are inversely related to stock prices expectations about future real activity measures for money and the u s yield curve are positively related to stock prices a portfolio of european stock indices was constructed and it is shown that this portfolio is the variable that most strongly explains the variation in the stock prices the associations between stock prices and macroeconomic variables are shown to be strongest in germany the netherlands switzerland and the united kingdom there is a high degree of similarity between the effects in the first three of these countries in several instances the stock prices are related to historic value of economic variables indicating that predictive models can be constructed