a formal model of firm boundaries and haggling this study provides a formal model of williamson s haggling theory in which transacting parties engage in ex post contract renegotiation we show that integration can economize bargaining costs but suffers from too much third party arbitration i e fails in selective intervention

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

heterogeneous information arrivals and return volatility dynamics uncovering the long run in high frequency returns recent empirical evidence suggests that the interdaily volatility clustering for most speculative returns are best characterized by a slowly mean reverting fractionally integrated process meanwhile much shorter lived volatility dynamics are typically observed with high frequency intradaily returns the present article demonstrates that by interpreting the volatility as a mixture of numerous heterogeneous short run information arrivals the observed volatility process may exhibit long run dependence as such the long memory characteristics constitute an intrinsic feature of the return generating process rather than the manifestation of occasional structural shifts these ideas are confirmed by our analysis of a one year time series of fiveminute deutschemark u s dollar exchange rates among the most puzzling issues is the behavior of volatility while the general properties of volatility remain elusive perhaps the most intriguing feature revealed by empirical work on volatility is its long persistence such behavior has sparked a search almost akin to that for the holy grail for the perfect garch model but the underlying question of why such volatility persistence endures remains unanswered we conjecture that the ability to analyze higher frequency data may be particularly useful in pursuing this issue goodhart and o hara 1997 the pronounced volatility clustering is arguably one of the most striking features of financial price series recorded at daily or weekly intervals and a large body of literature seeking to characterize this aspect of speculative returns has emerged over the past decade 1 at the same time convincing theoretical explanations for the underlying sources of long run persistence in volatility remain elusive the recent advent of comprehensive high frequency andersen is from the j l kellogg graduate school of management of northwestern university bollerslev is from the university of virginia and is a research associate at the national bureau of economic research we gratefully acknowledge the financial support provided by a research grant from the institute for quantitative research in finance the q group special thanks are due to olsen and associates for making the intradaily exchange rate quotes and reuter s news tape available we have received valuable comments from wake epps clive w j granger stephen f gray j huston mcculloch as well as seminar participants at the december 1996 triangle econometrics workshop the 1997 afa meetings in new orleans academia sinica the wharton school usc and georgetown and york universities we remain fully responsible for the content 1 see bollerslev chou and kroner 1992 for a survey of this literature using arch type

answering the skeptics yes standard volatility models do provide accurate forecasts a voluminous literature has emerged for modeling the temporal dependencies in financial market volatility using arch and stochastic volatility models while most of these studies have documented highly significant in sample parameter estimates and pronounced intertemporal volatility persistence traditional ex post forecast evaluation criteria suggest that the models provide seemingly poor volatility forecasts contrary to this contention we show that volatility models produce strikingly accurate interdaily forecasts for the latent volatility factor that would be of interest in most financial applications new methods for improved ex post interdaily volatility measurements based on high frequency intradaily data are also discussed

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

the proper scope of government theory and an application to prisons when should a government provide a service in house and when should it contract out provision we develop a model in which the provider can invest in improving the quality of service or reducing cost if contracts are incomplete the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee has however the private contractor s incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on noncontractible quality the model is applied to understanding the costs and benefits of prison privatization

simple contracts renegotiation under asymmetric information and the hold up problem abstract in this article it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post efficiency if the default decision is non trivial it is argued that the default decision may be interpreted as a simple contract that the parties have written ex ante this result is used in order to show that simple unconditional contracts which are renegotiated may allow the hold up problem to be solved even if the parties valuations are private information

contractual solutions to the hold up problem this paper considers a general version of the hold up problem where n agents first make relation specific investments and then must agree on some collective action it is shown that first best solutions exist under a variety of different assumptions about the nature of information asymmetries

some reflections on analysis of high frequency data finance is arguably the most empirically oriented of all the social sciences this is in part due to the deliberate practical orientation and the ready availability of high quality financial market data in recent years the ever lower costs of data recording and storage have driven the phenomenon to the ultimate limit for some markets we may have access to time stamped observations on all quotes and transactions denoted ultra high frequency data by engle in press these data are of direct interest for market microstructure issues dealing with the price discovery process the market infrastructure the strategic behavior of market participants and the modeling of real time market dynamics moreover the advent of ultra high frequency data poses interesting challenges to empirical work and it has inspired the developments of new econometric and statistical tools dealing with such complications as a random daily number of time series observations with a random time between arrivals in addition the discrete price grid can distort inference concerning the asset price dynamics at the highest frequencies finally any price series now has an associated string of natural conditioning variables for example volume news time of day time between transactions or quotes concurrent prices of similar assets and so forth although current work is making strides on all these fronts how to deal with the majority of these jointly is still an open question interesting surveys of the literature were provided by hasbrouck 1996 goodhart and o hara 1997 and engle in press as such the ability of high frequency data to provide information about market microstructure issues is well recognized because the other participants in this discussion undoubtedly will discuss these developments i shall instead concentrate my brief remarks on a different use of highfrequency data that is perhaps as of yet less appreciated namely the ability of such data to shed new light on issues concerning the distribution of lower frequency speculative returns

international managerial performance evaluation a five country comparison this study does not support the generally accepted theory that transnational corporations tncs use different criteria to evaluate managers based on their location host or home country if it is assumed that a major tnc strategy is to maximize profits thus maximizing returns to shareholders it follows that management decisions are made with this strategy as the desired outcome current theory does not address the more global view of the tnc where subsidiaries act in concert to maximize profits and therefore can be evaluated in a similar fashion there is some evidence however that specific performance evaluation criteria do vary in importance by country

optimal allocation of ownership rights in dynamic r d alliances we explore the dynamic evolution of property rights regimes in r d alliances using the incomplete contract approach pioneered by grossman hart and moore in contrast to the standard analysis the productive asset is an excludable public good such as a patent moreover both firms can decide whether to disclose their know how and invest effort know how that has once been released cannot be concealed later we characterize different scenarios in which the optimal ownership structure may change over time due to a trade off between inducing know how disclosure and ensuring maximum effort

forecasting the term structure of volatility of crude oil price changes this is a pioneering effort to test the comparative performance of two competing models for out of sample forecasting the term structure of volatility of crude oil price changes employing both symmetric and asymmetric evaluation criteria under symmetric error statistics our empirical model using the estimated growth factor of volatility through time is overall superior and it beats in most cases the benchmark model of the square root of time t for holding periods between one and 250 days under asymmetric error statistics if over prediction under prediction of volatility is undesirable the empirical benchmark model is consistently superior relative performance of the empirical model is much higher for holding periods up to fifty days

reputation and the allocation of ownership we show that allocation of ownership matters even in a long term relationship where problems of opportunism are less severe unless agents are very patient ownership structure is chosen to give the agents best incentives to cooperate the optimal control structure of the static game restricts the gain from deviation to be the lowest but also the punishment will be minimal the worst ownership structure of the one shot game is good in the repeated setting because it provides the highest punishment but bad because the gain from deviation is also highest we show that when investment costs are very elastic partnership and a hostage type solution arise in equilibrium while when costs are moderately elastic the results of the one shot game apply

a contribution to event study methodology with an application to the dutch stock market abstract this paper proposes an extended market model for event studies based on daily stock returns for actual data the assumptions of the simple market model are violated the return distribution is not normal and neither the variance of the error term nor the risk parameter beta are constant our model incorporates the generalized autoregressive conditional heteroskedasticity garch model with t distributed errors and a time dependent beta we test for anomalies by adding dummy variables in the regression equation our model is fairly general and could be used in a wide variety of event study situations we illustrate the model by an analysis of the weekend and the option expiration effect we use return data from the dutch stock market the weekend effect on stock returns is significant but no expiration effect could be detected

forecasting volatility in the indian equity market using return and range based models abstractin this article we assess the time varying volatility of the national stock exchange in the indian equity market using unconditional estimators and asymmetric conditional econometric models the volatility estimate and forecast is computed from the interday return and intraday range based data of the exchange s flagship index cnx nifty for the time period spanning 1 january 2009 through 31 december 2013 these are our findings first we determine that the time varying volatility of the index is asymmetric with qualities of stationarity and leptokurtic distribution second the one step ahead volatility forecast derived from the univariate time series parameters through the gjr garch process indicates that the model evaluation criteria of the autoregressive process tends towards range based models vis a vis a return based model the validity of this methodology is further analysed with the superior predictive ability test the outcome of which supports the use of range based conditional mo

information gathering transaction costs and the property rights approach the property rights approach to the theory of the firm suggests that ownership structures are chosen in order to provide ex ante investment incentives while bargaining is ex post efficient in contrast transaction cost economics emphasizes ex post inefficiencies in the present paper a party may invest and acquire private information about the default payoff that it can realize on its own inefficient rent seeking can overturn prominent implications of the property rights theory in particular ownership by party b may be optimal even though only the indispensable party a makes an investment decision

relational contracts and the theory of the firm relational contracts informal agreements sustained by the value of future relationships are prevalent within and between firms we develop repeated game models showing why and how relational contracts within firms vertical integration differ from those between nonintegration we show that integration affects the parties temptations to renege on a given relational contract and hence affects the best relational contract the parties can sustain in this sense the integration decision can be an instrument in the service of the parties relationship our approach also has implications for joint ventures alliances and networks and for the role of management within and between firms

the linkages persistence asymmetry in the volatility the price discovery and efficiency and the effect of the us subprime mortgage financial crisis on the spot and the futures market s returns the case of india abstractthis article examines the effects of persistence asymmetry and the us subprime mortgage crisis on the volatility of the returns and also the price discovery efficiency and the linkages and causality between the spot and futures volatility by using various classes of the arch and garch models and through the granger s causality we have used two indices one for spot and the other for futures for the daily data from 12 june 2000 to 30 september 2013 from nifty stock indices we have then tested for arch effects and subsequently employed various models of the arch and garch conditional volatility the garch 1 1 model is found to be significant and it implies that the returns are not autocorrelated and have short memory it supports the hypothesis of the efficiency of the markets the negative news has more significant effect on volatility corroborating the leverage impact in finance on market volatility we have also tested the volatility spillover effects the two methods we employed

noncooperative bargaining hostages and optimal asset ownership this paper re examines the effect of asset ownership on investment decisions for a joint relationship in the absence of contracts on investment levels it obtains some results which contradict findings by sanford j grossman oliver d hart and john moore in particular it finds that the loss of ownership of an asset may increase the asset loser s investment incentive the difference between this paper and those authors papers stems from the different interpretations of the roles of the threat point and outside options in bargaining this paper also clarifies the role of relationship specific investments as a cause of integration copyright 1998 by american economic association

conditional heteroscedasticity in time series of stock returns evidence and forecasts this article presents new evidence about the time series behavior of stock prices daily return series exhibit significant levels of second order dependence and they cannot be modeled as linear white noise processes a reasonable return generating process is empirically shown to be a first order autoregressive process with conditionally heteroskedastic innovations in particular generalized autoregressive conditional heteroskedastic garch 1 1 processes fit to data very satisfactorily various out of sample forecasts of monthly return variances are generated and compared statistically forecasts based on the garch model are found to be superior copyright 1989 by the university of chicago

an evaluation of volatility forecasting techniques the existing literature contains conflicting evidence regarding the relative quality of stock market volatility forecasts evidence can be found supporting the superiority of relatively complex models including arch class models while there is also evidence supporting the superiority of more simple alternatives these inconsistencies are of particular concern because of the use of and reliance on volatility forecasts in key economic decision making and analysis and in asset option pricing this paper employs daily australian data to examine this issue the results suggest that the arch class of models and a simple regression model provide superior forecasts of volatility however the various model rankings are shown to be sensitive to the error statistic used to assess the accuracy of the forecasts nevertheless a clear message is that volatility forecasting is a notoriously difficult task

the international control conundrum with exchange risk an eva framework principal agent problems between corporate parent and subsidiary operations are frequently exacerbated in international settings by exchange rate fluctuations between the foreign subsidiary s local currency and the parent multinational corporation s reference currency we develop a conceptual solution to this international control conundrum using economic value added as the sole performance numeraire our framework facilitates assessment of foreign subsidiary performance in emerging market countries in the presence of unexpected exchange related shocks

optimal selling strategies when to haggle when to hold firm a seller encountering risk neutral buyers one at a time should if commitments are feasible quote a single take it or leave it price to each this strategy is superior to any other for finite or infinite buyer populations whether there is learning or the distribution of buyer prices is known at the outset with one object for sale or many although haggling may offer advantages in terms of price discrimination these gains are more than offset by the losses it generates by encouraging buyers to refuse purchases at high prices

can coasean bargaining justify pigouvian taxation the fact that according to the celebrated coase theorem rational parties always try to exploit all gains from trade is usually taken as an argument against the necessity of government intervention through pigouvian taxation in order to correct externalities however we show that the hold up problem which occurs if non verifiable investments have external effects and parties cannot be prevented from always exploiting ex post gains from trade through coasean bargaining may be solved by government intervention in this sense the impossibility of ruling out coasean bargaining after investments are sunk may in fact justify pigouvian taxation

investment spillovers and the allocation of property rights abstract in the context of the property rights theory of the firm we study the role of investment spillovers in shaping the efficiency ranking of ownership regimes in our model spillovers arise from asset embodied investment and footloose investment under the former the benefits of investment can be appropriated only through asset control under the latter the benefits of investment can be appropriated independently of asset control our model predicts that asset embodied investment favors the adoption of non integration while joint ownership may prevail in the presence of footloose investment

optimal ownership of public goods reconsidered consider a non governmental organization ngo that can invest in a public good should the government or the ngo own the public project in an incomplete contracting framework with split the difference bargaining besley and ghatak 2001 argue that the party who values the public good most should be the owner we demonstrate the robustness of their insight when the split the difference rule is replaced by the deal me out solution our finding is in contrast to the private good results of chiu 1998 and de meza and lockwood 1998 who show that the optimal ownership structure crucially depends on whether the split the difference rule or the deal me out solution is used

deutsche mark dollar volatility intraday activity patterns macroeconomic announcements and longer run dependencies this paper provides a detailed characterization of the volatility in the deutsche mark dollar foreign exchange market using an annual sample of five minute returns the approach captures the intraday activity patterns the macroeconomic announcements and the volatility persistence arch known from daily returns the different features are separately quantified and shown to account for a substantial fraction of return variability both at the intraday and daily level the implications of the results for the interpretation of the fundamental driving forces behind the volatility process is also discussed the efficient market hypothesis contends that financial asset prices provide rational assessments of fundamental values and future payoffs by implication price changes should reflect the arrival and processing of all relevant new information however the proportion of return variability that can be ascribed to public news announcements is low for example cutler poterba and summers 1989 find that even the largest daily price changes in the stock market generally cannot be associated with any significant economic news 1 moreover proxies for the flow of public information e g the number of news items released by reuter s news service berry and hiowe 1994 or dow jones company mitchell and mulherin 1994 explain little of the overall variation thus if private information is ruled out proponents of rational price formation have to assert the existence of important news items

information revelation in the property right theory of the firms abstract i incorporate revelation of asymmetric information through shared ownership partnership into the property right theory of the firms shared ownership is optimal as a joint result of mitigating hold up and inducing truthful information revelation due to the incomplete contracting nature shared ownership is incentive compatible if it induces truthful information revelation within the relationship as well as when the relationship breaks off the equilibrium path incentive compatibility results in the optimality of partnership even for the most efficient type of the informed party inefficient investment thus arises the level of shared ownership depends on the relative magnitude of the information rent effect and the hold up effect shared ownership is robust to semi truthful information revelation under which hold up occurs in equilibrium with an endogenously determined probability related to the revelation strategy

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

bargaining position bargaining power and the property rights approach in the property rights approach to the theory of the firm hart 1995 parties bargain about whether or not to collaborate after non contractible investments have been made most contributions apply the regular nash bargaining solution we explore the implications of using the generalized nash bargaining solution a prominent finding regarding the suboptimality of joint ownership turns out to be robust however in contrast to the standard property rights model it may well be optimal to give ownership to a party whose investments are less productive provided that this party s ex post bargaining power is relatively small

ex ante investment ex post adaptation and joint ownership abstract this study extends the property rights theory prt model by introducing an ex post adaptation to changes in trade circumstances we show that if uncertainty is sufficiently high joint ownership can facilitate both ex ante investment and ex post adaptation

transaction costs and the property rights approach to the theory of the firm the standard property rights approach is focused on ex ante investment incentives while there are no transaction costs that might restrain ex post negotiations we explore the implications of such transaction costs prominent conclusions of the property rights theory may be overturned a party may have stronger investment incentives when a non investing party is the owner and joint ownership can be the uniquely optimal ownership structure intuitively an ownership structure that is unattractive in the standard model may now be desirable because it implies large gains from trade such that the parties are more inclined to incur the transaction costs

volatility forecasting without data snooping abstract data snooping arises when the properties of a data series influence the researcher s choice of model specification when data has been snooped tests undertaken using the same series are likely to be misleading this study seeks to predict equity market volatility using daily data on u k stock market returns over the period 1955 1989 we find that even apparently innocuous forms of data snooping significantly enhance reported forecast quality and that relatively sophisticated forecasting methods operated without data snooping often perform worse than naive benchmarks for predicting stock market volatility we therefore recommend two alternative models both of which are extremely simple

gathering information before signing a contract after being offered a contract an agent has the possibility to observe the state of nature this enables him to refuse the contract in unfavorable states but burdens him with an observation cost the authors show that the principal offers a contract in which the agent has no incentive to observe the state of nature and they explore its terms later they show that the principal finds it profitable to organize competition between several agents even though he has monopoly power and can push a single agent down to his reservation utility copyright 1992 by american economic association

incomplete contracts the hold up problem and asymmetric information abstract given symmetric information in a standard hold up problem a buyer s investment incentives are always increasing in his bargaining power while this result is robust under one sided private information it can be overturned under two sided private information

procurement and renegotiation parties bound by an incomplete contract have an incentive to renegotiate after acquiring new information the issue of the parties investment in the relationship before renegotiation is analyzed in a simple two period procurement model the firm invests in the first period it then learns its production cost and the sponsor learns its value for the project williamson s underinvestment presumption is shown to hold under very general assumptions about bargaining and about the ex post asymmetry of information as long as the firm s investment is not observable by the sponsor the introduction of a cancellation fee may well lead to even less investment contrary to what is sometimes argued the role of ex ante price fixing as an alternative way to reintroduce some form of commitment and the problem of cost overruns are discussed last it is shown that if investment is observable by the sponsor andthus may become a joint decision variable the two parties may choose to under or overinvest

moral hazard and the property rights approach to the theory of the firm abstract in the grossman hart moore property rights theory there are no frictions ex post i e after non contractible investments have been sunk in contrast in transaction cost economics ex post frictions play a central role we bring the property rights theory closer to transaction cost economics by allowing for ex post moral hazard as a consequence central conclusions of the grossman hart moore theory may be overturned in particular even though only party a has to make an investment decision b ownership can yield higher investment incentives moreover ownership matters even when investments are fully relationship specific i e when they have no impact on the parties disagreement payoffs

investments as signals of outside options consider a seller who can make an observable but non contractible investment to improve an intermediate good that is specialized to a particular buyer s needs the buyer then makes a take it or leave it offer to the seller the seller has private information about the fraction of the ex post surplus that he can realize on his own compared to a situation with complete information additional investment incentives are generated by the seller s desire to pretend a strong outside option on the other hand ex post efficiency is not attained whenever the buyer mistakenly tries to call the seller s bluff with a low offer

a note on strategic delegation the market share case we consider a two stage market share delegation game with two competing firms each owner delegates the production decision to a manager each manager s remuneration is a weighted sum of profits and market share the market share delegation game results in higher duopoly profits than the sales delegation game both output delegation models lead to more aggressive managerial behavior than the standard cournot case implying lower profitability and higher social welfare similar results are obtained for the bertrand version of the delegation model market share delegation is the dominant strategy in a game in which owners can choose not to hire a manager or if they do so to pay their manager a bonus based on profits and sales or market share

relational contracts and the value of relationships this article studies optimal relational contracts when the value of the relationship between contracting parties is not commonly known i consider a principal agent setting where the principal has persistent private information about her outside option i show that if the principal has the bargaining power she wants to understate her outside option to provide strong incentives and then renege on promised payments while if the uninformed agent has the bargaining power the principal wants to overstate her outside option to capture more surplus i characterize how information is revealed how the relationship evolves and how this depends on bargaining power jel c78 d82 d83 d86

gathering information before the contract is offered the case with two states of nature abstract focusing on a baron myerson model with two states of nature in the first part of the paper we study the contract that a principal would offer to an agent when he does not know whether the agent is informed or not about the state of nature in the second we endogenize the information of acquisition and show that in equilibrium a baron myerson type contract will never be offered

statistical study of foreign exchange rates empirical evidence of a price change scaling law and intraday analysis abstract in this paper we present a statistical analysis of four foreign exchange spot rates against the u s dollar with several million intra day prices over 3 years the analysis also includes gold prices and samples of daily foreign exchange prices over 15 years the mean absolute changes of logarithmic prices are found to follow a scaling law against the time interval on which they are measured this empirical law holds although the distributions of the price changes strongly differ for different interval sizes systematic variations of the volatility are found even during business hours by an intra day analysis of price changes seasonal heteroskedasticity is observed with a period of one day as well as one week as the result of an analogous intra week analysis taking this into account is necessary for any future study of intra day price change distributions and their generating process the same type of analysis is also made for the bid ask spreads

weekly patterns in japanese stock returns this study investigates the day of the week effect in the japanese stock returns low tuesday and high wednesday returns are observed most of the positive returns arise during the nontrading period the monday effect is also observed in the week whose previous week is closed by friday trading low tuesday returns appear to be related to low monday returns in the u s the weekly pattern is more pronounced for the returns of smaller firms a reverse size effect is observed during the trading period

the cultural relativity of organizational practices and theories this paper summarizes the author s recently published findings about differences in people s work related values among 50 countries in view of these differences ethnocen tric management theories those based on the value system of one particular country have become untenable this concept is illustrated for the fields of leadership organization and motivation a key issue for organization science is the influence of national cultures on introduction management twenty or even 10 years ago the existence of a relationship be management and tween management and national cultures was far from obvious to many and it national cultures may not be obvious to everyone even now in the 1950s and 60s the dominant be lief at least in europe and the u s was that management was something univer sal there were principles of sound management which existed regardless of na tional environments if national or local practice deviated from these principles it was time to change local practice in the future the universality of sound manage ment practices would lead to societies becoming more and more alike this ap plied even to the poor countries of the third world which would become rich as well and would be managed just like the rich countries also the differences be tween management in the first and second world capitalist and socialist would disappear in fact under the surface they were thought to be a lot smaller than was officially recognized this way of thinking which dominated the 1950s and 60s is known as the convergence hypothesis during the 1970s the belief in the unavoidable convergence of management prac tices waned it was too obviously in conflict with the reality we saw around us at the same time supranational organizations like the european common market which were founded very much on the convergence belief had to recognize the stubbornness of national differences even within existing nations regional dif ferences became more rather than less accentuated the welsh the flemish the basques the bangladeshi the quebecois defended their own identity and this was difficult to reconcile with a management philosophy of convergence it slowly became clear that national and even regional cultures do matter for management the national and regional differences are not disappearing they are here to stay in fact these differences may become one of the most crucial problems for man agement in particular for the management of multinational multicultural orga nizations whether public or private

does asset ownership always motivate managers outside options and the property rights theory of the firm this paper studies the grossman hart moore ghm property rights approach to the theory of the firm under alternating offers bargaining when managers can pursue other occupations while negotiating over the division of the gains from cooperation the ghm results obtain if taking the best alternative job terminates bargaining outcomes are very different sometimes an agent with an important investment decision should not own the assets he works with sometimes independent assets should be owned together sometimes strictly complementary assets should be owned separately

nature of human capital technology and ownership of public goods abstract besley and ghatak 2001 show that a public good should be owned by the agent who values the public good the most irrespective of technological factors in this paper we relax their assumptions in a natural way by allowing the agents to be indispensable and we show that the relative valuations are not the sole determinant of an optimal ownership structure but also the nature of human capital and technology matter

asymmetric information and the property rights approach to the theory of the firm abstract in the grossman hart mooreproperty rights approach to the theory of the firm it is usually assumed that information is symmetric ownership matters for investment incentives provided that investments are partly relationship specific we study the case of completely relationship specific investments i e the disagreement payoffs do not depend on the investments it turns out that if there is asymmetric information then ownership matters for investment incentives and for the expected total surplus specifically giving ownership to party b can be optimal even when only party a has to make an investment decision and even when the owner s expected disagreement payoff is larger under a ownership

stock returns and volatility an empirical study of the uk stock market abstract attempts to quantify the relationship between stock returns and volatility have produced conflicting conclusions in recent u s studies our paper examines this issue in the u k context for the first time using daily weekly fortnightly and monthly returns on the financial times all share index from january 1965 to december 1989 volatility estimates are obtained from monthly sample variances and arch models expected returns are shown to have had a positive though not statistically significant relationship with expected volatility the relationship between the unexpected components of the returns and volatility series is less clear we find evidence for a negative relationship but only when volatility expectations are represented by standard deviations

status quo bias in bargaining an extension of the myerson satterthwaite theorem with an application to the coase theorem we use a generalized version of the myerson satterthwaite theorem to study inefficiencies in bilateral bargaining over trade of an indivisible good where there is two sided private information on the valuations we show that when preferences are convex and quasi linear and when the private information represents the magnitude of the utility gain or loss and follows a uniform distribution that the most efficient mechanism always exhibits a bias towards the status quo in the case that utility functions are quadratic in the amount traded we prove that for any incentive compatible direct mechanism there is an expected bias towards the disagreement point in other words for the class of preferences we study there is a strategic advantage to property rights in the coase bargaining setup in the presence of incomplete information

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

forecasting daily exchange rate volatility using intraday returns abstract this study investigates whether intraday returns contain important information for forecasting daily volatility whereas in the existing literature volatility models for daily returns are improved by including intraday information such as the daily high and low volume the number of trades and intraday returns here the volatility of intraday returns is explicitly modelled daily volatility forecasts are constructed from multiple volatility forecasts for intraday intervals it is shown for the dem usd and the yen usd exchange rates that this results in superior forecasts for daily volatility

the theory of the firm as governance structure from choice to contract the propositions that organization matters and that it is susceptible to analysis were long greeted by skepticism by economists one reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why the prevalence of the science of choice approach to economics has also been an obstacle as developed herein the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract this paper examines economic organization from a science of contract perspective with special emphasis on the theory of the firm

government versus private ownership of public goods the role of bargaining frictions abstract the government and a non governmental organization ngo can invest in the provision of a public good who should be the owner of the public project in an incomplete contracting model in which ex post negotiations are without frictions the party that values the public good most should be the owner regardless of technological aspects however under the plausible assumption that there are bargaining frictions the optimal ownership structure depends on technological aspects and on the parties valuations we show that the differences between incomplete contracting models with public goods and private goods are thus smaller than has previously been thought

the week end effect in common stock returns the international evidence this paper examines the daily stock market returns for four foreign countries we find a so called week end effect in each country in addition the lowest mean returns for the japanese and australian stock markets occur on tuesday the remainder of the paper answers four questions are seasonal patterns in foreign stock markets independent of those previously reported in the u s do japan and australia exhibit a seasonal one day out of phase due to different time zones do settlement procedures across countries bias week end effects does the seasonal pattern in foreign exchange offset the week end effect in stocks for americans investing overseas some of the most anomalous empirical findings in finance are associated with the sample distributions of daily common stock returns cross 1 french 2 gibbons and hess 3 and keim and stambaugh 4 have documented that the average return on friday is abnormally high and the average return on monday is abnormally low to our knowledge this so called day of the week effect or week end effect has yet to be explained because this anomaly has been reported primarily for u s stock returns it is appropriate to investigate whether similar results occur for other countries positive findings would strongly support the proposition that the weekly seasonal effect is a general world wide phenomenon rather than the result of a special type of institutional arrangement in the u s to shed more light on this proposition our paper examines stock market returns in the u k japan canada and australia since we find a week end effect in each country we can examine a set of interesting questions for example are these seasonals independent of the previously reported seasonal in the u s due to different time zones do far eastern countries exhibit a seasonal one day out of phase do different settlement procedures across countries influence weekend effects does the seasonal in foreign exchange fluctuations see mcfarland pettit and sung 7 and levi 6 offset the week end effect in stock market returns for americans investing overseas

the implicit return on domestic and international sales an empirical analysis of us and japanese firms an empirical analysis of imputed returns on international and domestic sales suggests that neither us nor japanese manufacturing firms consistently used domestic profits to subsidize foreign operations apart from the early 1990s when the yen was particularly strong japanese firms generally realized higher profits in foreign markets than in their domestic market opposite to the conventional direction for cross subsidization us firms also tended to have higher estimated returns from foreign markets after 1985 our results are consistent with hymer s theory of ownership advantage which posits that firms with successful foreign operations must have specific advantages relative to local firms

a twist on the monday effect in stock prices evidence from the u s and foreign stock markets abstract one of the most unusual empirical results in finance is the significantly negative average return on the stock market on mondays the present paper documents a twist on this effect we find that abnormally low returns on monday seem to follow stock market declines in fact the monday effect virtually disappears when the market has previously risen cross keim stambaugh and jaffe westerfield point out that monday s return is positively correlated with the previous friday s return surprisingly our findings hold even after one accounts for this friday monday correlation

investments in physical capital relationship specificity and the property rights approach abstract we reconsider the property rights approach to the theory of the firm based on incomplete contracts we explore the implications of different degrees of relationship specificity when there are two parties a and b who can make investments in physical capital instead of human capital if relationship specificity is exogenously given it turns out that joint asset ownership can be optimal only if the degree of relationship specificity is sufficiently small if relationship specificity can be freely chosen and if party a s investments are more productive then the parties deliberately choose a strictly positive level of relationship specificity and they always agree on sole ownership by party a

evaluating and improving garch based volatility forecasts with range based estimators this article investigates the feasibility of using range based estimators to evaluate and improve generalized autoregressive conditional heteroscedasticity garch based volatility forecasts due to their computational simplicity and readily availability the empirical results show that daily range based estimators are sound alternatives for true volatility proxies when using superior predictive ability spa test of hansen 2005 to assess garch based volatility forecasts in addition the inclusion of the range based estimator of garman and klass 1980 can significantly improve the forecasting performance of garch t model

markets and hierarchies and mathematical economic theory over the past decade transaction cost economics has been partially translated in the more mathematical language of game theory and understanding of the costs of transactions has been deepened refined and extended but the translation is incomplete a great deal of human behaviour is missed and doing game theory with more life like models of individuals will bring theory closer to phenomena transaction cost economics particularly the economics of relational contracts provides a major arena for these developments since the important issues of bounded rationality and individual behavior are central to the topic copyright 1996 by oxford university press

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

public goods and the hold up problem under asymmetric information an agent can make an observable but non contractible investment a principal then offers to collaborate with the agent to provide a public good private information of the agent about his valuation may either decrease or increase his investment incentives depending on whether he learns his type before or after the investment stage

stock returns and volatility most asset pricing models postulate a positive relationship between a stock portfolio s expected returns and risk which is often modeled by the variance of the asset price this paper uses garch in mean models to examine the relationship between mean returns on a stock portfolio and its conditional variance or standard deviation after estimating a variety of models from daily and monthly portfolio return data we conclude that any relationship between mean returns and own variance or standard deviation is weak the results suggest that investors consider some other risk measure to be more important than the variance of portfolio returns

on the intraday dynamics of oil price and exchange rate what can we learn from china and india abstract the main aim of this paper is to investigate the volatility determinants of crude oil and foreign exchange markets and jump spillover between them we consider currencies of two major oil importing countries india and china over the sample period of january 1 2013 to october 31 2019 we find evidence of positive return spillover from the oil to the foreign exchange market however there is a lack of return spillover in the other direction oil jumps appear to have a negative impact on exchange rate conditional volatility and the latter responds asymmetrically to disentangled positive and negative oil price jumps we also report disentangled exchange rate jumps significant impact on conditional oil price volatility these results however are asymmetric based on the nature of jumps and alternative oil price series finally we do not find evidence of co jump between the oil and foreign exchange markets these results have important implications for investors and policymakers