mean reversion in short horizon expected returns this article develops and estimates a simple model for monthly expected stock returns that relies on the rapidly decaying structure of shorter horizon weekly expected returns the most striking aspect of our findings is that the rapid mean reversion in short horizon expected returns implies much greater variation through time in monthly expected returns than has been documented in earlier studies for instance during the 1962 to 1985 period over 25 percent of the return variance of small firms can be explained by time variation in expected returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

globalisation institutional structures and real estate markets in central european cities this paper examines the urban development process in post socialist cities of budapest prague and warsaw in the context of economic globalisation and societal transformation several factors have helped to shape the post socialist cities of central europe since the end of the 1980s these include political transformation economic change restitution privatisation price liberalisation and decentralisation of local government it is argued that local government administrative and planning structures have been ill prepared in meeting the requirements of international investment capital in a co ordinated and effective manner institutional constraints has promoted an organic form of urban development primarily determined through the international demand for and supply of commercial and retail space

a model of military spending and economic growth this paper investigates a model of militaryconflict between two regimes in which eachmay initiate combat in order to confiscateresources from the other conflict or thepotential for same results in wastefulmilitary spending which lowers growth foreach regime equilibrium military spendingis determined in a one shot game analysisof the one shot game is followed by a studyof the prospects for an equilibrium inwhich regimes lower military spending anddo not engage in combat in repeated play in this latter case military spending willbe decreased to a level just sufficient todeter deviations from the no combatequilibrium this minimum level increases and growth decreases with the internalpolitical instability of each regime moreover an exogenous increase in thedefensive capability of each regime mayeither increase or decrease growth depending upon the initial level ofmilitary spending and growth

a dynamic model of conflict and appropriation abstract this paper presents an extension of a static model of economic conflict analyzed by hirshleifer 1991 1995 and skaperdas 1992 to an infinite horizon differential game our aim is to highlight the strategic role of appropriation among a smaller group of agents in an intertemporal context the model yields the conclusion that there exists a unique linear nonlinear markov perfect equilibrium strategy even when strategies are defined over the entire state space we demonstrate that partial cooperation can be seen as a long run response to conflict moreover a decrease in the effectiveness of appropriation the depreciation rate of a common pool stock the rate of time preferences or an increase in the degree of noise improves the degree of partial cooperation and thus welfare in an anarchic society

trading volume and cross autocorrelations in stock returns this paper finds that trading volume is a significant determinant of the lead lag patterns observed in stock returns daily and weekly returns on high volume portfolios lead returns on low volume portfolios controlling for firm size nonsynchronous trading or low volume portfolio autocorrelations cannot explain these findings these patterns arise because returns on low volume portfolios respond more slowly to information in market returns the speed of adjustment of individual stocks confirms these findings overall the results indicate that differential speed of adjustment to information is a significant source of the cross autocorrelation patterns in short horizon stock returns both academics and practitioners have long been interested in the role played by trading volume in predicting future stock returns 1 in this paper we examine the interaction between trading volume and the predictability of short horizon stock returns specifically that due to lead lag cross autocorrelations in stock returns our investigation indicates that trading volume is a significant determinant of the cross autocorrelation patterns in stock returns 2 we find that daily or weekly returns of stocks with high trading volume lead daily or weekly returns of stocks with low trading volume additional tests indicate that this effect is related to the tendency of high volume stocks to respond rapidly and low volume stocks to respond slowly to marketwide information

arming as a strategic investment in a cooperative equilibrium to develop a positive economic theory of military spending this analysis focuses on a game theoretic general equilibrium model of international conflict in which consumption peaceful investment and military spending are endogenously determined the analysis illustrates that when there is repeated interaction between nations a game of threats and punishments generally will not support a disarmament outcome and that fluctuations in military spending can be an endogenous result of fluctuations in aggregate economic activity furthermore the analysis shows how the relation between aggregate economic activity and military spending qualitatively depends on whether governments are acting opportunistically or cooperatively copyright 1990 by american economic association

institutions in british property research a review this paper surveys approaches to the study of institutions as used in recent commercial property research in britain institutional analysis can be approached from mainstream economics power str

the distribution of income in a despotic society a distribution of income between rulers and subjects can be derived as an equilibrium of violence rather than from considerations of marginal products of owned factors of production society is organized in ranks and the occupants of each rank are provided with incomes just sufficient that obedience is preferable to rebellion to incorporate such considerations into a model it is necessary to recognize phenomena that are normally excluded from economic analysis combat the mortality rate from natural causes and from violence as a component of the utility function and a rudimentary technology of control

urban regeneration and the development industry healey p 1991 urban regeneration and the development industry reg studies 25 97 108 this paper examines a key assumption of urban policy in britain in the 1980s this assumption is that urba

the distribution of income in the presence of appropriative activities we examine the distribution of income when agents allocate their initial endowments between production and appropriation arms investments influence or rent seeking activities final output depends on the productive contributions of the agents but is divided between them according to their relative contributions in appropriation various possible improvements in an agent s useful productivity reduce the agent s equilibrium share of income but increases in initial endowments increase an agent s share we contrast our results to those that would obtain in the competitive counterpart to our model and discuss its relevance both for history and for the present the results extend to a class of models where distribution is determined between two groups of agents with agents within each group behaving non cooperatively but without exhibiting the free rider problem

war and peace cyclical phenomena this paper demonstrates how the analysis can differ dramatically between two common static modeling approaches to conflict the first approach uses a one period setup and associates positive arms investments with conflict the second approach has two periods where arming decisions are taken in the first period and the decision on whether to go to war is taken separately in the second building on the latter approach i introduce a repeated game protocol with myopic players under these circumstances countries may end up in cycles of war and peace this result offers a novel explanation for a common pattern in history

collective rent dissipation the theory of rent seeking was initiated by tullock 1967 1980 followed by krueger 1974 and posner 1975 and more recently extended in various directions by allard 1988 appelbaum and katz 1986a b c gradstein and nitzan 1989 hillman and katz 1984 1987 hillman and samet 1987 hillman and riley 1989 katz et al 1990 long and vousden 1987 ursprung 1990 and varian 1989 the purpose of this paper is to extend this theory by introducing the possibility of collective group rent seeking with voluntary individual decisions regarding their extent of participation in the collective rent seeking efforts

endogenous strength in conflicts in this paper we study a two period contest where the strength of players in the second period depends on the result of the contest in the first stage we show that in contrast to one shot contests in the same setting heterogeneous players exert different efforts in the first stage and rent dissipation in the first period may be large we study the conditions under which the discouragement effect holds in addition new issues emerge like the evolution of the strengths and the shares of the prize during the game

multivariate nearest neighbour forecasts of ems exchange rates exchange rate modelling has been a persistent puzzle for international economists forecasts from popular models for the exchange rate generally fail to improve upon the random walk out of sample while a multivariate nonparametric approach provides useful information about exchange rates the model produces forecasts superior to the random walk for only one of the three ems currencies examined using a statistic developed in mizrach 1991 i find that the forecast improvement a 4 5 percent reduction in mean squared error for the lira in daily returns is not statistically significant a cross validation exercise suggests that the improvement is also not robust

multiperiod portfolio optimization with multiple risky assets and general transaction costs abstract we analyze the optimal portfolio policy for a multiperiod mean variance investor facing multiple risky assets in the presence of general transaction costs for proportional transaction costs we give a closed form expression for a no trade region shaped as a multi dimensional parallelogram and show how the optimal portfolio policy can be efficiently computed for many risky assets by solving a single quadratic program for market impact costs we show that at each period it is optimal to trade to the boundary of a state dependent rebalancing region finally we show empirically that the losses associated with ignoring transaction costs and behaving myopically may be large

territorial competition and property market process an exploratory analysis this paper argues that the emerging research on territorial competition should be supplemented by an explicit consideration of the role of real property and property market process in shaping urb

guns butter and anarchy a state in the international system implicit in realism must allocate its limited resources between satisfying its intrinsically valued ends and the means of military power i formalize this guns versus butter problem in a simple infinite horizon model in which two states must continually decide how to allocate their resources and whether to attack the other state the analysis establishes sufficient conditions to ensure the existence of an equilibrium in which neither state attacks shows that there is a strictly pareto dominant pair of peaceful equilibrium payoffs characterizes the unique peaceful markov perfect equilibrium that yields them and describes the comparative statics of the equilibrium allocations more broadly the analysis also suggests that the notion of anarchy has little if any substantive significance distinctively related to international politics and that the problem of absolute and relative gains is superfluous

international transmission of stock market movements this paper investigates the international transmission mechanism of stock market movements by estimating a nine market vector autoregression var system using simulated responses of the estimated var system we i locate all the main channels of interactions among national stock markets and ii trace out the dynamic responses of one market to innovations in another generally speaking a substantial amount of multi lateral interaction is detected among national stock markets innovations in the u s are rapidly transmitted to other markets in a clearly recognizable fashion whereas no single foreign market can significantly explain the u s market movements also the dynamic response pattern is found to be generally consistent with the notion of informationally efficient international stock markets

investment analysis and the adjustment of stock prices to common information in this article we are concerned with the effect of the number of investment analysts following a firm on the speed of adjustment of the firm s stock price to new information that has common effects across firms it is found that returns on portfolios of firms that are followed by many analysts tend to lead those of firms that are followed by fewer analysts even when the firms are of approximately the same size many analyst firms also tend to respond more rapidly to market returns than do few analyst firms adjusting for firm size this relation however is nonlinear and the marginal effect of the number of analysts on the speed of price adjustment increases with the number of analysts article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

long term relationships governed by short term contracts this paper studies the effects of contract duration on the incentive to invest in a relationship when its parties are rational and have perfect information and contracts are complete ex cept that short term contracts specify only current period actions t hen short term contracting distorts investment decisions only when t he efficient plan involves mainly sunk cost investment and the relati onship plays a consumption smoothing role there is a general but no t universal tendency to underinvest copyright 1988 by american economic association

conflict and rent seeking success functions ratio vs difference models of relative success the rent seeking competitions studied by economists fall within a much broader category of conflict interactions that also includes military combats election campaigns industrial disputes lawsuits and sibling rivalries in the rent seeking literature each party s success pi which can be interpreted either as the probability of victory or as the proportion of the prize won has usually been taken to be a function of the ratio of the respective resource commitments alternatively however pi may instead be a function of the difference between the parties commitments to the contest the contest success function csf for the difference from is a logistic curve in which as is consistent with military experience increasing returns apply up to an inflection point at equal resource commitments a crucial flaw of the traditional ratio model is that neither onesided submission nor two sided peace between the parties can ever occur as a cournot equilibrium in contrast both of these outcomes are entirely consistent with a model in which success is a function of the difference between the parties resource commitments

stock return serial dependence and out of sample portfolio performance we study whether investors can exploit serial dependence in stock returns to improve out of sample portfolio performance we show that a vector autoregressive var model captures stock return serial dependence in a statistically significant manner analytically we demonstrate that unlike contrarian and momentum portfolios an arbitrage portfolio based on the var model attains positive expected returns regardless of the sign of asset return cross covariances and autocovariances empirically we show however that both the arbitrage and mean variance portfolios based on the var model outperform the traditional unconditional portfolios only for transaction costs below ten basis points

can the shadow of the future harm cooperation abstract it is generally thought that in long term relationships high valuations of the future are conducive to cooperation in an intertemporal model of conflict however we demonstrate the possibility of the opposite effect a longer shadow of the future may harm cooperation in particular we show that the degree of inefficiency is positively related to i the agents valuation of the future ii potential growth rates in resources iii the size of initial resource endowments and iv the effectiveness of conflict

introduction to development theory abstractthisarticle introduces the symposium on economic development theory 2007 elsevier inc all rights reserved jel classi cation o11 o12keywords development economics development economics a subject that studies institutions growth inequality and povertyin the developing world is a large lively and exciting area of research the objective of thissymposium is to put together some contributions in economic theory with a distinct focus ondevelopment questions much of early development economics as typi ed in the work of paul rosenstein rodan arthurlewis ragnarnurkse tiborscitovsky allynyoung gunnarmyrdal harveyleibenstein alberthirschman amartyasenandothers wastheoretical thoughnotnecessarilyinthesenseofformalmodel building theseauthorsallfelttheneedtobringnewconceptsintoeconomictheory ideas that would capture the essential features of underdevelopment and provide explanationsof the development process existing economic theory with its focus on competitive markets depersonalized exchange steady technical progress and balanced growth simply did not seemrightwhenmatchedwiththegroundrealitiesofunderdevelopment fragmented imperfect orjustplain missing markets highly personalized transactions in credit insurance or agrarian tenancy ambiguousornonexistentpropertyrights andwidespreadevidenceofpovertytrapsandhistoricallock ins a fair bit of modern economic theory was born in some of these early development writings young s article 40 on increasing returns was perhaps the rst systematic study of noncon vexities in economic growth rosenstein rodan s celebrated paper 32 on post war interven tion in europe provided a conceptual foundation for modern thinking on coordination failures

a theoretical framework for the functioning of the dutch property market in this article a theoretical framework will be presented to aid understanding of the functioning of property markets more particularly the dutch property market it will be argued that traditional urban economic theories are not able to explain the structure and processes of the built environment in the dutch case we are confronted with two problems first to find a way in which urban economic theories designed for a context of cities in great britain and the us can be used to explain urban development that takes place in the different context of dutch cities and secondly to formulate a set of hypotheses appropriate for the dutch property market the hypotheses concern the strategies of individual actors on the property market and the underlying factors it is concluded that in general the relation between institutional structure and property development has been neglected both because of insufficient attention from economic scientists and because empirical research is very complicated

industry information diffusion and the lead lag effect in stock returns i argue that the slow diffusion of industry information is a leading cause of the lead lag effect in stock returns i find that the lead lag effect between big firms and small firms is predominantly an intra industry phenomenon moreover this effect is driven by sluggish adjustment to negative information and is robust to alternative determinants of the lead lag effect small less competitive and neglected industries experience a more pronounced lead lag effect the lead lag effect is related to the post announcement drift of small firms following the earnings releases of big firms within the industry

how organizational structure can reduce rent seeking in multi tiered organizations individuals can engage in unproductive rent seeking activities both within and between the divisions of the organization nevertheless a multi tiered organizational structure can induce efficiency gains by decreasing rent seeking we present a model of production and simultaneous internal and external rent seeking assuming a logistic contest success function in equilibrium there is generically either internal or external rent seeking but not both a multi tiered organization leads to less rent seeking and higher welfare even though the production technology gives no reason for any specific organizational structure our findings constitute a new efficiency rationale for multi tiered organizations

asset allocation with correlation a composite trade off abstract we assess the ability of minimum variance portfolio allocation strategies accounting for time varying correlation between assets to provide performance benefits relative to an equally weighted portfolio prior to transaction costs correlation based strategies emphatically outperform the equally weighted benchmark this finding is strongest for short horizon correlation forecasts and attributed to dynamic correlation as opposed to variance forecasts thus estimation error is not found to be the primary obstacle to successful portfolio optimization rather frequent rebalancing and associated transaction costs pose a significant challenge limiting portfolio turnover through short selling restrictions and greater rebalancing error tolerance results in regular outperformance of the correlation based strategies even for large transaction costs taken together these findings provide evidence of a trade off between optimal portfolio performance forecasting horizon rebalancing frequency and transaction costs