investor preference for large firms new evidence on economies of size in the last several decades industrial organization literature has been replete with studies demonstrating a systematic relationship between accounting rates of return and firm size in the direction of greater and more stable accounting profits for larger firms these studies have been subject to criticism for an alarming number of statistical and conceptual problems the most important of which alleges a serious bias in accounting profit measures as proxies for economic profit 2 the criticisms have resulted in a stalemate in the interpretation of empirical evidence on firm size and performance nevertheless there is continued interest in the area ostensibly resulting from policy concerns with large firm advantages in both product and capital markets this paper provides new evidence concerning the industrial organization literature controversy of the connection between firm size and performance stock market data are used to examine the relationship between capital market returns risk and firm size the findings suggest that even if there were no advantages of large size in the product market equal rates of operating profit large firms would still have a substantial capital raising advantage over small firms this advantage is unrelated to the widely recognized floatation cost economies even after controlling for nondiversifiable risk using the capital asset pricing model capm investors still demonstrate a statistically significant and economically important preference for the securities of larger firms investors apparently place a premium on large firms which is not attributable to large firms observed lower risk as captured by the widely used measure of nondiversifiable risk beta risk this finding a fresh contribution to the

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

asymmetric volatility spillovers between crude oil and international financial markets abstract in this paper we examine asymmetric volatility spillovers between oil and international stock markets in a vector autoregression framework using a directed acyclic graph dag technique we provide evidence that bad total volatility spillovers dominate the system and change over time suggesting that a pessimistic mood and uninformed traders who tend to increase volatility dominate in markets positive spillovers of oil markets dominated from 2006 to mid 2009 but reversed after mid 2009 moreover the spillovers from good volatilities in oil markets to bad volatilities in global stock markets were significantly positive during the economic recovery period the recent important economic and political events have influenced asymmetries in volatility spillovers

oil price shocks economic policy uncertainty and industry stock returns in china asymmetric effects with quantile regression abstract this paper investigates the impact of crude oil shocks and china s economic policy uncertainty on stock returns at different locations on the return distributions based on monthly data from 1995 1 to 2016 3 we address this issue by employing the quantile regression technique this approach enables a more detailed investigation in different market circumstances namely bearish normal and bullish markets empirical results indicate that the effects of oil price shocks and economic policy uncertainty are asymmetric and highly related to stock market conditions moreover both the nexus of oil and economic policy uncertainty stock are changed at the onset of a crisis specially rising oil prices have greater negative effects on stock returns when stock markets are bullish extreme higher quantiles before a crisis whereas the effects are significantly positive under different market conditions after the onset of the crisis falling oil prices lower stock returns when stock markets are bullish and normal before the crisis whereas lower stock returns under different market conditions except extreme bullish after the onset of the crisis these findings might be related to the optimistic or pessimistic investor sentiments and investors might become more frightened after the crisis

behavioral rationality in finance the case of dividends as the title suggests this paper attempts to get to the specifics of the behavioral rationality theme of this conference by focusing on an area in the main core of finance namely the demand and supply of dividends where by common consent the essentially rationalist paradigm of the field seems to be limping most noticeably important and pervasive behavior patterns on both the paying and the receiving ends have despairingly been written off as puzzles even by theorists as redoubtable as fischer black see esp his much cited 1976 article behaviorists have homed in on precisely these same dividendrelated soft spots in the current body of theory see esp shefrin and statman 1984 we seem to have in sum an ideal place to look for signs of an imminent paradigm shift in the behavioral direction of precisely the kind envisioned by some of the other contributors to this conference the dividend related difficulties and supposed anomalies at issue here are more than just the parochial concern of finance specialists the dividends seem a natural area in finance where the introduction of behavioral cognitive elements might help resolve long standing anomalies particularly the seeming failure of supply to adjust to taxinduced price penalties a closer look at the empirical record however particularly at evidence of responsiveness to major structural changes shows behavior of the aggregates to be less anomalous than conventional handwringing might suggest behavioral cognitive elements whatever they might contribute to the description of particular microdecisions do not appear to be essential adjuncts to the basic finance model in the major comparative static applications for which it was intended helpful comments on an earlier version of this paper have been received from nai fu chen jean marie gagnon gur huberman kose john james poterba and especially melvin reder

no news is news do markets underreact to nothing as illustrated in the tale of the dog that did not bark the absence of news and the passage of time often contain information we test whether markets fully incorporate this information using the empirical context of mergers during the year after merger announcement the passage of time is informative about the probability that the merger will ultimately complete we show that the variation in hazard rates of completion after announcement strongly predicts returns this pattern is consistent with a behavioral model of underreaction to the passage of time and cannot be explained by changes in risk or frictions

nonparametric panel data model for crude oil and stock market prices in net oil importing countries abstract this paper introduces an innovative nonparametric panel data approach to model the long run relationship between the monthly oil price index and stock market price indices of ten large net oil importing countries namely the united states japan china south korea india germany france singapore italy and spain in the proposed model we allow the coefficient on the oil price index to be a time varying function which evolves over time in a way that is assumed to be unknown we also allow the common trend function to evolve over time as well as extending the model further to incorporate country specific trend functions we employ a data driven local linear method to estimate these time varying trend and coefficient functions the results show that despite being largely positive there are several downward trends reflecting the aftermath of the iraq war and the recent unprecedented drop in the oil price overall we find that the nonparametric panel data model better captures the way in which the underlying stock oil price relationship has evolved over time in comparison to the point estimates of the parametric counterpart moreover we find that stock market fundamentals play a significant role in determining the oil stock price relationship our findings have important implication for policymakers and financial speculators

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

assessing the impact of oil returns on emerging stock markets a panel data approach for ten central and eastern european countries abstract this paper uses an international multi factor model in order to investigate the relationship between oil price risk and stock market returns for the emerging capital markets of the central and eastern european countries ceecs a panel data approach is being employed for the period covering 22 october 1999 until 23 august 2007 the oil price beta is found to be negative and statistically significant suggesting that the oil price is indeed an important factor in determining stock returns no statistically significant non linear dependency is found between market risk and emerging market stock returns or between oil price risk and returns observation of conditional models shows positive reaction of emerging stock market returns to upward movements of market returns the reaction of the stock returns to upward and downward movements of the oil market is also negative but more significant when oil prices are low

continuous time methods in finance a review and an assessment i survey and assess the development of continuous time methods in finance during the last 30 years the subperiod 1969 to 1980 saw a dizzying pace of development with seminal ideas in derivatives securities pricing term structure theory asset pricing and optimal consumption and portfolio choices during the period 1981 to 1999 the theory has been extended and modified to better explain empirical regularities in various subfields of finance this latter subperiod has seen significant progress in econometric theory computational and estimation methods to test and implement continuous time models capital market frictions and bargaining issues are being increasingly incorporated in continuous time theory the roots of modern continuous time methods in finance can be traced back to the seminal contributions of merton 1969 1971 1973b in the late 1960s and early 1970s merton 1969 pioneered the use of continuous time modeling in financial economics by formulating the intertemporal consumption and portfolio choice problem of an investor in a stochastic dynamic programming setting merton 1973b also showed how such a framework can be used to develop equilibrium asset pricing implications thereby significantly extending the asset pricing theory to richer dynamic settings and expanding the scope of applications of continuous time methods to study problems in financial economics 1 within a span of about 30 years from the publication of merton s inf luential papers continuous time methods have become an integral part of financial economics indeed in certain core areas in finance such as e g asset pricing derivatives valuation term structure theory and portfolio selection continuoustime methods have proved to be the most attractive way to conduct research and gain economic intuition the continuous time approach in these areas has produced models with a rich variety of testable implications the econometric theory for testing continuous time models has made rapid strides in the last decade and has thus kept pace with the impressive progress on the theoretical front one hopes that the actual empirical investigations and estimation using the new procedures will follow suit soon

the directional volatility connectedness between crude oil and equity markets new evidence from implied volatility indexes in this paper we use a set of newly introduced implied volatility indexes to investigate the directional connectedness between oil and equities in eleven major stock exchanges around the globe from 2008 to 2015 the inference on the oil equity implied volatility relationships depends on diebold and yilmaz 2012 2014 2015 who proposed a set of directional measures that enable the dynamic and directional characterization of the relationships among financial variables we find uniform results across the sample countries indicating that the connectedness between oil and equity is established by the bi directional information spillovers between the two markets however we find that the bulk of association is largely dominated by the transmissions from the oil market to equity markets and not the other way around the pattern of transmissions is varying over the sample period however most of the linkages between oil and equities are established from the mid of 2009 to the mid of 2012 which is a period that witnessed the start of global recovery

contagious speculation and a cure for cancer a nonevent that made stock prices soar a sunday new york times article on a potential development of new cancer curing drugs caused entremed s stock price to rise from 12 063 at the friday close to open at 85 and close near 52 on monday it closed above 30 in the three following weeks the enthusiasm spilled over to other biotechnology stocks the potential breakthrough in cancer research already had been reported however in the journal nature and in various popular newspapers including the times more than five months earlier thus enthusiastic public attention induced a permanent rise in share prices even though no genuinely new information had been presented a central tenet of f inancial economics is that an asset should trade at the risk adjusted present value of its expected future cash f lows these expected future cash f lows exist in people s minds and do not normally lend themselves to direct observation an equilibrium price in a frictionless market does not tolerate disagreements among market participants if some people deem the price too low they will buy the asset if others think it is too high they will sell it short if necessary although the efficient markets hypothesis predicts that price changes are unpredictable it associates them with changes in traders beliefs about future cash f lows or the appropriate discount rate beliefs change with the arrival of new information thus in hindsight at least we should be able to ascribe price changes to the arrival of specific new information we examine this view in the context of a series of news reports in the media pertaining to entremed enmd a biotechnology company and other members of its sector the sunday may 3 1998 edition of the new york times reports on a recent breakthrough in cancer research and mentions enmd a company with licensing rights to the breakthrough kolata 1998 the story s impact on the stock prices was immediate huge and to a large extent permanent the new news content of the times story was nil though the substance of the story had been published as a scientific piece in nature boehm et al 1997 and in the popular press including the times itself wade 1997 more than five months earlier in november 1997

demand side management and european environmental and energy goals an optimal complementary approach demand side management dsm in electricity markets could improve energy efficiency and achieve environmental targets through controlled consumption for the past 10 years or so dsm programmes have registered significant results however detailed analysis of its real impact as observed by a large number of pilot studies suggests that such programmes need to be fine tuned to suit clearly identified conditions this study aims to provide recommendations for the instruments to be used to prompt demand response with a view to maximizing energy and environmental efficiencies of various countries the present study suggests that different dsm models should be deployed depending on the specific generation mix in any given country beside the natural benefits from cross borders infrastructures dsm improves the flexibility and reliability of the energy system absorbing some shock on generation mix we show efficiency increases with demand response but at a decreasing rate so according to rebound and report effects simple dsm tools could be preferred

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

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

do customer information programs reduce household electricity demand the irish program abstract we study empirically the effectiveness of a customer information program to decrease energy demand by increasing efficient electricity use this demand side management dsm program aims at reducing the lack of information on the customers side that is documented in related literature we study the irish dsm program which is particularly well suited to investigate this issue as strategic behavior is ruled out in this setting for both customers and suppliers on the customers side because information programs allow only for a limited substitution of own effort on the producers side because the specificity of the irish case left no room for strategic behavior we find that providing customers with information reduced overall electricity demand by roughly 7 as well as reducing demand fluctuations over the year further we find that the dsm program had a larger impact upon long run demand with consumers short run demand behavior not being changed significantly

evaluation of the effect of the power of one campaign on natural gas consumption abstract in this paper we study an advertising campaign launched by the irish government to induce more energy efficient behaviour and we assess its effect on residential natural gas consumption we first analyse changes in the daily consumption of natural gas and find that advertising leaflets had a significant but short lived effect on natural gas consumption we find no persistent effect of the campaign we then study three surveys administered to 1000 consumers prior to and during the campaign this repeated cross section allows us to determine that the efficiency campaign has increased awareness of behaviours that curb natural gas consumption however we do not find any significant effect of the campaign on self reported natural gas saving behaviour

smart meter devices and the effect of feedback on residential electricity consumption evidence from a natural experiment in northern ireland abstract using a unique set of data and exploiting a large scale natural experiment we estimate the effect of real time usage information on residential electricity consumption in northern ireland starting in april 2002 the utility replaced prepayment meters with advanced meters that allow the consumer to track usage in real time we rely on this event account for the endogeneity of price and payment plan with consumption through a plan selection correction term and find that the provision of information is associated with a decline in electricity consumption of 11 17 we find that the reduction is robust to different specifications selection bias correction methods and subsamples of the original data the advanced metering program delivers reasonably cost effective reductions in carbon dioxide emissions even under the most conservative usage reduction scenarios

costly information acquisition experimental analysis of a boundedly rational model the directed cognition model assumes that agents use partially myopic option value calculations to select their next cognitive operation the current paper tests this model by studying information acquisition in two experiments in the first experiment information acquisition has an explicit financial cost in the second experiment information acquisition is costly because time is scarce the directed cognition model successfully predicts aggregate information acquisition patterns in these experiments when the directed cognition model and the fully rational model make demonstrably different predictions the directed cognition model better matches the laboratory evidence jel d83

optimal stock trading with personal taxes implications for prices and the abnormal january returns abstract the tax law confers upon the investor a timing option to realize capital losses and defer capital gains with the tax rate on long term gains and losses being about half the short term rate the law provides a second timing option to realize losses short term and gains long term if at all our theory and simulation over the 1962 1977 period establish that taxable investors should realize long term gains in high variance stocks and repurchase stock in order to realize potential future losses short term tax trading does not explain the small firm anomaly but predicts a seasonal pattern in trading volume which maps into a seasonal pattern in stock prices the january anomaly only if investors are irrational or ignorant of the price seasonality

separating bric using islamic stocks and crude oil dynamic conditional correlation and volatility spillover analysis abstract this paper explores the dynamic conditional correlation and volatility linkage between islamic indexes and oil for bric countries correlations between these assets increase during the global financial crisis for india and china but not for brazil and russia the volatility error forecast variance of all five indexes comes from spillover but is much lower compared to volatility spillover between conventional indexes and oil hedging performance of islamic indexes are superior in india and china compared to conventional indexes in emerging markets an optimal minimum variance portfolio without reducing expected return can be achieved by investing in lower weights of bric islamic indexes and oil compared to conventional indexes

volatility spillovers for energy prices a diagonal bekk approach abstract we examine the relationship between return and volatility as well as the covolatility spillover for energy foreign currency and stock markets using the diagonal bekk model using daily crude oil natural gas and the coal prices as proxies for energy prices the s p500 index as a proxy for the u s stock market and the eur usd exchange rate as a proxy for the exchange rate we find robust evidence for the volatility spillover effects among the three markets also in the 16 out of 20 pairwise relationships in the five markets there are significant negative covolatility spillover effects in the four pairs involving coal there are positive and significant covolatility spillover effects we conclude that the energy markets and the stock market have stronger covolatility spillovers than others

payments or persuasion common pool resource management with price and non price measures we use lab experiments to study policies that address common pool resource overuse we look at a price mechanism specifically a pigouvian subsidy and four non price interventions the non price policies are information alone information with a normative message communication alone and normative messages with communication allowed in all experiment sessions no intervention occurs in the first seven and last seven rounds allowing us to examine the effects of introducing and taking away a policy the subsidy leads to near efficient extraction but surprisingly leads groups that were not over extracting to also reduce extraction this over compliance decreases efficiency although on net the subsidy is the most efficiency enhancing intervention information provision communication normative appeals and normative appeals combined with communication all reduce over extraction though by less than the subsidy without exacerbating over compliance however the effects of information alone and communication alone are small and not robust the non price policies cause a decline in over extraction of from 0 549 information to 11 441 normative appeals with communication these effects are of the same order of magnitude as the effects seen in major field studies of conservation messaging the subsidy has the worst persistence properties after the intervention ceases while normative messages with communication have the best

price convexity and skewness this paper develops a model in which investors who are prohibited from short selling agree to disagree on the precision of a publicly observed signal the model implies that the equilibrium price is a convex function of the public signal the model predicts that 1 the stock price reacts more to good news than to bad news 2 the skewness of stock returns is positively correlated with contemporaneous returns but negatively correlated with lagged returns 3 short sale constraints increase rather than decrease skewness and 4 disagreement about information precision increases skewness empirical tests conducted find supportive evidence for all these predictions

differential information and security market equilibrium we propose a simple model of equilibrium asset pricing in which there are differences in the amounts of information available for developing inferences about the returns parame ters of alternative securities in contrast with earlier work we show that parameter uncer tainty or estimation risk can have an effect upon market equilibrium under reasonable conditions securities for which there is relatively little information are shown to have relatively higher systematic risk when that risk is properly measured ceteris paribus the initially very limited model is shown to be robust with respect to relaxation of a number of its principal assumptions we provide theoretical support for the empirical examination of at least three proxies for relative information period of listing number of security returns observations available and divergence of analyst opinion

do demand curves for stocks slope down since september 1976 stocks newly included into the standard and poor s 500 index have earned a significant positive abnormal return at the announcement of the inclusion this return does not disappear for at least ten days after the inclusion the returns are positively related to measures of buying by index funds consistent with the hypothesis that demand curves for stocks slope down the returns are not related to s p s bond ratings which is inconsistent with a plausible version of the hypothesis that inclusion is a certification of the quality of the stock

on the unprofitability of utility demand side conservation programmes abstract this paper analyses the economic prospects of demand side conservation programmes the essence of various proposals is that conservation measures should be a part of least cost planning at least if marginal production costs are high and consumers decisions are distorted market failures the weakness of this literature is that it assumes that the consumers remain passive when the utilities invest in conservation this paper remedies this deficiency and considers strategic interactions between consumers and a public utility stackelberg equilibria it will be shown that strategic interactions render unprofitable demand side conservation programmes that appear profitable by conventional criteria the reason is that rational consumers will respond strategically to the prevalence of utility sponsored conservation programmes by minimizing their own expenses for energy efficiency

the impact of household behavioral changes on ghg emission reduction in lithuania abstract it is commonly understood that households must change their behavior to reduce problems related increased energy consumption and climate change therefore in the search of cheap ghg emission reduction measures households are an important target group because they are responsible for more than 20 of total energy consumption in developed countries in addition waste management and responsible consumption of products are the key issues in ghg emission reduction the aim of the paper is to assess ghg emission reduction potential in households in terms of behavioral changes towards sustainable consumption the review of literature on analysis of households behavioral changes impact on ghg emission reduction was performed the daily survey of household agenda and energy use records were performed in lithuania for two scenarios baseline and ghg emission reduction scenario including energy saving ghg emission reduction potential in household was assessed based on daily survey data and energy consumption records by applying carbon calculator based on modified coefficients evaluated ghg emission reduction potential in households was compared with ghg emission reduction potentials in other sectors of lithuania based on analysis performed in the paper the tools to promote household behavioral changes towards sustainable consumption were proposed

estimating energy conservation patterns of greek households abstract this paper develops an empirical model to investigate the main determinants of household energy conservation patterns in greece employing cross section data in the empirical analysis household energy conserving choices models are employed using a discrete and a latent trait variable respectively as a dependent variable the results show that socio economic variables such as consumers income and family size are suitable to explain differences towards energy conservation preferences in addition the results suggest that electricity expenditures and age of the respondent are negatively associated with the number of energy conserving actions that a consumer is willing to adopt finally other variables such as environmental information feedback and consciousness of energy problems are characteristics of the energy saver consumer by evaluating consumer s decision making process with regards to energy conservation measures we are able to formulate and propose an effective energy conservation framework for greece an energy policy framework is among the main prerequisites not only to achieve sustainable development but also to maintain consumers quality of life

demand side management by electric utilities in switzerland analyzing its impact on residential electricity demand abstract in this paper we use panel data from a survey conducted on 30 utilities in switzerland to estimate the impact of demand side management dsm activity on residential electricity demand using the variation in dsm activity within utilities and across utilities over time we identify the impact of dsm programs and find that their presence reduces per customer residential electricity consumption by around 5 if we consider monetary spending the effect of a 10 increase in dsm spending causes a 0 14 reduction in per customer residential electricity consumption the cost of saving a kilowatt hour is around 0 04chf while the average cost of producing and distributing electricity in switzerland is around 0 18chf per kilowatt hour we conclude that current dsm practices in switzerland have a statistically significant effect on reducing the demand for residential electricity

the impacts of energy efficiency policies meta analysis abstract this paper attempts to quantitatively summarize the existing empirical evidence on the effects of energy efficiency policies on energy demand and on the price of associated durable goods as well as to identify the main factors that systematically affect the estimated impacts to this end a meta regression analysis of the effects of energy efficiency policies is carried out on the basis of an extensive review of the existing literature selecting those studies that analyze the impact of energy efficiency policies with respect to a business as usual setting taking into account the econometric problems associated with this type of analysis intra class correlation cross sectional dependence publication bias in pursuit of robust outcomes the results show that the studies analyzing the effects of energy efficiency policies estimate a significant impact of these policies on energy demand 10 5 8 8 and the price of related durable goods 7 9 6 the main factors that influence results are the policy instrument the targeted sector the type of country the analyzed period the consideration of free riders and the type of analysis data and publication energy demand and the sector and analyzed period price of durables

the demand for electricity in israel quarterly data for israel are used to compare and contrast three dynamic econometric methodologies for estimating the demand for electricity by households and industrial companies these are the dynamic regression model and two approaches to cointegration ols and maximum likelihood since we find evidence of seasonal unit roots in the data we also test for seasonal cointegration we find that the scale elasticities are similar in all three approaches but the ols price elasticities are considerably lower moreover ols suggests non cointegration the paper concludes by stochastically simulating the drms to calculate upside risk in electricity demand