on the impacts of oil price fluctuations on european equity markets volatility spillover and hedging effectiveness the objective of this paper is to investigate the volatility spillovers between oil and stock markets in europe as not all industries are expected to be equally affected by oil price changes we conduct our study at both the aggregate as well as sector levels empirically we make use of a recently developed var garch approach which allows for transmissions in volatilities in addition we analyze the optimal weights and hedge ratios for oil stock portfolio holdings based on our results on the whole our findings show significant volatility spillovers between oil price and sector stock returns and suggest that a better understanding of those links is crucial for portfolio management in the presence of oil price risk

food versus fuel an updated and expanded evidence abstract this paper replicates the study of zhang et al 2010 food versus fuel what do prices tell us energy policy 38 pp 445 451 we confirm the findings of the original paper that there was only a weak relationship between ethanol and food commodities in the period between march 1989 and july 2008 in addition we extend that study and examine the cointegration relationship between biofuels and related commodities for a considerably enlarged dataset 3 vs 1 market 26 vs 8 commodities analysis up till 2017 vs 2008 weekly vs monthly data frequency focusing on the biofuel markets of brazil the eu and the usa in the three separate periods before during and after the food crisis of 2007 and 2008 we show that studying the time variation of the relationships plays an essential role in their proper understanding our results help to clarify the wide extensive discussion about the role of biofuels prices in food shortages manifested particularly during the food crises in agreement with the original study we confirm that price series data do not support strong statements about biofuels uniformly serving as main leading source of high food prices and consequently the food shortages

bayesian estimation and selection of nonlinear vector error correction models the case of the sugar ethanol oil nexus in brazil nonlinear adjustment toward long run price equilibrium relationships in the sugar ethanol oil nexus in brazil is examined we develop generalized bivariate error correction models that allow for cointegration between sugar ethanol and oil prices where dynamic adjustments are potentially nonlinear functions of the disequilibrium errors a range of models are estimated using bayesian monte carlo markov chain algorithms and compared using bayesian model selection methods the results suggest that the long run drivers of brazilian sugar prices are oil prices and that there are nonlinearities in the adjustment processes of sugar and ethanol prices to oil price but linear adjustment between ethanol and sugar prices

the biodiversity supergame this paper considers the ability of developed countries to sustain a cooperative agreement to compensate developing countries for the incremental costs of biodiversity conservation it is shown that depending on certain parameter values and the model specification such an agreement could only codify the non cooperative outcome or achieve the full cooperative outcome where global net benefits are maximized however where the agreement can sustain the full cooperative outcome net benefits will be only slightly larger than in the noncooperative outcome

the arms trade the arms trade winners and losers the arms trade is highly controversial and raises difficult policy issues the controversies tend to concentrate on the moral military and political dimensions of arms exports decisions quite a lot of light can be shed on this murky market by asking basic economic questions and using standard economic models we begin with a structured economic description of the evolution of the international arms market in terms of the factors that influence demand and supply and thus prices and quantities then we review the policy issues faced by eu members in particular whether a common control regime is needed to harmonize their regulation of arms exports to address these policy issues we present some models of the market that we have developed and examine their implications for the interesting interactions that characterize the trade paul levine and ron smith

price output and exchange rate movements in the open economy abstract since the advent of managed floating it has come to be accepted as a stylized fact that short run deviations from purchasing power parity are both substantial and persistent two explanations of these deviations have been advanced in the literature one emphasizes the role of changes in non traded goods prices while the other views deviations from purchasing power parity as being due to sticky goods prices and slow adjustment of goods markets this paper presents yet a third possible explanation of deviations from purchasing power parity they may be necessary in order to facilitate the relative price changes that are required to maintain equilibrium in the face of unanticipated shocks in addition the issue of exchange rate overshooting is addressed whereas the sticky price models view exchange rate overshooting and exchange rate volatility as symptoms of some fundamental disequilibrium the perspective taken here is that these events are in principle compatible with a world in which all markets clear continuously

does oil move equity prices a global view many studies indicate that oil price shocks have an adverse effect on real output and hence an adverse effect on corporate profits where oil is used as a key input the present study examines whether and to what extent the adverse effect of oil price shocks impacts stock market returns to this end we analyse 35 datastream global industry indices for the period from april 1983 to september 2005 our findings indicate that oil price rises have a negative impact on equity returns for all sectors except mining and oil and gas industries generally these results are consistent with economic theory and evidence provided by previous empirical studies little evidence of any asymmetry is detected in the oil price sensitivities in light of our findings we recommend that international portfolio investors consider hedging oil price risk

international stock market linkages evidence from the pre and post october 1987 period abstract this paper uses recent developments in the theory of cointegration to provide new methods of testing the linkage and dynamic interactions among stock market movements our findings are in sharp contrast with previous research which discovered strong interdependence among national stock markets prior to october 1987 for the post october 1987 period however our results show that the degree of international co movements among stock price indices has increased substantially with the nikkei index the only exception furthermore the us stock market is found to have a considerable impact on the french german and uk markets in the post crash period we also find the response of the french german and uk markets to us stock market innovations to be consistent with the view of cross border informationally efficient stock markets finally we find the japanese equity market performance to have no links with both the us stock market and the stock markets in france germany and uk during the pre and post october crash period

models of military expenditure a brief review of the extensive empirical literature devoted to explaining levels of military expenditure indicates a wide variety of unreconciled results however comparing the alternative models is not straightforward this paper uses british post war military expenditures to illustrate some of the methodological issues involved in model comparison evaluation and selection starting from two published models for the uk a systematic specification search leads to a new model which dominates alternative specifications passes a wide range of misspecification tests and also fits well to french data

economics of alliances the lessons for collective action this essay provides an up to date summary of the findings of the literature on the economics of alliances we show that the study of the economics of alliances has played a pivotal role in understanding and applying public good analysis to real world applications we establish that the manner in which alliances address burden sharing and allocative issues is related to strategic doctrines weapon technology perceived threats and membership composition past contributions are evaluated and areas needing further development are identified the theoretical and empirical knowledge gained from the study of alliances is shown to be directly applicable to a wide range of international collectives

oil prices and the rise and fall of the us real exchange rate abstract questions of the relative importance of real vs monetary shocks in explaining exchange rate movements still have no widely accepted answer despite their importance both for the research agenda and for policy questions we examine this issue using a variety of empirical techniques for the us effective exchange rate we find that a stable link exists between oil price shocks and the us real effective exchange rate over the post bretton woods period the results suggest that oil prices may have been the dominant source of persistent real exchange rate shocks and that energy prices may have important implications for future work on exchange rate behavior

time consistent collection of optimal seigniorage a unifying framework this paper reviews the existing literature on the time consistency problem of seigniorage collection when monetary policy is determined by optimal taxation considerations it develops a unifying accounting framework and suggests a general measure for seigniorage which encompasses the standard measures employed in the literature in addition the ex ante optimal solution to the optimal taxation problem is derived and interpreted in relation to the ramsey principle we show that the different recommendations of the public finance literature i e the friedman rule of optimal deflation moderately positive inflation and seigniorage maximizing inflation are specific solutions to the optimal taxation problem the paper continues with a formal illustration of the time consistency problem of the ex ante optimal policy and the characterization of the time consistent solution under discretion as possible solutions to the time consistency problem we consider reputational forces institutional reforms that establish central bank independence and specific ways of asset and debt management in particular it is formally shown that a modified version of the asset and debt management scheme suggested by persson persson and svensson is not only necessary but also sufficient for optimality although this did not hold in their model

union wage setting and exchange rate policy the performance of an optimally managed float is compared with that of a credibly fixed exchange rate in a small open economy framework where wages are set by a monopoly union two key results emerge first a sufficient condition for the managed float to outperform a fixed rate is that the union be no less inflation averse than society second introducing an inflation target into the central bank s loss function ensures the superiority of the managed float regardless of the weight attached to inflation by the union both results reflect the sensitivity of the union mark up to the policy regime

the arms trade and the stability of regional arms races abstract arms sales to countries involved in regional conflicts raise a range of pressing policy issues this paper models the interaction between two potentially hostile countries who spend their national income on arms imports and consumption goods their welfare depends on consumption and military security military security is a function of relative arms stocks and depends on the relative advantages of aggressive and defensive strategies we examine the dynamic game for noncooperative and regional arms control regimes an innovation of the paper is the inclusion of the price of arms which proves to have a major effect on the stability of arms races

food energy nexus in europe price volatility approach abstract the literature on food biofuel price volatility spillovers is growing published articles so far have widely ignored nonlinearities and the influence of exogenous variables on volatility patterns this article allows for these issues when characterizing eu biodiesel industry price dynamics while brazilian and us ethanol markets have been thoroughly investigated less attention has been paid to eu biodiesel markets pure eu biodiesel and rapeseed oil prices are the object of our research two different methods are applied to model these data a parametric approach and long et al s 2011 semiparametric approach empirical results suggest significant asymmetries in volatility spillovers between pure biodiesel and rapeseed oil prices rapeseed stock levels and euro dollar exchange rates are found to play a significant role in reducing food and biofuel price volatilities

wti crude oil futures in portfolio diversification the time to maturity effect the aim of the paper is to analyze the diversification effect brought by crude oil futures contracts the most liquid commodity futures into a portfolio of stocks the studies that have documented the very low and essentially negative correlations between commodities and equities typically rely on normally distributed returns which is not the case for crude oil futures and stocks indexes moreover the particular time to maturity chosen for the future contract used as an investment vehicle is an important matter that needs to be addressed in presence of forward curves switching between backwardation and contango shapes our goal in this paper is twofold a we introduce copula functions to have a better representation of the dependence structure of oil futures with equity indexes b using this copula representation we are able to analyze in a precise manner the maturity effect in the choice of crude oil future contract with respect to its diversification benefits our finding is that in the case of distant maturities futures e g 18 months the negative correlation effect is more pronounced whether stock prices increase or decrease this property has the merit to avoid the hurdles of a frequent roll over while being quite desirable in the current trendless equity markets empirical evidence is exhibited on a database comprising the nymex wti crude oil futures and s p 500 index over a 15 year time period

world oil market or mayhem the world oil market is regarded by many as a puzzle why are oil prices so volatile what is opec and what does opec do where are oil prices headed in the long run is peak oil a genuine concern why did oil prices spike in the summer of 2008 and what role did speculators play any attempt to answer these questions must be informed and disciplined by economics such is the purpose of this essay to illuminate recent developments in the world oil market from the perspective of economic theory

cointegration and threshold adjustment this article proposes an extension to the engle granger testing strategy by permitting asymmetry in the adjustment toward equilibrium in two different ways we demonstrate that our test has good power and size properties over the engle granger test when there are asymmetric departures from equilibrium we consider an application namely whether there exists cointegration among interest rates for instruments with different maturities this issue has been widely tested with mixed results we argue that either cautious policy or possibly opportunistic behavior on the part of the federal reserve implies that an equilibrium relationship between short and long term interest rates exists but that adjustments from disequilibrium are asymmetric in nature empirical tests using u s yields confirm the asymmetric nature of error correction among interest rates of different maturities

sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate a garch m model abstract the objective of this paper is to employ the generalized autoregressive conditionally heteroskedastic in the mean garch m methodology to investigate the effect of interest rate and its volatility on the bank stock return generation process this framework discards the restrictive assumptions of linearity independence and constant conditional variance in modeling bank stock returns the model presented here allows for shifts in the volatility equation in response to the changes in monetary policy regime in 1979 and 1982 to be estimated arch garch and volatility feed back effects are found to be significant interest rate and interest rate volatility are found to directly impact the first and the second moments of the bank stock returns distribution respectively the latter also affects the risk premia indirectly the degree of persistence in shocks is substantial for all the three bank portfolios and sensitive to the nature of the bank portfolio and the prevailing monetary policy regime

gold oil dependence dynamics and the role of geopolitical risks evidence from a markov switching time varying copula model abstract this paper examines the dependence structure and dynamics between gold and oil prices specifically we study the hedge and safe haven ability of gold for oil prices using daily gold prices and west texas intermediate institute wti crude oil spot prices to this end we employ time varying markov switching copula models the period of the analysis spans from 2 january 1985 to 30 november 2017 the heterogeneity of market agents is captured by decomposing the raw original series into different multi resolution analysis mra investment horizons d1 s9 furthermore we examine the effect of geopolitical risks on the dynamic dependence between gold and oil we provide evidence of time varying markov tail dependence structure and dynamics between gold and oil while our results show that gold is a good hedge for oil returns and for short and medium term investors it cannot protect long term investors against losses arising from increasing oil prices we also provide evidence in support of the safe haven ability of gold for oil moreover we show that the inclusion of geopolitical risks in a pure gold and oil asset portfolio provides diversification benefits since the former has mostly a negative effect on the dependence structure between gold and oil

when will occur the crude oil bubbles abstract in this paper we apply a recursive unit root test to investigate whether there exist multiple bubbles in crude oil price the method is best suited for a practical implementation of a time series and delivers a consistent date stamping strategy for the origination and termination of multiple bubbles the empirical result indicates that there exist six bubbles during 1986 2016 when the oil price deviate from its intrinsic value based on market fundamentals specifically oil price contains the fundamentals and bubble components the dates of the bubbles correspond to specific events in the politics and financial markets the authorities should actively fight speculative bubbles or just observe their evolutions and speculation activities may decrease which is favour of the stabilisation of the staple commodities including crude oil price these findings have important economic and policy implications to recognise the cause of bubbles and take corresponding measures to reduce the impact on the real economy cause of the fluctuation of crude oil price

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

political news and stock prices the case of saddam hussein contracts abstract this paper studies the association between the market s expectations of saddam hussein s fall from power as reflected in saddam contract prices and stock prices oil prices and exchange rates during the war a rise in the probability of saddam s fall which also indicated a speedy end to the war was positively and significantly associated with stock prices strengthened the dollar against the euro and lowered oil prices before the war a rise in the probability of saddam s fall which may also have indicated the probability of a costly war breaking out lowered stock prices which adjusted gradually to this information

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

crude oil and the macroeconomy tests of some popular notions a note perhaps no other economic events in the post world war ii era have generated as much attention as the series of crude oil price shocks that have jolted the world economy since the opec boycott of 1973 a tremendous amount of space in the popular and professional literature has been devoted to analyzing the impacts of these shocks on the developed economies and the adjustments these shocks have induced one residual of this literature has been a general impression that since 1973 the functional relationship between crude oil prices and the developed macroeconomies has been dramatically and fundamentally altered yet to our knowledge no one has formally tested this impression recent evidence of hamilton 1983 suggests that crude oil prices had a strong impact on the u s business cycle well before 1973 further while textbook treatments of oil price shocks tend to highlight cost push inflationary effects the research of berndt and wood 1975 1979 and wilcox 1983 indicates the net complementarity between energy and capital in the u s economy is quite strong both before and after 1973 thus oil price shocks may have stronger real effects than generally believed in this paper we formally test three popular notions associated with the so called

oil and resource backed aggression a common misperception about oil politics is that it has a uniform monolithic effect on policy development this paper argues that in fact the net political effect of oil varies dramatically depending on the nature of the petrostate it shows that oil income when combined with revolutionary governments in petrostates generates strong incentives for foreign policy aggression and international conflict the aggressiveness of petro revolutionary states is shown to have consequences in both military and economic spheres of international relations militarily the aggressiveness of this type of state leads to a high rate of armed conflicts economically the aggressiveness of petro revolutionary states shapes global oil markets and international economic relations the argument is tested using statistical analysis of international conflicts and economic sanctions the policy implications are then considered focusing on the negative global impacts of dependence on oil consumption

what do we learn from the price of crude oil futures summary despite their widespread use as predictors of the spot price of oil oil futures prices tend to be less accurate in the mean squared prediction error sense than no change forecasts this result is driven by the variability of the futures price about the spot price as captured by the oil futures spread this variability can be explained by the marginal convenience yield of oil inventories using a two country multi period general equilibrium model of the spot and futures markets for crude oil we show that increased uncertainty about future oil supply shortfalls under plausible assumptions causes the spread to decline increased uncertainty also causes precautionary demand for oil to increase resulting in an immediate increase in the real spot price thus the negative of the oil futures spread may be viewed as an indicator of fluctuations in the price of crude oil driven by precautionary demand an empirical analysis of this indicator provides evidence of how shifts in the uncertainty about future oil supply shortfalls affect the real spot price of crude oil copyright 2010 john wiley sons ltd

impact of food price volatility on the us restaurant sector although fluctuations in agricultural commodity prices appear to be a source of risk to the us restaurant sector the effect that volatility of food price has on the performance returns of that s

complementarity free riding and the military expenditures of nato allies abstract this paper examines the major influences of an ally s demand for military expenditures demand equations are estimated for a sample of nato nations using the iterative seemingly unrelated regressions technique evidence is presented indicating that structural changes occured in these equations in the early 1970s this instability is the predicted effect of the doctrine of flexible response adopted by nato during this time period the statistical tests show that the medium sized nuclear powers military expenditures responded identically to income and defense spillins the same held true for the lowland allies

credibility and exchange rate management in developing countries abstract the paper discusses the role of credibility factors in the conduct of exchange rate policy in developing countries the analysis is based on a simple framework in which policymakers are concerned about inflation and external competitiveness price setters in the nontradable sector of the economy engage in a strategic game against the authorities the model generates a devaluation bias which undermines the credibility of a fixed exchange rate the role of reputational factors signaling considerations and joining a currency union as possible solutions to this bias is examined

biofuel related price transmission literature a review abstract in this article an extensive review of the rapidly growing biofuel related time series literature is carried out the data used the modeling techniques and the main findings of this literature are discussed providing a review of this flourishing research area is relevant as a guidepost for future research this literature concludes that energy prices drive long run agricultural price levels and that instability in energy markets is transferred to food markets

guns and oil an analysis of conventional weapons trade in the post cold war era i introduction the end of the cold war saw a dramatic reduction in the international trade in conventional weapons from an all time peak of 86 7 billion 19995 in 1987 world arms imports fell to 51 6 billion 19995 in 1999 bureau of verification and compliance 2002 but some important trends emerged during the decade of the 1990s that warrant analysis first a vast majority of conventional weapons went to the persian gulf countries with saudi arabia emerging as the world s single largest weapons importer though by the end of the 1990s taiwan was a significant importer as well on the export side the singular dominance of the united states was notable in 1999 its share in world arms exports was 64 an all time record bureau of verification and compliance 2002 second the motivations underlying the trade in weapons seem to have changed fundamentally during the cold war much of the arms trade was driven by geopolitical factors associated with the arms race and the action reaction type behavior of the two superpowers however matelly 2003 shows that while the arms race between the united states and the former soviet union can explain u s military expenditures between 1952 and 1989 it fails to predict these expenditures in the post cold war period anderton 1995 532 argues that there has been a shift from political to economic motives for arms transfers our goal in this article was to determine both analytically and empirically the main drivers of international arms transfers in the immediate post cold war period 1989 1999 we postulate that the key reasons for the huge transfer of weapons to the persian gulf region are the enormous value of the oil wealth there and the dependence of western economies especially the united states and its allies on access to the reasonably priced and steady supply of crude oil from this region 1 for most of the years between 1989 and 1999 world oil prices remained remarkably stable and between about 15 20 per barrel the notable exceptions being the iraq kuwait war year of 1990 and 1998 chapman and khanna 2006 this was the result of an explicit organization of petroleum exporting countries opec price policy under which production was expanded or contracted to maintain prices within the target range military security in the persian gulf region including the export of weapons from the united states and its allies to the persian gulf countries was an integral part of the institutional framework that supported the oil price arrangement chapman and khanna 2001 2006 we employ a traditional demand and supply framework which includes economic factors such as production costs on the supply side and income and prices on the demand side but also incorporate the political economic factors represented by the trade in crude oil we find that the association between arms trade and crude oil trade is robust regardless of the empirical specification or data sources there is a strong and positive association between arms exports and crude oil import on the one hand and between arms imports and crude oil exports on the other the link between arms trade and crude oil trade is not new after the decline of military aid programs such as the u s military assistance program weapons transactions became more commercial historically unprecedented opec oil revenues in the 1970s and 1980s provided an alternative source of finance and much of these petrodollars were spent on importing weapons conversely weapons exporting countries found a means to offset the balance of payments discrepancy that resulted from the higher oil prices levine sen and smith 1994 3 smith humm and fontanel 1985 240 241 but the period considered in this study 1989 1999 was an era of relatively low and stable oil prices and this argument is not very satisfactory 2 the outline of the article is as follows in section ii we describe the analytical framework for trade in conventional weapons

international patterns in military spending my main purpose in this article is to investigate the military spending correlates using international cross sectional data for 1984 this perspective broadly mirrors that of a maizels and m k nissanke who investigated the determinants of military spending for a cross section of developing countries and r p smith who examined a cross section of industrialized countries in contrast my effort embraces both developed and developing countries as well as market and centrally planned economies but distinguishes countries on the more relevant basis of whether they are in conflict and whether they belong to alliances such as the north atlantic treaty organization nato and the warsaw pact an advantage of cross sections such as this is that it makes it possible to distinguish broad patterns in defense spending across the world as a whole a disadvantage is that one cannot infer dynamic behavior from cross sections in which case strategic theories of arms expenditure cannot be investigated satisfactorily 2 the same applies to dynamic versions of the neoclassical theory of military expenditure 3 however international cross sections and national time series are more likely to be complements than substitutes in research in the next section i propose a simple model of military expenditure that is investigated in section iv by cross sectional data for 137 countries the model is based on the premise that military expenditure deters war and departs from previous theoretical efforts in that it applies state preference theory to determine the demand for military spending in section iii i consider other variables that in terms of the model may also affect military spending via its shadow price since the sample consists of cross sectional data i pay particular attention to various specification tests that are usually ignored these suggest that the results are not independent of the method used for normalizing

price formation in the german biodiesel supply chain a markov switching vector error correction modeling approach changing linkages between agricultural and energy markets have attracted considerable attention in research and policy discussions during recent years as one of the largest biofuel markets worldwide the german biodiesel market is of particular interest it has grown rapidly since the beginning of the new millennium with this growth being driven mainly by political interventions vertical price transmission channels along the biodiesel supply chain are analyzed in this study we examine the relationship between diesel and biodiesel prices and between rapeseed oil soy oil and biodiesel prices between 2002 and 2008 due to pronounced changes in market conditions and the policy framework a regime dependent markov switching vector error correction model is used the regimes are characterized by markedly different price adjustment behaviors before 2005 and from late 2007 onward a regime characterized by the strong orientation of biodiesel prices toward diesel prices dominates between 2005 and 2007 biodiesel and rapeseed oil prices are mutually interdependent frequent switches between the regimes of the price dynamics during this period indicate a high extent of uncertainty and instability in the market

causality cointegration and control abstract the first sections of the paper show that causality tests can be relevant when considering the effectiveness of a control mechanism rejecting some results in earlier papers the relevance comes from a more careful consideration of what information is available to whom and when compared to previous work the final section of the paper extends this analysis to cointegrated variables when causality is a necessary consequence

quantifying the speculative component in the real price of oil the role of global oil inventories abstract one of the central questions of policy interest in recent years has been how many dollars of the inflation adjusted price of oil must be attributed to speculative demand for oil stocks at each point in time we develop statistical tools that allow us to address this question and we use these tools to explore how the use of two alternative proxies for global crude oil inventories affects the empirical evidence for speculation notwithstanding some differences overall these inventory proxies yield similar results while there is evidence of speculative demand raising the price in mid 2008 by between 5 and 14 dollars depending on the inventory specification there is no evidence of speculative demand pressures between early 2003 and early 2008 as a result current policy efforts aimed at tightening the regulation of oil derivatives markets cannot be expected to lower the real price of oil in the physical market we also provide evidence that the libyan crisis in 2011 shifted expectations in oil markets resulting in a price increase of between 3 and 13 dollars depending on the inventory specification with regard to tensions with iran in 2012 the implied price premium ranges from 0 to 9 dollars

contagion as a domino effect in global stock markets this paper shows that stock market contagion occurs as a domino effect where confined local crashes evolve into more widespread crashes using a novel framework based on ordered logit regressions we model the occurrence of local regional and global crashes as a function of their past occurrences and financial variables we find significant evidence that global crashes do not occur abruptly but are preceded by local and regional crashes besides this form of contagion interdependence shows up by the effect of interest rates bond returns and stock market volatility on crash probabilities when it comes to forecasting global crashes our model outperforms a binomial model for global crashes only

the dependence structure across oil wheat and corn a wavelet based copula approach using implied volatility indexes abstract this paper examines the dependence structure between three commodities implied volatility indexes oil wheat and corn during bear normal and bull markets and at different scales for this purpose we combine wavelet and copula methods to analyse the changes of the tail dependence at different scales or investment horizons the results support evidence of time varying asymmetric tail dependence between the pair of cereals as well as between oil and the two cereals at different time horizons short term horizon medium term horizon and long term horizon suggesting that the dependence structure is sensitive to time horizons these results have important implications for the analysis of portfolio risk management

influences on executive and congressional budgetary priorities 1955 1981 a reduced form equation system is used to analyze the influence of economic political and institutional influences on the budgetary priorities of the executive branch and congress during fiscal 1955 81 three related issues are considered the extent to which political and macroeconomic factors affect priorities the degree of interdependence among the components of the federal budget and between spending and revenues and differences between the executive branch and congress with respect to these issues both types of interdependence are present within both executive branch and congressional budgeting although this interdependence is stronger within the executive branch the influence of economic conditions on budgetary outcomes is strong but varies considerably across spending categories there is no evidence of apolitical business cycle political variables exert a modest influence on the budgetary outcomes examined differences between democratic and republican budgetary policies as well as differences in the budgetary priorities of different presidential administrations are small by comparison with the differences between executive and congressional policies

dynamic correlation analysis of financial contagion evidence from asian markets we apply a dynamic conditional correlation model to nine asian daily stock return data series from 1990 to 2003 the empirical evidence confirms a contagion effect by analyzing the correlation coefficient series we identify two phases of the asian crisis the first shows an increase in correlation contagion the second shows a continued high correlation herding statistical analysis of the correlation coefficients also finds a shift in variance during the crisis period casting doubt on the benefit of international portfolio diversification evidence shows that international sovereign credit rating agencies play a significant role in shaping the structure of dynamic correlations in the asian markets

the political economy of scandinavian neutrality the article examines whether three of the neutral nations of eu rope sweden switzerland and finland have adhered to their choice of armed neu trality by being self reliant on their own defenses using a joint product model the authors specify a reduced form equation for a nation s demand for military expenditures empirical estimates of these demands suggest that sweden free rod e on nato after institution of the doctrine of flexible response however the o thertwo netural nations have been self reliant throughout the period 1957 82 w ith pooled data cross equation restrictions highlight theessential differences between nato and nonaligned scandinavian countries copyright 1986 by the editors of the scandinavian journal of economics

the indexation of wages and bonds in brazil this paper analyses the dynamic relationship between the degrees of indexation of wages and public bonds in brazil a simple model is constructed to show that both degrees of indexation are determined simultaneously we apply cointegration techniques and estimate error correction representations to assess the temporal causality between them our results provide empirical support for the existence of simultaneity in the degrees of indexation in brazil in the period 1980 93

credibility capital controls and the ems abstract a common rationale for membership in an exchange rate arrangement such as the european monetary system ems is that may enhance the credibility of a central bank s commitment to stable monetary growth in this paper we consider this idea in the lightof two other features of the ems namely the existence of exchange rate bands on the ongoing liberalization of capital controls we find that capital controls themselves affect credibility in a way that depends on the exchange rate bands we also show that it is difficult to reconcile the non zero width of the bands with the credibility based interpretation of the ems

time frequency causality and connectedness between international prices of energy food industry agriculture and metals abstract this study analyzes the lead lag relationship between the price indices of energy fuels and each of food industrial inputs agriculture raw materials metals and beverages in the time frequency domain to this end we first use the wavelet coherency and phase differences next we use the diebold and yilmaz 2012 and barunik and krehlik 2017 spillover indices to analyse the connectedness among the set of the price indices under consideration the period of the study is 1990m1 to 2017m5 the wavelet coherency results reveal that there are important and significant relations between the fuel and food prices the fuel and industrial prices and the fuel and metal prices these results also show that there are phase relationships between those paired prices the volatility spillover results indicate that the agricultural sector is the most affected by shocks from the other markets the return series of the industrial input prices at all frequencies appears to be the main source of volatility transmission to the prices of the other commodities over the whole period this finding underlines the relevance of the industrial inputs to policy makers particularly when they design policies to provide incentives related to industrial production

the determinants of military expenditures in developing countries abstract this paper first discusses the results of various quantitative studies of the impact of military spending on economic growth in developing countries it concludes that there is little doubt that this impact is generally negative the paper then proceeds to consider the main factors influencing the level of military expenditure itself the analysis is developed from a conceptual matrix covering the national regional and global levels each being divided into political military and economic aspects the quantitative analysis based on cross country regressions for the period 1978 to 1980 indicates that differences among developing countries in the relative size of their military burdens reflect a complex of factors both domestic regional and global and both political military and economic

what will take the con out of econometrics the paper begins with the question of whether leamer s extreme bounds analysis eba really does take the con out of econometrics by analytically demonstrating that the extreme bounds are simply functions of the f statistic for the deletion of variables from a regression we conclude that the information provided by eba represents no advance over that available from traditional methods furthermore there is a degree of arbitrariness in eba which exactly parallels the selective reporting of regressions it was designed to supplant the last part of the paper attempts a positive response to its title by following a well defined series of modelling steps we maintain that cooley and le roy s eba derived conclusions concerning the interest elasticity of money demand owe more to a faulty methodology than to the data this abstract was borrowed from another version of this item

the arms trade and arms control this paper constructs a dynamic model of the arms trade in which there are a small number of suppliers who care about the profits from the trade and the security consequences of the sale and a large number of interacting buyers who are concerned about their security relative to regional rivals we derive the equilibrium under a number of assumptions about market structure this model is then used to evaluate the benefits and sustainability of a proposed arms control regime which involves establishing a cartel of suppliers taxing arms exports and distributing the proceeds to recipients

volatility spillovers between food and energy markets a semiparametric approach previous literature on volatility links between food and energy prices is scarce and mainly based on parametric approaches this article examines these links by using a semiparametric garch model recently proposed by long et al 2011 which is essentially a nonparametric correction of the parametric conditional covariance function the analysis focuses on price links between crude oil ethanol and sugar prices in brazil results suggest strong volatility links between the prices studied parametric approximations of the conditional covariance matrix may lead to misleading results that can be improved upon by using nonparametric techniques

america s historical experience with low inflation the inflation of the 1970s was a marked deviation from america s typical peacetime historical pattern as a hard money country we should expect america to continue to be a hard money low inflation country in the future at least in peacetime the low rate of future inflation that we thus forecast changes the balance of macroeconomic risks and opportunities the risk of debt deflation mediated recessions is somewhat higher because a low trend rate of goods and services price index inflation somewhat increases the chances of deflation but it does not raise such risks as much as one might think the failure of the fisher effect to hold empirically means that a low inflation era will in all likelihood be a high real interest rate era but such high real interest rates do not appear to significantly discourage investment or growth

oil and the macroeconomy since the 1970s economists have long been intrigued by empirical evidence that suggests that oil price shocks may be closely related to macroeconomic performance this interest dates back to the 1970s the 1970s were a period of growing dependence on imported oil unprecedented disruptions in the global oil market and poor macroeconomic performance in the united states thus it was natural to suspect a causal relationship from oil prices to u s macroeconomic aggregates since then a large body of work has accumulated that purports to establish this link on theoretical grounds and to provide empirical evidence in its support we do not attempt a comprehensive survey of this literature but rather provide an idiosyncratic synthesis of what we view as the key issues in this debate and the insights gained over the last 30 years the timing seems right for such an account although the experience of the 1970s continues to play an important role in discussions of the link between oil and the macroeconomy there have been a number of new oil price shocks since the 1970s notably the 1986 collapse of oil prices and the 2000 boom in oil prices as well as the oil price increases associated with the 1990 1991 gulf war and the 2003 iraq war given this richer case history we are arguably in a better position than two decades ago to distinguish the idiosyncratic features of each oil crisis from the systematic effects increases in oil prices have been held responsible for recessions periods of excessive inflation reduced productivity and lower economic growth in this paper we review the arguments supporting such views first we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining

nonlinearities in the u s corn ethanol oil gasoline price system we use a smooth transition vector error correction model to assess price relationships within the u s ethanol industry monthly ethanol corn oil and gasoline prices from 1990 to 2008 are used in the analysis results indicate the existence of long run relationships among the prices analyzed strong links between energy and food prices are identified

asymmetric volatility transmission in international stock markets abstract the transmission mechanism of price and volatility spillovers across the new york tokyo and london stock markets is investigated the asymmetric impact of good news market advances and bad news market declines on volatility transmission is described by an extended multivariate exponential generalized autoregressive conditionally heteroskedastic egarch model using daily open to close returns we find strong evidence that volatility spillovers in a given market are much more pronounced when the news arriving from the last market to trade is bad a before and after october 1987 crash analysis reveals that the linkages and interactions among the three markets have increased substantially in the post crash era suggesting that national markets have grown more interdependent

german debt traded in london during the second world war a british perspective on hitler two series of german bonds issued in 1924 and 1930 traded on the london stock exchange throughout hitler s 1933 45 regime in germany we isolate both structural breaks and turning points in these bond series major turning points follow hider s reintroduction of conscription in 1935 the outbreak of war in 1939 and the d day invasion of june 1944 the german bonds sustained downward trend after 1935 suggests that bondholders recognized the risks posed by hitler s programme bond prices recovered during the war however and appear to have anticipated the overthrow of hitler and the postwar settlement of foreign bondholders claims german bonds even in peace time were distinctly dubious investments and the fact of war has entirely justified the distrust with which they have long been regarded

price relationships in the petroleum market an analysis of crude oil and refined product prices in this paper the relationships between crude oil and refined product prices are investigated in a multivariate framework this allows us to test several partly competing assumptions of earlier studies in particular we find that the crude oil price is weakly exogenous and that the spread is constant in some but not all relationships moreover the multivariate analysis shows that the link between crude oil prices and several refined product prices implies market integration for these refined products this is an example of supply driven market integration and producers will change the output mix in response to price changes

optimal contract length in a reputational model of monetary policy we develop a reputational model of monetary policy with endogenous contract length in choosing contract length private sector agents trade off recontracting costs against the expected costs resulting from trading under contracts based on incorrect inflation expectations however due to an externality the private and socially optimal contract lengths differ when selecting individual contract length private agents do not consider the effect of contract length on the surprise inflation output trade off in a reputational model of monetary policy this results in an excessive equilibrium inflation rate the socially optimal outcome may be achieved by public policies that reduce recontracting costs

what are the categories of geopolitical risks that could drive oil prices higher acts or threats abstract this study characterizes the oil market as a nonlinear switching phenomenon and examines its dynamics in response to changes in geopolitical risks over low and high risk scenarios we separate the shocks due to geopolitical acts from those due to geopolitical threats to address whether the serious effects of geopolitical risks are mostly due to increased threats of adverse events or to their realization as acts while we find the acts to generate a positive and strong impact on oil price dynamics the effect of threats appears to be moderate or non significant imperfect information in the oil price determination the history of oil supply disruptions emanating from geopolitical events the continued rise in populism in the world oil market volatility multifractility and the time varying degree of weak form efficiency have been advanced to explain the unforeseen responses of oil prices to geopolitical threats to accommodate recent oil related events we construct a composite geopolitical risk indicator by accounting for contemporaneous sources of geopolitical risks namely global trade tensions us china relation risks us iran tensions saudi arabia s uncertainty and venezuela s crisis the combined effects have an outsized impact on oil prices

estimation of direct and indirect impact of oil price on growth abstract using a new methodology this paper measures the direct and indirect effects of oil prices on gdp growth of 12 economies because of the indirect effect which is transmitted through a trade matrix even the net oil exporters like indonesia and malaysia cannot escape the negative influence of high oil prices

u s defense spending and the soviet estimate there is a glaring and potentially important discontinuity surrounding discussions of u s defense expenditure policy making on the one hand a growing body of empirically based research questions whether the u s reacts in any significant fashion to the military expenditures of the soviet union on the other hand defense policy makers routinely justify defense increases as a response to similar increases by the soviet union the discontinuity is resolved in the context of a multistep model of the defense expenditure policy making process that incorporates a new estimate of soviet defense spending and mass public opinion once formulated the model provides answers to the following two questions 1 does the u s insofar as defense spending is concerned react to the military expenditures of the soviet union 2 if so what is the magnitude of the reaction the answers indicate that not only does the u s react to estimated soviet defense spending but that the reaction is directly responsible for a very substantial portion of the post 1978 increases in u s military expenditures

price transmission and asymmetric adjustment in the spanish dairy sector asymmetric threshold vector error correction models are applied to monthly price data to analyse price relationships and patterns of transmission among farm and retail markets for a variety of dairy products in spain the results suggest that asymmetries affect a conspicuous part of the raw milk processed in spain implications for the organizational structure of spanish dairy markets are offered

speculation and volatility spillover in the crude oil and agricultural commodity markets a bayesian analysis this paper assesses factors that potentially influence the volatility of crude oil prices and the possible linkage between this volatility and agricultural commodity markets stochastic volatility models are applied to weekly crude oil corn and wheat futures prices from november 1998 to january 2009 model parameters are estimated using bayesian markov chain monte carlo methods speculation scalping and petroleum inventories are found to be important in explaining the volatility of crude oil prices several properties of crude oil price dynamics are established including mean reversion an asymmetry between returns and volatility volatility clustering and infrequent compound jumps we find evidence of volatility spillover among crude oil corn and wheat markets after the fall of 2006 this can be largely explained by tightened interdependence between crude oil and these commodity markets induced by ethanol production

the post coup military spending question a pooled cross sectional time series analysis despite or because of a decade of research that yielded conflicting results the question of whether or not military coups or regimes brought into power through coups have an impact on subsequent military spending remains open a review of the relevant literature suggests that part of the analytical problem may result from assumptions about military political behavior as well as various limitations associated with cross national analyses of change and the use of exclusively cross sectional or longitudinal research designs in addition some of the disparity in research findings may result from the reliance on different indicators both dependent and independent by a number of different analysts in response to these potential technical problems this analysis of military spending patterns in 66 less developed states applies a gls routine pooling cross sectional and time series data to the 1967 1976 relationships between two measures of military spending and several predictor variables including regime type coup occurrences level of conflict economic development arms imports and previous military spending although the empirical outcome varies according to which dependent variable is examined we find in general that information on the distribution and timing of regime types military civilian and mixed and successful military coups is not very helpful in predicting post coup military spending policies this finding suggests in turn that the crucial presumption that military personnel participate in politics primarily to defend or advance their corporate interests is not a very useful predictive foundation for the examination of post coup military spending

wars and markets how bond values reflect the second world war historical events are reflected in asset prices based on a unique data set we analyse government bond prices of germany and austria traded on the swiss bourse during the second world war some war events generally considered crucial are clearly reflected in government bond prices this holds in particular for the official outbreak of the war and the loss and gain of national sovereignty other events to which historians attach great importance are not reflected in bond prices most prominently germany s capitulation in 1945 the analysis of financial markets provides a fruitful method for evaluating the importance contemporaries attached to historical events

the impacts of biofuel targets on land use change and food supply a global cge assessment this study analyzes the long term impacts of large scale expansion of biofuels on land use change food supply and prices and the overall economy in various countries or regions using a global computable general equilibrium model augmented by a land use module and detailed representation of biofuel sectors the study finds that an expansion of global biofuel production to meet currently articulated or even higher national targets in various countries for biofuel use would reduce gross domestic product at the global level however the gross domestic product impacts are mixed across countries or regions the expansion of biofuels would cause significant land re allocation with notable decreases in forest and pasture lands in a few countries the results also suggest that the expansion of biofuels would cause a reduction in food supply although the magnitude of the impact on food supply at the global level is not as large as perceived earlier it would be significant in developing countries like india and those in sub saharan africa agricultural commodities such as sugar corn and oil seeds which serve as the main biofuel feedstocks would experience significant increases in their prices in 2020 compared with the prices at baseline due to the expansion of biofuels to meet the existing targets

the macroeconomic consequences of terrorism abstract we perform an empirical investigation of the macroeconomic consequences of international terrorism and interactions with alternative forms of collective violence our analysis is based on a rich unbalanced panel data set with annual observations on 177 countries from 1968 to 2000 which brings together information from the penn world table data set the iterate data set for terrorist events and data sets of external and internal conflict we explore these data with cross sectional and panel growth regression analysis and a structural var model we find that on average the incidence of terrorism may have an economically significant negative effect on growth albeit one that is considerably smaller and less persistent than that associated with either external wars or internal conflict as well terrorism is associated with a redirection of economic activity away from investment spending and towards government spending however our investigation also suggests important differences both regarding the incidence and the economic consequences of terrorism among different sets of countries in oecd economies in particular terrorist incidents are considerably more frequent than in other nations but the negative influence of these incidents on growth is smaller

time frequency contained co movement of crude oil and world food prices a wavelet based analysis abstract this paper evaluates the association between crude oil prices and world food price indices first within general space and time and then within the combined time frequency sphere monthly price data spanning from january 1990 to february 2016 were used for the analysis the johansen cointegration test conducted within the time domain confirmed the statistically significant cointegrated relationship between crude oil prices and the price indices of food and its sub categories such as dairy cereals vegetable oil and sugar however frequency information was not accounted for to incorporate both the time and frequency features of the data we used a wavelet method that has shown that the world food prices along with the prices of cereals vegetable oils and sugar co move with and are led by crude oil prices results that remain relevant from the short run policy perspective the outcome of toda yamamoto causality confirmed the spillover of crude oil price changes to the world food price index also in the long run the paper ends with the policy implications of these results

non parametric and parametric modeling of biodiesel sunflower oil and crude oil price relationships abstract multivariate local linear regression and parametric error correction models are applied to assess price linkages and price transmission patterns between food and energy prices in spain weekly biodiesel sunflower and crude oil prices observed from november 2006 to october 2010 are used in the empirical analysis results suggest the existence of a long run equilibrium relationship between the three prices studied biodiesel is the only variable that adjusts to deviations from this long run relationship local linear regression techniques show that the speed of adjustment of biodiesel prices is faster when biodiesel is relatively cheap than when it is expensive energy prices are also found to influence sunflower oil prices through short run price dynamics

swords or plowshares a theory of the security of claims to property this paper develops a general equilibrium model of the allocation of resources among appropriative and productive activities the model emphasizes the distinction between offensive weapons which are the instruments of predation and fortifications which provide defense against predation the analysis of this model shows how the equilibrium security of claims to property is determined the analysis focuses on the possibility of a nonaggressive equilibrium in which no resources are allocated to offensive weapons and claims to property are fully secure we also analyze the complex relation between economic welfare and the security of claims to property we find for example that a relatively poor agent could be better off in an equilibrium with less secure claims to property

a european defence union a european defence union jacques fontanel and ron smith the end of the cold war the unification of germany and the removal of us troops has rekindled interest in european defence cooperation the ec has common security policies on its agenda the military role of the weu is being enhanced and the new nato strategy emphasizes multilateral european forces a european defence union offers large potential efficiency gains power like any natural monopoly is generated more effectively and more cheaply by joint forces than by the sum of fragmented individual forces there are also large economies of scale in weapons production trends in budgets costs and threats are making national provision problematic and national arms industries non viable an edu may appear more attractive than either spending vast sums to attain minimum efficient scale or relying on forces that are so small and ill equipped as to require either dependence on the us or acceptance of effective neutrality however an edu reduces national sovereignty poses problems of command control and organization risks free riding and adverse reactions by the us and ussr and is vulnerable to exploitation and rent seeking by military industrial interests this paper examines the economics of these issues and suggests a route towards effective cooperation

stock and bond market liquidity a long run empirical analysis this paper establishes liquidity linkage between stock and treasury bond markets there is a lead lag relationship between illiquidity of the two markets and bidirectional granger causality the effect of stock illiquidity on bond illiquidity is consistent with flight toquality or flight to liquidity episodes monetary policy impacts illiquidity the evidence indicates that bond illiquidity acts as a channel through which monetary policy shocks are transferred into the stock market these effects are observed across illiquidity of bonds of different maturities and are especially pronounced for illiquidity of short term maturities the paper provides evidence of illiquidity integration between stock and bond markets

oil at risk political violence and accelerated carbon extraction in the middle east and north africa abstract what effect does the threat of expropriation have on resource extraction much of the economic literature suggests that uncertainty reduces investment but the theory of risk induced extraction suggests the opposite in this paper we test this theory in the context of political violence which poses a real threat of state destabilization and violent expropriation of property rights facing this uncertainty we find that oil producers in the middle east and north africa increase oil production in response to political violence this finding has important negative consequences for the world in terms of climate change and demonstrates a previously untested mechanism through which exhaustible resource supply is flooding the market

fossil fuel price uncertainty and feedstock edible oil prices evidence from mgarch m and virf analysis abstract this paper focuses on examining the impact of crude oil price volatility on the price changes of major edible oils rapeseed soybean and sunflower which are the main feedstock for the biodiesel industry in the european union for this purpose a four variate version of non diagonal garch in mean model that allows for asymmetry in the variance covariance matrix is used an important conclusion that emerges from this study is that the crude oil price uncertainty appears to be responsible for a significant decline in price returns of major feedstock edible oils considered in this study the volatility impulse response analyses support the conclusion that the conditional variances of both edible and crude oil and covariances between them are generally highly responsive to historical shock however the size of the impacts is mainly commodity specific finally we investigate the causality from crude oil price volatility to edible oil prices and the effects of oil price shocks on edible oil prices by using the granger causality test and generalized impulse response function analysis respectively the empirical results show that there is strong evidence of causality from crude oil price volatility to all edible oil prices under study and generalized impulse response analysis shows that the edible oil markets significantly respond to the shocks in oil prices

do structural oil market shocks affect stock prices abstract this paper investigates how explicit structural shocks that characterize the endogenous character of oil price changes affect stock market returns in a sample of eight countries australia canada france germany italy japan the united kingdom and the united states for each country the analysis proceeds in two steps first modifying the procedure of kilian kilian l forthcoming not all oil price shocks are alike disentangling demand and supply shocks in the crude oil market american economic review we employ a vector error correction or vector autoregressive model to decompose oil price changes into three components oil supply shocks global aggregate demand shocks and global oil demand shocks the last component relates to specific idiosyncratic features of the oil market such as changes in the precautionary demand concerning the uncertainty about the availability of future oil supplies second recovering the oil supply shocks global aggregate demand shocks and global oil demand shocks from the first analysis we then employ a vector autoregressive model to determine the effects of these structural shocks on the stock market returns in our sample of eight countries we find that international stock market returns do not respond in a large way to oil market shocks that is the significant effects that exist prove small in magnitude

asset market linkages in crisis periods we characterize asset return linkages during periods of stress by an extremal dependence measure contrary to correlation analysis this nonparametric measure is not predisposed toward the normal distribution and can allow for nonlinear relationships our estimates for the g 5 countries suggest that simultaneous crashes between stock markets are much more likely than between bond markets however for the assessment of financial system stability the widely disregarded cross asset perspective is particularly important for example our data show that stock bond contagion is approximately as frequent as flight to quality from stocks into bonds extreme cross border linkages are surprisingly similar to national linkages illustrating a potential downside to international financial integration

diversifying away the risk of war and cross border political crisis this paper investigates the behavior of crude oil prices government bonds and stock market indices around outbreaks of severe international crises and wars using a constant mean return event study we show that these events are associated with positive and significant abnormal returns on oil and bonds which means that these two asset classes can potentially shelter shareholders from plummeting equity values during international crises a formal safe haven analysis confirms this insight such price movements may reflect a reallocation of funds across asset classes in response to the events as well as shifts in the demand for oil due to precautionary speculative and military motives we also calculate the weights for optimal portfolios which could provide insurance against conflict risk

modeling asymmetric comovements of asset returns existing time varying covariance models usually impose strong restrictions on how past shocks affect the forecasted covariance matrix in this article we compare the restrictions imposed by the four most popular multivariate garch models and introduce a set of robust conditional moment tests to detect misspecification we demonstrate that the choice of a multivariate volatility model can lead to substantially different conclusions in any application that involves forecasting dynamic covariance matrices like estimating the optimal hedge ratio or deriving the risk minimizing portfolio we therefore introduce a general model which nests these four models and their natural asymmetric extensions the new model is applied to study the dynamic relation between large and small firm returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies