Search

This article evaluates the significance of banking market structure on growth, focusing on the role of this structure on the dynamics of capital accumulation. The authors find that bank concentration promotes growth of industry sectors in most need of external finance by aiding credit access for newer firms, but also find a general depressing effect of bank concentration on all sectors.

This article evaluates aggregate market spreads, depths and trading activities to analyze liquidity in U.S. equities over an extended period of time. The authors find that liquidity plummets in down markets, volatility decreases trading activity and spreads, strong day-of-the-week effects exist, and that interest rates influence liquidity with increases in depth and trading activity just prior to macroeconomic announcements.

Byline: Ahmet Alkan (1) Keywords: JEL classification: C78; Key words: Stable matchings, revealed preference, choice function, lattice Abstract: This paper studies the structure of stable multipartner matchings in two-sided markets where choice functions are quotafilling in the sense that they satisfy the substitutability axiom and, in addition, fill a quota whenever possible. It is shown that (i) the set of stable matchings is a lattice under the common revealed preference orderings of all agents on the same side, (ii) the supremum (infimum) operation of the lattice for each side consists componentwise of the join (meet) operation in the revealed preference ordering of the agents on that side, and (iii) the lattice has the polarity, distributivity, complementariness and full-quota properties. Author Affiliation: (1) Sabanci University, Tuzla 81474 Istanbul, Turkey (e-mail: alkan@sabanciuniv.edu) , TR Article note: Received: 5 March 1999 / Accepted: 12 May 2000

This article examines the decisions of strategic traders in a noisy financial market when they hold an endowment of stock. Results show that after receiving the endowment the trader reduces risk exposure by selling at decreased rates and then buying back shares.

This article examines the volatility of common stocks at the market, firm and industry levels using a disaggregated approach. Results show an increase in the firm-level volatility from 1962-1997; the correlations between individual stocks and the market model's explanatory power has declined, while the number of stocks needed for diversification have increased; finally, market volatility leads the other volatility areas.

This article discusses 'hot' and 'cold' real estate markets, and develops a corelation between them. The author asserts that the liquidity of cold markets can be good when price are high as in a hot market.

This article evaluates income feedback effects which depend on the number of product markets and imperfect competition in those markets. Underemployment only occurs in an economy with a single product market.

This article examines whether start-up business successes have common characteristics due to the time of market entry, and if business success can be predicted based on these. Businesses that begin during economically prosperous times are expected to be more successful, however, increased competition may undermine the positive effects; also, economic downturns may effect businesses that entered during economic booms, because the conditions on which the enterprise was based have changed or disappeared.

This article attempts to explain why forbearance for insolvent banks happens by using stockholders' appeal to courts for monetary damages and reversal, from which precedents now exist. The postponement of receivership of insolvent banks occurs when the investors' pricing of stock and the accountants' assessment of solvency do not support this action by regulators.

Byline: William Poole (1), Robert H. Rasche (1) Abstract: The rational expectations revolution made clear that a complete macro model requires a specification of the government's economic policy. We argue that monetary policy should be conducted in such a way that the market can predict policy actions. An implication of market success in predicting policy actions is that interest rates move ahead of the policy actions, and such a timing relationship may appear to some as the central bank following the market instead of leading it. Another implication of the market predicting policy actions is that nominal interest rate changes provide no useful information to the central bank about the strength of aggregate demand or inflationary expectations. Finally, failure of the market to predict policy actions reflects a problem that needs to be addressed. We explore the theoretical implications of a monetary policy that is completely specified and perfectly understood by the market. We construct a bare-bones model to illustrate the key concepts. Finally, we conduct an empirical investigation of these issues, especially in the context of monetary policy since 1988, when the establishment of the federal funds future market made available well-defined market information on expectations about Fed policy actions. We find that when the intended funds rate is changed, interest rates over the maturity spectrum respond to 'news' measured by changes in the one-month-ahead funds futures yield but do not respond to the anticipated component of the change in the intended funds rate. Author Affiliation: (1) Federal Reserve Bank of St. Louis, USA Article History: Registration Date: 09/10/2004

This paper addresses two general questions. First, what is the effect of market structure on the development of a network in a dynamic model with rational expectations? Secondly, is the intuition that network externalities are 'economies of scale on the demand side' correct? These questions are examined in a model of durable good production in the presence of network externalities. Two results are presented. First, the Coase conjecture fails in its strongest sense when network benefits are increasing in the current network size. Secondly, a committed monopolist may be socially preferable to a time consistent producer when network externalities are sufficiently large. The analysis indicates an analogy between network externalities and learning-by-doing.

This article discusses the financial problems of post-Soviet Russia and its attempt to enter into the market economy, tracing many of the economic difficulties back to the late 1980s when the budget deficit had increased and money began to devaluate. The turn to market economics and liberalization during the collapse of the USSR, a period of economic crisis, and the structure of the Russian economy are considered as contributing to the financial problems of transition.

Byline: Martina K. Bers (1), Jeff Madura (1) Keywords: mutual funds; closed-end funds; mutual fund performance; performance persistence Abstract: This study extends the research on closed-end fund performance persistence by investigating whether the persistence of both net asset value (NAV) and market price returns of U.S. registered closed-end funds is related to various fund characteristics. The sample consists of 505 closed-end funds, which are investigated over the period from January 1976 to December 1996. The analysis tests whether persistence is related to the fund characteristics size, goal, management fees, turnover, fund family membership, fund experience, and the exchange on which a fund is traded. The results vary across holding periods used to calculate persistence but are similar with respect to the NAV and market price returns. Funds with lower expense ratios and funds traded on the NYSE show more persistence of strong NAV and market price performance. Author Affiliation: (1) Florida Atlantic University, USA Article History: Registration Date: 09/10/2004

This article evaluates regions in the Russian Federation that are in need of economic assistance from the state; from a Russian perspective, both microeconomics and macroeconomics are necessary in determining the needs of each region, due to the distortion of facts about their socioeconomic conditions. Economic, integral, financial, and standard of life indicators are all taken into account; spheres of activity and economic potential in the territory are analyzed, as well as interterritorial interaction.

This article examines the methods for managing industrial research and technological innovations in an increasingly complex market environment. Topics discussed include managing communities of creation, corporate governance, collaboration between firms, and overseeing intellectual property.

Research presented concerns the economic impact of stock market liberalization, or a country's policy to allow foreign purchasing of stocks. Findings suggest that the country that liberalizes it's stock market can lower the cost of equity capital by promoting risk-sharing between foreign and domestic agents.

Using data on Asian equity markets, we observe that during periods of financial turmoil, deviations from the mean-variance framework become more severe, resulting in periods with additional downside risk to investors. Current risk management techniques failing to take this additional downside risk into account will underestimate the true Value-at-Risk with greater severity during periods of financial turmoil. We provide a conditional approach to the Value-at-Risk methodology, known as conditional VaR-x, which to capture the time variation of non-normalities allows for additional tail fatness in the distribution of expected returns. These conditional VaR-x estimates are then compared to those based on the RiskMetrics methodology from J. P. Morgan, where we find that the model provides improved forecasts of the Value-at-Risk. We are therefore able to show that our conditional VaR-x estimates are better able to capture the name of downside risk, particularly crucial in times of financial crises.

Byline: Ferdinand A. Gul (1), Burch T. Kealey (2) Keywords: Korean markets; corporate policies; growth opportunities; contracting; Chaebol Abstract: This paper examines explanations for the association between Korean Chaebol, which are giant conglomerates supported by various government initiatives, and corporate debt and dividend policies. Unlike in the US, the Korean corporate sector is dominated by the Chaebol which are characterized by concentrated family ownership, political affiliation and bank ownership. These institutional arrangements are likely to encourage more debt financing. In addition, the study also investigates whether firms with more growth options measured in terms of the investment opportunity set (IOS) have lower leverage and dividends. Results using observations from 411 Korean firms showed that for a fixed level of growth opportunities, Chaebol carry higher levels of debt. Results also show that growth options were negatively associated with leverage and dividends. No association, however, was found between Chaebol and dividends. Author Affiliation: (1) Department of Accountancy, City University of Hong Kong, 83 Tat Chee Avenue, Kowloon Tong, Hong Kong (2) Department of Accountancy, City University of Hong Kong, 83 Tat Chee Avenue, Kowloon Tong, Hong Kong Article History: Registration Date: 30/09/2004

Many facility location decision models ignore the fact that for a facility to survive it needs a minimum demand level to cover costs. In this paper we present a decision model for a firm that wishes to enter a spatial market where there are several competitors already located. This market is such that for each outlet there is a demand threshold level that has to be achieved in order to survive. The firm wishes to know where to locate its outlets so as to maximize its market share taking into account the threshold level. It may happen that due to this new entrance, some competitors will not be able to meet the threshold and therefore will disappear. A formulation is presented together with a heuristic solution method and computational experience.

This article concludes that asset market crashes are not necessarily followed by crises, crashes without crises are not economically hazardous, and financial crises can be prevented after crashes.

Byline: Pradipkumar Ramanlal (1) Keywords: liquidity trading; market microstructure Abstract: Liquidity trading is an important component of market microstructure models. In most cases, its role is primarily to ensure existence of equilibrium and therefore that trading occurs among asymmetrically informed agents. While most market microstructure models allege that agents trade based upon rational expectations, the rationality of the type of liquidity trading assumed in these models remains to be verified. Specifically, liquidity traders are often assumed to submit price-inelastic orders for reasons exogenous to the model at hand. But whether price-inelastic trading is consistent with rational utility maximizing behavior remains to be shown. Author Affiliation: (1) College of Business, Department of Finance, University of Central Florida, Orlando, FL, 32816, U.S.A Article History: Registration Date: 30/09/2004

The term 'globalization' has become the focal point of intense political and economic controversy. On the one hand, globalization in all its forms is presented as a fount of opportunity. [...]

Byline: Thomas C. Chiang (1), Jeanette Jin Chiang (2) Keywords: Euro currency; nonlinear models; error correction model; term structure of interest rates Abstract: This paper presents a coherent nonlinear interest rate model that incorporates the dynamics of the error correction specification into the traditional term structure model. The joint tests based on six Euro-Currency rates indicate that the linear specification should be rejected. The estimated equation suggests that the linear components--the change of the long-term interest rate and the error correcting term are highly significant. The nonlinear components involving the higher order of the independent variables, the cross products, the lagged error squares, and/or the ARCH effect also present significant explanatory power for predicting short-term Euro-Currency rate changes, confirming the non-linear specifications. Author Affiliation: (1) Marshall M. Austin, Drexel University, USA (2) PV International, USA Article History: Registration Date: 21/10/2004

The structure of the critical equilibria subset is fixed and has a zero value in the equilibrium set. This conclusion has been derived by evaluating a two-period economy wherein the second period has uncertainty. The aforementioned economy has been likewise characterized by different financial mechanisms and an individual commodity for each nature state. To pursue the claim of the set's structure, demand functions, together with qualitative characteristics, have been presupposed. The demand functions determined the diversified equilibrium set.

A monetary propagation mechanism is considered showing that a low money growth rate increases steady state employment and output while a high money growth rate promotes the opposite. The mechanism considers an economy where exchanges in goods and labor markets involve costly search. It is found to produce persistent hump-shaped responses in the output of employment and not-so persistent outputs to money growth shocks.

A simulation of a sender/receiver game with common interest where players engage in anonymous, pairwise interactions reveals that there is a dynamic process where players climb an equilibrium payoff ladder. Moreover, the study finds that the players move successively from an equilibrium of one order to the next and eventually converging to an equilibrium on the highest possible order.

Several studies have explored the evolution of the pattern and the nature of the agricultural and market revolution in the US from the 1700s to the early 1900s. Although most studies have used New England's agricultural evolution as the standard of 18th century farming community, it was also prudent to examine the impact of the emergence of the tobacco trade in Virginia on the growth of the farming and marketing concepts. Moreover, the slave trade was also significantly influenced by the establishment of a single staple crop such as tobacco.

Analysis of the Dreze equilibrium reveals that the process may reach a Walresian equilibrium under standard assumptions on the primitive concepts of the economy and a non-degeneratie condition. The study takes into consideration an economy facing price rigidities and uses standard assumptions of the economy under non-degenerative conditions. In a market where either demand or supply is rationed, the process is shows to to a fixed price equilibrium and that this equilibrium, in turn, converges to a Walresian equilibrium in the long run.

The failure of the federal government to achieve Pareto or near-Pareto improvements for the public interest can be explained by four interrelated hypotheses. One such hypothesis is the inability of the government to make commitments. Another is coalition forming and bargaining that result in suboptimal outcomes. The third explanation is destructive competition which is very common in zero-sum games. The last hypothesis for the failure of the government to implement Pareto improvements is the uncertainty about the consequences of change.

A bilateral matching market was analyzed that is characterized by middlemen or matchmakers competing to serve the needs of agents. Middlemen have the tendency to shoulder agents' service expenses when the type of agents being handled have limited willingness to pay for matchmakers' service. In addition, agents may also stand to lose transaction cost during a match.

Byline: Raj Aggarwal (1), Mbodja Mougoue (2) Abstract: This study documents that daily changes in Asian exchange rates are significantly non-normal, serially correlated, non-stationary, and have unit roots. Further, accounting for these time series properties and using a longer time horizon than other similar studies of exchange rates, this study also documents cointegration between the Japanese Yen and two sets of Asian currencies, i.e., currencies of the 'Tigers', Hong Kong, South Korea, Singapore, and Taiwan and currencies of the ASEANs, Malaysia, Philippines, Thailand, and Singapore. These findings of cointegration among Asian exchange rates are in contrast to the findings for the major currencies, and are evidence of nascent Yen blocs in Asia. The results presented here have important implications for understanding Asian financial integration and the international role of the Japanese yen and should be useful for developing asset allocation, currency overlay, value at risk (VAR), and hedging strategies for investments in these often illiquid Asian currencies. Author Affiliation: (1) The Edward J. and Louise E. Mellen Chair in Finance, John Carroll University, Cleveland, Ohio, 44118 (2) School of Business Administration, Wayne State University, Detroit, MI, 48202 Article History: Registration Date: 06/10/2004

An analysis of the effects of price discrimination in two-dimensional markets reveals that each firm gains a monopolistic area in the center of the market that has the same shape as the entire market but with a distorted separating line depending on its extension. The study shows that firms that can apply price discrimination could not always make higher profits that firms that cannot apply the same techniques.

This paper models trading patterns when marketplaces exist and goods are differentiated. When first visiting the market, a buyer samples a stock of goods. If fortunate, the buyer finds a match, purchases one of these goods and then exits. If not, the buyer can now only match with the flow of new goods. In a steady state, the stock of unmatched traders on one side of the market is trying to match with the flow of new traders on the other side. This behaviour is shown to describe matching patterns between unemployed job seekers and vacancies in U.K. Job Centres.

In a model of two-dimensional spatial competition the notion of competition between market places is analyzed. While one dimension can be interpreted as geographical distance the other dimension is some product characteristic (like maturity of a futures contract). Initially single product firms select a specific location and variety and later, at a second stage, they compete in prices. In the present framework agglomeration economies arise endogenously due to savings in transportation costs for consumers. For many parameter constellations I demonstrate that entrants might prefer to settle in existing markets rather than setting up their business somewhere in between. In particular, the emergence of new market places is less likely as transportation costs decline. Despite the strong forces towards agglomeration, multiple markets will arise under free entry of firms when markets are large enough. Furthermore, pure strategy equilibria in location do exist when search costs are sufficiently important even for linear transportation costs. The agglomeration economies provide organizers of market places with some degree of market power. Indirect competition between fiscal authorities is analyzed when jurisdictions impose transactions taxes. Equilibrium tax rates depend positively on transportation costs. Hence the deregulation wave in financial markets may be understood as an equilibrium reaction to a significant decline in transportation costs. The model features strong incentives for the harmonization of regulation. Keywords: Two-dimensional spatial competition; Thick market externalities; Agglomeration economies; Transaction costs

Actual trade gains and market exchange volume proved to be smaller than expected market assumptions. Based on two market simulations, actual gains obtained in exchange and trade volumes are less than half of market assumptions. Fewer than expected market tradings were also observed on actual market exchanges as shown by failure to complete by all Pareto-efficient exchanges.

Market utopianism is insidious for anti-egalitarian policies and should be handled cautiously. People should not be misled by news regarding the excellent performances of certain markets and should prioritize the less privileged, who should be afforded more protection from market forces. Protection should also be given to individuals rather than institutions and policies advocated for the achievement of a utopian market should be brushed aside.