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In an experimental setting designed to cleanly partition the disposition effect and various wealth effects, we find evidence that such path-dependent behaviors are related in the sense that those subject to one effect are more or less likely to exhibit another. For example, those subject to the disposition effect are more likely to be subject to the break-even effect. A prospect-theory utility function dominated by curvature rather than loss aversion could account for this finding. There are also significant gender differences in path-dependent behaviors. Notably, males are more likely to make portfolio adjustments in response to changes in relative prices.

This paper examines COVID-19 penetration as proxied by reported deaths as of the second quarter of 2020 using a comprehensive sample of 96 nations As expected

In this experimental study, we implement a lottery-type game that is similar to the investment game of Imas (2016) and Gneezy and Potters (1997) to examine if the form of the exchange medium influences wealth effects and risk taking in general. We argue that reduced moneyness should lead to increased risk taking and decreased wealth effects (i.e., the break-even and house-money effects). We find that when the lottery task is conducted using tokens (with monetary value), there is a significant break-even effect but an insignificant house-money effect. However, when the lottery task is conducted using a digital media of exchange, what we label “e-coins,” there is a significant house-money effect and no break-even effect. Finally, with cash, there are both significant break-even and house-money effects. We find that subjects risk a bit more when using tokens compared to cash, but risk significantly more when using e-coins.

We find suggestive evidence that emotional balance has an impact on probability weighting incremental to demographic controls. Specifically, low negative affectivity (implying high emotional balance) tends to be a characteristic of those whose probability weighting functions exhibit lower curvature and more neutral elevation. In other words, emotional balance seems to push people in the direction of normative expected utility theory.

As a group, market forecasters are egregiously overconfident. In conformity to the dynamic model of overconfidence of Gervais and Odean (2001), successful forecasters become more overconfident. What's more, more experienced forecasters have "learned to be overconfident," and hence are more susceptible to this behavioral flaw than their less experienced peers. It is not just individuals who are affected. Markets also become more overconfident when market returns have been high.

This paper investigates, using both single-factor and multi-factor models, the absolute performance of Canadian equity funds and the relative performance of load versus no-load funds. Consistent with a wealth of other studies, I find that the typical fund manager in Canada is unable to surpass his risk-adjusted benchmark. Moreover, the advantage possessed by load funds, in being able to undertake fewer liquidity-motivated trades than most no-load funds, does not translate into their being able to outperform no-load funds, even when loads are ignored. Resume Le present article utilise les modeles de facteur unique et les modeles defacteur multiple pour examiner la performance absolue desfonds d'actions canadiens et la performance relative desfonds avec frais d'acquisition, par opposition aux fonds exempts des frais d'acquisition. Comme les nombreuses etudes anterieures, notre recherche debouche sur la conclusion qu'au Canada, le gestionnaire de fonds type est incapable de surpasser son point de reference ajuste enfonction du risque. Par ailleurs, l'avantage lie aux fonds avec frais d'acquisition, notamment sa capacite a entreprendre moins de transactions necessitant des liquidites que les fonds exempts des frais d'acquisition, ne se traduit pas en capacite a donner de meilleurs resultats que les fonds sans frais, meme si on ne tient pas compte des frais.

Fixed income return enhancement can be obtained in the Canadian marketplace when one conditions on past stock market movements. A simple timing rule is demonstrated to increase holding period return significantly. It is likely that this strategy is capitalizing on increases in ex ante return due to higher levels of risk aversion induced by lower societal wealth. Nevertheless, although these opportunities were available to all, it is shown that Canadian fixed income portfolio managers failed to seize them. Resume On peu ameliorer le rendement des instruments a taux fixe sur le marche canadien en se basant sur les mouvements passes du marche boursier II est prouve que le simple choix du bon moment peut augmenter de fa,con significative le rendement enregistre au cours de la periode d'investissement. Cette strategie tire probablement parti des augmentations du rendement ex ante imputable i des niveaux eleves d'aversion pour le risque induits par une richesse sociale amoindrie. Toutefois, bien que tous aient eu acces rt ces possibilites, l'etude revele que les gestionnaires canadiens de portefeuille d'instruments a taux fixe n'en ont pas profite. Portfolio managers are forever seeking ways to enhance return. For active fixed income managers this amounts in large part to searching for tools that allow one to occasionally time interest rate movements and make anticipatory duration-switching adjustments. Nevertheless, conventional wisdom and the empirical evidence tell us that interest rate forecasting is a very difficult undertaking.1 Nevertheless, the unpredictability of interest rate changes does not necessarily close the door on return enhancement through holding-period-return prediction. To see this most simply, suppose we have only 1-year and 2-year zero-coupon bonds. Further assume that the best prediction for the future 1-year interest rate is always the current 1-year interest rate. If managers wish to maximize expected return on their portfolio over a 1year holding period, the correct strategy will always be to buy two-period bonds when the yield curve is upwardsloping, but to otherwise stay short. Of course, in this hypothetical world, the long-short spread is entirely accounted for by what is called the term premiunm. Its two principal definitions, which coalesce in this twoperiod example, are a) the gap between the implicit forward interest rate, as calculated from the current yield curve and the corresponding expected future spot rate, and b) the expected holding period return of a bond net of the rate whose length corresponds to the measurement horizon.2 In reality, the slope of the term structure is also partly the result of anticipated changes in yields. Still, if one could estimate term premia (however defined), scope would be indeed opened up for duration-switching techniques. A technique, based on what researchers have recently learned about the nature of term premia and what factors have an impact on their magnitude, is tested here. This is at the heart of current term structure research. The expectations model of the term structure of interest rates, which argues that the term premia embedded in the yield curve are time-invariant, has now been discredited by abundant evidence. It is apparent that premia are positively related to the long-short spread, various sources of uncertainty (whether in the bond market or throughout the economy), and the current interest rate level (though the record is far from perfect on the latter point).3 Most striking has been the recent finding that holding period bond returns net of the short-term interest rate (hereafter excess returns) are related to lagged movements in the aggregate stock market.4 Ilmanen (1995) calls the ratio of the past level of the stock market to today's level, which is just the inverse of the most recent gross aggregate stock market return (ignoring dividends), inverse relative wealth. …

Stock index futures have enjoyed great success since their inception in 1982. In large part this success has been due to the satisfaction of a demand on the part of hedgers for a low transaction cost vehicle for the purpose of adjusting market exposure. The proper determination of hedge ratios and the efficacy of hedging based on these ratios have been a central concern for practitioners as well researchers. For example, it is well known that contract "maturity" has an impact on optimal hedge ratios (e.g., Lee, Bubyns, & Lin, 1987; Merrick, 1988). In addition, Merrick (1988) has shown that hedge efficacy is diminished by futures mispricing, where the latter is defined to be the difference between the observed futures price and that implied by strict adherence to the carry cost pricing model. Indeed the carry cost model only serves to provide a range of (arbitrage-efficient) prices (for the U.S., see Merrick, 1988; Modest & Sundaresan, 1983; Peters, 1985; for Japan, see Bailey, 1989; Brenner, Subrahmaayam, & Uno, 1989; for Canada, see Beyer, 1985; Deaves, 1990b). This is so, principally because the arbitrage mechanism required to enforce carry cost entails no significant costs and risk.(1) The purpose of this paper is to investigate the hedging performance of Canadian stock index futures contracts, and to investigate to what extent performance is enhanced by employing subtle procedures over naive ones. Though hedging using U.S. index contracts has been extensively researched (e.g., Figlewski, 1984; Graham & Jennings, 1987; Junkus, 1987; Junkus & Lee, 1985; Lee, Bubyns, & Lin, 1987; Merrick, 1988), the hedging performance of Canadian index futures contracts traded on the Toronto Futures Exchange is as yet unexplored. The TSE 300 contract traded from January 1984 to June 1987, at which time it was phased out in favor of a contract on the more narrowly based TSE 35.(2) These contracts provide a new data set for testing the relative efficacy of various hedging methodologies. Of particular interest is a conditional hedging strategy, since such an approach is theoretically appropriate, as shown below. Since a conditional approach entails a movement towards complexity and additional analysis costs, it is useful to investigate the associated value added. Myers (1991) has shown, in the context of commodity futures, that a time-variant strategy leads to little improvement. Merrick (1988), using a somewhat different methodology from that employed here, also found little improvement for U.S. stock index futures. The next section provides the appropriate theoretical background. The hedging methodologies and the empirical results are then described. Finally, the main findings of the paper are summarized. Theoretical Background The common practice of considering the minimum-variance hedge will be employed here. As shown by Fortin and Khoury (1988), such an approach is only strictly valid when a hedger has strong risk aversion. Thus, hedging should be properly viewed in a mean-variance context. Still, the minimum-variance hedge can serve as a good benchmark for the efficacy of partial (or aver-) hedging strategies. An investor wishing to hedge market risk in an arbitrary portfolio, whose market value at t is V sub t , over a hedge horizon from t to t+T sells futures contracts with specification for final cash settlement at t+T+r where tau >=0. Let m equal the futures contract multiplier; n sub t equal the number of contracts sold at t; and I sub t equal the level of the cash market index at t. Define the hedge ratio (h sub t,tau as (Equation 1 omitted) The hedge ratio is simply the ratio of futures "value" to cash market value. Next, using (1), the hedged portfolio return (R sup ph sub t ) can be written as (Equation 2 omitted) The minimum-variance hedge ratio is calculated by taking the variance of R sup ph sub t in (2), and minimizing with respect to h sub t,tau . …

Most defined contribution pension plan members misunderstand asset allocation, but those with higher levels of wealth managing their own money are less likely to be confused. Younger, more-educated, higher-earning advice-receiving males with a planner mindset hold more equity. Notably, an understanding of asset allocation accentuates the impact of the key factors age, income and a planner mindset.

A substantial variation in the Canadian E/P ratio can be explained by a combination of the lagged level of the E/P along with variability in logical explanatory factors. Moreover E/P ratios have a predictable component, both in the short-term and longer-term. On the other hand, short-term stock market returns are unpredictable. But, consistent with U.S. evidence, longer-term returns are predictable, especially when one conditions on the dividend yield.

Cross-sectional returns in Canada are predictable using both momentum and reversal strategies. Synergies realized by focusing on the entire term structure of prior returns lead to better predictability. An enhanced index strategy based on these synergies is profitable most of the time after controlling for transaction costs, although the degree of profitability changes over time. Simulation shows that recent profitability is mainly attributable to the short-side of the momentum strategy. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.

As is well-known, investors are subject to overconfidence. Using a survey of about 2,000 defined contribution pension plan members, we not only corroborate this, but also explore the demographics of this behavioral flaw. Noting that overconfidence can be partitioned into certainty and knowledge, we find that highly-educated males who are nearing retirement, who have received investment advice, and who have experience investing for themselves, tend to have a higher certainty level. For some groups knowledge matches certainty. Because highly-educated males do not have higher levels of knowledge we conclude that they are more subject to overconfidence.

This study constitutes the first comprehensive examination of Canadian mutual fund performance using a dataset free of all conditioning biases. The goal is to test many of the same hypotheses which have been previously addressed using US data. The sample is carefully constructed so as to avoid not only survivorship bias but also a form of backfilling bias that exists because funds have a timing option as to when to first provide results to information vendors. The deleterious impact of both forms of bias is documented. Not unlike what has been found in the US, on average fund managers net-of-expenses underperform benchmarks, but it also seems clear that their analysis and trading contribute to portfolio performance. I also present evidence that, at least on a short-term basis, success breeds success. Investors seem aware of this since money flows to successful funds. The strategy of chasing returns looks to be a viable one. One useful byproduct of this work is that an independent dataset has allowed for the corroboration of many of the same stylized facts that have been previously observed in the US.

We document using the ZEW panel of German stock market forecasters that weak forecasters tend to be overconfident in the sense that they provide extreme forecasts and their confidence intervals are less likely to contain eventual realizations. Moderate filters based on forecast accuracy over short rolling windows are somewhat successful in improving predictability. While poor performance can be due to various factors, a filter based on a prior tendency to provide extreme forecasts also improves predictability.

A new technique is described for operationalizing the bootstrap methodology to estimate the yield curve given any available data set of bond yields. The problem of missing data points is dealt with using symbolic cubic spline interpolation. To make such an approach tractable the computer algebra system Maple is employed to symbolically generate the interpolation equations for the missing data points and to solve the nonlinear equation system in order to obtain the points on the yield curve. Several examples with real data demonstrate the usefulness of the methodology.

This paper investigates whether simple term premium estimation techniques provide potential for return enhancement and interest rate predictability. Using short-term US government securities, during 1959—93, it is demonstrated that utilization of such knowledge allows investors to enhance returns on fixed income portfolios, provided that other than money market alternatives can be considered as potential repositories of funds. In addition, such knowledge yielded short-term interest rate predictions that were weakly superior to other methodologies, including the naive no-change forecast, except during the volatile early 1980s.

Analysis of the factors that drive bond term premiums is more than an academic exercise. The ability to identify such factors is tantamount to being able to predict fixed-income returns. This research using various-maturity government of Canada securities during 1960 - 1994 demonstrates that fixed-income returns net of the short rate of interest were predictable for the period using lagged aggregate stock market returns and the slope of the term structure. Dynamic simulations conditioned on these correlations would have been able to enhance return in an economicially significant fashion.

The most obvious explanation for the closed-end fund puzzle, the existence of managerial contribution (i.e., managerial performance less managerial fees), has been called into disrepute because of the inability of researchers to consistently document a negative relationship between such benefits and discounts. We present a model which shows that it is possible to account for some of the stylized facts without abandoning market efficiency and rationality. It is suggested that when one takes into consideration the impact of managerial contribution on the probability of open-ending, a negative relationship between managerial contribution and discounts actually may result.

A number of stock index futures markets have offered profit opportunities for arbitrageurs in the early years of trading, but after a period of seasoning, such opportunities have become infrequent. This is not the same as saying that speculative opportunities were unavailable. This contention is argued, and illustrated for the case of Canadian stock index futures.

The relationship between monetary aggregates and economic activity is investigated for the Chinese industrial sector for 1980–1988, a period which brackets the process of monetary reform culminating in the establishment of a full-fledged central bank in 1984. Using Granger's definition of causality, Akaike's concept of final prediction error, and Hsaio's sequential testing procedure, we find evidence suggesting that the relationship between money and industrial output may have changed. Whereas, prior to reform, bidirectional causality is detected, after reform unidirectional causality from money to output is established.

Over the last decade, the Chinese economy has begun to experience a shift from a system of direct macroeconomic control to a more indirect one. At the same time, rapid growth in currency stocks in circulation has been taking place. The ability of the central bank to forecast the quantity of money that Chinese consumers will demand while maintaining a certain level of national income and an acceptable rate of inflation has become an important issue faced by bank officials and policy makers. Failure in this regard can lead to economic instability and its consequences. Thus, the development of a demand for money equation appropriate for China is of the utmost concern. Pioneering work along these lines has been undertaken by Chow (1987) and Feltenstein and Farhadian (1987). Chow argued that his evidence indicates that the quantity theory provided a reasonable first approximation for the demand for money in China. Feltenstein and Farhadian theorized that, since Chinese prices were controlled by the central authority and shortages at these prices were commonplace, the appropriate money demand function would have as arguments perceived prices and perceived anticipated inflation, not the comparable magnitudes which were in fact released to the public. l The purpose of this article is to continue this exploratory work with an updated sample which runs to the end of 1987. A reasonably general demand for money equation is specified which admits approaches implied by previous work as special cases. Since the intention in this study is to focus on household demand for money, we use the most narrowly defined concept of money possible, namely currency in circulation. The reason is that in China currency in circulation is the only true medium of exchange. Demand deposits are not checkable and in fact can best be considered equivalent to savings deposits in the U.S .* The remainder of this article is organized as follows. In the second section we

An open economy model of the money supply announcement-financial market reaction phenomenon under policy anticipations is formulated, whose major divergence from earlier models is the prediction that short-term interest rate movements need not be positively correlated with unexpectedly high monetary growth. While at variance with the most consistent empirical regularity in the United States, this prediction in fact accords with previous empirical findings for both the United Kingdom and Canada. Copyright 1990 by Ohio State University Press.

In twelve sessions conducted in a typical bubble-generating experimental environment, we design a pair of assets that can detect both irrationality and speculative behavior. The specific form of irrationality we investigate is probability judgment error associated with low-probability, high-payoff outcomes. Independently, we test for speculation by comparing prices of identically paying assets in multiperiod versus single-period markets. When these tests indicate the presence of probability judgment error and speculation, bubbles are more likely to occur. This finding suggests that both factors are important bubble drivers.

We perform an asset market experiment in order to investigate whether overconfidence induces trading. We investigate three manifestations of overconfidence: calibration-based overconfidence, the better-than-average effect and illusion of control. Novelly, the measure employed for calibration-based overconfidence is task-specific in that it is designed to influence behavior. We find that calibration-based overconfidence does engender additional trade, though the better-than-average also appears to play a role. This is true both at the level of the individual and also at the level of the market. There is little evidence that gender influences trading activity. Copyright 2009, Oxford University Press.

In this paper, we revisit the debate on the merits of the stack-and-roll hedging strategy employed by Metallgesellschaft's American subsidiary, MGRM. Since the profitability of this hedging strategy depends on whether or not backwardation was the norm in energy futures contracts, we first provide the evidence on backwardation with an updated data set. We then examine the two major risks that such a hedging strategy faces margin call risk due to price declines and contango risk. Based on the data up to 1992, we find that the strategy could be expected to be profitable while the risks were not very high. Based on the updated data (up to 2000), the program's expected profits are smaller but still significant, however, the risks are higher. The probabilities of encountering a similar problem to the one MGRM faced are twice as high with the updated data than with the data up to 1992. In other words, the risk-return pattern of such a strategy is less appealing now than when MGRM implemented its hedging program.

Psychologists and economists hold vastly different views about human behavior. Psychologists contend that economists' models bear little relation to actual behavior. This view is supported by a large body of psychological research that shows that emotional state can significantly affect decision making. ; Economists, on the other hand, argue that psychological studies have no theoretical basis and offer little empirical evidence about people's decision-making processes. The reigning financial economics paradigm-the efficient market hypothesis (EMH)-assumes that individuals make rational investment decisions using the rules of probability and statistics. A newer branch of financial economics called behavioral finance applies lessons from psychology to financial decision making, but most of these studies have focused on cognitive biases rather than emotion. ; The authors of this article argue that emotion has important, and possibly beneficial, influences on financial behavior. After defining the term emotion and describing how emotions can be categorized, the authors consider how emotions influence human behavior. The discussion focuses particularly on three aspects of emotion and financial decision making: emotional disposition and stock market pricing, the feeling of regret, and investors' emotional response to information. ; No new financial economics paradigm that incorporates behavioral influences and better models actual behavior has yet emerged to replace the EMH. Yet the authors believe that emotional behavior's influence on financial decision making should be taken into account in future research.

We perform an asset market experiment in order to test the central result coming from the new overconfidence models, namely that high levels of overconfidence lead to enhanced trading activity. We find that overconfidence does engender additional trade. Unlike previous experimental or survey-based evidence, ours is the first study to find this to be so when overconfidence is measured using a calibration-based approach that is most akin to the theoretical literature. Further, we investigate the contention that gender influences trading activity through overconfidence. There is no evidence of this, as women have about the same level of both overconfidence and trading activity as do men, and gender is not a useful explanatory variable of trading in a multivariate regression.

There is evidence that risk-taking behavior is influenced by prior monetary gains and losses. When endowed with house money, people become more risk taking. This paper is the first to report a house money effect in a dynamic, financial setting. Using an experimental method, we compare market outcomes across sessions that differ in the level of cash endowment (low and high). Our experimental results provide support for a house money effect. Traders’ bids, price predictions, and market prices are influenced by the amount of money that is provided prior to trading. However, dynamic behavior is difficult to interpret due to conflicting influences.

The robustness of bubbles and crashes in markets for finitely lived assets is perplexing. This paper reports the results of experimental asset markets in which participants trade two assets. In some markets, price bubbles form. In these markets, traders will pay even higher prices for the asset with lottery characteristics, i.e., a claim on a large, unlikely payoff. However, institutional design has a significant impact on deviations in prices from fundamental values, particularly for an asset with lottery characteristics. Price run-ups and crashes are moderated when traders finance purchases of the assets themselves and are allowed to short sell.

The robustness of bubbles and crashes in markets for finitely lived assets is perplexing. This paper reports the results of experimental asset markets in which participants trade two assets. In some markets, price bubbles form. In these markets, traders will pay even higher prices for the asset with lottery characteristics, i.e., a claim on a large, unlikely payoff. However, institutional design has a significant impact on deviations in prices from fundamental values, particularly for an asset with lottery characteristics. Price run-ups and crashes are moderated when traders finance purchases of the assets themselves and are allowed to short sell. JEL classification: C92, G14 Key words: bubbles, asset markets, laboratory experiments, rational expectations ********** One of the most striking results from experimental asset markets is the tendency of asset prices to bubble above fundamental value and subsequently crash. Explaining the price pattern is a challenge. Yet extreme price movements, at odds with any reasonable economic explanation, are documented throughout history. Examples include the Dutch tulip mania (1634-1637), the Mississippi bubble (1719-1720), and the stock market boom and crash of the 1920s (see e.g., Kindelberger (1989), Garber (1990), White (1990)). More recently, in a speech made on December 5, 1996, Federal Reserve Chairman Alan Greenspan expressed concern that stock prices are inflated by "irrational exuberance." The current debate over rational valuation centers largely on internet-related companies. Though downward price adjustments have been observed of late, stock prices for many of these so-called dot-coms increased at incredible rates over the last decade despite mounting accounting losses. Price to earnings multiples for some dot-coms (or price to revenues when earnings are negative) were as high as several hundred to one, something unheard of just ten years ago. Chairman Greenspan speculates that the observed price behavior might reflect a lottery effect. Market participants are willing to pay a premium for some stocks because, though the chance is small, a very significant payoff is possible. (1) This paper reports the results of experimental asset markets designed to examine whether asset prices reflect a lottery premium. The results indicate that traders will pay a premium for a claim on a large payoff, even if the payoff is unlikely. In addition, this study re-examines whether institutional design impacts upward deviations in prices from fundamental values. Unlike previous research that documents the robustness of bubbles formation, price run-ups and crashes are not observed when traders are not permitted to finance purchases with borrowed funds but are allowed to short sell the assets. The remainder of this paper is organized as follows. Section I provides background and motivation for the study. Section II describes the experimental procedures and design. Section III reports the results. Section IV contains a discussion of the results and concluding remarks. I. Regularities, Institutional Features, and New Questions Smith, Suchanek, and Williams (1988) first reported bubbles in experimental asset markets. Typically in bubbles markets, subjects trade an asset over a finite horizon. The asset has a common dividend, determined at period end based on a known, stationary probability distribution. Thus, fundamental value, assuming risk neutrality, is easily computed as the number of trading periods remaining multiplied by the expected dividend per period. In this setting trading yields large upward deviations in prices from fundamental value followed by crashes back to the asset's risk neutral value. The finding has been replicated by Porter and Smith (1995), Ackert and Church (2000), and Lei, Noussair, and Plott (2001), among others. King, Smith, Williams, and Van Boening (1993) investigate whether bubbles are moderated by several treatment variables including the ability to short sell, margin purchases, the presence of brokerage fees, equal endowments across traders, a subset of informed traders, limit price change rules, design experience, and experience in the business world. …

The natural gas industry has undergone dramatic change in the last decade as a result of deregulation. In this article, we consider the desirability of yet another innovation: the active use of natural gas futures and other financial derivatives by local distribution companies for price hedging purposes. Given the potential savings of short- relative to 'long-term contracts, the increasing security of supply. and the salient possibility of low (if not negative) costs in using these contracts, we argue that regulators should take a close look.

The New York Mercantile Exchange's Crude Oil futures contract is investigated for the existence and nature of risk premiums and informational efficiency. During 1983-90, there is some evidence that short-term premiums were positive and covaried with recent volatility. As for efficiency, we find nothing inconsistent with weak-form efficiency, but some apparent violations cf semi-strong efficiency. We argue that, for a number of reasons, such rejections should be interpreted with caution.

In 12 sessions conducted in a typical bubble-generating experimental environment, we design a pair of assets that can detect both irrationality and speculative behavior. The specific form of irrationality we investigate is the probability judgment error associated with low-probability, high-payoff outcomes. Independently, we test for speculation by comparing prices of identically paying assets in multiperiod versus single-period markets. We establish that aggregate irrationality measured in one dimension (probability judgment error) is associated with aggregate irrationality measured in another (bubble formation).

Transferring the risk of price changes, or hedging, is most desirable when the costs of doing so are low relative to the benefits. This paper discusses the nature of these benefits and costs and reports on a related analysis of data from the NYMEX crude oil futures market. It is shown that likely risk reduction is directly related to the degree to which the crude oil futures, market can be characterized as efficient. Using data from the highly volatile period of 1983-90, we find evidence that supports the proposition that the crude oil futures market is efficient. There is no evidence for the existence of risk premiums, which constitute an additional cost to hedging. This is good news for hedgers, as it implies that risk transfer is free in the sense that hedgers need pay no premium to speculators.

The robustness of bubbles and crashes in markets for assets with finite lives is perplexing. This paper reports the results of experimental asset markets in which participants trade two assets. In some markets, price bubbles form. In these markets, traders pay higher prices for the asset with lottery characteristics (i.e., a claim on a large, unlikely payoff). However, institutional design has a significant impact on deviations in prices from fundamental values, particularly for an asset with lottery characteristics. Price run-ups and crashes are moderated when traders finance purchases of the assets themselves and are allowed to short sell.

The author investigates the forecasting performance of a number of simple prediction techniques for short-term interest rates. In particular, quarterly forecasts of Canadian three-month T-bill rates, from one to forty quarters in the future, are generated during 1963-92 using several time-series methods and market-based yield curve strategies. Comparison is made with the martingale and, for a shorter recent sample, with the predictions made by several economic forecasters. For the most part, utilization of the yield curve proved best, though it must be granted that no methodology was able to outperform the martingale for horizons up to a year.

This paper demonstrates, using weekly data between 1976 and 1979, that unanticipated changes in the Canadian money supply exerted a significant impact on the foreign exchange and bond markets during the first years of the Bank of Canada's policy of targeting M1 growth. This finding, which is perhaps surprising in light of the apparent volatility of weekly changes in the Canadian money supply, is consistent with the efficient markets paradigm. After the empirical regularities are established, an interpretation is offered that focuses on market perceptions of the reaction function of the Bank of Canada.

Movements across the nominal term structure of U.S. interest rates have continued to be positively correlated with weekly money surprises post-CRR. Bond and foreign exchange market evidence suggests that these may no longer be movements in the real term structure.