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"1963-2006"
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Market Segmentation and Cross-predictability of Returns
We present evidence supporting the hypothesis that due to investor specialization and market segmentation, value-relevant information diffuses gradually in financial markets. Using the stock market as our setting, we find that (i) stocks that are in economically related supplier and customer industries cross-predict each other's returns, (ii) the magnitude of return cross-predictability declines with the number of informed investors in the market as proxied by the level of analyst coverage and institutional ownership, and (iii) changes in the stock holdings of institutional investors mirror the model trading behavior of informed investors.
Journal Article
Great society : a new history
\"In the 1960s [and 1970s], Americans sought the same goals many seek now: an end to poverty, higher standards of living for the middle class, a better environment, and more access to health care and education. Then, too, we debated socialism and capitalism, public sector reform versus private sector advancement. Time and again, whether under John F. Kennedy, Lyndon Johnson, or Richard Nixon, the country chose the public sector. Yet the targets of our idealism proved elusive. What's more, Johnson's and Nixon's programs [may have] shackled millions of families in permanent government dependence. Ironically, Shlaes argues, the costs of entitlement commitments made a half century ago preclude the very reforms that Americans will need in coming decades\"-- Publisher's description.
Book
Are Financial Constraints Priced? Evidence from Firm Fundamentals and Stock Returns
Using comprehensive firm-and aggregate-level data, this paper studies the real and financial implications of capital market imperfections. We first examine whether financially constrained firms' business fundamentals (capital spending and operating earnings) are more sensitive to macroeconomic movements than unconstrained firms' fundamentals. We then examine whether financial constraint \"return factors\" respond to macroeconomic shocks in tandem with the responses from business fundamentals. The evidence in this paper points to financial constraints affecting both fundamental quantities and asset returns.
Journal Article
Reconsidering the macroeconomics of the oil price in Germany: testing for causality in the frequency domain
This paper reconsiders the macroeconomics of the oil price for Germany. It investigates whether causality between the oil price and a selection of both macroeconomic and financial market variables differs between frequency bands. Both a bivariate frequency-wise causality measure and its higher-dimensional extension are applied. The main findings are that short-run causality exists between the oil price and variables such as short-term interest rates and the German share price index, while long-run causality is found between the oil price and long-term interest rates. Moreover, the oil price predicts the consumer price index at a high number of different frequencies, while no significant causality is found to run from the oil price to industrial production and the unemployment rate.
Journal Article
Who Saw Sovereign Debt Crises Coming?
This paper studies sovereign debt crises during the period 1993-2006 through the prism of the primary sovereign bond market. Two conclusions emerge. First, investment banks price sovereign default risk well before crises occur and before investors detect default risk. Between three and one years prior to the onset of a crisis, sovereign default risk countries paid to investment banks on average 1.10 per cent of the amount issued, close to double the average paid by emerging countries overall in the same period (0.56 per cent). In contrast, the level of sovereign bond spreads prior to crises is on average only slightly higher than for emerging countries (385 vs. 319 basis points), suggesting that investment banks have an information advantage with respect to investors and are the only parties compensated for the risk of sovereign debt crises. Second, investment banks’ behaviour differs depending on the type of sovereign debt crisis. Before crises, investment banks charged on average a higher underwriting fee to countries presenting public finances difficulties than to other sovereign debt crisis countries. The robustness of these results is verified through panel data analysis. The results are puzzling in that they indicate that valuable, publicly available information is not tracked by investors to help improve allocation of their emerging market fixed income assets.
Paper