Arbitrage, Covered Interest Parity and Long-Term Dependence between the US Dollar and the Yen

Using a daily time series from 1983 to 2005 of currency prices in spot and forward USD/Yen markets and matching equivalent maturity short term US and Japanese interest rates, we investigate the sensitivity over the sample period of the difference between actual prices in forward markets to those calculated from short term interest rates. According to a fundamental theorem in financial economics termed covered interest parity (CIP) the actual and estimated prices should be identical once transaction and other costs are accommodated. The paper presents four important findings: First, we find evidence of considerable variation in CIP deviations from equilibrium that tends to be one way and favours those market participants with the ability to borrow US dollars (and subsequently lend yen). Second, these deviations have diminished significantly and by 2000 have been almost eliminated. We attribute this to the effects of electronic trading and pricing systems. Third, regression analysis reveals that interday negative changes in spot exchange rates, positive changes in US interest rates and negative changes in yen interest rates generally affect the deviation from CIP more than changes in interday volatility. Finally, the presence of long-term dependence in the CIP deviations over time is investigated to provide an insight into the equilibrium dynamics. Using a local Hurst exponent – a statistic used in fractal geometry - we find episodes of both positive and negative dependence over the various sample periods, which appear to be linked to episodes of dollar decline/yen appreciation, or vice versa. The presence of negative dependence is consistent with the actions of arbitrageurs successfully maintaining the long-term CIP equilibrium. Given the time varying nature of the deviations from equilibrium the sample period under investigation remains a critical issue when investigating the presence of longterm dependence.Hurst exponent; Efficient market hypothesis; covered interest parity, arbitrage

The Effect of Online Feedback Mechanisms in Electronic Markets: A Field Study Perspective

Online feedback mechanism, best known right now for building trust and reputation in electronic markets, are regarded as a major player in the success of many online trading communities. It can reduce sellers’ anonymities, mitigate the buyers’ risks, and affect the price premiums. In this paper, we investigate the relationship between feedback mechanisms and price premiums by the analysis of field data. An intelligent agent is build to collect actual data from Yahoo Auction. The research results will also allow us to better understand whether positive/negative rating has different effects. It may also clarify mediating effects of product characteristics on the relationship between reputation systems and price premiums

Bubbles in a minority game setting with real financial data

© 2005 COPYRIGHT SPIE--The International Society for Optical Engineering Copyright 2005 Society of Photo-Optical Instrumentation Engineers. This paper was published in Complex Systems, edited by Axel Bender, Proc. of SPIE Vol. 6039, 60390C and is made available as an electronic reprint with permission of SPIE. One print or electronic copy may be made for personal use only. Systematic or multiple reproduction, distribution to multiple locations via electronic or other means, duplication of any material in this paper for a fee or for commercial purposes, or modification of the content of the paper are prohibited.It is a well observed fact that markets follow both positive and/or negative trends, crashes and bubble effects. In general a strong positive trend is followed by a crash--a famous example of these effects was seen in the recent crash on the NASDAQ (April 2000) and prior to the crash in the Hong Kong market, which was associated with the Asian crisis in the early 1994. In this paper we use real market data coupled into a minority game with different payoff functions to study the dynamics and the location of financial bubbles.Frédéric D.R. Bonnet, Andrew Allison, and Derek Abbot

Does Social Consumption Mitigate Stigma? Identity Formation in an Urban Farmers’ Market

This study contributes to sociology of consumption by analyzing the experience of shopping at an urban farmers\u27 market using ethnographic observation and observational interviews. Participants included market-goers using Electronic Benefit Transfer (EBT), currency received from federal assistance, as well as those using debit or credit cards. This sample allowed for insight into the process of shopping at farmers’ markets while under economic constraint and in turn, the relationship this process has with shoppers’ self-perceptions as consumers. The social consumption process of shopping at the farmers’ market could mitigate negative effects of shopping with food assistance and financial constraint and promote positive self-making. Though consumers who have not traditionally accessed alternative food movements benefit from this process, it is not accessible to all shoppers. This research implies benefits of widening access to farmers’ markets for low-income shoppers, and potential benefits of structuring settings where people purchase food to promote social interaction

Interaction effects in the relationship between growth and finance

This paper analyzes how interacting financial development with initial income, macroeconomic volatility and policy variables, can improve our understanding of convergence and divergence across countries, and also restore the significance of correlations between growth and volatility and therefore between growth and macropolicy, even when controlling for country fixed effects or when eliminating countries with extreme policies or bad institutions

The impact of music downloads and P2P file-sharing on the purchase of music in Canada

This study measures the extent to which free music downloads, including the use of P2P file sharing networks, act as substitutes or complements to music purchase in markets for CDs and electronic delivered music (such as MP3). The analysis uses representative micro-data from the Canadian population. We find that those who participate in free music downloading and P2P file-sharing do not purchase more or less music compared with those who do not engaged in such activities, but that, indeed, very active file-sharers purchase more music relative to file-sharers who download fewer songs. Thus, the market substitution effect between freely acquired music and purchased music is smaller than the market creation and market segmentation effect from free music downloading. In essence, the behavioural incentives underpinning free music downloading are the effects of ‘unwilling to pay’ (market substitution), ‘hear before buying’ (market creation), ‘not wanting to buy whole album’ (market segmentation), ‘not available in the CD format or on electronic pay-sites (market creation)’

Economic Effects of Electronic Markets

transport industry;electronic markets;flower industry

Price impact of block trades in the Saudi stock market

This paper examines the price impact of block trades for the 124 companies that comprise all listed firms in the Saudi stock market (SSM). We use high frequency intraday data (one minute intervals) for the period 2005-2008 to provide out of sample evidence of the determinants of price impact. We find an asymmetric price impact of 0.5% for block purchases and -0.38% for block sales. We document a price continuation post block trades and a price reversal after block sales. Sellers of block trades in the Saudi market pay higher liquidity premiums than buyers of block trades. However, on average, the price effect of a block trade is small and short-lived suggesting that resiliency is high in the market. Moreover, we find a direct relationship between the size of the trades and the level of information asymmetry in the market. Despite the structural differences of the SSM, the intraday pattern of price impacts is similar to patterns documented in other markets, namely an inverse J-shaped pattern. Finally, sophisticated traders can gain abnormal profits in the SSM through “free riding”, a trader can benefit from the overreaction before the block trade and price reversal after the block trade