The Profitability of Block Trades in Auction and Dealer Markets

The paper compares the trading costs for institutional investors who are subject to liquidity shocks, of trading in auction and dealer markets. The batch auction restricts the institutions’ ability to exploit informational advantages because of competition between institutions when they simultaneously submit their orders. This competition lowers aggregate trading costs. In the dealership market, competition between traders is absent but trades occur in sequence so that private information is revealed by observing the flow of successive orders. This information revelation reduces trading costs in aggregate. We analyse the relative effects on profits of competition in one system and information revelation in the other and identify the circumstances under which dealership markets have lower trading costs than auction markets and vice versa.Market microstructure, Auction market, Dealer markets.

Labor Contracts, Equal Treatment and Wage-Unemployment Dynamics

This paper analyses a model in which firms cannot pay discriminate based on year of entry to a firm, and develops an equilibrium model of wage dynamics and unemployment. The model is developed under the assumption of worker mobility, so that workers can costlessly quit jobs at any time. Firms on the other hand are committed to contracts. Thus the model is related to Beaudry and DiNardo (1991). We solve for the dynamics of wages and unemployment, and show that real wages do not necessarily clear the labour market. Using sectoral productivity data from the post-war US economy, we assess the ability of the model to match actual unemployment and wage series. We also show that equal treatment follows in our model from the assumption of at-will employment contracting.labour contracts, business cycle, unemployment, equal treatment, cohort effects

Mean Group Tests for Stationarity in Heterogenous Panels

This paper proposes the panel-based mean group tests for the null of stationarity against the alternative of unit roots in the presence of both heterogeneity across crosssection units and serial correlation across time periods. Using both sequential and joint asymptotic analyses the proposed test statistic is shown to be distributed as standard normal under the null for large N (number of groups) and large T (number of time periods). Monte Carlo results support the use of join asymptotic limits (under further condition that N/T ? 0) as a guide to finite sample performance, but also clearly indicate that the power of our suggested panel-based test is substantially higher than that of the single time series-based test.Mean Group Tests, Heterogeneous Panels, Joint Asymptotic Theory, Stationarity, Unit Roots, Monte Carlo Simulation, Finite Sample Adjustment.

Labour Contracts, Equal Treatment and Wage-Unemployment Dynamics

This paper analyses a model in which .rms cannot pay discriminate based on year of entry to a .rm, and develops an equilibrium model of wage dynamics and unemployment. The model is developed under the assumption of worker mobility, so that workers can costlessly quit jobs at any time. Firms on the other hand are committed to contracts. Thus the model is related to Beaudry and DiNardo (1991). We solve for the dynamics of wages and unemployment, and show that real wages do not necessarily clear the labor market. Using sectoral productivity data from the post-war US economy, we assess the ability of the model to match actual unemployment and wage series. We also show that equal treatment follows in our model from the assumption of at-will employment contracting.Labor contracts, business cycle, unemployment, equal treatment, cohort effects

Trading Costs of Institutional Investors in Auction and Dealer Markets

This paper compares the trading costs for institutional investors who are subject to liquidity shocks, of trading in auction and dealer markets. The batch auction restricts the institutions' ability to exploit informational advantages because of competition between institutions when they simultaneously submit their orders. This competition lowers aggregate trading costs. In the dealership market, competition between traders is absent but trades occur in sequence so that private information is revealed by observing the flow of successive orders. This information revelation reduces trading costs in aggregate. We analyse the relative e®ects on profits of competition in one system and information revelation in the other and identify the circumstances under which dealership markets have lower trading costs than auction markets and vice versa.

Labor Contracts, Equal Treatment and Wage-Unemployment Dynamics

This paper analyses a model in which firms cannot pay discriminate based on year of entry to a firm, and develops an equilibrium model of wage dynamics and unemployment. The model is developed under the assumption of worker mobility, so that workers can costlessly quit jobs at any time. Firms on the other hand are committed to contracts. Thus the model is related to Beaudry and DiNardo (1991). We solve for the dynamics of wages and unemployment, and show that real wages do not necessarily clear the labor market. Using sectoral productivity data from the post-war US economy, we assess the ability of the model to match actual unemployment and wage series. We also show that equal treatment follows in our model from the assumption of at-will employment contracting.

Real and Nominal Wage Rigidity in a Model of Equal-Treatment Contracting

This paper analyses a model with downward rigidities in which firms cannot pay discriminate based on year of entry to a firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions of downward wage rigidity, where forward looking firms take into account these constraints. Using simulated productivity data based on the post-war US economy, we analyse the ability of the model to match certain stylised labour market facts.Labour contracts, business cycle, unemployment, equal treatment, downward rigidity, cross-contract restrictions.

Inequality Measures as Tests of Fairness in an Economy

Standard measures of inequality have been criticized for a long time on the grounds that they are snap shot measures which do not take into account the process generating the observed distribution. Rather than focusing on outcomes, it is argued, we should be interested in whether the underlying process is “fair”. Following this line of argument, this paper develops statistical tests for fairness within a well defined income distribution generating process and a well specified notion of “fairness”. We find that standard test procedures, such as LR, LM and Wald, lead to test statistics which are closely related to standard measures of inequality. The answer to the “process versus outcomes” critique is thus not to stop calculating inequality measures, but to interpret their values differently–to compare them to critical values for a test of the null hypothesis of fairness.

Testing for Cointegration in Nonlinear STAR Error Correction Models

In this paper we propose a new testing procedure to detect the presence of a cointegrating relationship that follows a globally stationary smooth transition autoregressive (STAR) process. We start from a general VAR model, embed the STAR error correction mechanism (ECM) and then derive the generalised nonlinear STAR error correction model. We provide two operational versions of the tests. Firstly, we obtain the associated nonlinear ECM-based test. Secondly, we generalise the well-known residual-based test for cointegration in linear models by Engle and Granger (1987) and obtain its nonlinear analogue. We derive the relevant asymptotic distributions of the proposed tests. We find via Monte Carlo simulation exercises that our proposed tests have much better power than the Engle and Granger test against the alternative of a globally stationary STAR cointegrating process. In an application to the price-dividend relationship, we also find that our test is able to find cointegration, whereas the linear-based tests fail to do so. Further analysis of impulse response functions of error correction terms (under the alternative) shows that the time taken to recover one half of a one standard deviation shock varies between five and twenty years, whereas the time taken to recover one half of a large shock varies between just 4 to 18 months. This clearly implies that data periods dominated by extreme volatility may display substantial mean reversion of the price-dividend relationship. By contrast this relationship may well look like a unit root when the underlying shocks take on smaller values.Unit roots, Globally stationary cointegrating processes, Nonlinear exponential smooth transition autoregressive error correction models, Monte Carlo simulations, Prices and dividends