Uskali Maki read three books by McCloskey on the "rhetoric of economics" with sympathy. But he wants McCloskey to choose between a coherence and a correspondence theory of truth. McCloskey notes in reply that modern epistemology - by contrast with the analytic philosophy circa 1955 that many philosophers of economics espouse - rejects the choice. Modern epistemology would say that economic scientists argue in many legitimate ways, governed by ethics. In brief, as Maki agrees, economics has a rhetoric. Rhetoric is a better guide than 1955-style analytic philosophy.

This paper considers an alternative asymptotic framework to standard sequential asymptotics for nonlinear models with deterministically trending variables. The asymptotic distributions of generalized method of moments estimators and corresponding test statistics are derived using this framework. The asymptotic distributions are shown to be the same with deterministically trending variables as with non-trending variables. That is, the distributions are normal and chi-squared respectively. The asymptotic covariance matrices of the estimators, however, are found to depend on the form of the trends. These findings provide a justification for the use of standard asymptotic approximations in nonlinear models even when the variables have deterministic trends.

This paper develops a framework for a general equilibrium analysis of asset markets when the number of assets is infinite. Such markets have been studied in the context of asset pricing theories. Our main results concern the existence of an equilibrium. We show that an equilibrium exists if there is a price system under which no investor has an arbitrage opportunity. A similar result has been previously known to hold in finite asset markets. Our extension to infinite assets involves a concept of an arbitrage opportunity which is different from the one used in finite markets. An arbitrage opportunity in finite asset markets is a portfolio that guarantees non-negative payoff in every event, positive payoff in some event, and has zero price. For the case of infinite asset markets, we introduce a concept of sequential arbitrage opportunity which is a sequence of portfolios which increases an investor's utility indefinitely and has zero price in the limit. We show that a sequential arbitrage opportunity and an arbitrage portfolio are equivalent concepts in finite markets but not in their infinite counterpart.

This paper examines the behavior of institutional traders. We use unique data on the equity transactions of 21 institutions of differing investment styles which provide a detailed account of the anatomy of the trading process. The data include information on the number of days needed to fill an order and types of order placement strategies employed. We analyze the motivations for trade, the determinants of trade duration, and the choice of order type. The analysis provides some support for the predictions made by theoretical models, but suggests that these models fail to capture important dimensions of trading behavior.

We estimate continuous-time event-history models of the acquisition of conglomerate vs. non-conglomerate and predatory vs. friendly acquisitions among the 1962 Fortune 500 between January, 1963, and December, 1968. Our analysis of predatory acquisitions reveals that there were strong disciplinary motivations for these acquisitions in the 1960s. Q ratios were, by a large margin, the most important determinant of predatory acquisition likelihood. Surprisingly, however, corporate boards appear to have provided little alternative to predatory acquisition as a monitoring mechanism during this period. Friendly acquisitions, on the other hand, were concentrated among firms with low price-earnings ratios and high return on equity, suggestive of the earnings manipulation story often associated with conglomerate acquisitions. Our analysis of conglomerate acquisitions reveals that there were strong disciplinary motivations for conglomerate acquisitions during this period. Conglomerate targets had low Q ratios and were as likely as non-conglomerate targets to be acquired in a predatory fashion. We find no evidence that conglomerate acquisitions were motivated by a desire to improve earnings-per-share numbers, as some have maintained. In addition, regardless of type or tenor, we find managerial ownership, firm size, and industrial organization motivations for acquisition are consistently important determinants of acquisition likelihood.

Résumé. Les travaux antérieurs qui ont porté sur la formulation d'hypothèses démontrent que les vérificateurs ont tendance, dans la formulation de leurs hypothèses initiales, à attribuer les fluctuations imprévues aux erreurs qui se produisent fréquemment dans les états financiers. L'on ne s'interroge cependant pas, dans ces travaux, sur la nature de l'incidence des hypothèses initiales sur la performance subséquente dans le diagnostic de l'erreur véritable. Les auteurs avancent que l'hypothèse formulée au départ et la capacité des vérificateurs de passer par la suite à une hypothèse différente interfèrent. Si, par exemple, l'hypothèse initiale était inexacte, il serait difficile pour les vérificateurs de changer d'hypothèse dans le diagnostic de l'erreur véritable. Plus encore, le fait d'invoquer initialement une erreur fréquente exacerberait cette difficulté. L'on a demandé aux vérificateurs‐sujets de produire une hypothèse initiale relative à l'erreur après avoir pris connaissance d'un modèle de fluctuations dans lequel les ventes et les comptes clients étaient surévalués. Une fois formulée leur hypothèse initiale, la moitié des sujets recevaient de l'information supplémentaire révélant l'existence d'une erreur très fréquente (dans la démarcation des ventes) et l'autre moitié recevaient de l'information révélant l'existence d'une erreur peu fréquente (celle de la double comptabilisation d'une même vente). Conformément à leurs prévisions, les auteurs constatent que le fait, pour les vérificateurs, d'invoquer initialement l'erreur très fréquente (soit la démarcation des ventes) par rapport à une autre erreur moins fréquente avait par la suite une incidence sur leur performance dans le diagnostic des erreurs véritables. Plus précisément, les vérificateurs qui invoquaient l'erreur très fréquente dans leur hypothèse initiale obtenaient les meilleurs résultats lorsque cette erreur était l'erreur véritable, mais ils obtenaient les résultats les moins bons lorsque l'erreur peu fréquente se trouvait être l'erreur véritable. Les vérificateurs qui invoquaient une erreur moins fréquente dans leur hypothèse initiale affichaient, pour leur part, une performance relativement bonne (c'est‐à‐dire se situant entre la performance la meilleure et la performance la moins bonne), aussi bien lorsque l'erreur véritable était fréquente que lorsqu'elle était peu fréquente. Les auteurs analysent les conséquences de ces résultats sur l'efficience et l'efficacité de la vérification.