The paper considers the problem facing a consumer deciding whether to purchase a good whose effect on utility is unknown. The consumer is allowed to learn about the effect over time according to a Bayesian updating procedure. Of interest is the quantity of the good the consumer will purchase in the first period. The paper allows the consumer's budget constraint to be spread over more than one period and consequently generates results which contradicts earlier work.

A number of recent papers have reported evidence that stock prices are more volatile than is consistent with efficient markets. We argue that the excess volatility tests address a definition of efficient markets that makes an extreme information assumption. We go on to test a weaker definition of efficient markets, due to Jensen (1978). We show the existence of a profitable trading rule that earns a significantly higher rate of return than a buy-and-hold strategy, and so conclude that stock prices are too volatile, even when judged by this weaker definition.

This paper aims to assess the impact of the abolition of U.K. exchange control on the degre of integration of U.K. and overseas stock markets. Using cointegration techniques, we find that although there is no significant increase in the correlation of short-run stock market returns for the United Kingdom and certain overseas markets post 1979, there does appear to be a marked increase in the degree to which these markets move together in the long run after this date--there appears to be no long-run gain from diversification. Since cointegration of two variables implies that at least one of them can be used to help forecast the other, our findings also imply the inefficiency of a number of stock markets.

We investigate the performance of call markets at the open and close using a unique natural experiment provided by the London Stock Exchange where traders can choose between a call and an off-exchange dealership system. Although the call market dominates dealers in terms of price discovery, it suffers from a high failure rate to open and close trading especially when trading conditions are difficult. The call's trading costs increase with asymmetric information, slow trading, order flow imbalances, and uncertainty. Traders' resort to use of call auctions is negatively correlated with firm size, implying that the call may not be the optimal method for opening and closing trading of medium and small sized stocks.