We survey the evidence bearing on measurement error in the CPI and provide our best estimate of the magnitude of CPI bias. We also identify a weighting bias in the CPI that has not been previously discussed in the literature. In total, we estimate that the CPI overstates the change in the cost of living by about 0.6 percentage point per year, with a confidence interval that ranges from 0.1 to 1.2 percentage points. Roughly half of this bias is accounted for by the CPI's inability to fully capture the welfare improvement from quality change and the introduction of new items. Our bias estimate is smaller than that found in several earlier studies, in part because the BLS has recently made a variety of improvements to its procedures; our study highlights several potential areas for further improvement.

In this article we investigate Japanese managers’ use of income from the sale of fixed assets and marketable securities to manage earnings. The earnings management target examined is Japanese managers’ forecasts of current–year earnings. We find a negative relation between income from asset sales and management forecast error. When current reported operating income is below (above) management's forecast of operating income, firms increase (decrease) earnings through the sale of fixed assets and marketable securities. The results hold after controlling for expected future performance, debt–to–equity ratio, size, growth, and last year's income from asset sales.

This paper utilises the non-parametric frontier approach, data envelopment analysis, to analyse the technical and scale efficiency in Japanese banking using a recent cross-section sample. Efficiency analysis is conducted across individual banks, bank types and bank size groups. Following Berger and Humphrey [Eur. J. Oper. Res. 98 (1997) 175], problem loans are controlled for as an exogenous influence on bank efficiency. Powerful size-efficiency relationships are established with respect to both technical and scale efficiency. Furthermore, the logic of the recent large-scale merger wave in Japan is questioned as the larger (City) banks are generally found to be operating above the minimum efficient scale and to have limited opportunity to gain from eliminating X-inefficiencies. The opposite result is found for the smaller banks. Finally, the results suggest that controlling for the exogenous impact of problem loans is important in Japanese banking, especially for the smaller regional banks.

We examine if analysts more fully incorporate prior earnings and returns information in their current quarter forecasts as their experience following a firm increases. We measure analyst firm-specific forecasting experience as the number of prior quarters for which the analyst has issued an earnings forecast for the firm. We find that analysts underreact to prior earnings information less as their experience increases, suggesting one reason why analysts become more accurate with experience.

Asymmetric information between corporate insiders and other market participants can lead to large bid‐ask spreads or even a collapse of trade in financial markets. In this paper, we discuss how voluntary disclosure by insiders can remedy this problem. When insiders make disclosure decisions after they become informed, other market participants update their prior beliefs on the basis of both the information disclosed and the information not disclosed. Insiders then give up some or all of their information advantage to weakly increase their profits. These results do not rely on ex ante commitments on the part of the insiders.