This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

Textbook arbitrage in financial markets requires no capital and entails no risk. In reality, almost all arbitrage requires capital and is typically risky. Moreover, professional arbitrage is conducted by a relatively small number of highly specialized investors using other people's capital. Such professional arbitrage has a number of interesting implications for security pricing, including the possibility that arbitrage becomes ineffective in extreme circumstances when prices diverge far from fundamental values. The model also suggests where anomalies in financial markets are likely to appear, and why arbitrage fails to eliminate them.

We examine the social costs of asymmetric-information-induced bank panics in an environment without government deposit insurance. Our case study is the Chicago bank panic of June 1932. We compare the ex ante characteristics of panic failures and panic survivors. Despite temporary confusion about bank asset quality on the part of depositors during the panic, which was associated with widespread depositor runs and bank stock price declines, the panic did not produce significant social costs in terms of failures among solvent banks.

When income levels of some group in the economy fall behind those of others, the blame frequently is cast on the nature of international trading relationships. Such has been the case recently in the United States with the struggle to maintain real wages for relatively lessskilled workers. Much of the debate has asked how changes in world prices or in technology at home or abroad have altered wage rates (see e.g., Susan Collins, 1996; Jones and Engerman, 1996). In this note we focus on another potential culprit, immigration, and probe more widely into past historical experience in the United States and other countries when inflows of labor from abroad disturb wage rates for nationals. Such international labor flows could serve to enhance rather than to depress the earnings of the country's own laborers. If the question addressed concerns the effects of immigration on the welfare of the original inhabitants of a country, a disarmingly simple answer was provided some years ago by Harry Johnson (1967): as long as immigrants bring an accumulated bundle of labor and physical or human capital that is different from that possessed by local residents, the latter must gain from immigration. This is the basic gains-from-trade argument, appropriate only if the country originally did not engage in any other form of trade and if all residents held balanced portfolios of capital and labor. As well, it ignores the social costs incurred and extra taxes collected when migrants flow into a country. In this note we focus not on aggregate welfare effects, but on the effect of immigration on the return to some homogeneous national group of laborers. This question is the one that most sharply divides the views of labor economists from those of trade economists. On the one hand, increases in the supply of labor would seem naturally to depress the return to labor, but in the basic Heckscher-Ohlin trade model with two factors and two produced commodities, an inflow of labor can be absorbed with absolutely no change in wage rates as long as the terms of trade remain undisturbed. We begin by asking what some basic theoretical models tell us about this issue, before turning to the historical record. Simple theory reveals that there are two basic attributes of immigration that affect income distribution: relatively how substitutable immigrant labor is for the national labor force, and the occupations in which immigrants are allowed to work.

We propose and test the hypothesis that trading by institutional investors contributes to serial correlation in daily returns. Our results demonstrate that NYSE particles and individual security daily return autocorrelationsare an increasing function of the level of institutional ownership. Moreover, the results are consistent with the hypothesis that institutional trading reflects information and increases the speed of price adjustment. The relation between autocorrelation and institutional holdings does not, however, apparent to be driven by market frictions or rational time-varying required rates of return. We conclude that institutional investors correlated trading patterns contribute to axial correlation in daily returns.

Explaining cross-country differences in growth rates requires not only an understanding of the link between growth and public policies, but also an understanding of why countries choose different public policies. This paper shows that ethnic diversity helps explain cross-country differences in public policies and other economic indicators. In the case of Sub-Saharan Africa, economic growth is associated with low schooling, political instability, underdeveloped financial systems, distorted foreign exchange markets, high government deficits, and insufficient infrastructure. Africa's high ethnic fragmentation explains a significant part of most of these characteristics.