Firms that issue convertible debt have high debt- and equity-related costs of external finance. Existing theories of convertible debt finance differ primarily in their identification of the specific causes of the debt- and equity-related costs of external finance. To assess the theoretical issuance motives separately, we propose a simple framework that characterizes how issuers should design convertible debt to efficiently mitigate specific debt- and equity-related costs of external finance. We provide evidence from 588 security offer announcements that supports the hypotheses that: (1) convertible debt can be designed to mitigate different combinations of debt- and equity-related costs of external finance and (2) share price reactions depend on the security design decisions. The results also illustrate that the relations between firm value, financial leverage, investment opportunities, and the rate of future growth are more complex among convertible debt issuers than situations where firms issue standard financial securities.

In January 1980, a new liberal economic policy was adopted in Turkey to promote financial market development and increase the efficiency and productivity of the financial sector by fostering competition among banks. As a result of this policy, the Turkish banking system witnessed a series of legal, structural and institutional changes throughout the 1980s. To enhance their competitive viability, Turkish banks responded by streamlining their operations and investing in new technology. Utilizing a DEA-type Malmquist Total Factor Productivity Change Index, we examine productivity growth, efficiency change, and technical progress in Turkish commercial banks during the deregulation of financial markets in Turkey. We found that all forms of Turkish banks, although in different magnitudes, have recorded significant productivity gains driven mostly by efficiency increases rather than technical progress. Efficiency increases, however, were mostly owing to improved resource management practices rather than improved scales. Our results also indicate that private banks began to close their performance gap with public banks in the new environment.

We propose a boundedly rational model of opinion formation in which individuals are subject to persuasion bias; that is, they fail to account for possible repetition in the information they receive. We show that persuasion bias implies the phenomenon of social influence, whereby one's influence on group opinions depends not only on accuracy, but also on how well-connected one is in the social network that determines communication. Persuasion bias also implies the phenomenon of unidimensional opinions; that is, individuals' opinions over a multidimensional set of issues converge to a single “left-right” spectrum. We explore the implications of our model in several natural settings, including political science and marketing, and we obtain a number of novel empirical implications.

People exaggerate the degree to which their future tastes will resemble their current tastes. We present evidence from a variety of domains which demonstrates the prevalence of such projection bias, develop a formal model of it, and use this model to demonstrate its importance in economic environments. We show that, when people exhibit habit formation, projection bias leads people to consume too much early in life, and to decide, as time passes, to consume more—and save less—than originally planned. Projection bias can also lead to misguided purchases of durable goods. We discuss a number of additional applications and implications.

Measured by the ratio of trade to output, the period 1870–1913 marked the birth of the first era of trade globalization and the period 1914–1939 its death. What caused the boom and bust? We use an augmented gravity model to examine the gold standard, tariffs, and transport costs as determinants of trade. Until 1913 the rise of the gold standard and the fall in transport costs were the main trade-creating forces. As of 1929 the reversal was driven by higher transport costs. In the 1930s the final collapse of the gold standard drove trade volumes even lower.

An incomplete demand system is developed for recreation and donation choices, subject to both money and time constraints. The model results in a three-good system, with an endogenous marginal value of time for estimation. The model is implemented by adapting Deaton and Muellbauer's locally flexible almost ideal demand system to a two-constraint recreation model of trips and donations of California whale watchers. Exact welfare measures are calculated for changes in costs, as well as for whale population changes. Results indicate a use and a nonuse component of overall willingness to pay for increases in environmental quality.

In a 1997 paper, Borenstein, Cameron, and Gilbert (BCG) claim that gasoline prices rise quickly following an increase in the price of crude oil, but fall slowly following a decrease. This note estimates an error-correction model with daily spot gasoline and crude-oil price data over the period 1985–1998 and finds no evidence of asymmetry in wholesale gasoline prices. The sources of the difference in results are twofold. First, we use the standard Engle-Granger two-step estimation procedure, whereas BCG used a nonstandard estimation methodology. Second, even using BCG's nonstandard specification, the use of daily rather than weekly data yields little evidence of price asymmetry.

A class of model-based filters for extracting trends and cycles in economic time series is presented. These lowpass and bandpass filters are derived in a mutually consistent manner as the joint solution to a signal extraction problem in an unobserved-components model. The resulting trends and cycles are computed in finite samples using the Kalman filter and associated smoother. The filters form a class which is a generalization of the class of Butterworth filters, widely used in engineering. They are very flexible and have the important property of allowing relatively smooth cycles to be extracted from economic time series. Perfectly sharp, or ideal, bandpass filters emerge as a limiting case. Applying the method to quarterly series on U.S. investment and GDP shows a clearly defined cycle.

This paper analyzes the early exercise of exchange‐traded options by different classes of investors over the 1996 to 1999 period. A large number of exercises are identified as clearly irrational without invoking any model of market equilibrium. Customers of discount brokers and customers of fullservice brokers both engage in a significant number of irrational exercises while traders at large investment houses exhibit no irrational early exercise behavior. Rational and irrational exercise is triggered for discount and full‐service customers by the underlying stock price attaining its highest level over the past year and by high returns on the underlying stock.