Knowledge that Transforms

This study constructs dynamic welfare measures for a system of futures markets that express the allocative efficiency of a particular market as a function of its accuracy and speed of adjustment following a shock to the system. The system comprises futures prices for T-bills, exchange rates (German mark, British pound, Canadian dollar and yen), and agricultural commodities (corn, wheat, and cotton) for delivery in 1981 and 1982. The results suggest that, although agricultural, exchange, and financial markets allover-react to a disturbance, agricultural markets do so to a much greater degree. Owing to their much greater size, however, the welfare loss arising from the overshooting is likely to be much larger for interest rate and exchange markets.

Empirical implementation of the buffer stock money (DSM) notion tends to concentrate either on the 'shock absorber aspects or the 'spillover' ('disequilibrium money') aspects but rarely combines both. Moreover, a potential buffer role for non-money assets is usually precluded without explicit empirical testing. This paper examines the role of financial buffers in an ex ante sedtoral model of expenditure and portfolio behaviour incorporating both the shock absorber and spillover aspects in terms of cross-equation parameter restrictions. These are tested for a range of different assets and liabilities using quarterly data for the UK personal sector.

The results of this analysis suggest that employment in service industries acts as a double-edged sword on earnings inequality. On the one hand, we find that as the percentage of total civilian employment in service industries rises, the inequality in earnings among individuals increases. On the other hand, as the concentration of employment in service industries rises, the inequality in earnings among individuals intact husband-wife families is found to decrease. The results of this analysis suggests that the latter is largely the result of service industries providing jobs that enable both husband and wife to work outside the home. Copyright 1990 by MIT Press.

This paper develops a time-series model for continuous time asset prices and then uses tick-by-tick data from Treasury bill futures to develop both a definition and test for efficiency in the continuous time case. The results suggest that intra-day data on futures prices do not behave like a Markov Renewal process; rather, lagged values of futures prices do have some predictive power. In addition, trading times are not useful in predicting futures prices. Finally, we estimate the bid-ask spread and show that even after adjusting for this spread, the serial dependence between current and lagged returns remains. The multitude of studies concerning efficiency in futures markets support the proposition that a Martingale approximation is reasonable for most commodity and capital asset markets, while the same data reject Gaussian processes as an appropriate model.1 All of these studies, however, use either close to close prices or open to open prices in the estimation process. The choice of daily data is arbitrary; a natural question concerns whether, based on continuous time data, futures prices can be shown to be realizations of continuous time Markov processes and whether they can be represented as stochastically linear processes. In this paper, we use intra-day, tick-by-tick, data on Treasury bills futures and develop both a definition and a test for efficiency in the continuous time case. Observations on continuous time prices yield two separate time series: the trading prices and times. As a result, we claim that the standard procedures for tests of market efficiency must be replaced by two separate necessary conditions; the first is the usual condition that successive price changes are independent; the second requires that the recurrence times between trades obey a Poisson process. We apply the above definitions to intra-day futures prices for Treasury bills for a 57 day period in 1983. The results indicate that the Markov model does not hold for intra-day futures prices but the trading times do seem to behave approximately as a Poisson process. Received for publication January 29, 1988. Revision accepted for publication July 19, 1989. * City University of New York and State University of New York at Stony Brook, respectively. We gratefully acknowledge financial support for this research from the Center for the Study of Futures Markets at Columbia University. Stephanie Dieringer provided invaluable help as a research assistant for this project. 1 Several studies have examined the martingale property. For a summary of these results see, for example, Kamara (1982). 2 See, for example, Fama (1965), Mandlebrot (1963), Stevenson and Bear (1970), and Neftci and Policano (1984). Some studies that do analyze intraday data include Feinstone (1985) and Hinich and Patterson (1985).

James Levinsohn, Jeffrey K. MacKie-Mason, A Simple, Consistent Estimator for Disturbance Components in Financial Models, The Review of Economics and Statistics, Vol. 72, No. 3 (Aug., 1990), pp. 516-520

A dynamic quarterly model for both first and second class U.K. inland letter traffic is estimated over the period 1976-88. The demand for first class letters is strongly influenced by aggregate expenditure, but for second class letters this linkage is much weaker. Both letter streams respond to changes in the price of first and second class letters, the price of telephone services, and "other prices" as measured by an aggregate price index. Copyright 1990 by MIT Press.

The Box-Cox difference transformation permits the selection of either the first difference or percentage change form of a time series regression model. Monte Carlo evidence on the small sample properties of the transformation parameter A indicates that the difference transformation works quite well even in samples of size 30. Likelihood ratio testing is compared to an asymptotically equivalent alternative Lagrange Multiplier test. It is shown that values of R2 can often be higher for the incorrect transformation.

The presence of potentially binding constraints in rural labor markets is investigated by examining spillover effects on land market participation decisions. Farm and household data from ICRISAT village level surveys are used in a multinominial logit model that accounts for the simultaneous nature of the land and labor market participation decisions. Estimated parameters and likelihood ratio tests indicate that except for the presence of potentially binding constraint on the supply of female labor off the farm no other evidence of binding constraints is present in these villages. Copyright 1990 by MIT Press.