A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.

• Telmer, C. I. (1993). Asset-Pricing Puzzles and Incomplete Markets. The Journal of Finance, 48, 1803–1832.

  The representative agent theory of asset pricing is modified to incorporate heterogeneous agents and incomplete markets. The model features two types of agents who differ up to a nontradable, idiosyncratic component in their endowment processes. Numerical solutions indicate that individuals are able to diversify a substantial portion of their idiosyncratic income risk through riskless borrowing and lending alone. Restrictions on the variability of intertemporal marginal rates of substitution are used to argue that incomplete markets, as modeled here, cannot account for the properties of asset returns that are anomalous from the perspective of representative agent theory.

• Waldfogel, J. (1993). The Deadweight Loss of Christmas. American Economic Review, 83, 1328–1336.
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• Zame, W. R. (1993). Efficiency and the Role of Default When Security Markets Are Incomplete. American Economic Review, 83, 1142–1164.

  This paper argues that default plays an important positive role in the economy. If markets are incomplete and traders are only able to enter into contracts that they will be able to execute regardless of future events, contingent contracting may be severely restricted. Moreover, opening new markets may not relieve these restrictions. Default promotes efficiency in a way that opening new markets does not by making it possible for traders to enter into contracts that they will be able to execute with high probability but not with certainty. Copyright 1993 by American Economic Association.

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• Zhou, G. (1993). Asset-Pricing Tests Under Alternative Distributions. The Journal of Finance, 48, 1927–1942.

  Given the normality assumption, the author rejects the mean-variance efficiency of the Center for Research in Security Prices value-weighted stock index for three of the six consecutive ten-year subperiods from 1926 to 1986. However, the normality assumption is strongly rejected by the data. Under plausible alternative distributional assumptions of the elliptical class, the efficiency can no longer be rejected. When the normality assumption is violated but the ellipticity assumption is maintained, many tests tend to be biased toward overrejection and both the accuracy of estimated beta and R ('superscript'2) are usually overstated.

• Ackert, L. F., & Smith, B. F. (1993). Stock Price Volatility, Ordinary Dividends, and Other Cash Flows to Shareholders. The Journal of Finance, 48, 1147–1160.

  This paper shows that the results of variance-bound tests depend on how cash distributions to shareholders are measured. As in prior studies, the authors find apparent evidence of excess volatility when a narrow definition of cash flow (dividends only) is applied. However, they are unable to reject the hypothesis of market efficiency when the cash flow measure also includes share repurchases and takeover distributions in addition to ordinary cash dividends.

• Alexander, G. J. (1993). Short Selling and Efficient Sets. The Journal of Finance, 48, 1497–1506.

  The effects of short selling on the composition and location of the efficient set has been analyzed in a variety of ways. However, the situation typically facing investors where the initial margin requirement is less than 100 percent and the risk-free interest rate that is paid on the short proceeds is less than the rate paid on initial margin has not previously been considered. The Elton-Gruber-Padberg algorithm (1976, 1978), subject to certain modifications, is shown here to be capable of identifying the efficient set under such conditions.

• Alston, L. J., & Ferrie, J. P. (1993). Paternalism in Agricultural Labor Contracts in the U.S. South: Implications for the Growth of the Welfare State. American Economic Review, 83, 852–876.

  The authors examine paternalism as an implicit contract in which workers trade faithful service for nonmarket goods. Paternalism reduced monitoring and turnover costs in cotton cultivation in the U.S. South until the mechanization of the cotton harvest in the 1950s. Until then, the effectiveness of paternalism was threatened by government programs that could have substituted for paternalism; but large Southern landowners had the political power to prevent the appearance of such programs in the South. With mechanization, the economic incentive to provide paternalism disappeared and Southern congressmen allowed welfare programs to expand in ways consistent with their interests. Copyright 1993 by American Economic Association.

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• Bansal, R., & Viswanathan, S. (1993). No Arbitrage and Arbitrage Pricing: A New Approach. The Journal of Finance, 48, 1231–1262.

  The authors argue that arbitrage pricing theories (APT) imply the existence of a low-dimensional nonnegative nonlinear pricing kernel. In contrast to standard constructs of the APT, they do not assume a linear factor structure on the payoffs. This allows the authors to price both primitive and derivative securities. Seminonparametric techniques are used to estimate the pricing kernel and test the theory. Empirical results using size-based portfolio returns and yields on bonds reject the nested capital asset pricing model and linear APT and support the nonlinear APT. Diagnostics show that the nonlinear model is more capable of explaining variations in small firm returns.

• Bernhardt, D., & Scoones, D. (1993). Promotion, Turnover, and Preemptive Wage Offers. American Economic Review, 83, 771–791.

  This paper examines the strategic promotion and wage decisions of employers when employees may be more valuable to competing firms. Competing employers must incur a cost to learn the quality of their match with a manager. Promotion signals that workers are potentially valuable managers in other firms and so can lead to turnover. To preempt competition for a manager, an employer may offer a wage high enough to discourage competitors from acquiring information and bidding up the wage further or hiring the worker away. This transfers wages from good workers to bad. More costly information acquisition yields greater expected lifetime wages. Copyright 1993 by American Economic Association.

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• Besley, T., Coate, S., & Loury, G. (1993). The Economics of Rotating Savings and Credit Associations. American Economic Review, 83, 792–810.

  This paper analyzes the economic role and performance of a type of financial institution that is observed worldwide: rotating savings and credit associations. Using a model in which individuals save for an indivisible durable consumption good, the authors study rotating savings and credit associations that distribute funds using random allocation and bidding. Each type of rotating savings and credit association allows individuals without access to credit markets to improve their welfare but, under a reasonable assumption on preferences, random allocation is preferred when individuals have identical tastes. This conclusion need not hold when individuals are heterogeneous. The authors also discuss the sustainability of rotating savings and credit associations given the possibility of default. Copyright 1993 by American Economic Association.

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