Thursday, September 29, 2005

Has Barro solved the equity premium puzzle?

A soluton to the equity risk premium.

New Economist: Has Barro solved the equity premium puzzle?: "It's not quite the holy grail of financial economics, but certainly one of the longest running debates has been over what is known as the equity premium puzzle - or why US stock returns are so much higher than returns on Treasury bonds."

Tuesday, September 27, 2005

Do not put off imbalances correction

Martin Wolf in the FT:

Martin Wolf in the FT asks the question "Is a benign outcome to the imbalances in the world economy likely?". "No, is the short answer." He goes through the imbalances and produces some excellewnt charts of the savings-investment imbalance through the world. He argues that the US imbalance is matched by a lack of investment in emerging Asia. Europe is on the sidelines but the IMF WER suggests that structural reform could play some part in the rebalancing (as could such change in Japan).

Thursday, September 15, 2005

SSRN-How the Internet Lowers Prices:

Putting some numbers to the impact of the internet on prices and profit-margins.
SSRN-How the Internet Lowers Prices: Evidence from Matched Survey and Auto Transaction Data by Florian Zettelmeyer, Fiona Scott Morton, Jorge Silva Risso: "Abstract:
There is convincing evidence that the Internet has lowered the prices paid by some consumers in established industries, for example, term life insurance and car retailing. However, current research does not reveal much about how using the Internet lowers prices. This paper answers this question for the auto retailing industry. We use direct measures of search behavior and consumer characteristics to investigate how the Internet affects negotiated prices. We show that the Internet lowers prices for two distinct reasons. First, the Internet helps consumers learn the invoice price of dealers. Second, the referral process of online buying services, a novel institution made possible by the Internet, also helps consumers obtain lower prices. The combined information and referral price effects are -1.5%, corresponding to 22% of dealers' average gross profit margin per vehicle. We also find that buyers with a high disutility of bargaining benefit from information on the specific car they eventually purchased while buyers who like the bargaining process do not. The results suggest that the decisions consumers make to use the Internet to gather information and to use the negotiating clout of an online buying service have a real effect on the prices paid by these consumers. "

Wednesday, September 14, 2005

Biases in FX-forecasts: Evidence from panel data

This paper "Biases in FX-forecasts: Evidence from panel data" by David Audretscha and Georg Stadtmann, looks at WSJ exchange rate forecasts. While I would take issue with their assertion that the responses to the WSJ survey are equivalent to the ideas acted upon by foreign exchange traders, there are some very interesting findings. First, during this period, July 1989 to July 2003, forecasters consistently expected the JPY to weaken more than it did. I would suggest that the weakness of the Japanese economy encouraged this belief. However, this view does not account for the huge Japanese current account surplus that, without large outflows of capital from Japan, will tend to keep the JPY supported. Second, the paper identifies four different methods of forecasting amongst those surveyed: an extrapolative model; a regressive model; a combination of these models; and neither of these.

Sunday, September 11, 2005

Foreign direct investment: The human dimension

This paper looks at the role of family ties in the location of FDI. It uses a number of proxies for human ties that have existed since the beginning of trading. A modern version is the family ties that have been at least one of the reasons for the extraordinary level of high tech FDI into Ireland from the US.