This article evaluates cardholders' benefits resulting from the participation in the retail payments market. Using surveys and data simulations to obtain a representative sample of 1500 Russian individuals, the article finds significant, robust evidence in favor of positive cardholders' benefits. This study also examines the effect of the level of variable cardholders' benefits on the frequency of card payments. Results show that such effect is non-linear and forms a u-shape. Findings imply that unbalanced intervention may be detrimental to the agents' welfare and propose a mechanism for ex-ante evaluation of the effect of shocks and interventions.
This paper argues that in a monetary Real Business Cycle economy where a complete set of nominal contingent claims exist, the requirement to collateralize loans, alone, does not affect the equilibrium allocation when monetary policy is chosen optimally: The Pareto optimal allocation can be supported. A Friedman rule (r = 0), which would be optimal in the absence of collateral constraints, here is not. At the resulting prices, collateral constraints bind and the allocation is inefficient. However, positive interest rates (through an inflation tax on money balances) support the Pareto optimal allocation when the collateral constraint binds. © 2015, © Springer-Verlag Berlin Heidelberg (Outside the USA).
The study explores the role of banks as debt and equity holders for the riskiness of a firm's investment strategy using a panel of Japanese firms in the electronics industry in the period 1992–2004 for the empirical analysis. Based on a conceptual framework grounded in agency and financial intermediation theories, we find that a larger involvement of banks as debt holders in a firm is associated with lower foreign direct investment portfolio risk, while the shareholdings of universal banks increase it, supporting the theoretical predictions.
We present an integrated framework for the study of the international financial economy with trade, fiat money, monetary and fiscal policy, endogenous default and regulation. Money is introduced via a cash-in-advance requirement and real trade is endogenous. The standard international finance pricing results obtain. Market incompleteness and positive default in equilibrium allow for the study of the transmission of default through the international financial markets and imply a positive role for policy. Finally, we present an example where, due to the trade-off between the non-pecuniary cost of default and the resulting allocation, a Pareto improvement occurs following an increase in interest rates.
We characterize a duopoly buffeted by demand and cost shocks. Firms learn about shocks from common observation, private observation, and noisy price signals. Firms internalize how outputs affect a rival's signal, and hence output. We distinguish how the nature of information -public versus private-and of what firms learn about-common versus private values-affect equilibrium outcomes. Firm outputs weigh private information about private values by more than common values. Thus, prices contain more information about private-value shocks.
We analyze a static Kyle (Continuous auctions and insider trading. Princeton University, Princeton, 1983) model in which a risk-neutral informed trader can use arbitrary (linear or non-linear) deterministic strategies, and a finite number of market makers can use arbitrary pricing rules. We establish a strong sense in which the linear Kyle equilibrium is robust: the first variation in any agent’s expected payoff with respect to a small variation in his conjecture about the strategies of others vanishes at equilibrium. Thus, small errors in a market maker’s beliefs about the informed speculator’s trading strategy do not reduce his expected payoffs. Therefore, the original equilibrium strategies remain optimal and still constitute an equilibrium (neglecting the higher-order terms). We also establish that if a non-linear equilibrium exists, then it is not robust. © 2015 Springer-Verlag Berlin Heidelberg
We analyze optimal execution strategies when multiple traders are simultaneously involved in optimal execution. In this case, we obtain new trading strategies that follow from a direct extension of the mean variance approach of Grinold and Kahn, and Almgren and Chriss. However, as we show below, the proposed strategies can be quite different from the standard ones obtained in Grinold and Kahn, and Almgren and Chriss. This is because each trader (assumed to be rational) is trying to minimize her trading cost or "implementation shortfall" and therefore takes into account the price impacts caused by herself and all other traders. We also obtain a close form characterization for the dynamic Nash equilibrium in terms of the system of second-order ODEs, which can be solved explicitly. The resulting equilibrium strategies describe different types of predatory and defensive behavior, though aggregate order flow profile have some properties of standard Almgren, Chriss strategies, e.g. is monotoneous and convex. We show that the traders with smaller holdings are involved in predatory strategies, while traders with larger holdings tend to defend themselves against potential predators by following the delayed trading strategies. We also show that depending on liquidity and volatility parameters, predatory traders may be frontrunners or contrarian traders.
We revisit the Kyle (1985) model of price formation in the presence of private information. We begin by using Back's (1992) approach, demonstratingthat if standard assumptions are imposed, the model has a unique equilibrium solution, and that the insider's trading strategy has a martingale property. That in turn implies that the insider's strategies are linear in total order flow. We also show that for arbitrary prior distributions, the insider's trading strategy is uniquely determined by a Doob h-transform that expresses the insider's informational advantage. This allows us to reformulate the model so that Kyle's liquidity parameter is characterized by a Lagrange multiplier that is the marginal value or shadow price of information. Based on these findings, we can then interpret liquidity as the marginal value of information.
This study is dedicated to an important aspect of the long-run performance of firms, namely their survival under rapidly changing conditions in a transition economy. The analysis is focused on the question whether privatization and ownership structure have affected the likelihood of liquidation and bankruptcy of firms in Russia. We use a sample of 497 privatized and non-privatized firms that have been surveyed in 1999-2000, and for which information about their survival status and reasons for exit such as bankruptcy, mergers and court decisions has been collected. More than 38 per cent of the sample firms are liquidated over the period from 1999 to 2013. We find that privatization and the choice of privatization option have no effect on the long-term survival of firms in Russia, but that managerial ownership lowers the likelihood of both liquidation and bankruptcy. Other transition-specific predictors of bankruptcy, such as the extent of price controls and the amount of wage arrears affect firm exit in a significant way.
This paper reviews the contribution of Eugene Fama, Lars Hansen and Robert Shiller to financial asset pricing research. We show how the Nobel prize winners have changed the approach to asset pricing research, as well as the views of academic economists and investors about price predictability and the risk-return relationship.
We examine the impact on the quality of a securities market of hiding versus displaying orders that provide liquidity. Display expropriates informational rents from informed agents who trade as liquidity providers. The informed then exit liquidity provision in favor of demanding liquidity where they trade less aggressively. Trading costs to uninformed liquidity demanders are higher, bid-ask spreads are wider and midquotes are less informationally ecient when orders that provide liquidity are displayed. Our analysis suggests that market innovations, which might seem to favor the informed over the uninformed, can enhance market quality by intensifying competition among the informed.