Ethereum is an important blockchain, being the first and most popular public platform for the smart contracts underpinning financial transactions, time-stamping of supply chains, decentralized applications and initial coin offerings. Ethereum's cryptocurrency, ether, is actively traded on centralized exchanges, second only to bitcoin. It has attracted investor's interest primarily because of its intrinsic value – small units of ether called ‘gas’ are used, essentially, as the fuel driving smart contract transactions on the Ethereum blockchain. We ask whether off-chain trading on ether derivatives plays a dominant role in ether spot price discovery, thereby driving ether's utility value for on-chain activity. Using minute-by-minute data we find that the ether perpetual swap on BitMEX, an unregulated cryptocurrency derivative exchange, has dominant trading volume and price discovery over the major spot exchanges. Furthermore, we identify interesting hour-of-day and day-of-week effects in trading volume on the spot exchanges, and these indicate that more informed institutional players are trading ether spot and derivatives.
{"title":"Price Discovery and Microstructure in Ether Spot and Derivative Markets","authors":"C. Alexander, Jaehyuk Choi, H. Massie, S. Sohn","doi":"10.2139/ssrn.3511533","DOIUrl":"https://doi.org/10.2139/ssrn.3511533","url":null,"abstract":"Ethereum is an important blockchain, being the first and most popular public platform for the smart contracts underpinning financial transactions, time-stamping of supply chains, decentralized applications and initial coin offerings. Ethereum's cryptocurrency, ether, is actively traded on centralized exchanges, second only to bitcoin. It has attracted investor's interest primarily because of its intrinsic value – small units of ether called ‘gas’ are used, essentially, as the fuel driving smart contract transactions on the Ethereum blockchain. We ask whether off-chain trading on ether derivatives plays a dominant role in ether spot price discovery, thereby driving ether's utility value for on-chain activity. Using minute-by-minute data we find that the ether perpetual swap on BitMEX, an unregulated cryptocurrency derivative exchange, has dominant trading volume and price discovery over the major spot exchanges. Furthermore, we identify interesting hour-of-day and day-of-week effects in trading volume on the spot exchanges, and these indicate that more informed institutional players are trading ether spot and derivatives.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-04-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80229597","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We contribute to the debate on whether institutional investors have an information advantage in a novel way – by investigating institutional options holdings. We find that net institutional option holdings predict both future abnormal stock returns and earnings surprises, particularly for stocks with more opaque public information environments. The return predictability in net option holdings stems from the negative information reflected in institutions’ put positions, and is orthogonal to other variables that may contain similar information (short interest and signed option trading imbalances). We find that institutions use put options as complements, rather than the often-posited substitute for short selling.
{"title":"Option Skills","authors":"A. Anand, Jian Hua, A. Puckett","doi":"10.2139/ssrn.3078061","DOIUrl":"https://doi.org/10.2139/ssrn.3078061","url":null,"abstract":"We contribute to the debate on whether institutional investors have an information advantage in a novel way – by investigating institutional options holdings. We find that net institutional option holdings predict both future abnormal stock returns and earnings surprises, particularly for stocks with more opaque public information environments. The return predictability in net option holdings stems from the negative information reflected in institutions’ put positions, and is orthogonal to other variables that may contain similar information (short interest and signed option trading imbalances). We find that institutions use put options as complements, rather than the often-posited substitute for short selling.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77328903","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We provide a unified growth model to study the transition from the Solow economy which only uses labor and physical capital in production to the Becker-Lucas economy which uses an additional new accumulative factor, human capital, in production. The model starts with the Solow economy, with the Becker-Lucas technology of production available but not profitable at the beginning. Due to the diminishing returns to physical capital, the Becker-Lucas production becomes feasible and starts automatically after physical capital stock reaches a trigger point. We examine the full dynamics of main macroeconomic variables during this transformation process, including a remarkably long period when these two economies coexist. Our theory shows even if assuming a slightly lower TFP growth rate in the Becker-Lucas production than Solow, the transition could still happen due to the efficiency improvement from human capital accumulation. Model calibration shows the labor share will firstly drop during this economic transformation, therefore providing a potential new theoretical explanation for the phenomenon of labor share decline which has recently attracted broad attention. The accumulation of human capital together with the enlarging Becker-Lucas economy does have contributed to this dynamics. Moreover, our model also predicts a rebound of the labor share towards the end of the transformation from the Solow economy to the Becker-Lucas economy and provides a new explanation for skill premium change.
{"title":"Solow to Becker-Lucas","authors":"Danxia Xie, Buyuan Yang","doi":"10.2139/ssrn.3465369","DOIUrl":"https://doi.org/10.2139/ssrn.3465369","url":null,"abstract":"We provide a unified growth model to study the transition from the Solow economy which only uses labor and physical capital in production to the Becker-Lucas economy which uses an additional new accumulative factor, human capital, in production. The model starts with the Solow economy, with the Becker-Lucas technology of production available but not profitable at the beginning. Due to the diminishing returns to physical capital, the Becker-Lucas production becomes feasible and starts automatically after physical capital stock reaches a trigger point. We examine the full dynamics of main macroeconomic variables during this transformation process, including a remarkably long period when these two economies coexist. Our theory shows even if assuming a slightly lower TFP growth rate in the Becker-Lucas production than Solow, the transition could still happen due to the efficiency improvement from human capital accumulation. Model calibration shows the labor share will firstly drop during this economic transformation, therefore providing a potential new theoretical explanation for the phenomenon of labor share decline which has recently attracted broad attention. The accumulation of human capital together with the enlarging Becker-Lucas economy does have contributed to this dynamics. Moreover, our model also predicts a rebound of the labor share towards the end of the transformation from the Solow economy to the Becker-Lucas economy and provides a new explanation for skill premium change.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-04-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83604273","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
When demands and supplies are uncertain, given the prices, equilibrium cannot be defined by equating them. New equilibria are then formed on modeling markets as the abstract risk taking agent. The theory of acceptable risks is applied to redefine economic equilibrium. The market sets two prices for each commodity, one at which it buys and the other at which it sells. The two prices are determined by requiring the random net inventory and net revenue exposures to be acceptable risks. For an n- commodity economy there are 2n equilibrium equations for the 2n prices. The introduction of a two price labor market naturally leads to the concept of both an equilibrium unemployment rate and an equilibrium unemployment insurance rate. It is shown that the unemployment rate rises with the productivity of the economy and can be mitigated by expanding the number of products. Technological innovation accompanied by product expansion can be employment neutral and socially acceptable. Similarly redistributive strategies from the upper end of the income scale towards the middle or lower end can lower equilibrium unemployment levels via their effects on aggregate demand. Productivity shocks like COVID lead to higher equilibrium unemployment support levels measured by the income ratios of the unemployed to the employed. The magnitude of the increase depends on the levels of labor market risk acceptability.
{"title":"General Financial Economic Equilibria","authors":"D. Madan","doi":"10.2139/ssrn.3570067","DOIUrl":"https://doi.org/10.2139/ssrn.3570067","url":null,"abstract":"When demands and supplies are uncertain, given the prices, equilibrium cannot be defined by equating them. New equilibria are then formed on modeling markets as the abstract risk taking agent. The theory of acceptable risks is applied to redefine economic equilibrium. The market sets two prices for each commodity, one at which it buys and the other at which it sells. The two prices are determined by requiring the random net inventory and net revenue exposures to be acceptable risks. For an n- commodity economy there are 2n equilibrium equations for the 2n prices. The introduction of a two price labor market naturally leads to the concept of both an equilibrium unemployment rate and an equilibrium unemployment insurance rate. It is shown that the unemployment rate rises with the productivity of the economy and can be mitigated by expanding the number of products. Technological innovation accompanied by product expansion can be employment neutral and socially acceptable. Similarly redistributive strategies from the upper end of the income scale towards the middle or lower end can lower equilibrium unemployment levels via their effects on aggregate demand. Productivity shocks like COVID lead to higher equilibrium unemployment support levels measured by the income ratios of the unemployed to the employed. The magnitude of the increase depends on the levels of labor market risk acceptability.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-04-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85974924","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract How does the market react to large Bitcoin transactions? We analyze effects of 2,132 transactions involving at least 500 Bitcoins. While results for all transactions are inconclusive, further analysis of transaction size and presumed transfer motives based on publicly known Bitcoin addresses of cryptocurrency exchanges reveals significant price effects depending on the type of transaction. The results indicate that the market recognizes the nature of the transfer and prices in new information.
{"title":"Market Reaction to Large Transfers on the Bitcoin Blockchain - Do Size and Motive Matter?","authors":"Lennart Ante, Ingo Fiedler","doi":"10.2139/ssrn.3564085","DOIUrl":"https://doi.org/10.2139/ssrn.3564085","url":null,"abstract":"Abstract How does the market react to large Bitcoin transactions? We analyze effects of 2,132 transactions involving at least 500 Bitcoins. While results for all transactions are inconclusive, further analysis of transaction size and presumed transfer motives based on publicly known Bitcoin addresses of cryptocurrency exchanges reveals significant price effects depending on the type of transaction. The results indicate that the market recognizes the nature of the transfer and prices in new information.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83188328","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
F. Felici, C. Socci, M. Ciaschini, F. Severini, R. Pretaroli
The continuous evolution of the regulatory framework requires the development of analysis instruments able to support the policy maker in designing and quantifying the impact of selected policy measures. With this intent, the Italian Ministry of Economic and Finance developed a static Computable General Equilibrium model, namely MACGEM-IT model. Specifically built to reproduce the characteristics of Italian economy, the MACGEM-IT model is calibrated on the Social Accounting Matrix for Italy and is a multi-input, multi-output and multi-sector static CGE model. It provides a measure of the aggregate, disaggregate, direct and indirect response of the economic system to economic policy measures.
{"title":"MACGEM IT- A SAM based CGE model for Italian Economy","authors":"F. Felici, C. Socci, M. Ciaschini, F. Severini, R. Pretaroli","doi":"10.2139/ssrn.3599168","DOIUrl":"https://doi.org/10.2139/ssrn.3599168","url":null,"abstract":"The continuous evolution of the regulatory framework requires the development of analysis instruments able to support the policy maker in designing and quantifying the impact of selected policy measures. With this intent, the Italian Ministry of Economic and Finance developed a static Computable General Equilibrium model, namely MACGEM-IT model. Specifically built to reproduce the characteristics of Italian economy, the MACGEM-IT model is calibrated on the Social Accounting Matrix for Italy and is a multi-input, multi-output and multi-sector static CGE model. It provides a measure of the aggregate, disaggregate, direct and indirect response of the economic system to economic policy measures.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77332186","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Beating the play is a novel method for how to play a simultaneous move game without conjectures about how others play the game. A strategy beats the play if its payoff is higher than when playing like others play the game, regardless of how they play the game. Only Nash equilibrium strategies of the hypothetical game in which you play against copies of yourself can beat the play. It is possible to beat the play in numerous games. Many extensions are presented and a close connection to evolutionary game theory is uncovered.
{"title":"How to Play Out of Equilibrium: Beating the Play","authors":"K. Schlag","doi":"10.2139/ssrn.3556606","DOIUrl":"https://doi.org/10.2139/ssrn.3556606","url":null,"abstract":"Beating the play is a novel method for how to play a simultaneous move game without conjectures about how others play the game. A strategy beats the play if its payoff is higher than when playing like others play the game, regardless of how they play the game. Only Nash equilibrium strategies of the hypothetical game in which you play against copies of yourself can beat the play. It is possible to beat the play in numerous games. Many extensions are presented and a close connection to evolutionary game theory is uncovered.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"84072772","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a Bayesian Markov chain Monte Carlo algorithm for estimating risk premia in dynamic stochastic general equilibrium (DSGE) models with stochastic volatility. Our approach is fully Bayesian and employs an affine solution strategy that makes estimation of large-scale DSGE models computationally feasible. We use our algorithm to estimate the US equity risk premium in a DSGE model that includes time-preference, technology, investment, and volatility shocks. Time-preference and technology shocks are primarily responsible for the sizable equity risk premium in the estimated DSGE model. The estimated historical stochastic volatility and equity risk premium series display pronounced countercyclical fluctuations.
{"title":"Bayesian Estimation of Macro-Finance DSGE Models with Stochastic Volatility","authors":"D. Rapach, Fei Tan","doi":"10.2139/ssrn.3469356","DOIUrl":"https://doi.org/10.2139/ssrn.3469356","url":null,"abstract":"We develop a Bayesian Markov chain Monte Carlo algorithm for estimating risk premia in dynamic stochastic general equilibrium (DSGE) models with stochastic volatility. Our approach is fully Bayesian and employs an affine solution strategy that makes estimation of large-scale DSGE models computationally feasible. We use our algorithm to estimate the US equity risk premium in a DSGE model that includes time-preference, technology, investment, and volatility shocks. Time-preference and technology shocks are primarily responsible for the sizable equity risk premium in the estimated DSGE model. The estimated historical stochastic volatility and equity risk premium series display pronounced countercyclical fluctuations.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78401217","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Per Krusell, Toshihiko Mukoyama, Richard Rogerson, A. Sahin
We build a three-state general equilibrium model of the aggregate labor market that features both standard labor supply forces and labor market frictions. Our model matches key features of the cyclical properties of employment, unemployment, and nonparticipation as well as those of gross worker flows across these three labor market states. Our key finding is that shocks to labor market frictions play a dominant role in accounting for labor market fluctuations. This is in contrast to the focus of the traditional RBC literature, which emphasized how employment fluctuations arise as a consequence of labor supply responses to price changes induced by TFP shocks.
{"title":"Gross Worker Flows and Fluctuations in the Aggregate Labor Market","authors":"Per Krusell, Toshihiko Mukoyama, Richard Rogerson, A. Sahin","doi":"10.3386/w26878","DOIUrl":"https://doi.org/10.3386/w26878","url":null,"abstract":"We build a three-state general equilibrium model of the aggregate labor market that features both standard labor supply forces and labor market frictions. Our model matches key features of the cyclical properties of employment, unemployment, and nonparticipation as well as those of gross worker flows across these three labor market states. Our key finding is that shocks to labor market frictions play a dominant role in accounting for labor market fluctuations. This is in contrast to the focus of the traditional RBC literature, which emphasized how employment fluctuations arise as a consequence of labor supply responses to price changes induced by TFP shocks.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87730880","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Macroeconomic models rarely make explicit how agents actually interact. If however interaction is explicitly specified, the link between the micro and macro properties of models becomes much richer, leading in certain cases to the onset of macro-level instability. This working paper incorporates interactions among agents at a micro level into the basic Solow model to study disequilibrium behaviors and economic instability on a macro level. In particular, we investigate two limiting cases. First, we recover the classic case where the economy converges to the balanced growth path and then grows along it. In the second case, where the interactions-fueled demand dynamics become the main force driving the economy, we obtain business cycles as quasiperiodic endogenous fluctuations.
{"title":"A Simple Economic Model with Interactions","authors":"M. Gusev, Dimitri Kroujiline","doi":"10.2139/ssrn.3552539","DOIUrl":"https://doi.org/10.2139/ssrn.3552539","url":null,"abstract":"Macroeconomic models rarely make explicit how agents actually interact. If however interaction is explicitly specified, the link between the micro and macro properties of models becomes much richer, leading in certain cases to the onset of macro-level instability. This working paper incorporates interactions among agents at a micro level into the basic Solow model to study disequilibrium behaviors and economic instability on a macro level. In particular, we investigate two limiting cases. First, we recover the classic case where the economy converges to the balanced growth path and then grows along it. In the second case, where the interactions-fueled demand dynamics become the main force driving the economy, we obtain business cycles as quasiperiodic endogenous fluctuations.<br>","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-02-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89308728","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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