Abstract We analyze a model in which information may be voluntarily disclosed by a firm and/or by a third party, e.g., financial analysts. Due to its strategic nature, corporate voluntary disclosure is qualitatively different from third-party disclosure. Greater analyst coverage crowds out (crowds in) corporate voluntary disclosure when analysts mostly discover information that is available (unavailable) to the firm. Nevertheless, greater analyst coverage always improves the overall quality of public information. We base this claim on two market quality measures: price efficiency, which is statistical in nature, and liquidity, which is derived in a trading stage that follows the disclosure stage.
{"title":"The Effect of Exogenous Information on Voluntary Disclosure and Market Quality","authors":"Sivan Frenkel, Ilan Guttman, Ilan Kremer","doi":"10.2139/ssrn.3211173","DOIUrl":"https://doi.org/10.2139/ssrn.3211173","url":null,"abstract":"Abstract We analyze a model in which information may be voluntarily disclosed by a firm and/or by a third party, e.g., financial analysts. Due to its strategic nature, corporate voluntary disclosure is qualitatively different from third-party disclosure. Greater analyst coverage crowds out (crowds in) corporate voluntary disclosure when analysts mostly discover information that is available (unavailable) to the firm. Nevertheless, greater analyst coverage always improves the overall quality of public information. We base this claim on two market quality measures: price efficiency, which is statistical in nature, and liquidity, which is derived in a trading stage that follows the disclosure stage.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"227 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-10-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85570271","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 We analyse various technical trading rules in the form of the moving average-oscillator and trading range break-out strategies to specifically test resistance and support levels and their trading performance using high-frequency Bitcoin returns. Overall, our results provide significant support for the moving average strategies. In particular, variable-length moving average rule performs the best with buy signals generating higher returns than sell signals.
{"title":"The Effectiveness of Technical Trading Rules in Cryptocurrency Markets","authors":"S. Corbet, V. Eraslan, B. Lucey, A. Şensoy","doi":"10.2139/ssrn.3454216","DOIUrl":"https://doi.org/10.2139/ssrn.3454216","url":null,"abstract":"Abstract We analyse various technical trading rules in the form of the moving average-oscillator and trading range break-out strategies to specifically test resistance and support levels and their trading performance using high-frequency Bitcoin returns. Overall, our results provide significant support for the moving average strategies. In particular, variable-length moving average rule performs the best with buy signals generating higher returns than sell signals.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"4 10 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87675249","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}
This paper studies the class of robust equilibria in a general competing mechanism game for decentralized markets with frictions in which non-deviating sellers punish a deviator with dominant strategy incentive compatible (DIC) direct mechanisms. Given one-dimensional, independent, and private types, the lower bound of a seller's payoff in such equilibria is his minmax value over all DIC direct mechanisms if a seller can deviate to a contract that determines a menu of any complex mechanisms conditional on buyers' messages and he chooses a mechanism he wants from it. In applications, the number of sellers is endogenized given a number of buyers and fixed entry costs. As the number of buyer increases, a unique equilibrium emerges and the equilibrium ratio of buyers to sellers converges to the point where a seller's net profit is zero with the monopoly terms of trade.
{"title":"General Competing Mechanisms with Frictions","authors":"Seungjin Han","doi":"10.2139/ssrn.3452198","DOIUrl":"https://doi.org/10.2139/ssrn.3452198","url":null,"abstract":"This paper studies the class of robust equilibria in a general competing mechanism game for decentralized markets with frictions in which non-deviating sellers punish a deviator with dominant strategy incentive compatible (DIC) direct mechanisms. Given one-dimensional, independent, and private types, the lower bound of a seller's payoff in such equilibria is his minmax value over all DIC direct mechanisms if a seller can deviate to a contract that determines a menu of any complex mechanisms conditional on buyers' messages and he chooses a mechanism he wants from it. In applications, the number of sellers is endogenized given a number of buyers and fixed entry costs. As the number of buyer increases, a unique equilibrium emerges and the equilibrium ratio of buyers to sellers converges to the point where a seller's net profit is zero with the monopoly terms of trade.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"13 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89871575","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}
The paper discusses simple microfoundations for Liquidity Deflation (Calvo 2016, Chapter 2), which gives rise to liquidity trap under perfectly flexible prices/wages. Unlike Keynes (1936), this is a Supply Side Liquidity Trap, SSLT, not resolved by a fall in prices /wages, or massive helicopter increase in liquid government liabilities. However, escaping SSLT could be achieved by low policy interest rates on money (unless ZLB holds) and, more interestingly, higher inflation driven by administered prices/wages. Moreover, contrary to (Friedman 1969), under Liquidity Deflation the Optimal Quantity of Money does not call for liquidity satiation, and may be dangerously close to SSLT.
{"title":"Liquidity Deflation and Liquidity Trap Under Flexible Prices: Some Microfoundations and Implications","authors":"G. Calvo","doi":"10.3386/w26277","DOIUrl":"https://doi.org/10.3386/w26277","url":null,"abstract":"The paper discusses simple microfoundations for Liquidity Deflation (Calvo 2016, Chapter 2), which gives rise to liquidity trap under perfectly flexible prices/wages. Unlike Keynes (1936), this is a Supply Side Liquidity Trap, SSLT, not resolved by a fall in prices /wages, or massive helicopter increase in liquid government liabilities. However, escaping SSLT could be achieved by low policy interest rates on money (unless ZLB holds) and, more interestingly, higher inflation driven by administered prices/wages. Moreover, contrary to (Friedman 1969), under Liquidity Deflation the Optimal Quantity of Money does not call for liquidity satiation, and may be dangerously close to SSLT.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"52 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76985904","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}
This paper analyzes PoW blockchain network’s economic environment and examines its cost, efficiency, and short-term stability as a payment system. Our framework is based on the optimization problem of blockchain users and miners, and we derive an equilibrium model where token price, network hashrate, and transaction fee are simultaneously determined. We show that transaction fee in equilibrium shares similarity with traditional payment systems. We then prove that PoW blockchain provides higher social welfare level than payment system under monopoly, but is not social optimal due to transaction fee over competition and user’s failure to consider transaction fee’s positive externality on network hashrate. We also show that a higher transaction capacity can benefit PoW blockchain network and its participants. Lastly, we analyze the inter-temporal feedback loop between network hashrate and miner income, and demonstrate blockchain network’s short-term impulse response to exogenous hashrate shock. We conclude that PoW-based blockchain network has unstable equilibrium.
{"title":"Proof-of-Work (PoW) Blockchain Network and Its Viability as a Payment System","authors":"P. He, Dunzhe Tang, Jingwen Wang","doi":"10.2139/ssrn.3441605","DOIUrl":"https://doi.org/10.2139/ssrn.3441605","url":null,"abstract":"This paper analyzes PoW blockchain network’s economic environment and examines its cost, efficiency, and short-term stability as a payment system. Our framework is based on the optimization problem of blockchain users and miners, and we derive an equilibrium model where token price, network hashrate, and transaction fee are simultaneously determined. We show that transaction fee in equilibrium shares similarity with traditional payment systems. We then prove that PoW blockchain provides higher social welfare level than payment system under monopoly, but is not social optimal due to transaction fee over competition and user’s failure to consider transaction fee’s positive externality on network hashrate. We also show that a higher transaction capacity can benefit PoW blockchain network and its participants. Lastly, we analyze the inter-temporal feedback loop between network hashrate and miner income, and demonstrate blockchain network’s short-term impulse response to exogenous hashrate shock. We conclude that PoW-based blockchain network has unstable equilibrium.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"49 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78724754","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 propose a model of endogenous, persistent coordination on the international medium of exchange. An asset becomes the dominant international medium because it is widely held, and remains widely held because it is dominant. The country issuing the dominant asset is a net debtor, but earns an “exorbitant privilege” on its position. In a calibrated model, only steady states with one dominant asset are stable. The dominant country experiences a significant welfare gain, most of which is accrued during its rise to dominance. A mild trade war reduces privilege slightly, while a protracted or deep trade war eliminates it altogether.
{"title":"The International Medium of Exchange","authors":"R. Chahrour, Rosen Valchev","doi":"10.2139/ssrn.3439691","DOIUrl":"https://doi.org/10.2139/ssrn.3439691","url":null,"abstract":"We propose a model of endogenous, persistent coordination on the international medium of exchange. An asset becomes the dominant international medium because it is widely held, and remains widely held because it is dominant. The country issuing the dominant asset is a net debtor, but earns an “exorbitant privilege” on its position. In a calibrated model, only steady states with one dominant asset are stable. The dominant country experiences a significant welfare gain, most of which is accrued during its rise to dominance. A mild trade war reduces privilege slightly, while a protracted or deep trade war eliminates it altogether.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-07-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74343908","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}
This paper compares the stock market (S&P) performance during presidents Trump and Obama. The comparison is interesting since Obama employed a stimulus plan (demand side) while Trump employed a tax cut (supply side). We use the inauguration date as the benchmark start till analyses day 7/7/2019; first 662 days. The S&P performance during President Obama (first 622 trading days) is 59.1% while the S&P performance during President Trump is only 32.5%. As for volatility, during the entire 2 terms of Obama presidency, the Dow never lost 1000 points or more in a day, while in the first 2 years of Trump presidency Dow lost twice 1000 points or more in a day. Also, during the first 622 days of Trump presidency, the Dow lost 500 and 400 points or more in a day about 16 and 25 times, respectively; almost three times more than the entire president’s Obama 2 terms presidency. With regard to drop of the unemployment rate, which is lagging policy by 3 quarters, during president Obama the unemployment rate went down by 1% (from 10% down to 9%), while during president Trump from 4.1% to 3.6%. Thus, we conclude that the demand side beats the supply side in this round.
{"title":"Stock Market Performance and Economic Philosophy: Long Obama (Demand Side) Short Trump (Supply Side)","authors":"Yosef Bonaparte","doi":"10.2139/ssrn.3430696","DOIUrl":"https://doi.org/10.2139/ssrn.3430696","url":null,"abstract":"This paper compares the stock market (S&P) performance during presidents Trump and Obama. The comparison is interesting since Obama employed a stimulus plan (demand side) while Trump employed a tax cut (supply side). We use the inauguration date as the benchmark start till analyses day 7/7/2019; first 662 days. The S&P performance during President Obama (first 622 trading days) is 59.1% while the S&P performance during President Trump is only 32.5%. As for volatility, during the entire 2 terms of Obama presidency, the Dow never lost 1000 points or more in a day, while in the first 2 years of Trump presidency Dow lost twice 1000 points or more in a day. Also, during the first 622 days of Trump presidency, the Dow lost 500 and 400 points or more in a day about 16 and 25 times, respectively; almost three times more than the entire president’s Obama 2 terms presidency. With regard to drop of the unemployment rate, which is lagging policy by 3 quarters, during president Obama the unemployment rate went down by 1% (from 10% down to 9%), while during president Trump from 4.1% to 3.6%. Thus, we conclude that the demand side beats the supply side in this round.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"30 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-07-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90549746","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}
Oded Stark, Wiktor Budziński, Grzegorz Kosiorowski
We use queuing-related behavior as an instrument for assessing the social appeal of alternative cultural norms. Specifically, we study the behavior of rational and sophisticated individuals who stand in a given queue waiting to be served, and who, in order to speed up the process, consider switching to another queue. We look at two regimes that govern the possible order in which the individuals stand should they switch to the other queue: a regime in which cultural convention, social norms, and basic notions of fairness require that the order in the initial queue is preserved, and a regime without such cultural inhibitions, in which case the order in the other queue is random, with each configuration or sequence being equally likely. We seek to find out whether in these two regimes the aggregate of the behaviors of self-interested individuals adds up to the social optimum defined as the shortest possible total waiting time. To do this, we draw on a Nash Equilibrium setting. We find that in the case of the preserved order, the equilibrium outcomes are always socially optimal. However, in the case of the random order, unless the number of individuals is small, the equilibrium outcomes are not socially optimal.
{"title":"Switching Queues, Cultural Conventions, and Social Welfare","authors":"Oded Stark, Wiktor Budziński, Grzegorz Kosiorowski","doi":"10.2139/ssrn.3413479","DOIUrl":"https://doi.org/10.2139/ssrn.3413479","url":null,"abstract":"We use queuing-related behavior as an instrument for assessing the social appeal of alternative cultural norms. Specifically, we study the behavior of rational and sophisticated individuals who stand in a given queue waiting to be served, and who, in order to speed up the process, consider switching to another queue. We look at two regimes that govern the possible order in which the individuals stand should they switch to the other queue: a regime in which cultural convention, social norms, and basic notions of fairness require that the order in the initial queue is preserved, and a regime without such cultural inhibitions, in which case the order in the other queue is random, with each configuration or sequence being equally likely. We seek to find out whether in these two regimes the aggregate of the behaviors of self-interested individuals adds up to the social optimum defined as the shortest possible total waiting time. To do this, we draw on a Nash Equilibrium setting. We find that in the case of the preserved order, the equilibrium outcomes are always socially optimal. However, in the case of the random order, unless the number of individuals is small, the equilibrium outcomes are not socially optimal.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-07-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82268793","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 examine Kreps’ (2019) conjecture that optimal expected utility in the classic Black–Scholes–Merton (BSM) economy is the limit of optimal expected utility for a sequence of discrete-time economies that “approach” the BSM economy in a natural sense: The nth discrete-time economy is generated by a scaled n-step random walk based on an unscaled random variable ζ with mean zero, variance one, and bounded support. We confirm Kreps’ conjecture if the consumer’s utility function U has asymptotic elasticity strictly less than one, and we provide a counterexample to the conjecture for a utility function U with asymptotic elasticity equal to 1, for ζ such that Ε [ζ3]>0.
{"title":"Convergence of Optimal Expected Utility for a Sequence of Discrete-Time Market","authors":"David M. Kreps, W. Schachermayer","doi":"10.2139/ssrn.3417898","DOIUrl":"https://doi.org/10.2139/ssrn.3417898","url":null,"abstract":"We examine Kreps’ (2019) conjecture that optimal expected utility in the classic Black–Scholes–Merton (BSM) economy is the limit of optimal expected utility for a sequence of discrete-time economies that “approach” the BSM economy in a natural sense: The nth discrete-time economy is generated by a scaled n-step random walk based on an unscaled random variable ζ with mean zero, variance one, and bounded support. We confirm Kreps’ conjecture if the consumer’s utility function U has asymptotic elasticity strictly less than one, and we provide a counterexample to the conjecture for a utility function U with asymptotic elasticity equal to 1, for ζ such that Ε [ζ3]>0.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"42 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82493113","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 study how adverse selection distorts equilibrium investment allocations in a Walrasian credit market with two-sided heterogeneity. Representative investor and partial equilibrium economies are special cases where investment allocations are distorted above perfect information allocations. By contrast, the general setting features a pecuniary externality that leads to trade and investment allocations below perfect information levels. The degree of heterogeneity between informed agents' type governs the direction of the distortion. Moreover, contracts that complete markets dampen the impact of pecuniary externalities and change equilibrium distortions. Implications for empirical design in credit market studies and financial stability are discussed.
{"title":"Mixed Signals: Investment Distortions with Adverse Selection","authors":"Matthew Darst, Ehraz Refayet","doi":"10.17016/FEDS.2019.044","DOIUrl":"https://doi.org/10.17016/FEDS.2019.044","url":null,"abstract":"We study how adverse selection distorts equilibrium investment allocations in a Walrasian credit market with two-sided heterogeneity. Representative investor and partial equilibrium economies are special cases where investment allocations are distorted above perfect information allocations. By contrast, the general setting features a pecuniary externality that leads to trade and investment allocations below perfect information levels. The degree of heterogeneity between informed agents' type governs the direction of the distortion. Moreover, contracts that complete markets dampen the impact of pecuniary externalities and change equilibrium distortions. Implications for empirical design in credit market studies and financial stability are discussed.","PeriodicalId":11757,"journal":{"name":"ERN: Other Microeconomics: General Equilibrium & Disequilibrium Models of Financial Markets (Topic)","volume":"9 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2019-06-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78921601","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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