Cumby (1996) suggests that (i) deviations from MacParity are stationary, (ii) relative Big Mac prices converge rapidly and (iii) provide significant information on likely future exchange rate movements. This paper examines to what extent these results can be generalised to other micro-level price data such as those provided in the UBS surveys Prices and Earnings round the Globe. In many respect...

We provide an alternative theory of divestiture that relies on product-line complementarities and product market competition. We show that in equilibrium competing conglomerates with complementary product lines have incentives to divest and that such divestitures increase both the prices of all the products and the profits of the parent firms, but reduce total surplus. We further show that if t...

We study dynamic bargaining with asymmetric information and interdependent values. We base our analysis on the equilibria characterized by Deneckere and Liang (2006) for the gap case. We show that as the gap between the cost and value of the weakest type shrinks to zero, the continuous time limit of equilibria changes dramatically from rare bursts of trade with long periods of inactivity to smo...

We study the impact of internal decision-making structures on the stability of collusive agreements. To this end, we use a three-firm spatial competition model where two firms belong to the same holding company. The holding company can decide to set prices itself or to delegate this decision to its local units. If collusion breaks down, the holding company may relocate its two local units. It t...

Alternative strategies for predicting stock market volatility are examined. In out-of-sample forecasting experiments implied-volatility information, derived from contemporaneously observed option prices or history-based volatility predictors, such as GARCH models, are investigated, to determine if they are more appropriate for predicting future return volatility. Employing German DAX-index retu...

I study asset prices in a two-agent production economy in which the worker has private information about her labor productivity. The shareholder offers an incentive compatible long-term labor contract, which partially insures the worker against labor income risk. I compare the model’s performance to settings with a competitive labor market, and with static labor contracts. My model successfully...

We provide a model in which consumers search for firms directly or through platforms. Platforms lower search costs but charge firms for the transactions they facilitate. Platform fees raise the possibility of showrooming, in which consumers search on a platform but then switch and buy directly to take advantage of lower direct prices. In settings like this, search platforms like Amazon’s market...

Donald Trump’s election was a significant surprise. The reaction of company stock prices to the election reflects shifts in investor expectations about economic growth, taxes, and trade policy. High-beta stocks outperformed, presumably due to strengthened growth expectations. Expectations of significant corporate tax cuts boosted high-tax firms, but hurt firms with significant net operating los...

Article history: Received 9 March 2007 Accepted 9 July 2008 Available online 12 October 2008 We examine four European stock indices and the prices of eight major German stocks for indications of psychological barriers. The frequency, (expected) returns, intraday volatility and trading volume of these assets are studied contingent on whether the prices lie within a certain range around round num...

An experiment tested whether and in what circumstances people are more likely to believe an event simply because it makes them better off. Subjects observed a financial asset’s historical price chart, and received both an accuracy bonus for predicting the price at some future point, and an unconditional award that was either increasing or decreasing in this price. Despite incentives for hedging...