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Series:FRB Atlanta Working Paper  Bank:Federal Reserve Bank of Atlanta 

Working Paper
Institutional investors, analyst following, and the January anomaly
Studies have documented that average stock returns for small, low-stock-price firms are higher in January than for the rest of the year. Two explanations have received a great deal of attention: the tax-loss selling hypothesis and the gamesmanship hypothesis. This paper documents that seasonality in returns is not a phenomenon observed only for small firms' stock or those with low prices. Strong seasonality in excess returns is reported for a sample of widely followed firms. Sample firms have unusually low excess returns in January, and returns adjust upward over the remainder of the year. These results are consistent with the gamesmanship hypothesis but not the tax-loss-selling hypothesis. As financial institutions rebalance their portfolios in January to sell the stock of highly visible and low-risk firms, there is downward price pressure in January. In addition, the results suggest that firm visibility explains why seasonality in returns is related to firm size and stock price. Once we control for visibility, market value and uncertainty do not appear to be important determinants of seasonality.
AUTHORS: Ackert, Lucy F.; Athanassakos, George
DATE: 1998

Working Paper
Remittances and the Dutch disease
Using data for El Salvador and Bayesian techniques, we develop and estimate a two-sector dynamic stochastic general equilibrium model to analyze the effects of remittances in emerging market economies. We focus our study on whether rising levels of remittances result in the Dutch disease phenomenon in recipient economies. We find that, whether altruistically motivated or otherwise, an increase in remittances flows leads to a decline in labor supply and an increase in consumption demand that is biased toward nontradables. The increase in demand for nontradables, coupled with higher production costs, results in an increase in the relative price of nontradables, which further causes the real exchange rate to appreciate. The higher nontradable prices serve as an incentive for an expansion of that sector, culminating in reallocation of labor away from the tradable sector. This resource reallocation effect eventually causes a contraction of the tradable sector. A vector autoregression analysis provides results that are consistent with the dynamics of the model.
AUTHORS: Acosta, Pablo A.; Lartey, Emmanuel K. K.; Mandelman, Federico S.
DATE: 2007

Working Paper
Decomposing the foreclosure crisis: House price depreciation versus bad underwriting
We estimate a model of foreclosure using a data set that includes every residential mortgage, purchase-and-sale, and foreclosure transaction in Massachusetts from 1989 to 2008. We address the identification issues related to the estimation of the effects of house prices on residential foreclosures. We then use the model to study the dramatic increase in foreclosures that occurred in Massachusetts between 2005 and 2008 and conclude that the foreclosure crisis was primarily driven by the severe decline in housing prices that began in the latter part of 2005, not by a relaxation of underwriting standards on which much of the prevailing literature has focused. We argue that relaxed underwriting standards did severely aggravate the crisis by creating a class of homeowners who were particularly vulnerable to the decline in prices. But, as we show in our counterfactual analysis, that emergence alone, in the absence of a price collapse, would not have resulted in the substantial foreclosure boom that was experienced.
AUTHORS: Gerardi, Kristopher S.; Shapiro, Adam Hale; Willen, Paul S.
DATE: 2009

Working Paper
The CLS Bank: a solution to the risks of international payments settlement?
Foreign exchange transactions are subject to a unique type of settlement risk. This risk ultimately stems from the difficulty of coordinating separate settlements in two different currencies. Settlement of foreign exchange transactions through the proposed CLS (?Continuous Linked Settlement?) Bank has been discussed as a potential solution to this problem. This paper describes the CLS proposal and analyzes the incentives it places on banks engaged in foreign exchange transactions. The analysis shows that while settlement through the CLS Bank may represent an improvement over current arrangements, some important problems associated with foreign exchange settlements will remain.
AUTHORS: Kahn, Charles M.; Roberds, William
DATE: 2000

Working Paper
Voters hold the key: lock-in, mobility, and the portability of property tax exemptions
Since California voters approved Proposition 13 in 1978, fifteen states have enacted caps on the annual growth in assessed property values. These laws often impose a great burden on municipal finances and create horizontal inequity among homeowners. Why do voters choose to limit local government in this way? Reasons may include controlling the power of special interests, addressing agency failures of government officials (the "Leviathan" hypothesis), or preserving the impact of a current but fleeting antitax political alignment. Yet research has found that voters' perception of a limitation's fiscal consequences do not match reality, questioning the rationality of voter behavior. To counter this position, another strand of literature argues that support for tax limitations is driven not by perceptions of government inefficiency but by reasonable expectations of who will ultimately bear the tax limitation's burden. We explore this view by exploiting the differential tax treatment generated by assessment caps in the context of a recent, novel referendum in Florida. We examine voter support for a 2008 constitutional amendment that included a unique provision making the existing assessment cap portable within the state. We test the hypothesis that voters understood the mobility consequences of tax limitations and the net burden of the cap. We find that high potential tax savings and high expected mobility rates result in higher support for portability. We also find that the degree of racial segregation, the presence of nonresidential tax bases, and the share of migrants from out of state all contribute to support for the amendment. Results suggest that voters were as concerned with reducing their own tax share at the expense of other property owners as they were with curtailing local expenditures.
AUTHORS: Cheung, Ron; Cunningham, Chris
DATE: 2009

Working Paper
Toward a modern macroeconomic model usable for policy analysis
AUTHORS: Leeper, Eric M.; Sims, Christopher A.
DATE: 1994

Working Paper
What determines the output drop after an energy price increase: household or firm energy share?
During the past thirty-five years, energy use as a fraction of output has dropped significantly at both the household and the firm levels. Therefore, we investigate a dynamic stochastic generalized equilibrium model economy's response to an energy price hike for different firm and household energy shares. Simulation results indicate that the economy's output response is mainly determined by the firm energy share. Increasing the household energy share while keeping firm energy share constant actually decreases the output response.
AUTHORS: Dhawan, Rajeev; Jeske, Karsten
DATE: 2007

Working Paper
Consumption and asset prices with recursive preferences: Continuous-time approximations to discrete-time models
This paper presents tractable and efficient numerical solutions to general equilibrium models of asset prices and consumption where the representative agent has recursive preferences. It provides a discrete-time presentation of the approach of Fisher and Gilles (1999), treating continuous-time representations as approximations to discrete-time "truth." First, exact discrete-time solutions are derived, illustrating the following ideas: (i) The price-dividend ratio (such as the wealth-consumption ratio) is a perpetuity (the canonical infinitely lived asset), the value of which is the sum of dividend-denominated bond prices, and (ii) the positivity of the dividend-denominated asymptotic forward rate is necessary and sufficient for the convergence of value function iteration for an important class of models. Next, continuous-time approximations are introduced. By assuming the size of the time step is small, first-order approximations in the step size provide the same analytical flexibility to discrete-time modeling as Ito's lemma provides in continuous time. Moreover, it is shown that differential equations provide an efficient platform for value function iteration. Last, continuous-time normalizations are adopted, providing an efficient solution method for recursive preferences.
AUTHORS: Fisher, Mark
DATE: 1999

Working Paper
Credit and identity theft
The quintessential crime of the information age is identity theft, the malicious use of personal identifying data. In this paper we model ?identity? and its use in credit transactions. Various types of identity theft occur in equilibrium, including ?new account fraud,? ?existing account fraud,? and ?friendly fraud.? The equilibrium incidence of identity theft represents a tradeoff between a desire to avoid costly or invasive monitoring of individuals on the one hand and the need to control transactions fraud on the other. Our results suggest that technological advances will not eliminate this tradeoff.
AUTHORS: Kahn, Charles M.; Roberds, William
DATE: 2005

Working Paper
Gender and the Internet
This article examines whether there are differences in men?s and women?s use of the Internet and whether any such gender gaps have changed in recent years. The authors use data from several surveys during the period 1997 to 2001 to show trends in Internet usage and to estimate regression models of Internet usage that control for individuals? socioeconomic characteristics. They find that women were significantly less likely than men to use the Internet at all in the mid-1990s, but the gender gap in usage disappeared by 2000. However, women continue to be less frequent and less intense users of the Internet. The results suggest that there is little reason for concern about sex inequalities in Internet access and usage now, but gender differences in frequency and intensity of Internet usage remain.
AUTHORS: Ono, Hiroshi; Zavodny, Madeline
DATE: 2002

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