Unfortunately, even if firm size is in fact a useful measure of the rate of information diffusion, it is likely to capture other things as well, potentially confounding our inferences. For example, it is probably also the case that market-making or arbitrage capacity is less in small-cap stocks. On the one hand, if there are supply shocks, this couid lead to a greater tendency towards reversals (i.e., negatively correlated returns) in small stocks, which would obscure the gradual-information-flow effect we are interested in. On the other hand, one might argue that whatever behavioral phenomenon is driving positive serial correlation in returns, less arbitrage means that it will have a bigger impact in small stocks, leading us to overstate the importance of gradual information flow as the specific mechanism at work. The bottom line is that while it is certainly interesting to see how momentum profits vary with firm size, this probably does not by itself constitute a clean test of our central hypothesis. Electronic Payday Loans Online
The set of underreaction theories can be further subdivided according the exact mechanism that is at work. In Barberis, Shleifer and Vishny (1997), there is a representative investor who suffers from a conservatism bias (Edwards 1968), and who does not update his beliefs sufficiently when he observes new public information. In Hong and Stein (1997) the emphasis is instead on heterogeneities across investors, who observe different pieces of private information at different points in time. Hong and Stein make two key assumptions: 1) firm-specific information diffuses gradually across the investing public: and 2) investors are unable to perform the rational-expectations-equilibrium (REE) trick of extracting this information from prices. Taken together, these twro assumptions are sufficient to generate underreaction and positive return autocorrelations. comments
Several recent papers have documented that, at medium-term horizons ranging from three to twelve months, stock returns exhibit momentum—i.e., past winners continue to perform well, and past losers continue to perform poorly. For example, Jegadeesh and Titman (1993), using a U.S. sample of NYSE/AMEX stocks over the period 1965-1989, find that a strategy that buys past six-month winners (stocks in the top performance decile) and shorts past six-month losers (stocks in the bottom performance decile) earns approximately one percent per month over the subsequent six months. Not only is this an economically interesting magnitude, but the result also appears to be robust: Rouwenhorst (1997a) obtains very similar numbers in a sample of 12 European countries over the period 1980-1995.
A second estimate of the markup has been made by the Hong Kong Census and Statistics Department, based on a survey of exporters. These markups are also expressed as a percentage of the re-export value, and are shown in the second column of Table 2. It can be seen that the markups reported by the Hong Kong survey is less than that estimated in the interagency report. This is no coincidence, but reflects underlying differences in the methodology used to estimate the markup. To explain these differences, we use the example illustrated in Figure 1.
Table 6 also shows the second important determinant of the US-China bilateral trade balance: the shifting of some of the production of US imports from other countries to China. The result is that a large part of the bilateral trade deficits that the US had with the newly-industrialised countries of Hong Kong, Singapore, South Korea and Taiwan (NIC-4) in the 1980s was transferred to US-China bilateral trade in the 1990s. ‘ (The most massive relocation of production to China is the case of Hong Kong. US-Hong Kong bilateral trade balance went from a deficit of $2 billion in 1980 to a surplus of $4 billion in 1996.)
The US-China Bilateral Trade Deficit
Table 6 shows that the bilateral trade balance swung from a surplus of $3 billion in 1980 to a deficit of $40 billion in 1996. This reversal of the bilateral trade balance is in line with the opposite movements in the overall trade balance of the two countries.
There are two other reasons why Hong Kong re-exports from China to the U.S. are larger than Chinese exports to Hong Kong: smuggling, and transfer pricing. Smuggling would lead to this discrepancy if it were recorded in Hong Kong but not in China. Since we will be making use of the Hong Kong re-export values in this study to correct the Chinese trade values, we will have taken smuggling into account, provided that it is recorded in Hong Kong. (If it is not recorded in China or Hong Kong, but is recorded as an import into the U.S., then we are not able to correct for this). On transfer pricing, it is commonly asserted that many companies in China under-price their export invoices (with the help of the Hong Kong re-exporters) to transfer profits out of China into Hong Kong. There are a whole array of reasons for this capital flight. Chinese managers use invoice under-pricing for “round-tripping” where the transferred profits return to China under the guise of foreign investments in order to reap the tax concessions offered to foreign enterprises and joint-venture companies. They use invoice under-pricing to diversify (internationalize) their companies’ portfolios to reduce risks. Foreign partners of joint-ventures in China use invoice under-pricing to reduce the level of book profits which they share with the Chinese partners. fast cash payday loans
Investment-motivated saving is only one of the important factors behind China’s high household saving rate. Two other important factors are the low coverage of social insurance programs, and the demographic profile of the population. The absence of pensions and medical insurance for most of the population necessitates a higher saving rate to prepare for retirement, and health emergency. A large proportion of China’s labor force is now in the phase of the lifecycle to begin saving seriously in anticipation for retirement. The state policy of keeping the size of family small has reduced the number of dependent children, enabling the parents to save more.
Explaining the Bilateral Trade Deficit
We begin by laying out the determination of the overall current account (CA) position, within which the overall trade balance is the most important component. Broadly speaking, the primary determinants of the overall trade balance are macroeconomic and structural in nature,
Much of remaining difference on westbound trade reflects the treatment of aircraft exports to China, as well as car exports. The Chinese Customs authorities treat aircraft exports from the U.S. as a lease, and count only the value of the lease that year, whereas the United States counts the entire value of the aircraft as an export.16 In addition, cars brought into China by foreigners for personal use are not included in published trade statistics, whereas the U.S. would include these as exports, which also helps to explain why the revised U.S. exports are higher.