Abstract: This is a systematic account of the antecedents and economic consequences of the stock market crash of 1987 in the world's major financial centres. In determining the causes of that crash, the author examines the ways in which finance and capital markets operate and concludes that the crash was an economically insignificant event in the general inflation of capital markets. Toporowski further argues that rather than the crash itself, it was capital market inflation that eventually contributed to the economic slump of the 1990s. In so doing, he presents original theories on finance and capital markets, banking cycles, financial regulation and the economic consequences of deregulation. The book also features a critique of Keynes' liquidity preference theory and an account of how Japanese financial institutions helped Wall Street and the London market after the crash.

Abstract: Programs to develop securities markets are now a common feature of World Bank financial sector loans. Stock market development in particular is receiving considerable attention, especially the legal and institutional underpinnings required for successful stock market development. The financial underpinnings needed have received less study. The authors contribute to such a study by exploring the relationship between the degrees of financial depth and stock market development in an economy. Using a simple indicator of stock market development and several indicators of financial depth, and using cross-sectional data from 32 developing countries for 1984-90, they find a strong correlation between the two factors. Time-series data from 19 of these countries (for 1978-90) show similar correlations for most Asian countries, but not for other countries in the sample. Also, the correlations of the Asian data are strongest after the mid-1980s. They test a"threshold hypothesis"that a certain level of financial depth may be necessary to allow stock market development to take off. They find that available data do not support the hypothesis. The results suggest that financial depth is a significant factor in stock market development in most developing countries, but that country specific factors (such as industrial policy and structure, foreign investment controls, and stock market regulatory and operational infrastructure) have an equally strong influence on stock market growth. Case studies of economies in which stock market development has been successful would help elucidate the interplay between these factors.

Abstract: This paper analyses the determinants of international financial services. It argues that the main difficulty in obtaining data about international financial services is the consequence of the current treatment of financial services in the System of National Accounts (SNA) of the United Nations which treats the imputed service charge as ‘intermediate consumption of industries’. The empirical results of import and export demands for financial services indicate that disposable income, domestic and foreign price of financial services are the important determinants of international financial services flows.

Abstract: All entities large and small, public and private, financial and nonfinancial must comply with FASB Statement no 107 The Financial Accounting Standards Board is battling to enhance the relevance of financial reporting for banks, savings and loans and other financial institutions FASB Statement no 107, Disclosures about Fair Value of Financial Instruments, issued in December 1991, targets financial instruments of all entities, but financial institutions will be most affected The standard requires market value disclosure for virtually all financial instruments, broadly defined to include receivables and payables, forward contracts, options, guarantees and equity instruments This pronouncement is part of a larger financial instruments project begun by the FASB in 1986 The Statement no 107 disclosure requirements apply to financial statements issued for fiscal years ending after December 15, 1992, except for entities with less than $150 million in total assets For those entities, the statement is effective for fiscal years ending after December 15, 1995, to allow them sufficient time to develop the systems necessary for implementation A RETURN TO THE PAST? Before 1938, banks reported market (also known as fair or current) values for financial instruments A return to market value reporting is now occurring, driven by the SL it will be decided in subsequent phases of the financial instruments project …

Abstract: Methods for sound risk management are of increasinginterest among Wall Street investment banking and brokeragefirms in the aftermath of the October 1987 crash of the stockmarket. As the knowledge of advanced technology applicationsin risk management increases, financial firms are findinginnovative ways to use them practically, in order to insulatethemselves. The recent development in models, the softwareand hardware, and the market data to track risk are allconsidered advances in Risk Management Technology (RMT). -.These advances have affected all three stages of risk management: the identification, the measurement, and the formulation of strategies to control financial risk. This article discussesthe advances made in five areas of RMT: communicationsoftware, object-oriented programming, parallel processing, neural nets and artificial intelligence. Systems based on any of these areas may be used to add value to the business ofa firm. A business value linkage analysis shows how the utilityof advanced systems can be measured to justify their costs.

Abstract: Information Systems Working Papers Series

Abstract: We analyse the price movement of the S&P 500 futures market for violations of the efficient market hypothesis on a short-term basis. To assess market inefficiency we construct a model and find that the returns, i.e. the difference in the logarithm of closing prices on consecutive days, exhibit the usual conditional heteroscedasticity behaviour typical of long series of financial data. To account for this non-linear behaviour we scale the returns by a volatility factor which depends on the daily high, low, and closing price. The rescaled series, which may be interpreted as the trend-countertrend component of the time series, is modelled using Box and Jenkins techniques. The resulting model is an ARMA(1,1). The scale factors are assumed to form a time series and are modelled using a semi-non-parametric method which avoids the restrictive assumptions of most ARCH or GARCH models. Using the combined model we perform 1000 simulations of market data, each simulation comprising 250 days (approximately one year). We then formulate a naive trading strategy which is based on the ratio of the one-day-ahead expected return to its one-day-ahead expected conditional standard deviation. The trading strategy has four adjustable parameters which are set to maximize profits for the simulation data. Next, we apply the trading strategy to one year of recent out-of-sample data. Our conclusion is that the S&P 500 futures market exhibits only slight inefficiencies, but that there exist, in principle, better trading strategies which take account of risk than the benchmark strategy of buy-and-hold. We have also constructed a linear model for the return series. Using the linear model, we have simulated returns and determined the optimum values for the adjustable parameters of the trading strategy. In this case, the optimum trading strategy is the same as the benchmark strategy, buy-and-hold. Finally, we have compared the profitability of the optimized trading strategy, based on the non-linear model, to three ad hoc trading strategies using the out-of-sample data. The three ad hoc strategies are more profitable than the optimized strategy.

Abstract: The historic barriers between the different companies which comprise the financial services industry are breaking down. In order that organisations may prosper in the new environment the relationships between products, distribution and clients need to be understood. A theory is developed to explain the historic position and the dynamics of the current environment and indicate future trends. The conclusion is that successful organisations will be those which fully understand and specialise in a limited number of sectors, and those who start with a clientbase and a distribution system which will not inhibit the introduction of other distribution methods so that they can become multi-product and multi-distribution organisations. Finally, the paper explores the relationships between pricing policy and distribution by means of distribution chains to determine the point and degree of price sensitivity.

Abstract: Evaluates the growing amount of published market data available for service industries, particularly financial services. Reviews recent market reports on the credit card industry using the criteria of audience level, compilation method, market coverage, presentation, data integrity and value for money.

Abstract: Chapter 4 of the Nonprofit Almanac concerns financial trends in private foundations and other non-profit organisations, reporting the sources and disposition of annual funds and several measures of organisational wealth. Like the rest of the volume, this chapter reports only financial measures of input and output use. This is regrettable, for the distinctive outputs of the sector are often undervalued at market prices (due to external benefits), and financial aggregates shed no light on the sector's impact on the distribution of income. Many of the data are derived from the organisational tax forms as compiled by the Statistics of Income (SOI) division. Tax-return data may be less 'noisy' than survey data because organisations can be held accountable for what they report, but there are two well-known gaps in this sample: small organisations (those with gross receipts under $25,000) and religious organisations (which, with rare exceptions, do not file tax returns). The authors report adjustments to the data based on specially commissioned surveys to correct for the latter omission; additional surveys will be necessary to adjust for the former omission. Commendably, the authors report adjustments which make the SOI and Independent Sector (IS) universes comparable and remove double-counting when funds flow through charitable intermediaries such as private foundations and United Way agencies. The continuing heroic efforts of IS are progressing nicely towards a complete map of the independent sector. Most of the 'shortcomings' below should not surprise the authors, who will continue to progress through supplemental surveys and improved imputation methodology in future editions. I organise my remarks into two sections: problems with entity-level reporting; and suggestions for presentation of data.

Abstract: A financial security represents a prospect to future receipts. The expected value of these receipts will be surrounded with risk. Hence, a financial security can be viewed as a claim on a specific but uncertain pattern of future cash flows, or equivalently as a particular distribution of risky future returns. Future cash flows (and thus the returns) to be received from a financial security will be influenced by economic events or ‘factors’. In this view, when buying a security, an investor is actually buying an exposure to these factors. In a factor model, this exposure is measured in terms of response coefficients or sensitivities of the security’s return for the factor movements. In giving economic content to factor models, one encounters the problems of how to identify and measure the factors (proxies) and how to measure the sensitivities.

Abstract: Electronic markets use information technology to disseminate information onprices, quantities, and buyer and supplier identities In spite of the recognizedbenefits of electronic markets, increased visibility and transparency may introduceimperfections, and create profitable opportunities to bypass markets that generatesthe information In the US securities markets, dissemination of market data hasequipped several firms to develop competing, off-exchange trading mechanismsthat rely on market price data, but whose transactions bypass the establishedmarket Concern is rising that the growing volume of trading occurring awayfrom the main market may reduce liquidity, and increase transactions costs Asimulation model of securities trading in a continuous auction market (similar tothe market structure of the New York Stock Exchange) is used to examine themarket quality effects of increasing levels of trading activity through an off-exchangedealer Market characteristics, such as transactions costs, are measuredas off-exchange trading increases from zero percent to 20 percent of the totaltrading volume The results indicate that competition from an alternative tradingvenue reduces some trading costs borne by investors Contrary to regulatorygoals, however, off-market trading expands the role of profit-seeking dealers, andlowers the probability that some investors' orders will execute

Abstract: Empirical evidence suggests that financial services - such as mobilizing savings, managing risk, allocating resources, and facilitating transactions - influence and are influenced by economic development. And financial crises - widespread bank failures, the collapse of stock markets - can impede and even reverse economic advances. With this in mind, the World Bank made special efforts in the 1980s to help countries improve their financial systems and cope with financial crises that threatened economic prosperity. Bank programs focused on core financial themes (loosening up interest rates, reducing government involvement in credit allocation, rationalizing taxes on financial intermediaries) and on managing bank failures, rehabilitating insolvent banks, and training bank managers and supervisors. Recently, Bank programs have stressed the development of capital markets, especially stock markets, but little research has been done in measuring the level of stock market development or understanding the relationship between the development of stock markets and the functioning of financial intermediaries. The authors did some preliminary research on these issues and suggest further topics for research. They propose different empirical indicators of stock market development. They also suggest how to use these indicators to help evaluate stock market development policies. They find that the relationship between the development of stock markets and the functioning of financial intermediaries may be complementary.