The total cost of transactions on the NYSE

Article Abstract:

This paper develops a measure of execution costs (market impact) of transactions on the NYSE. The measure is the volume-weighted average price over the trading day. It yields results that are less biased than measures that use single prices, such as closes. The paper than applies this measure to a data set containing more than 14,000 actual trades. We show that total transaction costs, commission plus market impact costs, average twenty-three basis points of principal value for our sample. Commission costs, averaging eighteen basis points, are considerably higher than execution costs, which average five basis points. They vary slightly across brokers and significantly across money managers. Though brokers do not incur consistently high or low transaction costs, money managers experience persistently high or lost costs. Finally, the paper explores the possible tradeoff between commission expenditures and market impact costs. Paying higher commissions does not yield commensurately lower execution costs, even after adjusting for trade difficulty. We cannot determine whether other valuable brokerage services are being purchased with higher commission payments or whether some money managers really are inefficient consumers of brokerage trading services. (Reprinted by permission of the publisher.)

Finance, Capital market, Capital markets, New York Stock Exchange Inc.

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The October 1979 change in the U.S monetary regime: its impact on the forecastability of Canadian interest rates

Article Abstract:

Subsequent to the October 1979 shift in monetary policy in the United States, interest rates in North America not only reached unprecedented levels but also exhibited unprecedented volatility. Using Canadian data, the authors show that anticipated quarterly changes in long-term rates associated with the rational-expectations model have remained small during this post-shift period. The authors examine three sets of recorded forecasts of long-term interest rates in Canada and note their failure to improve upon the no-change prediction. The "perverse" relationship between the slope of the yield curve and the subsequent movement in long-term rates exists in the Canadian data but is of only modest value in a forecasting context. The excess returns on long-term bonds implicit in the recorded forecasts of the level of interest rates vary sharply, yet there is little evidence that forecasters have identified a predictable component of time-varying term premia. (Reprinted by permission of the publisher.)

United States, Canada, Interest rates, Monetary policy

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The usefulness of the wind-up measure of pension liabilities: a labor market perspective

Article Abstract:

Although pension plan assets are valued at market value, pension plan liabilities should be valued at 'wind-up', as if the plan were terminated as of the date of the financial statement. A comparison of plan values using the wind-up and the accrued benefit methods of accounting indicates that wind-up accounting understates plan liabilities since it fails to account for future salary increases which employees will earn prior to plan termination. The consequences of various accounting standards when applied to pension plan assets and liabilities are illustrated by application to seven hypothetical pension plans. The discussion following the research paper continues the debate as to whether pension plan liabilities should be valued using wind-up accounting methods or accrued benefit methods of accounting.

Standards, Accounting, Pensions, Pension funds, Valuation, Assets (Accounting), Accrual basis accounting

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