Fighting for shells: how private information about resource value changes hermit crab pre-fight displays and escalated fight behaviour

Pre-fight displays typically provide honest, but sometimes dishonest, information about resource holding potential and may be influenced by assessment of resource value and hence motivation to acquire the resource. These assessments of potential costs and benefits are also predicted to influence escalated fight behaviour. This is examined in shell exchange contests of hermit crabs in which we establish an information asymmetry about a particularly poor quality shell. The poor shell was created by gluing sand to the interior whereas control shells lacked sand and the low value of the poor shell could not be accurately assessed by the opponent. Crabs in the poor shell showed changes in the use of pre-fight displays, apparently to increase the chances of swapping shells. When the fights escalated, crabs in poor shells fought harder if they took the role of attacker but gave up quickly if in the defender role. These tactics appear to be adaptive but do not result in a major shift in the roles taken or outcome. We thus link resource assessment with pre-fight displays, the roles taken, tactics used during escalation and the outcome of these contests.

International order flows: Explaining equity and exchange rate returns

Macroeconomic models of equity and exchange rate returns perform poorly at high frequencies. The proportion of daily returns that these models explain is essentially zero. Instead of relying on macroeconomic determinants, we model equity price and exchange rate behavior based on a concept from microstructure – order flow. The international order flows are derived from belief changes of different investor groups in a two-country setting. We obtain a structural relationship between equity returns, exchange rate returns and their relationship to home and foreign equity market order flow. To test the model we construct daily aggregate order flow data from 800 million equity trades in the U.S. and France from 1999 to 2003. Almost 60% of the daily returns in the S&P100 index are explained jointly by exchange rate returns and aggregate order flows in both markets. As predicted by the model, daily exchange rate returns and order flow into the French market have significant incremental explanatory power for the daily S&P returns. The model implications are also validated for intraday returns.

Do benchmark African equity indices exhibit the stylized facts?

This paper investigates if benchmark African equity indices exhibit the stylized facts reported for financial time-series returns. The returns distributions of the Africa All-Share, Large, Medium and Small Company Indices were found to be leptokurtotic, had fat-tails, over time experienced volatility clustering and exhibited long memory in volatility. Both the All-Share and Large Company Indices were found to exhibit leverage effects. In contrast, positive shocks had a greater impact on future volatility for the Small Company Index which implies a reverse leverage effect. This finding could reflect a bull/bubble market for small capitalisation stocks in Africa.

The impact of equity markets and corporate governance on labour market flexibility

Drawing from various literatures, this article explores links between equity markets and labour market flexibility. Various data sources are used to test relationships for a set of OECD countries, controlling for other likely influences on flexibility such as government and industrial relations institutions. The results are generally supportive as regards employment flexibility: equity market trading activity is associated with shorter job tenure, higher activity rates, and greater employment change over the cycle. However, the relationship between equity markets and pay flexibility is less statistically robust to the addition of controls.