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This paper investigates whether stock‐price indexes of emerging markets can be characterized as random walk (unit root) or mean reversion processes. We implement a panelbased test that exploits cross‐sectional information from seventeen emerging equity markets during the period January 1985 to April 2002. The gain in power allows us to reject the null hypothesis of random walk in favor of mean reversion at the 5 percent significance level. We find a positive speed of reversion with a half‐life of about 30 months. These results are similar to those documented for developed markets. Our findings provide an interesting comparison to existing studies on more matured markets and reduce the likelihood of earlier mean reversion findings as attributable to data mining.

Evidence of mean reversion in U.S. stock prices during the post‐World War II era is mixed. I find that using the standard portfolio formation method to construct size‐sorted portfolios is inadequate for detecting mean reversion. Using alternative portfolio formation methods and additional cross‐sectional power gained from size‐sorted portfolios during the period 1963 to 1998, I find strong evidence of mean reversion in portfolio prices. My findings imply a significantly positive speed of reversion with a half‐life of approximately three and a half years. Parametric contrarian investment strategies that exploit mean reversion outperform buy‐and‐hold and standard contrarian strategies.

This study uses parametric hazard models to investigate duration dependence in US stock market cycles over the January 1929 through December 1992 period. Market cycles are determined using the Beveridge‐Nelson (1981) approach to the decomposition of economic time series. The results show that both real and nominal cycles exhibit positive duration dependence. The implication of this finding is that actual prices revert to their permanent or trend level in a non‐random manner as the cyclical component dissipates over time. This process is consistent with mean reversion in price and suggests that predictable periodicity in market cycles may exist. Only limited evidence is obtained that discrete shifts or trends in mean cycle duration exist. The length of market cycles appears not to have changed over the 1929–92 period.

Okun's law has been proven to be one of the most accepted theories in the macroeconomics field. It describes the relationship between gross domestic product (GDP) and unemployment. Arthur Okun's (1962) study was developed to help apply appropriate macroeconomic policy changes. Though the coefficient has been re‐estimated, Okun's original work states that a one‐percentage point reduction in the unemployment rate would produce approximately 3% more output. This correlation has continuously been scrutinized, its accuracy studied, and the degree of dependency these variables have on one another has been evaluated.

The different types of estimators of rational expectations models are surveyed. A key feature is that the model′s solution has to be taken into account when it is estimated. The two ways of doing this, the substitution and errors‐in‐variables methods, give rise to different estimators. In the former case, a generalised least‐squares or maximum‐likelihood type estimator generally gives consistent and efficient estimates. In the latter case, a generalised instrumental variable (GIV) type estimator is needed. Because the substitution method involves more complicated restrictions and because it resolves the solution indeterminacy in a more arbitary fashion, when there are forward‐looking expectations, the errors‐in‐variables solution with the GIV estimator is the recommended combination.

This study investigates the impact of real exchange rates on the trade balances between Thailand and its major trading partners. Previous empirical evidence gave mixed results of the impact of real exchange rates on trade balances. In this study, Augmented Dicky‐Fuller and Phillips‐Perron tests for stationarity followed by the cointegration tests are implemented. All variables in the model are nonstationary but cointegrated. In cointegrating regressions, biases are introduced by simultaneity and serial correlation in the error. The specification that deals with these problems is the non‐linear specification of Stock and Watson (1989). By using this non‐linear model as modified by Reinhart (1995), the results show that the impact of real exchange rates (Thai baht/foreign currency) on trade balances is significant in most cases. Therefore, the generalized Marshall‐Lerner condition seems to hold. Furthermore, the results show that the real exchange rates play a more important role in the determination of the bilateral trade balances than other factors. Since the real exchange rate variable plays a major role in this study, the policy recommendation is to prevent exchange rate misalignment. A policy that can neutralize the changes in nominal exchange rates and relative prices should be introduced to prevent further deterioration of the trade balance.

The paper seeks to answer the question: why is John Kenneth Galbraith a radical economist? The purpose of this paper is to show how he contributed to the development of economic theory and how this contribution differs radically from mainstream economics.

In concentrating on Galbraith's theory of power – certainly his most radical contribution to economics – the paper begins to provide an overview of his conceptual work. This overview includes Galbraith's theory of consumption, the firm and financial crisis and ends with his vision for the future. To demonstrate the radical nature of Galbraith's frameworks, they are compared to other heterodox economic theories – namely Institutional and Post Keynesian economics and to a number of randomly chosen standard economics textbook.

This comparative and interpretive exercise clearly demonstrates links of Galbraithian with other heterodox economic theories and very little mentioning and uptake of these concepts in widely used economics textbooks. Galbraith's ideas do seem to fit in well with Institutional and Post Keynesian economics, but not with standard economics.

Galbraithian economics is a clear example of a set of heterodox economic ideas that can be taught probably best as a separate and alternative framework of analysis to the mainstream. To familiarize students with Galbraith's economics will certainly strengthen their analytical abilities and provide them with radically different and particularly useful insights in this time of financial crisis.

The paper demonstrates the explanatory value of Galbraith's economics and the origin of the radical nature of his concepts which lies in his theory of power.

The purpose of this paper is to examine the effects of parameter uncertainty in the returns process with regime shifts on optimal portfolio choice over the long run for a static buy-and-hold investor who is investing in industry portfolios.

This paper uses a Markov switching model to model returns on industry portfolios and propose a Gibbs sampling approach to take into account parameter uncertainty. This paper compares the results with a linear benchmark model and estimates without taking into account parameter uncertainty. This paper also checks the predictive power of additional predictive variables.

Incorporating parameter uncertainty and taking into account the possible regime shifts in the returns process, this paper finds that such investors can allocate less in the long run to stocks. This holds true for both the NASDAQ portfolio and the individual high tech and manufacturing industry portfolios. Along with regime switching returns, this paper examines dividend yields and Treasury bill rates as potential predictor variables, and conclude that their predictive effect is minimal: the allocation to stocks in the long run is still generally smaller.

Studying the effect of regime switching behavior in returns on the optimal portfolio choice with parameter uncertainty is our main contribution.