nep-cfn New Economics Papers
on Corporate Finance
Issue of 2005‒12‒20
seven papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. Systematics of Advanced Capital Market Models based on Empirical Research By Gerhard Schroeder
  2. Persuasion in Finance By Sendhil Mullainathan; Andrei Shleifer
  3. Testing the Markov property with ultra-high frequency financial data By Matos, Joao Amaro de; Fernandes, Marcelo
  4. Do European Stock Markets Affect Latin American Stock Markets? By Andrés Rivas; Rahul Verma; Antonio Rodriguez; Pedro H. Albuquerque
  5. Dry Markets and Superreplication Bounds of American Derivatives By Matos, Joao Amaro de; Lacerda, Ana
  6. Aging, Pension Reform, and Capital Flows: A Multi-Country Simulation Model By Axel Boersch-Supan; Alexander Ludwig; Joachim Winter
  7. Venture capital as human resource management By Carvalho, Antonio Gledson de; Calomiris, Charles W.; Matos, Joao Amaro de

  1. By: Gerhard Schroeder (Private Research)
    Abstract: The complex blue prints of ODE and PDE based capital market models remain closed to systematic review. Particularly, when some authors of mathematical models can not or may not offer explicit solutions. Artificially generated 'cloned' courses can demonstrate the impact of various types of stochastic volatility in these cases. The Black and Scholes formula has the disadvantage that its key variable, the (future) volatility. is not known. In fact, what is known is that the volatility is volatile itself and the assumption of a stable volatility is violated. The socalled advanced models try to model the stochastic volatility. However, this still implies assumptions how a particular volatility may (or may not) develope until a given point of time. An analysis of key indexes shows stochastic properties difficult to cover in mathematical models yet being still interesting.
    Keywords: Model Systematics, Black Scholes, fair value, option pricing, mispricing, artificially generated 'cloned' quotations, stochastic volalatility, mean reversion, test methods, testing capital market models, experimental economical research, ODE, PDE, hyperbolic, index particularities
    JEL: F3 F4
    Date: 2005–12–14
  2. By: Sendhil Mullainathan; Andrei Shleifer
    Abstract: Persuasion is a fundamental part of social activity, yet it is rarely studied by economists. We compare the traditional economic model, in which persuasion is communication of objectively valuable information, with a behavioral model, in which persuasion is an effort to fit the message into the audience's already held beliefs. We present a simple formalization of the behavioral model, and compare the two models using data on financial advertising in Money and Business Week magazines over the course of the internet bubble. The evidence on the content of the persuasive messages is broadly consistent with the behavioral model of persuasion.
    JEL: G11 G14 M3
    Date: 2005–12
  3. By: Matos, Joao Amaro de; Fernandes, Marcelo
    Abstract: This paper develops a framework to nonparametrically test whether discretevalued irregularly-spaced financial transactions data follow a Markov process. For that purpose, we consider a specific optional sampling in which a continuous-time Markov process is observed only when it crosses some discrete level. This framework is convenient for it accommodates not only the irregular spacing of transactions data, but also price discreteness. Under such an observation rule, the current price duration is independent of previous price durations given the current price realization. A simple nonparametric test then follows by examining whether this conditional independence property holds. Finally, we investigate whether or not bid-ask spreads follow Markov processes using transactions data from the New York Stock Exchange. The motivation lies on the fact that asymmetric information models of market microstructures predict that the Markov property does not hold for the bid-ask spread. The results are mixed in the sense that the Markov assumption is rejected for three out of the five stocks we have analyzed.
    Keywords: Bid-ask spread, nonparametric testing, price durations, Markov property, ultra-high frequency data
    JEL: C14 C52 G10 G19
    Date: 2004
  4. By: Andrés Rivas (Texas A&M International University); Rahul Verma (University of Houston, Downtown); Antonio Rodriguez (Texas A&M International University); Pedro H. Albuquerque (Texas A&M International University)
    Abstract: In this study, we examine the response of Latin American stock markets to movements in European stock market. Our results vary depending on the openness of the country in terms of international trade. We find evidence that Latin American stock markets are responsive to changes in the stock market from Spain. Additionally, during the second and third- periods, Spain has much stronger ties with Brazil, and this might explain why Brazil responds more to the shocks originating from the Spain than from those in France. In conclusion, this study uncovers two important findings. First, Spain influences Latin American markets but these responses are not homogeneous across markets. Second, the influence of Spain has different magnitude in the three sub-periods.
    Keywords: Emerging Markets, Latin America, Stock Markets Interdependence, VAR
    JEL: F30 G15 O54 C22
    Date: 2005–12–14
  5. By: Matos, Joao Amaro de; Lacerda, Ana
    Abstract: This paper studies the impact of dry markets for underlying assets on the pricing of American derivatives, using a disrete time framework. Dry markets are characterized by the possibility of non-existence of trading at certain dates. Such non-existence may be deterministic or probabilistic. Using superreplicating strategies, we derive expectation representations for the range of arbitrage-free values of the dervatives. In the probabilistic case, if we consider an enlarged filtration induced by the price process and the market existence process, ordinary stopping times are required. If not, randomized stopping times are required. Several comparisons of the ranges obtained with the two market restrictions are performed. Finally, we conclude that arbitrage arguments are not enough to define the optimal exercise policy.
    Keywords: American derivatives, pricing, incomplete markets, dry markets, superreplication, randomized stopping times, strong duality
    Date: 2004
  6. By: Axel Boersch-Supan; Alexander Ludwig; Joachim Winter
    Abstract: Population aging and pension reform will have profound effects on international capital markets. First, demographic change alters the time path of aggregate savings within each country. Second this process may be amplified when a pension reform shifts old-age provision towards more pre-funding. Third, while the patterns of population aging are similar in most counries, timing and initial conditions differ substantially. Hence, to the extent that capital is internationally mobile, population aging will induce capital flows between countries. All three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply. In order to quantify these effects, we develop a computational general equilibrium model. We feed this multi-country overlapping generations model with detailed long-term demographic projections for seven world regions. Our simulations indicate that capital flows from fast-aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings. We also conclude that closed-economy models of pension reform miss quantitatively important effects of international capital mobility.
    JEL: E27 F21 G15
    Date: 2005–12
  7. By: Carvalho, Antonio Gledson de; Calomiris, Charles W.; Matos, Joao Amaro de
    Abstract: Part of the way venture capitalists add value to portfolio firms is by obtaining and transferring information about senior managers across firms over time. Information transfer occurs on a significant scale and takes place both among a single venture capitalists portfolio firms and between different venture capitalists firms via a network of venture capitalists, which venture capitalists use to locate and relocate managers. We collect and analyze survey data on the operation of this human resource network. Theoretical and empirical analyses indicate that cross-sectional differences among portfolio firms are associated with differences in the intensity with which venture capitalists network. The observable factors relevant in explaining the intensity with which venture capitalists network include: 1) the value of the information transmitted though the network, 2) the riskiness of the activities of the portfolio firms, 3) the size of the venture capital fund, 4) the degree of difficulty in enticing executives to manage portfolio firms, and 5) the reputation of the venture capitalist for successfully recycling managers. We show that each of these factors reflects the costs and benefits to venture capitalists of participating in the network.
    Date: 2005

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