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on Corporate Finance |
| By: | Peter Bossaerts; Charles Plott; William R. Zame |
| Date: | 2006–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:122247000000001322&r=cfn |
| By: | Menkveld, Albert J. (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics) |
| Abstract: | Securities are increasingly traded through multiple venues. Chowdhry and Nanda (1991) show that sophisticated investors benefit by splitting orders across markets at the cast of local investors who only trade through one venue. If trading hours do not perfectly overlap, we can test for order-splitting by studying trading in the overlap visða-vis the non-overlap. We consider trading in NYSE-listed British and Dutch stocks an ideal experiment and tailor the model to this setting. We then extend it by allowing sophisticated investors to time their trades as in Admati and Pfleiderer (1988). We document increased volatility, increased volume, and unchanged market depth for the overlap, consistent with our predictions. Order-splitting is further evidenced through positive correlation in order imbalance across markets, controlling for arbitrage trades, synchronous information arrival, and microstructure effects |
| Keywords: | Cross-listing; Trading; Fragmentation; High-frequency |
| JEL: | G15 G10 G18 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:vuarem:2006-3&r=cfn |
| By: | Chan, Kalok (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Menkveld, Albert J.; Yang, Zhishu |
| Abstract: | We examine the effect of information asymmetry on equity prices in the local A- and foreign Bshare market in China. We construct measures of information asymmetry based on market microstructure models, and find that they explain a significant portion of cross-sectional variation in B-share discounts, even after controlling for other factors. On a univariate basis, the price impact measure and the adverse selection component of the bid-ask spread in the A- and B-share markets explains 44% and 46% of the variation in B-share discounts. On a multivariate basis, both measures are far more statistically significant than any of the control variables. We also examine the behavior of B-share discounts after the B-share market was partially opened up to domestic investors after March 2001. Not only do we observe that B-share discounts decline from an average of 72% to 43%, but we also find that the differences in the adverse selection components across the markets shrink. |
| Keywords: | Information asymmetry; Asset prices; Microstructure; Market segmentation; Spread decomposition; PIN; China |
| JEL: | G1 G15 G14 G12 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:vuarem:2006-5&r=cfn |
| By: | Nuno Garoupa |
| Abstract: | This paper analyzes the regulation of access to, and activity of, the legal and medical professions. A critical assessment is offered of the economic theory of the regulation of professions in relation to the key issues of: (a) Why regulate, (b) How to regulate, and (c) What to regulate. We suggest a set of indicators to measure the quality of regulatory restrictions, and thereby expose comparative inefficiencies, in the medical and legal professional activities. We conclude that generally speaking the USA followed by Norway, the UK [England and Wales] and Belgium perform better in terms of efficient regulation, whereas Germany, Austria and Portugal perform badly for both legal and medical professionals. Other countries (including the Netherlands, Spain, France) vary. Our results are partly, but not entirely, consistent with previous findings. |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2006-11&r=cfn |
| By: | J. Christina Wang; Susanto Basu |
| Abstract: | What is the output of financial institutions? And how can we measure their nominal and, more importantly, real value, especially since many financial services are provided without explicit charges? This paper summarizes the theoretical result that, to correctly impute the nominal value of implicit financial service output, the “user cost of money” framework needs to be extended to take account of the systematic risk in financial instruments. This extension is easy to implement in principle: One can continue using the current imputation procedure, and the only change needed is to adjust the reference rates of interest for risk. ; The paper clarifies why the risk-related income is not part of the output—or equivalently, why risk bearing is not a service—of financial institutions. The paper next argues that, to measure real output, one must first explicitly specify and define the economic services produced by financial firms, a step that is absent from the “user cost of money” theory. Once it is established that only financial services, and not instruments, should be counted as the value added of financial firms, it follows that the quantity of services provided by these institutions is not necessarily in fixed proportion to the volume of instruments. The corollary is that the implicit price of financial services bears no definitive relationship with any reference rate. Instead, price deflators for financial services should be constructed using methods similar to those used for other services. |
| Keywords: | Financial services industry |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbpp:06-3&r=cfn |
| By: | Hui Guo; Robert Savickas |
| Abstract: | Finance theory, e.g., Campbell's (1993) ICAPM, indicates that the expected equity premium is a linear function of stock market volatility and the volatility of shocks to investment opportunities. We show that one can use average CAPM-based idiosyncratic volatility as a proxy for the latter. In particular, over the period 1927:Q1 to 2005:Q4, stock market volatility and idiosyncratic volatility jointly forecast stock market returns both in sample and out of sample. This finding is robust to alternative measures of idiosyncratic volatility; subsamples; the log transformation of volatility measures; and control for various predictive variables commonly used by early authors. Our results suggest that stock market returns are predictable. |
| Keywords: | Stock exchanges ; Stock - Prices |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-019&r=cfn |
| By: | Giang Ho; Anthony Pennington-Cross |
| Keywords: | Mortgages ; Banking law ; Home equity loans |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2006-022&r=cfn |
| By: | Joel F. Houston; Kevin J. Stiroh |
| Abstract: | This paper examines the evolution of risk in the U.S. financial sector using firm-level equity market data from 1975 to 2005. Over this period, financial sector volatility has steadily increased, reaching extraordinary levels from 1998 to 2002. Much of this recent turbulence can be attributed to a series of major financial shocks, and we find evidence of an upward trend in volatility only for the common component that affects the entire financial sector. While idiosyncratic volatility remains dominant, a combination of common shocks, deregulation, and diversification has reduced its relative importance since the early 1990s. Within the financial sector, commercial banks show the largest rise in volatility, which also reflects industry shocks and not the idiosyncratic component. Despite these changes, we find that the links between the financial sector and economic activity have declined in recent years. These results have implications for investors, bank regulators, and other policymakers concerned with the origins of financial sector risk and with the links between the financial markets and real activity. |
| Keywords: | Risk ; Financial markets ; Banks and banking |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:248&r=cfn |
| By: | Jean Bonnet (CREM - Centre de Recherche en Economie et Management - http://crem.univ-rennes1.fr/ - [CNRS : UMR6211] - [Université Rennes I][Université de Caen] - []); Sylvie Cieply (CREM - Centre de Recherche en Economie et Management - http://crem.univ-rennes1.fr/ - [CNRS : UMR6211] - [Université Rennes I][Université de Caen] - []); Marcus Dejardin (CREW - Centre de Recherche sur l'Economie Wallonne - http://www.fundp.ac.be/facultes/eco/departements/economie/recherche/centres/crew - [Facultés Universitaires Notre Dame de la Paix Namur] - [] - []) |
| Abstract: | Abstract: Financial constraints affecting new firms are some of the factors most cited for<br />impeding entrepreneurial dynamics from flourishing. This article introduces the problem of<br />regional patterns of financial constraints. The research is conducted with regard to the French<br />regions and the new French firms being tracked at the firm level. It refers to entrepreneurial<br />projects that are concretized in new firms. General entrepreneurial intentions in the French<br />population that are aborted due to financial constraints are not reported. The point is of<br />importance as the firm financing conditions are considered. First, an assessment of the<br />regional banking activity leads to the conclusion of a relatively homogeneous situation, the<br />activity in the core-region Île-de-France appearing however more contrasted. Second, the<br />financial constraints affecting new firms are distinguished according to a four-case typology<br />of credit rationing. It appears, inter alia, that a majority of firms is not facing credit rationing,<br />but also that a non-negligible share is “self-constrained”. The classification is, third and<br />finally, differentiated according to the regions. Despite the relatively homogeneous banking<br />supply, some differences may still be at work. The explanations are hypothetical at this stage but<br />evidence suggests that the regional dimension should definitely deserve further attention. |
| Keywords: | Financial constraints; Credit rationing; New Firms; Regional Disparities |
| Date: | 2006–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00010330_v1&r=cfn |
| By: | Jorge Farinha (CETE, Faculdade de Economia, Universidade do Porto); Miguel Sôro (Banco Espírito Santo, Porto) |
| Abstract: | This paper examines the ex-dividend stock price behaviour in the Portuguese Stock Exchange between 1993 and 2002, a unique period characterized by a richness of different investor tax statuses and several tax changes. After classifying investors according to their tax profile and corresponding dividend tax discrimination factorss, we find that the pursuit of a short-term trading strategy around the ex-dividend day does not yield significant abnormal returns after tax and bid-ask costs. These results are in accordance with the inexistence of arbitrage opportunities even when extreme tax situations are considered under different dividend yield scenarios. It is also shown that the observed ex-dividend price reduction is consistent with a tax explanation and in disagreement with market microstructure arguments. Further tests indicate that the price change is not significantly different from the expected theoretical price reduction for a marginal investor which we identified most likely as a long-term shareholder in high-tax brackets. Finally, our results only provide a weak support for the clientele hypothesis. |
| Keywords: | ex-dividend pricing, arbitrage, taxes, international financial markets, market efficiency |
| JEL: | G12 G14 G15 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:por:cetedp:0508&r=cfn |
| By: | Giuseppe RICCIARDO LAMONICA (Universita' Politecnica delle Marche, Dipartimento di Economia) |
| Abstract: | The CAPM is one of the most popular models to find prices of risky assets. This model, has been and is still object of empirical verifications. In this paper, using the method of the multiple regression, we test the CAPM for the Italian stock exchange market in the period 1996-2004. The results show in unequivocal way the validity of the model. |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:256&r=cfn |