nep-cfn New Economics Papers
on Corporate Finance
Issue of 2012‒09‒03
three papers chosen by
Zelia Serrasqueiro
University of the Beira Interior

  1. Are Founding Families Special Blockholders ? An Investigation of Controlling Shareholder Influence on Firm Performance By Isakov, Dusan; Weisskopf, Jean-Philippe
  2. Smile in Motion: An Intraday Analysis of Asymmetric Implied Volatility By Wallmeier, Martin
  3. Investment horizon dependent CAPM: Adjusting beta for long-term dependence By Carlos León; Karen Leiton; Alejandro Reveiz

  1. By: Isakov, Dusan; Weisskopf, Jean-Philippe
    Abstract: This paper examines how family and non-family ownership affects the performance of Swiss listed firms from 2003 to 2010. We distinguish between these two types of controlling shareholders since they have different objectives. We hypothesise that only family shareholders have a real incentive to reduce agency costs whereas non-family blockholders are similar to widely held companies. Our results show that family firms are more profitable and sometimes display better market valuations as opposed to companies that are widely held or have a non-family blockholder. We investigate the impact of different features of family firms on performance, and document that the generation of the family, active involvement of the family and contestability of family control play an important role.
    Keywords: founding family firm; active management; founder; ownership structure; firm performance; contestability
    JEL: G3 G32
    Date: 2012–08–20
  2. By: Wallmeier, Martin
    Abstract: We present a new method to measure the intraday relationship between movements of implied volatility smiles and stock returns. It is based on an enhanced smile regression model which captures patterns in the intraday data which have not yet been reported in the literature. Using transaction data for exchange-traded EuroStoxx 50 options from 2000 to 2011 and DAX options from 1995 to 2011, we show that, on average, about 99% of the intraday variation of implied volatility can be explained by moneyness and changes in the index level. Compared to the typical smile regression with moneyness alone, about 50% of the remaining errors can be attributed to movements in the underlying index. We find that the intraday evolution of volatility smiles is generally not consistent with traders' rules of thumb such as the sticky strike or sticky delta rule. On average, the impact of index return on implied volatility is 1.3 to 1.5 times stronger than the sticky strike rule predicts. The main factor driving variations of this adjustment factor is the index return. Our results have implications for option valuation, hedging and the understanding of the leverage effect.
    Keywords: volatility smile; implied volatility; leverage effect; index options; highfrequency data
    JEL: G11 G14 G24
    Date: 2012–08–20
  3. By: Carlos León; Karen Leiton; Alejandro Reveiz
    Abstract: Financial basics and intuition stresses the importance of investment horizon for risk management and asset allocation. However, the beta parameter of the Capital Asset Pricing Model (CAPM) is invariant to the holding period. Such contradiction is due to the assumption of long-term independence of financial returns; an assumption that has been proven erroneous. Following concerns regarding the impact of the long-term dependence assumption on risk (Holton, 1992), this paper quantifies and fixes the CAPM’s bias resulting from this abiding –but flawed- assumption. The proposed procedure is based on Greene and Fielitz (1980) seminal work on the application of fractional Brownian motion to CAPM, and on a revised technique for estimating time-series’ fractal dimension with the Hurst exponent (León and Vivas, 2010; León and Reveiz, 2011a). Using a set of 85 stocks from the S&P100, this paper finds that relaxing the long-term independence assumption results in significantly different estimations of beta. According to three tests herein implemented with a 99% confidence level, more than 60% of the stocks exhibit significantly different beta parameters. Hence, expected returns are biased; on average, the bias is about ±60bps for a contemporary one-year investment horizon. Thus, as emphasized by Holton (1992), risk is a two-dimensional quantity, with holding period almost as important as asset class. The procedure herein proposed is valuable since it parsimoniously achieves an investment
    Keywords: CAPM, Hurst exponent, long-term dependence, fractional Brownian motion, asset allocation, investment horizon. Classification JEL: G12, G14, G32, G20, C14
    Date: 2012–08

This nep-cfn issue is ©2012 by Zelia Serrasqueiro. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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