New Economics Papers
on Financial Markets
Issue of 2007‒02‒03
ten papers chosen by
  1. A New Law for the Bond Rating Industry—For Better Or For Worse? By Lawrence J. White
  2. The Asset Management Industry in Asia: Dynamics of Growth, Structure, and Performance By Ingo Walter; Elif Sisli
  3. Financial Derivative Markets: Hedging, Speculation, Arbitrage, and Risks Associated with Derivatives By Govori, Fadil
  4. Institutions and Bank Behavior By Paul Wachtel; Rainer Haselmann
  5. Multinationals Do It Better: Evidence on the Efficiency of Corporations’ Capital Budgeting By William H. Greene; Abigail S. Hornstein; Lawrence J. White; Bernard Y. Yeung
  6. Credit Elasticities in Less-Developed Economies: Implications for Microfinance By Karlan, Dean S.; Zinman, Jonathan
  7. IPO pricing and allocation: a survey of the views of institutional investors By Tim Jenkinson; Howard Jones
  8. Corporate Social Responsibility and Managerial Entrenchment By Giovanni Cespa; Giacinta Cestone
  9. Do Financial Conglomerates Create or Destroy Economic Value? By Ingo Walter; Markus M. Schmid
  10. Flaw in the fund skill/luck test method of Cuthbertson et al By Nuttall, John
  1. By: Lawrence J. White
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:ste:nystbu:06-19&r=fmk
  2. By: Ingo Walter; Elif Sisli
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:ste:nystbu:06-29&r=fmk
  3. By: Govori, Fadil
    Abstract: Among the most innovative financial markets in recent years are the markets for financial derivatives. Financial derivative markets include markets for forward contracts, future contract, option contracts, interest rate and currency swaps, and credit derivatives. In the financial derivative markets, the risk of future changes in market prices or yields attached to various assets is transferred to someone else, an individual or institution, willing to bear that risk. A forward contract is an agreement between parties to buy or sell an asset on a certain future date for a certain price. In forward contract, one party takes a long position and agrees to buy the underlying asset on a specific date for a specific price. The counterparty takes a short position and agrees to sell on the same date for the same price certain asset. The price specified in a forward contract is the delivery price. Credit risk is implicit in every forward contract because there is always the possibility that the counterparty might not honor the obligation. A futures contract represents the right to trade a standard quantity and quality of an asset at a specified date and price. Future contracts differ from forward contracts in that the size, delivery procedures, expiration date, and other terms of the futures are the same for all contracts. This standardization allows futures contracts to trade on organized exchanges, which provides liquidity to market participants. Futures contracts have a number of useful applications. They can be used to hedge risk in the spot or cash market; to speculate on the future price of an asset; to arbitrage the difference between the two prices. The value of a futures contract is determined by the value of underlying asset and the principle of arbitrage. An option contract gives the holder of the option the right, but not the obligation, to buy an asset, in the case of a call option, or sell an asset in the case of a put option, at a specified price during a specific time period. The price at which the asset is bought or sold is the exercise or strike price. Because the option contract does not obligate the holder to transact, it provides unique payoff possibilities. There are two types of options: European and American. European options can be exercised only at expiration. American options can be exercised at any time. Most options traded in the United States are American options. Swaps represent privately negotiated or OTC securities. In a swap, two or more parties (institutions; the counterparties) contract to exchange cash flows in the future according to some prearranged formula. Mainly, market participants create swaps to hedge volatility in the financial markets. A simple way to understand a swap is to view a swap as a series of forward contracts. A credit derivative is a privately negotiated contract with payoffs linked to a credit-related event, such as a default or credit rating downgrade. Credit derivatives offer a flexible way to protect against credit risk and provide opportunities to enhance yield by purchasing credit synthetically. Derivative financial instruments can be used for three different purposes: hedging, speculation, and arbitrage. Hedgers concern themselves with reducing or eliminating risk. Speculators show interest in profiting from movements in the price of the derivative financial instruments. Arbitragers attempt to profit from price discrepancies in the cash and futures markets. Trading of financial derivatives is not without its own special risks and costs. Although derivatives can be used to help manage risks of other instruments, they also have risks of their own.
    Keywords: Financial Derivative Markets; Hedging; Speculation; Arbitrage; Risks Associated with Derivatives
    JEL: G22 G12 G15 G14 G23 G32 G21 G24 G13 G11
    Date: 2007–01
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:1598&r=fmk
  4. By: Paul Wachtel; Rainer Haselmann
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:ste:nystbu:06-16&r=fmk
  5. By: William H. Greene; Abigail S. Hornstein; Lawrence J. White; Bernard Y. Yeung
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:ste:nystbu:06-04&r=fmk
  6. By: Karlan, Dean S.; Zinman, Jonathan
    Abstract: Policymakers often prescribe that microfinance institutions increase interest rates to eliminate reliance on subsidies. This strategy makes sense if the poor are rate insensitive: then microlenders increase profitability (or achieve sustainability) without reducing the poor’s access to credit. We test the assumption of price inelastic demand using randomized trials conducted by a consumer lender in South Africa. The demand curves are downward-sloping, and steep for price increases relative to the lender’s standard rates. We also find that loan size is far more responsive to changes in loan maturity than to changes in interest rates, which is consistent with binding liquidity constraints.
    Keywords: microfinance
    JEL: G2
    Date: 2007–01
    URL: http://d.repec.org/n?u=RePEc:cpr:ceprdp:6071&r=fmk
  7. By: Tim Jenkinson; Howard Jones
    Abstract: Despite the central importance of investors to all IPO theories, relatively little is known about their role in practice. In this paper we survey institutional investors about how they assess IPOs, what information they provide to the investment banking syndicate, and the factors they believe influence allocations. Although the theoretical IPO literature has tended to focus on information revelation, the survey raises doubts as to the extent of incremental information production and whether bookrunners are, in practice, able to infer investors’ valuations from their bids. We find that investor characteristics, in particular broking relationships with the bookrunner, are perceived to be the most important factors influencing allocations, which supports the view that IPO allocations are part of implicit quid pro quo deals with investment banks.
    JEL: G23 G24
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:sbs:wpsefe:2006fe13&r=fmk
  8. By: Giovanni Cespa (University of Salerno, CSEF and CEPR); Giacinta Cestone (University of Salerno, CSEF and CEPR)
    Abstract: When stakeholder protection is left to the voluntary initiative of managers, relations with social activists may become an effective entrenchment strategy for inefficient CEOs. We thus argue that managerial turnover and firm value are increased when explicit stakeholder protection is introduced so as to deprive incumbent CEOs of activists’ support. This finding provides a rationale for the emergence of specialized institutions (social auditors and ethic indexes) that help firms commit to stakeholder protection even in case of managerial replacement. Our theory also explains a recent trend whereby social activist organizations and institutional shareholders are showing a growing support for each others’ agenda
    Keywords: Corporate Governance, Corporate Social Responsibility, Managerial Entrenchment, Social Activism, Stakeholders
    JEL: G34 G38
    Date: 2007–01–01
    URL: http://d.repec.org/n?u=RePEc:sef:csefwp:173&r=fmk
  9. By: Ingo Walter; Markus M. Schmid
    Date: 2006
    URL: http://d.repec.org/n?u=RePEc:ste:nystbu:06-28&r=fmk
  10. By: Nuttall, John
    Abstract: Cuthbertson et al have recently described a method that is claimed to be able to identify individual fund managers who exhibited skill over a long period in the past. The only input to the process is monthly fund returns. We suggest that a critical step in the Cuthbertson method is flawed. This step involves the study of the order statistics of period average fund returns. We construct a simple model to which the Cuthbertson method should apply. Simulations with the model conclusively demonstrate that the method fails to detect many funds with skill, and also erroneously identifies many funds as having skill they do not possess.
    JEL: G20
    Date: 2007–01–22
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:1584&r=fmk
General information on the NEP project can be found at https://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.
This page is being maintained by Thomas Krichel. It was last updated on 2024‒05‒02 at 12:59.