http://hdl.handle.net/2451/25922 Search the Channel search http://archive.nyu.edu/simple-search http://hdl.handle.net/2451/26329 Sun, 25 May 2008 15:58:16 GMT http://hdl.handle.net/2451/26551 Mon, 26 May 2008 21:54:42 GMT http://hdl.handle.net/2451/26912 Thu, 29 May 2008 12:46:43 GMT http://hdl.handle.net/2451/26925 Thu, 29 May 2008 13:07:18 GMT http://hdl.handle.net/2451/27211 Fri, 30 May 2008 11:17:18 GMT http://hdl.handle.net/2451/27167 Fri, 30 May 2008 10:21:25 GMT http://hdl.handle.net/2451/26921 Thu, 29 May 2008 12:59:24 GMT http://hdl.handle.net/2451/27016 Thu, 29 May 2008 16:59:54 GMT http://hdl.handle.net/2451/26984 Thu, 29 May 2008 15:54:20 GMT http://hdl.handle.net/2451/27011 Thu, 29 May 2008 16:52:20 GMT http://hdl.handle.net/2451/27046 Thu, 29 May 2008 17:35:30 GMT http://hdl.handle.net/2451/26381 Sun, 25 May 2008 20:50:22 GMT http://hdl.handle.net/2451/27208 Fri, 30 May 2008 11:15:46 GMT http://hdl.handle.net/2451/27179 Fri, 30 May 2008 10:42:52 GMT http://hdl.handle.net/2451/27269 Fri, 30 May 2008 14:21:55 GMT http://hdl.handle.net/2451/26901 Thu, 29 May 2008 12:36:26 GMT http://hdl.handle.net/2451/27388 Title: You Can't Take It With You: Sunset Provisions for Equity CompensationWhen Managers Retire, Resign, or Die<br/><br/>Dahiya, Sandeep; Yermack, David<br/><br/>Abstract: Company stock option plans have diverse &ldquo;sunset&rdquo; policiesfor modifying terms of options held by managers who exit the firm. Inour S&amp;P 500 sample, these forfeiture, vesting, and expirationprovisions are less generous in companies characterized by fast growth,dependence on skilled human capital, and high strategic interaction withcompetitors. While these results apply for workers who retire at the endof their careers, almost no variation exists in the treatment of workerswho resign with the possibility of working elsewhere. We show that thesefeatures of firms&rsquo; option plans directly impact managementturnover. For CEOs over age 60, companies&rsquo; sunset rules implylarge discounts to option award values and estimates of totalcompensation. The authors appreciate helpful comments from ManuelAmmann, Patrick Bolton, Jennifer Carpenter, Don Chance, Stephen Choi,John Core, Joan Heminway, Tracie Woidtke, and seminar participants atChinese University Hong Kong, Fordham University, Georgetown University,Mannheim University, University of St. Gallen, University of Tennessee,and the Gerzensee European Summer Symposium in Financial Markets. Wed, 28 Nov 2007 22:58:59 GMT http://hdl.handle.net/2451/31748 Title: Would Stricter Capital Requirements Raise the Cost of Capital? BankCapital Regulation and the Low Risk Anomaly<br/><br/>Baker, Malcolm; Wurgler, Jeffrey<br/><br/>Abstract: Capital requirements for banks must balance a number of factors,including any effects on the cost of capital and in turn the ratesavailable to borrowers. Standard theory predicts that, in perfect andefficient capital markets, reducing banks&rsquo; leverage would reducethe risk and cost of their equity but leave the overall weighted averagecost of capital unchanged. We test these two predictions empirically. Weconfirm that the equity of better-capitalized banks has both lowersystematic risk (beta) and lower idiosyncratic risk. However, over thelast 40 years in the United States, lower risk banks have higher stockreturns on a risk-adjusted or even a raw basis, a pattern consistentwith a stock market anomaly previously documented in other samples. Asimple calibration using historical data suggests that a tenpercentage-point increase in Tier 1 capital to risk-weighted assetswould have increased the weighted average cost of capital by between 60and 90 basis points per year. In competitive lending markets, a changeof this magnitude would have doubled or tripled spreads, because bankasset betas implied an average risk premium of only 40 basis pointsabove Treasury yields over that same period. Fri, 15 Mar 2013 20:17:04 GMT http://hdl.handle.net/2451/26370 Title: Why Has House Price Dispersion Gone Up?<br/><br/>Van Nieuwerburgh, Stijn; Weill, Pierre-Olivier<br/><br/>Abstract: We investigate the 30 year increase in the level and dispersion of houseprices across U.S. metropolitan areas in a calibrated dynamic generalequilibrium island model. The model is based on two main assumptions:households &deg;ow in and out metropolitan areas in response to localwage shocks, and the housing supply cannot adjust instantly because ofregulatory constraints. In our equilibrium, house prices compensate forcross-sectional wage differences. Feeding in our model the 30 yearincrease in cross-sectional wage dispersion that we document based onmetropolitan-level data, we generate the observed increase in houseprice level and dispersion. The calibration also reveals that, while abaseline level of regulation is important, a tightening of regulation byitself cannot account for the increase in house price level anddispersion: in equilibrium, workers &deg;ow out of tightly regulatedtowards less regulated metropolitan areas, undoing most of the priceimpact of additional local supply regulations. Finally, the calibrationwith increasing wage dispersion suggests that the welfare effects ofhousing supply regulation are large. Mon, 30 Oct 2006 22:58:59 GMT http://hdl.handle.net/2451/26707 Title: Why Does Capital Structure Choice Vary With Macroeconomic Conditions?<br/><br/>Levy, Amnon<br/><br/>Abstract: This paper develops a calibrated model that explains the pronouncedcounter-cyclical leverage patterns observed for firms that access publiccapital markets, and relates these patters to debt and equity issues.Moreover, it explains why leverage and debt issues do not exhibit thispronounced behavior for firms that face more severe constraints whenaccessing capital markets. In the model, managers issue a combination ofdebt and equity to finance investment by weighing the trade-off betweenagency problems and risk sharing. During contractions, leveragedmanagers receive a relatively small share of wealth, resulting in arelative increase in household demand for securities. Securities marketsclear as managers that are not up against their borrowing constraintsincrease leverage while satisfying the agency condition that theymaintain a large enough portion of their firm&rsquo;s equity. Thu, 30 Nov 2000 22:58:59 GMT http://hdl.handle.net/2451/27092 Title: Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks<br/><br/>Madhavan, Ananth; Richardson, Matthew; Roomans, Mark<br/><br/>Abstract: This paper develops a structural model of intraday price formation thatembodies both information shocks and microstructure effects in aninternally consistent, unified setting. The model allows us to betterunderstand the observed intra-day patterns in bid-ask spreads, pricevolatility, transaction costs, as well as the autocorrelations oftransaction returns and quote revisions. For example, the modelsimultaneously sheds light on why, over the day, (i) the variance oftransaction price changes is U-shaped while the variance of ask pricechanges is declining, (ii) the bid-ask spread is U-shaped althoughinformation asymmetry and uncertainty over fundamentals is decreasing,and (iii) the autocorrelations of transaction price changes are largeand negative, yet the autocorrelations of ask price changes are smalland negative. In addition, the model&rsquo;s parameters also provide anatural metric of price discovery and effective trading costs, which mayprove useful in future studies. Tue, 29 Oct 1996 22:58:59 GMT http://hdl.handle.net/2451/26385 Title: Why do Interest Rate Options Smile?<br/><br/>DEUSKAR, PRACHI; GUPTA, ANURAG; SUBRAHMANYAM, MARTI G.<br/><br/>Abstract: We address three questions relating to the interest rate options market:What is the shape of the smile? What are the economic determinants ofthe shape of the smile? Do these determinants have predictive power forthe futures shape of the smile and vice versa? We investigate theseissues using daily bid and ask prices of euro (&euro;) interest ratecaps/floors. We find a clear smile pattern in interest rate options. Theshape of the smile varies over time and is affected in a dynamic mannerby yield curve variables and the future uncertainty in the interest ratemarkets; it also has information about future aggregate default risk.Our findings are useful for the pricing, hedging and risk management ofthese derivatives. Sun, 29 Oct 2006 22:58:59 GMT http://hdl.handle.net/2451/26290 Title: Why Did FDR&rsquo;s Bank Holiday Succeed?<br/><br/>L. Silber*, William<br/><br/>Abstract: After a month-long run on American banks, Franklin Delano Rooseveltproclaimed a Bank Holiday beginning March 6, 1933 that shut down thebanking system. When banks reopened on March 13, 1933, depositors stoodin line to return their hoarded cash. This paper traces the remarkableturnaround in the public&rsquo;s confidence to the Emergency BankingAct, passed by Congress on March 9, 1933. Roosevelt used the emergencycurrency provisions of the Act to prod the Federal Reserve to create defacto deposit insurance in the reopened banks. The contemporary pressconfirms that the public recognized the implicit guarantee, and as aresult, believed the President&rsquo;s words in his first Fireside Chaton March 12, 1933, that the reopened banks would be safe. The publicresponded by returning more than half of their hoarded cash to the bankswithin two weeks and by bidding up stock prices on March 15, 1933, thefirst trading day after the Bank Holiday ended, by the largest everone-day percentage price increase. The Bank Holiday and the EmergencyBanking Act of 1933 reestablished the integrity of the payments systemand demonstrated the power of credible regime-shifting policies. Sun, 29 Jul 2007 22:58:59 GMT http://hdl.handle.net/2451/27051 Title: Why are Options Expensive?<br/><br/>Subrahmanyam, Marti G; Franke, G&uuml;nter; Stapleton, Richard C.<br/><br/>Abstract: Many valuation models in financial economics are developed using thepricing kernel approach to adjust for risk through the equivalentmartingale representation. Often it is assumed, explicitly orimplicitly, that the pricing kernel exhibits constant elasticity withrespect to the price of the market portfolio. In a representative agenteconomy this would be close to assuming that the representative agenthas constant proportional risk aversion. The elasticity of the pricingkernel has also implications for the pricing of options. This papershows, first, that given the forward price of the market portfolio, allEuropean options would have higher prices if the elasticity of thepricing kernel was declining instead of constant. Moreover, a volatilitysmile-effect is generated. Second, the paper shows that the standardgeometric Brownian motion underlying the Black/Scholes model requiresconstant elasticity of the pricing kernel . Third, if the price of themarket portfolio at the expiration date of an option is lognormallydistributed, then declining elasticity of the pricing kernel implies astochastic process which is characterized by higher volatility andnegative autocorrelation. Thus, declining elasticity of the pricingkernel can explain several empirical findings. Thu, 29 Jan 1998 22:58:59 GMT http://hdl.handle.net/2451/26500 Title: Why are dividends disappearing? An empirical analysis<br/><br/>Baker, Malcolm; Wurgler, Jeffrey<br/><br/>Abstract: We investigate the causes of time-series fluctuations in the propensityto pay dividends, including the post-1978 decline documented by Fama andFrench (2001). We consider explanations based on fluctuations individend clienteles, agency problems, information asymmetries, executivestock options, catering incentives, tax code awareness, and short-livedidiosyncratic factors. To evaluate these explanations, we conduct threestyles of analysis. First, we count and classify influences on thepropensity to pay that were noted in the financial press. Second, weexamine time-series relationships between the propensity to pay andproxies for the driving influences in the candidate explanations. Third,we assess whether the candidate explanations are theoreticallycompatible with related time-series patterns involving dividend policy.Overall, the results are most consistent with the catering explanation.Notably, catering incentives, as measured by the stock market&quot;dividend premium,&quot; roughly line up with the four trends inthe propensity to pay between 1963 and 2000 and are able to account forthe observed magnitude of the post-1978 decline. There is also evidencethat idiosyncratic factors, including the Nixon-era dividend controlsand the recent growth in options, affected the propensity to pay inspecific periods. Wed, 13 Nov 2002 22:58:59 GMT http://hdl.handle.net/2451/26413 Title: Whom You Know Matters:Venture Capital Networks and Investment Performance<br/><br/>Hochberg, Yael; Ljungqvist, Alexander; Lu, Yang<br/><br/>Abstract: Many financial markets are characterized by strong relationships andnetworks, rather than arm&rsquo;s-length, spot-market transactions. Weexamine the performance consequences of this organizational choice inthe context of relationships established when VCs syndicate portfoliocompany investments, using a comprehensive sample of U.S. based VCs overthe period 1980 to 2003. VC funds whose parent firms enjoy moreinfluential network positions have significantly better performance, asmeasured by the proportion of portfolio company investments that aresuccessfully exited through an initial public offering or a sale toanother company. Similarly, the portfolio companies of better networkedVC firms are significantly more likely to survive to subsequent roundsof financing and to eventual exit. The magnitude of these effects iseconomically large, and is robust to a wide range of specifications.Once we control for network effects in our models of fund and portfoliocompany performance, the importance of how much investment experience aVC has is reduced, and in some specifications, eliminated. Finally, weprovide initial evidence on the evolution of VC networks. Tue, 19 Apr 2005 22:58:59 GMT http://hdl.handle.net/2451/26561 Title: Who You Know Matters: Venture Capital Networks and Investment Performance<br/><br/>Hochberg, Yael; Ljungqvist, Alexander; Lu, Yang<br/><br/>Abstract: Many financial markets are characterized by strong relationships andnetworks, rather than arm&rsquo;s-length, spot-market transactions. Weexamine the performance consequences of this organizational choice inthe context of relationships established when VCs syndicate portfoliocompany investments, using a comprehensive sample of U.S. based VCs overthe period 1980 to 2003. VC funds whose parent firms enjoy moreinfluential network positions have significantly better performance, asmeasured by the proportion of portfolio company investments that aresuccessfully exited through an initial public offering or a sale toanother company. Similarly, the portfolio companies of better networkedVC firms are significantly more likely to survive to subsequent roundsof financing and to eventual exit. The magnitude of these effects iseconomically large, and is robust to a wide range of specifications. Ourmodels suggest that the benefits of being associated with awell-connected VC are more pronounced in later funding rounds. Once wecontrol for network effects in our models of fund and portfolio companyperformance, the importance of how much investment experience a VC hasis reduced, and in some specifications,eliminated. Tue, 07 Dec 2004 22:58:59 GMT http://hdl.handle.net/2451/26553 Title: Who You Know Matters: Venture Capital Networks and Investment Performance<br/><br/>Hochberg, Yael; Ljungqvist, Alexander; Lu, Yang<br/><br/>Abstract: Many financial markets are characterized by strong relationships andnetworks, rather than arm&rsquo;s-length, spot-market transactions. Weexamine the performance consequences of this organizational choice inthe context of relationships established when VCs syndicate portfoliocompany investments, using a comprehensive sample of U.S. based VCs overthe period 1980 to 2003. VC funds whose parent firms enjoy moreinfluential network positions have significantly better performance, asmeasured by the proportion of portfolio company investments that aresuccessfully exited through an initial public offering or a sale toanother company. Similarly, the portfolio companies of better networkedVC firms are significantly more likely to survive to subsequent roundsof financing and to eventual exit. The magnitude of these effects iseconomically large, and is robust to a wide range of specifications. Ourmodels suggest that the benefits of being associated with awell-connected VC are more pronounced in later funding rounds. Once wecontrol for network effects in our models of fund and portfolio companyperformance, the importance of how much investment experience a VC hasis reduced, and in some specifications, eliminated. Tue, 07 Dec 2004 22:58:59 GMT http://hdl.handle.net/2451/26977 Title: Who Buys and Who Sells Options: The Role and Pricing of Options in anEconomy with Background Risk<br/><br/>Franke, Gunter; Stapleton, Richard C.; Subrahmanyam, Marti G.<br/><br/>Abstract: In this paper, we drive an equilibrium in which some investors buycall/put options on the market portfolio while others sell them. Also,some investors supply and others demand forward contracts. Sinceinvestors are assumed to have similar risk-averse preferences, thedemand for these contracts is not explained by differences in the shapeof utility functions. Rather, it is the degree tow which agents faceother, non-hedgeable, background risks that determines their risk-takingbehavior in the model. We show that investors with low or no backgroundrisk have a concave sharing rule, i.e., they sell options on the marketportfolio, whereas investors with high background risk have a convexsharing rule and buy these options. A general increase in backgroundrisk in the economy reduces the forward price of the market portfolio.Furthermore, the prices of put options rise and the prices of calloptions fall. Investors without background risk then react by choosing asharing rule with higher slope and concavity. Wed, 04 Sep 1996 22:58:59 GMT http://hdl.handle.net/2451/27041 Title: Who Buys and Who Sells Options: The Role and Pricing of Options in anEconomy with Background Risk<br/><br/>Subrahmanyam, Marti G.; Franke, G&uuml;nter; Stapleton, Richard C.<br/><br/>Abstract: In this paper, we derive an equilibrium in which some investors buycall/put options on the market portfolio while others sell them. Sinceinvestors are assumed to have similar risk-averse preferences, thedemand for these contracts is not explained by differences in the shapeof utility functions. Rather, it is the degree to which agents faceother, non-hedgeable, background risks that determines their risk-takingbehavior in the model. We show that investors with low or no backgroundrisk have a concave sharing rule, i.e., they sell options on the marketportfolio, whereas investors with high background risk have a convexsharing rule and buy these options. Thu, 29 Jan 1998 22:58:59 GMT http://hdl.handle.net/2451/27127 Title: Who Buys and Sells Options: The Role and Pricing of Options in anEconomy with Background Risk<br/><br/>Franke, Gunter; Stapleton, Richard C.; Subrahmanyam, Marti G.<br/><br/>Abstract: In this paper, we derive an equilibrium in which some investors buycall/put options on the market portfolio while others sell them. Also,some investors supply and others demand forward contracts. Sinceinvestors are assumed to have similar risk-averse preferences, demandfor these contracts is not explained by differences in the shape ofutility functions. Rather, it is the degree to which agents face other,non-hedgeable, background risks that determines their risk-takingbehavior in the model. We show that investors with low or no backgroundrisk have a concave sharing rule, i.e., they sell options on the marketportfolio, whereas investors with high background risk have a convexsharing rule and buy these options. A general increase in backgroundrisk in the economy reduces the forward price of the market portfolio.Furthermore, the prices of put options rise and the prices of calloptions fall. Investors without background risk then react by choosing asharing rule with higher slope and concavity. Sun, 03 Dec 1995 22:58:59 GMT http://hdl.handle.net/2451/27403 Title: Where are the shareholders&rsquo; mansions? CEOs&rsquo; home purchases,stock sales, and subsequent company performance<br/><br/>Liu, Crocker; Yermack, David<br/><br/>Abstract: We study real estate purchases by major company CEOs, compiling adatabase of the principal residences of nearly every top executive inthe Standard &amp; Poor&rsquo;s 500 index. When a CEO buys real estate,future company performance is inversely related to the CEO&rsquo;sliquidation of company shares and options for financing the transaction.We also find that, regardless of the source of finance, future companyperformance deteriorates when CEOs acquire extremely large or costlymansions and estates. We therefore interpret large home acquisitions assignals of CEO entrenchment. Our research also provides useful insightsfor calibrating utility based models of executive compensation and forunderstanding patterns of Veblenian conspicuous consumption. Tue, 16 Oct 2007 22:58:59 GMT http://hdl.handle.net/2451/26358 Title: When Is Noise Not Noise &ndash; A Microstructure Estimate of Realized Volatility<br/><br/>Engle, Engle; Sun, Zheng<br/><br/>Abstract: This paper studies the joint distribution of tick by tick returns anddurations between trades. Returns are decomposed into changes in fullinformation prices and microstructure noise, but the noise is modeled inaccordance with various models of market microstructure allowing richcorrelation structures both with the efficient price and over time. Thefull information price has time varying volatility which depends uponthe arrival time of trades. The paper aims at three contributions:First, the noise is modeled to allow asymmetric information, inventoryand order processing costs, and delayed quote setting. Second, theresponse to the trade arrival times allows trade durations to beinformative on future volatility. Third, the estimated state spacemodels can act as a laboratory to examine various non-parametricapproaches to realized volatility estimation. Both simulated and actualdata can be compared across methods and the accuracy and efficiencyassessed as long as the parameteric model is viewed as a sufficientlyaccurate representation. We apply the above model to 10 NYSE stocktransactions data series with varying transaction rates. It appears thatcontemporaneous duration has little effect on the volatility per tradeafter conditioning on the past, which means average per secondvolatility is inversely related to the duration between trades.Microstructure noise is found to be informative about the unobservedefficient price, and the informational component explains 45% of thetotal variation of the microstructure noise. Sun, 29 Oct 2006 22:58:59 GMT http://hdl.handle.net/2451/28345 Title: When Everyone Runs for the Exit<br/><br/>Pedersen, Lasse Heje<br/><br/>Abstract: The dangers of shouting \re&quot; in a crowded theater are wellunderstood, but the dangers of rushing to the exit in the nancialmarkets are more complex. Yet, the two events share several features,and I analyze why people crowd into theaters and trades, why they run,what determines the risk, whether to return to the theater or trade whenthe dust settles, and how much to pay for assets (or tickets) in lightof this risk. These theoretical considerations shed light on the recentglobal liquidity crisis and, in particular, the quant event of 2007. Tue, 24 Nov 2009 17:59:56 GMT http://hdl.handle.net/2451/26579 Title: When Does the Market Matter? Stock Prices and the Investment ofEquity-Dependent Firms<br/><br/>Baker, Malcolm; Stein, Jeremy C.; Wurgler, Jeffrey<br/><br/>Abstract: We use a simple model of corporate investment to determine wheninvestment will be sensitive to non-fundamental movements in stockprices. The key cross-sectional prediction of the model is that stockprices will have a stronger impact on the investment of firms that are&ldquo;equity dependent&rdquo; &ndash; firms that need external equityto finance their marginal investments. Using an index of equitydependence based on the work of Kaplan and Zingales (1997), we findstrong support for this prediction. In particular, firms that rank inthe top quintile of the KZ index have investment that is two-and-a-halftimes as sensitive to stock prices as firms in the bottom quintile. Wealso verify several other predictions of the model. Mon, 08 Oct 2001 22:58:59 GMT http://hdl.handle.net/2451/26452 Title: When Does Strategic Debt Service Matter?<br/><br/>Acharya, Viral V.; Huang, Huang; Subrahmanyam, Marti G.; Sundaram, Rangarajan K.<br/><br/>Abstract: Recent work has suggested that strategic under performance of debtservice obligations by equity holders can resolve the gap betweenobserved yield spreads and those generated Merton (41) style models. Weshow that it is not quite correct. The value of the option to underperform on debt-service obligations depend on two other optionality'savailable to equity holders, namely, the option to carry cash reserveswithin the firm and the option to raise new external financing. Wed, 01 May 2002 22:58:59 GMT http://hdl.handle.net/2451/26836 Title: When are Options Overpriced? The Black-Scholes Model and AlternativeCharacterizations of the Pricing Kernel<br/><br/>Franke, Guntar; Stapleton, Richard C.; Subrahmanyam, Marti G.<br/><br/>Abstract: An important determinant of option prices is the elasticity of thepricing kernel used to price all claims in the economy. In this paper,we first show that for a given forward price of the underlying asset,option prices are higher when the elasticity of the pricing kernel isdeclining than when it is constant. We then investigate the implicaitonsof the elasticity of the pricing kernel for the stochastic processfollowed by the underlying asset. Given that the underlying informationprocess follows a geometric. Brownian motion, we demonstrate thatconstant elasticity of the pricing kernel is equivalent to a Brownianmotion for the forward price of the underlying asset, so that theBlack-Scholes formula correctly prices options on the asset. In contast,declining elasticiy implies that the forward price process is no longera Brownian motion: It has higher volatility and exhibitsautocorrelation. In this case, the Black-Scholes formula underprices all options. Tue, 29 Dec 1998 22:58:59 GMT http://hdl.handle.net/2451/26642 Title: What&rsquo;s In It For Me? Personal Benefits Obtained by CEOs WhoseFirms Are Acquired<br/><br/>Hartzell, Jay; Ofek, Eli; Yermack, David<br/><br/>Abstract: We study benefits received by target company CEOs in completed mergersand acquisitions. These executives obtain wealth increases with a medianof $4 to $5 million and a mean of $8 to $11 million, roughly in linewith the permanent income streams that they sacrifice. CEOs receivelower financial gains from those transactions in which they becomeexecutives of the buyer, suggesting that tradeoffs exist between thefinancial and career-related benefits they extract. Regression estimatessuggest that target shareholders receive lower acquisition premia intransactions that involve extraordinary personal treatment of the CEO. Wed, 28 Jun 2000 22:58:59 GMT http://hdl.handle.net/2451/26510 Title: What pieces of limit order book information do are informative? Anempirical analysis of a pure order-driven market<br/><br/>Pascual, Roberto; Veredas, David<br/><br/>Abstract: This paper studies the importance of different pieces of limit orderbook information in characterizing order aggressiveness and the timingof trades, order submissions and cancellations. Using limit order bookinformation on liquid and frequently traded Spanish stock, we evidencethat most of the explanatory power of the book concentrates on the bestquotes. However, the book beyond the best quotes also matters inexplaining the aggressiveness of traders. Liquidity providers benefitmore from an increased degree of pre-trade transparency than liquidityconsumers. Finally, no piece of book information matters in explainingthe timing of orders. Fri, 28 Nov 2003 22:58:59 GMT http://hdl.handle.net/2451/27268 Title: What makes issuers happy? Testing the Prospect Theory of IPO Underpricing<br/><br/>Ljungqvist, Alexander P.; Wilhelm, William J.Jr.<br/><br/>Abstract: We derive a behavioral measure of the IPO decision-maker's satisfactionwith the underwriter's performance based on Loughran and Ritter's (2002)prospect theory of IPO underpricing. We assess the plausibility of thismeasure by studying its power to explain the decision-maker&rsquo;ssubsequent choices. Controlling for other known factors, IPO firms areless likely to switch underwriters for their first seasoned equityoffering when our behavioral measure indicates they were satisfied withthe IPO underwriter&rsquo;s performance. Underwriters also appear tobenefit from behavioral biases in the sense that they extract higherfees for subsequent transactions involving satisfied decision-makers.Although our tests suggest there is explanatory power in the behavioralmodel, they do not speak directly to whether deviations from expectedutility maximization determine patterns in IPO initial returns. Tue, 09 Dec 2003 22:58:59 GMT http://hdl.handle.net/2451/27219 Title: What Happened to Liquidity When World War I Shut the NYSE?<br/><br/>Silber, William L.<br/><br/>Abstract: The suspension of trading on the New York Stock Exchange for more thanfour months following the outbreak of World War I fostered a substitutemarket on New Street as a source of liquidity. The New Street marketsuffered from impaired price transparency because its transactions werenot disseminated on the NYSE ticker and its quotations were blacklistedat the leading newspapers. This paper shows that despite the incompleteinformation flow and the somewhat wider bid-ask spreads compared withthe New York Stock Exchange, New Street offered economically meaningfulliquidity services. The interference with price transparency turned anindividual stock&rsquo;s reputation for liquidity into an importantadded variable in explaining the structure of bid-ask spreads on New Street. Sun, 28 Sep 2003 22:58:59 GMT http://hdl.handle.net/2451/26572 Title: WHAT GOOD IS A VOLATILITY MODEL?<br/><br/>Engle, Robert F.; Patton, Andrew J.<br/><br/>Abstract: volatility model must be able to forecast volatility; this is thecentral requirement in almost all financial applications. In this paperwe outline some stylised facts about volatility that should beincorporated in a model; pronounced persistence and meanreversion,asymmetry such that the sign of an innovation also affects volatilityand the possibility of exogenous or pre-determined variables influencingvolatility. We use data on the Dow Jones Industrial index to illustratethese stylised facts, and the ability of GARCH-type models to capturethese features. We conclude with some challenges for future research inthis area. Mon, 26 May 2008 22:26:07 GMT http://hdl.handle.net/2451/31351 Title: What Do Private Firms Look like?<br/><br/>Asker, John; Farre-Mensa, Joan; Ljungqvist, Alexander<br/><br/>Abstract: Private firms in the U.S. are not subject to public reportingrequirements, so relatively little is known about their characteristicsand behavior &ndash; until now. This Data Appendix describes a newdatabase on private U.S. firms, created by Sageworks Inc. in cooperationwith hundreds of accounting firms. The contents of the Sageworksdatabase mirror Compustat, the standard database for public U.S. firms.It contains balance sheet and income statement data for 95,297 privatefirms covering 250,507 firms-years over the period 2002 to 2007. Wecompare this database to the joint Compustat-CRSP database of publicfirms and to the Federal Reserve&rsquo;s 2003 National Survey of SmallBusiness Finances. Mon, 12 Dec 2011 17:44:40 GMT http://hdl.handle.net/2451/26387 Title: What Do Independent Directors Know?Evidence from Their Trading<br/><br/>Ravina, Enrichetta; Sapienza, Paola<br/><br/>Abstract: We compare the trading performance of independent directors and otherofficers of the firm.We find that independent directors earn positiveand substantial abnormal returns when they purchase their company stock,and that the difference with the same firm&rsquo;s officers isrelatively small at most horizons. The results are robust to controllingfor firm fixed effects and to using a variety of alternativespecifications. Executive officers and independent directors make higherreturns in firms with weaker governance and the gap between these twogroups widens in such firms. Independent directors who sit in auditcommittees earn higher return than other independent directors at thesame firm. Finally, independent directors earn significantly higherreturns than the market when they sell the company stock in a windowbefore bad news and around a restatement announcement. Tue, 28 Nov 2006 22:58:59 GMT http://hdl.handle.net/2451/27373 Title: What Are the Sources of Country and Industry Diversification?<br/><br/>Hargis, Kent; Mei, Jianping (J.P.)<br/><br/>Abstract: In this paper, we develop a new framework in which one can analyzeindustry and country effects by examining their underlying returncomponents. We find that the global cash flow factor explains on average48% of the variation of industry cash flows and the global discountrates explain 43% of the variation of industry discount rates. These aremore than double the explanatory power of the two factors over countrycash flow and discount rate variations, which are 23% and 13%respectively. This suggests that global factors are much less importantfor return components at country level than at industry level. Thelarger benefits of diversification across countries than acrossindustries are thus driven more by better diversification of expectedreturns, although better diversification of cash flows also drives theresult. Moreover, emerging markets tend to have much smallerco-movements of both dividends and equity risk premiums with those ofthe world, suggesting a lower degree of integration with the world goodsand financial markets. This appears to be the basis for emerging market diversification. Fri, 29 Oct 1999 22:58:59 GMT http://hdl.handle.net/2451/27064 Title: Wealth Creation and Destruction from Brooke Group's Tobacco Litigation Strategy<br/><br/>Dahiya, Sandeep; Yermack, David<br/><br/>Abstract: We examine value creation and destruction in the tobacco industry due tothe radical litigation strategy pursued by Brooke Group and its CEO,Bennett LeBow. Brooke Group has a tiny market share, low margins, highleverage, and a high concentration of management ownership.Beginning in1996 the firm reached settlements in lawsuits brought against allcigarette companies by class action plaintiffs and U.S. stategovernments. Brooke Group's actions, which included promises tocooperate in litigation against its rivals, spurred other companies toreach settlements on less favorable terms. The settlements eventuallyled to massive wealth destruction within the tobacco industry butimpressive returns for shareholders of Brooke Group. Sun, 28 Nov 1999 22:58:59 GMT http://hdl.handle.net/2451/27010 Title: Viability and Equilibrium in Securities Markets with Frictions<br/><br/>Jouini, Ely&egrave;s; Kallal, H&eacute;di<br/><br/>Abstract: In this paper we study some foundational issues in the theory of assetpricing with market frictions. We model market frictions by letting theset of marketed contingent claims (the opportunity set) be a convex set,and the pricing rule at which these claims are available be convex. Thisis the reduced form of multiperiod securities price models incorporatinga large class of market frictions. It is said to be viable as a model ofeconomic equilibrium if there exist price-taking maximizing agents whoare happy with their initial endowment, given the opportunity set, andhence for whom supply equals demand. This is equivalent to the existenceof a positive linear pricing rule on the entire space of contingentclaims - an underlying frictionless linear pricing rule - that liesbelow the convex pricing rule on the set of marketed claims. This isalso equivalent to the absence of asymptotic free lunches - ageneralization of opportunities of arbitrage. When a market for a nonmarketed contingent claim opens, a bid-ask price pair for this claim issaid to be consistent if it is a bid-ask price pair in at least a viableeconomy with this extended opportunity set. If the set of marketedcontingent claims is a convex cone and the pricing rule is convex andsublinear, we show that the set of consistent prices of a claim is aclosed interval and is equal (up to its boundary) to the set of itsprices for all the underlying frictionless pricing rules. We also showthat there exists a unique extended consistent sublinear pricing rule -the supremum of the underlying frictionless linear pricing rules - forwhich the original equilibrium does not collapse, when a new marketopens, regardless of preferences and endowments. If the opportunity setis the reduced form of a multiperiod securities market model, we studythe closedness of the interval of prices of a contingent claim for theunderlying frictionless pricing rules. Fri, 26 Feb 1999 22:58:59 GMT http://hdl.handle.net/2451/26382 Title: Venture Capital Contracts and Market Structure<br/><br/>Inderst, Roman; Mueller, Holger M.<br/><br/>Abstract: We examine the relation between optimal venture capital contracts andthe supply and demand for venture capital. Both the composition and typeof financial claims held by the venture capitalist and entrepreneurdepend on the market structure. Moreover, different market structuresinvolve different optimal forms of transferring utility: sometimes it isoptimal to transfer utility via equity stakes, sometimes it is optimalto use debt. Transferring utility via equity stakes affects incentives.Consequently, the net value created, the success probability, the market(or IPO) value, and the performance of venture-capital backedinvestments all depend on the supply and demand for capital. Similarly,venture capitalists face different incentives to screen projects ex anteif the capital supply is low or high. We then endogenize the capitalsupply and study the relation between venture capital contracts andentry costs, public policy, investment profitability, and markettransparency. Finally, we show that entry by inexperienced investorscreates a negative externality for the value creation in venturesfinanced by (regular) venture capitalists. Sat, 29 Dec 2001 22:58:59 GMT http://hdl.handle.net/2451/26359 Title: Vector Multiplicative Error Models:Representation and Inference<br/><br/>Cipollini, Fabrizio; F. Engle, Robert; M. Gallo, Giampiero<br/><br/>Abstract: The Multiplicative Error Model introduced by Engle (2002) for positivevalued processes is specified as the product of a (conditionallyautoregressive) scale factor and an innovation process with positivesupport. In this paper we propose a multivariate extension of such amodel, by taking into consideration the possibility that the vectorinnovation process be on temporaneously correlated. The estimationprocedure is hindered by the lack of probability density functions formultivariate positive valued random variables. We suggest the use ofcopula functions and of estimating equations to jointly estimate theparameters of the scale factors and of the correlations of theinnovation processes. Empirical applications on volatility indicatorsare used to illustrate the gains over the equation by equation procedure. Thu, 28 Sep 2006 22:58:59 GMT http://hdl.handle.net/2451/28349 Title: Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance<br/><br/>Gabaix, Xavier<br/><br/>Abstract: This paper incorporates a time-varying intensity of disasters in theRietz-Barro hypothesis that risk premia result from the possibility ofrare, large disasters. During a disaster, an asset&rsquo;s fundamentalvalue falls by a time-varying amount. This in turn generatestime-varying risk premia and thus volatile asset prices and returnpredictability. Using the recent technique of linearity-generatingprocesses (Gabaix 2007), the model is tractable, and all prices areexactly solved in closed form. In the &ldquo;variable raredisasters&rdquo; framework, the following empirical regularities can beunderstood qualitatively: (i) equity premium puzzle (ii) risk-freerate-puzzle (iii) excess volatility puzzle (iv) predictability ofaggregate stock market returns with price-dividend ratios (v) valuepremium (vi) often greater explanatory power of characteristics thancovariances for asset returns (vii) upward sloping nominal yield curve(viiii) a steep yield curve predicts high bond excess returns and a fallin long term rates (ix) corporate bond spread puzzle (x) high price ofdeep out-of-the-money puts. I also provide a calibration in which thosepuzzles can be understood quantitatively as well. The fear of disastercan be interpreted literally, or can be viewed as a tractable way tomodel time-varying risk-aversion or investor sentiment. (JEL: E43, E44, G12) Tue, 01 Dec 2009 20:35:04 GMT http://hdl.handle.net/2451/26687 Title: VALUING CREDIT DEFAULT SWAPS II: MODELING DEFAULT CORRELATIONS<br/><br/>Hull, John; White, Alan; Ontario, Toronto<br/><br/>Abstract: This paper extends the analysis in Valuing Credit Default Swaps I: NoCounter party Default Risk to provide a methodology for valuing creditdefault swaps that takes account of counterparty default risk and allowsthe payoff to be contingent on defaults by multiple reference entities.It develops a model of default correlations between different corporateor sovereign entities. The model is applied to the valuation of vanillacredit default swaps when the seller may default and to the valuation ofbasket credit default swaps. Wed, 29 Mar 2000 22:58:59 GMT http://hdl.handle.net/2451/26688 Title: VALUING CREDIT DEFAULT SWAPS I: NO COUNTERPARTY DEFAULT RISK<br/><br/>Hull, John; White, Alan; Ontario, Toronto<br/><br/>Abstract: This paper provides a methodology for valuing credit default swaps whenthe payoff is contingent on default by a single reference entity andthere is no counterparty default risk. The paper tests the sensitivityof credit default swap valuations to assumptions about the expectedrecovery rate. It also tests whether approximate no-arbitrage argumentsgive accurate valuations and provides an example of the application ofthe methodology to real data. In a companion paper entitled ValuingCredit Default Swaps II: Modeling Default Correlation, the analysis isextended to cover situations where the payoff is contingent on defaultby multiple reference entities and situations where there iscounterparty default risk. Wed, 29 Mar 2000 22:58:59 GMT http://hdl.handle.net/2451/26963 Title: Value-at-Risk Based Risk Management: Optimal Policies and Asset Prices<br/><br/>Basak, Suleyman; Shapiro, Alexander<br/><br/>Abstract: This paper analyzes optimal, dynamic portfolio and wealth/consumptionpolicies of utility maximizing investors who must also managemarket-risk exposure using a given risk-management model. We focus onthe industry standard, the Value-at-Risk (VaR) based risk management,and find that VaR risk managers often optimally choose a larger exposureto risky assets than non risk managers, and consequently incur largerlosses, when losses occur. We suggest an alternative risk managementmodel, based on the expectation of a loss, to remedy the shortcomings ofVaR. A general-equilibrium analysis reveals that the presence of VaRrisk managers in a pure-exchange economy amplifies the stock-marketvolatility at times of down markets (and low output) and attenuates thevolatility at times of up markets. Tue, 28 Sep 1999 22:58:59 GMT http://hdl.handle.net/2451/26898 Title: Value Creation and Enhancement: Back to the Future<br/><br/>Damodaran, Aswath<br/><br/>Abstract: In recent years, firms have turned to their attention increasingly toways in which they can increase their value. A number of competingmeasures, each with claims to being the &quot;best&quot; approach tovalue creation, have been developed and marketed by investment bankingfirms and consulting firms. In this paper, we begin with a genericdiscounted cash flow model, and consider the ways in which value can becreated or destroyed in a firm. We then look at two of the most widelyused value enhancement measures, Economic Value Added and Cash FlowReturn on Investment, and consider where these approaches yield similarresults to those obtained from traditional valuation models, and where(and why) there might be differences. In conclusion, we show that thereis little that is new or unique in these competing measures, and whilethey might be simpler than traditional discounted cash flow valuation,the simplicity comes at a cost that is substantial for high growth firmswith shifting risk profiles. Thu, 29 Oct 1998 22:58:59 GMT http://hdl.handle.net/2451/27273 Title: Valuation in Over-The-Counter Markets<br/><br/>Duffie, Darrell; Garleanu, Nicolae; Pedersen, Lasse Heje<br/><br/>Abstract: We provide the impact on asset prices of trade by search and bargaining.Under natural conditions, prices are higher if investors can find eachother more easily, if sellers have more bargaining power, or if thefraction of qualified owners is greater. If agents face risk limits,then higher volatility leads to greater difficulty locatingunconstrained buyers, resulting in lower prices. Information can fail tobe revealed through trading when search is difficult. We discuss avariety of financial applications and testable implications. Sun, 14 Sep 2003 22:58:59 GMT http://hdl.handle.net/2451/26562 Title: Valuation in Dynamic Bargaining Markets<br/><br/>Duffie, Darrell; Garleanu, Nicolae; Pedersen, Lasse Heje<br/><br/>Abstract: We study the impact on asset prices of illiquidity associated withsearch and bargaining in an economy in which agents can trade only whenthey find each other. Marketmakers' prices are higher and bidask spreadsare lower if investors can find each other more easily. Prices becomeWalrasian as investors' or marketmakers' search intensities get large.Endogenizing search intensities yields natural welfare implications.Information can fail to be revealed through trading when search is difficult. Sun, 23 Sep 2001 22:58:59 GMT http://hdl.handle.net/2451/26423 Title: Using Samples of Unequal Length in Generalized Method of Moments Estimation<br/><br/>Lynch, Anthony W.; Wachter, Jessica A.<br/><br/>Abstract: Many applications in financial economics use data series with differentstarting or ending dates. This paper describes an estimation method,based on the generalized method of moments (GMM), which makes use of allavailable data for each moment condition. We introduce twoasymptotically equivalent estimators that are consistent, symptoticallynormal, and more efficient asymptotically than standard GMM. Weillustrate these estimators in an application to mutual fund performanceevaluation. Both estimators are extended to general patterns of missingdata, and shown to be more efficient than estimators that ignoreintervals of the data, and thus more efficient than standard GMM. Tue, 28 Sep 2004 22:58:59 GMT http://hdl.handle.net/2451/27861 Title: Using Samples of Unequal Length in Generalized Method of Moments Estimation<br/><br/>Lynch, Anthony; Wachter, Jessica<br/><br/>Abstract: Many applications in financial economics use data series with differentstarting or ending dates. This paper describes estimation methods, basedon the generalized method of moments (GMM), which make use of allavailable data for each moment condition. We introduce twoasymptotically equivalent estimators that are consistent, asymptoticallynormal, and more efficient asymptotically than standard GMM. We applythese methods to estimating predictive regressions in international dataand show that the use of the full sample affects point estimates andstandard errors for both assets with data available for the full periodand assets with data available for a subset of the period. Monte Carloexperiments demonstrate that reductions hold for small-sample standarderrors as well as asymptotic ones. These methods are extended to moregeneral patterns of missing data, and are shown to be more efficientthan estimators that ignore intervals of the data, and thus moreefficient than standard GMM. Mon, 02 Feb 2009 16:22:13 GMT http://hdl.handle.net/2451/26411 Title: Updating Expectations: An Analysis of Post-9/11 Returns<br/><br/>Kallberg, Jarl; Liu, Crocker H.; Pasquariello, Paolo<br/><br/>Abstract: This study analyzes how three groups of market participants - insiders,analysts, and investors - revised their expected returns on New YorkReal Estate Investment Trusts (REITs) in response to the catastrophicevents of September 11, 2001. The attack on the WTC represents a uniqueexperimental setting to evaluate financial markets&rsquo; reaction toexternal shocks for several reasons. First, these events, of a totallyunanticipated and unprecedented nature, could not have been built intothe market&rsquo;s expectations; hence, market participants had to learnsomething new rather than just recalibrate their expectations on pastoccurrences. Second, unlike other studies of market reactions, theimpact of the terrorist attacks on REIT returns was ambiguous, since itwas uncertain if the effect of reduced supply of office space in NewYork would outweigh the impact of the negative shocks to the local andnational economy on its demand. Finally, the period of market closurethat followed 9/11 gave these players ample opportunity to reassesstheir expectations. Our analysis reveals that, on the day when marketsreopened, REITs with significant exposure to the New York areaoutperformed a broad REIT office index by 4.1%. However, we find that,according to several metrics of real market behavior, this anticipatedsuperior performance of New York office properties did not materialize.Consistent with notions of market efficiency, we find that insiders werethe first to lower their expectations (99.9% of their trades in REITswith New York exposure were sales in the month following 9/11), followedby analysts (the vast majority of them revised downward theirexpectations of NY REIT performance in the first weeks of November2001), and finally market prices adjusted to reflect the underlying realmarket behavior; indeed, abnormal REIT returns had disappeared by midNovember 2001. Tue, 01 Nov 2005 22:58:59 GMT http://hdl.handle.net/2451/27098 Title: Universal Banking: A Shareholder Value Perspective<br/><br/>Walter, Ingo<br/><br/>Abstract: In their historical development, organizational structure, and strategicdirection, universal banks constitute multi-product firms within thefinancial services sector. Certainly within their home environments,universal banks effectively target most or all client-segments, and makean effort to provide each with a full range of the appropriate financialservices. Outside the home market, they usually adopt a narrowercompetitive profile, in the majority of cases focusing on wholesalebanking and securities activities as well as international privatebanking &ndash; occasionally building a retail presence in foreignenvironments as well. Sun, 29 Oct 1995 22:58:59 GMT http://hdl.handle.net/2451/27109 Title: Universal Banking and the Future of Small Business Lending<br/><br/>Berger, Allen N.; Udell, Gregory F.<br/><br/>Abstract: We examine the contention that as banks become larger and moreorganizationally complex &ndash; i.e., more like universal banks &ndash;they may reduce the supply of credit to small business borrowers. Thiswould be consistent with an effort to reduce Williamson-type managerialdiseconomies in providing services for large and small borrowersjointly. We investigate the empirical association of loan price andquantity with bank size and complexity, using a data set with over900,00 bank loans. The data support the proposition that larger, morecomplex banks may reduce the supply of small business lending, althoughother institutions may replace many of these loans. Sat, 29 Oct 1994 22:58:59 GMT http://hdl.handle.net/2451/27136 Title: Unit Root Tests are Useful for Selecting Forecasting Models<br/><br/>Diebold, Francis X.; Kilian, Lutz<br/><br/>Abstract: We study the usefulness of unit root tests as diagnostic tools forselecting forecasting models. Difference stationary and trend stationarymodels of economic and financial time series often imply very differentpredictions, so deciding which model to use is tremendously importantfor applied forecasters. We consider three strategies: always differencethe data, never difference, or use a unit-root pretest. We characterizethe predictive loss of these strategies for the canonical AR(1) processwith trend, focusing on the effects of sample size, forecast horizon,and degree of persistence. We show that pretesting routinely improvesforecast accuracy relative to forecasts from models in differences, andwe give conditions under which pretesting is likely to improve forecastaccuracy relative to forecasts from models in levels. Sun, 17 Jan 1999 22:58:59 GMT http://hdl.handle.net/2451/27266 Title: Understanding the Relationship between Founder-CEOs and Firm Performance<br/><br/>Adams, Ren&eacute;e B.; Almeida, Heitor; Ferreira, Daniel<br/><br/>Abstract: While previous empirical literature has examined the effect offounder-CEOs on firm perfor- mance, it has largely ignored the effect offirm performance on founder-CEO status. In this paper, we useinstrumental variables methods to better understand the relationshipbetween founder-CEOs and performance. Using the proportion of thefirm&rsquo;s founders that are dead and the number of people who foundedthe company as instruments for founder-CEO status, we &THORN;nd strongevidence that founder-CEO status is endogenous in performanceregressions. This implies that the direct effect of founder-CEOs on firmperformance cannot be esti- mated correctly without accounting for theendogeneity of founder-CEO status. Perhaps surprisingly, we &THORN;ndthat performance is negatively related to the likelihood that foundersretain the CEO title. This result appears to be driven primarily byfounder departures after periods of good performance, rather than by anentrenchment effect that allows founders to remain as CEOs followingpoor performance. After factoring out the effect of performance onfounder-CEO status, we find a residual positive correlation betweenfounder-CEO status and firm performance. This finding suggests thatthere is a positive causal link from founder-CEOs to firm performance. Fri, 07 Nov 2003 22:58:59 GMT http://hdl.handle.net/2451/27004 Title: Understanding Fee Structures in the Asset Management Business<br/><br/>Lynch, Anthony W.; Musto, David K.<br/><br/>Abstract: This paper considers the economic role of fees in aligning theincentives of money managers with those of investors. We examine asimple model in which manager effort (or investment in human andphysical capital) is observed by the investor prior to her investmentdecision, but is not verifiable. This setup creates a positive economicrole for net asset value (NAV) as a contracting variable and thusprovides an explanation for the widespread use of contracts based on NAVin both the mutual and hedge fund industries. We also provide anexplanation for why hedge funds use asymmetric performance fees whilemutual funds typically charge a fixed fraction of NAV (even though'fulcrum' performance fees are available). Tue, 16 Dec 1997 22:58:59 GMT http://hdl.handle.net/2451/27140 Title: Underpricing of Venture and Non Venture Capital IPOs: An Empirical Investigation<br/><br/>Francis, Bill B.; Hasan, Iftekhar<br/><br/>Abstract: In this paper we examine the premarket underpricing phenomenon within agroup of venture-backed and a group of non venture-backed initial publicofferings (IPOs) using a stochastic frontier approach. Consistent withprevious research, we find that venture-backed IPOs are managed by morereputable underwriters and are generally associated with lessunderwriter compensation. However, unlike other papers in theliterature, we find that the initial day returns of venture-backed IPOsare, on average, higher than the non venture-backed group. We alsoobserve a significantly higher degree of pre-market pricing inefficiencyin the initial offer price of venture-backed IPOs. Further, our resultsshow that a significant portion of the initial day returns is due todeliberate underpricing in the premarket. We also observe that for bothventure and non-venture issuers, there is a positive relationshipbetween deliberate underpricing and the probability that underwritersprovide support for the issue. This evidence is consistent with thenotion that underwriters deliberately underprice the offering to reducecosts of price stabilization in the after-market. Thu, 29 Oct 1998 22:58:59 GMT http://hdl.handle.net/2451/27229 Title: Underpricing of New Equity Offerings by Privatized Firms: AnInternational Test<br/><br/>Huang, Qi; Levich, Richard M.<br/><br/>Abstract: In this paper, we study a large sample of 507 privatization offeringsfrom 39 countries over the period 1979-1996. Our objectives are twofold.First, we document the extent of short-run underpricing of theseprivatization offerings and measure their variation across countries,industries, and years, as well as drawing comparisons to private companyIPOs. Second, we test alternative explanations of the determinants ofshort-run underpricing drawing on various models of maximizing behaviorby underwriters, augmented by variables that proxy for nationalpolitical objectives. Overall, we find support for elements ofasymmetric information theory, investor sentiment theory and thereputation building hypothesis. With the exception of the Ginicoefficient, our political proxy variables are typically notsignificant. Thus to a significant degree, the investment bankingstrategies believed to characterize IPOs of private companies inindustrial countries may also play a role in the IPO strategies ofstate-owned-enterprises in both industrial and lesser developed economies. Mon, 13 Sep 1999 22:58:59 GMT http://hdl.handle.net/2451/27217 Title: Uncovering the Risk-Return Relation in the Stock Market<br/><br/>Guo, Hui; Whitelaw, Robert F.<br/><br/>Abstract: There is an ongoing debate in the literature about the apparent weak ornegative relation between risk (conditional variance)and return(expected returns)in the aggregate stock market. We develop and estimatean empirical model based on the ICAPM to investigate this relation.Ourprimary innovation is to model and identify empirically the twocomponents of expected returns &ndash;the risk component and thecomponent due to the desire to hedge changes in investmentopportunities. We also explicitly model the e .ect of shocks to expectedreturns on ex post returns and use implied volatility from aded optionsto increase estimation e .ciency.As a result,the coe .cient of relativerisk aversion is estimated more precisely,and we .nd it to be positiveand reasonable in magnitude. Although volatility risk is priced,astheory dictates,it conibutes only a small amount to the time-variationin expected returns.Expected returns are driven primarily by the desireto hedge changes in investment opportunities.It is the omission of thishedge component that is responsible for the conadictory andcounter-intuitive results in the existing literature. Sun, 20 Jul 2003 22:58:59 GMT http://hdl.handle.net/2451/27250 Title: Turning Over Turnover<br/><br/>Cremers, K.J. Martijn; Mei, Jianping<br/><br/>Abstract: The methodology of Bai and Ng (2002, 2003) for decomposing large paneldata into systematic and idiosyncratic components is applied to bothreturns and turnover. Combining this with a GLS-based principalcomponents approach, we demonstrate that their procedure works well forboth returns and turnover despite the presence of severeheteroscedasticity and non-stationarity in turnover of individualstocks. We then test Lo and Wang's (2000) theoretical model'srestriction that returns and turnover should have the same number ofsystematic factors. This is songly rejected by the data, suggestingstock price and trading volume may not be compatible under the existingmulti-factor asset pricing-trading framework. We also demonsate thatseveral commonly used turnover measures may understate the price impactof stock trading. Fri, 29 Oct 2004 22:58:59 GMT http://hdl.handle.net/2451/28309 Title: Trust and Delegation<br/><br/>Brown, Stephen J.; Liang, Bing; Goetzmann, William N; Schwarz, Christopher<br/><br/>Abstract: Due to imperfect transparency and costly auditing, trust is an essentialcomponent of financial intermediation. In this paper we study acomprehensive sample of due diligence reports from a major hedge funddue diligence firm. A routine feature of due diligence is an assessmentof integrity. We find that misrepresentation about past legal andregulatory problems is frequent (21%), as is incorrect or unverifiablerepresentations about other topics (28%). Misrepresentation, the failureto use a major auditing firm and the use of internal pricing aresignificantly related to legal and regulatory problems, indices ofoperational risk. Due diligence (DD) reports are costly and are onlyperformed when a fund is seriously considered for investment. It isimportant to control for this conditioning which would otherwise biascross-sectional analysis. We find that DD reports are typically issuedon high return funds three months after the historical performance haspeaked. DD reports are also issued at the point of highest cash flowinto the fund. This pattern is consistent with return chasing behaviorby institutional hedge fund investors. Sun, 16 Aug 2009 22:58:59 GMT http://hdl.handle.net/2451/26851 Title: Trading Fast and Slow: Security Market Events in Real Time<br/><br/>Hasbrouck, Joel<br/><br/>Abstract: Continuous security markets evolve as a sequence of timed events. Thisstudy is a descriptive analysis of NYSE market data in which trades,quote revisions and orders are considered to constitute a stationarymultivariate point process, which can be analyzed by standard time- andfrequency-domain techniques. There are three principal findings.(1)Although occurrence intensities for different types of events arepositively correlated, they are not characterized by the uniformproportionality that a strict sense of time deformation would require.(2) The frequencies and durations of informational epochs (periods ofuncertainty and informational asymmetry) are highly variable. (3) Thecorrelation in arrivals of market orders and opposing limit orders iszero or negative over periods of thirty minutes or less. Thu, 18 Feb 1999 22:58:59 GMT http://hdl.handle.net/2451/27847 Title: Trades of the Living Dead: Style Differences, Style Persistence andPerformance of Currency Fund Managers<br/><br/>Levich, Richard; Pojarliev, Momtchil<br/><br/>Abstract: We make use of a new database on daily currency fund manager returnsover a three-year period, 2005-08. This higher frequency data allows usto estimate both alpha measures of performance and beta style factors ona yearly basis, which in turn allows us to test for persistence. We findno evidence to support alpha persistence; a manager&rsquo;s alpha in oneyear is not significantly related to his alpha in the prior year. On theother hand, there is substantial evidence for style persistence; fundsthat rely on carry, trend or value trading or with a long/short biastoward currency volatility are likely to maintain that style in thefollowing year. In addition, we are able to examine the performance ofmanagers that survive through the entire sample period, versus thosethat drop out. We find significant differences in both the investmentstyles of living versus deceased funds, as well as their realized alphaperformance measures. We conjecture that both style differences andineffective market timing, rather than market conditions, have impactedperformance outcomes and induced some managers to close their funds. Mon, 02 Feb 2009 15:58:24 GMT http://hdl.handle.net/2451/27864 Title: Tractability and Detail-Neutrality in Incentive Contracting<br/><br/>Gabaix, Xavier; Edmans, Alex<br/><br/>Abstract: This paper identifies a broad class of situations in which the contractis both attainable in closed form and &quot;detail-neutral&quot;. Thecontract's functional form is independent of the noise distribution andreservation utility; moreover, when the cost of effort is pecuniary, thecontract is linear in output regardless of the agent's utility function.Our contract holds in both continuous time and a discrete-time, multi-period setting where action follows noise in each period. The tractablecontracts of Holmstrom and Milgrom (1987) can thus be achieved insettings that do not require exponential utility, Gaussian noise orcontinuous time. Our results also suggest that incentive schemes neednot depend on complex details of the particular setting, a number ofwhich (e.g. agent's risk aversion) are difficult for the principal toobserve. The proof techniques use the notion of relative dispersion andsubdifferentials to avoid relying on the first-order approach, and maybe of methodological interest. Tue, 03 Feb 2009 18:04:40 GMT http://hdl.handle.net/2451/31427 Title: Too-Systemic-To-Fail: What Option Markets Imply About Sector-WideGovernment Guarantees<br/><br/>Nieuwerburgh, Stijn Van; Lustig, Hanno N.; Kelly, Bryan T.<br/><br/>Abstract: A conspicuous amount of aggregate tail risk is missing from the price offinancial sector crash insurance during the 2007-2009 crisis. Thedifference in costs of out-of-the-money put options for individualbanks, and puts on the financial sector index, increases fourfold fromits pre-crisis level. At the same time, correlations among bank stockssurge, suggesting the high put spread cannot be attributed to a relativeincrease in idiosyncratic risk. We show that this phenomenon is uniqueto the financial sector, that it cannot be explained by observed riskdynamics (volatilities and correlations), and that illiquidity andno-arbitrage violations are unlikely culprits. Instead, we provideevidence that a collective government guarantee for the financial sectorlowers index put prices far more than those of individual banks,explaining the divergence in the basket-index spread. By embedding abailout in the standard one-factor option pricing model, we can closelyreplicate observed put spread dynamics. During the crisis, the spreadresponds acutely to government intervention announcements. Mon, 09 Jan 2012 22:27:54 GMT http://hdl.handle.net/2451/27009 Title: Toehold Strategies and Rival Bidders<br/><br/>Ravid, Abraham S.; Spiegel, Matthew<br/><br/>Abstract: Prior to the announcement of a tender offer, the bidding firm is legallyallowed to acquire shares in the open market, subject to somelimitations. These pre-announcement purchases are known as toeholds.This paper presents a simple model that describes the bidder's optimaltoehold acquisition strategy, within an environment that closelyparallels the present legal institutions. The model shows that toeholdsand bids interact in a complex manner even without the presence ofasymmetric information. By examining a simple environment the paperprovides a useful alternative hypothesis for tests of other, presumablymore complex, models. One of the main implications of our model is thatif no competing bidders are expected, no toeholds should be purchased.the paper demonstrates that the correct specification of an empiricalmodel can be critical. For example, under some parameter values toeholdpurchases may exhibit a negative cross-sectional correlation with thepre-announcement run up in the stock price. This occurs even thoughprices are strictly increasing the size of the toehold. Severalimplications concerning various aspects of merger legislation areconsidered. We show that corporate charters that affect the number ofshares necessary to complete a merger will have an impact only ifcompetition among bidders is expected. The paper further shows that arule similar to a 'fair price' provision has the desirable property thata second bidder arrives and winds if and only if he places a highervalue on the target than the initial bidder. Several additionalcomparative statics are derived as well. Sat, 18 Oct 1997 22:58:59 GMT http://hdl.handle.net/2451/29951 Title: Time-Varying Sharpe Ratios and Market Timing<br/><br/>Whitelaw, Robert F.; Tang, Yi<br/><br/>Abstract: This paper documents predictable time-variation in stock market Sharperatios. Predetermined financial variables are used to estimate both theconditional mean and volatility of equity returns, and these moments arecombined to estimate the conditional Sharpe ratio, or the Sharpe ratiois estimated directly as a linear function of these same variables. Insample, estimated conditional Sharpe ratios show substantialtime-variation that coincides with the phases of the business cycle.Generally, Sharpe ratios are low at the peak of the cycle and high atthe trough. In an out-of-sample analysis, using 10-year rollingregressions, relatively naive market-timing strategies that exploit thispredictability can identify periods with Sharpe ratios more than 45%larger than the full sample value. In spite of the well-knownpredictability of volatility and the more controversial forecastabilityof returns, it is the latter factor that accounts primarily for both thein-sample and out-of-sample results. Wed, 07 Sep 2011 20:45:45 GMT http://hdl.handle.net/2451/27071 Title: Time-Varying Sharpe Ratios and Market Timing<br/><br/>Whitelaw, Robert F.<br/><br/>Abstract: This paper documents predictable time-variation in stock market Sharperatios. Predetermined financial variables are used to estimate both theconditional mean and volatility of equity returns, and these moments arecombined to estimate the conditional Sharpe ratio. In sample, estimatedconditional Sharpe ratios show substantial time-variation that coincideswith the variation in ex post Sharpe ratios and with the phases of thebusiness cycle. Generally, Sharpe ratios are low at the peak of thecycle and high at the trough. In out-of-sample analysis, using 10-yearrolling regressions, we can identify periods in which the ex post Sharperatio is approximately three times larger than it full-sample value.Moreover, relatively nave market-timing strategies that exploit thispredictability can generate Sharpe ratios more than 70% larger than abuy-and-hold strategy. Tue, 18 Nov 1997 22:58:59 GMT http://hdl.handle.net/2451/31336 Title: Time-Varying Fund Manager Skill<br/><br/>Kacperczyk, Marcin; Van Nieuwerburgh, Stijn; Veldkamp, Laura<br/><br/>Abstract: Mutual fund managers can outperform the market by picking stocks ortiming the market successfully. Previous work has estimated picking andtiming skill, assuming that each manager is endowed with a fixed amountof each and found some evidence of picking skills and little evidence oftiming skills among successful managers. This paper estimates skillseparately in booms and recessions and finds that the extent to whichmanagers focus on stock picking or market timing fluctuates with thestate of the economy. Stock picking is more prevalent in booms, whilemarket timing dominates in recessions. We use this finding to develop anew methodology for detecting managerial skill. The results suggest thatsome but not all managers have skill. We describe the characteristics ofthe skilled managers and show that skilled managers significantlyoutperform the market. Thu, 01 Dec 2011 18:16:24 GMT http://hdl.handle.net/2451/26501 Title: Time Series and Cross-sectional Variations of Expected<br/><br/>Dai, Qiang<br/><br/>Abstract: The paper develops a general equilibrium stochastic growth model of amulti-sector economy subject to i.i.d. taste shocks. Each sectorproduces one good, and each firm has a linear production technology andfaces a quadratic capital adjustment cost. The model contains astandardd intertemporal capital asset pricing theory of consumption andportfolio demands with dynamically complete and frictionless markets anda standard q-theory of investment under uncertainty. We show that theequilibrium stochastic investment opportunity set is driven by therelative shares of firms' nominal capital stocks, and the equilibriumdynamics of the state vector is driven by firms' relative investmentintensities. Key implications of the model includes (i) the expectedequity returns are endogenously predictable both over time and in thecross-section; and (ii) the &quot;value anomaly&quot; arises in arational expectations equilibrium due to a negative (positive) hedgingdemand for value (growth) stocks against the risk of cross-sectionaldispersion of firms' nominal capital stocks. Mon, 28 Oct 2002 22:58:59 GMT http://hdl.handle.net/2451/26570 Title: Theoretical and Empirical Properties of Dynamic Conditional CorrelationMultivariate GARCH<br/><br/>Engle, Robert F.; Sheppard, Kevin<br/><br/>Abstract: In this paper, we develop the theoretical and empirical properties of anew class of multivariate GARCH models capable of estimating largetime-varying covariance matrices, Dynamic Conditional CorrelationMultivariate GARCH. We show that the problem of multivariate conditionalvariance estimation can be simplified by estimating univariate GARCHmodels for each asset, and then, using transformed residuals resultingfrom the first stage, estimating a conditional correlation estimator.The standard errors for the first stage parameters remain consistent,and only the standard errors for the correlation parameters need bemodified. We use the model to estimate the conditional covariance of upto 100 assets using S&amp;P 500 Sector Indices and Dow Jones IndustrialAverage stocks, and conduct specification tests of the estimator usingan industry standard benchmark for volatility models. This new estimatordemonstrates very strong performance especially considering ease ofimplementation of the estimator. Thu, 08 Nov 2001 22:58:59 GMT http://hdl.handle.net/2451/26390 Title: The y-Theory of Investment<br/><br/>Philippon, Thomas<br/><br/>Abstract: I propose a new implementation of the q-theory of investment usingcorporate bond yields instead of equity prices. In q-theory, the optimalinvestment rate is a function of risk-adjusted discount rates and offuture marginal profitability. Corporate bond prices also depend onthese variables. I show that, when aggregate shocks are small, aggregateq is a linear combination of risk free rates and average yields on riskycorporate debt. The yield-theory of investment, unlike its equity-basedcounter part, is empirically successful: it can account for more thanhalf of the volatility of investment in post-war US data, it drives outcash flows from the investment equation, and it delivers sensibleestimates for the parameters of the adjustment cost function. Thu, 03 Aug 2006 22:58:59 GMT http://hdl.handle.net/2451/26323 Title: The Wealth-Consumption Ratio: A Litmus Test for Consumption-based AssetPricing Models<br/><br/>Lustig, Hanno; Nieuwerburgh, Stijn Van; Verdelhan, Adrien<br/><br/>Abstract: We propose a new method to measure the wealth-consumption ratio, theprice-dividend ratio of a claim to aggregate consumption. It combinesno-arbitrage restrictions with data on bond yields and stock returns.The estimated wealth-consumption ratio is much higher on average thanthe price-dividend ratio on stocks and has lower volatility. Thisimplies that the consumption risk premium is substantially below theequity risk premium, or that total wealth is less risky than stockmarket wealth. Measuring the wealth-consumption ratio is importantbecause changes in the wealth-consumption ratio enter as a second assetpricing factor besides consumption growth in the two leadingrepresentative-agent asset pricing models, the external habit model andthe long-run risk model. The benchmark calibrations of these two assetpricing models have dramatically different implications for thewealth-consumption ratio, motivating our measurement exercise. Thu, 22 Nov 2007 22:58:59 GMT http://hdl.handle.net/2451/27898 Title: The Wealth-Consumption Ratio<br/><br/>Van Nieuwerburgh, Stijn; Lustig, Hanno; Verdelhan, Adrien<br/><br/>Abstract: To measure the wealth-consumption ratio, we estimate an exponentiallyaffine model of the stochastic discount factor on bond yields and stockreturns. We use that discount factor to compute the no-arbitrage priceof a claim to aggregate US consumption. Our estimates indicate thattotal wealth is much safer than stock market wealth. The consumptionrisk premium is only 2.2 percent, substantially below the equity riskpremium of 6.9 percent. As a result, our estimate of thewealth-consumption ratio is much higher than the price-dividend ratio onstocks throughout the post-war period. The high wealth-consumption ratioimplies that the average US household has a lot of wealth, most of ithuman wealth. A variance decomposition of the wealth-consumption ratioshows less return predictability than for stocks, and some of the returnpredictability is for future interest rates not future excess returns.We conclude that the properties of the average US household&rsquo;sportfolio are more similar to those of a long-maturity bond than thoseof stocks. The differences that we find between the risk-returncharacteristics of equity and total wealth suggest that equity is aspecial asset class. Wed, 11 Feb 2009 15:51:30 GMT http://hdl.handle.net/2451/26341 Title: The Value of Research<br/><br/>Kelly, Bryan; Ljungqvist, Alexander<br/><br/>Abstract: We estimate the value added by sell-side equity research analysts andexplore the links between analyst research, informational efficiency,and asset prices. We identify the value of research from exogenouschanges in analyst coverage. On announcement that a stock has lost allcoverage, share prices fall by around 110 basis points or $8.4 millionon average. The share price reaction is attenuated the more analystscontinue to cover the stock, suggesting that there are diminishingreturns to coverage at the margin. The adverse effect of coverageterminations is proportional to the analyst&rsquo;s reputation andexperience and to the size of the broker&rsquo;s retail sales force.Exogenous reductions in coverage are followed by: less efficient pricingand lower liquidity; greater earnings surprises and more volatiletrading around subsequent earnings announcements; increases in requiredreturns; and reduced return volatility. Simulations suggest investorscan trade profitably on the volatility changes. Finally, retailinvestors sell and large institutional investors buy around coverageterminations, suggesting that different investor clienteles havedifferent demands for analyst research. Sat, 15 Dec 2007 22:58:59 GMT http://hdl.handle.net/2451/27235 Title: The Valuation of American-style Swaptions in a Two-factor Spot-Futures Model1<br/><br/>Peterson, Sandra; Stapleton, Richard C.; Subrahmanyam, Marti G.<br/><br/>Abstract: We build a no-arbitrage model of the term structure of interest ratesusing two stochastic factors, the short-term interest rate and thepremium of the futures rate over the short-term interest rate. The modelprovides and extension of the lognormal interest rate model of Black andKarasinski (1991) to two factors, both of which can exhibitmean-reversion. The method is computationally efficient for severalreasons. First, the model is based on Libor futures prices, enabling usto satisfy the no-arbitrage condition without resorting to iterativemethods. Second, we modify and implement the binomial approximationmethodology of Nelson and Ramaswamy (1990) and Ho, Stapleton andSubrahmanyam (1995) to compute a multiperiod tree of rates with theno-arbitrage property. The method uses a recombining two-dimensionalbinomial lattice of interest rates that minimizes the number of statesand term structures over time. In addition to these computationaladvantages, a key feature of the model is that it is consistent with theobserved term structure of futures rates as well as the term structureof volatilities implied by the prices of interest rate caps and floors.These prices are shown to be highly sensitive to the existence of thesecond factor and its volatility characteristics. Tue, 07 Dec 1999 22:58:59 GMT http://hdl.handle.net/2451/26983 Title: The Valuation of American-Style Options on Bonds<br/><br/>Ho, T.S.; Stapleton, Richard C.; Subrahmanyam, Marti G.<br/><br/>Abstract: We value American options on bonds using the Geske-Johnsan (1992). Themethod requires the valuation of European options with two and threepossible exercise dates.It is shown that a risk-neutral valuationrelationship along the lines of Black-Scholes (1973) model holds foroption exercisable on multiple date, even under stochastic interestrates, when the price of the underlying asset is longormallydistributed. The proposed computational procdure uses the maxmized valueof these options, where the maximization is over all prossible exercisedates. The value of American option is then computed by Richardsonextrapolation. The volatility of the underlying default-free bond ismodelled using a two-factor model, with a short-term and a long-terminterest rate factor, where the short-term interest rate ismean-reverting. Simulations show that penny accuracy is achieved withthis computationally efficient method. Tue, 05 Nov 1996 22:58:59 GMT http://hdl.handle.net/2451/26835 Title: The Valuation of American Barrier Options Using the Decomposition Technique<br/><br/>Gao, Bin; Huang, Jing-zhi; Subrahmanyam, Marti<br/><br/>Abstract: In this paper, we propose an alternative approach for pricing andhedging American barrier options. Specifically, we obtain an analyticrepresentation for the value and hedge parameters of barrier options,using the decomposition technique of separating the European optionvalue from the early exercise premium. This allows us to identify somenew put-call &quot;symmetry&quot; relations and the homogeneity in priceparameters of the optimal exercise boundary. These properties can beutilized to increase the computational efficiency of our method inpricing and hedging American options. Our implementation of the obtainedsolution indicates that the proposed approach is both efficient andaccurate in computing option values and option hedge parameters. Ournumerical results also demonstrate that the approach dominates theexisting lattice methods in both accuracy and efficiency. In particular,the method is free of the difficulty that existing numerical methodshave in dealing with spot prices in the proximity of the barrier, thecase where the barrier options are most problematic. Sun, 24 Oct 1999 22:58:59 GMT http://hdl.handle.net/2451/27057 Title: The Valuation of American Barrier Options Using the Decomposition Technique<br/><br/>Subrahmanyam, Marti G.; Gao, Bin; Huang, Jing-zhi<br/><br/>Abstract: In this paper, we propose an alternative approach for pricing andhedging non-standard American options. In principle, the proposedapproach applies to any kind of American-style contract for which thepayoff function has a Markovian representation in the state space.Specifically, we obtain an analytic solution for the value and hedgeparameters of barrier options, an important example of path-dependentoptions. The solution includes standard American options as a specialcase. The analytic formula also allows us to identify and exploit twokey properties of the optimal exercise boundary - homogeneity in priceparameters and time-invariance - for American options. In addition, somenew put-call ``symmetry&quot; relations are also derived. Theseproperties suggest a new, efficient and integrated approach to pricingand hedging a variety of standard and non-standard American options.From an implementation perspective, this approach avoids the currentpractice of repetitive computation of option prices and hedge ratios.Our implementation of the analytic formula for barrier options indicatesthat the proposed approach is both efficient and accurate in computingoption values and option hedge parameters. In some cases, our method issubstantially faster than existing numerical methods with equalaccuracy. In particular, the method overcomes the difficulty thatexisting numerical methods have in dealing with prices close to thebarrier, the case where the barrier matters most. Sun, 20 Sep 1998 22:58:59 GMT http://hdl.handle.net/2451/26477 Title: The Valuation and Market Rationality of Internet Stock Prices<br/><br/>Ofek, Eli; Richardson, Matthew<br/><br/>Abstract: This paper provides an analysis of some existing as well as new evidenceof the relation between market prices and fundamentals in the internetsector over the period January 1998 to February 2000. Appealing toresults across a broad class of outcomes, we demonstrate a strong,circumstantial case against market rationality In particular, weinvestigate (i) the level of internet stock prices given theirunderlying fundamentals, (ii) responses of stock prices toinformation-based events, and (iii) the volatility of internet prices.We review several potential explanations of these phenomena, includingone based on heterogenous beliefs across investors who are subject toshort sales constraints. We provide a discussion of the empiricalevidence supporting this latter explanation. Mon, 29 Oct 2001 22:58:59 GMT http://hdl.handle.net/2451/26684 Title: The Valuation and Hedging of Deferred Commission Asset Backed Securities<br/><br/>Boudoukh, Jacob; McAllister, Patrick; Richardson, Matthew; Whitelaw, Robert F.<br/><br/>Abstract: Due to a timing mismatch between fee receipts and commission payments,there is a new and growing market for securities backed by fees fromback-end load and level load mutual funds. This paper develops acontingent claims methodology for the valuation of these securities. Theresulting security value depends primarily on the current value of fundassets and the fee schedule. The valuation formula also provides ananalytical expression for the appropriate strategy for hedgingfluctuations in asset value. As a case study, we investigate the hedgingperformance of an institution that holds a portfolio of these securities. Thu, 27 Apr 2000 22:58:59 GMT http://hdl.handle.net/2451/27117 Title: The Valuation and Exercise of Executive Stock Options<br/><br/>Carpenter, Jennifer N.<br/><br/>Abstract: Much has been made of the potential for hedging restrictions to reducethe value of executive stock options. We investigate this issue bycomparing a rational utility-maximizing model that incorporates bothhedging restrictions and an endogenous departure decision and ana&iuml;ve value-maximizing model with an exogenous departure rate.While researchers mainly use these kinds of models to compute optionvalues, we also use the models to generate forecasts of observablevariables, the size and the timing of the payoffs of exercised options,and the annual rate at which options are canceled. We show that thena&iuml;ve model provides just as good a description of actual exercisepatterns of executives as the rational model in a sample of NYSE andAMEX firms. The more parsimonious na&iuml;ve model may, there, be betterfor the purpose of valuation. The na&iuml;ve incorporation of theexogenous departure rate in the standard America option model not onlyaligns predicted exercise and cancellation patterns with actualpatterns, but also reduces option value by about a quarter. Wed, 15 Nov 1995 22:58:59 GMT http://hdl.handle.net/2451/27134 Title: The Use of Low Discrepancy Points in Valuing Complex Financial Instruments<br/><br/>Lord, Graham; Paskov, Spassimir; Vanderhoof, Irwin T.<br/><br/>Abstract: Modern finance has evolved the use of very complex financialinstruments. Stock and interest rate options fit this description.Another example of such an instrument would be a mortgage pool involvingmany tranches and providing relationships between the tranches so thatthe payoff on one tranche depends upon the amounts paid upon othertranches over the whole history of the pool. Since the valuation of thislast instrument would involve a separate probability distribution foreach period over the whole period of the pool, the calculation couldinvolve 360 separate probability distributions over the whole period. Itwould require then, a multiple integration over all these periods, all360 of them. Such calculations are generally not possible on an exactbasis so that numerical integration must be used. In such an environmentonly Monte Carlo methods are practical. Certain selected sequences ofvalues called &ldquo;low discrepancy points&rdquo; are theoreticallymore efficient in this kind of calculation than the random numbersusually generated for Monte Carlo calculations. This paper discusses thetheoretical basis for such a claim (Niederreiter covers much of thematerial in a more rigorous fashion.), the calculation of such points,and illustrations of the results of using such methods on several real problems. Sun, 29 Oct 1995 22:58:59 GMT http://hdl.handle.net/2451/27054 Title: The Term Structure of Interest-Rate Future Prices<br/><br/>Stapleton, Richard C.; Subrahmanyam, Marti G.<br/><br/>Abstract: We derive general properties of two-factor models of the term structureof interest rates and, in particular, the process for futures prices andrates. Then, as a special case, we derive a no-arbitrage model of theterm structure in which any two futures rates act as factors. The termstructure shifts and tilts as the factor rates vary. The cross-sectionalproperties of the model derive from the solution of a two-dimensionalautoregressive process for the short-term rate, which exhibits both meanreversion and a lagged persistence parameter. We show that thecorrelation of the futures rates is restricted by the no-arbitrageconditions of the model. In addition, we investigate the determinants ofthe volatility of the futures rates of various maturities. These areshown to be related to the volatilities of the short rate, thevolatility of the second factor, the degree of mean reversion and thepersistence of the second factor shock. We obtain specific results forfutures rates in the case where the logarithm of the short-term rate[e.g., the London Inter-Bank Offer Rate (Libor)] follows atwo-dimensional process. Our results lead to empirical hypotheses thatare testable using data from the liquid market for Eurocurrency interestrate futures contracts. Tue, 28 Sep 1999 22:58:59 GMT http://hdl.handle.net/2451/27065 Title: The Symptoms of Lyme Disease<br/><br/>Vanderhoof, Irwin Thu, 29 Jan 1998 22:58:59 GMT http://hdl.handle.net/2451/27286 Title: The Superior Performance of Companies with Small Boards of Directors<br/><br/>Yermack, David<br/><br/>Abstract: This paper evaluates recent proposals in the legal and financeliterature for limiting the sizes of boards of directors. Aftercontrolling for firm size and industry membership, I find evidence of aninverse association between board sizes and firms&rsquo; market valuesin a sample of 792 large U.S. public corporations between 1984 and 1991.Using Tobin&rsquo;s Q as an approximation of market valuation, I find anegative association with board size over the range between four and tendirectors, after which the relation levels off. Ratios measuringprofitability and operating efficiency have similar associations withboard size. More tentative results indicate that CEOs&rsquo;compensations incentives operate more powerfully when boards are small.The evidence suggests that smaller boards of directors serve as moreeffective monitors of top managers. Wed, 28 Sep 1994 22:58:59 GMT http://hdl.handle.net/2451/27854 Title: The structure and formation of business groups: Evidence from Korean Chaebols<br/><br/>Subrahmanyam, Marti; Almeida, Heitor; Wolfenzon, Daniel; Park, Sang Yong<br/><br/>Abstract: In this paper we study the determinants of business groups&rsquo;ownership structure using a unique dataset of Korean chaebols, and a setof new metrics of group ownership structure. We find that chaebols growvertically (that is, pyramidally) as the family uses well-establishedgroup firms (&ldquo;central firms&rdquo;) to set up and acquire firmsthat have low profitability and high capital requirements. Chaebols growhorizontally (that is, using direct family ownership) when the familyacquires firms that are highly profitable and require less capital. Wealso provide direct evidence that the low profitability of firms ownedthrough pyramids is partly due to a selection effect: the profitabilityof new group firms in the year before they are added to the grouppredicts whether they are added to pyramids or controlled directly bythe family. The relationships between pyramids, profitability, andcapital intensity that we uncover do not appear to be due to theseparation between ownership and control induced by pyramids. Finally,we find that the selection of low-profitability firms into pyramidscauses the group&rsquo;s central firms to trade at a discount relativeto other public group firms. Taken together, these results suggest thatcontrolling families optimally design the ownership structure of thegroup in a manner that is consistent with theory. Mon, 02 Feb 2009 16:11:21 GMT http://hdl.handle.net/2451/26520 Title: The Stock Market and Investment: Evidence from FDI Flows<br/><br/>Baker, Malcolm; Foley, C. Fritz; Wurgler, Jeffrey<br/><br/>Abstract: Foreign direct investment offers a rich laboratory in which to study thebroader economic effects of securities market mispricing. We outline andtest two mispricing-based theories of FDI. The &ldquo;cheapassets&rdquo; or fire-sale theory views FDI inflows as the purchase ofundervalued host country assets, while the &ldquo;cheap capital&rdquo;theory views FDI outflows as a natural use of the relatively lowcostcapital available to overvalued firms in the source country. Theempirical results support the cheap capital view: FDI flows areunrelated to host country stock market valuations, as measured by theaggregate market-to-book-value ratio, but are strongly positivelyrelated to source country valuations and negatively related to futuresource country stock returns. The latter effects are most pronounced inthe presence of capital account restrictions, suggesting that suchrestrictions limit cross-country arbitrage and thereby increase thepotential for mispricing-driven FDI. Wed, 19 May 2004 22:58:59 GMT http://hdl.handle.net/2451/26360 Title: The Spline-GARCH Model for Low Frequency Volatility and Its GlobalMacroeconomic Causes<br/><br/>F. Engle, Robert; Rangel, Jose Gonzalo<br/><br/>Abstract: Twenty-five years of volatility research has left the macroeconomicenvironment playing a minor role. This paper proposes modeling equityvolatilities as a combination of macroeconomic effects and time seriesdynamics. High frequency return volatility is specified to be theproduct of a slow-moving component, represented by an exponentialspline, and a unit GARCH. This slow-moving component is the lowfrequency volatility, which in this model coincides with theunconditional volatility. This component is estimated for nearly 50countries over various sample periods of daily data. Low frequencyvolatility is then modeled as a function of macroeconomic and financialvariables in an unbalanced panel with a variety of dependencestructures. It is found to vary over time and across countries. The lowfrequency component of volatility is greater when the macroeconomicfactors GDP, inflation, and short-term interest rates are more volatileor when inflation is high and output growth is low. Volatility is higherfor emerging markets and for markets with small numbers of listedcompanies and market capitalization relative to GDP, but also for largeeconomies. The model allows long horizon forecasts of volatility todepend on macroeconomic developments, and delivers estimates of thevolatility to be anticipated in a newly opened market. Wed, 06 Dec 2006 22:58:59 GMT http://hdl.handle.net/2451/29843 Title: The Social Cost of Near-Rational Investment<br/><br/>Mertens, Thomas; Hassan, Tarek<br/><br/>Abstract: We show that the stock market may fail to aggregate information even ifit appears to be efficient; the resulting collapse in the disseminationof information may drastically reduce welfare. We solve a macroeconomicmodel in which information about fundamentals is dispersed andhouseholds make small, correlated errors around their optimal investmentpolicies. As information aggregates in the market, these errors amplifyand crowd out the information content of stock prices. When stock pricesreflect less information, the perceived and the actual volatility ofstock returns rise. This increase in financial risk makes holdingstocks unattractive, distorts the long-run level of capitalaccumulation, and causes costly ( first-order) distortions in thelong-run level of consumption. Mon, 01 Nov 2010 16:43:56 GMT http://hdl.handle.net/2451/27055 Title: The Size of Background Risk and the Theory of Risk Bearing<br/><br/>Subrahmanyam, Marti G; Franke, G&uuml;nter; Stapleton, Richard C.<br/><br/>Abstract: We consider the demand for state contingent claims in the presence of azero-mean, non-hedgeable background risk. An agent is defined to begeneralized risk averse if he/she reacts to an increase in backgroundrisk by choosing a demand function for contingent claims with a lesssteep slope. We show that the conditions for standard risk aversion:positive, declining absolute risk aversion and prudence are necessaryand sufficient for generalized risk aversion. Thu, 29 Jan 1998 22:58:59 GMT http://hdl.handle.net/2451/27248 Title: The Size of Background Risk and the Theory of Risk Bearing<br/><br/>Franke, Gunter; Stapleton, Richard C.; Subrahmanyam, Marti G.<br/><br/>Abstract: We establish a necessary and sufficient condition for the risk aversionof an agent&rsquo;s derived utility function to increase withindependent, zero-mean background risk. This condition is weaker thanstandard risk aversion. For small risks, the condition is that the ratioof the third to the first derivative of the utility function isdecreasing in income. In a market with state-contingent marketableclaims, an increase in background risk, which raises the agent&rsquo;sderived risk aversion, reduces the slope of the agent&rsquo;s optimalsharing rule. Under a weak aggregation condition. An increase ofbackground risk for many agents I n the economy raises the prices ofmarketable claims in states with a low level of marketable aggregateincome relative to the prices in states with a higher level of such income. Mon, 28 Nov 1994 22:58:59 GMT