Business Commons^™

Optimal Transaction Filters Under Transitory Trading Opportunities: Theory And Empirical Illustration, Ronald J. Balvers, Yangru Wu

CRIF Seminar series

If transitory profitable trading opportunities exist, filter rules are used in practice to mitigate transaction costs. The filter size is difficult to determine a priori. Our paper uses a dynamic programming framework to design a filter that is optimal in the sense of maximizing expected returns after transaction costs. The optimal filter size depends crucially on the degree of persistence of the profitable trading opportunities, on transaction cost, and on the standard deviation of shocks. We apply our theoretical results to foreign exchange trading by parameterizing the moving average strategy often employed in foreign exchange markets. The parameterization implies the …

Impact Of Firm Performance Expectations On Ceo Turnover And Replacement Decisions, Kathleen A. Farrell, David A. Whidbee

Department of Finance: Faculty Publications

Our analysis suggests that boards focus on deviation from expected performance, rather than performance alone, in making the CEO turnover decision, especially when there is agreement (less dispersion) among analysts about the firm’s earnings forecast or there are a large number of analysts following the firm. In addition, our results suggest that boards are more likely to appoint a CEO that will change firm policies and strategies (i.e., an outsider) when forecasted 5-year EPS growth is low and there is greater uncertainty (more dispersion) among analysts about the firm’s long-term forecasts.

Managers’ Incentives To Manipulate Earnings In Management Buyout Contests: An Examination Of How Corporate Governance And Market Mechanisms Mitigate Earnings Management, Joy Begley, Tim V. Eaton, Sarah Peck

Finance Faculty Research and Publications

In an MBO contest, managers offer to buy the firm from public shareholders at a premium to the current market price and thus have incentives to buy the firm “cheap.” Prior studies have found evidence that managers, on average, manipulate earnings downward prior to an MBO offer in an attempt to convince shareholders that their offer is fair. We extend this finding by attempting to explain the substantial cross sectional variation in the degree of manipulation across firms reported in these earlier studies. We find that boards with more independent directors and higher levels of incentive based compensation for the …

Term Default, Balloon Risk, And Credit Risk In Commercial Mortgages, Charles C. Tu, Mark Eppli

Finance Faculty Research and Publications

Term default and balloon risk play an interactive role in the pricing of credit risk in commercial mortgages. Most commercial mortgage pricing studies assume a borrower's default decision is based solely on the property value; the mortgage valuation model here also incorporates a property income trigger. The model considers both the risk of default during the term of the loan and the risk of loss at maturity (balloon risk). Monte Carlo simulation analyses reveal that pricing models based solely on property value overestimate the probability of term default and the resulting credit risk premium. Adding a property income default trigger …

Trust, Collaboration, And Financial Return In Conservation/Development Partnerships, New England Environmental Finance Center

Economics and Finance

In early 2002 the New England Environmental Finance Center hosted a series of roundtable discussions among municipal officials, residential developers, land trust representatives, and others about "Innovative Approaches to Land Conservation and Smart Growth". Among our observations was that for many of the over 20 conservation/development partnerships we discussed in the series, creation and maintenance of trust was central to success or failure of various stages of the partnership. This suggested a link between creation of trust and financial return for traditionally opposed project partners.

To further examine this matter, we interviewed 11 round table participants and asked questions about …

Inter-Center Retail Externalities, Luis C. Mejia, Mark Eppli

Finance Faculty Research and Publications

This paper empirically examines inter-center externalities in regional shopping centers. Specifically, we use a non-linear retail share model to measure the impact that department store size and image in subject and competitive centers have on subject center in-line retail sales. Our findings reveal that department store size and image attributes have a significant and non-linear impact on subject center sales. More importantly, the results show that the effect of department store fashion image dominates that of department store size.

Credit History And The Performance Of Prime And Nonprime Mortgages, Anthony Pennington-Cross

Finance Faculty Research and Publications

Although nonprime lending has experienced steady or even explosive growth over the last decade very little is known about the performance characteristics of these mortgages. Using data from national secondary market institutions, this paper estimates a competing risks proportional hazard model, which includes unobserved heterogeneity. The analysis examines the performance of 30-year fixed rate owner occupied home purchase mortgages from February 1995 to the end of 1999 and compares nonprime and prime loan default and prepayment behavior. Nonprime loans are identified by mortgage interest rates that are substantially higher than the prevailing prime rate. Results indicate that nonprime mortgages differ …

Prospect Theory And Institutional Investors, Melvyn Teo, Paul G. J. O'Connell

Research Collection Lee Kong Chian School Of Business

There is ample evidence that past performance affects the trading decisions of individual investors. This paper looks at this issue using a detailed database of currency trading decisions of institutional investors. Past performance manifestly affects currency risk-taking in this group, but the sign and magnitude of the effect runs counter to much of the existing theory and evidence. There is no evidence whatsoever of disposition effects; rather, the dominant characteristic is aggressive risk reduction in the wake of losses. This effect is more prominent later in the year, and among older and more experienced funds. A modified version of the …

Political Barriers And The Transmission Of Monetary Policy Across States: The New England Antebellum Banking Market, Andrew J. Economopoulos

Business and Economics Faculty Publications

The New England antebellum banking market was examined to understand the interaction of political ideology and economic forces. With each state controlling bank entry, hence the money supply, political ideology could impede the supply of money within a state. However, the monetary forces from neighboring states may have influenced the degree to which parties held true to their political ideology. The results indicate that political ideology was an effective barrier in two of the six states, while three states were responsive to neighbor states' monetary policy regardless of political ideology. These states responded by creating new banks, raising existing capital …

Stock Market Liberalization And The Information Environment, Kee-Hong Bae, Warren Bailey, Connie X. Mao

CRIF Seminar series

We study the associations between openness to foreign equity investors and the information environment facing emerging market firms. Changes in openness are reflected in legal, regulatory, and cross-listing events, the fraction of stock available to foreign investors, and the size of U.S. portfolio capital flows. The information environment is reflected in firm-specific return volatility and in indicators of information production, uncertainty, and disagreement related to earnings announcements. We find that information measures typically increase with openness to foreign equity investment, particularly in the form of security cross-listings and aggregate portfolio flows.

Incorporating Diversification Into Risk Management, Mitchell Craig Warachka, A. Purnanandam, Y. Zhao, W.T. Ziemba

Research Collection Lee Kong Chian School Of Business

No abstract provided.

A Comparative Analysis Of The Rationality Of Consensus Forecasts Of U. S. Economic Indicators, David C. Schirm

Economics & Finance

The purpose of this article is to investigate the rationality of two survey forecasts of selective U. S. macroeconomic performance measures that were widely followed in the financial markets during the 1990-2000 period. The research compares the rationality of survey forecast data from Money Market Services, Inc., and Thomson Financial. This article extends prior research that has evaluated the rationality of Money Market Services data for earlier time periods while also evaluating similar consensus forecast data from Thomson Financial that were widely reported in both Barron's and the Wall Street Journal during the 1990s.

The Impact Of The Costs Of Subscription On Measured Ipo Returns: The Case Of Asia, Joseph K.W. Fung, Louis T. W. Cheng, Kam C. Chan

GFCB Working Paper Series

Asian initial public offerings (IPOs) require investors to pay subscription funds up-front upon submission of applications, and these funds are locked-up for one to three weeks without interest. Hence, the IPO process entails an explicit financing cost (opportunity cost) whether investors borrow funds or use their own funds to apply for IPO shares. The IPO subscription costs are not trivial, especially in a high interest rate environment or when an IPO is highly oversubscribed. These costs should be considered in any comparison of IPO returns across countries.

The Economics Of International Monies, Gerald P. Dwyer Jr., James R. Lothian

CRIF Working Paper series

The purpose of this paper is to examine the history of international monies and the theory related to their adoption and use. We summarize the history of international monies, beginning with a discussion of the gold solidus introduced in the fourth century by the Emperor Constantine, continuing with the currencies of the Italian city states and ending with the currencies that have functioned as international monies from the early modern period to the present. We identify four key characteristics of these currencies: high unitary value; relatively low inflation rates for long periods; issuance by major economic and trading powers; and …

Trading Your Neighbor's Etfs: Competition Or Fragmentation?, Beatrice Boehmer, Ekkehart Boehmer

Research Collection Lee Kong Chian School Of Business

On July 31, 2001, for the first time in its history, the New York Stock Exchange (NYSE) began trading three unlisted securities. The DIA, SPY, and QQQ are the most actively traded Exchange Traded Funds (ETFs) and are listed on the American Stock Exchange. On April 15, 2002 another 27 ETFs followed. These two events provide a unique experiment for studying the impact of a new entrant on market quality. In contrast to recently revived concerns about the adverse impact of market fragmentation, we document that the NYSE entry leads to a dramatic improvement in liquidity that we attribute to …

Stock Exchange Governance And Market Quality, Chandrasekhar Krishnamurti, John M. Sequeira, Fangjian Fu

Research Collection Lee Kong Chian School Of Business

We show that organization structure of a stock exchange matters by utilizing the unique setting prevailing in India. India has two major stock markets, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). These two exchanges adopt similar trading systems, trade essentially identical stocks, and follow the same trading hours. However, these exchanges have different organizational structures: BSE is mutualized whereas NSE is demutualized. Using the Hasbrouck [Review of Financial Studies 6 (1993) 191] measure of market quality we show that NSE provides a better quality market than BSE. This result is consistent with the work of Domowitz …

Does Underwriter Reputation Affect The Performance Of Ipo Stocks?, Chunchi Wu, Sheen Liu, Junbo Wang

Research Collection Lee Kong Chian School Of Business

In this paper we examine the relationship between performance of the Chinese IPO firms and the reputation of investment bankers underwriting their stocks. Similar to previous studies on well-developed stock markets, we find that the initial return on the first day of trading is strongly positive for Chinese IPO stocks due to underpricing. This initial return is negatively related to the underwriter's reputation, suggesting that the better the reputation of the underwriter, the less underpricing and hence, the lower the initial return of the IPO stock. Extending the analysis to a ten-day window after the first trading day, we find …

Estimating Credit Risk Premia, Kian Guan Lim

Research Collection Lee Kong Chian School Of Business

This paper investigates the nature of the credit risk premium adjustments in the Jarrow-Lando-Turnbull model of credit risk spreads. The adjustments relate the equivalent martingale measures to the empirical measures of unconditional transition probabilities. We provide a modi ed version of the risk adjustment that allows a linear partition of the credit spread into an unconditional default component, a recovery component, and the risk premium adjustment. The risk adjustments are related to conditional default risk, illiquidity risk, and other factors not related to recovery e ects. The log-transform of these risk adjustments can be speci ed as linear regressions on …

Asymptotic Dynamics And Value-At-Risk Of Large Diversified Portfolios In A Jump-Diffusion Market, Kian Guan Lim, Xiaoqing Liu, Kai Chong Tsui

Research Collection Lee Kong Chian School Of Business

This paper studies the modelling of large diversi ed portfolios in a nancial market with jump-di usion risks. The portfolios considered include three categories: equal money-weighted portfolios, risk minimizing portfolios, and market indices. Reduced-form dynamics driven jointly by one Brownian Motion and one Poisson process are derived for the asymptotics of such portfolios. We prove that derivatives written on a portfolio can be priced by treating the asymptotic dynamics as the underlying process if the number of assets in the portfolio is su ciently large. Analytical and Monte Carlo Value-at-Risk (VaR) can be computed for the portfolios based on their …

2003-2004 Operating Budget: Southern University Agricultural Extension And Research Programs, Southern University System. Office Of Finance & Administration.

All Southern University System Budgets

2003-2004 Operating Budget of the Southern System: Southern University Agricultural Research and Extension Center Campus.

Volume 1, Liberty University

Liberty Business Review

No abstract provided.

The Institutional And Individual Contributors To Research In Financial Education: 1991-2002, Kam C. Chan

GFCB Working Paper Series

This paper provides an account of the contributors in financial education research during 1991-2002. We present the top institutions and individuals in financial education research that were published in Financial Practice and Education and Journal of Financial Education. In terms of institutional and individual contributors, doctoral programs faculty and institutions contribute significant large number of articles in financial education research. Similarly AACSB accredited academic programs also contribute significantly to the financial education literature. The findings in this study provide information to the potential college bound students, donors, and job applicants.

Operationalizing Technology Improvements In Product Development Decision-Making, Shantanu Bhattacharya, V. Krishnan, Vijay Mahajan

Research Collection Lee Kong Chian School Of Business

Achieving competitive advantage and price premiums in many technology-based markets requires the incorporation of current technology in new products. To do so, firms in hyper-competitive environments increasingly plan and design their products concurrent with the independent development and validation of underlying technologies. Simultaneous validation of a core technology has important implications for a company's product positioning and launch sequence decisions making these traditional marketing decisions relevant to operations managers. Prior research has shown that to minimize cannibalization in the absence of such improvements in technology, a firm should not launch low-end products before high-end products. However, concurrent evolution of technology …

2003-2004 Operating Budget (Final Printing), Southern University System. Office Of Finance & Administration.

All Southern University System Budgets

Southern University at Shreveport, Operating Budget for Fiscal Year Ending June 30, 2004. Southern University System.

2003-2004 Operating Budget Final Printing, Southern University System. Office Of Finance & Administration.

All Southern University System Budgets

The Southern University System Board and System Administration Operating Budget 2003-2004 Final Printing.

2003-2004 Operating Budget Final Printing: Southern University Law Center, Southern University System. Office Of Finance & Administration.

All Southern University System Budgets

The 2003-2004 Final Operating Budget for the Southern University Law Center Campus. Final Printing.

Model State Land Use Legislation For New England, New England Environmental Finance Center, Muskie School Of Public Service

Legislation

Sprawl is neither the ordained nor the inevitable outcome upon the New England landscape. A coordinated response to sprawl by the public and private sectors is possible, and could dramatically improve land use patterns and reduce the cost of local government. For the New England states, such a response would include, among other elements, legislation to eliminate existing gaps in the land use laws of each state – gaps that presently encourage or sanction sprawling development. It would also include incentives for municipalities to think beyond their borders and to act with greater efficiency and effect. It is the purpose …

Market Makers' Methods Of Stock Manipulation: How Trading Manipulations Can Adversely Affect A Firm's Equities And What Finance Managers Can Do About It, Anthony J. Cataldo Ii, Larry N. Killough

Accounting Faculty Publications

No abstract provided.

Equilibrium Impact Of Value-At-Risk Regulation, Markus Leippold, Fabio Trojani, Paolo Vanini

CRIF Seminar series

We study the partial and general equilibrium implications of value-at-risk (VaR) regulation in continuous-time economies with intermediate expenditure, stochastic opportunity set, and heterogeneous attitudes to risk. Our findings show that because of an anticipatory effect of VaR constraints on the optimal hedging demand, the partial equilibrium incentives of VaR regulation can lead banks to increase their risk exposure in high-volatility states. In general equilibrium, VaR constraints can produce unambiguously lower interest rates and higher equity Sharpe ratios. The VaR impact on equity volatility and equity expected returns is ambiguous.

The Effect Of Firm Characteristics On The Use Of Percentage Retail Leases, Gregory H. Chun, Mark Eppli, James D. Shilling

Finance Faculty Research and Publications

Choice of lease payments has been widely studied in the literature. There are three—not necessarily exclusive—explanations that have received attention. The first attributes the choice of fixed versus percentage lease payments to risk-sharing preferences. The second explanation views percentage-of-sales lease agreements as a way discriminating monopolists can appropriate economic rents. The third attributes percentage-of-sales lease agreements to a metering and bonding argument. This paper examines the proposition that the choice of percentage retail leases is driven in part by managements' desire to circumvent the cost of violating debt covenant restrictions. The evidence presented here supports the prediction that retail firms …