Finance and Financial Management Commons^™

Price Limit Performance: Evidence From Transactions Data And The Limit Order Book, Soon Huat Chan, Kenneth A. Kim, S. Ghon Rhee

Research Collection Lee Kong Chian School Of Business

In recent years, organized stock exchanges with daily price limits adopted wider limits as narrower limits were criticized for jeopardizing market efficiency. This study examines the impact of a wide price limit on price discovery processes, using data from the Kuala Lumpur Stock Exchange. Specifically, examined is the impact of daily price limits on (i) information asymmetry; (ii) arrival rates of informed traders; and (iii) order imbalance. Using both trade-to-trade transaction data and the limit order book, we compile evidence that price limits do not improve information asymmetry, delays the arrival of informed traders, and exacerbates order imbalance. These results …

On The Observational Equivalence Of Devaluation And Monetary Policy, Russell S. Boyer

CRIF Seminar series

Devaluation has been viewed as being quite different from monetary policy (Caves, Cooper, Ethier, Frankel, Frenkel, Harberger, Johnson, Jones, Kenen, McCallum, Mussa, Salvatore, Tsiang) or even just the opposite of it in terms of its effects on real variables (Berglas, Dornbusch, Mundell). This paper yields to the temptation that Allen and Kenen set out: to follow one’s intuition and come to the clear conclusion that these two policy initiatives are very similar. It does this by specifying the conditions under which the two are identical in the small-country setting with a general degree of management of the exchange rate. The …

Is Stellar Hedge Fund Performance For Real?, Robert Kosowski, Narayan Y. Naik, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

We apply a robust bootstrap to evaluate the performance of a large universe of hedge funds. Our bootstrap estimates indicate that the performance of the top hedge funds cannot be attributed to chance alone. This is true even after adjusting for back fill bias, serial correlation, and structural breaks. Also, we find that hedge fund alpha differences persist over three year horizons. However, an investment strategy designed around this will run into difficulties as the persistence is often confined to small funds that are effectively closed to new inflows. Moreover, Bayesian estimates suggest that standard alphas may be overestimated by …

Measuring Investor Sentiment In Equity Markets, Arindam Bandopadhyaya, Anne Leah Jones

Financial Services Forum Publications

Recently, investor sentiment has become the focus of many studies on asset pricing. Research has demonstrated that changes in investor sentiment may trigger changes in asset prices, and that investor sentiment may be an important component of the market pricing process. Some authors suggest that shifts in investor sentiment may in some instances better explain short-term movement in asset prices than any other set of fundamental factors. In this paper we develop an Equity Market Sentiment Index from publicly available data, and we then demonstrate how this measure can be used in a stock market setting by studying the price …

Statistical Arbitrage And Market Efficiency: Enhanced Theory, Robust Tests And Further Applications, Robert A. Jarrow, Melvyn Teo, Yiu Kuen Tse, Mitch Warachka

Research Collection Lee Kong Chian School Of Business

Statistical arbitrage enables tests of market efficiency which circumvent the joint-hypotheses dilemma. This paper makes several contributions to the statistical arbitrage framework. First, we enlarge the set of statistical arbitrage opportunities in Hogan, Jarrow, Teo, and Warachka (2004) to avoid penalizing incremental trading profits with positive deviations from their expected value. Second, we provide a statistical methodology to remedy the lack of consistency and statistical power in their Bonferroni approach. In addition, this procedure allows for autocorrelation and non-normality in trading profits. Third, we apply our tests to a wide range of trading strategies based on stock momentum, stock value, …

The Implied Jump Risk Of Libor Rates, Lim Kian Guan, Christopher Ting, Mitch Warachka

Business Faculty Articles and Research

This paper examines implied parameters from options on LIBOR futures. Jump-diffusion models are found to offer superior in-sample and out-of-sample performance when compared to their pure diffusion counterpart. The need to incorporate stochastic jump magnitudes into LIBOR dynamics is also documented. In addition, empirical evidence reveals that the jump component in LIBOR rates is important for pricing their derivatives. Furthermore, variation in jump risk often coincides with Federal Open Market Committee (FOMC) decisions and a small subset of macroeconomic announcements.

Meese-Rogoff Redux: Micro-Based Exchange Rate Forecasting, Martin D. Evans, Richard K. Lyons

CRIF Seminar series

This paper compares the true, ex-ante forecasting performance of a micro-based model against both a standard macro model and a random walk. In contrast to existing literature, which is focused on longer horizon forecasting, we examine forecasting over horizons from one day to one month (the one-month horizon being where micro and macro analysis begin to overlap). Over our 3-year forecasting sample, we find that the micro-based model consistently out-performs both the random walk and the macro model. Micro-based forecasts account for almost 16 per cent of the sample variance in monthly spot rate changes. These results provide a level …

Credit Union Service Organization Products And Services: Implications, Decisions, And Strategies, Michael Burnett Bare

Theses Digitization Project

This project will create strategic tools for the Credit Union and CUSO to use in order to best create a more symbiotic relationship between the two entities.

Tax Complexity And Small Business: A Comparison Of The Perceptions Of Tax Agents In The United States And Australia, Laura R. Ingraham, S. Karlinsky, M. Mckerchar

Faculty Publications

There is ongoing pressure in both the United States and Australia to simplify their respective tax systems, particularly in regard to small business taxpayers. In the case of both regimes, if substantial progress is to be made towards simplification, the areas of greatest need and the necessary reforms will require careful evaluation. The views of tax agents (practitioners) are highly relevant to the implementation of successful reform in that both regimes rely on self-assessment. It was considered that by undertaking a cross-jurisdictional comparison a greater understanding of complexity, from the perspective of tax agents, could be gained and that, the …

Tax Professionals' Perceptions Of Small Business Tax Law Complexity, Laura R. Ingraham, S. S. Karlinsky

Faculty Publications

The author’s report in this article on their study in questionnaire format that tested the perception of 89 small-business tax practitioners regarding the com- plexity of 37 tax provisions. They found overwhelming consistency on the five most complex and five least complex small-business tax provisions with partner- ships, estate and gift valuations, tax-deferred ex- changes, frequency of law changes, and retirement plans topping the hit parade. Progressive tax rates, estimated taxes, Social Security/self-employment taxes, corporate capital gain provisions, and cash ver- sus accrual method were uniformly and consistently perceived as the least complex. These results have tax policy implications. According …

Preparing Your Business For Valuation, Margaret D. Nowicki, Eric E. Lewis, Jeffrey W. Lippitt

New England Journal of Entrepreneurship

There is a tremendous need for the valuation of small businesses. Oftentimes, small businessowners do not have the wherewithal to gather the data and keep it up to date for use in situations that require valuation. Formal valuations are necessary because they provide objective evidence of value, in contrast to value set by markets on which public companies are traded. This article focuses on some factors that impact the valuation of the business and will help small businessowners feel more comfortable talking with financial professionals about how the business might be valued.

Indiana State University Financial Report 2005, Indiana State University

Financial Reports

No abstract provided.

2004-2005 Financial Summary, Morehead State University. Budget & Financial Planning Office.

Morehead State University Financial Summaries Archive

2004-2005 Financial Summary of Morehead State University.

Modeling Clusters Of Extreme Losses, Beatriz Vaz De Melo Mendes, Juliana Sa Freire De Lima

Journal of Actuarial Practice (1993–2006)

We model extreme losses from an excess of loss reinsurance contract under the assumption of the existence of a subordinated process generating sequences of large claims. We characterize clusters of extreme losses and aggregate the excess losses within clusters. The number of clusters is modeled using the usual discrete probability models, and the severity of the sum of excesses within clusters is modeled using a flexible extension of the generalized Pareto distribution. We illustrate the methodology using a Danish fire insurance claims data set. Maximum likelihood point estimates and bootstrap confidence intervals are obtained for the parameters and statistical premium. …

A Primer On Duration, Convexity, And Immunization, Leslaw Gajek, Krzysztof Ostaszewski, Hans-Joachim Zwiesler

Journal of Actuarial Practice (1993–2006)

The concepts of duration, convexity, and immunization are fundamental tools of asset-liability management. This paper provides a theoretical and practical overview of the concepts, largely missing in the existing literature on the subject, and fills some holes in the body of research on the subject. We not present new research, but rather we provide a new presentation of the underlying theory, which we believe to be of value in the new North American actuarial education system.

Optimal Dividend Strategies: Some Economic Interpretations For The Constant Barrier Case, Maite Marmol, M. Merce Claramunt, Antonio Alegre

Journal of Actuarial Practice (1993–2006)

We consider the surplus process of a non-life insurance portfolio with a dividend component represented by a constant dividend barrier strategy. The optimal dividend barrier is known when individual claim amounts follow an exponential distribution. This result for the optimal dividend barrier is used to develop combinations of the levels of the insurer's initial surplus and of the barrier which, under certain economic and financial criteria, can be regarded as optimal.

Risk-Based Regulatory Capital For Insurers: A Case Study, Christian Sutherland-Wong, Michael Sherris

Journal of Actuarial Practice (1993–2006)

We study the issues in determining regulatory capital requirements using advanced modeling by assessing and comparing capital requirements under the two alternative approaches. A dynamic financial analysis (DFA) model is used for this case study. These issues are of current international interest as regulators, insurers, and actuaries face the significant issues involved with the introduction of risk-based capital for insurers.

Reputation Pricing: A Model For Valuing Future Life Insurance Policies, Rami Yosef

Journal of Actuarial Practice (1993–2006)

The reputation of a life insurer is used to develop a model for determining the value of future life insurance policies. An M / G / 00 process is used to describe the sales and terminations (due to death or maturity) of future policies. The intensity of the arrival process is assumed to depend on the company's reputation. Explicit expressions are derived for the actuarial reserves and expected profits of these future policies.

Journal Of Actuarial Practice - Volume 12 (2005) - Contents And Masthead

Journal of Actuarial Practice (1993–2006)

Contents

Editorial Policy: Topics suitable for this journal include AIDS, annuity products, asset-liability matching, cash-flow testing, casualty rate making, credibility theory, credit insurance, disability insurance, expense analysis, experience studies, FASB issues, financial reporting, group insurance, health insurance, individual risk taking, insurance regulations, international issues, investments, liability insurance, loss reserves, marketing, pensions, pricing issues, product development, reinsurance, reserving issues, risk-based capital, risk theory, social insurance, solvency issues, taxation, valuation issues, and workers' compensation

Review Process

Editor - Colin Ramsay, University of Nebraska

Associate Editors: Robert Brown, University of Waterloo ○ Cecil Bykerk, Mutual of Omaha ○ Ruy Cardoso, Actuarial Frameworks ○ …

An Application Of Control Theory To The Individual Aggregate Cost Method, Alexandros A. Zimbidis, Steven Haberman

Journal of Actuarial Practice (1993–2006)

The paper investigates the individual aggregate cost method (also known as the individual spread-gain method), which is normally applicable in small pension funds or fully contributory schemes, using a control theoretical framework. We construct the difference equations describing the mechanisms of the respective funding method and then calculate the optimal control path of the contribution rate assuming (first) a stochastic and (second) a deterministic pattern for the future investment rates of return. For the first case, the optimal solution is achieved through a linear approximation and using stochastic optimization techniques. It is proved that the contribution rate is (optimally) controlled …

A Modern Approach To Modeling Insurances On Two Lives, Maria Bilikova, Graham Luffrum

Journal of Actuarial Practice (1993–2006)

The analysis of life insurance contracts on two lives using the traditional deterministic approach has been an important part of actuarial education for the past fifty years or more. Recently there has been a shift from this deterministic approach to one using a more modern stochastic approach involving the future lifetime random variable. In this paper we will look at the problem using multiple-state models. In our view this approach allows a deeper analysis than either the traditional or the random future lifetime ones.

Ultimate Ruin Probability For A Time-Series Risk Model With Dependent Classes Of Insurance Business, Lai Mei Wan, Kam Chuen Yuen, Wai Keung Li

Journal of Actuarial Practice (1993–2006)

We consider a discrete-time risk model with m (m ~ 2) dependent classes of insurance business. The claim processes of these m classes are assumed to follow a multivariate autoregressive time-series model of order 1. Given this claims model, we explore the probability of ultimate ruin assuming exponentially bounded claims. As an example, we use simulations to study the case where there are two business and the underlying losses are of two types: bivariate exponential and bivariate gamma claim distributions.

Journal Of Actuarial Practice, Volume 12, 2005, Colin Ramsay , Editor

Journal of Actuarial Practice (1993–2006)

ARTICLES

Risk-Based Regulatory Capital for Insurers: A Case Study • Christian Sutherland-Wong and Michael Sherris 5

A New Hybrid Defined Benefit Plan Design • Wayne E. Dydo . 47

A Primer on Duration, Convexity, and Immunization • Leslaw Gajek, Krzysztof Ostaszewski, and Hans-Joachim Zwiesler 59

Modeling Clusters of Extreme Losses • Beatriz Vaz de Melo Mendes and Juliana Sa Freire de Lima 83

Modeling Insurance Loss Data: The Log-EIG Distribution • Uditha Balasooriya, Chan Kee Low, and Adrian Y W Wong 101

A Modern Approach to Modeling Insurances on Two Lives • Maria Bilikova and Graham Luffrum 127

On the …

A System Dynamics Approach To Assessing Public Policy Impact On The Sustainable Growth Rate Of New Ventures, Jeff W. Trailer, Kuau Garsson

New England Journal of Entrepreneurship

The growth of firms is fundamentally based on self-reinforcing feedback loops, one of the most important of which involves cash flow. When profit margin is positive, sales generate cash, which may then be reinvested to finance the operating cash cycle. We analyze simulations of a sustainable growth model of a generic new venture to assess the importance of taxes, and regulatory costs in determining growth. The results suggest that new ventures are particularly vulnerable to public policy effects, since their working capital resource levels are minimal, and they have few options to raise external funds necessary to fuel their initial …

The Persistence Of Earnings And Corporate Governance In Ipo Firms, Mary F. Calegari, H. A. Maretno

Faculty Publications

In this study, we investigate the earnings persistence in IPO firms by examining the two components of earnings: accruals and cash flows. We also analyze the impact of corporate governance on earnings and the two earnings components. In our comparison of the top and bottom quartiles based on the firms' earnings at the IPO year, we find that although the top quartile firms have a significantly positive accrual component in the IPO year, they eventually have the same negative accrual component of earnings as the bottom quartile firms in the second year after the IPO. In contrast, we find that …

Use Tax Collections, Laura R. Ingraham, K. R. Nunez, L. M. Wright

Faculty Publications

The article reports on a study which investigated the level of compliance with U.S. state use tax laws and the techniques employed by the states in order to enforce use tax. Most states utilize either of two forms of tax reporting and collection. These are: the introduction of a separate use tax form/return; or the use of a separate line on the state income tax return. It was observed that utilizing a separate line item on the state income tax return might cause a rise in the number of taxpayers.

Legal Online Marketing Issues: The Opportunities And Challenges, Michael T. Zugelder

Finance Faculty Publications

This chapter will review several emerging issues associated with e-marketing from the perspective of Web sites including intellectual property, information management, and contracting. E-marketers in the years to come should not only consider the growing e-marketing opportunities but also be cognizant of the growing body of law governing marketing online. While the future may be bright and uniformity and fairness may prevail, current domestic and global law facing e-marketers is varied and the potential basis for liability. The law must be considered wherever e-marketers direct their efforts.

Herzberg's Two-Factor Theory Of Motivation Applied To The Motivational Techniques Within Financial Institutions, Shannon Riley

Senior Honors Theses and Projects

Throughout time, many have attempted to develop detailed theories and studies of motivation, satisfaction, and self-awareness. Each of those theories at some point has been applied and tested as to its effects on people’s lives, jobs, and personal goals in life and in the work place. Due to my strong interest in the management fields specifically, I have decided to look into the different styles of motivation that managers and leaders of organizations within the financial industry typically use. After all, it has been said that one of the manager’s most basic tasks is to communicate with and motivate their …

Adjusting The Inventory Account When Companies Use Lifo: Explanation And Application To Distribution And Chemical Industries, James F. Sander, Susan Hughes

Scholarship and Professional Work - Business

It is widely understood that a disadvantage of LIFO is that it assigns the oldest inventory costs to the inventory account, which, when prices are changing, can result in an inventory value that is useless as a measure of current value. FIFO, however, avoids this disadvantage by assigning the most current costs to inventory.

The purpose of this article is to explain a simple adjustment that restates LIFO inventory to the more current cost based FIFO value and analyze effects of this adjustment. We begin by demonstrating the LIFO adjustment and explaining its effect on one company. This is followed …

Performance Measurement In Irish Credit Unions: An Evaluation Of Pearls, Ruth Vance

Theses

In recent years, the appropriateness of the measures used in performance measurement systems is one of the areas within Management Accounting that attracts significant interest. Even though a lot has been written on the advances in measurement systems in for-profit organisations there is a lack of literature on performance measurement systems in not-for-profit organisations. This dissertation describes and evaluates the performance measurement system used by credit unions in Ireland.

A literature review on performance measurement identifies the criteria that a performance measurement system needs in order to be effective: namely it should be linked to the organisation’s strategic objectives, reflect …