This paper provides evidence of the role of sentiments in pricing Indian CNX Nifty index call Option during the period from April 2002 to December 2008. It also shows that Black-Scholes option pricing model using the implied volatility of previous day is pricing the Index options much closer to the actual price compared to Modified Black-Scholes pricing model incorporating non-normal skewness and kurtosis suggested by Corrado & Sue [1996]. The market is pricing the call option higher than Black-Scholes price during bullish period compared to that of bearish period even though sentiments are incorporated in the underlying asset which in this case is the Nifty Index. The index call options are priced about 1.5 percent more than Black-Scholes price during Bullish period compared to that of Bearish period during the period of observation.
{"title":"Effects of Market Sentiment in Index Option Pricing: A Study of CNX Nifty Index Option","authors":"Thirukumaran Nagarajan, Koteswararao Malipeddi","doi":"10.2139/ssrn.1490758","DOIUrl":"https://doi.org/10.2139/ssrn.1490758","url":null,"abstract":"This paper provides evidence of the role of sentiments in pricing Indian CNX Nifty index call Option during the period from April 2002 to December 2008. It also shows that Black-Scholes option pricing model using the implied volatility of previous day is pricing the Index options much closer to the actual price compared to Modified Black-Scholes pricing model incorporating non-normal skewness and kurtosis suggested by Corrado & Sue [1996]. The market is pricing the call option higher than Black-Scholes price during bullish period compared to that of bearish period even though sentiments are incorporated in the underlying asset which in this case is the Nifty Index. The index call options are priced about 1.5 percent more than Black-Scholes price during Bullish period compared to that of Bearish period during the period of observation.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-10-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130739080","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The first edition of the Managed Futures Database Study, that provides an overview of CTA programs and their managers for prospective investors and other participants in the managed futures industry.
{"title":"Managed Futures Database Study","authors":"Pavel Topol","doi":"10.2139/ssrn.1016013","DOIUrl":"https://doi.org/10.2139/ssrn.1016013","url":null,"abstract":"The first edition of the Managed Futures Database Study, that provides an overview of CTA programs and their managers for prospective investors and other participants in the managed futures industry.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116715713","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
R. La Porta, Florencio López de Silanes, Andrei Shleifer, Robert W. Vishny
We present a model of the effects of legal protection of minority shareholders and of cash-f low ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 539 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders and in firms with higher cashf low ownership by the controlling shareholder. RECENT RESEARCH SUGGESTS THAT THE EXTENT of legal protection of investors in a country is an important determinant of the development of its financial markets. Where laws are protective of outside investors and well enforced, investors are willing to finance firms, and financial markets are both broader and more valuable. In contrast, where laws are unprotective of investors, the development of financial markets is stunted. Moreover, systematic differences among countries in the structure of laws and their enforcement, such as the historical origin of their laws, account for the differences in financial development ~La Porta et al. ~1997, 1998!!. How does better protection of outside investors ~both shareholders and creditors! promote financial market development? When their rights are better protected by the law, outside investors are willing to pay more for financial assets such as equity and debt. They pay more because they recognize that, with better legal protection, more of the firm’s profits would come back to them as interest or dividends as opposed to being expropriated by the entrepreneur who controls the firm. By limiting expropriation, the law raises the price that securities fetch in the marketplace. In turn, this enables more entrepreneurs to finance their investments externally, leading to the expansion of financial markets. Although the ultimate benefit of legal investor protection for financial development has now been well documented, the effect of protection on valuation has received less attention. In this paper, we present a theoretical and empirical analysis of this effect.
{"title":"Investor Protection and Corporate Valuation","authors":"R. La Porta, Florencio López de Silanes, Andrei Shleifer, Robert W. Vishny","doi":"10.2139/ssrn.192549","DOIUrl":"https://doi.org/10.2139/ssrn.192549","url":null,"abstract":"We present a model of the effects of legal protection of minority shareholders and of cash-f low ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 539 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders and in firms with higher cashf low ownership by the controlling shareholder. RECENT RESEARCH SUGGESTS THAT THE EXTENT of legal protection of investors in a country is an important determinant of the development of its financial markets. Where laws are protective of outside investors and well enforced, investors are willing to finance firms, and financial markets are both broader and more valuable. In contrast, where laws are unprotective of investors, the development of financial markets is stunted. Moreover, systematic differences among countries in the structure of laws and their enforcement, such as the historical origin of their laws, account for the differences in financial development ~La Porta et al. ~1997, 1998!!. How does better protection of outside investors ~both shareholders and creditors! promote financial market development? When their rights are better protected by the law, outside investors are willing to pay more for financial assets such as equity and debt. They pay more because they recognize that, with better legal protection, more of the firm’s profits would come back to them as interest or dividends as opposed to being expropriated by the entrepreneur who controls the firm. By limiting expropriation, the law raises the price that securities fetch in the marketplace. In turn, this enables more entrepreneurs to finance their investments externally, leading to the expansion of financial markets. Although the ultimate benefit of legal investor protection for financial development has now been well documented, the effect of protection on valuation has received less attention. In this paper, we present a theoretical and empirical analysis of this effect.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"100 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1999-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133347273","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
R. La Porta, Florencio López de Silanes, Andrei Shleifer, Robert W. Vishny
Recent research has documented large differences among countries in ownership concentration in publicly traded firms, in the breadth and depth of capital markets, in dividend policies, and in the access of firms to external finance. A common element to the explanations of these differences is how well investors, both shareholders and creditors, are protected by law from expropriation by the managers and controlling shareholders of firms. We describe the differences in laws and the effectiveness of their enforcement across countries, discuss the possible origins of these differences, summarize their consequences, and assess potential strategies of corporate governance reform. We argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems.
{"title":"Investor Protection and Corporate Governance","authors":"R. La Porta, Florencio López de Silanes, Andrei Shleifer, Robert W. Vishny","doi":"10.2139/ssrn.183908","DOIUrl":"https://doi.org/10.2139/ssrn.183908","url":null,"abstract":"Recent research has documented large differences among countries in ownership concentration in publicly traded firms, in the breadth and depth of capital markets, in dividend policies, and in the access of firms to external finance. A common element to the explanations of these differences is how well investors, both shareholders and creditors, are protected by law from expropriation by the managers and controlling shareholders of firms. We describe the differences in laws and the effectiveness of their enforcement across countries, discuss the possible origins of these differences, summarize their consequences, and assess potential strategies of corporate governance reform. We argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1999-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125297023","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Finance theory can be used to form informative prior beliefs in financial decision-making. This paper approaches portfolio selection in a Bayesian framework that incorporates a prior degree of belief in an asset pricing model. Sample evidence on home bias and value and size effects is evaluated from an asset-allocation perspective. U.S. investors' belief in the domestic CAPM must be very strong to justify the home bias observed in their equity holdings. The same strong prior belief results in large and stable optimal positions in the Fama-French book-to-market portfolio in combination with the market since the 1940s.
{"title":"Portfolio Selection and Asset Pricing Models","authors":"Ľuboš Pástor","doi":"10.2139/ssrn.1342890","DOIUrl":"https://doi.org/10.2139/ssrn.1342890","url":null,"abstract":"Finance theory can be used to form informative prior beliefs in financial decision-making. This paper approaches portfolio selection in a Bayesian framework that incorporates a prior degree of belief in an asset pricing model. Sample evidence on home bias and value and size effects is evaluated from an asset-allocation perspective. U.S. investors' belief in the domestic CAPM must be very strong to justify the home bias observed in their equity holdings. The same strong prior belief results in large and stable optimal positions in the Fama-French book-to-market portfolio in combination with the market since the 1940s.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"92 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1999-03-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126342891","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Florencio López de Silanes, Andrei Shleifer, Robert W. Vishny
This paper addresses the question of why firms pay dividends, the so-called "dividend puzzle," from the agency perspective. We outline two agency models of dividends. On what we call "the outcomes" model, dividends are the result of effective pressure by minority shareholders rights should be associated with higher dividends. On what we call "the substitutes" model, insiders choose to pay dividends to establish a reputation for a decent treatment of minority shareholders so that firms can raise equity finance in the future. Under this model, stronger minority shareholder rights reduce the need for establishing a reputation, and so should be associated with lower dividends. We compare these models on a cross-section of 4,000 companies from around the world, which operate in countries with different levels of investor protection, and therefore different strength of minority shareholder rights. The findings on payout levels, as well as other results, support the outcome agency model of dividends.
{"title":"Agency Problems and Dividend Policies Around the World","authors":"Florencio López de Silanes, Andrei Shleifer, Robert W. Vishny","doi":"10.2139/ssrn.52871","DOIUrl":"https://doi.org/10.2139/ssrn.52871","url":null,"abstract":"This paper addresses the question of why firms pay dividends, the so-called \"dividend puzzle,\" from the agency perspective. We outline two agency models of dividends. On what we call \"the outcomes\" model, dividends are the result of effective pressure by minority shareholders rights should be associated with higher dividends. On what we call \"the substitutes\" model, insiders choose to pay dividends to establish a reputation for a decent treatment of minority shareholders so that firms can raise equity finance in the future. Under this model, stronger minority shareholder rights reduce the need for establishing a reputation, and so should be associated with lower dividends. We compare these models on a cross-section of 4,000 companies from around the world, which operate in countries with different levels of investor protection, and therefore different strength of minority shareholder rights. The findings on payout levels, as well as other results, support the outcome agency model of dividends.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"36 5","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120902422","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present a consumption-based model that explains the procyclical variation of stock prices, the long-horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. Our model has an i.i.d. consumption growth driving process, and adds a slow-moving external habit to the standard power utility function. The latterfeature produces cyclical variation in risk aversion, and hence in the prices of risky assets. Our model also predicts many of the difficulties that beset the standard power utility model, including Euler equation rejections, no correlation between mean consumption growth and interest rates, very high estimates of risk aversion, and pricing errors that are larger than those of the static CAPM. Our model captures much of the history of stock prices, given only consumption data. Since our model captures the equity premium, it implies that fluctuations have important welfare costs. Unlike many habit-persistence models, our model does not necessarily produce cyclical variation in the risk free interest rate, nor does it produce an extremely skewed distribution or negative realizations of the marginal rate of substitution.
{"title":"By Force of Habit: A Consumption-Based Explanation of Plantation of Aggregate Stock Market Behavior","authors":"J. Campbell, J. Cochrane","doi":"10.2139/ssrn.1870","DOIUrl":"https://doi.org/10.2139/ssrn.1870","url":null,"abstract":"We present a consumption-based model that explains the procyclical variation of stock prices, the long-horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. Our model has an i.i.d. consumption growth driving process, and adds a slow-moving external habit to the standard power utility function. The latterfeature produces cyclical variation in risk aversion, and hence in the prices of risky assets. Our model also predicts many of the difficulties that beset the standard power utility model, including Euler equation rejections, no correlation between mean consumption growth and interest rates, very high estimates of risk aversion, and pricing errors that are larger than those of the static CAPM. Our model captures much of the history of stock prices, given only consumption data. Since our model captures the equity premium, it implies that fluctuations have important welfare costs. Unlike many habit-persistence models, our model does not necessarily produce cyclical variation in the risk free interest rate, nor does it produce an extremely skewed distribution or negative realizations of the marginal rate of substitution.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126962595","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Owen A. Lamont, Christopher Polk, Jesus Saa-Requejo
We test whether the impact of financial constraints on firm value is observable in asset" returns. We form portfolios of firms based on observable characteristics related to financial" constraints, and test for common covariation in the stock returns of these firms. Using several" different measures of financial constraints, we find that financially constrained firms' stock" returns move together over time. This financial constraint factor in stock returns is related to not well explained by, other empirically identified factors in asset returns. Constrained firms" have remarkably low returns in our sample period of 1968-1995, both unconditionally and in the" context of empirical asset pricing models. Financial constraint returns help explain returns" following initial public offerings and dividend omissions. We find only limited support for the" hypothesis that the relative performance of financially constrained firms reflects monetary" policy, credit conditions, and business cycles.
{"title":"Financial Constraints and Stock Returns","authors":"Owen A. Lamont, Christopher Polk, Jesus Saa-Requejo","doi":"10.2139/ssrn.113336","DOIUrl":"https://doi.org/10.2139/ssrn.113336","url":null,"abstract":"We test whether the impact of financial constraints on firm value is observable in asset\" returns. We form portfolios of firms based on observable characteristics related to financial\" constraints, and test for common covariation in the stock returns of these firms. Using several\" different measures of financial constraints, we find that financially constrained firms' stock\" returns move together over time. This financial constraint factor in stock returns is related to not well explained by, other empirically identified factors in asset returns. Constrained firms\" have remarkably low returns in our sample period of 1968-1995, both unconditionally and in the\" context of empirical asset pricing models. Financial constraint returns help explain returns\" following initial public offerings and dividend omissions. We find only limited support for the\" hypothesis that the relative performance of financially constrained firms reflects monetary\" policy, credit conditions, and business cycles.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1997-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131477806","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Value stocks have higher returns than growth stocks in markets around the world. For the period 1975 through 1995, the difference between the average returns on global portfolios of high and low book-to-market stocks is 7.68 percent per year, and value stocks outperform growth stocks in twelve of thirteen major markets. An international capital asset pricing model cannot explain the value premium, but a two-factor model that includes a risk factor for relative distress captures the value premium in international returns.
{"title":"Value Versus Growth: The International Evidence","authors":"E. Fama, K. French","doi":"10.2139/ssrn.2358","DOIUrl":"https://doi.org/10.2139/ssrn.2358","url":null,"abstract":"Value stocks have higher returns than growth stocks in markets around the world. For the period 1975 through 1995, the difference between the average returns on global portfolios of high and low book-to-market stocks is 7.68 percent per year, and value stocks outperform growth stocks in twelve of thirteen major markets. An international capital asset pricing model cannot explain the value premium, but a two-factor model that includes a risk factor for relative distress captures the value premium in international returns.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1997-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116443709","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We use cross-sectional regressions to study how a firm's value is related to dividends and debt. With a good control for profitability, the regressions can measure how the taxation of dividends and debt affects firm value. Simple tax hypotheses say that value is negatively related to dividends and positively related to debt. We find the opposite. We infer that dividends and debt convey information about profitability (expected net cash flows) missed by a wide range of control variables. This information about profitability obscures any tax effects of financing decisions. Copyright The American Finance Association 1998.
{"title":"Taxes, Financing Decisions, and Firm Value","authors":"E. Fama, K. French","doi":"10.2139/ssrn.1871","DOIUrl":"https://doi.org/10.2139/ssrn.1871","url":null,"abstract":"We use cross-sectional regressions to study how a firm's value is related to dividends and debt. With a good control for profitability, the regressions can measure how the taxation of dividends and debt affects firm value. Simple tax hypotheses say that value is negatively related to dividends and positively related to debt. We find the opposite. We infer that dividends and debt convey information about profitability (expected net cash flows) missed by a wide range of control variables. This information about profitability obscures any tax effects of financing decisions. Copyright The American Finance Association 1998.","PeriodicalId":114245,"journal":{"name":"Chicago Booth: Fama-Miller Working Paper Series","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1997-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131789398","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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