A. D. de Miguel, Julio Pindado, Chabela de la Torre
In this paper we investigate the relationship between ownership structure and value in Spanish firms. We therefore provide new evidence on this relation, since the Spanish corporate governance system differs from the ones considered in previous theoretical and empirical research. According to financial literature on corporate ownership structure, we have focused on the concentration of ownership - in order to test the monitoring and expropriation hypotheses - and on insider ownership - looking for evidence in favour of the convergence-of-interest and entrenchment hypotheses. We have estimated our two empirical models using the same methodology so as to avoid several problems emphasized by previous literature. Specifically, we use the Generalized Method of Moments which allows us to eliminate unobservable heterogeneity - using panel data methodology - and to control for potential endogeneity - using instruments. Unlike previous studies, our empirical evidence supports a quadratic relationship between value and ownership concentration. This result confirms not only the monitoring but also the expropriation effect for the very highest concentration values in Spanish firms. The fact that Spanish majority shareholders manage to expropriate the wealth of minority shareholders, while in other countries - such as the UK, the US, Germany and Japan - this does not occur, confirms the idea that differences in corporate governance systems lead to different value-ownership relations. Additionally, the insider ownership model provides results that support a cubic specification for the value-insider ownership relation in Spanish firms. We interpret this evidence as consistent with both the convergence-of-interests and the entrenchment effects. Moreover, we find that Spanish insiders get entrenched at higher ownership levels than their UK and US counterparts. This result is also consistent with the argument that different value-ownership relations might be explained by differences in corporate governance systems across countries.
{"title":"Ownership Structure and Firm Value: New Evidence from the Spanish Corporate Governance System","authors":"A. D. de Miguel, Julio Pindado, Chabela de la Torre","doi":"10.2139/ssrn.393464","DOIUrl":"https://doi.org/10.2139/ssrn.393464","url":null,"abstract":"In this paper we investigate the relationship between ownership structure and value in Spanish firms. We therefore provide new evidence on this relation, since the Spanish corporate governance system differs from the ones considered in previous theoretical and empirical research. According to financial literature on corporate ownership structure, we have focused on the concentration of ownership - in order to test the monitoring and expropriation hypotheses - and on insider ownership - looking for evidence in favour of the convergence-of-interest and entrenchment hypotheses. We have estimated our two empirical models using the same methodology so as to avoid several problems emphasized by previous literature. Specifically, we use the Generalized Method of Moments which allows us to eliminate unobservable heterogeneity - using panel data methodology - and to control for potential endogeneity - using instruments. Unlike previous studies, our empirical evidence supports a quadratic relationship between value and ownership concentration. This result confirms not only the monitoring but also the expropriation effect for the very highest concentration values in Spanish firms. The fact that Spanish majority shareholders manage to expropriate the wealth of minority shareholders, while in other countries - such as the UK, the US, Germany and Japan - this does not occur, confirms the idea that differences in corporate governance systems lead to different value-ownership relations. Additionally, the insider ownership model provides results that support a cubic specification for the value-insider ownership relation in Spanish firms. We interpret this evidence as consistent with both the convergence-of-interests and the entrenchment effects. Moreover, we find that Spanish insiders get entrenched at higher ownership levels than their UK and US counterparts. This result is also consistent with the argument that different value-ownership relations might be explained by differences in corporate governance systems across countries.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-06-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123853215","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}
In this paper we study the dynamic hedging problem using three different utility specifications: stochastic differential utility, terminal wealth utility, and we propose a particular utility transformation connecting both previous approaches. In all cases, we assume Markovian prices. Stochastic differential utility, SDU, impacts the pure hedging demand ambiguously, but decreases the pure speculative demand, because risk aversion increases. We also show that consumption decision is, in some sense, independent of hedging decision. With terminal wealth utility, we derive a general and compact hedging formula, which nests as special all cases studied in Duffie and Jackson (1990). We then show how to obtain their formulas. With the third approach we find a compact formula for hedging, which makes the second-type utility framework a particular case, and show that the pure hedging demand is not impacted by this specification. In addition, with CRRA- and CARA-type utilities, the risk aversion increases and, consequently the pure speculative demand decreases. If futures prices are martingales, then the transformation plays no role in determining the hedging allocation. We also derive the relevant Bellman equation for each case, using semigroup techniques.
{"title":"Dynamic Hedging with Stochastic Differential Utility","authors":"Rodrigo De-Losso","doi":"10.2139/ssrn.393463","DOIUrl":"https://doi.org/10.2139/ssrn.393463","url":null,"abstract":"In this paper we study the dynamic hedging problem using three different utility specifications: stochastic differential utility, terminal wealth utility, and we propose a particular utility transformation connecting both previous approaches. In all cases, we assume Markovian prices. Stochastic differential utility, SDU, impacts the pure hedging demand ambiguously, but decreases the pure speculative demand, because risk aversion increases. We also show that consumption decision is, in some sense, independent of hedging decision. With terminal wealth utility, we derive a general and compact hedging formula, which nests as special all cases studied in Duffie and Jackson (1990). We then show how to obtain their formulas. With the third approach we find a compact formula for hedging, which makes the second-type utility framework a particular case, and show that the pure hedging demand is not impacted by this specification. In addition, with CRRA- and CARA-type utilities, the risk aversion increases and, consequently the pure speculative demand decreases. If futures prices are martingales, then the transformation plays no role in determining the hedging allocation. We also derive the relevant Bellman equation for each case, using semigroup techniques.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"41 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-06-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129979895","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}
I use event date methodology to examine the market reaction to reverse stock splits in Hong Kong market from 1991 to 2001. I first investigate the prospectuses distributed by reverse-splitting firms. Four major reasons are provided in firms' prospectuses: 1. Reverse splits will reduce transaction costs for dealings in the consolidated shares; 2. Reverse splits will improve the flexibility in pricing new issue when needed; 3. Share consolidation should raise the profile of the company among institutional and international investors; 4. Directors believe there exists a favorable stock price range, and reverse splits are therefore be used to bring the market value of the shares into a range that the firms consider more appropriate. I find that the abnormal returns around the announcement date are negative and small firms have stronger negative reaction. This result is consistent with the event studies in the U.S. market [Lamoureux and Poon (1987), Peterson and Peterson (1992)]. However, this negative response is contrary to the results in Canada where market reacts positively with a cumulative abnormal return of 9.3 percent on the announcement date that is thereafter maintained [Masse et al. (1997)]. No significant market response to the ex-date is observed. The adjusted trading volume increases considerably after reverse splits. This result partially suggests that the reverse stock improve the liquidity of the stock. The majority of the reverse-splitting firms do not change their board lot size after splits, they therefore reduce transacting costs. The relative tick sizes, which also affect the transaction cost, decrease significantly after splitting. My analysis of the cross-sectional distribution of the split factor provides no support for the "optimal stock price range" hypothesis. Hence, the reverse stock splits can be viewed as a passive reaction to a decayed firm performance rather than an active means to achieve a specific objective.
我使用事件日期方法研究了1991年至2001年香港市场对股票反向拆分的反应。我首先调查了反向拆分公司分发的招股说明书。公司招股说明书提供了四个主要原因:1。反向拆分将降低合并股份交易的交易成本;2. 反向拆分将提高在需要时为新股定价的灵活性;3.股票整合应该会提高公司在机构和国际投资者中的形象;4. 董事们认为存在一个有利的股票价格区间，因此，反向拆分被用来将股票的市场价值带入公司认为更合适的范围。我发现公告日期前后的异常收益为负，小企业的负面反应更强。这一结果与美国市场的事件研究一致[Lamoureux and Poon (1987)， Peterson and Peterson(1992)]。然而，这种负面反应与加拿大的结果相反，在加拿大，市场反应积极，公告日的累积异常回报率为9.3%，此后一直保持不变[Masse et al.(1997)]。没有观察到市场对该日期的重大反应。反向拆分后调整后的成交量大幅增加。这一结果部分说明反向股票提高了股票的流动性。大多数反向拆分公司在拆分后不改变他们的董事会规模，因此他们降低了交易成本。分割后，影响交易成本的相对tick大小显著减小。我对分割因子横截面分布的分析没有为“最优股价区间”假说提供支持。因此，反向股票分割可以被看作是对公司业绩下滑的被动反应，而不是实现特定目标的积极手段。
{"title":"An Event Study of Reverse Stock Splits in Hong Kong Market","authors":"Lihua Jing","doi":"10.2139/ssrn.393222","DOIUrl":"https://doi.org/10.2139/ssrn.393222","url":null,"abstract":"I use event date methodology to examine the market reaction to reverse stock splits in Hong Kong market from 1991 to 2001. I first investigate the prospectuses distributed by reverse-splitting firms. Four major reasons are provided in firms' prospectuses: 1. Reverse splits will reduce transaction costs for dealings in the consolidated shares; 2. Reverse splits will improve the flexibility in pricing new issue when needed; 3. Share consolidation should raise the profile of the company among institutional and international investors; 4. Directors believe there exists a favorable stock price range, and reverse splits are therefore be used to bring the market value of the shares into a range that the firms consider more appropriate. I find that the abnormal returns around the announcement date are negative and small firms have stronger negative reaction. This result is consistent with the event studies in the U.S. market [Lamoureux and Poon (1987), Peterson and Peterson (1992)]. However, this negative response is contrary to the results in Canada where market reacts positively with a cumulative abnormal return of 9.3 percent on the announcement date that is thereafter maintained [Masse et al. (1997)]. No significant market response to the ex-date is observed. The adjusted trading volume increases considerably after reverse splits. This result partially suggests that the reverse stock improve the liquidity of the stock. The majority of the reverse-splitting firms do not change their board lot size after splits, they therefore reduce transacting costs. The relative tick sizes, which also affect the transaction cost, decrease significantly after splitting. My analysis of the cross-sectional distribution of the split factor provides no support for the \"optimal stock price range\" hypothesis. Hence, the reverse stock splits can be viewed as a passive reaction to a decayed firm performance rather than an active means to achieve a specific objective.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"100 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-06-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122085277","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 test the ability of an extended structural model, originally proposed by Cathcart and El-Jahel (2003), to capture the dynamics of prices for Mexican Brady bonds. In this framework, default is triggered either when a latent variable measuring financial distress falls below a specific threshold (as in structural models), or when a hazard rate causes an unexpected jump (as in reduced form models). Using market prices and a Kalman Filter methodology, we estimate the model and extract the implicit "distance-to-default" over a seven-year period. The model is slightly superior to one which assumes that distance-to-default follows a random walk. However, the hazard-rate feature of the model makes no contribution to explaining the dynamics of market prices. We find that three economic factors explain approximately 70% of the variation in the distance-to-default, namely: the level of the stock market, the exchange rate and the risk-free term structure. When the distance-to-default is approximated from these variables and substituted back into the models, the Cathcart and El-Jahel model still performs better than the naive model, not only in-sample but out-of-sample as well. The structural model is therefore supported over simpler alternatives, but only by a small margin.
{"title":"Can Structural Models Explain Prices of Sovereign Bonds?","authors":"R. Diana Diaz-Ledezma, G. Gemmill","doi":"10.2139/ssrn.393468","DOIUrl":"https://doi.org/10.2139/ssrn.393468","url":null,"abstract":"We test the ability of an extended structural model, originally proposed by Cathcart and El-Jahel (2003), to capture the dynamics of prices for Mexican Brady bonds. In this framework, default is triggered either when a latent variable measuring financial distress falls below a specific threshold (as in structural models), or when a hazard rate causes an unexpected jump (as in reduced form models). Using market prices and a Kalman Filter methodology, we estimate the model and extract the implicit \"distance-to-default\" over a seven-year period. The model is slightly superior to one which assumes that distance-to-default follows a random walk. However, the hazard-rate feature of the model makes no contribution to explaining the dynamics of market prices. We find that three economic factors explain approximately 70% of the variation in the distance-to-default, namely: the level of the stock market, the exchange rate and the risk-free term structure. When the distance-to-default is approximated from these variables and substituted back into the models, the Cathcart and El-Jahel model still performs better than the naive model, not only in-sample but out-of-sample as well. The structural model is therefore supported over simpler alternatives, but only by a small margin.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129319265","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}
Knowledge of the interest rate sensitivity of stocks is important in many areas of investment and finance. This paper makes three contributions to the existing literature: (a) it provides estimates of stock sensitivity to changes in nominal and real interest rates and expected inflation (b) it provides estimates of the degree of indexation of future growth expectations to changes in nominal and real interest rates and expected inflation and (c) examines whether government regulation, cyclicality of future cash flows and growth versus value characteristics of stocks can explain the differences in interest rate sensitivities across stocks.
{"title":"Stock Market Sensitivity to Interest Rates and Inflation","authors":"N. Tessaromatis","doi":"10.2139/ssrn.392589","DOIUrl":"https://doi.org/10.2139/ssrn.392589","url":null,"abstract":"Knowledge of the interest rate sensitivity of stocks is important in many areas of investment and finance. This paper makes three contributions to the existing literature: (a) it provides estimates of stock sensitivity to changes in nominal and real interest rates and expected inflation (b) it provides estimates of the degree of indexation of future growth expectations to changes in nominal and real interest rates and expected inflation and (c) examines whether government regulation, cyclicality of future cash flows and growth versus value characteristics of stocks can explain the differences in interest rate sensitivities across stocks.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"118 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-05-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123232781","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}
Recent studies have documented that various factors such as discretionary accounting accruals, underwriter reputation, venture capital backing, and firm size will affect the long-run performance of IPOs. However, it is not clear whether the return predictability of these attributes are the manifestation of one phenomenon, or independent results. In this study, we use univariate and multivariate analyses on these factors to trace the sources of return predictability. We find that these previously identified effects are not the same phenomenon, though correlated to some extent. The results show that a confluence of these determinants is more important than any individual factor in explaining the IPO long-run performance. We also identify a subset of IPOs that outperform their benchmark and another subset that consistently underperforms.
{"title":"The IPO Derby: Are There Consistent Losers and Winners on this Track?","authors":"K. Chan, John W. Cooney, Joonghyuk Kim, A. Singh","doi":"10.2139/ssrn.392002","DOIUrl":"https://doi.org/10.2139/ssrn.392002","url":null,"abstract":"Recent studies have documented that various factors such as discretionary accounting accruals, underwriter reputation, venture capital backing, and firm size will affect the long-run performance of IPOs. However, it is not clear whether the return predictability of these attributes are the manifestation of one phenomenon, or independent results. In this study, we use univariate and multivariate analyses on these factors to trace the sources of return predictability. We find that these previously identified effects are not the same phenomenon, though correlated to some extent. The results show that a confluence of these determinants is more important than any individual factor in explaining the IPO long-run performance. We also identify a subset of IPOs that outperform their benchmark and another subset that consistently underperforms.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"82 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124672661","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}
What is the optimal design of an options market? From investors' as well as the option exchange's point of view it ought to be a marketplace where demand and supply for different contracts balances, and where the choice between trading in different contracts ought to be discretionary considering liquidity and transactions costs. During 1997 and 1998, the Swedish options exchange (OM) launched some regulatory changes in the design of the OMX-index options market. One intention with the changes was to obtain a coarser strike price interval for the index options, aiming for a more balanced demand for the outstanding contracts. This study introduces the Hirschman - Herfindahl index as a measure of the degree of concentration in open interest among different option contracts. The contributions to previous research consist of using this index to measure concentration in open interest, analysing the time series characteristics of the index, as well as investigating whether the changes in exchange rules affect concentration. Some evidence in favour of the hypothesis that the altered strike price intervals have reduced concentration in option open interest is found. Controlling for other factors, which potentially might influence open interest concentration, the widening of the strike price intervals induces a significant decrease in the concentration of put open interest. However, a similar (significant) effect cannot be found with respect to the concentration of call open interest.
{"title":"Option Exchange Design: Concentration of Trading and Open Interest at the Swedish Index Options Market","authors":"Lars Norden","doi":"10.2139/ssrn.392583","DOIUrl":"https://doi.org/10.2139/ssrn.392583","url":null,"abstract":"What is the optimal design of an options market? From investors' as well as the option exchange's point of view it ought to be a marketplace where demand and supply for different contracts balances, and where the choice between trading in different contracts ought to be discretionary considering liquidity and transactions costs. During 1997 and 1998, the Swedish options exchange (OM) launched some regulatory changes in the design of the OMX-index options market. One intention with the changes was to obtain a coarser strike price interval for the index options, aiming for a more balanced demand for the outstanding contracts. This study introduces the Hirschman - Herfindahl index as a measure of the degree of concentration in open interest among different option contracts. The contributions to previous research consist of using this index to measure concentration in open interest, analysing the time series characteristics of the index, as well as investigating whether the changes in exchange rules affect concentration. Some evidence in favour of the hypothesis that the altered strike price intervals have reduced concentration in option open interest is found. Controlling for other factors, which potentially might influence open interest concentration, the widening of the strike price intervals induces a significant decrease in the concentration of put open interest. However, a similar (significant) effect cannot be found with respect to the concentration of call open interest.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128572143","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}
In this paper, we examine the relationship among cash flow rights, investment opportunities and firm values. We find that the opportunities to invest positive NPV projects will eliminate the positive effect of cash flow rights on firm values. However, when cash flow rights are relatively low, investment opportunities will not affect the positive relationship between cash flow rights and firm values. On the other hand, when cash flow rights are relatively high, cash flow rights do not influence firm values given the investment opportunities. As a result, the impact of investment opportunities on the cash flow right effect depends on the level of cash flow rights. These results suggest a non-linear relationship between cash flow right of the controlling shareholder and firm valuation.
{"title":"When Will Controlling Shareholder Expropriate Investors? Cash Flows Right and Investment Opportunity Perspective","authors":"K. Chan, Shing-yang Hu, Yanzhi Wang","doi":"10.2139/ssrn.392003","DOIUrl":"https://doi.org/10.2139/ssrn.392003","url":null,"abstract":"In this paper, we examine the relationship among cash flow rights, investment opportunities and firm values. We find that the opportunities to invest positive NPV projects will eliminate the positive effect of cash flow rights on firm values. However, when cash flow rights are relatively low, investment opportunities will not affect the positive relationship between cash flow rights and firm values. On the other hand, when cash flow rights are relatively high, cash flow rights do not influence firm values given the investment opportunities. As a result, the impact of investment opportunities on the cash flow right effect depends on the level of cash flow rights. These results suggest a non-linear relationship between cash flow right of the controlling shareholder and firm valuation.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-05-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116148565","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}
This paper provides new evidence on the magnitude and determinants of brokerage commissions in futures markets using a sample of brokerage fees charged to transactions on the Sydney Futures Exchange. Commission fees charged on futures trades average 0.002 percent of transaction value. This is up to 120 times smaller than the magnitude of brokerage fees charged in stock markets, and considerably lower than the magnitude of brokerage fees assumed for futures markets in previous research. Consistent with existing studies based on stock markets, commissions charged per contract decrease with order size reflecting economies of scale in the provision of brokerage services in futures markets. Commission rates are positively related to bid-ask spreads and price volatility, which proxy for the probability of execution error costs and execution difficulty, respectively. The identity of the broker is a significant determinant of commissions reflecting different pricing schedules across brokers. Finally, the sample period examined in this study covered the period of transition to electronic trading on the Sydney Futures Exchange. There is strong evidence that the introduction of electronic trading is associated with lower brokerage commissions relative to floor traded markets.
{"title":"The Cost of Trade Execution Services in Futures Markets","authors":"L. Bortoli, A. Frino, Elvis Jarnecic","doi":"10.2139/ssrn.391689","DOIUrl":"https://doi.org/10.2139/ssrn.391689","url":null,"abstract":"This paper provides new evidence on the magnitude and determinants of brokerage commissions in futures markets using a sample of brokerage fees charged to transactions on the Sydney Futures Exchange. Commission fees charged on futures trades average 0.002 percent of transaction value. This is up to 120 times smaller than the magnitude of brokerage fees charged in stock markets, and considerably lower than the magnitude of brokerage fees assumed for futures markets in previous research. Consistent with existing studies based on stock markets, commissions charged per contract decrease with order size reflecting economies of scale in the provision of brokerage services in futures markets. Commission rates are positively related to bid-ask spreads and price volatility, which proxy for the probability of execution error costs and execution difficulty, respectively. The identity of the broker is a significant determinant of commissions reflecting different pricing schedules across brokers. Finally, the sample period examined in this study covered the period of transition to electronic trading on the Sydney Futures Exchange. There is strong evidence that the introduction of electronic trading is associated with lower brokerage commissions relative to floor traded markets.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"276 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127380967","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 have analyzed the return behavior of the equity REIT, mortgage REIT, and SP500 indices using monthly data for the period of 1972-2001. Following a large monthly gain, investors can benefit by adopting a momentum buying strategy for stocks or mortgage for REITs, but not for equity REITs. Investors can also profitably employ a mean reversion strategy for any of the three indices. They would wait for a large decline and then buy the index and hold it for six months. Significant calendar effects were found for both REIT and stock indices involving positive January, and negative August and October effects, although there are some differences in seasonal effects between REITs and stocks. The correlation coefficients between all three asset classes are similar, but the relationship between stocks and equity REITs has lessened over time. We also show that equity REITs dominate mortgage REITs on a risk-return basis and that REITs compare favorably with stocks. Our findings suggest that equity REITs can enhance the risk-return relationship of an investment portfolio and should be considered as a major asset class just like stocks or bonds.
{"title":"An Analysis of Relative Return Behavior: Reits vs Stocks","authors":"Jorg Bley, Dennis Olson","doi":"10.2139/ssrn.391687","DOIUrl":"https://doi.org/10.2139/ssrn.391687","url":null,"abstract":"We have analyzed the return behavior of the equity REIT, mortgage REIT, and SP500 indices using monthly data for the period of 1972-2001. Following a large monthly gain, investors can benefit by adopting a momentum buying strategy for stocks or mortgage for REITs, but not for equity REITs. Investors can also profitably employ a mean reversion strategy for any of the three indices. They would wait for a large decline and then buy the index and hold it for six months. Significant calendar effects were found for both REIT and stock indices involving positive January, and negative August and October effects, although there are some differences in seasonal effects between REITs and stocks. The correlation coefficients between all three asset classes are similar, but the relationship between stocks and equity REITs has lessened over time. We also show that equity REITs dominate mortgage REITs on a risk-return basis and that REITs compare favorably with stocks. Our findings suggest that equity REITs can enhance the risk-return relationship of an investment portfolio and should be considered as a major asset class just like stocks or bonds.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":"2012 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133363986","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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