In 2000 more companies listed in Europe than in the US. This is mainly due to the success of "new" stock markets designed for high-growth companies. In this paper we analyse a sample of 482 Initial Public Offerings (IPOs), listed on five "new" European stock markets up to March 2001. We investigate the determinants of their first-day returns. We find a mean first-day return (underpricing) equal to +38.09%. Market returns, the IPO firm's risk and price revisions in the premarket are positively related to first-day returns, whereas IPO deal flow shows is inversely related to underpricing. We also show that the Internet euphoria impacts first-day returns.
{"title":"Pricing Initial Public Offerings on 'New' European Stock Markets","authors":"G. Giudici, Peter Roosenboom","doi":"10.2139/ssrn.314275","DOIUrl":"https://doi.org/10.2139/ssrn.314275","url":null,"abstract":"In 2000 more companies listed in Europe than in the US. This is mainly due to the success of \"new\" stock markets designed for high-growth companies. In this paper we analyse a sample of 482 Initial Public Offerings (IPOs), listed on five \"new\" European stock markets up to March 2001. We investigate the determinants of their first-day returns. We find a mean first-day return (underpricing) equal to +38.09%. Market returns, the IPO firm's risk and price revisions in the premarket are positively related to first-day returns, whereas IPO deal flow shows is inversely related to underpricing. We also show that the Internet euphoria impacts first-day returns.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-06-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125434168","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 purpose of the paper is to test the hypothesis that board structure and its impact on value is a function of firm's growth opportunities. Consistent with this hypothesis, the results show that, while low growth firms are less likely to have an independent board, i.e., to split the roles of the chairman and CEO, to have a high proportion of non-executive directors and to appoint a non-executive as a chairman, their value is positively related to these board structure variables. In contrast, for high growth firms, the relationship between board structure and firm value is weak, suggesting that board structure does not always mitigate the agency conflicts. The results suggest that imposing the same board structure for all companies independently of their specific characteristics is likely to reduce the value of firms that may be forced to depart from optimal corporate governance structures which have been successful.
{"title":"Board Structure and Agency Costs","authors":"M. Lasfer","doi":"10.2139/ssrn.314619","DOIUrl":"https://doi.org/10.2139/ssrn.314619","url":null,"abstract":"The purpose of the paper is to test the hypothesis that board structure and its impact on value is a function of firm's growth opportunities. Consistent with this hypothesis, the results show that, while low growth firms are less likely to have an independent board, i.e., to split the roles of the chairman and CEO, to have a high proportion of non-executive directors and to appoint a non-executive as a chairman, their value is positively related to these board structure variables. In contrast, for high growth firms, the relationship between board structure and firm value is weak, suggesting that board structure does not always mitigate the agency conflicts. The results suggest that imposing the same board structure for all companies independently of their specific characteristics is likely to reduce the value of firms that may be forced to depart from optimal corporate governance structures which have been successful.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-05-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114627481","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}
Why do firms from some countries use no equity in the compensation mix, while others use amounts equivalent to that observed in the U.S.? We examine this issue by investigating compensation data from 317 firms in 43 countries over the 1996 to 2000 period. We find that firms from countries with equity-oriented capital markets, and from countries where shareholder rights are strong, tend to use more equity in the compensation mix. After controlling for these country-level macro-factors, we also find that firms with higher growth opportunities use more equity in the compensation mix. This is consistent with the predictions of contracting theory. However, unlike previous findings for U.S. firms, equity compensation for the foreign firms in our sample is unrelated to proxies for asset substitution, event risk, firm size, or the difficulty in monitoring a firm's activities.
{"title":"The Equity Mix in Executive Compensation: An Investigation of Cross-Country Differences","authors":"S. Bryan, R. Nash, A. Patel","doi":"10.2139/ssrn.311781","DOIUrl":"https://doi.org/10.2139/ssrn.311781","url":null,"abstract":"Why do firms from some countries use no equity in the compensation mix, while others use amounts equivalent to that observed in the U.S.? We examine this issue by investigating compensation data from 317 firms in 43 countries over the 1996 to 2000 period. We find that firms from countries with equity-oriented capital markets, and from countries where shareholder rights are strong, tend to use more equity in the compensation mix. After controlling for these country-level macro-factors, we also find that firms with higher growth opportunities use more equity in the compensation mix. This is consistent with the predictions of contracting theory. However, unlike previous findings for U.S. firms, equity compensation for the foreign firms in our sample is unrelated to proxies for asset substitution, event risk, firm size, or the difficulty in monitoring a firm's activities.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-05-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131059743","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 statistics that summarise probability density functions(pdfs) implied from option prices can be used to assess market expectations about future uncertainty, asymmetry and the probability of extreme movements in asset prices. A time-series analysis of these statistics for equity index and interest rate markets provides some stylised facts about the behaviour of these elements of market expectations, their historical distribution, similarity and relative stability. Relationships between them and movements in underlying asset prices are considered. Cross-asset and cross-country comparisons and the information content of the implied pdfs for future macroeconomic and financial variables are also assessed.
{"title":"Summary Statistics of Implied Probability Density Functions and Their Properties","authors":"Damien P.G. Lynch, Nikolaos Panigirtzoglou","doi":"10.2139/ssrn.314392","DOIUrl":"https://doi.org/10.2139/ssrn.314392","url":null,"abstract":"The statistics that summarise probability density functions(pdfs) implied from option prices can be used to assess market expectations about future uncertainty, asymmetry and the probability of extreme movements in asset prices. A time-series analysis of these statistics for equity index and interest rate markets provides some stylised facts about the behaviour of these elements of market expectations, their historical distribution, similarity and relative stability. Relationships between them and movements in underlying asset prices are considered. Cross-asset and cross-country comparisons and the information content of the implied pdfs for future macroeconomic and financial variables are also assessed.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128819186","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}
Most papers studying loan guarantee are under a one-borrower and one-guarantor framework. This study uses the option approach to construct models in which loan guarantees are analyzed under a multiple-borrower and one-guarantor framework and under a one-borrower and multiple-guarantor structure with stochastic interest rates. We carry out simulations to investigate how the important parameters of borrowers and guarantors affect the values and default probability of loan guarantees. Our results show that the correlation parameters play a critical role in determining the premiums of loan guarantee portfolios and joint loan guarantees.
{"title":"Loan Guarantee Portfolios and Joint Loan Guarantees with Stochastic Interest Rates","authors":"Chuang-Chang Chang, San‐Lin Chung","doi":"10.2139/ssrn.313959","DOIUrl":"https://doi.org/10.2139/ssrn.313959","url":null,"abstract":"Most papers studying loan guarantee are under a one-borrower and one-guarantor framework. This study uses the option approach to construct models in which loan guarantees are analyzed under a multiple-borrower and one-guarantor framework and under a one-borrower and multiple-guarantor structure with stochastic interest rates. We carry out simulations to investigate how the important parameters of borrowers and guarantors affect the values and default probability of loan guarantees. Our results show that the correlation parameters play a critical role in determining the premiums of loan guarantee portfolios and joint loan guarantees.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122597553","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 the Spanish stock market and the sample period analyzed, on average, days after a weekend or a holiday present higher returns. Firms could partially make up the price drop on ex-dividend days by scheduling dividend payments after a weekend or a holiday. However, the evidence suggests that firms do not use such policy. Formal econometric evidence finds no indication of a significant weekend effect, though, at the individual level, some stocks yield abnormal returns on ex-dividend days and when dividends are scheduled on days after weekends or holidays.
{"title":"The Weekend-Dividend Effect in the Spanish Market","authors":"Javier Gardeazabal, Marta Regúlez-Castillo","doi":"10.2139/ssrn.314263","DOIUrl":"https://doi.org/10.2139/ssrn.314263","url":null,"abstract":"In the Spanish stock market and the sample period analyzed, on average, days after a weekend or a holiday present higher returns. Firms could partially make up the price drop on ex-dividend days by scheduling dividend payments after a weekend or a holiday. However, the evidence suggests that firms do not use such policy. Formal econometric evidence finds no indication of a significant weekend effect, though, at the individual level, some stocks yield abnormal returns on ex-dividend days and when dividends are scheduled on days after weekends or holidays.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128072942","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 develops a model of rating migration by the credit rating agencies. We analyse how the rating agencies enhance efficiency. In this framework, we also investigate the possibility of a regulator increasing net surplus by appropriate policies. The firms have private information regarding the default probability of their projects. The investor is rational and has Bayesian beliefs. The rating agency is a profit maximizing intermediary. Effectiveness of some of the regulatory policies are highlighted.
{"title":"Efficiency of Competitive Rating Agencies","authors":"Bappaditya Mukhopadhyay","doi":"10.2139/ssrn.307500","DOIUrl":"https://doi.org/10.2139/ssrn.307500","url":null,"abstract":"This paper develops a model of rating migration by the credit rating agencies. We analyse how the rating agencies enhance efficiency. In this framework, we also investigate the possibility of a regulator increasing net surplus by appropriate policies. The firms have private information regarding the default probability of their projects. The investor is rational and has Bayesian beliefs. The rating agency is a profit maximizing intermediary. Effectiveness of some of the regulatory policies are highlighted.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131534940","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 Black and Scholes (1973) option pricing model was developed starting from the hypothesis of constant volatility. However, many empirical studies, have argued that the mentioned hypothesis is subject to debate. A few authors, among who - Stein and Stein (1991), Heston (1993), Bates (1996) and Bakshi et al.(1997, 2000) - suggested the use of the Fourier transform for the density of the underlying return or for the risk-neutral probabilities, in order to evaluate the fair price of an option. In this paper we propose a stochastic valuation model using the Fourier transform for option price. This model can be used for the valuation of European options, characterized by two state variables: the price of the underlying asset and its volatility. We model the stochastic processes described by the two variables and we obtain a partial derivatives equation of which the solution is the price of the derivative. We propose a solution to this partial derivatives equation using the Fourier transform. When we apply the Fourier transform, we demonstrate that a second order partial derivatives equation is solved as an ordinary differential equation. We consider a correlation between the underlying asset price and its volatility and two sources of risk: return and volatility. The first part of the paper describes the hypotheses of the model. After describing the Fourier transforms, we propose a formula for the valuation of European options with stochastic volatility. In the second part, we present a few empirical results on the pricing of CAC 40 index call options.
{"title":"Option Pricing with Stochastic Volatility: A Closed-Form Solution Using the Fourier Transform","authors":"Bogdan Negrea","doi":"10.2139/ssrn.314406","DOIUrl":"https://doi.org/10.2139/ssrn.314406","url":null,"abstract":"The Black and Scholes (1973) option pricing model was developed starting from the hypothesis of constant volatility. However, many empirical studies, have argued that the mentioned hypothesis is subject to debate. A few authors, among who - Stein and Stein (1991), Heston (1993), Bates (1996) and Bakshi et al.(1997, 2000) - suggested the use of the Fourier transform for the density of the underlying return or for the risk-neutral probabilities, in order to evaluate the fair price of an option. In this paper we propose a stochastic valuation model using the Fourier transform for option price. This model can be used for the valuation of European options, characterized by two state variables: the price of the underlying asset and its volatility. We model the stochastic processes described by the two variables and we obtain a partial derivatives equation of which the solution is the price of the derivative. We propose a solution to this partial derivatives equation using the Fourier transform. When we apply the Fourier transform, we demonstrate that a second order partial derivatives equation is solved as an ordinary differential equation. We consider a correlation between the underlying asset price and its volatility and two sources of risk: return and volatility. The first part of the paper describes the hypotheses of the model. After describing the Fourier transforms, we propose a formula for the valuation of European options with stochastic volatility. In the second part, we present a few empirical results on the pricing of CAC 40 index call options.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129459803","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 paper discusses a two-period model of an economy with two industries, positive production externalities and random shocks to production functions. Multiple equilibria that arise in such a framework can be ranked according to agent's optimism. The equilibria with higher levels of optimism are characterized by higher economic growth, higher production growth and higher proportion of investments in externality yielding industries. Using the U.S. data, it is shown that changes in sentiment predict economic growth. Sentiment has significant positive impact on industry growth, aggregate economic growth and relative levels of investment in industries. Externality yielding industries also appear to be more affected by shifts in sentiment than non-externality yielding industries.
{"title":"Do Optimists Grow Faster and Invest More?","authors":"Marcin T. Kacperczyk, Zbigniew W. Kominek","doi":"10.2139/ssrn.301242","DOIUrl":"https://doi.org/10.2139/ssrn.301242","url":null,"abstract":"The paper discusses a two-period model of an economy with two industries, positive production externalities and random shocks to production functions. Multiple equilibria that arise in such a framework can be ranked according to agent's optimism. The equilibria with higher levels of optimism are characterized by higher economic growth, higher production growth and higher proportion of investments in externality yielding industries. Using the U.S. data, it is shown that changes in sentiment predict economic growth. Sentiment has significant positive impact on industry growth, aggregate economic growth and relative levels of investment in industries. Externality yielding industries also appear to be more affected by shifts in sentiment than non-externality yielding industries.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131643770","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}
Existing real options literature provides relatively little insight into the impact of structural changes of the economic environment on the investment decision of the firm.We propose a method to model the impact of a policy change on investment behavior in which, contrary to the earlier models based on Poisson processes, uncertainty concerning the moment of the change can be explicitly accounted for.Moreover, probabilities of the change depend on the state of the dynamic system, what ensures the consistency of the action of the policy maker. We model the policy change as an upward jump in the (net) investment cost, which is, for instance, caused by a reduction in the investment tax credit.The firm has an incomplete information concerning the trigger value of the process for which the jump occurs.We derive the optimal investment rule maximizing the value of the firm.It is shown that the impact of trigger value uncertainty is non-monotonic: the investment threshold decreases with the trigger value uncertainty for low levels of uncertainty, while the reverse is true for high uncertainty levels.Finally, we present policy implications for the authority that result from the firm's value-maximizing behavior.
{"title":"Investment Under Uncertainty and Policy Change","authors":"G. Pawlina, P. Kort","doi":"10.2139/ssrn.271077","DOIUrl":"https://doi.org/10.2139/ssrn.271077","url":null,"abstract":"Existing real options literature provides relatively little insight into the impact of structural changes of the economic environment on the investment decision of the firm.We propose a method to model the impact of a policy change on investment behavior in which, contrary to the earlier models based on Poisson processes, uncertainty concerning the moment of the change can be explicitly accounted for.Moreover, probabilities of the change depend on the state of the dynamic system, what ensures the consistency of the action of the policy maker. We model the policy change as an upward jump in the (net) investment cost, which is, for instance, caused by a reduction in the investment tax credit.The firm has an incomplete information concerning the trigger value of the process for which the jump occurs.We derive the optimal investment rule maximizing the value of the firm.It is shown that the impact of trigger value uncertainty is non-monotonic: the investment threshold decreases with the trigger value uncertainty for low levels of uncertainty, while the reverse is true for high uncertainty levels.Finally, we present policy implications for the authority that result from the firm's value-maximizing behavior.","PeriodicalId":126917,"journal":{"name":"European Financial Management Association Meetings (EFMA) (Archive)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2002-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131502632","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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