International market exit by firms: Misalignment of strategy with the foreign market risk environment

International market withdrawals by firms continue to persist regardless of geography, industry, firm experience, and national origin. The extant literature argues that a host of factors, such as firm characteristics, organizational capabilities, host country environment, international business risks, strategy and strategic choices are among the likely reasons for firms to prematurely exit the markets they have entered. Drawing from the contingency theory, we contend that underlying most market exit events is the misalignment of firm strategy with the foreign market risk environment. This happens when managers fail to optimize strategy formulation and implementation in view of the foreign market risk environment. Based on an in-depth examination of 62 cases of foreign market exits via pattern coding using NVivo 12, we delineate common patterns accounting for market withdrawals. We then formulate propositions with respect to how misalignment between strategy and risk environment interferes with foreign market exits in accordance with the contingency theory. We conclude with a discussion of theoretical implications, managerial recommendations, and suggestions for future research and limitations.     

DEFAULT AND SYSTEMIC RISK IN EQUILIBRIUM

We develop a finite horizon continuous time market model, where risk‐averse investors maximize utility from terminal wealth by dynamically investing in a risk‐free money market account, a stock, and a defaultable bond, whose prices are determined via equilibrium. We analyze the endogenous interaction arising between the stock and the defaultable bond via the interplay between equilibrium behavior of investors, risk preferences and cyclicality properties of the default intensity. We find that the equilibrium price of the stock experiences a jump at default, despite that the default event has no causal impact on the underlying economic fundamentals. We characterize the direction of the jump in terms of a relation between investor preferences and the cyclicality properties of the default intensity. We conduct a similar analysis for the market price of risk and for the investor wealth process, and determine how heterogeneity of preferences affects the exposure to default carried by different investors.     

Investor behavior and volatility of futures market: A theory and empirical study based on the OLG model

Investor trading behaviors are always an important issue in behavioral finance and market supervision. This study examines the relationship between investor behavior and future market volatility. We first introduce a two-period OLG model into the futures market, and develop an investor behavior model based on future contract price. We then extend the model to two scenarios: complete and incomplete information. We provide the equilibrium solution, and develop two hypotheses, which are tested with cuprum tick data in Shanghai Futures Exchange (SHFE). Empirical results show that the two-period OLG model for future market is consistent with the market situation in China. More specifically, investors with sufficient information such as institutional investors usually adopt the contrarian trading strategy, whereas investors with insufficient information, e.g., individual investors, usually adopt the momentum trading strategy. These findings reveal that investor behaviors in the Chinese futures market are different from those of in the Chinese stock market.     

Multiple Ratings Model of Defaultable Term Structure

A new approach to modeling credit risk, to valuation of defaultable debt and to pricing of credit derivatives is developed. Our approach, based on the Heath, Jarrow, and Morton (1992) methodology, uses the available information about the credit spreads combined with the available information about the recovery rates to model the intensities of credit migrations between various credit ratings classes. This results in a conditionally Markovian model of credit risk. We then combine our model of credit risk with a model of interest rate risk in order to derive an arbitrage‐free model of defaultable bonds. As expected, the market price processes of interest rate risk and credit risk provide a natural connection between the actual and the martingale probabilities.     

Entrepreneurs' choice of entry strategy in emerging and developed markets

The model presented here acknowledges the complexity of the entry strategy decision and offers guidance on when to enter the market and how to enter the market, taking into consideration the current environment. From speculations over the differences between emerging and developed economies, the model offers a systematic way to determine the optimal entry strategy in terms of entry timing and level of mimicry. An implication of the model is that the cost/benefit ratio from using a high mimicry entry strategy is lower for companies entering emerging economies than it is for companies entering developed economies.     

UTILITY MAXIMIZATION IN AN INSIDER INFLUENCED MARKET

We study a controlled stochastic system whose state is described by a stochastic differential equation with anticipating coefficients. This setting is used to model markets where insiders have some influence on the dynamics of prices. We give a characterization theorem for the optimal logarithmic portfolio of an investor with a different information flow from that of the insider. We provide explicit results in the partial information case that we extend in order to incorporate the enlargement of filtration techniques for markets with insiders. Finally, we consider a market with an insider who influences the drift of the underlying price asset process. This example gives a situation where it makes a difference for a small agent to acknowledge the existence of an insider in the market.     

Transforming an Online Portal Site into a Playground for Netizen

ABSTRACT

NHN was a laggard in the Internet portal business in Korea. When it entered the market, global giants such as Yahoo already had built a formidable presence in the Korean market, where leadership advantage was cited as a defining success factor. NHN was far behind not only because of timing but also because of information sources–which are the real root of their business–due to a lack of open web sites in Korea. They also discovered that an information portal has an inherent limitation in creating stickiness in its site. People click and leave the typical information portal upon finding their query results. However, the portal site business model is based on web advertisement, and performance depends on stickiness. This case explains how NHN beat the odds and became the leading portal in Korea. This company's innovative technology and customer-oriented strategy not only allowed it to surpass all of its competitors, but it also is revolutionizing the portal business both in Korea and globally.     

The Chinese warrant bubble: A fundamental analysis

We investigate the information content in Chinese warrant prices based on an option pricing framework that incorporates short‐selling and margin‐trading constraints in the underlying stock market. We show that Chinese warrant prices can be explained under this pricing framework. On the basis of this new model, we develop a price deviation measure to quantify stock market investors' unobserved demand for short selling or margin trading due to market constraints. We find that warrant‐price deviations are driven by underlying stock valuation to a great extent. Chinese warrant prices, save for the time around expiration dates, are better characterized as derivatives than as pure bubbles.     

Natural Selection and Market Efficiency in a Futures Market with Random Shocks

Even when participants know very little about their environment, the market itself, by serving as a selection process of information, promotes an efficient aggregate outcome. To emphasize the role of the market and the importance of natural selection rather than the strategic actions of participants, an evolutionary model of a commodity futures market is presented, in which there is a continual inflow of unsophisticated traders with predetermined distributions of prediction errors with respect to the fundamental value of the spot price. The market acts as a selection process by constantly shifting wealth from traders with less accurate information to those with more accurate information. Consequently, with probability 1, if the volatility of the underlying spot market is sufficiently small, the proportion of time that the futures price is sufficiently close to the fundamental value converges to one. Furthermore, the width of the interval containing the fundamental value, where the futures price eventually lies, increases as the volatility of the underlying spot market increases. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:489–516, 2001     

Market Timing With Moving Averages

I present evidence that a moving average (MA) trading strategy has a greater average return and skewness as well as a lower variance compared to buying and holding the underlying asset using monthly returns of value‐weighted US decile portfolios sorted by market size, book‐to‐market, and momentum, and seven international markets as well as 18,000 individual US stocks. The MA strategy generates risk‐adjusted returns of 3–7% per year after transaction costs. The performance of the MA strategy is driven largely by the volatility of stock returns and resembles the payoffs of an at‐the‐money protective put on the underlying buy‐and‐hold return. Conditional factor models with macroeconomic variables, especially the default premium, can explain some of the abnormal returns. Standard market timing tests reveal ample evidence regarding the timing ability of the MA strategy.     

Sharing contracts' marginalisation,adverse selection and markup calculation

This paper proposes a new approach to explain the dominance—in the Islamic banking market—of markup contracts at the expense of sharing ones. We show that the dual pricing practised in this market produces an additional—or artificial—dimension of adverse selection, which is causing the sharing contracts' marginalization. We suggest specialized use of two Islamic contractual categories as a device for eliminating artificial adverse selection. We suggest also an endogenous calculation of the markup, that is independent of the interest rate, based on the financing cost unification. This approach allows the deduction of default and liquidity risk premiums.     

Dynamic Minimization of Worst Conditional Expectation of Shortfall

In a complete financial market model, the shortfall-risk minimization problem at the terminal date is treated for the seller of a derivative security F . The worst conditional expectation of the shortfall is adopted as the measure of this risk, ensuring that the minimized risk satisfies certain desirable properties as the dynamic measure of risk, as proposed by Cvitanić and Karatzas (1999) . The terminal value of the optimized portfolio is a binary functional dependent on F and the Radon-Nikodym density of the equivalent local martingale measure. In particular, it is observed that there exists a positive number x * that is less than the replicating cost x_F of F , and that the strategy minimizing the expectation of the shortfall is optimal if the hedger's capital is in the range [ x *, x_F ].     

RISK METRICS AND FINE TUNING OF HIGH‐FREQUENCY TRADING STRATEGIES

We propose risk metrics to assess the performance of high‐frequency (HF) trading strategies that seek to maximize profits from making the realized spread where the holding period is extremely short (fractions of a second, seconds, or at most minutes). The HF trader maximizes expected terminal wealth and is constrained by both capital and the amount of inventory that she can hold at any time. The risk metrics enable the HF trader to fine tune her strategies by trading off different metrics of inventory risk, which also proxy for capital risk, against expected profits. The dynamics of the midprice of the asset are driven by information flows which are impounded in the midprice by market participants who update their quotes in the limit order book. Furthermore, the midprice also exhibits stochastic jumps as a consequence of the arrival of market orders that have an impact on prices which can give rise to market momentum (expected prices to trend up or down). The HF trader's optimal strategy incorporates a buffer to cover adverse selection costs and manages inventories to maximize the expected gains from market momentum.     

Pricing of card payment services in Scandinavian banking: a comment

Willesson [(2009). Pricing of card payment services in Scandinavian banking. The Service Industries Journal, 29(3), 387–399] purports to demonstrate that when it comes to pricing of card payment services, Scandinavian banks with foreign operations will typically align themselves with the ‘pricing tradition’ in their foreign market(s). Unfortunately, a problem with Willesson's approach is that for several banks in his sample the foreign pricing tradition happens to coincide with the pricing strategy that the bank uses in its home market. As a result, it is impossible to determine whether these banks have really opted for a strategy of national responsiveness.     

Choosing a digital content strategy: How much should be free?

Advertising supported content sampling is ubiquitous in online markets for digital information goods. Yet, little is known about the profit impact of sampling when it serves the dual purpose of disclosing content quality and generating advertising revenue. This paper proposes an analytical framework to study the optimal content strategy for online publishers and shows how it is determined by characteristics of both the content market and the advertising market. The strategy choice is among a paid content strategy, a sampling strategy, and a free content strategy, which follow from the publisher's decisions concerning the size of the sample and the price of the paid content. We show that a key driver of the strategy choice is how sampling affects the prior expectations of consumers, who learn about content quality from the inspection of the free samples. Surprisingly, we find that it can be optimal for the publisher to generate advertising revenue by offering free samples even when sampling reduces both prior quality expectations and content demand. In addition, we show that it can be optimal for the publisher to refrain from revealing quality through free samples when advertising effectiveness is low and content quality is high. To illustrate, we relate our framework to the newspaper industry, where the sampling strategy is known as the “metered model.”     

Timing the Market with a Combination of Moving Averages

A combination of simple moving average trading strategies with several window lengths delivers a greater average return and skewness as well as a lower variance and kurtosis compared with buying and holding the underlying asset using daily returns of value‐weighted US decile portfolios sorted by market size, book‐to‐market, momentum, and standard deviation as well as more than 1000 individual US stocks. The combination moving average (CMA) strategy generates risk‐adjusted returns of 2% to 16% per year before transaction costs. The performance of the CMA strategy is driven largely by the volatility of stock returns and resembles the payoffs of an at‐the‐money protective put on the underlying buy‐and‐hold return. Conditional factor models with macroeconomic variables, especially the market dividend yield, short‐term interest rates, and market conditions, can explain some of the abnormal returns. Standard market timing tests reveal ample evidence regarding the timing ability of the CMA strategy.     

Affine multiple yield curve models

We provide a general and tractable framework under which all multiple yield curve modeling approaches based on affine processes, be it short rate, Libor market, or Heath–Jarrow–Morton modeling, can be consolidated. We model a numéraire process and multiplicative spreads between Libor rates and simply compounded overnight indexed swap rates as functions of an underlying affine process. Besides allowing for ordered spreads and an exact fit to the initially observed term structures, this general framework leads to tractable valuation formulas for caplets and swaptions and embeds all existing multicurve affine models. The proposed approach also gives rise to new developments, such as a short rate type model driven by a Wishart process, for which we derive a closed‐form pricing formula for caplets. The empirical performance of two specifications of our framework is illustrated by calibration to market data.     

Fitting strategy derived from strategic orientation to international contexts

The search for strategic fit within a market has become a core concept in strategy research. The issue of strategic fit is becoming increasingly important in international strategy as managers and academics explore the uniqueness of international markets. Unfortunately, during a time of open market diversity, many firms are driving toward a singular strategic orientation (i.e., market orientation), thus ignoring the underlying problems and criticisms with a standardized strategy, often resulting in suboptimal performance. A model highlighting the criteria necessary for fitting strategy to international contexts is developed. An empirical illustration is then used to examine the benefits of strategically fitting strategy to context. Finally, a process is provided to assist managers in the formation and implementation of their strategy. © 2006 Wiley Periodicals, Inc.     

A generalized theoretical modelling approach for the assessment of economic-capital under asset market liquidity risk constraints

This paper proposes a concrete theoretical foundation and a new modelling framework that attempts to tackle the issue of market/liquidity risk and economic-capital estimation at a portfolio level by combining two mutual asset market/liquidity risk models. In essence, this study extends research literature related to the assessment of the asset market/liquidity risk by providing a generalized theoretical modelling underpinning that handle, from the same perspective, market and liquidity risks jointly and integrate both risks into a portfolio setting without a commensurate increase of statistical postulations. As such, we argue that market and liquidity risk components are correlated in most cases and can be integrated into one single market/liquidity framework that consists of two interrelated sub-components. The first component is attributed to the impact of adverse price movements and is modelled based on the concept of liquidity-adjusted value-at-risk framework, while the second component focuses on the risk of variation in transactions costs due to the bid-ask spreads and it attempts to measure the likelihood that it will cost more than expected to liquidate the asset position. As such, the model comprises a new approach to contemplating the impact of time-varying volatility of the bid-ask spread and its upshot on the overall asset market/liquidity risk. The modelling framework can be constructive for financial service industries in emerging-economies and particularly in reinforcing rational economic-capital allocation in light of the aftermaths of the sub-prime financial crisis.     

Uniform or spatially differentiated? Pricing Strategies for Information Goods under simultaneous and sequential decision-making in multi-market context

Product pricing has been one of the central issues in the field of marketing and consumer services for managers and researchers alike. However, pricing of information goods has not been paid much attention in literature. For information goods the marginal costs of production and transportation of information goods (online movies, video games, etc.) is almost zero. Hence, the pricing decisions need to be thought of purely in competitive profit maximizing terms. This paper proposes mechanisms for managers to evaluate and base their pricing decisions on rational frameworks that takes into account various situations when they enter a new market and when they are incumbent in a new market. This paper addresses the research gap of spatially differentiated pricing strategy for information goods that has not been studied in literature so far. We create stylized theoretical models under both, sequential and simultaneous decision-making conditions. We determine the equilibrium price and the equilibrium profit for the two firms for each of the four possible scenarios based on their pricing strategies. Our analysis reveals that the dominance of one pricing strategy over the other depends on product differentiation factor capturing joint effect of the product substitutability and consumer's price sensitivity under sequential decision making and the market size along with consumer's price sensitivity for simultaneous decision making. As an extension, we propose a generalized model demonstrating the uniform and spatially differentiated pricing strategies of the firms under simultaneous and sequential selection for multiple domestic and international markets.