Speculative trading,prospect theory and transaction costs

A speculative agent with prospect theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximise the expected utility of the round-trip profit net of transaction costs. The optimisation problem is formulated as a sequential optimal stopping problem, and we provide a complete characterisation of the solution. Depending on the preference and market parameters, the optimal strategy can be “buy and hold”, “buy low, sell high”, “buy high, sell higher” or “no trading”. Behavioural preference and market friction interact in a subtle way which yields surprising implications on the agent’s trading patterns. For example, increasing the market entry fee does not necessarily curb speculative trading, but instead may induce a higher reference point under which the agent becomes more risk-seeking and in turn is more likely to trade.

     

Spend More Today Safely: Using Behavioral Economics to Improve Retirement Expenditure Decisions With SPEEDOMETER Plans

This article examines how behavioral economics can be used to improve the spending decisions of retirees, using a SPEEDOMETER (or Spending Optimally Throughout Retirement) retirement expenditure plan that employs defaults within a choice architecture. The plan involves just four key behavioral nudges: (1) first, make a plan—ideally by being auto‐enrolled into one or with the help of a financial adviser; (2) automatic phasing of annuitization, which is designed to tackle the aversion to large irreversible transactions and losing control of assets, and so allows the greatest possible degree of flexibility in managing the rundown of retirement assets; (3) capital protection in the form of “money‐back” annuities that deals with loss aversion, that is, the fear of losing your money if you die early; and (4) the slogan “spend more today safely” that utilizes hyperbolic discounting to satisfy the human trait of wanting jam today, and to reinforce the idea that “buying an annuity is a smart thing to do.”     

上市企业员工满意度与创新——来自“中国年度最佳雇主100强”的经验证据

本文以2011－2017年沪深两市的A股上市企业为研究对象,以是否入选“中国年度最佳雇主100强”榜单衡量上市企业的员工满意度,考察员工满意度对企业创新的影响。研究表明,入选榜单的企业平均而言比其它主要特征相似的匹配企业的专利申请总数高约47%。这一效应主要体现在发明专利和实用新型专利上,而在外观设计专利上不显著。进一步地,员工满意度可以通过提高失败容忍度来提升企业创新。最后,经济后果检验表明,员工满意度的提高可以显著提升员工的创新效率和企业全要素生产率,说明较高的员工满意度有助于企业效率和长期价值的提升。     

Crises,Financial Leadership,and the Six Stretches for Financial Education

The former dean of the University of Virginia's Darden School explores how business schools must adapt to prepare future business leaders to assume the leadership responsibilities necessary to respond effectively to financial crises. The article begins with a statement by Milton Friedman and Anna Schwarz in their Monetary History of the United States about the failure of U.S. policy makers to prevent the collapse of the U.S. banking system during the Great Depression. Then turning to the crisis of 2008, the author draws on recent accounts of the leadership—both effective and ineffective—provided by policymakers to support Friedman and Schwartz's contention that the success of countries in responding to crises “depends on the presence of one or more outstanding individuals willing to assume responsibility and leadership.” After citing Nassim Taleb's characterization of the financial system as inherently “fragile,” the article offers a number of insights about the kind of leadership that is likely to prove effective in protecting such systems. Using the responses of policymakers like Bernanke, Paulson, and Geithner as examples, the author observes that successful leaders rank priorities and set direction, mobilize collective action, choose whether and how to use the “panoply of tools” at their disposal, and attempt to respond in a comprehensive, coordinated way to all aspects of a crisis using a flexible set of approaches and methods that he identifies as “Ad Hoc‐racy.” With such insights in mind, the author goes on to suggest that changes in current research and teaching about leadership are likely to take the form of the following six “stretches”:

相似文献   

银行价格竞争、融资约束与企业研发投资——基于“中介效应”模型的实证研究

近年来我国利率市场化改革积极推进,实体经济发展积极向创新驱动转型,一个亟须研究厘清的关键问题是,银行业竞争如何驱动企业创新活动？本文关注银行价格竞争对企业创新的影响,以2013—2018年沪深两市的上市企业为样本,采用“中介效应”因果分析模型,实证检验了银行价格竞争对企业研发投资的影响,并识别出以融资约束为中介渠道的作用机制。研究发现,银行价格竞争不仅会提高银行的风险容忍度,直接增加R&D投资的信贷供给意愿,而且还会通过降低贷款价格和增加贷款可得性来缓解企业整体的融资约束,间接促进企业创新活动。这一机制在解除贷款利率管制之后以及在民营企业层面体现得更加明显。本文的研究结果对于深化金融市场化改革、改善金融服务实体经济效果以及实施经济创新驱动发展战略,具有明确的政策启示。     

绿色金融、绿色创新与经济高质量发展

在可持续增长理论的基础上,本文将减排技术内生化,建立带有环境约束并包含金融部门的经济增长模型,解释了绿色金融通过支持绿色创新提升经济增长质量的内在机制。这一理论得到了基于中国省级面板数据中介效应分析的支持。本文为绿色金融的经济学建模提供了新的思路,推进了绿色金融的“功能”理论,论证了绿色金融对经济增长质量影响的“绿色创新渠道”,这意味着绿色金融不限于对少数清洁行业的支持,针对高污染、高能耗行业内部环保技术升级的金融服务也至关重要,是未来绿色金融政策需要关注的问题。     

An optimal rule for patent damages under sequential innovation

We analyze the optimal design of damages for patent infringement when a follow‐on innovator may infringe the patent of an initial innovator. We consider damage rules that are linear combinations of the popular “lost profit” (LP) and “unjust enrichment” (UE) rules, coupled with a lump‐sum transfer between innovators. Such linear rules can sometimes induce the socially optimal levels of sequential innovation and the optimal allocation of industry output. The optimal linear rule achieves the highest welfare among all rules that ensure a balanced budget for the industry, and often secures substantially more welfare than either the LP rule or the UE rule.     

ESG Investing in Graham & Doddsville

The author describes how and why the world's best “business value investors” have long incorporated environmental, social, and governance (ESG) considerations into their investment decision‐making. As the main source of value in companies has increasingly shifted from tangible to intangible assets, many followers of Graham & Dodd have delivered exceptional investment results by taking an “earnings‐power” approach to identifying high‐quality businesses—businesses with enduring competitive advantages that are sustained through significant ongoing investment in their core capabilities and, increasingly, their important non‐investor “stakeholders.” While the ESG framework may be relatively new, it can be thought of as providing a lens through which to view the age‐old issue of “quality.” Graham & Dodd's 1934 classic guide to investing, Security Analysis, and Phil Fisher's 1958 bestseller, Common Stocks and Uncommon Profits, both identify a number of areas of analysis that would today be characterized as ESG. Regardless of whether they use the labels “E,” “S,” and “G,” investors who make judgments about earnings power and sustainable competitive advantage are routinely incorporating ESG considerations into their decision‐making. The challenge of assessing a company's sustainable competitive advantage requires analysis based on concepts such as customer franchise value, as well as intangibles like brands and intellectual property. For corporate managers communicating ESG priorities, and for investors analyzing ESG issues, the key is to focus on their relevance to the business. In this sense, corporate reporting on sustainability issues should be viewed as analogous to and an integral part of financial reporting, with a management focus on materiality and relevance (while avoiding a “promotional” approach) that is critical to credibility.     

On the Feasibility of Automated Market Making by a Programmed Specialist

Securities trading is accomplished through the execution of orders. Admissible orders (e.g., market orders, limit orders) give rise to discontinuous aggregate demand functions, composed of many “steps.” Demand smoothing, or the balancing of excesses due to such discontinuities via intervention, is one of the most basic functions that could be assigned to a “specialist.” When the specialist's “affirmative obligation” is fully specified, his or her activity can in principle be automated. This paper is an attempt to assess, via simulation, some of the ramifications of using a “programmed specialist,” whose automated market making is limited to demand smoothing. A number of alternative rules of operation are simulated. Several of the rules performed well, especially the extremely simple rule that calls for the (computerized) specialist to minimize new absolute share holdings in each security at each trading point via “total” (as opposed to “local”) demand smoothing. Our results indicate that the underlying costs of demand smoothing are on the order of a fraction of a penny per share traded even in relatively thin markets.     

The form of incentive contracts: agency with moral hazard,risk neutrality,and limited liability

The analysis obtains a complete characterization of the optimal agency contract with moral hazard, risk neutrality, and limited liability. We introduce a “critical ratio” that indicates the returns to providing the agent with incentives for effort in each random state. The form of the contract is debt (a capped bonus) when the critical ratio is increasing (decreasing) in the state. An increasing critical ratio in the state‐space setting corresponds to the hazard rate order for the reduced‐form distribution of output, which we term the “decreasing hazard rate in effort property” (DHREP). The critical ratio also yields insights into agency with adverse selection.     

Canadian Business Trusts: A New Organizational Structure

The focus of this paper is a subset of income trusts called business trusts, a Canadian financial innovation that has experienced remarkable success in the Canadian market, but not in the U.S. At theendof2005, there were more than 170 business trusts (most of them in Canada, but a handful in the U.S.) with an aggregate market value of over $90 billion. Like income trusts generally, which include REITs and oil & gas trusts, business trusts are designed in large part to avoid taxation at the corporate level by distributing a substantial proportion of a business's operating cash flow. The business trust structure provides investors (called “unit holders”) with what amounts to a combination of subordinated, high‐yield debt and high‐yielding equity. But unlike the subordinated debt in most highly leveraged transactions (HLTs), the “internal” debt in a business trust unit is effectively “stapled” to the equity part of the security. And this kind of “strip financing” (which was a common practice in U.S. LBOs during the‘80s) means that, besides providing stable cash‐generating companies with a tax‐minimizing way of paying out excess cash, the business unit structure also limits the “financial distress costs” associated with HLTs. In the event of financial trouble, the unit holders are likely to be much more cooperative than ordinary subordinated debt holders in restructuring interest payments since the benefits of so doing accrue to the equity portion of their units. The original income trust structure has also been used by a number of U.S.‐based companies that listed their shares on the TSX. But, in the attempt to make the securities suitable for listing on the AM EX, and in response to auditor demands intended to address potential IRS concerns, the instruments were modified in ways that sacrificed one of the important benefits of the original structure. The changes were designed to make the subordinated debt issued as part of a package with equity look more like external, third‐party debt. And in so doing, the low‐cost restructuring feature built into the Canadian version was lost, and the U.S. trusts failed to gain acceptance.     

Piercing the veneer of the trust in the South African Trust Law: Liability of trustees of a business trust for fraudulent trading

The trust, whichever form it is moulded in, is a useful instrument for estate planning. However, many family businesses nowadays take the form of a business trust without any change in the circumstances surrounding it. This submits the trust to diatribe and suspicion because the protection the trust offers is often exploited. In Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA) it was obiter the court's view that it might be necessary to extend well-established company law principles also to trusts. The court referred to the Turquand principle and the principle of “piercing the corporate veil”. The motivation is that assets allegedly vesting in the trustees of a trust, in fact belong to one or more of the trustees personally. This view may have obvious and important implications in case of the sequestration of the trustee's estate. It implies that the assets concerned may be used in satisfaction of the trustee's debts because “in fact it belongs to the trustee”. However, it may also be used in satisfaction of debts “to the repayment of which the trustees purported to bind the trust”. Thus, if the trust's estate is sequestrated, the assets may be used in satisfaction of the trust's debts. If the personal estate of the trustee is sequestrated, these assets may be utilized in satisfaction of the trustee's personal debts. Consequently it is relevant to ask the question whether the trustee's personal estate (irrespective of sequestration) would be liable for restitution in favour of the beneficiaries for these actions in breach of trust in competition with the creditors of the trustee. Copyright © 2008 John Wiley & Sons, Ltd.     

CONVERTIBLE BONDS: MATCHING FINANCIAL AND REAL OPTIONS

For companies whose value consists in large part of “real options”‐ growth opportunities that may (or may not) materialize‐convertible bonds may offer the ideal financing vehicle because of the matching financial options built into the securities. This paper proposes that convertible debt can be a key element in a financing strategy that aims not only to fund current activities, but to give companies access to low‐cost capital if and when their real investment options turn out to be valuable. In this sense, convertibles can be seen as the most cost‐effective solution to a sequential financing problem‐how to fund not only today's activities, but also tomorrow's growth opportunities (some of them not yet even foreseeable). For companies with real options, the ability of convertibles to match capital inflows with corporate outlays adds value by minimizing two sets of costs: those associated with having too much (particularly equity) capital (known as “agency costs of free cash flow”) and those associated with having too little (“new issue” costs). The key to the cost‐effectiveness of convertibles in funding real options is the call provision. Provided the stock price is “in the money” (and the call protection period is over), the call gives managers the option to force conversion of the bonds into equity. If and when the company's investment opportunity materializes, exercise of the call feature gives the firm an infusion of new equity (while eliminating the debt service burden associated with the convertible) that enables it to carry out its new investment plan. Consistent with this argument, the author's recent study of the investment and financing activities of 289 companies around the time of convertible calls reports significant increases in capital expenditures starting in the year of the call and extending three years after. The companies also showed increased financing activity following the call, mainly new long‐term debt issues (many of them also convertibles) in the year of the call.     

The shifted Hadwiger fertility function

Abstract

The age-specific (female) fertility rates ?(y) are usually defined by applying the conventional definition of the birth rate to the sub-population consisting of y-aged females. Without further notification only live-born girls are taken into account; in the cases where both live-born girls and boys are considered the rates may be indicated as “total”. We distinguish between the above “gross” rates and the “net” rates p(y)?(y), where p(y) refers to the probability that a new-born girl will be alive at age y. Apart from proportionality factors these interdependent rates often show only small differences in a given situation.     

Information congestion

Unsolicited advertising messages vie for scarce attention. “Junk” mail, “spam” e‐mail, and telemarketing calls need both parties to exert effort to generate transactions. Message receivers supply attention according to average message benefit, while the marginal sender determines congestion. Costlier transmission may improve average message benefit so more messages are examined. Too many (too few) messages may be sent, or the wrong ones. A Do‐Not‐Call policy beats a ban, but too many individuals opt out. A monopoly gatekeeper performs better than personal access pricing if nuisance costs to receivers are moderate. The welfare results still hold when messages are presorted (triage).     

The State of the Public Corporation: Not So Much an Eclipse as an Evolution

By some measures, the U.S. public corporation appears to be in the midst of a significant decline, as Michael Jensen predicted 25 years ago in a Harvard Business Review article called “The Eclipse of the Public Corporation.” Based on an analysis of ten industries during the 48‐year period from 1966 through the end of 2013, the author reports a 60% drop in the number of publicly traded U.S. companies, as measured from each of the industry peaks to the end of 2013. Mergers and acquisitions, together with the private‐equity transactions hailed by Jensen in his 1989 HBR article, have contributed significantly to this reduction in numbers. But so has the remarkable growth of “uncorporate” (or pass‐through) structures such as Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs), both of which address governance as well as tax problems faced by public C‐corporations. But along with this drop in numbers, the author's analysis of the performance of U.S. public companies—as measured both by operating returns on equity and Tobin's Q ratios—also shows a growing separation of the “best” from the “rest” over time. Intense global product market competition, the growing benefits (and urgency) of achieving efficient scope and scale, high U.S. corporate income tax rates, and a vigorous market for corporate control are all significantly “thinning the herd” of public corporations. The “winners” have been emerging as larger, more efficient, and more influential enterprises than ever before, as the rise of massive U.S. multinationals (and, in countries outside the U.S., state‐owned enterprises) over the past two decades has increasingly blurred the line between private business and government. Viewed in this light, the overall trends, both in the U.S. and abroad, suggest an evolution rather than an eclipse of the public corporation. Such trends also suggest that over the next 25 years, the success of the public corporation will increasingly depend on issues such as its ability to resolve conflicts between controlling shareholders (including sovereign governments) and minority shareholders, regulatory (in particular, antitrust) policy, and the role (and investment horizons) of activist shareholders.     

BEHIND THE CORPORATE HEDGE: INFORMATION AND THE LIMITS OF "SHAREHOLDER WEALTH MAXIMIZATION"

The article begins by setting out three alternative conceptions of the corporate objective function. Relying on this framework, it shows that legal analyses tend to neglect conflicts between the interests of the corporate entity and the interests of shareholders over the amount of corporate risk-taking. Financial analyses tend to ignore both constraints on managerial discretion imposed by law and a fundamental ambiguity the author identifies in the “shareholder wealth maximization” assumption that underlies such analyses. This ambiguity arises in part from market “frictions”–particularly, the investor uncertainty and heightened price volatility that stem from informational “asymmetry.” Such an information gap between management and outside investors (along with market “irrationality”) can cause material disparities between the actual trading price and the intrinsic value (or what the author calls the “blissful price”) of a company's shares. As a consequence, corporate hedging that maximizes actual share values may not maximize intrinsic values (and vice versa), thus giving rise to a managerial dilemma. Previous analyses have also failed to give adequate consideration to the expectations of shareholders. If, for example, the shareholders of a natural resource company are seeking a relatively “pure play” on that resource–in part because they believe the company's management has no comparative advantage in managing price risks–corporate hedging that increases shareholder wealth may re-duceshareholder welfare. In this sense, the usual “shareholder wealth maximization” directive is not only ambiguous, but also incomplete. These problems stem not only from informational asymmetry, but from other institutional realities (such as the “political” taint associated with reported derivative losses of any kind) that raise the information costs of using derivatives. The article concludes with some suggestions for improving disclosure of corporate risk management “philosophy.” Better disclosure may not only help reduce such information costs, but could also encourage corporations to find–and stick to–their derivatives niche.     

Brealey,Myers, and Allen on Real Options

Real options are valuable sources of flexibility that are either inherent in, or can be built into, corporate assets. The value of such options are generally not captured by the standard discounted cash flow (DCF) approach, but can be estimated using a variant of financial option pricing techniques. This article provides an overview of the basics of real option valuation by examining four important kinds of real options:

• 1 The option to make follow‐on investments. Companies often cite “strategic” value when taking on negative‐NPV projects. A close look at the payoffs from such projects reveals call options on follow‐on projects in addition to the immediate cash flows from the projects. Today's investments can generate tomorrow's opportunities.
• 2 The option to wait (and learn) before investing. This is equivalent to owning a call option on the investment project. The call is exercised when the firm commits to the project. But often it's better to defer a positive‐NPV project in order to keep the call alive. Deferral is most attractive when uncertainty is great and immediate project cash flows—which are lost or postponed by waiting—are small.
• 3 The option to abandon. The option to abandon a project provides partial insurance against failure. This is a put option; the put's exercise price is the value of the project's assets if sold or shifted to a more valuable use.
• 4 The option to vary the firm's output or its production methods. Companies often build flexibility into their production facilities so that they can use the cheapest raw materials or produce the most valuable set of outputs. In this case they effectively acquire the option to exchange one asset for another.

The authors also make the point that, in most applications, real‐option valuation methods are a complement to, not a substitute for, the DCF method. Indeed DCF, which is best suited to and usually sufficient for safe investments and “cash cow” assets, is typically the starting point for real‐option analyses. In such cases, DCF is used to generate the values of the “underlying assets”—that is, the projects when viewed without their options or sources of flexibility.