Is it the weather?

We show that results in the recent strand of the literature, which tries to explain stock returns by weather induced mood shifts of investors, might be data-driven inference. More specifically, we consider two recent studies [Kamstra, Mark J., Kramer, Lisa A., Levi, Maurice D., 2003a. Winter blues: A SAD stock market cycle. American Economic Review 93(1), 324–343; Cao, Melanie, Wei, Jason, 2005. Stock market returns: A note on temperature anomaly. Journal of Banking and Finance 29(6), 1559–1573] that claim that a seasonal anomaly in stock returns is caused by mood changes of investors due to lack of daylight and temperature variations, respectively. While we confirm earlier results in the literature that there is indeed a strong seasonal effect in stock returns in many countries: stock market returns tend to be significantly lower during summer and fall months than during winter and spring months as documented by Bouman and Jacobsen [Bouman, Sven, Jacobsen, Ben, 2002. The Halloween indicator, Sell in May and go away: Another puzzle. American Economic Review, 92(5), 1618–1635], there is little evidence in favor of a SAD or temperature explanation. In fact, we find that a simple winter/summer dummy best describes this seasonality. Our results suggest that without any further evidence the correlation between weather-related variables and stock returns might be spurious and the conclusion that weather affects stock returns through mood changes of investors is premature.     

What is the Intrinsic Value of the Dow?

We model the time-series relation between price and intrinsic value as a cointegrated system, so that price and value are long-term convergent. In this framework, we compare the performance of alternative estimates of intrinsic value for the Dow 30 stocks. During 1963–1996, traditional market multiples (e.g., B/P, E/P, and D/P ratios) have little predictive power. However, a V/P ratio, where V is based on a residual income valuation model, has statistically reliable predictive power. Further analysis shows time-varying interest rates and analyst forecasts are important to the success of V. Alternative forecast horizons and risk premia are less important.     

Does Cross-Listing Benefit the Shareholders? Evidence from Companies in the GCC Countries?

The goal of this study is to estimate the impact of cross-listing on stock returns, on liquidity, and on risk. A sample of 24 companies from the Gulf Cooperation Council countries which cross-listed their stocks in a foreign market over the period 2000–2010 were chosen for study. An event study estimating abnormal returns related to the cross-listing event as well as parametric and nonparametric tests find that there is (1) a significant abnormal return of about 6 % that lasts until 6 days after the cross-listing day and starts fading away thereafter (2) a significant increase in liquidity during the event period for most firms and (3) on average a decrease in risk. Our results also suggest that cross-listing had a small impact on market risk measured by the average beta but led to a decrease in the total risk measured by standard deviation of returns and a decrease in the potential loss measured by the average value at risk at the 5 % confidence. Additionally, an analysis based on the foreign market of secondary listing suggests that the benefit of cross-listing varies with the market of secondary listing. The positive abnormal return is more obvious for companies that cross-listed in Kuwait, Bahrain, and London. The most obvious increase in liquidity is for firms that cross-listed in London or in Bahrain and the biggest decrease in risk is for companies that cross-listed in London. We conclude overall that cross-listing in London benefits the shareholders the most as it leads to positive significant abnormal returns, an increase in liquidity, and a decrease in risk.     

Is the Average Investor Smarter than the Average Euro?

In this study, we collect a unique data set of Spanish domestic equity funds for the period 1999–2006 to test the existence of the well-known “smart money” effect. Our focus is to test whether superior performance follows fund flows, demonstrating investor skills, and whether the results are robust for aggregate portfolio analysis and for individual fund analysis. Empirical evidence shows that investor abilities reported by aggregate portfolio analysis are not very evident from a fund-level perspective. This study provides two major contributions to the literature: the separate consideration of purchases and redemptions, and the proposal of a “smart investor” effect which considers investor movements instead of traditional money flows. Results show that investors’ selling decisions are less smart than their buying decisions and that investors, as individuals, are not significantly smarter than money.     

Has the euro affected the choice of invoicing currency?

We present a new approach to study empirically the effect of the introduction of the euro on the pattern of currency invoicing. Our approach uses a compositional multinomial logit model, in which currency choice is explained by both currency-specific and country-specific determinants. We use unique quarterly panel data on the invoicing of Norwegian imports from OECD countries for the 1996–2006 period. We find that eurozone countries have substantially increased their share of home currency invoicing after the introduction of the euro, whereas the home currency share of non-eurozone countries fell slightly. In addition, the euro as a vehicle currency has overtaken the role of the US dollar in Norwegian imports. The substantial rise in producer currency invoicing by eurozone countries is primarily caused by a drop in inflation volatility and can only to a small extent be explained by an unobserved euro effect.     

Is liquidity the missing link?

Durand et al. (2006a ) argue that the Australian market is both internationally integrated and domestically segmented. They find that the US‐based three‐factor model captures returns of the largest stocks in Australia (evidence of international integration), but that it is unable to account for the returns of the smallest stocks (evidence of domestic segmentation). This study resolves the puzzle left by Durand et al. (2006a) . Incorporating a liquidity factor provides the missing link in their analysis: it results in a model that permits both the international integration of the largest stocks and the model can account for the returns of the smallest stocks. Our analysis highlights the important role of liquidity in Australian asset pricing.     

What Should the World Bank Think about the Washington Consensus?

The phrase "Washington Consensus" has become a familiar termin development policy circles in recent years, but it is nowused in several different senses, causing a great deal of confusion.In this article the author distinguishes between his originalmeaning as a summary of the lowest common denominator of policyadvice addressed by the Washington-based institutions (includingthe World Bank) and subsequent use of the term to signify neoliberalor market-fundamentalist policies. He argues that the latterpolicies could not be expected to provide an effective frameworkfor combating poverty but that the original advice is stillbroadly valid. The article discusses alternative ways of addressingthe confusion. It argues that any policy manifesto designedto eliminate poverty needs to go beyond the original versionbut concludes by cautioning that no consensus on a wider agendacurrently exists.      

What is the Economic Cost of the Investment Home Bias?

Overinvesting domestically is well known as an investment home bias (IHB). We define an economic home bias (EHB), whereby the IHB measures the investment weights and the EHB measures the economic cost induced by the IHB. We may have a large IHB and a negligible EHB. With the increase in the average correlation between foreign markets from 0.4 for the decade ending in 1988 to about 0.9 for more recent decades, the U.S. EHB is becoming negligible despite the domestic investment of 77.5%. Since 2009, the correlations have decreased, indicating that the HB puzzle is emerging once again.     

Do jumps contribute to the dynamics of the equity premium?

This paper investigates whether risks associated with time-varying arrival of jumps and their effect on the dynamics of higher moments of returns are priced in the conditional mean of daily market excess returns. We find that jumps and jump dynamics are significantly related to the market equity premium. The results from our time-series approach reinforce the importance of the skewness premium found in cross-sectional studies using lower-frequency data; and offer a potential resolution to sometimes conflicting results on the intertemporal risk-return relationship. We use a general utility specification, consistent with our pricing kernel, to evaluate the relative value of alternative risk premium models in an out-of-sample portfolio performance application.     

What explains the investment growth anomaly?

We examine if an existing asset pricing model in an unconditional or conditional setting can explain the investment growth anomaly, as represented by higher returns on stocks of the firms with lower growth in capital expenditures. Our results indicate that the conditional Fama–French 3-factor model that allows factor loadings to be time-varying and further linked to firm-level characteristics and the business cycle can explain the anomaly.     

Do jumps mislead the FX market?

This paper investigates the link between jumps in the exchange rate process and rumours of central bank interventions. Using the case of Japan, we analyse specifically whether jumps trigger false reports of intervention (i.e. an intervention is reported when it did not occur). Intraday jumps are extracted using a non-parametric technique recently proposed by Lee and Mykland in 2008 and by Andersen et al. in 2007, and later modified by Boudt et al. in 2011. Rumours are identified by using a unique database of Reuters and Dow Jones newswires. Our results suggest that a significant number of jumps on the YEN/USD have been falsely interpreted by the market as being the result of a central bank intervention. The paper has policy implications in terms of central bank interventions. We show that in times where the central bank is known to intervene, some investors may attach a lot of weight to central bank interventions as a source of exchange rate movement, leading to a false ‘intervention explanation’ for observed jumps.     

Do managers listen to the market?

There are competing theories as to whether managers learn from stock prices. Dye and Sridhar (2002), for example, argue that capital markets can be better informed than the firm itself, while Roll [Roll, R., 1986, “The hubris hypothesis of corporate takeovers,” Journal of Business 59, 97–216.] argues managers may ignore market signals due to hubris. In this paper, we examine whether managers listen to the market in making major corporate investments, and whether agency costs and corporate governance mechanisms help explain managers' propensity to listen. We find that, on average, managers listen to the market: they are more likely to cancel investments when the market reacts unfavorably to the related announcement. Further, we find mixed evidence consistent with the notion that managers' propensity to listen is related to agency costs. We find that firms tend to listen to the market more when more of their shares are held by large blockholders, and when their CEOs have higher pay-performance sensitivities.     

Will architecture win the technology wars?

Success today flows to the company that establishes proprietary architectural control over a broad, fast-moving, competitive space, Charles R. Morris and Charles H. Ferguson claim in "How Architecture Wins Technology Wars" (March-April 1993). No single vendor can keep pace with the outpouring of cheap, powerful, mass-produced components, so customers have been stitching together their own local systems solutions. Architectures impose order on the system and make interconnections possible. An architectural controller has power over the standard by which the entire information package is assembled. Because of the popularity of Microsoft's Windows, for example, companies like Lotus must conform their software to its parameters to be able to compete for market share. Proprietary architectural control has broader implications for organizational structure too: architectural competition is giving rise to a new form of business organization.     

How right should the customer be?

If your salespeople aren't sure who their boss is--the district manager? the regional manager? the customer?--it could be a sign that your company's sales force controls are working at cross-purposes and that your sales function is in trouble. Sales force controls are the policies and practices that govern the way you train, supervise, motivate, and evaluate your sales staff. They include the types of compensation you offer your people and the criteria your sales managers use to evaluate the reps' performance. These controls let salespeople know which trade-offs the company would prefer them to make when the inevitable conflicts arise between what they want to do (spend lots of time and money to get a sale) and what they actually can do (use limited resources and still get the sale). When sales force controls aren't aligned--when, say, the system simultaneously encourages reps to be entrepreneurial but also to file detailed call reports and check in frequently with their bosses--individuals become discouraged and unproductive, and they eventually leave the company. The authors' research suggests there are significant differences between the control systems of companies that encourage salespeople to put the customer first-outcome control (OC) systems--and those that encourage reps to put their managers first--behavior control (BC) systems. In this article, they list the characteristics of OC and BC systems, describe the potential fallout from conflicts within these systems, and explain how you can tell which control system is appropriate for your firm. In most cases, the right choice will be a consistent system somewhere in the middle of the OC-BC continuum.     

What's the matter with business ethics?

The more business ethics secures its status in campuses across the country, the more bewildering it appears to actual managers. It's not that managers dislike the idea of doing the right thing. As University of Toronto Assistant Professor Andrew Stark argues, far too many business ethicists just haven't offered them the practical advice they need. Before business ethics became a formal discipline, advocates of corporate social responsibility claimed that the market would ultimately reward ethical behavior. But ethics and interests did not always intersect so fruitfully in the real world. And when they did not, managers were left in the dark to grope for the right ethical course. In the 1970s, the brand-new field of business ethics came onto the scene to address this issue. Critical of the "ethics pays" approach, academics held that ethics and interests can and do conflict. Still, scholars took an equally unrealistic line. To them, a manager's motivation could be either altruistic or self-interested, but never both. In short, ethicists still weren't addressing the difficult moral dilemmas that managers face on a day-to-day basis, and only recently have they begun to do so. After some initial stumbles, ethicists are getting their hands dirty and seriously considering the costs of doing the right thing. Finally, a new business ethics is emerging that acknowledges and accepts the messy world of mixed motives. As a result, novel concepts are springing up: moderation, pragmatism, minimalism, among others.(ABSTRACT TRUNCATED AT 250 WORDS)     

Does privatization serve the public interest?

"Does Privatization Serve the Public Interest?" ask John B. Goodman and Gary W. Loveman. Supporters of privatization claim that it will bring more efficiency and better quality. Critics, however, argue that other values--the broader public interest--must be accounted for. The authors draw a valuable lesson from the debate over corporate takeovers: the form of ownership is less important than the establishment of managerial accountability.