Exchange introduction and market competition: The entrance of MEMX and MIAX

In September of 2020, two new equity exchanges, Members Exchange and Miami International Holdings Pearl Equities Exchange, were introduced further fragmenting an already vast array of venues that trade equities in the United States. In this paper we examine several aspects exchange competition following the introduction of these exchanges. We find that NASDAQ appears to lose market share and IEX appears to gain market share in the post-introduction period. This is interesting as IEX is a fee-based model, where order routers will not receive a rebate, and also introduces a speed bump, which could result in slower executions. Using Rule 605 data we document that IEX exhibits faster execution following the introduction. Finally, we examine clientele effects and find that known proxies for algorithmic trading and retail trading increase in the post introduction period.     

Stock repurchases as an earnings management device

We investigate whether firms use stock repurchases to meet or beat analysts’ earnings per share (EPS) forecasts. We identify conditions under which repurchases increase EPS and document the frequency of accretive repurchases from 1988 to 2001. We find a disproportionately large number of accretive stock repurchases among firms that would have missed analysts’ forecasts without the repurchase. The repurchase-induced component of earnings surprises appears to be discounted by the market, and this discount is larger when the repurchase seems motivated by EPS management, although using the repurchase to avoid missing analyst forecasts appears to mitigate some of the negative stock price response.     

Autonomy and improved performance: lessons from an NHS policy reform

Autonomy is currently seen by policy-makers in many countries as a possible mechanism for enhancing public sector performance. The authors examine a service reform (the National Health Service in England) in which more autonomy was given to better performing hospitals. Drawing on data from interviews with senior managers, the research suggests that despite being enmeshed in a politicized culture of regulations and guidance, autonomy is increasingly perceived positively and appears to depend on the extent to which organizations have the incentives and the capacity to respond to increased autonomy. The article presents findings that will be of value to policy-makers in many countries.     

The Evolution of Market Efficiency: 103 Years Daily Data of the Dow

Autocorrelation in daily returns of the Dow 30 Index fluctuates significantly over time and reveals a declining trend after World War II. The relation between autocorrelation and volatility is negative and nonlinear. The relation between autocorrelation and volume is also negative and nonlinear. Returns exhibit positive autocorrelation during years with higher autocorrelation, and negative autocorrelation during years with lower autocorrelation. Positive autocorrelation appears more frequently during periods of low volatility, while negative autocorrelation appears more frequently during periods of high volatility. Current period's autocorrelation is related to previous period's autocorrelation and to both the previous and the current period's volatility and rate of return, which implies that investors incorporate previous period's pattern of market behavior into their trading strategy.     

The Impact of Irreversibility,Uncertainty and Timing Options on Deprival Valuations and the Detection of Monopoly Profits

This paper has two purposes. The first is to derive rules identifying the deprival value of an asset (i) which is irreversible to one extent or another; (ii) the benefit stream of which is subject to continuing uncertainty; and (iii) for which an option to wait exists as to when to reacquire should the owner be deprived of it. The second is to consider whether accounting rates of return employing these deprival value rules can be developed to help in the detection of monopoly profits in circumstances where investment decision-making takes place in the presence of irreversibility, uncertainty and the existence of timing options. The ‘new’ deprival value rules for an asset differ from the ‘conventional’ ones in that present value less the value of the option to reinvest in the asset appears in the ‘new’ rules wherever present value appears in the ‘conventional’ rules. Examples are provided which suggest that ‘new’ and ‘conventional’ deprival value rules can differ materially. A further result is that accounting rates of return can be developed using the ‘new’ deprival value rules that are, in principle, useful in the detection of monopoly profits. Nonetheless, in practice such use requires a level of information that renders the result superfluous in the sense that the provision of replacement cost balance sheet data, combined with the level of information needed, is sufficient to reveal the presence of monopoly profits directly.     

Where Does State Street Lead? A First Look at Finance Patents, 1971 to 2000

This paper empirically examines patents for financial formulas and methods, whose patentability was recently confirmed in the litigation between State Street Bank and Trust and Signature Financial Group. The number of such filings and awards has been accelerating. Patent filings by academics have been very infrequent, which appears to be a consequence of a lack of awareness or interest on the part of faculty members, rather than any fundamental unsuitability of their research for patenting. The failure to cite academic research in this area appears to be problematic and may reflect patent examiners' limited exposure to finance research and patents.     

THE IMPACT FOR STOCKHOLDERS WHEN REGULATED FIRMS REVISE DIVIDEND POLICY

This study examines the stock market's response when dividend policy changes are made by firms in a heavily regulated industry. Electric utilities are chosen because these firms are regulated in many ways. Regulatory control covers rates of return, pricing, markets and many other areas. This study focuses on dividend changes which follow a period of dividend stability. The results indicate that electric utility firms' stock prices adjust accordingly at the time of the announcement. The market reaction appears to be greater than that of previous studies which considered many industries.     

Assessing corporate social performance: Strategies of legitimation and conflicting ideologies

Our study started with an action research project carried out within an organization specialized in the assessment of corporate social performance (CSP), in a French context: we were asked to achieve a critical analysis of the rating grid used by this organization for the domain of corporate governance. Assessing CSP has become in France an issue around which an organizational field has emerged in the mid 90s. The quest for legitimacy appears as a powerful driver for all the organizations in this field, but the strategies that social analysis and rating organizations deploy to achieve this aim differ significantly. Using a Weberian methodology, we have identified two ideal types of strategy: conservative (perpetuating the societal status quo) and activist (trying to impel change). We argue that these differences in strategies reflect ideological oppositions. Here also we have typified two opposite ideologies: utilitarian and non-utilitarian. Conservative strategies appear to be embedded in a utilitarian ideology; in the short term, they may seem more successful than activist strategies, but in the long term, their future appears more uncertain.     

Micro and macro price dynamics in daily data

Using Japanese daily scanner data with three billion observations of prices and quantities from 1988 to 2005, this paper investigates micro and macro price dynamics. These data reveal that the frequency of price changes is much larger than that found in standard monthly datasets. The price change frequency exhibits a clear trend and strong across-store heterogeneity, which casts doubts on standard New Keynesian assumptions. The Consumer Price Index (CPI) based on scanner data appears to track the official CPI relatively well, except for a period in which the latter arguably had an upward bias.     

THE SEASONALITY IN CONVERTIBLE BOND MARKETS: A STOCK EFFECT OR BOND EFFECT?

There is a strong January effect in convertible bond returns that has been partially attributed to seasonality in the underlying stock. January returns for convertible bonds are positively influenced by the degree to which the bond reflects the underlying equity, which suggests that the anomaly in one asset market may carry over to its derivative asset market. Significant evidence presented here indicates that the January effect also is attributable to unique tax-loss selling in the convertible bond market. A peripheral contribution of this study is that, similar to findings in the stock market, the risk-return trade-off appears to hold only in January for convertible bonds.     

化解流动性过剩的一个现实选择——以优化金融功能为目标进行商业银行战略转型

流动性过剩是我国近年来经济中日益突现的新问题.出现于中国这样资本稀缺的发展中国家的流动性过剩,与传统经济理论描述的发达国家流动性过剩大不相同.中国当前的流动性过剩不是商品供不应求下的货币流动性过剩,也不是资本要素的过剩,而是具有一定持续性的货币层面的摩擦型的流动性过剩.其形成原因在于实体经济的非均衡以及金融发展与实体经济发展的不匹配.解决当前的摩擦型流动性过剩,有赖于实体经济非均衡的化解,更有赖于金融体系功能的优化.而实行商业银行战略转型,优化其金融功能,提高资金配置效率,应是我国当前流动性过剩问题的一个现实而有针对性的解决方案.     

A Study of Australian Trade Credit Management Outsourcing Practices

This paper reports the results of a survey appraising the extent to which large Australian companies outsource trade credit management (TCM). Of six distinct credit management functions appraised, credit risk assessment is found to be the most frequently outsourced activity. A cross-industry differential in TCM outsourcing is evident and it appears that sales-oriented companies have a greater propensity to outsource TCM. Little support has been found, however, for the expectation that smaller companies have a greater propensity to outsource TCM.     

Trading strategies based on past returns: evidence from Germany

Among the various strategies studied in this paper, only momentum investing appears to earn persistently nonzero returns: From 1965 to 2014, the classical momentum strategy based on performance over the previous 2–12 months earned an average return of 1.57% per month (excluding microcap stocks and value-weighted returns). In the most recent 10-year period, this return was even larger—2.27%—which is much larger than in the USA. However, profitability net of transaction costs is weak because the strategy involves trading in disproportionately small stocks with high transaction costs, something that is particularly true for the loser portfolio. A strategy that concentrates only on the winner portfolio and thus avoids potential problems associated with (short) selling the costly loser portfolio appears to earn strong and persistently abnormal profits, even after transaction costs.     

Deviations from Purchasing Power Parity in the Long Run

This paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods, for a wide variety of countries, and in both monthly and annual data. Since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage, the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism.     

Trust and waste management information expectation versus observation

There is recognition that trust is a significant basis for effective risk communication. However, there is still a need to understand not only the relative importance of different trust dimensions but also their basis and the components which are affecting the persuasiveness of messages in different decision contexts. This paper includes the results of a small survey of people in interest groups in the United Kingdom (UK) in terms of their views of different waste management information sources. It identifies that the extent to which expectations of the performance of different institutions are supported by observation appears to have a significant impact on trust. In this regard waste management regulators in the UK appear to have the potential to engender particularly low levels of trust.     

The Reverse LBO Decision and Firm Performance: Theory and Evidence

We investigate the transition from private to public ownership of companies that had previously been subject to leveraged buyouts (LBOs). We show that the information asymmetry problem firms face when they go to public markets for equity, as well as behavioral and debt overhang effects, will produce a pattern in which superior performance before an offering should be expected, with disappointing performance subsequently. We find empirical evidence of this phenomenon by studying 62 reverse LBOs that went public between 1983 and 1987. The market appears to anticipate this pattern.     

A Model of the Commercial Loan Rate

This paper explores the theoretical and empirical determinants of the commercial loan rate charged by commercial banks based on a model of financial intermediary behavior which assumes monopolistic competition in asset and liability markets. The model incorporates the constraint that banks must maintain at least a minimum quantity of bonds in asset portfolios. Equations are estimated on a time series basis to explain the behavior of commercial loan rates over the period 1953 to 1980. The evidence appears consistent with the hypothesis that commercial banks operate in a market characterized by imperfect competition and that they explicitly set loan rates.     

Are trading bans effective? Exchange regulation and corporate insider transactions around earnings announcements

There is considerable controversy on the role of corporate insider trading in the financial markets. However, there appears to be a consensus view that some form of regulation concerning their activities should be imposed. One such constraint involves a trading ban in periods when corporate insiders are expected to be advantaged vis-à-vis the information flow. This paper directly tests whether constraints of this kind are effective in curtailing insider activity through a study of the trading characteristics of UK company directors. The London Stock Exchange Model Code (1977) imposes a two-month close period prior to company earnings announcements. We find that although the close period affects the timing of director trades, it is unable to affect their performance or distribution. Directors consistently earn abnormal returns irrespective of the period in which they trade. They tend to buy after abnormally bad earnings news and sell after abnormally good earnings news. Moreover, there are systematic differences in the trading patterns of directors surrounding interim and final earnings announcements. It appears that many corporate insiders have private information and exploit this in their trading activities. As a result, one can conclude that trading bans do not impose significant opportunity costs on the trading of corporate insiders.     

A Note: Natural Generalization of Black-Scholes in the Presence of Skewness,Using Stable Processes

The Lognormal price model is generalized to the class of Log-Stable Processes, a family which possesses self-similarity properties usually only associated with the Lognormal, but which, more generally, can model negatively skewed distributions of return. This generalization appears to explain several discrepancies between the Black-Scholes Model and observed market phenomena, such as the variation of implied volatility of option price with exercise price and term to expiry, and the nonzero probability of bankruptcy or ‘crash’. It will be argued that the class of maximally negatively skewed Stable distributions (a class which, paradoxically, contains the normal) may be utilized to produce models which imply these phenomena naturally.     

World views and crystal balls

It has been assumed by many people that being educated and holding some preferred attitudes towards the social world assure a more realistic conception of events in the making. This assumption was tested by a review of nine public opinion polls. These retrospective data do not support the hypothesis that schooling increases competence in forecasting. However, world views do seem to be associated with predictive competence. A conservative and pessimistic attitude appears to illuminate the crystal ball while a liberal and optimistic attitude appears to darken it. Recommendations are made for a test of this possibility.