Long‐Run Risk and Its Implications for the Equity Premium Puzzle: New Evidence from a Multivariate Framework

This paper investigates the empirical evidence of long‐run risk and its implications for the equity premium puzzle. We find that the long‐run risk model is generally weakly identified and that standard inferences tend to underestimate the uncertainty of long‐run risk. We extend the LM‐type test of Ma and Nelson (2010) that remains valid under weak identification to the bivariate VARMA‐GARCH model of consumption and dividend growth. The results cast doubt on the validity of long‐run risk as an explanation for the equity premium puzzle. We also evaluate the approach of Bansal, Kiku, and Yaron (2007a), which extracts long‐run risk by regressing consumption growth and its volatility on predictive variables. The results using the Bonferroni Q‐test of Campbell and Yogo (2006) suggest that consumption and dividend growth are generally unpredictable by the price‐dividend ratio and risk‐free rate. This casts doubt on the validity of the BKY approach.     

Mutual Fund Family Size and Mutual Fund Performance: The Role of Regulatory Changes

We examine whether the previously documented positive association between fund family size and fund performance is affected by significant regulatory changes (i.e., Regulation Fair Disclosure (Reg FD), the Global Settlement (GS), and increased scrutiny as a result of trading scandals) that have occurred in the last decade. Using Reg FD as a beginning point for these structural changes, we find that, while fund family size was positively associated with fund performance in the period prior to the regulatory changes, this advantage is significantly weaker in the period subsequent to the regulatory changes. Consistent with the weakened advantage of fund family size in fund performance, we find that the greater stock‐picking skill of larger fund families, measured using the earnings announcement returns of the stocks they trade, also weakened subsequent to the regulatory changes. Using narrower event windows around the regulatory changes, we find that the previously documented superior return of large fund families was partly attributable to selective disclosure. We also find that fund families implicated in the trading scandals experienced a decline in their performance during the scandal period. Finally, we examine the role of large investment banks in providing an advantage to large fund families. Family size was positively associated with the extent to which funds traded in the same direction as forecast revisions by analysts from large investment banks in the period prior to Reg FD and the GS and this association declined significantly after the two regulatory events.     

Estimating the Volatility of Discrete Stock Prices

This paper introduces an estimator of stock price volatility that eliminates, at least asymptotically, the biases that are caused by the discreteness of observed stock prices. Assuming that the observed stock prices are continuously monitored, an estimator is constructed using the notion of how quickly the price changes rather than how much the price changes. It is shown that this estimator has desirable asymptotic properties, including consistency and asymptotic normality. Also, through a simulation study, the authors show that it outperforms natural estimators for the low- and middle-priced stocks. Furthermoret, he simulation study demonstratest hat the proposed estimator is robust to certain misspecifications in measuring the time between price changes.     

On Testing the Arbitrage Pricing Theory: Inter-Battery Factor Analysis

This paper tests the Arbitrage Pricing Theory (APT) by estimating the factor loadings that are consistent between two industry groups of securities. One of the pitfalls in the study by Roll and Ross is that the factors estimated in one group may not be the same with the factors estimated in another group. This raises some concerns on the acceptability of their conclusions. For our study, we employ inter-battery factor analysis which enables us to estimate factor loadings by constraining the factors to be the same between two different groups. Our results show that there seem to be five or six inter-group common factors that generate daily returns for two industry groups of securities, and these inter-group common factors do not seem to depend on the size of groups. Also, based on our cross-sectional tests on the risk premia, we conclude that the APT should not be rejected.     

Nonaudit Services and Earnings Management: UK Evidence*

Using a sample of UK firms for the period 1996‐98, we provide empirical evidence on the relation between nonaudit services (NAS) purchase and three proxies for earnings management: (1) the likelihood that client firm accounting practices during the sample period were publicly criticized or subject to regulatory investigation; (2) the likelihood that client firms were required to restate prior financial statements or adjust current year results upon adoption of Financial Reporting Standard (FRS) No. 12, which was intended to curb opportunistic use of provisions; and (3) the mean absolute value of client discretionary working capital accruals over the sample period. The level of NAS purchase is measured, alternatively, as (1) the ratio of nonaudit to total auditor fees, (2) the natural log of NAS fees, and (3) the decile rank of a particular client's NAS fees given all NAS fees received by the audit firm practice office. With one exception, we find that all three measures of earnings management are positively and significantly associated with the three measures of NAS purchase.     

企业集团内部资本市场对其成员企业融资约束的影响——来自中国企业集团的经验证据

本文验证在中国特殊的制度环境下,企业集团内部资本市场对成员企业融资约束的影响。我们发现,企业集团通过内部资本配置,能够放松成员企业所面临的融资约束。国有集团的内部资本市场放松融资约束的功能得到了很好的发挥:内部资本市场规模小、成长速度快、控制权和现金流权分离程度小的民营集团的成员企业,其所面临的融资约束比较大。在市场化程度较高的省份(或地区),企业集团内部资本市场具有放松融资约束的功能,其成员企业所面临的融资约束小。集团内部资本市场没有放松控制权与现金流权分离程度大的集团成员企业所面临的融资约束。     

Volatility Information Trading in the Option Market

This paper investigates informed trading on stock volatility in the option market. We construct non-market maker net demand for volatility from the trading volume of individual equity options and find that this demand is informative about the future realized volatility of underlying stocks. We also find that the impact of volatility demand on option prices is positive. More importantly, the price impact increases by 40% as informational asymmetry about stock volatility intensifies in the days leading up to earnings announcements and diminishes to its normal level soon after the volatility uncertainty is resolved.     

On the Private Provision of Two or More Public Goods

We extend the simple model of voluntary public good provision to allow for two or more public goods, and explore the new possibilities that arise in this setting. We show that, when there are many public goods, voluntary contribution equilibrium typically generates, not only too low a level of public good provision, but also the wrong mix of public goods. We also analyze the neutrality property in the more general setting, and extend a neutrality proposition of Bergstrom, Blume, and Varian (1986) .     

INFRASTRUCTURE AND PRODUCTION EFFICIENCY: AN ANALYSIS ON THE KOREAN MANUFACTURING INDUSTRY

This study estimates an aggregate production function of manufacturing industry using panel data of 11 Korean regions covering 1977–1992. While the previous studies regard infrastructure as a direct input for production, the present study proposes that infrastructure has an effect on actual output by enhancing technical efficiency thereby, reducing the gap between maximum potential output and actual output. To investigate the relationship between infrastructure and technical efficiency, a stochastic frontier approach is applied to Korean manufacturing industry. Confirming the presence of substantial technical inefficiency in production, this study shows that an increase in infrastructure reduces the technical inefficiency level. The study also finds that, contrary to expectation, the industrialized regions are less efficient than the less industrialized ones. (JEL O20, H54, C23)