Common risk factors in bank stocks

This paper provides evidence on the risk factors that are priced in bank equities. Alternative empirical models with precedent in the nonfinancial asset pricing literature are tested, including the single-factor CAPM, three-factor Fama–French model, and ICAPM. Our empirical results indicate that an unconditional two-factor ICAPM model that includes the stock market excess return and shocks to the slope of the yield curve is useful in explaining the cross-section of bank stock returns. However, we find no evidence that firm specific factors such as size and book-to-market ratios are priced in bank stock returns. These results have a number of important implications for the estimation of the banks’ cost of capital as well as regulatory initiatives to utilize market discipline to evaluate bank risk under Basel II.     

NONHOMOTHETIC GROWTH MODELS FOR THE ENVIRONMENTAL KUZNETS CURVE

We show the role of the elasticity of substitution between general consumption and the environment in environmental degradation. Specifically, our numerical experiments demonstrate, for a wide range of models, exponential utility generates the environmental Kuznets curve without adding any special assumptions. With exponential utility, the elasticity of substitution and hence the substitution effect between consumption and the environment are both decreasing in income. Hence, when income is low, society (the government) readily gives up environmental quality in return for more consumption, but it does not want to substitute consumption for the environment anymore, once it becomes wealthy enough.     

Production costs for consolidated multibank holding companies compared to one-bank organizational forms

Economies of scale and scope for consolidated multibank holding companies (MBHCs) are examined with a translog cost function and are compared with one-bank holding companies (OBHCs) and independent banks. Empirical results indicate that costs curves are generally U-shaped for independent banks and OBHCs but are relatively flat for MBHCs. This evidence implies that banking organizations should prefer the MBHC to one-bank forms at higher output levels. Implications for bank regulatory policy and interstate banking are discussed.     

AN EMPIRICAL ANALYSIS OF THE RELATIONSHIP BETWEEN UK TREASURY BILLS AND THE TERM STRUCTURE OF CERTIFICATES OF DEPOSIT*

Using principal components analysis, this paper derives a direct measure of movements in the level and slope of the certificate of deposit yield curve. Appealing to the efficient markets view of the term structure of interest rates, evidence is reported which suggests that changes in Treasury Bill yields have a considerable influence over changes in the level of CD yields but only have a small, transitory effect on the slope of the term structure of CDs.     

AN ANALYSIS OF WILLINGNESS-TO-PAY FOR CROP INSURANCE*

In this paper a method for estimating a producer's willingness-to-pay for crop insurance is presented. The method includes formulae to capture the impact of crop insurance on the producer's expected income and variance of income. These impacts are evaluated in the context of a model of producer welfare which features both price and yield uncertainty, as well as risk aversion on the part of the producer. The method is applied to the Australian wheat industry and estimates of willingness-to-pay are shown to be relatively sensitive to the levels of coverage and yield variability.     

THE 1982 DEPOSITORY INSTITUTIONS ACT AND SECURITY RETURNS IN THE SAVINGS AND LOAN INDUSTRY

This paper provides empirical evidence on the market response to the 1982 Garn-St. Germain Depository Institutions Act (DIA), as measured by changes in the prices of savings and loan associations' common stock. The analyses indicate positive, significant abnormal returns in the weeks immediately preceding both the passage of the DIA and the subsequent announcement of the specific terms of money market deposit accounts (MMDAs). No reaction to the surprise announcement of Super NOWs is found. Also, no significant changes in risk for savings and loans is detected surrounding the DIA and MMDA events. Consistent with the primary intent of DIA, this evidence suggests that investors perceived savings and loans to benefit from this legislation.     

Skill and Earnings Amongst Golfers on the Southern-African Sunshine Tour

This paper estimates the determinants of the success of golfers on the Southern-African Sunshine Tour. Using a simultaneous-quantile regression approach and real earnings per tournament as a measure of success, a higher greens-in-regulation percentage and a lower number of putts per greens-in-regulation are associated with higher earnings. Calculations of the value of the marginal product of key golfer skills suggest a dynamic human capital acquisition process for many Sunshine Tour golfers at the earliest stages of their professional golf career.     

Geographical deregulation and competition in U.S. banking markets

The effects of geographical deregulation on competition in banking markets is examined. Using a model that develops an index of competition as proposed by Bresnahan and applied to banking markets by Shaffer, the empirical evidence suggests that geographical deregulation has not had a significant impact on competition. The limited effects of geographical deregulation on competition is consistent with other evidence presented, suggesting that banking markets were already highly competitive. In those states where a significant effect was observed, geographical deregulation increased the degree of competition in some states but had the opposite effect in others.     

Fight or flight: managing stigma in executive careers

We examine the labor market consequences borne by executives who remain at financially distressed firms relative to those who flee to another employer to avoid the stigma of failure. Our study makes two contributions. First, we document an ex ante dimension of executive labor markets unaccounted for by ex post settling up models. Specifically, we show that executives who ‘jump ship’—change employers in the two years prior to the failure—suffer fewer labor market consequences than their counterparts who remain with the failing firm. Second, we extend the study of bankruptcy stigma to examine how stigma might be managed by jumping ship. Copyright © 2007 John Wiley & Sons, Ltd.