Option trading: Information or differences of opinion?

This paper investigates the motive of option trading. We show that option trading is mostly driven by differences of opinion, a finding different from the current literature that attempts to attribute option trading to information asymmetry. Our conclusion is based on three pieces of empirical evidence. First, option trading around earnings announcements is speculative in nature and mostly dominated by small, retail investors. Second, around earnings announcements, the pre-announcement abnormal turnovers of options seem to predict the post-announcement abnormal stock returns. However, once we control for the pre-announcement stock returns, the predictability completely disappears, implying that option traders simply take cues from the stock market and turn around to speculate in the options market. Third, cross-section and time-series regressions reveal that option trading is also significantly explained by differences of opinion. While informed trading is present in stocks, it is not detected in options.     

Risk Aversion and Tacit Collusion in a Bertrand Duopoly Experiment

Recent research has found significant differences in the ability of subjects tacitly to collude, depending on the nature of the strategic interaction (e.g., Cournot vs. Bertrand or substitutes vs. complements goods). We investigate the relationship between subject-specific risk tolerance and tacit collusion in Bertrand duopoly experiments. We find that less risk-averse subjects price higher than do their more risk-averse counterparts, but this relationship is only significant when actions are strategic substitutes. When we analyze pair-level data, we find that non-risk averse subject pairs price significantly higher than do risk averse and mixed pairs in both the substitutes and complements treatments.     

Financial advisor participation rates and low net worth investors

This study presents a simple analytical framework to identify the key determinants underlying the incentives for households to engage financial advisors. Using the US 2007 Survey of Consumer Finances, we employ a logistic regression approach to understand the characteristics of households who engage financial advisors for investment or comprehensive financial advice. We find that age, education, employment category, income and net worth are highly significant variables related to the propensity to engage a financial advisor. The results also indicate significantly reduced active engagement between advisors and low net worth investors than claimed by the low net worth investors in the survey. We construct a model to derive the expected fee profile of financial advisors as a function of wealth and compare the fee structure against a financial advisor client portfolio. We find that a combination of lower aggregate costs per investor and higher expected fee income motivates advisors to target higher net worth investors. Advisors therefore prefer higher net worth investors due to the lower aggregate costs of engagement, which drives low investment participation rates by less wealthy households.     

Financial literacy education and behaviour unhinged: combating bias and poor product design

The growth of products available in the consumer financial market has provided more choice and formal control over household financial decisions than ever before. Financial literacy education programs are generally assumed to improve consumer behaviour in relation to financial products and services. However, there is scant evidence that demonstrates the causal link between education, literacy and behaviour. Through the use of a sample study, we show that the actions of individuals who are financially literate do not necessarily mean they will demonstrate good financial behaviour. We propose that in order to improve the financial behaviour of consumers, two critical areas need to be addressed. Firstly, the objectives of financial literacy programs should be not only to educate consumers about financial markets and products but highlight to individuals the psychological biases and limitations that they as humans cannot easily avoid. Secondly, the regulation of financial products sold to consumers needs alteration to meet the aim of protecting retail consumers from complex financial products that are confusing, ambiguous and inappropriate. We propose regulation and redesign of product information offerings using techniques employed in ecological interface design models to derive a suitability test for consumer financial products.     

International trade and macroeconomic dynamics: The case of U.S. bilateral trade with G-7 countries

The short- and long-run effects of exchange rates, income, interest rates and government spending on U.S. bilateral trade with the other G-7 countries are investigated using an autoregressive distributed lag (ARDL) model. The primary contribution of this study is to consider separating the analysis of exports and imports in an integrated model that empirically encompasses four major schools of thoughts – elasticity, Keynesian income, absorption and monetary approaches – in order to identify macroeconomic linkages to U.S. bilateral trade with the other G-7 countries accurately. Results suggest that, in both the short- and long-run, U.S. imports and exports are highly sensitive to changes in U.S. and foreign income, while U.S. imports and exports are relatively insensitive to changes in bilateral exchange rate. It is also found that both exports and imports are more responsive to changes in government spending than changes in interest rates in both the short- and long-run.     

Organizational values,work norms,and relational role behaviours: an empirical retail assessment

We apply the relationship-marketing concept to a retail setting in order to determine if customer-contact employees' relational role behaviours (RRBs) (consisting of both trust-building and attachment behaviours) have organizationally influenced antecedents. Using organizational culture and value–norm–behaviour linkage, we posit that organizational values (consisting of customer orientation, employee orientation, and financial orientation) influence work norms for customer retention (solidarity and role integrity) and, ultimately, RRBs. Hypotheses and a model which illustrates the relationships between the constructs are presented. A study is conducted in a US regional drugstore chain (n=246). LISREL is used to analyse the results. Six out of eight hypotheses are supported. The findings are discussed as well as managerial implications, limitations, and future research directions.     

Predicting financial volatility: High‐frequency time‐series forecasts vis‐à‐vis implied volatility

Recent evidence suggests option implied volatilities provide better forecasts of financial volatility than time‐series models based on historical daily returns. In this study both the measurement and the forecasting of financial volatility is improved using high‐frequency data and long memory modeling, the latest proposed method to model volatility. This is the first study to extract results for three separate asset classes, equity, foreign exchange, and commodities. The results for the S&P 500, YEN/USD, and Light, Sweet Crude Oil provide a robust indication that volatility forecasts based on historical intraday returns do provide good volatility forecasts that can compete with and even outperform implied volatility. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:1005–1028, 2004     

Teaching Business-Communication Ethics with Controversial Films

Two recent films by Pulitzer Prize-winning playwright, David Mamet, can provide opportunities for observing student reactions to ethically troublesome situations and for discussing business-communication ethics in the classroom. The key question addressed in this article is whether business-communication courses, for example, those in public relations, can encourage students to make the "metaphoric leap" and apply Mamet's messages to class readings and discussions on ethical problems or challenges. Through showing two films in their entirety and conducting focus groups among upper-level undergraduates, the authors find that there is instructional value in using Mamet's films to discuss ethics in business-related settings.     

The Determinants of Seller‐Buyer Interactions during New Product Development in Technology‐Based Industrial Markets

A growing body of literature indicates that the new product development (NPD) process in technology‐based, industrial markets is characterized by collaborative seller‐buyer relationships. Unfortunately, the extant literature is deficient in some significant ways. For example, there is no theoretical framework that explicates the content of these relationships. Also, there is little empirical research on the antecedents or consequences of these relationships. Therefore, managers seeking guidance on how to manage their NPD relationships have lacked appropriate insights. Not surprisingly, ineffective relationship management is a major contributor to new product failure in such settings. Against this background, this study develops and tests a model of seller‐buyer interactions during NPD. The model is based on the relationship marketing literature and is rooted in Transaction Cost Analysis (TCA). It was tested using data from 296 small to mid‐sized firms in a variety of technology‐based, industrial markets. It specifies product co‐development, education, and post‐installation product knowledge generation as three key behavioral dimensions that characterize seller‐buyer interactions during NPD. Our results indicate that the intensity with which these dimensions are undertaken vary with buyer‐related (i.e., perceived buyer knowledge and prior relationship history) and innovation‐related (i.e., product customization and innovation discontinuity) characteristics. For example, perceived buyer knowledge has a positive impact on product co‐development while innovation discontinuity has a positive impact on education. Further, we find that a seller's satisfaction with undertaking these behaviors is moderated by the technological uncertainty in the seller's industry. As a case in point, satisfaction with undertaking product co‐development is reduced when technological uncertainty is high. Collectively, the overall support we find for our model can help NPD managers optimize their relationships with buyers during NPD.