Minimum variance cross hedging under mean‐reverting spreads,stochastic convenience yields,and jumps: Application to the airline industry

Exchange traded futures contracts often are not written on the specific asset that is a source of risk to a firm. The firm may attempt to manage this risk using futures contracts written on a related asset. This cross hedge exposes the firm to a new risk, the spread between the asset underlying the futures contract and the asset that the firm wants to hedge. Using the specific case of the airline industry as motivation, we derive the minimum variance cross hedge assuming a two‐factor diffusion model for the underlying asset and a stochastic, mean‐reverting spread. The result is a time‐varying hedge ratio that can be applied to any hedging horizon. We also consider the effect of jumps in the underlying asset. We use simulations and empirical tests of crude oil, jet fuel cross hedges to demonstrate the hedging effectiveness of the model. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:736–756, 2009     

Royal African Company Share Prices during the South Sea Bubble

Price bubbles provide a unique opportunity to test whether investors act rationally and have sufficient knowledge of the economic environment in which they trade. We focus our attention on the 1720 South Sea bubble episode as experienced by a company not involved in governmental debt financing—the Royal African Company. Following the example of the South Sea Company, the Royal African Company lent its funds to equityholders at a preferential rate. Recognizing this benefit along with the announced dividends explains a large portion of the bubble. Furthermore, the unexplained residual does not behave like an exploding bubble, casting doubt that speculative excess motivated market participants in 1720. Our findings are indeed consistent with investor rationality, and the unexplained residual suggests that we are missing information that was available to the British financial market in 1720.     

An Examination of Alternative Factor Models in UK Stock Returns

This paper examines the mean-variance efficiency of a number offactor models in UK stock returns. The paper also explores, using theapproach of MacKinlay (1995), whether missing risk factors ornonrisk-based explanations best explain the pricing errors of thedifferent factor models. The evidence in the paper suggests that themean-variance efficiency of each factor model is rejected and missing riskfactors are unable to explain the pricing errors of any of the models.Some nonrisk-based explanations, which posit a wide spread in abnormalreturns, may be a more plausible source of explaining the pricing errorsof the factor models.     

No End to the Racial Wage Hierarchy in South Africa?

The South African apartheid system formally ended with the election of the African National Congress at the first all-race elections held in 1994. As a result, racist policies such as color barring, that particularly hindered the advancement of black workers throughout the apartheid period, are no longer legal. Yet the legacy of apartheid may endure as a result of both the persistence of racial differences in human capital attributes and the possible continuation of discriminatory practices within employment. In this paper the authors examine the evolution of the racial wage hierarchy in the early post-apartheid era against the background of the long-term decline in racial wage disparities observed over the last years of the apartheid regime. They find evidence that the position of black workers between 1995 and 1997 actually deteriorated relative to the overall geometric mean wage, while that of colored, Asian, and white workers improved.     

The Disciplining Role of Accounting in the Long-Run

One role of accounting is to discipline softer (more manipulable) sources of information. We use a principal-agent model of hidden actions and hidden information to study this role. In our model, there is both a verifiable signal (a publicly observed output) and an unverifiable signal (a productivity parameter privately observed by the agent). In a one-period setting, the optimal contract does not make use of the agents report on the private signal. However, when the output is tracked over two periods, the agents communication can be valuable. This reversal of results suggests uncovering the disciplining role of accounting may require a long-term perspective.JEL Classification: D82, M41     

多种多样的新船建造融资方式

船厂建造资金的主要来源是买方提前支付合同价款,其目的是使船厂在建造项目开始时(和在船舶建造的重要阶段)获得充足的流动资金,从而能按合同约定的期限完成船舶建造,交付买方.典型的付款方式是在合同签订后,船舶买主即按合同价支付分期付款的第一笔预付款(例如合同价的10%),其余款项则应在不同的建造阶段予以支付.这些都是船舶交付前的分期付款.合同价的余额(通常为合同价的60%～80%)将在船舶交付时支付,被称为"交船时支付的尾款".     

The five minds of a manager

Managers are told: Be global and be local. Collaborate and compete. Change, perpetually, and maintain order. Make the numbers while nurturing your people. To be effective, managers need to consider the juxtapositions in order to arrive at a deep integration of these seemingly contradictory concerns. That means they must focus not only on what they have to accomplish but also on how they have to think. When the authors, respectively the director of the Centre for Leadership Studies at the University of Exeter in the U.K. and the Cleghorn Professor of Management Studies at McGill University in Montreal, set out to develop a masters program for practicing managers, they saw that they could not rely on the usual MBA educational structure, which divides the management world into discrete business functions such as marketing and accounting. They needed an educational structure that would encourage synthesis rather than separation. Managing, they determined, involves five tasks, each with its own mind-set: managing the self (the reflective mind-set); managing organizations (the analytic mind-set); managing context (the worldly mind-set); managing relationships (the collaborative mind-set); and managing change (the action mind-set). The program is built on the exploration and integration of those five aspects of the managerial mind. The authors say it has proved powerful in the classroom and insightful in practice. Imagine the mind-sets as threads and the manager as weaver. Effective performance means weaving each mind-set over and under the others to create a fine, sturdy cloth.     

The impact of all-star analyst job changes on their coverage choices and investment banking deal flow

Using a sample of all-star analysts who switch investment banks, we examine (1) whether analyst behavior is influenced by banking relationships and (2) whether analyst behavior affects investment banking deal flow. Although the stock coverage decision depends on the relationship with the client firms, we find no evidence that analysts change their optimism or recommendation levels when joining a new firm. Investment banking deal flow is related to analyst reputation only for equity transactions. For debt and M&A transactions, analyst reputation does not matter. There is no evidence that issuing optimistic earnings forecasts or recommendations affects investment banking deal flow.