Stock Price and Volume Effects Associated with Compositional Changes in European Stock Indices

This paper provides further evidence of price and volume effects associated with index compositional changes by analysing the inclusions (exclusions) from the French CAC40 and SBF120 indices, as well as the FTSE100. I find evidence supporting the price pressure hypothesis associated with index fund rebalancing, but weak or no evidence for the imperfect substitution, liquidity and information hypotheses. The results improve on recent evidence from the S&P500 index. The evidence for the FTSE100 additions shows, in particular, that markets learn about an imminent inclusion and incorporate this information into prices, even before the announcement date.     

The Impact of Regulation Fair Disclosure on Information Asymmetry and Trading: An Intraday Analysis

This study examines the impact of Regulation Fair Disclosure (FD) on liquidity, information asymmetry, and institutional and retail investors trading behavior. Our main findings suggest three conclusions. First, Regulation FD has been effective in improving liquidity and in decreasing the level of information asymmetry. Second, retail trading activity increases dramatically after earnings announcements but there is a significant decline in institutional trading surrounding earnings announcements, particularly in the pre‐announcement period. Last, the decline in information asymmetry around earnings announcements is closely associated with a lower participation rate in the pre‐announcement period and more active trading of retail investors after earnings releases.     

Optimality conditions¶and bubbles in sequential economies¶and bounded relative risk-aversion

We provide specific qualifications in order that Kuhn–Tucker type Euler equations and transversality conditions at infinity hold in stochastic equilibrium models with heterogeneous agents and where assets are traded in sequential markets. It is not assumed that uncertainty is modeled as an event-tree structure or that preferences are necessarily bounded. We also describe an important class of preferences based on bounded relative risk aversion which yields relevant simplifications. Our results are used to establish conditions that rule out asset pricing bubbles. Specific examples of economies with bubbles are also discussed. Received: 28 January 2002 / Accepted: 19 July 2002 We are grateful to the editor and an anonymous referee for their valuable comments. This research was partially supported by MURST (Italy), National Group on “Nonlinear Dynamics and Stochastic Models in Economics and Finance”.     

Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?

Time series related to fiscal and external deficits are commonly subjected to stationarity and cointegration tests to assess if the deficits are sustainable. Such tests are incapable of rejecting sustainability. The intertemporal budget constraint proves to be satisfied if either the debt series or the revenue and with-interest spending series are integrated of arbitrarily high order, i.e., stationary after differencing arbitrarily often. Revenues and spending do not have to be cointegrated. Rejections of low-order difference-stationarity and of cointegration are thus consistent with the intertemporal budget constraint. Error-correction-type policy reaction functions are suggested as more promising for understanding deficit problems.     

The Effects of Screening and Monitoring on Credit Rationing of SMEs

In this paper, we seek to empirically assess which determinants of the capability and incentives of banks to screen and monitor firms are significant in explaining credit rationing to Italian SMEs. After testing for the presence of non‐random selection bias and the potential endogeneity of some determinants of interest, the probit model results we obtain suggest that the average banking size and the multiple banking relationship phenomenon are statistically significant factors affecting credit rationing, presumably through their impact on the aforementioned banks' capability and incentives. Other potential determinants of banks' incentives to monitor and screen, such as local banking competition and firm' capacity to collateralize, are never significant. However, when we split the sample according to the level of competition in credit markets, we find that the estimated marginal effects of all significant determinants of interest are larger in absolute value than those obtained when using the whole sample.     

A flight to Q? Firm investment and financing in Korea before and after the 1997 financial crisis

We examine investment behavior among exchange-listed Korean manufacturing firms before and after the 1997 financial crisis using firm-level panel data. Starting with the standard Q-theory of investment, we augment it by allowing for a sales accelerator and the possibility of cash constraints, categorizing firms based on their age, size and affiliation to an industrial conglomerate (i.e., chaebol). We find that Tobin’s Q is a robust determinant of investment in a pooled sample for 1992–2001, but that it became more important for small firms and less important for chaebol-affiliated firms after the crisis. Investment by chaebol firms also became more sensitive to the availability of internal cash balances after the crisis. We interpret this as reflecting a shift in the Korean economy to a stronger market orientation after the crisis and to a business climate in which the quality of potential projects became more important relative to capital market imperfections in determining the destination of investment funds.     

MEASURING THE OPERATIONAL EFFICIENCY OF COMMERCIAL BANKS IN NAMIBIA

This paper examines the efficiency of commercial banks in Namibia using the standard econometric frontier approach. Although two aspects of efficiency (scale and scope) receive our attention, the emphasis is on the latter which pertains to whether a firm produces as efficiently as it possibly can, given its size. Our results indicate that substantial economies of scale exist in commercial banking in Namibia. This will tend to suggest that commercial banks in Namibia can increase their efficiency by increasing their current scale of operation. The results for scope economies show that the current level of input combination does not make for maximum efficiency as sufficient scope exists for a more efficient combination of inputs. We believe this will reduce operating costs in the industry and stimulate efficiency.     

Unpacked and packed fluid milk consumption patterns and preferences in Turkey

The objective of this study is to investigate unpacked and packed fluid milk consumption patterns and preferences among Turkish households by using cross‐sectional survey data from 18,278 households. Based on the data, 47.8% of the households consume unpacked milk, 29.3% consume sterilized milk, and 7.9% consume pasteurized fluid milk at least once a month. Results of the multinomial logit model for fluid milk consumption behavior suggest that unpacked fluid milk preference is related positively to household size, income and age of the household head, and negatively to education level of the household head and status of the household wife. Similarly, pasteurized and sterilized fluid milk preferences are related positively to income and the education level of the household head, and negatively to household size and age of the household head. Results from these analyses are used to suggest techniques for marketing fluid milk products to specific segments of the consumer population.     

Cross-Listings and Home Market Trading Volume: The Case of Malaysia and Singapore

Cross‐listings of equities internationally are becoming more common. Using data for Europe and North America, previous studies reject the order flow diversion hypothesis, which states that international cross‐listings reduce home‐country trading volume. We test this hypothesis using data for equities cross‐listed in Singapore and Malaysia. We find that trading volume in Malaysia fell 42.9% when Singapore markets were closed for holidays. Furthermore, we show that trading volume in Malaysia did not increase following the implementation of regulations that ended the trading of Malaysian equities in Singapore in 1998. Hence, we reject the order flow diversion hypothesis.     

The impact of regulation on market risk

While it is crucial to understand the impact of regulatory changes on market risk, the literature does not show how risk responds to expected regulatory changes that are specifically designed to change risk. Our paper fills this gap by providing a detailed study of one such case. Using both a sample of privatized U.K. companies, and U.K. and U.S. control portfolios, between 1993 and 2000, we show (both for the single-factor market model and the three-factor Fama-French model) that the observed changes in market risk are significant and consistent with theory.