Call options and the risk of underlying securities

Merton (1973) in his seminal article ‘Theory of Rational Option Pricing’ showed that the rationally determined price of a call option is a non-decreasing function of the ‘riskness’ of its associated common stock. In deriving his results, Merton made restrictive assumptions about the way the market prices payoff distributions, and used the Rothschild-Stiglitz (1970) measure to compare the riskiness of securities. I show by means of an example that the Merton result will not in general be true. I then derive a sufficient condition for the option on one stock to have higher market value than the option on another stock, when both the stocks have the same price, and explain why the Merton result is valid in the Black-Scholes environment.     

Introduction: macroeconomic implications of capital flows in a global economy

The papers in this volume address issues raised by the wave of financial crises that hit emerging markets since the mid 1990s. Several of the papers examine the role that different credit market frictions may have played in triggering the crises, or in determining the effects of policies aimed at containing them. Other papers ask more general questions about the implications of international financial integration for business cycles, risk sharing, and sovereign lending.     

Reforming the Bookbuilding Process for IPOs

The controversy over IPOs has raised questions about whether retail investors are being unfairly denied access to shares in IPOs and whether the new Internet auction methods might provide a fairer and more efficient way to allocate shares. This article argues that much of the popular concern may be misdirected. By and large, bookbuilding is well designed to accomplish price discovery in a cost-effective way. And standard auctions, which have been all but abandoned in a number of countries, have generally proved disappointing for equity IPOs (although they have been successful for bond offerings). The authors propose a "hybrid" form of securities issuance that would retain the advantages of bookbuilding while incorporating a public offer "tranche" for retail investors and other measures designed to increase transparency.     

Industrial strategy for late starters: The experience of Kenya,Tanzania and Zambia

Based on the existing literature and the circumscribed data base, this paper assesses the extent and nature of industrialization in three African countries. After a promising start, their drive to industrialize is now faltering. The record is influenced much more by the macroeconomic situation of each country than by industrial policy. It is clear that future industrial advsnce will depend heavily on the pace of rural development and success in strengthening links between industry and the rest of the economy. Catering to world markets is not likely to provide a major stimulus for the industrial sector of many African economies in the near-term future.     

Resource Configuration in Family Firms: Linking Resources, Strategic Planning and Technological Opportunities to Performance

abstract    We apply the resource-based view of the firm to the study of family firms by investigating how a family specific resource (reciprocal altruism) and a firm specific resource (innovative capacity) contribute to family firm performance. We then examine how the impact of these resources is moderated by strategic planning and technological opportunities. Our findings suggest that family firms can benefit from emphasizing the positive aspects of kinship and from developing innovative capacities. As such, we demonstrate that not only do firm specific resources contribute to family firm performance, but also that family relationships can be a source of competitive advantage for a family firm. In addition, we found a heightened importance of reciprocal altruism in environments rich in technological opportunities, and that strategic planning is more important for those family firms that lack innovative capacities.     

I know something you don't know!: The role of linking pin directors in monitoring and incentive alignment

Increasing regulatory pressures have created specialization within boards, with more requirements and responsibilities being refocused to the committee level. Using data from S&P 1,500 firms, we find that board committee overlap associated with linking pin directors (i.e., those serving simultaneously on the audit and compensation committees) is an important conduit for knowledge transfer between boards' monitoring and incentive alignment functions. These directors are associated with lower executive compensation and influence pay mix. In studying the dynamics behind this process, we find that newly created linking pins improve monitoring effectiveness whereas recently dissolved linking pins decrease it. We also find that linking pins are all the more important when managers make less conservative accounting choices. Copyright © 2014 John Wiley & Sons, Ltd.     

Getting offshoring right

The prospect of offshoring and outsourcing business processes has captured the imagination of CEOs everywhere. In the past five years, a rising number of companies in North America and Europe have experimented with this strategy, hoping to reduce costs and gain strategic advantage. But many businesses have had mixed results. According to several studies, half the organizations that have shifted processes offshore have failed to generate the expected financial benefits. What's more, many of them have faced employee resistance and consumer dissatisfaction. Clearly, companies have to rethink how they formulate their offshoring strategies. A three-part methodology can help. First, companies need to prioritize their processes, ranking each based on two criteria: the value it creates for customers and the degree to which the company can capture some of that value. Companies will want to keep their core (highest-priority) processes in-house and consider outsourcing their commodity (low-priority) processes; critical (moderate-priority) processes are up for debate and must be considered carefully. Second, businesses should analyze all the risks that accompany offshoring and look systematically at their critical and commodity processes in terms of operational risk (the risk that processes won't operate smoothly after being offshored) and structural risk (the risk that relationships with service providers may not work as expected). Finally, companies should determine possible locations for their offshore efforts, as well as the organizational forms--such as captive centers and joint ventures--that those efforts might take. They can do so by examining each process's operational and structural risks side by side. This article outlines the tools that will help companies choose the right processes to offshore. It also describes a new organizational structure called the extended organization, in which companies specify the quality of services they want and work alongside providers to get that quality.     

An empirical investigation of environmental performance and the market value of the firm

This paper analyzes the shareholder value effects of environmental performance by measuring the stock market reaction associated with announcements of environmental performance. We examine the market reaction to two categories of environmental performance. The first category includes 417 announcements of Corporate Environmental Initiatives (CEIs) that provide information about self-reported corporate efforts to avoid, mitigate, or offset the environmental impacts of the firm's products, services, or processes. The second category includes 363 announcements of Environmental Awards and Certifications (EACs) that provide information about recognition granted by third-parties specifically for environmental performance. Although the market does not react significantly to the aggregated CEI and EAC announcements, we find statistically significant market reactions for certain CEI and EAC subcategories. Specifically, announcements of philanthropic gifts for environmental causes are associated with significant positive market reaction, voluntary emission reductions are associated with significant negative market reaction, and ISO 14001 certifications are associated with significant positive market reaction. The difference between the market reactions to the CEI and EAC categories is statistically insignificant. Overall, the market is selective in reacting to announcements of environmental performance with certain types of announcements even valued negatively.     

Implementation of the SutteARIMA method to predict short-term cases of stock market and COVID-19 pandemic in USA

Quality & Quantity - The objective of this study is to compare the different methods which are effective in predicting data of the short-term effect of COVID-19 confirmed cases and DJI closed...