How and when is dual trading irrelevant?

Within a general model of speculative trade, we derive the aggregate consequences of dual traders who process retail liquidity trades and trade on their own account. We prove that dual trading reduces total expected speculator profits unless speculators process all liquidity trade and trade with the same intensity on liquidity trade. In contrast, dual trading does not affect the information content of prices. We show how results generalize when we endogenize (a) speculator information via costly information acquisition about fundamentals or costly processing of liquidity trade, and (b) liquidity trader motives and welfare via endowment shocks.     

Information technology,transaction costs and the decision to 'make or buy'

Information and communication technology (ICT) has a wide ranging impact on business. One of the effects is on the 'make or buy decision'. This is analysed from the perspective of transactzon cost economm (TCE). On the one hand ICT reduces transaction costs by reducing search costs, by facilitating monitoring and control of performance and by yielding a greater flexibility of production, which reduces the transaction specificity of assets. These efiects, favour the decision to 'buy'. On the other hand, ICT reduces economies of scale, in some areas of production, which makes outside production i n a specializedfirm less attractive. Also, ICT may be used to impose switching costs between suppliers and buyers, thereby miszng transaction costs. But such ploys appear to be feasible only temporarily, with a pressure from users and competitors towards standardization and open systems. Thus the effects of ICT are diverse, but on the whole it tends to favour the option to contract out.     

Income Level and the Value of Non-Wage Employee Benefits

With continuing increases in the cost of medical insurance and other “fringe” benefits, payroll cost for monetary and non-monetary aspects of compensation is a significant factor for most organizations. While this is not a new phenomenon, relatively few studies in the empirical literature have examined the role of fringe benefits in employee compensation plans. Especially in under researched areas, it is imperative that researchers utilize ideas and theories from other disciplines to further our knowledge. Accordingly, this paper borrows the concept of elasticity from the economic literature to help explain and understand employee perceptions of two of the most common, costly, and important benefits—medical insurance and retirement plans. Specifically, the relationship between the current income of employees is analyzed in relation to employee perceptions of the value and importance of benefits. Results suggest that employees do not value medical insurance and retirement plans in the same manner. This result is interpreted in terms of the change in the marginal utility of the specific benefit.     

Market Quality around Macroeconomic News Announcements: Evidence from the US and Canadian Markets

We investigate changes in market quality in the US and Canada during macroeconomic news announcements. We measure market quality in terms of returns dependence, the cost of trading, and pricing errors. Using a sample of cross‐listed stocks and macroeconomic news from both countries, we document that market quality is generally higher in the US than in Canada. The pattern of intraday serial dependence in returns reveals that it takes investors about 5 min less to react to order imbalances in the US than in Canada. We further observe that, around announcement periods, transaction costs increase more in Canada than in the US, suggesting that the US market offers better liquidity. More information is also incorporated into the US market. These results support the view that the US is a prime target for cross‐listing, and are robust to different types of assets and time specifications.     

Assessing and valuing the nonlinear structure of hedge fund returns

Several studies have put forward that hedge fund returns exhibit a nonlinear relationship with equity market returns, captured either through constructed portfolios of traded options or piece‐wise linear regressions. This paper provides a statistical methodology to unveil such nonlinear features with respect to returns on benchmark risk portfolios. We estimate a portfolio of options that best approximates the returns of a given hedge fund, account for this search in the statistical testing of the nonlinearity, and provide a reliable test for a positive valuation of the fund. We find that not all fund categories exhibit significant nonlinearities, and that only a few strategies provide significant value to investors. Our methodology helps identify individual funds that provide value in an otherwise poorly performing category. Copyright © 2010 John Wiley & Sons, Ltd.