Lessons from My School

This article presents analyses of the National Assessment Program – Literacy and Numeracy (NAPLAN) data and data on other indicators that are made available through the My School website. There are large differences across states and types of schools (independent, Catholic and government) in the Year 3 NAPLAN outcomes, though the differences across states tend to diminish as outcomes for later years of study are examined. Some schools are shown to consistently have academic outcomes better than their characteristics would otherwise indicate; conversely, other schools are shown to consistently have academic outcomes below the levels their characteristics would otherwise indicate. Few of these differences are statistically significant.     

Repetition, reputation, and raiding

I develop a multitarget takeover model with bid revisions, inwhich bidders desire a reputation for having low valuations.Such a reputation increases the likelihood that future targetswill accept low premium bids. Bidders develop reputation byusing low take-it-or-leave-it offers. Consequently, tender premiums,bid revision rates, and success rates are lower for continuingbidders than for those considering only a single target. Successrates vary within a series, and reputation building is morelikely with highly correlated target valuations. I provide anexploratory empirical analysis consistent with lower premiumsfrom continuing bidders and discuss some resulting implicationisregarding 'raiders', conglomerates, and resistance strategies.     

Renegotiation and the impossibility of optimal investment

In a model with asymmetric information and external equity financingit is impossible to achieve socially optimal investment becauseof renegotiation possibilities. The contractual solution suggestedby Dybvig and Zender (1991) is not dynamically consistent -the manager's contract would be renegotiated, resulting in inefficientinvestment. Moreover, no other compensation contract that wouldinduce the manager to invest efficiently survives renegotiation.Contracts that pay the manager based on the stock price, whileproducing suboptimal investment as in Myers and Majluf (1984),are robust to renegotiation.     

Boom and bust patterns in the adoption of financial innovations

We develop a dynamic model of the adoption of financial innovations.Each period, firms decide whether or not to adopt an innovationof uncertain value, and the profitability of each period's adoptionsreveals information about the innovations's value. We show thatcharacteristics of financial innovation waves cited by criticsas evidence of irrational excess are, in fact, consistent withfully rational behavior. We also show that social welfare isenhanced when more firms adopt innovations of questionable valueand that financial intermediaries have an incentive to encouragesuch adoption.     

Comparing online and non‐online shoppers

A web‐based survey was completed by 130 faculty and staff from a university located in the south‐eastern United States. The purposes of this study were to investigate: (a) consumer characteristics related to online shopping; (b) benefits of online shopping as perceived by online shoppers; and (c) concerns about online shopping as perceived by non‐online shoppers. Responses were analysed using SPSS for tests of chi‐square. Findings suggest that the differences between online shoppers and non‐online shoppers correspond with Rogers’ 1 categories of adopters, and that the educational needs of consumers also differ based on their previous experience with online shopping.     

Stock price distributions with stochastic volatility: an analytic approach

We study the stock price distributions that arise when pricesfollow a diffusion process with a stochastically varying volatilityparameters. We use analytic techniques to derive an explicitclosed-form solution for the case when volatility is drivenby an arithmetic Ornstein-Uhlenbeck (or AR1) process. We thenapply our results to two related problems in the finance literature:(i) options pricing in a world of stochastic volatility, and(ii) the relationship between stochastic volatility and thenature of 'fat tails' in stock price distributions.     

Recovering risk aversion from option prices and realized returns

A relationship exists between aggregate risk-neutral and subjectiveprobability distributions and risk aversion functions. We empiricallyderive risk aversion functions implied by options prices andrealized returns on the S&P500 index simultaneously. Theserisk aversion functions dramatically change shapes around the1987 crash: Precrash, they are positive and decreasing in wealthand largely consistent with standard assumptions made in economictheory. Postcrash, they are partially negative and partiallyincreasing and irreconcilable with those assumptions. Mispricingin the option market is the most likely cause. Simulated tradingstrategies exploiting this mispricing show excess returns, evenafter accounting for the possibility of further crashes, transactioncosts, and hedges against the downside risk.