Financial Sector Risk and the Stock Returns: Evidence from Tokyo Stock Exchange Firms

We investigate whether the activity of financial firms creates value and/or risk to the economy within the asset pricing framework. We use stock return data from nonfinancial firms listed in the first section of the Tokyo Stock Exchange. The value-weighted index that is solely composed of nonfinancial firms is augmented with the index of the firms from the financial sector, and we estimate multivariate asset pricing model with these two indices. We note that our procedure can simultaneously take into account the cross-holding phenomena among Japanese firms, especially between the financial sector and the nonfinancial sector. Our augmented index model performs well both with cross-sectional Fama and MacBeth regression test and GMM test. Our two index model with additional Fama and French's HML factor can capture cross-sectional variations of the returns of sample portfolios better than the original Fama and French model can, when measured by Hansen and Jagannathan distance measure. We find that this additional new sector variable can be a substitute for Fama and French's size factor, but not related to the bond index return. This variable has similar factor characteristic as money supply growth or the term structure, but the latter variables contain more information than the former. Morever, our financial sector model helps explain the return and risk structure of Japanese firms during the so-called bubble period.     

Robust pricing with refunds

Before purchase, a buyer of an experience good learns about the product's fit using various information sources, including some of which the seller may be unaware of. The buyer, however, can conclusively learn the fit only after purchasing and trying out the product. We show that the seller can use a simple mechanism to take best advantage of the buyer's post-purchase learning to maximize his guaranteed-profit. We show that this mechanism combines a generous refund, which performs well when the buyer is relatively informed, with non-refundable random discounts, which work well when the buyer is relatively uninformed.     

Dissemination of Accruals Information,Role of Semi‐Annual Reporting,and Analysts' Earnings Forecasts: Evidence from Japan

Our study investigates the effects of dissemination of accounting accruals information on stock prices using Japanese annual reports as our sample. We conduct month‐by‐month detailed analyses of price adjustment behavior with a particular focus on revisions of analysts' earnings forecasts and changes in trading volume around the period of upcoming semi‐annual reports. We find that analysts' forecasts are often revised around this time, and analysts use this as auxiliary information. In addition, an accompanying re‐adjustment of abnormal returns and an increase in trading volume are observed. Our findings demonstrate that informational uncertainty initially triggered by the announcement of annual reports decreases as semi‐annual reports are disclosed and analysts change their earnings forecasts, and confirms the importance of semi‐annual reporting.     

Dynamic analysis of wage inequality and creative destruction

Journal of Economics - This paper investigates the transitional dynamics of a basic Schumpeterian growth model under constant relative risk aversion. In this model, there are three patterns...     

FISCAL CONSTRAINTS, COLLECTION COSTS, AND TRADE POLICIES

The last two decades witnessed trade liberalization in many developing countries. What caused this trend, and why have trade barriers been so ubiquitous when economic theory overwhelmingly supports free trade? This paper proposes that governments' revenue needs are the driving force. Governments may rely disproportionately on trade taxes because they are inexpensive to collect. Trade liberalization is an integral part of a tax reform: a tax base expansion is necessary to allow governments to reduce tariff rates. This hypothesis is supported by a panel data analysis of 27 developing countries.     

Agency Contracts,Noncommitment Timing Strategies and Real Options

Given that an owner lacks the ability to commit to his or her timing decisions under a manager's hidden action, we consider the optimal design of the contract and the owner's optimal timing decisions. Using a real options approach, we show that, compared with the full commitment case, a higher (lower)‐quality project is launched later than (at the same time as) the first‐best case, whereas the replacement of the manager is (is not necessarily) made later if the hidden‐action problem is severe enough (is not severe enough). Severance pay may serve to minimize the compensation for the manager's loss of corporate control.     

Asymptotic Expansion Formula of Option Price Under Multifactor Heston Model

The stochastic volatility model of Heston (Rev Financ Stud 6(2):327–343, 1993) has found difficulty in describing some of the important features of implied volatility dynamics, leading to a quest for multifactor extensions as well as the incorporation of time-dependent model parameters. In this paper, an asymptotic expansion approach to the multifactor Heston model with time-dependent parameters is developed. The results of Benhamou et al. (SIAM J Financ Math 1(1):289–325, 2010) are extended and it is shown that the extension to the multifactor model involves an extra expansion term that captures the interaction between variance factors. The expansion formula under constant parameters can be explicitly computed and the incorporation of time-dependent parameters is straightforward under the framework. As illustration, a two-factor model is calibrated to data of index options and variance swaps and it is found that it is possible to distinguish a short-term and long-term variance factor from the implied volatility surface and variance swap rates. Moreover, the two-factor model is able to reproduce the shapes of the implied volatility surface during various market scenarios.     

The Role of Cross-Border Networks of Skilled Labor in Offshore Outsourcing: Empirical Evidence Based on the Network Theory

This study investigates the determinant role of the cross-border movement of skilled labor in the expansion of service trade between the US, and both developed and developing countries. For this purpose, we employ the key concepts of network theory as an analytical framework and conduct panel data analysis and graphical modeling analysis for 31 countries from 1999 to 2008. In this decade, offshore outsourcing in the service trade took off worldwide. We use data for each country’s service exports to the US, number of H-1B visas issued, GNI per-capita, network readiness index, and an English dummy for the official language. We illustrate the trajectory and interactions between these factors. These analyses yield three observations. First, service trade with the US is more intensive among higher income countries. Second, the number of H-1B visas issued has a positive effect on service exports to the US. Third, individuals in lower income countries tend to desire H-1B visas and create intensive skilled labor networks with the US, the path through which developing countries such as India expanded their service exports to the US.     

Real Indeterminacy of Stationary Monetary Equilibria in Centralized Economies

We show that real indeterminacy of stationary equilibria, by which the set of stationary equilibria is a continuum and the real allocation varies among equilibria, may arise in some general equilibrium models with fiat money. The conditions under which such equilibria arise are: (i) each household optimally saves a constant amount of money; and (ii) at least two households face different budget constraints. We present various models, including a decentralized money search model and a centralized model with a monopoly firm, to explain how these conditions lead to real indeterminacy. Finally, we present a policy that uniquely implements any desirable outcome.     

Information based trade,the PIN variable,and portfolio style differences: Evidence from Tokyo stock exchange firms

We investigate whether the variables related to information based trade proposed by Easley et al. [Easley, D., Kiefer, N.M., O'Hara, M., Paperman, J.B., 1996. Liquidity, information, and infrequently traded stocks. Journal of Finance 51, 1405–1436.] help explain the daily price discovery process in an electronically order-driven market of the Tokyo Stock Exchange using the microstructure tick data. We find strong evidence that the value firms show higher probability of bad news occurrences than the growth firms. We also find that the PIN is higher for smaller firms as is the case in the U.S. With the portfolio ranking tests and the Fama and MacBeth test we find that the alpha variable, which represents the information event occurrence rate, is systematically related to required returns, while the evidence related to the PIN is weaker. In the final Fama and MacBeth test, in which the PIN or alpha variable is used as an additional explanatory variable to the benchmark Fama and French three factor model, we find that the sign of the alpha variable supports our hypothesis that the arrival of new information reduces the risk of the stock, though not significantly. We also find that the higher PIN value increases the risk of the stock, at the same time it can marginally improve the explanatory power of the multifactor model. We conclude that the PIN variable cannot be a substitutable proxy variable for the book-to-market factor unlike in the U.S., and that it is strongly related to the size variable.