Predicting mispricing of initial public offerings

This article investigates the ability of neural network models to predict mispricing of initial public offerings (IPOs). The aim is to improve the modest explanatory power of existing models that are based on the theory of asymmetrically informed economic agents surrounding post‐issue market value of IPOs. This study develops and compares linear regression and neural network models. The results show that modelling variable interactions and non‐linearity allows a potentially fruitful approach for stagging in IPOs. Neural networks have been criticized for being a black box; however, this paper shows that, by using sensitivity analysis, neural networks can provide a reasonable explanation of their predictive behaviour and direction of association between variables. Copyright © 2005 John Wiley & Sons, Ltd.     

Consumer protection in Switzerland: Strengthening countervailing power or competition?

Intervention by pressure groups overshadows the discussion of the extension and revision of legislation in the field of competition. The result is increasing codification of political interpretations of the rules underlying a market oriented economy. This tendency is not only illustrated by the draft law on the monitoring of prices but also by the one on consumer protection. In both cases, two guiding principles are at stake, namely the strengthening of rules of competition and the improvement of the position of consumers. The article emphasizes the economic implications of these two principles and shows how difficult it is to reconcile them in the new law. Measures designed to provide more transparent market structures may have adverse effects. Measures designed to reinforce the position of consumers create imperfect conditions on the demand side. In both cases it is unclear how their explicit and social costs will be divided between producers and consumers and what will be their impact on prices.     

Social planning and coercion under bounded rationality with an application to environmental policy

We develop a theory of social planning with a concern for economic coercion, which we define as the difference between consumers’ actual utility and the “counterfactual” utility they expect to obtain if they were able to set policy themselves. Reasons to limit economic coercion include protecting minorities and preventing disenfranchised groups from engaging in socially costly behavior, or political economy considerations. If consumers are fully rational, we show that limiting coercion is equivalent to placing more welfare weight on coerced consumers at the expense of others. If, however, consumers’ rationality is bounded, counterfactual utility becomes endogenous to current policy, and the welfare loss associated with limiting coercion increases. We set up a numerical version of our model and find that the bias-related welfare loss can be substantial.     

Market Effects of Voluntary Climate Action by Firms: Evidence from the Chicago Climate Exchange

Are private voluntary environmental actions by firms a sign of mismanagement, or a profitable “win-win” replacement for regulation? Empirical evidence is decidedly mixed. In this study, we use 19 years of monthly stock price returns, from 1991 to 2009, to examine the profitability of participation in CCX, a large voluntary greenhouse gas mitigation program. After controlling for systemic market risk as well as industry-specific shocks, we find statistically significant and positive excess returns for firms that announce their decision to join CCX. In addition, the progress of proposed greenhouse gas legislation (the Waxman–Markey bill) had a positive and large impact on excess returns for CCX member firms, suggesting that a major incentive for firms to join CCX may be to prepare for future regulation. Marginal abatement costs (proxied by the carbon price), on the other hand, were unrelated to excess returns. Our results imply that voluntary approaches should play a role in combating climate change, but that relying on them alone is not enough.     

Point De Vue Fadn: Buttress for Farm Policy or a Resource for Economic Analysis?

FADN: Buttress for Farm Policy or a Resource for Economic Analysis? We argue that the Farm Accountancy Data Network (FADN) is capable of much more than it currently achieves and that it has been greatly under‐utilised for policy analysis by economic researchers. We illustrate graphically some of the wider possibilities offered by FADN beyond its traditional role as a buttress for farm policy Farm incomes differ enormously between farms and differences within a member state are often more important than differences between member states. The dataset allows us to make differences explicit. It is possible to analyse the composition of farm incomes, for example the significance of subsidies amongst different farm types and farming systems. Some national FADN datasets also permit classification of farm households according to the relative importance of farm and non‐farm incomes and allow us to examine the impact of income composition on, for example, investment behaviour, FADN data can be used for ex‐ante as well as ex‐post policy evaluations and we illustrate with an example of the impact of different models for implementing the Single Farm Payment in Germany. We believe that certain enhancements to the dataset are possible to improve further its potential for research support, for example by including more non‐agricultural income sources in the European FADN. Le RICA:instrument d'appui à la politique agricole, ou ressource pour l'analyse économique? Le réseau d'informations comptables agricoles (RICA) dispose d'un potentiel très supérieur à son usage actuel et il est fortement sous‐utilisé par les chercheurs qui s'intéressent à l'analyse économique des politiques agricoles. On illustre ici, à l' aide de quelques graphiques, quelques‐unes des possibilityés d'élargissement de l'usage du RICAau‐delà de son rôle habituel d'appui à la politique agricole. Les revenus agricoles different fortement d'une exploitation à l'autre et les disparités intra‐Etats membres sont souvent plus importantes que les disparités inter‐Etat Le RICA permet de visualiser ces différences. Il est possible d'analyser la formation du revenu agricole, par exemple le rôle des subventions d'un système de production ou d'un type d'exploitation à l'autre. Pour certains pays, il est possible de trier les ménages agricoles en fonction de l'importance de leurs revenus non agricoles, ce qui permet par exemple l'étude des relations entre revenus extérieurs et investissements. Les données du RICA peuvent être utilisées ex ante pour prévoir les conséquences d'une mesure politique ou ex post pour en évaluer les effets. Ce point est illustré par un exemple qui consiste àétudier l'impact des effets du ‘paiement unique’ sur différentes exploitations types en Allemagne. Il devrait être possible d'ajouter des améliorations supplémentaires au stock de données existantes pour le rendre encore plus utile à la recherche, en particulier en incluant systématiquement les relevés de revenus non agricoles dans le RICA européen. INLB: Stützpfeiler der Landwirtschaftspolitik oder Ressource für wirtschaftliche Analysen? Wir vertreten den Standpunkt, dass das Informationsnetz landwirtschaftlicher Buchführungen (INLB) weit mehr als zur Zeit zu leisten vermag und dass Wirtschaftsforseher es für Politikanalysen nur unzureichend genutzt haben. Wir erläutern mit Hilfe von Grafiken einige der weiteren Möglichkeiten von INLB, die über die traditionelle Rolle als Stützpfeiler der Landwirtschaftspolitik hinaus gehen. Die landwirtschaftlichen Einkomrnen variieren sehr von Betrieb zu Betrieb, und Unterschiede innerhalb eines Mitgliedstaates sind oftmals von größerer Bedeutung als Unterschiede zwischen den Mitgliedstaaten. Der Datensatz ermöglicht es uns, diese Unterschiede zu verdeutlichen. Es ist möglich, die Zusammensetzung der landwirtschaftlichen Einkomrnen zu analysieren, beispielsweise die Bedeutsamkeit von Subventionen zwischen verschiedenen Betriebstypen und ‐systemen. Einige nationale INLB‐Datensätze ermöglichen es uns zudem, landwirtschaftliche Haushalte gemäß der relativen Bedeutung von landwirtschaftlichen und außerlandwirtschaftlichen Einkomrnen zu klassifizieren, und die Auswirkungen der Zusammensetzung der Einkomrnen beispielsweise auf das Investitionsverhalten zu untersuchen. Die INLB‐Datensätze können sowohl ex‐ante als auch ex‐post für Politikbewertungen herangezogen werden, und dies erläutern wir anhand des Beispiels, welches die Auswirkungen verschiedener Alternativen bei der Umsetzung der einheitlichen Betriebsprämie in Deutschland darstellt. Wir sind der Auffassung, dass bestimmte Verbesserungen am Datensatz möglich sind, um das Potenzial des INLB zur Unterstützung von Forschungsarbeiten weiterzu verbessern, beispielsweise durch die Aufnahme weiterer außerlandwirtschaftlicher Einkommensquellen in das europäische INLB.     

Estimating the risk–return profile of new venture investments using a risk-neutral framework and ‘thick’ models

This study proposes cascade neural networks to estimate the model parameters of the Cox–Ross–Rubinstein risk-neutral approach, which, in turn, explain the risk–return profile of firms at venture capital and initial public offering (IPO)financing rounds. Combining the two methods provides better estimation accuracy than risk-adjusted valuation approaches, conventional neural networks, and linear benchmark models. The findings are persistent across in-sample and out-of-sample tests using 3926 venture capital and 1360 US IPO financing rounds between January 1989 and December 2008. More accurate estimates of the risk–return profile are due to less heterogeneous risk-free rates of return from the risk-neutral framework. Cascade neural networks nest both the linear and nonlinear functional estimation form in addition to taking account of variable interaction effects. Better estimation accuracy of the risk–return profile is desirable for investors so they can make a more informed judgement before committing capital at different stages of development and various financing rounds.     

Market Power,Permit Allocation and Efficiency in Emission Permit Markets

Market power in permit markets has been examined in some detail following the seminal work of Hahn (Q J Econ 99(4):753–765, 1984), but the effect of free allocation on price manipulation with market power in both product and permit market has not been fully addressed. I show that in this case, the threshold of free allocation above which a dominant firm will set the permit price above its marginal abatement costs is below its optimal emissions in a competitive market, and that overall efficiency cannot be achieved by means of permit allocation alone. In addition to being of general economic interest, this issue is relevant in the context of the EU ETS. I find that the largest German, UK and Nordpool power generators received free allowances in excess of the derived threshold. Conditional on having price-setting power in both the electricity and permit markets, these firms would have found it profitable to manipulate the permit price upwards despite being net permit buyers.     

Discovering probabilistic decision rules

Techniques to generate probabilistic decision rules are presented that are used to forecast or measure the competitiveness of companies. Rules estimating the competitiveness of companies are described and the generated rules are then applied to forecast the competitiveness of previously unseen companies. Experimental results show that probabilistic decision rule technique outperforms many other machine learning and statistical techniques in this application domain. These findings are further confirmed in a second application, the classification of credits into either good or bad. © 1997 John Wiley & Sons, Ltd.     

ESG Disclosure and Idiosyncratic Risk in Initial Public Offerings

Journal of Business Ethics - Although legitimacy theory provides strong arguments that environmental, social and governance (ESG) disclosure and performance can help mitigate firm-specific...