Reexamining the uncertain information hypothesis on the S&P 500 Index and SPDRs

This paper examines the uncertain information hypothesis on one major index and its corresponding exchange-traded fund: the S&P 500 Index and SPDRs in the pre-SPDRs (01/63–12/93) and post-SPDRs (01/94–12/03) periods. Two strategies are used to measure the economic significance of the uncertain information hypothesis. Overall, we present evidence confirming the uncertain information hypothesis in the post-SPDRs period. However, we fail to convert the statistically significant gains observed into economic gains under a conservative approach. In addition, the degree of difference in the volatilities of the 5-day post-event returns (in both the S&P 500 and the SPDR) among the three subgroups diminishes in the post-SPDR period. Hence, we conclude that the market is in fact short-term efficient in a more realistic setting.     

Inflationary Finance, Capital Controls, and Currency Substitution

This paper studies currency substitution in an environment where agents' inflation tax-evasive demand for foreign money is balanced by the concern for the possibility that the government may impose economy-wide capital controls under which foreign currency transactions are costly. Under the assumption of endogenous beliefs, the results show a persistent demand for foreign money despite efforts by the government to reduce inflation. In addition, the economy can exhibit multiple, Pareto-ranked steady states with different levels of currency substitution. The stability analysis suggests that the economy converges to the inferior steady state, on the "wrong side" of the Laffer curve.     

The information content of stock split announcements: Do options matter?

We provide a new test of the informational efficiency of trading in stock options in the context of stock split announcements. These announcements tend to be associated with positive abnormal returns. Our traditional event study results show abnormal returns that are significantly lower for optioned than non-optioned stocks, whether traded on the NYSE, Amex, or Nasdaq. After controlling for market returns, capitalization, book-to-market ratio, and trading volume, we find that the abnormal returns are significantly lower for NYSE/Amex optioned than non-optioned stocks. Although the results for Nasdaq stocks are not as clear, the overall effects tend to be lower after optioning. These findings are consistent with the hypothesis that the prices of optioned stocks embody more information, diminishing the impact of the stock split announcement. They provide new evidence of the beneficial effects of options on their underlying stocks.     

CEO Ownership and Discretionary Investments

Abstract:  This study investigates empirically the relationship between CEO ownership and discretionary investments such as R&D and capital expenditures. We assert that the under-investment problem is high for R&D-intensive projects, while the over-investment problem is high for capital expenditures because of differences in risk between the two types of investments. Building on the linkages between investments and investment-related agency problems, we hypothesize that the relationship between CEO ownership and investments depends on whether increasing ownership mitigates or exacerbates the under- or over-investment problem. We find a non-linear association between CEO stock ownership and R&D investments; R&D investments increase and then decline across increasing levels of ownership. Further, we find that R&D investments and CEO stock options are positively associated at high levels of option holdings. In contrast, capital expenditures do not vary with CEO ownership (stock or options). Finally, consistent with our underlying assumption, we find that the influence of R&D investments on future firm risk is significantly larger than that of capital expenditures. Our findings indicate that managerial risk aversion affects discretionary investments.     

Reviews

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P. Lowe, G. Cox, M. MacEwen, T. O'Riordan, M. Winter, 1986: Countryside Conflicts. The Politics of Farming, Forestry and Conservation.

Aldershot: Gower Publishing Company, £19.50 hardback, £8.95 paper.

E. Stern and J. Turbin, 1986: Youth Employment and Unemployment in Rural England. Report of a One Year Pilot Study in Four Rural Areas for the Development Commission Development Commission/Tavistock Institute of Human Relations.

“GLOBAL RESTRUCTURING, LOCAL RESPONSE?” Philip Cook (Ed), 1986: Global Restructuring, Local Response. London: Economic and Social Research Council £10.00.

“LOCAL ECONOMIC DEVELOPMENT” Cordle, P., 1985: Employment and Industrial Development-Local Authority Initiatives. CIPFA, £5.00. V. Hausner (Ed) 1986: Critical Issues in Urban Economic Development, Volume II. Oxford: Clarendon Press, £22.50

“CRISIS IN THE INDUSTRIAL HEARTLAND” Spencer, K., Taylor, A., Smith, B., Mawson, J., Flynn N. and Batley, R., 1986: Crisis in the Industrial Heartland: A Study of the West Midlands. Oxford University Press, £7.95.

“BLACK POLITICS AND URBAN CRISIS” Brian D. Jacobs, 1986: Black politics and urban crisis in Britain. Cambridge: Cambridge University Press £25.00 Hardback.

“UNEMPLOYMENT AND LABOUR MARKET POLICIES” Hart, P. E. (Ed), 1986: Unemployment and Labour Market Policies Aldershot: Gower, 1950     

Exploring Cognitive Moral Logics Using Grounded Theory: The Case of Software Piracy

The article reports findings of a study conducted to explore the cognitive moral logics used for considering software piracy as ethical or unethical. Since the objective was to elicit the moral logics from the respondents, semi-structured in-depth interviews of 38 software professionals of India were conducted. The content of the interviews was analyzed using the grounded theory framework which does not begin with constructs and their interlinkages and then seek proof instead it begins with an area of study and allows them to emerge from that area of study. Given the objective of exploring moral logics, grounded theory seemed an appropriate choice. Results revealed that 21 respondents considered software piracy unethical whereas 17 did not. Though economic reasons formed the most fundamental logic in both the cases, an overall analysis revealed that the respondents mostly used moral justification (neutralization) for not considering software piracy unethical whereas those considering it unethical used normative (principled) logics. The interconnections among logics are analyzed and results are discussed along with the limitations of the study.     

Intraday price‐reversal patterns in the currency futures market: The impact of the introduction of GLOBEX and the euro

This article assesses the intraday price‐reversal patterns of seven major currency futures contracts traded on the Chicago Mercantile Exchange over 1988–2003 after 1‐day returns and opening gaps. Significant intraday price‐reversal patterns are observed in five of the seven currency futures contracts, following large price changes. Additional tests are conducted in three subperiods (1988–1992, 1993–1998, and 1999–2003) to examine the impact of the introduction of electronic trading on GLOBEX in 1992 (to assess how a near 24‐hour trading session might impact the next‐day opening and closing futures prices) and the introduction of the euro in 1999 (to assess its impact on price predictability in other futures markets). It is found that the introduction of the GLOBEX in 1992 significantly reduced pricing errors in currency futures in the second subperiod, making the currency futures markets fairly efficient. However, the introduction of the new currency, the euro, and the disappearance of several European currencies in 1999, resulted in significant price patterns (mostly reversals and some persistence) in most of the currency futures, indicating inefficiencies in the third subperiod. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:1089–1130, 2006     

Evidence and Implications of Increases in Trading Volume Around Exchange Listings

After controlling for market volume trends and differences in volume measurement between the Nasdaq and the exchanges, we find that mean trading volumes increase significantly for Nasdaq stocks that list on the Amex or the NYSE. Furthermore, stocks with low (high) pre‐listing volume tend to realize the largest volume increases (decreases) as well as the best (worst) post‐listing performance. Our results support the hypothesis that stocks with high past trading volumes tend to experience lower future returns, and shed new light on the nature and possible causes of poor post‐listing stock performance.