Competition, interlisting and market structure in options trading

This paper applies a game theory approach to examine the effects of a market structure change in options trading from a monopoly to a Cournot-type oligopoly that occurred in two successive periods on the Montreal exchange. We analyze the intra-day behaviour of option bid-ask spreads and find that cross-listing has a differential impact on spreads, affecting quoted but not effective spreads under oligopoly. We also find that the impact of the change in structure on effective spreads comes mostly from an increase in limit orders and is consistent with a switch from Cournot to Bertrand-type strategic behaviour for such orders. We conclude that market structure effects within an options exchange are enough to realize most of the benefits of inter-market competition even in the context of market thinness.     

Lessons from the EMU for Asian Regional Integration: An Economic Perspective

Critical costs and benefits of creating an EMU-like structure in Asia are identified. Analyzing the EU, we pay particular attention to two kinds of economic benefits and costs that do not appear much in conventional economic analysis. First, there are benefits and costs of harmonization in different areas including the monetary area. Second, giving up sovereignty within a policy area can provide many countries with a kind of insurance against domestic institutional, legal, and political weaknesses. Although we emphasize economic arguments it is necessary to recognize that the EU is very much a politically motivated project. Politics may well be the biggest obstacle to an EMU-like monetary system in Asia. Conditions in Asia require consideration of alternatives to a monetary union since there exist disparate economic and political systems that may well prove impossible to fully integrate.     

Return predictability of variance differences: A fractionally cointegrated approach

This paper examines the fractional cointegration between downside (upside) components of realized and implied variances. A positive association is found between the strength of their cofractional relation and the return predictability of their differences. That association is established via the common long-memory component of the variances that are fractionally cointegrated, which represents the volatility-of-volatility factor that determines the variance premium. Our results indicate that market fears play a critical role not only in driving the long-run equilibrium relationship between implied-realized variances but also in understanding the return predictability. A simulation study further verifies these claims.     

Smallholder participation in vegetable exports and age‐disaggregated labor allocation in Northern Tanzania

Modern agricultural supply chains have been playing an increasingly important role in developing countries and have had significant effects on rural labor markets. This article analyses the effects of smallholder farmer participation in export vegetable supply chains in Northern Tanzania on both household hired labor demand and off‐farm labor supply, using an age‐disaggregated approach. In our sample, neither separability nor exogeneity of smallholder farmer participation in export supply chains can be rejected. Hence, we apply lognormal double‐hurdle models and find that participation in export supply chains positively affects households’ decision to hire labor from all age groups. We also find that it increases the unconditional overall level of hired labor demand, while the age‐disaggregated analysis shows that these effects mostly benefit rural youth. However, our sample does not allow us to establish statistically significant evidence of an effect on household off‐farm labor supply although the point estimates point to nonnegligible positive effect sizes.     

A Survival Analysis of Islamic and Conventional Banks

Are Islamic banks inherently more stable than conventional banks? We address this question by applying a survival analysis based on the Cox proportional hazard model to a comprehensive sample of 421 banks in 20 Middle and Far Eastern countries from 1995 to 2010. By comparing the failure risk for both bank types, we find that Islamic banks have a significantly lower risk of failure than that of their conventional peers. This lower risk is based both unconditionally and conditionally on bank-specific (microeconomic) variables as well as macroeconomic and market structure variables. Our findings indicate that the design and implementation of early warning systems for bank failure should recognize the distinct risk profiles of the two bank types.     

The performance implications of intra‐ and inter‐regional geographic diversification

Engaging the debate regarding the appropriate level of geographic diversification for multinational enterprises (MNEs), we examine a critical, yet unresolved, question: How is performance impacted by the MNE's level of intra‐ and inter‐regional diversification versus the total level of geographic diversification? Using data from 123 U.S.‐based MNEs over a seven‐year period and leveraging both sales‐based and subsidiary‐based measures for diversification, we find that performance increases at an increasingly higher rate as firms concentrate more heavily on intra‐regional diversification. Regarding inter‐regional diversification and total geographic diversification, we find inverted‐U relationships to exist between firm performance and the level of geographic diversification. Different from recent research on multinationality, our robustness checks indicate no evidence of a sigmoidal relationship between the degree of regional diversification and performance. Copyright © 2010 John Wiley & Sons, Ltd.     

PIP Transactions,Price Improvement,Informed Trades and Order Execution Quality

This study focuses on innovations in order execution processes within the context of the Boston Option Exchange (BOX). More specifically, it examines the impact of the Price Improvement Process (PIP) on options quoted, effective and realised proportional spreads. We consider the PIP as a mechanism that allows the market maker to ‘internalise’ the transaction. We show that PIP transactions are associated with wider bid/ask proportional quoted spreads than non‐PIP transactions, in spite of the temporary narrowing of the effective proportional spread during PIP. We identify informed traders by focusing on the direction of trade. Using an original data set, we show that PIP transactions follow signals in the form of buy/sell orders by informed traders. We also show that PIP is a mechanism that allows the market maker to internalise a position in the same direction as that of the informed trader. We conclude that PIP does not improve the efficiency of the market but simply allows the market maker to benefit at the expense of uninformed traders.     

The Role of Accountants in Decision-Making in Lebanese Firms

The issue of accountants＇ role in decision-making has been the center of attention of lots of studies in the last decade but never did it get the adequate coverage in Lebanon. This paper studies to what extent accountants are involved in the managerial decision-making in Lebanon. Two hundred experienced accountants from all over the country were randomly selected for a questionnaire survey. This survey provides evidence as to what factors contribute to the variance of influence accountants have in managerial decision-making. The results from the questionnaires varied, but we conclude that accountants＇ involvement in new product development （NPD）, the skills that accountants have, their role in the financial analysis of the firm, and how much the finn they work for encourages them to advice on business decisions affect the degree of contribution an accountant has to decision-making. The findings of this research could be used as a reference to help in understanding the role of accounting in Lebanon by various finns and organizations.     

Forecasting realised volatility using ARFIMA and HAR models

Recent literature provides mixed empirical evidence with respect to the forecasting performance of ARFIMA and HAR models. This paper compares the forecasting performance of both models using high frequency data of 100 stocks representing 10 business sectors for the period 2000-2010. We allow for different sectors, changing market conditions, variation in the sampling frequency and forecasting horizons. For the overall sample and using the 300 sec sampling frequency, the forecasting performance of both models is indistinguishable. However, differences arise under different market regimes, forecasting horizons and sampling frequencies. ARFIMA models are superior for the crisis and pre-crisis sub-samples. HAR forecasts are less sensitive to regime change and to longer forecasting horizons. Variations in forecasting performance could also be explained using differences in the levels of persistence underlying each model.