Private equity exits after IPOs

We examine post-IPO exits of private equity sponsors of portfolio firms via follow-on secondary equity offerings and third party takeovers. Sponsors retain considerable ownership in listed portfolio firms for lengthy periods after IPOs, well beyond lockup expiration. After private equity post-IPO secondary offerings, corporate profitability is strongly superior to benchmark firms, indicating portfolio firms are successfully prepared for private equity's subsequent exit. Nevertheless, share prices fall at offering announcements, reflecting the failure of private equity sponsors to exit stakes in listed entities at the high premiums paid in third party takeovers, premiums that are invariably shared equally with public shareholders.     

Search Costs,Behavioral Biases,and Information Intermediary Effects

In many markets, buyers, sellers, and their agents have differential information about the quality of heterogeneous assets. We study negotiated transaction prices in the commercial real estate market, which is characterized by heterogeneous assets, illiquidity, and highly segmented local markets, all of which increase the importance of asymmetric information in negotiated pricing outcomes. Using 114,588 industrial, multi-family and office sale transactions that occurred during 1997–2011, we document that distant commercial real estate buyers pay, on average, premiums of 4 % to 15 % relative to local buyers, controlling for individual property characteristics as well as time fixed-effects. We also examine the extent to which the sources of these observed premiums are a product of higher search costs/information asymmetry problems associated with distance (search cost channel) or a result of reference-dependence preference/anchoring based on the price levels in the investors’ local market (behavioral biases channel). Our results suggest the observed price premiums are explained by distant investors who face higher search costs and are at an information disadvantage compared to investors located in closer proximity to the property. In contrast, anchoring plays a more muted role in explaining observed premiums. The use of an intermediary (broker) increases, on average, the acquisition prices of buyers and decreases the disposition prices of sellers by 3 % to 8 %. This result is consistent with the incentive real estate agents have to convince sellers to dispose of their properties too quickly and to convince buyers to search less and therefore pay higher prices.     

Evidence of risk premiums in foreign currency futures markets

Weekly data for foreign currency futures prices are examinedfor evidence of risk premium. Covariance risks are measuredwith respect to the excess returns from benchmark portfoliosfor consumption and wealth. When the parameters representingthe prices of the covariance risks are held constant, no riskpremiums are detected. However, when these prices are allowedto vary with the conditional expected returns and variancesof the benchmark portfolios, possibly reflecting changing investmentopportunities, strong evidence of risk premiums is obtained.     

How Much Is Too Much: Are Merger Premiums Too High?

Is it too much to pay target firm shareholders a 50% premium on top of market price? Or is it too much to pay a 100% premium when pursuing mergers and acquisitions? How much is too much? In this paper, we examine how the extent of merger premiums paid impacts both the long‐run and announcement period stock returns of acquiring firms. We find no evidence that acquirers paying high premiums underperform those paying relatively low premiums in three years following mergers, and the result is robust after controlling for a variety of firm and deal characteristics. Short term cumulative abnormal returns are moreover positively correlated to the level of the premium paid by acquirers. Our evidence therefore suggests that high merger premiums paid are unlikely to be responsible for acquirers' long‐run post merger underperformance.     

Earnings,dividend policy,and present value relations: Building blocks of dividend policy invariant cash flows

In a Modigliani-Miller world, dividend policy is irrelevant for asset pricing. This article searches for cash flows with two characteristics: like dividends, asset prices can be calculated from their present values and, unlike dividends, they are invariant with respect to changes in dividend policy. Segmented and aggregate residual income measures with these features are identified under two assumptions: dividend policy does not alter risk premiums and income earned from investments associated with dividend policy includes unrealized capital gains and losses. The results hold for otherwise arbitrary risk premiums in the general no-arbitrage approach to the valuation of uncertain income streams.     

The effect of geographical deregulation on bank acquisition premiums

In recent years, many state legislatures have passed laws allowing greater geographical expansion by banking organizations, including interstate acquisitions. The reduction of barriers to geographic expansion may be expected to affect signficantly the prices paid in bank acquisitions. According to the excess demand hypothesis, merger premiums should be larger because of an increase in the number of potential bidders. According to the barriers to entry hypothesis, however, premiums should decrease as the constraints on geographic expansion are relaxed. This study presents empirical results that are consistent with the excess demand theory. Bank merger premiums are significantly larger in states that permit interstate banking. Furthermore, premiums appear to increase significantly in the year following the passage of enabling legislation. Premiums are also greater in states that allow unlimited intrastate holding company acquisitions. Some evidence also exists to support the barriers to entry hypothesis.     

Discount Point Concessions and the Value of Homes with Conventional versus Nonconventional Mortgage Financing

This is an empirical investigation on the impacts of certain seller concessions on home prices. Specifically, we examine the impacts of two seller concessions: discount point concessions (DPCs) and closing cost concessions (CCCs) on home prices. Using hedonic analysis, we find that DPCs are capitalized into home prices. We do not find that CCCs produce capitalization effects. DPCs appear to work in a manner similar to other creative financing techniques such as a buydown mortgage. DPCs enhance affordability by lowering interest costs and debt service payments. DPCs thus lead to increases in effective demand. CCCs will reduce out of pocket expenses but will not necessarily enhance long-term affordability, thus their price effects are less certain. We show that these price premiums are prevalent only when conventional mortgage financing is used. When FHA and VA loans are used, premiums disappear. Of course, governmental insured/guaranteed loans are much more subject to regulation than conventional loans, which may prevent homesellers from price premium maximization. The study establishes the relative significance of discount points versus closing costs as marketing incentives. It appears that the use of discount points as a marketing incentive produces more capitalization effects. The presence of such capitalization effects is consistent with results found in other creative financing studies.     

Market segmentation and price differentials between A shares and H shares in the Chinese stock markets

We find that the risk premiums associated with the Hong Kong and mainland Chinese markets in a two-factor model successfully explain the cross section of returns on the A and H shares. Discounts of H-share prices relative to A-share prices are related to the contemporaneous movements of the H-share local market index relative to the A-share local market index, especially during the period of the Asian financial crisis, as well as the spread of savings rates between Hong Kong and mainland China. The evidence suggests that the risk premiums associated with the segmented A-share and H-share markets exert crucial impacts on the price differentials between the two classes of shares.     

Control Premiums and the Effectiveness of Corporate Governance Systems

This article summarizes the findings of the authors' study, published recently in the Journal of Finance, that use control premiums paid in large block sales to assess the quality of corporate governance systems. The authors report significant variation in such premiums, with countries like the U.S. and U.K. showing premiums of less than 10% while premiums for countries like Brazil running in excess of 60%.
The study also uses these measures to determine which institutions tend to be most effective in helping minority shareholders limit the diversion of wealth by insider or controlling shareholders. Notable among such institutional variables are better accounting standards, legal protection of minority shareholders, and law enforcement. But the authors also emphasize the importance of a number of extra-legal factors, including more intense product market competition, diffusion of an independent press, and a high rate of tax compliance.     

Future Events—A Conceptual Study of their Significance for Recognition and Measurement A Review Article

A number of research papers present evidence of fee premiums paid to specialist auditors. In this paper, we explore for listed and unlisted New Zealand firms not only the question of whether such premiums exist, but perhaps more importantly why they exist. We find evidence of fee premiums for auditor specialisation defined at the city level but not at the national level. We extend testing to examine the issue of self-selection of auditors by clients; we examine several different industry classification schemes and a number of different specialisation measures; and we consider the issue of portfolio specialists. We find from these additional tests that self-selection does not account for the existence of specialisation premiums; various alternative classification schemes all result in premiums at the city level; and portfolio specialists also earn fee premiums when portfolio specialisation is measured at the city level. We find that these specialist premiums apply most consistently to larger client firms and to low-risk firms. We consider various explanations and conclude that this result is consistent with non-specialist auditors providing discounts to attract desirable clients. Desirable clients – those that are large or low risk – are not able to negotiate fees as successfully with auditors who have differentiated themselves via industry specialisation.     

Note on audit fee premiums to client size and industry specialization

This research note examines the impact of client size on the estimation of audit fee premiums in the Australian market for audit services. Previous research suggests that higher audit fees are expected for both larger clients and for industry specialization. We find that in the Australian market for audit services, the fee premium attributed to industry specialist audit firms is concentrated in the audit fees paid by the largest clients in each industry. One reason for higher fees paid by larger clients is the demand for additional audit services. We find higher fees for companies cross‐listed on US exchanges. We also find that fee premiums to auditors that are city‐industry leaders are strongly related to client size.     

Pricing inefficiencies and feedback trading: Evidence from country ETFs

In view of the established presence of wide deviations of US-listed country ETFs' prices from their net asset values, we study whether feedback trading exists in this category of ETFs and whether it varies with their premiums and discounts. Using a sample of nineteen country ETFs for the 2000–2019 window, we find that feedback trading is present in several of them, particularly those targeting Asia Pacific markets. Feedback trading varies with the sign (i.e., premiums and discounts), level, and nature (observed/forecast) of these deviations, as well as prior to and after the outbreak of the 2008 crisis. Of particular note is the widespread feedback trading reported across the vast majority of country ETFs on those days for which there exist successful predictions of premiums/discounts, a fact suggesting that country ETFs' premiums/discounts contain useful information as per their trading dynamics.     

学区房溢价的影响因素:教育质量的视角

优质教育资源可能形成于学校的教育质量,也可能来源于生源质量。房地产的市场化定价机制为探讨优质教育资源的背后形成机制提供了便利。本文利用北京市二手房成交数据,采用特征价格模型和边界固定效应法,估算了学区房溢价。在此基础上,利用学校层面的教育质量信息,探讨了教育质量对学区房溢价的解释力。实证结果表明,以学校物质资本和教师人力资本所表征的教育质量是学区房溢价,即优质教育资源的主要来源,解释了总体学区房溢价的64.71%,这种解释力在考虑了潜在的内生性问题后依旧稳健。进一步通过量化北京市的三个教育强区(西城区、东城区和海淀区)中教育质量的解释力,发现优质教育资源既可形成于优质生源集聚,也可形成于教育经费投入长期累积所带来的教育质量的提升。义务教育均衡化改革,推动优质公共投入的公平供给,是平抑高企的学区房价格的有效手段。     

An Equilibrium Model of Rare-Event Premia and Its Implication for Option Smirks

This article studies the asset pricing implication of impreciseknowledge about rare events. Modeling rare events as jumps inthe aggregate endowment, we explicitly solve the equilibriumasset prices in a pure-exchange economy with a representativeagent who is averse not only to risk but also to model uncertaintywith respect to rare events. The equilibrium equity premiumhas three components: the diffusive- and jump-risk premiums,both driven by risk aversion; and the "rare-event premium,"driven exclusively by uncertainty aversion. To disentangle therare-event premiums from the standard risk-based premiums, weexamine the equilibrium prices of options across moneyness or,equivalently, across varying sensitivities to rare events. Wefind that uncertainty aversion toward rare events plays an importantrole in explaining the pricing differentials among options acrossmoneyness, particularly the prevalent "smirk" patterns documentedin the index options market.     

Default Premiums in Commodity Markets: Theory and Evidence

We model the effect of nonperformance risk on forward and futures pricing and look for evidence of nonperformance risk in precious metals futures prices from the “Hunt Brothers”episode. Changes in default premiums are measured and related to the sequence of events in the metals markets during this period. Results suggest first that ex ante costs of nonperformance can be a significant, priced factor in commodity markets and second that the arrival of new information is often associated with changes in these costs. The evidence has implications for both theoretical and empirical research on commodity markets.     

Why do closed-end country funds trade at enormous premiums during currency crises?

We investigate the response of US traded country fund premiums to currency crises in related foreign (local) markets. Our analysis includes 25 currency crises over the past decade involving 18 funds investing in 12 emerging markets, and 7 funds investing in 6 developed markets. We find that fund premiums and the volatility of the premiums increase dramatically in response to a currency crisis, both for emerging and developed markets funds, and that these effects dissipate slowly over time. Our results show that country fund shares and net asset values (NAVs) have differential risk exposures and that these differences are exacerbated during a crisis. While the NAV returns show sensitivity to changes in the local market index, share returns are sensitive to changes in both local and world market indices. Therefore, in response to a currency crisis, when local stock markets decrease in value, fund NAVs react more strongly than their share prices which have a strong global component. We also show that the high premiums observed during currency crises are not due to the reluctance of investors to trade and realize losses.     

Stochastic risk premiums,stochastic skewness in currency options,and stochastic discount factors in international economies

We develop models of stochastic discount factors in international economies that produce stochastic risk premiums and stochastic skewness in currency options. We estimate the models using time-series returns and option prices on three currency pairs that form a triangular relation. Estimation shows that the average risk premium in Japan is larger than that in the US or the UK, the global risk premium is more persistent and volatile than the country-specific risk premiums, and investors respond differently to different shocks. We also identify high-frequency jumps in each economy but find that only downside jumps are priced. Finally, our analysis shows that the risk premiums are economically compatible with movements in stock and bond market fundamentals.     

What do premiums paid for bank M&As reflect? The case of the European Union

We analyze the takeover premiums paid for a sample of domestic and cross-border bank takeovers in the European Union between 1997 and 2007. We find that acquiring banks value profitable, high-growth and low risk targets. We also find that the strength of bank regulation and supervision as well as deposit insurance regimes in Europe have measurable effects on takeover pricing. Stricter bank regulatory regimes and stronger deposit insurance schemes lower the takeover premiums paid by acquiring banks. This result, presumably in anticipation of higher compliance costs, is driven by domestic deals. Similar qualitative results are found for both the entire sample and the sample of publicly traded targets.     

Overreaction of country ETFs to US market returns: Intraday vs. daily horizons and the role of synchronized trading

In this paper we study the intraday price formation process of country Exchange Traded Funds (ETFs). We identify specific parts of the US trading day during which Net Asset Values (NAVs), currency rates, premiums and discounts, and the S&P 500 index have special effects on ETF prices, and characterize a special intraday and overnight updating structure between these variables and country ETF prices. Our findings suggest a structural difference between synchronized and non-synchronized trading hours. While during synchronized trading hours ETF prices are mostly driven by their NAV returns, during non-synchronized trading hours the S&P 500 index has a dominant effect. This effect also exceeds the one that the S&P 500 index has on the underlying foreign indices and suggests an overreaction to US market returns when foreign markets are closed.     

Risk Premiums in Dynamic Term Structure Models with Unspanned Macro Risks

This paper quantifies how variation in economic activity and inflation in the United States influences the market prices of level, slope, and curvature risks in Treasury markets. We develop a novel arbitrage‐free dynamic term structure model in which bond investment decisions are influenced by output and inflation risks that are unspanned by (imperfectly correlated with) information about the shape of the yield curve. Our model reveals that, between 1985 and 2007, these risks accounted for a large portion of the variation in forward terms premiums, and there was pronounced cyclical variation in the market prices of level and slope risks.