Heuristics in Mutual Fund Consumers' Willingness‐to‐Invest: An Experimental Approach

This paper improves the understanding of heuristics in the choice of mutual funds. We analyze the effect of price‐quality relationship and anchors as heuristics on the evaluation of the willingness‐to‐invest. We perform two studies with graduate students who possess a medium–high level of financial literacy in Chile. In the first study, we find that willingness‐to‐invest increases (decreases) when subjects observe (do not observe) in the market a positive relationship between expense ratios (price) and service quality. In the second study, in the presence of an anchor, the reference price obtained by individuals from the market information loses relevance and the anchor effect predominates. Our results confirm that participants, as consumers of financial services, apply heuristics as groundwork for their investment decisions. These heuristics as a decision making process are useful but do not always lead to the choice of the lowest cost alternative with the highest possible service quality.     

The Question of Sustainability for Microfinance Institutions*

Microentrepreneurs have considerable difficulty accessing capital from mainstream financial institutions. One key reason is that the costs of information about the characteristics and risk levels of borrowers are high. Relationship‐based financing has been promoted as a potential solution to information asymmetry problems in the distribution of credit to small businesses. In this paper, we seek to better understand the implications for providers of “microfinance” in pursuing such a strategy. We discuss relationship‐based financing as practiced by microfinance institutions (MFIs) in the United States, analyze their lending process, and present a model for determining the break‐even price of a microcredit product. Comparing the model’s results with actual prices offered by existing institutions reveals that credit is generally being offered at a range of subsidized rates to microentrepreneurs. This means that MFIs have to raise additional resources from grants or other funds each year to sustain their operations as few are able to survive on the income generated from their lending and related operations. Such subsidization of credit has implications for the long‐term sustainability of institutions serving this market and can help explain why mainstream financial institutions have not directly funded microenterprises. We conclude with a discussion of the role of nonprofit organizations in small business credit markets, the impact of pricing on their potential sustainability and self‐sufficiency, and the implications for strategies to better structure the credit market for microbusinesses.     

The externalities of credit default swaps on stock return synchronicity

We examine the externality effect of customer firms’ credit default swap (CDS) trading on the stock price informativeness of supplier firms. Our empirical results show that firms with a high proportion of sales to CDS referenced customers tend to have more firm-specific embedded information in their stock prices and thus higher stock price informativeness, which is associated with a lower level of stock return synchronicity. We provide new evidence of CDS trading externality on equity market information environments along the supply chain.     

Food choices in Ethiopia: does nutritional information matter?

This article reports results from a framed market experiment conducted to examine whether milk choices are responsive to changes in the nutritional characteristics of milk products. Using a random‐effect Tobit model, we analyzed experimental data collected from 160 participants in urban Ethiopia. It shows that sensory properties play a key role in the acceptance of reduced‐fat milk while the provision of nutrition information has a mixed effect on a price premium. Further, a substantial percentage of participants were found to have a strong preference for whole milk while only 19% of them prefer reduced‐fat milk with 2.8% price premium. The study unveils a heterogeneous preference for the nutritional quality of milk products. Consumers’ health problems and socio‐demographic characteristics influence their preference for the nutritional quality of milk products. The result also shows a nutrition‐taste tradeoff, yet consumers place more value on sensory experience. Contrary to earlier studies, we found that prior belief about milk quality influences how consumers value sensory experience and nutrition information.     

Time‐varying market price of risk in the crude oil futures market

In this study, a three‐factor model of crude oil prices is estimated, which incorporates a time‐varying market price of risk. The model is able to accurately capture the term structure of futures prices with evidence suggesting that risk premiums in the crude oil market are time‐varying. Using the cross‐section of futures prices, we estimate a time‐series of the market price of risk in the crude oil market implied by the model. We find that the risk premiums in the crude oil market are driven by the same risk factors as equity and bond markets. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:779–807, 2011     

Do Patented Innovations Reduce Stock Price Crash Risk?*

Using a large sample of US firms, we document a significantly negative relation between the number of patents (citations) and stock price crash risk. Our findings are consistent with the arguments that patented innovation activities send a high‐quality signal and reduces proprietary information costs, which lowers information asymmetry and enhance disclosure. Further, we find that such impact of patented innovation on stock price crash risk is more pronounced in firms with weak corporate governance and high information opacity. Our findings provide new evidence on the real effects of patented innovation on crash risk in equity market.     

Price Clustering in Individual Equity Options: Moneyness,Maturity, and Price Level

Equity options have a significant influence on the price discovery process. This study presents unique evidence of substantial price clustering in individual equity options contracts. A particular contribution arises from investigating competing hypotheses on the roles of moneyness and maturity as determinants of option price clustering. We assert that options price clustering can be decomposed to price level, moneyness, and maturity effects. After controlling for other factors, price clustering has an inverse relation with time‐to‐maturity. This supports the negotiation hypothesis, but not the price resolution hypothesis. Price clustering also tends to be inversely related to moneyness. This effect is linked to the intrinsic value component of option price. Both the maturity and moneyness effects act in an opposite direction to what would be anticipated on the basis of price level alone; hence, these two effects are identified as additional influences on option price clustering. It is also found that the designated market maker scheme at NYSE Euronext London International Financial Futures Exchange (LIFFE) has little influence on trade price clustering. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:55–76, 2013     

The Chinese warrant bubble: A fundamental analysis

We investigate the information content in Chinese warrant prices based on an option pricing framework that incorporates short‐selling and margin‐trading constraints in the underlying stock market. We show that Chinese warrant prices can be explained under this pricing framework. On the basis of this new model, we develop a price deviation measure to quantify stock market investors' unobserved demand for short selling or margin trading due to market constraints. We find that warrant‐price deviations are driven by underlying stock valuation to a great extent. Chinese warrant prices, save for the time around expiration dates, are better characterized as derivatives than as pure bubbles.     

Causality in the VIX futures market

This study examines the price‐discovery function and information efficiency of a fast growing volatility futures market: the Chicago Board of Option Exchange VIX futures market. A linear Engle–Granger cointegration test with an error correction mechanism (ECM) shows that during the full sample period, VIX futures prices lead spot VIX index, which implies that the VIX futures market has some price‐discovery function. But a modified Baek and Brock nonlinear Granger test detects bi‐directional causality between VIX and VIX futures prices, suggesting that both spot and futures prices react simultaneously to new information. Quarter‐by‐quarter investigations show that, on average, the estimated parameters are not significantly different from zero, thus providing further evidence supporting information efficiency in the VIX futures market. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark     

Price limits,margin requirements,and default risk

This article investigates whether price limits can reduce the default risk and lower the effective margin requirement for a self‐enforcing futures contract by considering one more period beyond Brennan’s (1986) model to take into account the spillover of unrealized residual shocks due to price limits. The results show that, when traders receive no additional information, price limits can reduce the margin requirement and eliminate the default probability at the expense of a higher liquidity cost due to trading interruptions. Consequently, the total contract cost is higher than of that without price limits. When traders receive additional signals about the equilibrium price, we find that the optimal margin remains unchanged with or without the imposition of price limits, a result that is in conflict with Brennan’s assertion. Hence, we conclude that price limits may not be effective in improving the performance of a futures contract. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:573–602, 2000     

Does investor recognition matter for asset pricing?

In a world of market imperfections, what matters for asset prices differs from theory predictions based on perfect markets and information. In this paper, using a market setting where information costs are more pronounced, I show that the level of investor recognition/awareness matters for asset prices as predicted by Merton (1987). Using a novel dataset, I study the price effects of inclusions to and exclusions from a benchmark equity index in the context of emerging market assets. While testing for a number of existing hypotheses, I am able to document evidence for the ‘investor recognition’ hypothesis, using event study methodology. Furthermore, by making use of analysts' recommendations data, I show that there is a significant increase in coverage for the included stocks. This is also significantly related to the observed price change.     

Trading Mechanisms and Market Quality: Call Markets versus Continuous Auction Markets

On July 29, 2002, the trading mechanism in the Taiwan Futures Exchange (TAIFEX) was switched from an exclusive call market to a continuous auction market. Based upon several proxies of market quality, in the present study, we set out to empirically examine whether this switch has resulted in any significant improvement in market quality within the TAIFEX. We find that while the quoted spreads, effective spreads, and price volatility are all smaller in the continuous auction market, the call auction market exhibits greater market depth and smaller pricing errors; the latter is also found to be more effective in resolving the problem of information asymmetry. Overall, the results of the present study suggest that the choice between call and continuous auction trading mechanisms essentially involves trade‐offs between the bid‐ask spread, market depth, price volatility, information asymmetry costs, and price efficiency.     

Stock Price Informativeness and Corporate Governance: An International Study

This study investigates the cross‐country relationship between firm‐level corporate governance and stock price informativeness. Using firm‐level data from 22 developed countries, we find that stock price informativeness, as measured by firm‐specific stock return variation and future earnings response coefficients, increases with the quality of a firm's corporate governance. Further analyses show that all mechanisms except board‐related governance relate positively to stock price informativeness. Finally, firm‐level corporate governance plays a more significant role in strengthening the stock return–earnings associations for firms in countries with strong institutional environments. This evidence highlights the role of country‐level legal investor protections in shaping the relationship between firm‐level corporate governance and stock price informativeness.     

干散货运价指数与中国进口铁矿石价格溢出效应研究

研究干散货运价与大宗原材料价格的溢出效应可以分析跨市场间的价格信息传导,进而规避风险。以BDI、BCI、中国进口铁矿石价格的日频数据为研究样本,通过建立VAR模型,引入Granger因果检验,探索三者之间的均值溢出效应;构建VAR-MGARCH-BEKK模型,研究三者之间的波动溢出效应。结果表明:BCI与进口铁矿石价格互相存在均值溢出效应;BDI对进口铁矿石价格波动持续性逐渐增强,BCI对进口铁矿石价格波动持续性逐渐减弱;航运市场居于跨市场系统主导地位。     

企业社会责任信息披露与股票价格关系研究——沪市民营企业的经验证据

文章以2009年沪市A股222家民营上市公司为研究样本实证检验了民营企业社会责任信息披露与股票价格的关系,结果表明,民营企业社会责任信息披露与股票价格负相关。结合企业社会责任实践及其信息披露现状、投资者基于企业社会责任的投资理念以及资本市场有效性,从作用机制视角分析了形成民营企业社会责任信息披露与股票价格关系的深层原因,并由此就改进企业社会责任及信息披露实践和促进资本市场健康发展为上市民营企业、资本市场投资者和监管者带来启示。     

股票市场发展与国家资源配置效率:基于股市信息效率视角的研究

中国股票市场发展已经经历20年的历程,很多方面都取得了巨大的发展成就,然而对于股票市场发展对中国经济增长是否产生了显著的正向促进作用,现有研究文献并没有达到一致结论.文章基于股价波动非同步性测度方法,从股票市场信息效率这一新的视角入手,实证检验股票市场发展与国家资源配置效率的因果影响关系,为这一领域研究提供了新的实证证据.实证结果表明:中国股票市场信息效率与国家资源配置效率显著正相关,且这种正相关关系在效益上升行业与下降行业没有显著差别,即高信息效率股票市场能引导社会在高资本回报率的行业内继续追加投资,在低资本回报率的行业内及时削减资本投入,从而提高资源配置效率.因此中国股票市场发展具有较好的经济效应,它对经济增长产生了显著正向促进作用.     

Trading co‐integrated assets with price impact

Executing a basket of co‐integrated assets is an important task facing investors. Here, we show how to do this accounting for the informational advantage gained from assets within and outside the basket, as well as for the permanent price impact of market orders (MOs) from all market participants, and the temporary impact that the agent's MOs have on prices. The execution problem is posed as an optimal stochastic control problem and we demonstrate that, under some mild conditions, the value function admits a closed‐form solution, and prove a verification theorem. Furthermore, we use data of five stocks traded in the Nasdaq exchange to estimate the model parameters and use simulations to illustrate the performance of the strategy. As an example, the agent liquidates a portfolio consisting of shares in Intel Corporation and Market Vectors Semiconductor ETF. We show that including the information provided by three additional assets (FARO Technologies, NetApp, Oracle Corporation) considerably improves the strategy's performance; for the portfolio we execute, it outperforms the multiasset version of Almgren–Chriss by approximately 4–4.5 basis points.     

Anchoring Induced Biases in Consumer Price Negotiations

Two studies were conducted with the aim of demonstrating anchoring induced biases in consumer price negotiations.In Study 1, 96 undergraduate students of business administration who were recruited as subjects played the role of buyers of a condominium. All subjects were given the same market information. They were then asked to state whether their reservation price was higher or lower than an arbitrary price example (irrelevant anchor) that for different groups of subjects was either low or high. Finally, subjects indicated their reservation price. As would be predicted if adjustments from the anchor are insufficient, the indicated reservation price was lower when the anchor was low than when it was high.In Study 2, employing 64 undergraduate students of psychology who conducted dyad negotiations about the price of condominiums, the effect of the irrelevant anchor on the initially indicated reservation price was replicated. In addition, an anchoring effect of the seller's initial offer was observed. The results also revealed effects of both irrelevant anchor and initial offer on the purchase price.From a public policy point of view, the results imply that consumers may be strongly influenced by irrelevant anchors provided by sellers. Provision of accurate market price information may however lessen the impact of irrelevant anchors.     

Analysis of Bitcoin prices using market and sentiment variables

This paper proposes an empirical model for analysing the dynamics of Bitcoin prices. To do this, we consider a vector error correction model over two overlapping periods: 2010–17 and 2010–19. Price discovery is achieved through the Gonzalo–Granger permanent‐transitory decomposition. The pricing factors are endogenous linear combinations of the S&P 500 index, gold price, a Google search variable associated to Bitcoin and a fear index proxied by the FED Financial Stress Index. Our empirical analysis shows that during the first period, a linear combination of four pricing factors describes the efficient Bitcoin price. The S&P 500 index and Google searches have a positive effect whereas gold prices and the fear index have a negative effect. In contrast, during the second period, the efficient price behaves idiosyncratically and can be only rationalised by individuals' search for information on the cryptocurrency. These findings provide empirical evidence on the presence of a correction in Bitcoin prices during the period 2018–19 uncorrelated to market fundamentals. We also show that standard empirical asset pricing models perform poorly for explaining Bitcoin prices.