A note on the calculation of the effective annual rate for cash discounts

This note describes an inconsistency, which has gone unnoticed for a number of years, between theoretical discussions of effective interest and the nature of cash discounts and the typical calculation of the effective annual rate for cash discounts presented in intermediate accounting textbooks. These calculations understate the effective rate because the amount presumed “borrowed” is the gross purchase price rather than the theoretically correct net purchase price. As educators, our arguments and problem solutions should be logically consistent and should convey a thorough understanding of the underlying theoretical constructs and their applications.     

个人消费者网络虚拟团购模型构建及优化

本文在分析研究目前网上拍卖所存在的问题的基础上,构建了基于消费者采购目标的网络虚拟团购模型,在此模型中,个人消费者采购的产品的价格将大大降低,无论是企业消费者还是个人消费者都将享受数量折扣和累加数量的价格折扣,从而保证虚拟团购的顺利实施.     

Raising capital in emerging markets with restricted Global Depositary Receipts

Despite serious governance concerns revealed in Rule 144A and/or Regulation S Global Depositary Receipt (GDR) circulars, institutional investors voluntarily purchase these illiquid securities. Like issuers of Level III American Depositary Receipts (ADRs), GDR issuers exhibit strong pre-offer performance, with higher average Tobin's q ratios, sales growth rates, sales levels, returns on equity, and dividend payout ratios than their home-market counterparts. However, GDRs are issued predominantly by firms in emerging markets, while ADRs are issued mostly by firms in developed markets. After controlling for country and industry effects, we find that ADR issuers are larger and that they employ more reputable underwriters than GDR issuers do, but no other significant differences emerge. Notwithstanding their similarities, GDRs have larger discounts than ADRs, suggesting that legal bonding provides benefits that reputational bonding cannot fully replicate. However, within the sample of GDRs, pre-offer performance attributes also influence pricing. Specifically, discounts vary inversely with issue size but directly with firm size, suggesting that economies of scale exist in the GDR issue process and that potential agency costs are higher in larger firms. GDR discounts also vary inversely with incremental returns on equity in all partitions of the data, indicating the importance of pre-offer profitability in establishing the reputation of the issuing firm and in increasing the GDR offer price.     

The Gender Gap in Housing Returns

Using detailed transactions data across the United States, we find that single women earn 1.5 percentage points lower annualized returns on housing relative to single men. Forty-five percent of the gap is explained by transaction timing and location. The remaining gap arises from a 2% gender difference in execution prices at purchase and sale. Consistent with a negotiation channel, women list for less and experience worse negotiated discounts. The gender gap shrinks in tight markets, where negotiation is replaced by quasi-auctions. Overall, gender differences in housing explain 30% of the gender gap in wealth accumulation for the median household.     

Hedging the purchase of direct inputs in an inflationary environment

An important category of costs that management need to plan for and control are the costs associated with the purchase of direct inputs. Traditional operations management methodologies model this problem as requiring management to direct attention to the trade-off between inventory holding costs versus stock-out and back-ordering costs. However, when advance purchase agreements on inventory can be made management can purchase claims which do not give rise to holding costs and hence the traditional analysis of the problem requires augmentation. Working under the assumption of non-resellability of inventory, we show how advance purchase agreements can be cast within an options framework. This allows us to reinterpret the problem as determining the optimal hedge for accounting profit and hence provides constructive guidelines for financial managers concerned about the effects of input price volatility on accounting profit.     

Robust pricing with refunds

Before purchase, a buyer of an experience good learns about the product's fit using various information sources, including some of which the seller may be unaware of. The buyer, however, can conclusively learn the fit only after purchasing and trying out the product. We show that the seller can use a simple mechanism to take best advantage of the buyer's post-purchase learning to maximize his guaranteed-profit. We show that this mechanism combines a generous refund, which performs well when the buyer is relatively informed, with non-refundable random discounts, which work well when the buyer is relatively uninformed.     

Bought deals: The value of underwriter certification in seasoned equity offerings

The bought deal is the predominant method of underwriting SEOs in Canada. Offer prices are set and underwriters commit to purchase offerings several days earlier for bought deals than for firm commitment issues, implying stronger underwriter certification for bought deal issues. Consistent with the certification hypothesis, this study finds a significantly smaller negative stock price reaction around the announcement of bought deals compared to firm commitment issues. Bought deals are further shown to have smaller offer price discounts and smaller underwriting fees, implying superior pricing and thus, higher quality offerings. These findings suggest that investment banks’ underwriting method of choice is informative of issue quality.     

Directors’ Ownership and Closed-End Fund Discounts

This paper investigates whether ownership by independent directors could provide them with effective monitoring incentives and thus help reduce discounts in the closed-end fund industry. We find that after controlling for fund observed and unobserved characteristics with the latter proxied by fund fixed effects, independent directors’ ownership is negatively related to fund discounts. We further find that funds whose independent directors have larger ownership are more likely to employ appropriate measures to reduce fund discounts, such as buying back outstanding shares, adopting managed distribution plans (MDPs) if they do not have such plans in place, or increasing the minimum payout targets under their existing MDPs. These findings may imply that independent directors become better monitors when they have larger ownership in the funds they oversee and are thus more diligent in taking actions to diminish discounts.     

EXPLAINING PREMIUMS AND DISCOUNTS ON CLOSED-END EQUALITY COUNTRY FUNDS

Over the past decade or so, the surge of interest among U.S. investors in international investing has led to the creation of numerous foreign equity country funds. Like U.S. closed-end mutual funds, the prices of such closed-end country funds fluctuate widely in relation to their underlying net asset values (NAVs).
In this paper, the authors summarize the major findings of their recent study of the performance of 28 country funds relative to their NAVs over the period 1978–1995. While 20 of the 28 funds traded at average discounts to their net asset values, the discounts for the country funds were smaller than those of the average U.S. fund, and over a quarter of the funds sold at premiums.
In an attempt to explain such premiums or discounts, the authors examined primarily three factors: (1) the sensitivity of country-fund returns (relative to that of local market indices) to U.S. returns; (2) the possible effects of local government investment restrictions; and (3) the impact of exchange rate changes. Although most of the eight funds that traded at average premiums represented countries with significant restrictions on capital flows and foreign ownership, there were also a number of funds with similar restrictions trading at significant discounts. In exploring the reasons for such discounts, the authors noted that the returns to the country funds were "surprisingly sensitive" to U.S. market conditions, thus reducing the extent of their diversification benefits for U.S. investors. The article also raises the possibility that if such country funds are not "priced at the margin" by globally diversified investors, U.S investors' "country-risk sentiments" could cause such funds to trade at discounts.     

Investor Sentiment and the Closed-End Fund Puzzle

This paper examines the proposition that fluctuations in discounts of closed-end funds are driven by changes in individual investor sentiment. The theory implies that discounts on various funds move together, that new funds get started when seasoned funds sell at a premium or a small discount, and that discounts are correlated with prices of other securities affected by the same investor sentiment. The evidence supports these predictions. In particular, we find that both closed-end funds and small stocks tend to be held by individual investors, and that the discounts on closed-end funds narrow when small stocks do well.     

Does Sentiment Explain Closed-end Fund Discounts? Evidence from Bond Funds

This paper documents that discounts and premia on closed-end bond funds exhibit the same sensitivity to broad market returns as stock fund discounts. Despite this, stock funds sell on average at discounts from net asset value while bond funds sell at small premia. This pattern calls into question the conclusion that the average level of the discount rate can be rationalized by appealing to the systematic nature of discount risk. These results indicate that appeals to investor sentiment, which have been hypothesized as a source of fund discounts, do not fully resolve the puzzle of closed-end fund discounts.     

The liquidity impact on firm values: The evidence of Taiwan's banking industry

Liquidity plays an important role in financial markets, especially during a financial crisis. New Basel III regulatory framework highlights the importance of liquidity risk management implemented by financial institutions. Moreover, updated International Financial Reporting Standards (IFRS) require the improvements about fair value measurements and reinforce existing principles for disclosures about the liquidity risk associated with financial instruments. Using the liquidity discount model of Chen (2012), we are able to empirically classify Taiwan's financial institutions into three liquidity categories: safe, crisis contagious and vulnerable. Our findings can serve as an early warning signal for liquidity calamity. In addition, we investigate what factors affect firm-specific liquidity discounts for these institutions and conduct a sub-period analysis, which examines whether there is significant liquidity discounts changes before and after the 2008 financial crisis. We find that liquidity discounts change substantially during the financial crisis. Furthermore, we find that liquidity discounts can be attributed to some firm-specific performance.     

Dividend distributions and closed-end fund discounts

Empirical support for the hypothesis that closed-end fund discounts are related to overhanging tax liabilities has been mixed. We introduce a new approach to testing this hypothesis by examining changes in discount levels following distributions of dividends and capital gains. Since distributions reduce future shareholder tax liabilities, the tax liability hypothesis implies that closed-end fund discounts should decline following distributions. Focusing on changes in discounts isolates this tax effect by eliminating the impact of other fund-specific factors on discount levels. Our results support the tax liability hypothesis, showing that short-run fluctuations in discounts are directly affected by taxable distributions.     

Does the law of one price hold better under a flexible exchange rate system?

Using China's recent exchange rate system reform as a special event, we investigate two issues pertinent to the change in the exchange rate system: how the documented price discounts on Chinese foreign shares (B- and H-shares) changed after China shifted to a more flexible exchange rate system; and what potential factors contributed to such changes. We find significant increases in foreign share discounts after the reform and these increases cannot be explained by the changes in stock risk, information asymmetry or market liquidity. Our results provide evidence that investor expectation on long-run RMB appreciation and investor attitude toward exchange rate risk under a more flexible exchange rate system contribute to the observed increases in foreign share discounts following the reform.     

The Puzzling Increase in the Underpricing of Seasoned Equity Offerings

Using a sample of over 3,000 seasoned equity offerings (SEOs) from 1983 to 1998, we test the hypothesis that the U.S. Securities and Exchange Commission's Rule 10b‐21, which disallows the covering of short positions with newly issued SEOs, makes pre‐offer stock prices less informative, which, in turn, causes the new seasoned equity to be priced at a discount. Consistent with the hypothesis, we find that the year the rule went into effect coincides with the year from which we begin observing significant SEO discounts. Further, we find that ex ante uncertainty and SEO discounts are positively related. We also conduct tests specifically related to short selling, and we also consider an exhaustive set of alternative explanations for the discounts. Based on all of the evidence, we conclude that it is the rule that makes issue discounts larger in the 1990s.     

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.     

A RE-EXAMINATION OF THE RELATIONSHIP BETWEEN CLOSED-END FUND DISCOUNTS AND EXPENSES

In this paper the role of expenses in explaining closed-end fund discounts is re-examined. A present value model is developed to illustrate the relationship between expenses and discounts. Earlier studies find that discounts are not related to management fees. In this paper, using a larger sample over a longer and different period and a better specification of the expense variable consistent with the model developed, discounts are found to be significantly related to expenses. The relationship between expenses and discounts holds in the presence of other control variables.     

Evidence on the Mean-Reverting Tendencies of Closed-End Fund Discounts

Closed‐end fund (CEF) discounts vary widely over time due to changes in share price, net asset value (NAV), or both. Prior studies suggest discounts are mean‐reverting. We examine the mean‐reversion issue by employing cointegration procedures. Specifically, we identify bond and equity CEFs that exhibit stationary time‐series properties and find statistically significant error correction terms that quantify the speed of mean reversion. The results indicate that mean reversion is caused by changes in both share price and NAVs. However, CEFs can only provide excess returns when the discount narrows due to share price increases.     

The Valuation Impact on Distressed Residential Transactions: Anatomy of a Housing Price Bubble

Most previous empirical studies on foreclosure price discounts are based on data from housing-markets during periods of relative stability (Baton Rouge, Louisiana; Arlington, Texas; and Las Vegas, Nevada in 1980s and 1990s). The few studies with sample periods containing the Liquidity Crisis of 2008 were all focused on the Las Vegas market and even fewer studies have examined the pricing implications of short sale transactions. This study examines the discounts associated with foreclosure and short sale status in the Fresno, California from 2006 to 2010, a time period containing significant housing price volatility. Generally, we find approximately 20 % and 13 % discounts for foreclosure transactions and short sale transactions, respectively. These discounts remain consistent even after controlling for endogeneity of time-on-the-market and self-selection bias. We also document that both the foreclosure and short-sale discounts are time varying based on market conditions. Both foreclosure and short-sale discounts increase from 2008 to 2009 and decrease in 2010. Also, the foreclosure status decreases time on the market while the short-sale status increases time on the market.     

Noise-trading, costly arbitrage, and asset prices: Evidence from US closed-end funds

The behavior of US closed-end funds is very different from that of UK funds. There is no evidence that the US funds' discounts are constrained by arbitrage barriers, no evidence that higher expenses increase discounts and no evidence that replication risk increases discounts but strong evidence that noise-trader risk is priced. The differences between US and UK funds may be due to the fact that small investors dominate US funds while institutional investors dominate UK funds, or because the sample selection method for the UK funds chooses only funds that are relatively easy to arbitrage.