THE ACCURACY OF CAPM PROXIES FOR ESTIMATING A FIRM'S COST OF EQUITY

In estimating a firm's cost of equity with the CAPM the standard procedure is to proxy the market portfolio by a share index. Since this index is not the market portfolio this may give rise to a bias in estimating the firm's cost of equity. This paper investigates this bias and concludes that it will arise if the factor coefficients are not proportional to those of the index. Even moderate departures from this proportionality condition may produce significant bias.     

A NEW APPROACH TO CONTROLLING FOR THIN TRADING

Recent research has shown that thin trading can seriously bias beta estimates. Present techniques for controlling this bias in research designs involve the adjustment of OLS betas. This paper presents a new methodology that controls for this bias by forming portfolios where the level of thin trading is held constant, while the difference of another variable, pertinent to a specific research design, is maximized across the portfolios. Directly controlling the level of thin trading avoids reliance on beta adjustment techniques. Further, the linear programming model permits the control of the mean and higher moments of additional variables across portfolios.     

A BIAS-CORRECTING PROCEDURE FOR BETA ESTIMATION IN THE PRESENCE OF THIN TRADING

In this paper, an alternative technique is developed for obtaining consistent estimates of beta in the presence of thin trading. The new estimator is tested on simulated data and the results are compared with those obtained from the Dimson [ 4 ] Scholes and Williams [ 9 ] techniques. The new estimator is found to have approximately the same bias as the others, but it has a considerably lower variance.     

多重优势锻造超短期融资券业务

2010年末,银行间债券市场推出了超短期融资券这一新的短期货币市场工具。在制度和流程方面,超短期融资券业务较先前的短期融资券业务更为简化。在我国提高直接融资比重、加快转变经济发展方式的今天,超短期融资券业务有利于改变我国债券市场超短期产品长期缺失的状况,完善债券市场信用产品线,进一步丰富市场的利率期限结构、风险结构及流动性结构,有利于形成短、中、长期兼备的市场化收益率曲线,成为我国利率市场化改革的重要组成部分。     

INFORMATION ASYMMETRY AND OPTIONS TRADING

This paper demonstrates that options trading does not have a uniform impact on the volatility of underlying stocks. Although uninformed traders are able to hedge the risk of underlying stocks by maintaining opposite positions in the options market, informed traders hold outright options positions to capitalize on their information. This hedging behavior tends to reduce noise in the stock market, whereas the speculating behavior tends to generate noise in the stock market. As a result, stocks that were originally volatile, i.e., traded primarily by uninformed traders, will be stabilized by the introduction of options. Conversely, stocks that were more stable become destabilized by options trading.     

MARKET STRUCTURE AND TRADING VOLUME

Historically, trading volume reported for NASDAQ stocks has been overstated vis‐à‐vis New York Stock Exchange (NYSE) stocks, both because of the dealer's participation in trades as a market maker and because of interdealer trading. Beginning in 1997, the Securities and Exchange Commission changed order‐handling rules and trade‐reporting rules, which may have reduced or eliminated the overstatement of NASDAQ trading. We examine trading volumes of firms changing from NASDAQ to the NYSE since 1997 and document that reported trading volume for NASDAQ stocks continues to be overstated. Moreover, the degree of overstatement is much larger for firms with high trading volume.     

MARGIN TRADING: A RISK-RETURN ANALYSIS

This paper attempts to present an integrated valuation analysis of investment options involving margin trading. The analysis is based on valuation theories such as Modigliani and Miller's capital structure model, the capital asset pricing model and the option pricing model. It is shown (i) that in margin trading, the return on equity is given by the return on investment plus a risk premium which increases proportionally with the margin-trading rate; (ii) that both the total risk (variance) and systematic risk (beta) of the return on equity increases proportionally with those associated with the return on investment; and (iii) that, when the option pricing model is applied to the case of margin trading, a more precise valuation formula can be employed.