The box spread arbitrage conditions: theory, tests, and investment strategies

This paper develops and tests arbitrage bounds for a combinationof two option spread positions known as a box spread. This strategyinvolves the simultaneous use of four options and creates aposition that is equivalent to riskless lending. The no-arbitrageconditions are compared to existing arbitrage bounds and aretested using Chicago Board Options Exchange data.     

Cash flow,investment, and investment opportunities: New tests using UK panel data

The interpretation of the correlation between cash flow and investment is controversial. Some argue that it is caused by financial constraints, others by the correlation between cash flow and investment opportunities that are not properly measured by Tobin’s Q. This paper uses UK firms’ contracted capital expenditure to capture information about opportunities available only to insiders and thus not included in Q. When this variable is added to investment regressions, the explanatory power of cash flow falls for large firms, but remains unchanged for small firms. This suggests that the significance of cash flow stems from its role in capturing the effects of credit frictions.     

亚行支持私营部门投资再发展

一个强大而富有活力的私营部门对于经济增长来说,至关重要。这也是实现持续减贫的必要条件。如果私营部门不能发挥作用,任何一个政府都不可能同时实现可持续发展和减贫这两个目标。在亚行驻中国代表处新办公地址——国贸大厦,首席代表保罗·海登斯对《国际融资》记者说：“亚行的核心产品不是资金．也不是为私营部门能有效动员足够资金的部门融资。亚行提供的是远比单纯的资金更具有战略意义的重要东西,这就是促进私营部门发展的作用力”     

The asymptotic relative efficiencies of tests and the derivatives of their power functions

Abstract

For comparing two consistent tests of a simple null hypothesis H ₀ : θ = θ₀ against a given alternative hypothesis H ₀ : θ = θ₁, the measure most frequently used is the asymptotic relative efficiency (ARE), due to Pitman (1948). The ARE is defined as the limit of the reciprocal of the ratio of sample sizes required to attain the same power. The limit is taken as sample sizes tend to infinity and simultaneously θ₁ → θ₀, this being necessary to keep the powers of the tests bounded away from 1.     

Process consistency and monetary reform: Some further evidence

In this paper we provide additional evidence that process consistency may have materialized as a restrictive constraint on the money generation process. In addition to recomputing the time series of process consistency probabilities using new data from the German case, we also supply our empirical technique to the data from the other hyperinflations studied by Cagan. The results are consistent with our earlier conclusions: in extreme hyperinflation, process consistency may have materialized as a restrictive constraint on the money generation process.     

中国对美直接投资现状分析与发展对策建议

中国对美直接投资（FDI）在过去近10年时间里保持着快速增长态势,并拥有良好的发展前景。文章归纳了中国对美FDI所表现出的基本特征,全面分析了近年来促进中国对美FDI增长的驱动因素,以及国内企业在对美FDI中遇到的制约因素,指出为继续推动中国对美FDI的快速发展,需要中美两国加强政治上的互信与理解,也需要中国企业充分熟知美国的投资规则,提高自身投资管理技能。     

Agency problems and audit fees: further tests of the free cash flow hypothesis

This study finds that the agency problems of companies with high free cash flow (FCF) and low growth opportunities induce auditors of companies in the US to raise audit fees to compensate for the additional effort. We also find that high FCF companies with high growth prospects have higher audit fees. In both cases, higher debt levels moderate the increased fees, consistent with the role of debt as a monitoring mechanism. Other mechanisms to mitigate the agency costs of FCF such as dividend payout and share repurchase (not studied earlier) do not moderate the higher audit fees.     

The shortage of safe assets in the US investment portfolio: Some international evidence

This paper develops a Bayesian Global VAR (GVAR) model to track the international transmission dynamics of two stylized shocks, namely a supply and demand shock to US-based safe assets. Our main findings can be summarized as follows. First, we find that (positive) supply-sided shocks lead to pronounced increases in economic activity which spills over to foreign countries. The impact of supply-sided shocks can also be seen for other quantities of interest, most notably equity prices and exchange rates in Europe. Second, a demand-sided shock leads to an appreciation of the US dollar and generally lower yields on US securities, forcing investors to shift their portfolios towards foreign fixed income securities. This yields sizable positive effects on US output, equity prices and a general decrease in financial market volatility.     

Hedging,financing, and investment decisions: Theory and empirical tests

In this paper we theoretically and empirically examine the interaction between hedging, financing, and investment decisions. A simple equilibrium model with costly financial distress suggests that as firms become more efficient at risky investments vis a vis low risk investments, they will borrow less, invest more in risky assets, and hedge more. The model also predicts a positive relationship between hedging and leverage – a result consistent with debt capacity arguments. We test the model empirically using a simultaneous equations framework to investigate the determinants of firm-level hedging, financing and investing decisions. The results strongly support the hypothesis that the hedging, financing and investment decisions are jointly determined. In addition, we find strong support for the central hypothesis that firms more efficient investing in risky technologies more aggressively hedge and use less debt financing in order to maximize their comparative advantage.     

The specification and power of tests to detect abnormal changes in corporate investment

We evaluate methods used to measure abnormal changes in capital expenditures. We examine both statistical tests and models of expected capital expenditures. We find that commonly used research designs yield test statistics that are misspecified, even in random samples. In cases where sample firms share a common characteristic such as extremely low or high investment, size, leverage, return on assets or market-to-book ratio, it is very important to match sample firms to a control group that shares this pre-event characteristic. We also find that using control groups, rather than a single control firm, yields more powerful test statistics.     

Demand and supply functions for money in Canada: Some further evidence

The demand and supply functions for money in Canada are estimated in a simultaneous-equation model format in which the supply of money is considered endogenous. The results indicate that the important determinants of the demand for money are income, short-term interest rate and lagged real cash balance variables. Wealth is an unimportant explanatory variable in money demand thus rejecting the hypothesis that an increase in outside wealth increases the demand for money. The monetary base and cash reserve ratio are important explanatory variables in the money supply function and play a direct role in monetary control.     

Collapsing exchange rate regimes and exchange rate dynamics: Some further examples

This paper extends some recent perfect foresight models of balance of payments crises and exchange rate realignments to a world of smart speculators, sticky prices and restricted international capital movements. The likelihood and timing of a regime collapse are shown to depend upon initial foreign reserve endowments, monitary policy, speeds of market adjustment and future exchange rate policy. These factors are also shown to influence the dynamic behavior of the exchange rate and prices during a transitional period of floating.     

Net working capital investment and capital budgeting analysis: Some pedagogical insights

Net working capital (NWC) investment, as a factor in discounted cash flow (DCF) analysis, receives little attention in the capital budgeting literature and accounting textbooks. The purpose of this paper is to explore the ways in which this important component of the analysis can be intregrated into the classroom and thus add to the student's overall understanding of capital budgeting. Four areas are discussed: (1) the significance of NWC investment in capital budgeting analysis, (2) the opportunity cost nature of the NWC investment, (3)measurement of the components of the NWC investment, and (4) use of the NWC investment to help restore the bottom line in DCF analysis to a pure cash flow basis. Integration of the fourth point into the topic of capital budgeting is found to be a convenient way to reinforce the student's understanding of the statement of cash flows.     

Comovements in aggregate and relative prices: Some evidence on neutrality

This paper develops an alternative test of the neutrality of anticipated monetary policy. A multi-good equilibrium model along the lines of Barro and Hercowitz is used to derive a neutrality proposition for anticipated movements in the aggregate price level and to demonstrate its equivalence econometrically to the exogeneity of relative prices with respect to the aggregate price level. Multivariate causality tests provide a basis for testing these restrictions. The empirical results provide mixed evidence for the equilibrium models, while the variation in the findings across industries suggests a role for supply-side disturbances in explaining comovements in aggregate and relative prices.     

The effects of executive share options and investment opportunities on firms’ accounting performance: Some Australian evidence

This paper provides evidence that firms with high investment opportunities and share options are associated with lower agency costs measured in terms of better accounting performance. The results of this study of 753 observations of 251 Australian firms over the three years 1998–2000 show that firms with high growth and executive share option plans are associated with better firm performance. In addition, this study shows that executives have greater risk-bearing preferences at higher option levels. That is, it is the combination of both high growth opportunities and high levels of options that is associated with higher financial performance. The results of this study suggest that it is economically irrational for low growth firms to use options as a means to motivate executives to increase firm performance. Further analysis revealed that these associations are not endogenously determined.     

Sources of professional staff turnover in public accounting firms: Some further evidence

A recent article by Rhode et al. (1977) identified 39 variables associated with professional staff turnover in public accounting firms. The present study attempted to extend this prior work by examining the antecedents of the turnover act, namely those variables associated with the turnover decision. Using a valence-instrumentality-expectancy framework, measures of task outcome valence and instrumentality were evaluated with turnover expectations for a sample of 306 staff-level accountants. The findings indicated that the turnover decision was largely a function of negatively-valued task outcomes and the likelihood of obtaining these outcomes in one's current position, and the higher likelihood of obtaining certain positive outcomes in alternative positions.     

New empirical evidence on the investment success of momentum strategies based on relative stock prices

This paper provides significant extensions and tests of momentum trading strategies based on relative prices that were first explored by George and Hwang (2004). We develop new momentum strategies based on the ratio of the current stock price to each of five different reference points in past prices: 52-week high, 52-week median, 52-week low, half-year high, and 2-year high. We measure their investment performance on the basis of the Fama and French 3-Factor and Momentum Model (Carhart four-factor model), and further employ the technique of nested trading strategies to measure incremental performance. The strategy based on the ratio of current stock price to its 52-week high price is the most profitable, and its performance is robust when tested over a wide range of financial and economic factors. Our results provide strong new evidence of the investment merits of a momentum trading strategy based on the 52-week high price ratio, and add new weight to challenges to the hypothesis that the stock market is efficient in the semi-strong sense.     

Some curious power properties of long-horizon tests

Based on simulations and asymptotic results, I highlight three distinct properties of long-horizon predictive tests. (i) The asymptotic power of long-horizon tests increases only with the sample size relative to the forecasting horizon. Keeping this ratio fixed as the sample size increases does not lead to any power gains asymptotically. (ii) Although the power of long-horizon tests increases with the magnitude of the slope coefficient for alternatives close to the null hypothesis, there are no gains in power as the slope coefficient grows large. That is, the power curve is asymptotically horizontal when viewed as a function of the slope coefficient. (iii) For endogenous regressors—i.e., when the innovations to the regressand are contemporaneously correlated with the innovations to the regressor—traditional tests based on the standard long-run OLS estimator result in power curves that are sometimes decreasing in the magnitude of the slope coefficient.     

The warning of haze: weather and corporate investment

This paper investigates whether air quality affects corporate investment. Using a sample of Chinese A‐share listed firms from 2007 to 2013, this paper finds that poor air quality is negatively associated with corporate investment and reduction of corporate investment due to air pollution intensifies with manager risk aversion. In addition, this paper provides evidence against the alternative explanation that corporate investment decreases due to government air‐quality regulations. Furthermore, this paper also suggests that poor air quality is negatively associated with investment efficiency. These findings complement existing literature on how weather conditions affect corporate financial decisions.     

Predicting Japanese bank stock performance with a composite relative efficiency metric: A new investment tool

The paper's main objective is to predict bank stock performance one year ahead with a composite efficiency metric from relative contextual financial analysis. We bring together financial ratios, generalized data envelopment analysis and simulated annealing to rank Japanese banks on stock performance predicted from relative efficiency scores. An application of this ranking in a profitable investment strategy by designating long and short portfolios underscores the potential commercial value of the method. The method can also be used to monitor the effectiveness of ratios in forecasting stock performance and it is conducive to selecting predictive ratios when markets are changing rapidly.