Dual Class IPOs ARE Underpriced Less Severely

We analyze a sample of dual and single class initial public offerings (IPOs) to investigate whether empirical estimates of underpricing determinants are consistent across alternative measures of firm size and alternative techniques intended to account for underwriter price stabilization efforts. We find that results from long‐standing methods for estimating underpricing relations are generally robust to one's choice of size proxy and are consistent with estimates obtained from censored regressions of first‐day returns and from least squares regressions of longer horizon initial returns. We also confirm an existing finding in the literature that dual class IPOs endure less underpricing than do single class firms.     

Estimating price trends for residential property: A comparison of repeat sales and assessed value methods

The repeat sales methodology for estimating residential price indices is based on actual appreciation of individual properties. On the other hand, the repeat sales method wastes data, typically discarding a large percentage of all sales. This article explores two issues related to the subsample of repeat sales. First, are paired sales representative of the entire population of properties that sold? Second, is there evidence that sample selectivity biases the price trend estimates? Evidence from five metropolitan areas supports a negative answer to the first question and the second question. It appears that a “lemon” or “starter home” effect causes repeat residential sales to be a biased subsample of all transactions. Cumulative price trends for the repeat subsamples can differ from the full samples over periods ranging from two to ten quarters. While short-term price trends can differ widely, there are no systematic differences among the samples over long periods of time (e.g., three years or more).     

Firms’ histories and their capital structures

This paper examines how cash flows, investment expenditures, and stock price histories affect debt ratios. Consistent with earlier work, we find that these variables have a substantial influence on changes in capital structure. Specifically, stock price changes and financial deficits (i.e., the amount of external capital raised) have strong influences on capital structure changes, but in contrast to previous conclusions, we find that over long horizons their effects are partially reversed. These results indicate that although firms’ histories strongly influence their capital structures, over time their capital structures tend to move towards target debt ratios that are consistent with the tradeoff theories of capital structure.     

An empirical analysis of implicit delivery options in the treasury bond futures contract

Assuming perfect, frictionless and efficient markets, this paper develops a framework to estimate the composite value of the quality, wild card and end-of-month options implicit in the T-bond futures contract. The value of delivery options is shown to be the excess of forward price of the cheapest bond over its conversion factor times the exercise price of futures contract. Empirical results indicate that the option values over the last quarter of the nearby contract are on average less than 0.5 percent of the mean futures price, which is substantially lower than the value reported by previous studies. Further scrutiny reveals that although the empirical estimates are contaminated by non-synchronous bond data, they are consistent with certain known theoretical properties of option values.     

Prices and returns on paintings: An exercise on how to price the priceless

Art is priceless, but paintings, and other objects, have been sold on markets since the time of the Roman Empire. In this paper, we describe a method for constructing a price index for paintings and compare this index to the indices of various financial markets. In particular, we discuss whether the price of art is related to financial markets, whether the art market is weakly efficient, and whether it is more or less risky than financial markets.     

Uncovered interest-rate parity over the past two centuries

We study the validity of uncovered interest-rate parity by constructing ultra-long time series that span two centuries. The forward-premium regressions yield positive slope estimates over the whole sample. The estimates become negative only when the sample is dominated by the period of 1980s. We also find that large interest-rate differentials have significantly stronger forecasting powers for currency movements than small interest-rate differentials. Furthermore, when we regress domestic currency returns on foreign bonds against returns on domestic bonds as an alternative test of the parity condition, the null hypotheses of zero intercept and unit slope cannot be rejected in most cases. These results are consistent with a world in which expectations formation is highly imperfect and characterized on the one hand by slow adjustment of expectations to actual regime changes and on the other by anticipations for extended periods of regime changes or other big events that never materialize. An historical account of expected and realized regime changes adds credence to this explanation and illustrates how uncovered interest-rate parity holds over the very long haul but nevertheless can be deviated from over long periods of time due to ex post-expectation errors.     

The sensitivity of Australian industry equity returns to a gold price factor

This paper investigates the extra-market sensitivity of Australian industry equity returns to a gold price factor over the period 1975 to 1994. We find, over the full sample period, that there has been a widespread sensitivity of Australian industry returns to gold price returns, over and above market returns. The sensitivity is found to be of positive sign for resource and mining sector industries, whereas it is of negative sign for the industrials sector. Further, there appears to be a change in importance of the gold price factor over time, as reflected by a comparison of subperiod gold price sensitivity estimates     

Understanding Post‐Euro Law‐of‐One‐Price Deviations

We put together a unique panel of thousands of good‐level prices before and after the euro to compare the determinants and understand the evolution of goods price dispersion across Europe over time. We find that tradeability and nontraded inputs play a significantly smaller role for cross‐country price dispersion after the adoption of the euro, and for Eurozone economies as compared to European Union ones. We then compare the distributions of law‐of‐one‐price (LOP) deviations over time to understand how the degree of integration across European economies changed after the euro. Our tests reveal that the distributions after the euro are typically significantly different from those before, consistent with a greater degree of integration. Utilizing our unique panel data set to trace the location of individual goods in the distribution of LOP deviations, we ask how the price advantage or disadvantage evident in these price distributions evolves over time, and whether goods characteristics play a role for the persistence of these LOP deviations. LOP deviations for these goods are highly correlated over 5‐ or 10‐ year horizons, and correlations remain significantly high over longer horizons. These correlations are greater for homogeneous as compared to differentiated goods and vary across countries. Finally, for most of these European economies and goods, price advantage is typically revealed to be more persistent than price disadvantage.     

Contracting officer workload,incomplete contracting,and contractual terms

This article estimates the causal effect of retirement‐induced workload spikes on the selection of procurement terms. In a sample of 150,000 contracts from 85 procurement offices over 11 years, increases in workload decrease reliance on competitive acquisition procedures, decrease reliance on firm‐fixed‐price contracts, increase risk of renegotiation, and increase costs. These estimates are consistent with a model of endogenously incomplete contracting. The US federal government has experienced exceptional growth in acquisitions contracting over the past decade but limited growth in acquisitions manpower. This article provides some of the facts necessary to evaluate the consequences of these shifts.     

The Investment Performance of Art in Mainland China

This article investigates price determinants and investment performance for paintings from mainland China using hedonic regression analysis applied to a new dataset from over 190,000 auction transactions. The price index obtained indicates that from 2000 to 2015, the average annual appreciation in value of Chinese art was 8.42% in real USD. Compared with American artwork, global artwork, and traditional financial assets, Chinese art possesses a comparatively better risk and return profile and a low correlation with other assets. Finally, regarding the masterpiece effect, the conclusion is that highly priced Chinese art does not underperform the market.     

A Better Asymmetric Model of Changing Volatility in Stock and Exchange Rate Returns: Trend-GARCH

Abstract

The impact of short run price trending on the conditional volatility is tested empirically. A new family of conditionally heteroscedastic models with a trend-dependent conditional variance equation: The Trend-GARCH model is described. Modern microeconomic theory often suggests the connection between the past behaviour of time series, the subsequent reaction of market individuals, and thereon changes in the future characteristics of the time series. Results reveal important properties of these models, which are consistent with stylized facts found in financial data sets. They can also be employed for model identification, estimation, and testing. The empirical analysis supports the existence of trend effects. The Trend-GARCH model proves to be superior to alternative models such as EGARCH, AGARCH, TGARCH OR GARCH-in-Mean in replicating the leverage effect in the conditional variance, in fitting the news impact curve and in fitting the volatility estimates from high frequency data. In addition, we show that the leverage effect is dependent on the current trend, i.e. it differentiates between bullish and bearish markets. Furthermore, trend effects can account for a significant part of the long memory property of asset price volatilities.     

The Construction of Residential Housing Price Indices: A Comparison of Repeat-Sales,Hedonic-Regression,and Hybrid Approaches

This article examines a number of hypotheses that underpin the repeat-sales and hedonic approaches to the construction of housing price indices, as well as the practical problems associated with the implementation of either approach. We also examine a hybrid procedure that combines elements of both the repeat-sales and hedonic-regression techniques. For our sample of individual home sales in Oakland and Fremont California over an 18-year period, repeat-sales methods are subject to sample selection bias; the maintained assumption of time constancy of implicit prices of housing attributes is violated; the repeat-sales estimator is extremely sensitive to influential observations; and the usual method used to correct for heteroskedasticity in repeat-sale housing returns is inappropriate in our sample. Hedonic techniques are better suited to contend with index number problems per se, as they can accommodate changing attribute prices over time. They also appear to give rise to more reliable estimates of price indices, as unusual observations have less effect on estimated price indices. Drawbacks of the hedonic approach include the usual concern with omitted attributes, and their effect on the estimated price index.     

Endogenous market statistics and security pricing:: An empirical investigation

This study examines empirically the degree to which the history of daytime and overnight price changes and order flow affects estimates of traders' beliefs about future security price changes. Estimates indicate that forecasts of the permanent component of price changes occurring after the open of trading are significantly related to past price changes and order flow; but the same is not generally true for price changes occurring after the close. These results are consistent with models of technical analysis, and models in which the process of trading facilitates price discovery. The evidence also suggests that private information is an important determinant of price movements.     

Spatial differentiation and price discrimination in the cement industry: evidence from a structural model

We estimate a structural model of the cement industry that incorporates spatial differentiation and price discrimination, focusing on the US Southwest over 1983–2003. We leverage the structure of the model to obtain consistent estimates of the underlying parameters using data on market outcomes that are substantially aggregated. Our results indicate that transportation costs around $0.46 per tonne‐mile rationalize the data. This friction enables relatively isolated plants to obtain higher prices from nearby customers. We further find that disallowing price discrimination would create $30 million in consumer surplus annually and show how the model can identify suitable divestitures in merger analysis.     

Which Part of the Chinese Art Market Is More Worth Investing In? Applying the Quantile Regression to Analyze Chinese Oil Paintings 2000–2014

This article uses a quantile regression approach to analyze the structure of the hedonic characteristics of 12,701 Chinese oil paintings sold at auctions in China and Hong Kong during the period 2000–2014. A hedonic model for both the full sample and the 0.20, 0.40, 0.60, 0.80, and 0.95 quantiles of the price distribution is estimated. The result indicates that noticeable differences exist in painting characteristics across different price ranges. The empirical evidence also suggests that highly priced Chinese oil paintings have both higher expected returns and less risk than those that are priced lower, which appear to be favorable assets to invest in.     

Share price performance following actual share repurchases

Using unique actual daily share repurchase data from Hong Kong, this paper investigates share price performance surrounding and following actual share repurchases. It is found that repurchasing firms buy back shares following price drops, suggesting that they behave opportunistically when implementing actual share repurchases. On average, the initial 3-day market response to actual repurchases is about 0.43%. Repurchasing firms do not seem to exhibit superior abnormal performance over long horizons when they make actual share repurchases. However, the price performance of repurchasing firms varies across firm size and market–book value ratios, and shows a clear and consistent pattern. The market responds the most favorably to repurchases that are made by small and value (high book-to-market value) firms. Over a long horizon, there is some evidence that repurchases made by value firms show superior performance. The three-year buy-and-hold abnormal return, which is measured against a portfolio of control firms that are matched by size and book-to-market value ratios, is over 20%. At least, repurchases made by high book-to-market value firms, for which undervaluation is more likely to occur, can benefit long-term shareholders.     

A Bayesian framework for combining valuation estimates

Discounted cash flow, method of comparables, and fundamental analysis typically yield discrepant valuation estimates. Moreover, the valuation estimates typically disagree with market price. Can one form a superior valuation estimate by averaging over the individual estimates, including market price? This article suggests a Bayesian framework for combining two or more estimates into a superior valuation estimate. The framework justifies the common practice of averaging over several estimates to arrive at a final point estimate.     

THE LONG‐RUN PERFORMANCE OF COMPANIES THAT WITHDRAW SEASONED EQUITY OFFERINGS

We examine the long‐run stock price and operating performance of companies that withdraw seasoned equity offerings (SEOs). Firms that withdraw an offering provide an opportunity to examine whether markets fully adjust to the information conveyed when managers announce the intent to issue shares, independent of any agency problems that might be intensified by the completion of the offering. As in completed seasoned equity offerings, long‐horizon event‐time operating and stock price performance in sample firms is substantially lower than what is observed among control firms. Underperformance is also observed in an equally weighted calendar‐time analysis. Results are consistent with overpricing among small firms that attempt, but then withdraw, SEOs.     

Historic District Influence on House Prices and Marketing Duration

Historic property designations have been lauded for spurring renovation beyond the historic structures themselves through positive externalities in surrounding neighborhoods. Previous historic district research focuses on whether historic designation results in a price premium. This paper takes a more comprehensive look at the buying process, which must consider marketing duration within the historic district as well as influences on the sale of properties adjacent to the historic district. We examine how historic district designation in Baton Rogue, Louisiana is capitalized either through a price premium or marketing duration and how that mechanism differs between neighborhoods inside and outside the historic district boundaries. We employ a three stage least square, 3SLS, model to account for the effects of endogenous marketing duration on price capitalization estimates. The estimates are consistent with search-market theory in that marketing duration absorbs part of the capitalization of historic designation. We find that the more certain benefits from historic designation within the district are reflected in a price premium while the reduced regulation coupled with the cachet of being located near but not inside the district result in shorter marketing duration.     

Price Pressure around Mergers

This paper examines the trading behavior of professional investors around 2,130 mergers announced between 1994 and 2000. We find considerable support for the existence of price pressure around mergers caused by uninformed shifts in excess demand, but that these effects are short‐lived, consistent with the notion that short‐run demand curves for stocks are not perfectly elastic. We estimate that nearly half of the negative announcement period stock price reaction for acquirers in stock‐financed mergers reflects downward price pressure caused by merger arbitrage short selling, suggesting that previous estimates of merger wealth effects are biased downward.