Does market misvaluation help explain share market long‐run underperformance following a seasoned equity issue?

We examine the relation between pre‐seasoned equity offering (SEO) announcement date misvaluation and long‐run post‐SEO performance for a large sample of Australian SEOs made between 1993 and 2001. Our study is motivated by inconsistent findings across countries with respect to the SEO long‐run underperformance anomaly first documented in the USA, inconclusive findings with respect to the hypothesis that managers exploit market misvaluation when timing equity issues, and a recent Australian Stock Exchange proposal to loosen SEO regulation. We find SEO firms underperform common share market benchmarks for up to 5 years after the announcement. Using a residual income valuation method, we show that this underperformance is related to pre‐announcement date misvaluation. An unexpected result is that underperformance and misvaluation are more severe for private placements than rights issues. Institutional factors unique to the Australian setting, particularly the large number of smaller loss‐making firms among private placement issuers, appear to explain the poorer performance of placement firms. Our results are robust to various measurement methods and assumptions, and demonstrate the importance of researching SEO performance in alternative institutional settings.     

World capital markets and Finnish stock returns

The paper explores issues related to time-varying global equity market integration from a Finnish perspective. Finland is an interesting market since profound economic changes and financial deregulation have taken place since the mid-1980s. Using Finnish firm size ranked portfolios and a conditional four-factor asset pricing model, several restrictions on asset behaviour are examined. It is found that a proxy for changing market integration — lagged foreign equity ownership — has a significant impact on the relative importance of local and global risk factors. Significant differences are found between the pricing of shares that were freely-available to all (unrestricted shares) and domestic investors only (restricted shares). Results also suggest that major capital market reforms profoundly affect the degree of market integration, but local risk factors do not become redundant.     

Dynamic Spanning in the Consumption-Based Capital Asset Pricing Model

Under the assumptions of the Consumption-based Capital AssetPricing Model (CCAPM), Pareto optimal consumption allocationsare characterized by each agent's consumption process beingadapted to the filtration generated by the aggregate consumptionprocess of the economy. The wealth processes of the agents,however, are adapted to the finer filtration generated by aggregateconsumption and the conditional distribution of future aggregateconsumption. Therefore, in order to achieve pareto optimal consumptionallocations, a sufficiently varied set of assets must existsuch that any wealth process adapted to this finer filtrationcan be implemented by dynamically trading in that set of assets.We provide sufficient conditions for the existence of such aset of assets based on dynamically trading contingent claimson aggregate consumption. In addition, we give sufficient conditionsfor the existence of equilibria in a dynamically effectivelycomplete market in which agents are only able to trade in contingentclaims on aggregate consumption, the market portfolio of firms,and a (numeraire) zero-coupon bond. We demonstrate the roleof short- and long-term contingent claims on aggregate consumptionfor the implementation of Pareto optimal allocations inthe presenceof short- and long-term risks. In addition, in the presenceof personal risks, we demonstrate the role of insurance contracts.JEL Classification: G13.     

Credit Risk and the Term Structure of Lease Rates: A Reduced Form Approach

Previous research either assumes default free leases or leases subject to default risk using a structural approach. However, structural credit risk models suffer from a common criticism that the firm’s asset value process is unobservable. We develop a reduced form credit risk model for leases that avoids making assumptions regarding unobservable asset valuation processes. Furthermore, we assume a correlated market and credit risk that provides us with a simple analytic formula for valuing defaultable lease contracts. Numerical analysis reveals that tenant credit risk can have a substantial impact on the term structure of leases. Finally, we use the model to demonstrate the implied lease term structure for a set of retail and financial firms in the Fall of 2000.

Long-run productivity risk: A new hope for production-based asset pricing?

The examination of the intertemporal distribution of US productivity risk suggests that the conditional mean of productivity growth is an important determinant of macro quantities and asset prices. After establishing this empirical link, I rationalize it in a production economy featuring long-run productivity risk, Epstein and Zin (1989) preferences, and investment frictions. Both convex capital adjustment costs and convex reallocation costs across consumption and investment produce an annual equity premium as sizeable as in the data.     

Speculative dynamics and price behavior in the Shanghai Stock Exchange

This article examines the extent to which the trading behavior of heterogeneous investors manifests in stock price changes of asset portfolios which constitute the Shanghai Stock Exchange. There are three major findings that materialize. Firstly, reliable statistical evidence of a negative relation between the conditional first and second moments of the return distributions of stock prices lends support to the volatility feedback effect. Secondly, ‘feedback’, or momentum-type investors, are not present in this market as is often detected from the daily price changes of other industrialized markets. Finally, trade volume as a proxy for ‘information-driven’ trading suggests that such investors play a statistically significant role in stock price movements. Parameter estimates from this latter group of investors imply that a rise in stock prices from a high volume trading day is more likely than a rise resulting from a low volume trading day.     

Dynamic Spanning in the Consumption-Based Capital Asset Pricing Model

Under the assumptions of the Consumption-based Capital Asset Pricing Model (CCAPM), Pareto optimal consumption allocations are characterized by each agent's consumption process being adapted to the filtration generated by the aggregate consumption process of the economy. The wealth processes of the agents, however, are adapted to the finer filtration generated by aggregate consumption and the conditional distribution of future aggregate consumption. Therefore, in order to achieve Pareto optimal consumption allocations, a sufficiently varied set of assets must exist such that any wealth process adapted to this finer filtration can be implemented by dynamically trading in that set of assets. We provide sufficient conditions for the existence of such a set of assets based on dynamically trading contingent claims on aggregate consumption. In addition, we give sufficient conditions for the existence of equilibria in a dynamically effectively complete market in which agents are only able to trade in contingent claims on aggregate consumption, the market portfolio of firms, and a (numeraire) zero-coupon bond. We demonstrate the role of short- and long-term contingent claims on aggregate consumption for the implementation of Pareto optimal allocations in the presence of short- andlong-term risks. In addition, in the presence of personal risks, we demonstrate the role of insurance contracts.     

开展股指期货交易--我国证券市场发展的现实选择

作为一种创新型金融衍生产品，股指期货丰富了市场交易品种，而双向交易机制的引进可以规避系统性风险，从而有利于资本市场的平稳运行。但是，股指期货交易的开展必须基于一国的基本国情，本文从股指期货的比较优势入手，结合我国当前实际情况，对我国股指期货的开展进行了分析。     

Operational risk and equity prices

We use an empirical model to categorize firms into portfolios based on operational risk. Using these portfolios, we show that a strategy of buying firms in the highest decile of operational risk and shorting firms in the lowest decile of operational risk earned a positive but insignificant risk-adjusted average return of 0.72% per month from 1990 to 2000. However, from 2001 to 2010, the same strategy earned a significantly negative risk-adjusted average return of ?1.50% per month. This change occurred during a time characterized by an increasing number of high profile operational losses and regulatory changes surrounding operational risk.     

Financing climate policies through climate bonds – A three stage model and empirics

The funding of climate mitigation and adaptation policies has become an essential issue in climate negotiations. Emissions trading schemes (ETS) and carbon tax policies are widely discussed as viable mitigation strategies, the revenue from which might then be used for adaptation efforts. In most current models, the burden of enacting mitigation and adaptation policies falls on current generations. This paper expands on a recent article by Sachs (2014) that proposes intertemporal burden sharing, suggesting that implementation of climate policies would represent a Pareto improving strategy for both current and future generations. In particular, this paper proposes that green bonds (also referred to as climate bonds) represent an immediately implementable opportunity to initiate Sachs’ plan; the issuance of green bonds could fund immediate investment in climate mitigation such that the debt might be repaid by the future generations, those who benefit most from reduced environmental damages. The Sachs model is a discrete time overlapping generations model which we generalize and turn into a continuous time version exhibiting three major stages. We solve this three phase model by using a new numerical procedure called NMPC that allows for finite horizon solutions and phase changes. We show that the issued bonds can be repaid and the debt is sustainable within a finite time horizon. We also study econometrically whether the current macroeconomic environment is conducive to successfully phasing in such climate bonds.     

Identifying,valuing and hedging of embedded options in non-maturity deposits

Non-maturity deposits like savings accounts or demand deposits contain significant option risks caused by the bank’s discretionary pricing and the customers’ withdrawal right. Option risks follow from inherent non-linear factor exposures. I propose an ordinal response model for deposit rate jumps to identify non-linear factor exposures and a discrete-time term structure model to value the resulting option risks and to derive hedge measures “outside the model”. My delta profile resembles a constant maturity swap, but vega and gamma are more pronounced, which demonstrates that the widespread practice of static hedging with zero bonds is inadequate.