Can broker-dealer client surveys provide signals for debt investing?

We use a novel data set to study return predictability in debt markets. The data are collected from J.P. Morgan’s periodic surveys on its clients’ outlook for changes in US Treasury yields and corporate credit spreads. We document that simple signals constructed from such surveys predict excess returns on debt portfolios formed on the basis of duration (2-years minus zero) or credit quality (BBB minus AAA). A linear trading strategy placing equal weight on Treasury and Credit signals has an annualized Information Ratio equal to 1.18, before transaction costs. We also show that predictability is likely to stem from private information possessed by survey respondents rather than from risk premia.     

The dark side of financial innovation: A case study of the pricing of a retail financial product

The offering prices of 64 issues of a popular retail structured equity product were, on average, almost 8% greater than estimates of the products' fair market values obtained using option pricing methods. Under reasonable assumptions about the underlying stocks' expected returns, the mean expected return estimate on the structured products is slightly below zero. The products do not provide tax, liquidity, or other benefits, and it is difficult to rationalize their purchase by informed rational investors. Our findings are, however, consistent with the recent hypothesis that issuing firms might shroud some aspects of innovative securities or introduce complexity to exploit uninformed investors.     

Rising Wage Inequality, Returns to Education and Labour Market Institutions: Evidence from Ireland

Institutional factors and increased supply of skilled labour have been advanced in an effort to explain why some countries have experienced smaller increases in earnings dispersion and in returns to education than the USA and the UK. Ireland has had a highly centralized wage bargaining structure and the supply of skilled labour has increased sharply in recent years; hence, relatively little change in earnings dispersion might be expected. We compare the distribution of earnings in Ireland in 1987 and 1994 and find a surprisingly large growth in earnings dispersion. In addition, using a decomposition technique, we find that much of this is accounted for by increasing returns to measured.     

The evolution of a regional container port system: the Pearl River Delta

This study investigates the progress of container port system development in South China, focusing particularly on the interplay between Hong Kong and the other ports in the Pearl River Delta (PRD) region. After identifying the downgrading trend of Hong Kong from a transshipment hub port for Asia and for China as a whole to a regional load center and the emergence of other deep-sea direct-service ports, the paper looks into the causes of this structural change of the port system. Four major causes are identified: the cost-base competition, the impact of the unique “one-country two-systems” policy, the impact of globalization and container standardization, and the impact of multi-modal accessibility and connectivity. The paper reveals that the interplay between different governments and between the governments and port operators are the local mechanisms that together as a whole respond to the shippers’ needs and the shipping lines’ pressure. It confirms that the interdependencies and competitive relations between terminals are being played out at a regional level. While the particular situation of the PRD is unique in many regards, the features emerging there, with its dominant hub, its network of feeder ports and its emerging direct-service non-hub terminals, are being replicated elsewhere.     

Rationalising the future? Foresight in science and technology policy co-ordination

Commentators from diverse fields and backgrounds have argued the present innovation environment is one constituted by unprecedented levels of uncertainty. National Foresight programmes recently have emerged as a means of co-ordinating science and technology policies and responding to a condition of uncertainty and change. Perhaps the most systematic Foresight programme is that of the United Kingdom. This article discusses the response the UK Foresight programme offers to the present and future innovation environments. In doing so, it is argued we should examine how the ‘need' for the programme is constructed and how that need is defined and shaped in relation to past UK science and technology policies. It is suggested that Foresight presents an ambivalent response to many of the concerns it proposes to address.     

Valuing Fixed-Income Options and Mortgage-Backed Securities with Alternative Term Structure Models

To value mortgage-backed securities and options on fixed-income securities, it is necessary to make assumptions regarding the term structure of interest rates. We assume that the multi-factor fixed parameter term structure model accurately represents the actual term structure of interest rates, and that the values of mortgage-backed securities and discount bond options derived from such a term structure model are correct. Differences in the prices of interest rate derivative securities based on single-factor term structure models are therefore due to pricing bias resulting from the term structure model. The price biases that result from the use of single-factor models are compared and attributed to differences in the underlying models and implications for the selection of alternative term structure models are considered.     

Management succession and financial performance of family controlled firms

This paper examines the immediate and long-term impacts on financial performance of 124 management successions within Canadian family controlled firms. When family successors are appointed, stock prices decline by 3.20% during the 3-day (−1 to +1) event window, whereas there is no significant decrease when either non-family insiders or outsiders are appointed. However, a cross-sectional analysis indicates that the negative stock market reaction to family successors is related to their relatively young age which may reflect a lack of management experience rather than their family connection per se. Investors are uncertain about the “management quality” of family successors who have less established reputations than more seasoned non-family insiders and outsiders. Non-family member appointments tend to follow periods of poor operating performance implying that there might be more scope for improvement when a non-family successor is appointed. Unlike the US sample in McConaughy et al. [McConaughy, D.L., Walker, M.C., Henderson, G.V., Mishra, C.S., 1998. Founding family controlled firms: efficiency and value, Review of Financial Economics 7, 1–19.], which indicates that the median percentage of votes held by controlling families is less than 15%, the Canadian sample indicates a more concentrated ownership with the median percentage of family controlled votes exceeding 51%. Of the firms in our sample, 62% use dual class capitalization to maintain control within the family.