Corporate Hedging Policy and Equity Mispricing

We show that firms’ use of derivatives is negatively associated with stock mispricing. This result is consistent with the notion that hedging improves the transparency and predictability of firms’ cash flows resulting in less misvaluation. Furthermore, we show that the negative relationship between mispricing and hedging is particularly strong when market value is below fundamental value, which is consistent with prior evidence that hedging has a positive impact on firm valuation. Finally, we provide evidence that a “spread‐out” hedging policy that entails the use of a variety of derivative contracts can be more effective in reducing mispricing.     

Long-run relations among equity indices under different market conditions: Implications on the implementation of statistical arbitrage strategies

Compared with previous research, the present work extends existing literature by considering long-run relations among major international stock market indices, under different market conditions, and the implications of these relations on the implementation of statistical arbitrage strategies. The examined data contain two bust phases interrupted by a mild bullish period. Employing cointegration analysis, reported results initially indicate that changes in market performance affect the stability of long-run relations, therefore suggesting that arbitrageurs should perform rebalancing among the examined indices when a change in a market trend is evident. Furthermore, extreme market performance harms the mean-reverting properties of a potential long-run relation while moderate market performance points to cointegration between a pair of indices. However, the absence of a stationary spread does not suggest the potential of abnormal returns realization, in the short-run, through exploitation of deviations from its mean value. The applicability of our results may be of importance to market participants since the cointegration approach has recently received considerable attention by hedge funds adopting statistical arbitrage strategies.     

Does R&D,human capital and FDI matter for TFP in OECD countries?

ABSTRACT

This study investigates the interplay between research and development (R&D), human capital (HC), foreign direct investment (FDI) and total factor productivity (TFP) in OECD countries. We divide the sample into two sub-groups; the European and the non-European states so as to account for underlying country heterogeneity. The analysis follows a panel data approach over the period 1995–2015, taking into account the modelling on non-stationarity, long-run relationships and short-run dynamics with a panel VAR. Both R&D and HC have a positive effect on TFP, whilst FDI has a positive and significant effect only in the case of non-European countries. Moreover, the contribution of R&D is higher than that of HC and FDI in all cases. Thus, based on these findings, policymakers should design and implement policies to increase resources invested in R&D, with a consistent ongoing spending review, to attract foreign direct investment, especially for the majority of the European and some of the non-European countries and to improve education system on a more productive innovation and research base.     

Corporate retained earnings and personal sector saving: a test of the life-cycle hypothesis of saving

The dynamic personal saving function proposed by Swamy (1968) nests in a common framework, the life-cycle hypothesis (LCH) and the Houthakker-Taylor (1970) model of saving. Having accounted for a limitation of the generality of the Swamy result, which regards the role of corporate retention in the two models, the Swamy framework is used to test the LCH implication of perfect substitutability between personal saving and corporate retained earnings using UK data for the 1951–83 period. The empirical results cast doubt on the perfect substitution hypothesis.     

Testing for Regime Changes in Greek Sovereign Debt Crisis

This paper examines whether the efficiency market hypothesis for the Greek sovereign debt holds. As in Blanco et al. (2005) we test the theoretical equivalence of credit default swap (CDS) and spreads that dictates a CI relationship between the two. The main innovation of the present analysis is the use of a threshold vector error-correction (TVECM) model, thus allowing thresholds within the sample covering the period 1990 to 2010. Moreover, by employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various events due to external market imperfections but also domestic factors. The main hypothesis we test is to what extent spreads and CDS are indeed integrated that may result in an efficient and integrated segniorage capital market. Our findings support the gradual integration hypothesis. We find that spreads and CDS are cointegrated, though threshold effects are also revealed in terms of events that have impacted on markets.     

Innovation and upheaval: early growth in Greek capital market listings and IPOs from 1880 to the Second World War in the Athens Stock Exchange†

The establishment and growth of the Greek stock market were coincident with development episodes, financial upheavals, and geographic expansions of the country's economy over the period 1880–1940. This article explores the growth of the Athens Stock Exchange through new listings and initial public offerings (IPOs) in the late nineteenth and early twentieth centuries. We examine changes in exchange governance and listing requirements. On a theme not addressed before , we find that simple listings were far more numerous than actual IPOs. IPOs in Greece remained unregulated throughout the period. Their under‐pricing became pronounced in the later parts of the period, especially the 1920s. The study presents data on ‘quasi‐IPOs’ (that is, capital increases shortly after listing) and shows that they offer a more accurate assessment of the demand for the financing of listing firms in an emerging market. Robust evidence is presented to show that as the Exchange developed it also underwent a change in character, becoming more oriented to the domestic market and catering to smaller firms in domestic manufacturing in the post‐First World War era that marked the end of early globalization.     

The effect of education on the minimum wage

This research shows for the first time that the level of education has a causal, negative effect on the minimum wage. I use 2SLS, with historical educational data as an instrument for the level of education in 2010, and I find that across the US states a one percentage point greater proportion of college graduates is associated with a real minimum wage that is lower by 1.5%–1.6%. Also, in order to control for state-level omitted variables, I regress the change in the minimum wage on the change in education and I find again a negative, and significantly at the 1% level, effect. Minimum wage is a policy that is chosen by governments according to voters’ preferences. The results of this research imply that when the level of education increases voters prefer a lower minimum wage.     

LEGAL ENVIRONMENT,INTERNALIZATION, AND U.S. ACQUIRER GAINS IN FOREIGN TAKEOVERS

In examining takeovers of foreign targets by U.S. firms, we investigate the effect of the target country's legal environment on acquiring firm value. Our results indicate that acquirers of target firms located in civil law countries experience significant positive abnormal returns, especially when the acquirer possesses a high level of intangibles. Furthermore, we find that acquirers with high levels of intangibles are more likely to acquire target firms in civil law countries. These findings suggest that the transfer of intangibles overseas provides relatively larger efficiency benefits for multinational corporations in cases where the alternative, contracting in external markets, is more difficult.     

Trade Restrictiveness in the Presence of 'New' Goods

The Trade Restrictiveness Index (TRI) by Anderson and Neary (1994) is an index number aggregating trade distortions in the context of a small open economy. A liberalization process which allows trade in goods not traded in previous periods, implies different sets of goods in the two successive periods over which the TRI is defined; this may introduce a bias, inherent in index numbers. This paper attempts a refinement of the standard TRI to allow for the presence of newly traded goods in the definition of the index. In addition, an implementable expression of the refined TRI is provided.     

Estimating Quality‐adjusted Price Changes: Method and Application to VCRs

This paper uses scanner data to generate estimates of quality‐adjusted price changes for video‐recorders. We use hedonic regressions to derive estimates of the changing worth of each quality component. These are then applied to weighted changes in the mix of quality attributes of products to derive estimates of quality‐adjusted price (QAP) changes. The data source used is electronic‐point‐of‐sale (EPOS) scanner data that are available for a wide range of goods. This study provides an example of how such methods can be more widely applied. The estimates of QAP changes correspond to constant‐utility, (hedonic) cost‐of‐living indexes defined in economic theory as the ratio of expenditure functions at constant utility allowing for changing prices and characteristics of goods. This method is proposed as an improvement on the existing direct method , which takes its estimates directly from the coefficients associated with 'time dummies' in a hedonic regression. We finally undertake a matching process, akin to that used by statistical offices, and compare the results. Direct comparisons with RPI estimates and these hedonic approaches are not easy since the approaches use quite different data sets. Our replication of a procedure akin to that used for the RPI on the scanner data set provides insights into sources of potential bias.