LIQUIDITY AND QUOTE CLUSTERING IN A MARKET WITH MULTIPLE TICK SIZES

We analyze market liquidity (i.e., spreads and depths) and quote clustering using data from the Kuala Lumpur Stock Exchange (KLSE), where the tick size increases with share price in a stepwise fashion. We find that stocks that are subject to larger mandatory tick sizes have wider spreads and less quote clustering. We also find that liquidity providers on the KLSE do not always quote larger depths for stocks with larger tick sizes. Overall, our results suggest that larger tick sizes for higher priced stocks are detrimental to market liquidity, although the adverse effect of larger tick sizes is mitigated by lower negotiation costs (i.e., less quote clustering).     

Option Delisting of Stocks That Continue Trading: An Examination of Welfare Effects

This paper addresses the resulting effects from the delisting of options on underlying stocks that continue to trade. The evidence generally supports the argument that options in this sample are delisted as a result of financial difficulty and/or a lack of interest. An insignificant average abnormal return and a small significantly negative average standardized abnormal return are observed around the delisting date, but the average price effect is determined to be considerably less than the normal discrete trading intervals at which stocks trade on exchanges. There are no effects found on volatility measures directly attributable to option delisting.     

Implied Risk Aversion Parameter from Option Prices

This paper estimates the representative investor's coefficient of relative risk aversion using option price data. Estimation is carried out using the method of simulated moments. Employing the following assumptions: a) agents have constant proportional risk averse preferences, b) complete markets exist, and c) asset returns are distributed lognormally, an objective function is constructed within the equivalent martingale measure framework. Unlike the case of equity markets, the implied risk aversion parameter from option prices is quite low and stays between zero and one.     

Editor's Introduction

From May 19 to May 21, 2005, the Business History Conferenceheld its annual meeting in Minneapolis, Minnesota. The programcommittee of Steven W. Usselman (chair), Tracey Deutsch, HelenShapiro, Steven Tolliday, and JoAnne Yates put together a marvelousprogram. The local arrangements     

Raising Rivals' Costs Through Political Strategy: An Extension of Resource-based Theory

In this paper, we extend the resource-based theory of the firm to show that it can be used to analyse the effectiveness of competitive strategies. Specifically, we demonstrate that political strategies aimed at raising rivals' costs by blocking the use of substitute resources may create the opportunity for a firm to capitalize on resources that are valuable, rare, and costly to imitate. The uses of political activity to block the availability of substitute resources are discussed in detail and examples are provided to demonstrate how such strategies are used and to illustrate how successful they may be. This is an important extension of the resource-based theory because it demonstrates how the theory can be applied by researchers and practitioners.     

Bankruptcy and Entrepreneurship: The Value of a Fresh Start

This article considers bankruptcy law design in a setting thatis appropriate for entrepreneurial firms. These firms are characterizedby a dependence on an owner-manager who is essential to thefirm and must be given incentive through an ownership staketo maximize the value of the project. In a relationship-lendingenvironment, the banks that fund entrepreneurs cannot capturethe gains from providing the entrepreneur with this stake, andthis leaves the entrepreneur emerging from bankruptcy with alarger debt burden than is socially efficient. In this setting,a "fresh-start" bankruptcy policy provides greater debt reliefthan the bank would approve voluntarily, and this generatesgreater social surplus. The results suggest the value of separateprocedures for small business bankruptcies that allow some mandatorydebt relief to preserve ex post incentives.