Static versus dynamic hedges: an empirical comparison for barrier options

We conduct an empirical comparison of static versus dynamic hedges of barrier options. Using more than five years of data, we compare a number of static hedges from the literature with dynamic hedges based on the local volatility model. The main result is that the variability of profit-and-loss distributions from certain static hedges is significantly smaller than that of dynamic hedges and robust to changing market scenarios. Furthermore, these static hedges are able to provide a robust tracking of barrier options’ sensitivities. This article reflects the authors’ personal opinion and not necessarily the opinion of their employers.     

Mixed Causal–Noncausal Autoregressions: Bimodality Issues in Estimation and Unit Root Testing1

This paper stresses the bimodality of the likelihood function of the Mixed causal–noncausal AutoRegressions (MAR), and it is shown that the bimodality issue becomes more salient as the causal root approaches unity from below. The consequences are important as the roots of the local maxima are typically interchanged, attributing the noncausal component to the causal one and vice‐versa. This severely changes the interpretation of the results, and the properties of unit root tests of the backward root are adversely affected. To circumvent the bimodality issue, this paper proposes an estimation strategy which (i) increases noticeably the probability of attaining the global MLE; and (ii) selects carefully the maximum used for the unit root test against a MAR stationary alternative.     

Rhetoric and hegemony in consumptive wildlife tourism: polarizing sustainability discourses among angling tourism stakeholders

Nature-based tourism frequently results in controversies over access rights, but also over how resources should be managed and utilized. In this article, we explore disagreements on management strategies and angling practices, which followed in the wake of the gradual introduction of increasingly strict harvest regulations in salmon angling in the Orkla River of Norway. Different views on what represent the most severe threats to the salmon stock appeared in this case to originate in rather complex patterns with respect to the ways stakeholders related to and engaged with salmon, rivers and nature in general. The identification of incompatible goals and motives of various categories of stakeholders has for long been a dominant approach in research on these types of conflicts. In this contribution, we broaden the scope by exploring how such controversies involve competition for hegemony with respect to how management and angling practices should be discursively framed.     

Foreign institutional investors and dividend policy: Evidence from China

This study examines whether foreign institutional investment influences firms’ dividend policies. Using data from all domestically listed nonfinancial firms in China during the period of 2003–2013, we find that foreign shareholding influences dividend decisions and vice versa.Furthermore, changes in dividend payments over time positively affect subsequent changes in foreign shareholding, but the opposite is not true. Our study indicates that foreign institutional investors do not change firms’ future dividend payments once they have made their investment choices in China. Moreover, they self-select into Chinese firms that pay high dividends. Our evidence suggests that in an institutional setting where foreign investors have tightly restricted access to local securities markets and a relatively high risk of expropriation by controlling shareholders exists, firms can use dividends to signal good investment opportunities to foreign investors.     

Women Directors on Corporate Boards: From Tokenism to Critical Mass

Academic debate on the strategic importance of women corporate directors is widely recognized and still open. However, most corporate boards have only one woman director or a small minority of women directors. Therefore they can still be considered as tokens. This article addresses the following question: does an increased number of women corporate boards result in a build up of critical mass that substantially contributes to firm innovation? The aim is to test if ‘at least three women’ could constitute the desired critical mass by identifying different minorities of women directors (one woman, two women and at least three women). Tests are conducted on a sample of 317 Norwegian firms. The results suggest that attaining critical mass – going from one or two women (a few tokens) to at least three women (consistent minority) – makes it possible to enhance the level of firm innovation. Moreover, the results show that the relationship between the critical mass of women directors and the level of firm innovation is mediated by board strategic tasks. Implications for both theory and practice, and future research directions are discussed.     

The Return to Direct Investment in Private Firms: New Evidence on the Private Equity Premium Puzzle*

This paper uses a novel dataset to analyze the return to direct investments in private firms by pension funds. We have two key findings. First, direct investments in private firms have underperformed public equity by 392 basis points per annum under conservative risk adjustments. Second, initial mispricing, due to over‐optimism or misperceived risk, and subsequent low capital gains seem to explain the gap in returns to private firms. Overall, these findings complement the finding of Moskowitz and Vissing‐Jørgensen (2002) of low returns on entrepreneurial investments and provide new insight into the existence of what they call the private equity premium puzzle: Even professional investors with well‐diversified portfolios like pension funds seem to get a poor risk‐return tradeoff from investing directly in private firms.     

The mechanics of a graceful exit: Interest on reserves and segmentation in the federal funds market

To combat the financial crisis that intensified in the fall of 2008, the Federal Reserve injected a substantial amount of liquidity into the banking system. The resulting increase in reserve balances exerted downward price pressure in the federal funds market, and the effective federal funds rate began to deviate from the target rate set by the Federal Open Market Committee. In response, the Federal Reserve revised its operational framework for implementing monetary policy and began to pay interest on reserve balances in an attempt to provide a floor for the federal funds rate. Nevertheless, following the policy change, the effective federal funds rate remained below not only the target but also the rate paid on reserve balances. We develop a model to explain this phenomenon and use data from the federal funds market to evaluate it empirically. In turn, we show how successful the Federal Reserve may be in raising the federal funds rate even in an environment with substantial reserve balances.     

Are you a collaborative leader?

Social media and technologies have put connectivity on steroids and made collaboration more integral to business than ever. But without the right leadership, collaboration can go astray. Employees who try to collaborate on everything may wind up stuck in endless meetings, struggling to reach agreement. On the other side of the coin, executives who came of age during the heyday of "command and control" management can have trouble adjusting their style to fit the new realities. In their research on top-performing CEOs, Insead professors Ibarra and Hansen have examined what it takes to be a collaborative leader. They've found that it requires connecting people and ideas outside an organization to those inside it, leveraging diverse talent, modeling collaborative behavior at the top, and showing a strong hand to keep teams from getting mired in debate. In this article, they describe tactics that executives from Akamai, GE, Reckitt Benckiser, and other firms use in those four areas and how they foster high-performance collaborative cultures in their organizations.     

Piggybacking strategies for nonprofits: A shared costs approach

This article presents case data and a conceptual foundation for nonprofit piggybacking whereby a nonprofit organization subsidizes its deficit producing primary mission by diversifying into related surplus-producing ventures. Shared common and joint costs are considered as supply-side bases for selecting among demand-side related diversification activities.