Agency, Bid Resistance and the Market for Corporate Control

In this paper we investigate the effects of post-bid defence activity for a sample of takeover bids in the UK. We find that most of the defences investigated promote the interests of target managers by significantly lowering the probability of bid success. We also find that most of the defences promote the interests of shareholders by increasing wealth gains by an amount that varies between 9% and 14%. These results suggest that bid resistance is to the mutual benefit of the managers and shareholders of target firms. This conclusion is in line with recent developments in agency theory.     

Market Demand and Income Distribution: a Theoretical Exploration

This paper sets out to explore theoretically how a change in the distribution of disposable income affects the market demand for a good or service. With the help of only minimal information on the shape of the Engel curve and the transition from one distribution to the other, a variety of empirically relevant constellations are identified in which the size (or mean income) effect on market demand is counteracted by the distributional effect. Since the determining factors are expressed by relations between summary statistics, the results at the same time provide theoretically sound restrictions on economic approaches to market demand analysis.     

Government-Assisted Oligopoly Coordination? A Concrete Case

In 1993 the Danish antitrust authority decided to gather and publish firm-specific transactions prices for two grades of ready-mixed concrete in three regions of Denmark. Following initial publication, average prices of reported grades increased by 15–20 percent within one year. We investigate whether this was due to a business upturn and/or capacity constraints, but argue that these seem to have little explanatory power. We conclude that a better explanation is that publication of prices allowed firms to reduce the intensity of oligopoly price competition and, hence, led to increased prices contrary to the aim of the authority.     

The Rhetoric of Modernization and the Labour Government's Pay Agenda

The modernization agenda is central to New Labour's desire to improve public services and reforming public sector pay is argued to be a fundamental requirement to delivering such improvement. This article argues that both the modernization agenda and pay reform have a rhetorical function. The authors analyse some short extracts of text from the NHS Agenda for Change on pay reform and show that much of the text requires unstated assumptions and premises to be added by the reader to render the arguments of the text to be fully coherent. Reaction to these unstated aspects of the Government's rhetoric are central to whether modernization is approved of or not.     

A NEW METHOD OF PRICING LOOKBACK OPTIONS

A new method for pricing lookback options (a.k.a. hindsight options) is presented, which simplifies the derivation of analytical formulas for this class of exotics in the Black-Scholes framework. Underlying the method is the observation that a lookback option can be considered as an integrated form of a related barrier option. The integrations with respect to the barrier price are evaluated at the expiry date to derive the payoff of an equivalent portfolio of European-type binary options. The arbitrage-free price of the lookback option can then be evaluated by static replication as the present value of this portfolio. We illustrate the method by deriving expressions for generic, standard floating-, fixed-, and reverse-strike lookbacks, and then show how the method can be used to price the more complex partial-price and partial-time lookback options. The method is in principle applicable to frameworks with alternative asset-price dynamics to the Black-Scholes world.     

Stochastic Volatility for Lévy Processes

Three processes reflecting persistence of volatility are initially formulated by evaluating three Lévy processes at a time change given by the integral of a mean-reverting square root process. The model for the mean-reverting time change is then generalized to include non-Gaussian models that are solutions to Ornstein-Uhlenbeck equations driven by one-sided discontinuous Lévy processes permitting correlation with the stock. Positive stock price processes are obtained by exponentiating and mean correcting these processes, or alternatively by stochastically exponentiating these processes. The characteristic functions for the log price can be used to yield option prices via the fast Fourier transform. In general mean-corrected exponentiation performs better than employing the stochastic exponential. It is observed that the mean-corrected exponential model is not a martingale in the filtration in which it is originally defined. This leads us to formulate and investigate the important property of martingale marginals where we seek martingales in altered filtrations consistent with the one-dimensional marginal distributions of the level of the process at each future date.