Value-at-risk-based risk management: optimal policies and asset prices

This article analyzes optimal, dynamic portfolio and wealth/consumptionpolicies of utility maximizing investors who must also managemarket-risk exposure using Value-at-Risk (VaR). We find thatVaR risk managers often optimally choose a larger exposure torisky assets than non-risk managers and consequently incur largerlosses when losses occur. We suggest an alternative risk-managementmodel, based on the expectation of a loss, to remedy the shortcomingsof VaR. A general-equilibrium analysis reveals that the presenceof VaR risk managers amplifies the stock-market volatility attimes of down markets and attenuates the volatility at timesof up markets.     

Monopoly power and the firm’s valuation: a dynamic analysis of short versus long-term policies

Summary. Recent anti-trust cases exacerbated the concerns of investors regarding the effects of a firms monopoly power on its production choice, shareholder value, and the overall economy. We address this issue within a dynamic equilibrium model featuring a large monopolistic firm whose actions not only affect the price of its output, but also effectively influence the valuation of its stock. The latter renders time-inconsistency to the firms dynamic production choice. When the firm is required to pre-commit to its strategy, the ensuing equilibrium is largely in line with the predictions of the textbook monopoly model. When the firm behaves in a time-consistent manner, however, the predictions are strikingly at odds. The trade-off between current profits and the valuation of future profits induces the firm to increase production beyond the competitive benchmark and cut prices. This policy may result in destroying shareholder value, and does indeed fully wipe out the firms profit in the limit of the decision-making interval shrinking to zero, in line with the Coase conjecture.Received: 23 December 2003, Revised: 1 March 2004, JEL Classification Numbers: D42, D51, D92, E20, G12.Correspondence to: Anna PavlovaWe thank Steve Spear and the anonymous referees for helpful suggestions. We are also grateful to Franklin Allen, Dave Cass, Peter DeMarzo, Bernard Dumas, Ron Giammarino, Rich Kihlstrom, Leonid Kogan, Branko Urosevic, Dimitri Vayanos, seminar participants at Boston University, University of Colorado at Boulder, Columbia University, MIT, University of Pennsylvania, Princeton University, American Finance Association Meetings, and European Finance Association Meetings for valuable comments. All errors are solely our responsibility.     

The Effects of a Negative Travel Experience on Tourists' Decisional Behavior

This study examines the influence of a negative experience at a destination on tourists by identifying its effects on individuals' judgment. Empirical evidence of the tangible effects of a single travel experience on individuals' decision‐making is lacking. Prospect theory and negativity bias theory are introduced for theoretical support. The ratings of generally important criteria for destination selection and the evaluation of the destination on those criteria were collected before and after visitation. A mean comparison showed that the effects of a single travel experience are tangible and affect tourists' future decisional behavior intentions by contributing to shaping the individuals' destination selection criteria. Copyright © 2015 John Wiley & Sons, Ltd.     

An examination of executive compensation in the restaurant industry

The purpose of this empirical study is to examine executive compensation in the restaurant industry. The effects of a set of accounting-based performance measures, market-based performance measures, and executive-related factors on the compensations of firm CEOs, other senior executive managers, and board members were examined. Drawn from 16 consecutive years of data and a sample of over 2200 observations from restaurant companies, the findings revealed that determinants of equity based compensation vary by different types of executives. In addition, this study supports the notion that executive compensation in the restaurant industry is determined not only by firm performance measures but also by executive-related characteristics such as tenure.     

Lifestyle Segmentation of Spa Users: A Study of Inbound Travelers to Hong Kong

Based on the increasing popularity of the wellness/spa trend and the growing numbers of inbound tourists to Hong Kong, it is crucial for spa industry experts to understand the ever-changing desires of consumers. The study aims to identify the lifestyle dimensions of international spa visitors to Hong Kong and to profile each segment based on their sociodemographic and travel characteristics. The study adopts a quantitative approach to segmenting international spa visitors in Hong Kong by lifestyle. The results of the lifestyle segmentation revealed five clusters of spa visitors. The segments are “health conscious and intellectual”, “average”, “family focused”, “pleasure oriented”, and “carefree”. It is found that the majority of travelers who visit spas in Hong Kong are health conscious and intellectual. In general, visitors prefer day spas, to visit with their partner or friends, and to enjoy body massage treatments.     

Consumption choice and asset pricing with a non-price-taking agent

Summary. This paper develops a pure-exchange model to study the consumption-portfolio problem of an agent who acts as a non-price-taker, and to analyze the implications of his behavior on equilibrium security prices. The non-price-taker is modeled as a price leader in all markets; his price impact is then recast as a dependence of the Arrow-Debreu prices on his consumption, allowing a tractable formulation. Besides the aggregate consumption, the endowment of the non-price-taker appears as an additional factor in driving equilibrium allocations and prices. Comparisons of equilibria between a price-taking and a non-price-taking economy are carried out. Received: March 29, 1996; revised version October 29, 1996     

It affects,it affects not: A quasi-experiment on the transfer effect of co-branding on consumer-based brand equity of hospitality products

Although co-branding is postulated to be beneficial for hospitality brands, empirical test of either transfer effect or spillover effect of co-branding on consumer-based brand equity (CBBE) of hospitality brands is yet to receive attention from researchers. A quasi-experiment design was applied to test the transfer effect of co-branding on the CBBE of the composite brand, controlling for the familiarity, compatibility (fitness) and complementary of the partner brands. A within-subject (repeated measures) design with four steps measuring the CBBE of internationally known and compatible hotel and restaurant brands and their co-brand, as well as respondents’ own most familiar hotel and restaurant brand and their co-brand was applied in four steps to a class of 46 students enrolled for a tourism and hospitality class at a Tourism and Hotel Management School based in Asia. The t-test of differences revealed that the co-brand of the internationally known and compatible hotel and restaurant brands lead to synergy with both brands being winners and none losers, while the co-brand of respondents’ own most familiar brands lead to losses mostly, despite their high ratings individually. Implications and future research suggestions are provided.     

UNIVERSAL SEMICONSTANT REBALANCED PORTFOLIOS

In this paper, we investigate investment strategies that can rebalance their target portfolio vectors at arbitrary investment periods. These strategies are called semiconstant rebalanced portfolios in Blum and Kalai and Helmbold et al. Unlike a constant rebalanced portfolio, which must rebalance at every investment interval, a semiconstant rebalanced portfolio rebalances its portfolio only on selected instants. Hence, a semiconstant rebalanced portfolio may avoid rebalancing if the transaction costs outweigh the benefits of rebalancing. In a competitive algorithm framework, we compete against all such semiconstant portfolios with an arbitrary number of rebalancings and corresponding rebalancing instants. We investigate this framework with and without transaction costs and demonstrate sequential portfolios that asymptotically achieve the wealth of the best semiconstant rebalanced portfolios whose number of rebalancings and instants of rebalancings are tuned to the individual sequence of price relatives.     

Offsetting the implicit incentives: Benefits of benchmarking in money management

Money managers are rewarded for increasing the value of assets under management. This gives a manager an implicit incentive to exploit the well-documented positive fund-flows to relative-performance relationship by manipulating her risk exposure. The misaligned incentives create potentially significant deviations of the manager’s policy from that desired by fund investors. In the context of a familiar continuous-time portfolio choice model, we demonstrate how a simple risk management practice that accounts for benchmarking can ameliorate the adverse effects of managerial incentives. Our results contrast with the conventional view that benchmarking a fund manager is not in the best interest of investors.