TRADING TIME EFFECTS IN FINANCIAL AND COMMODITY FUTURES MARKETS

Through the examination of one commodity contract, soybeans, and one financial contract, U.S. Treasury bonds, the authors test to determine (1) whether mean rates of return during trading times differ from mean rates of return during nontrading times; (2) whether mean returns during trading times and nontrading times differ by day of the week; (3) whether trading time returns differ significantly from previous nontrading time returns; and (4) the extent to which trading and previous nontrading returns are correlated. In addition, the authors empirically examine a possible explanation for the results obtained.     

Challenges in quantitative economic analysis in support of multilateral trade negotiations

A wide range of economic analysis of agricultural trade liberalization was performed prior to and during the Uruguay Round of trade negotiations. Views differ as to the effectiveness of this research, although most would agree that it became less relevant as the negotiations progressed. This paper reviews the contributions of economists to the trade liberalization debate, with an emphasis on the quantitative assessment of multilateral agricultural trade liberalization. With a new round of agricultural trade negotiations scheduled to begin in 1999 it is crucial that the quantitative work required to support these negotiations begin in the near future. The authors conclude that the Uruguay Round outcome provides numerous challenges and opportunities in analyzing the traditional agenda of agricultural trade liberalization. In addition, new issues will be added to the agenda of the next round of negotiations. These include: trade and the environment, competition policy and intellectual property rights. It is important that economists begin to develop a research agenda that can address these issues and become activists in addressing these topics in public forums.     

The effect of changes in Japanese consolidation policy on analyst forecast error

Our broad research objective is to investigate whether convergence towards international standards improves the decision usefulness of information. Recent changes in Japanese consolidated reporting practices to better align with international standards provide an excellent setting to investigate this research objective. Specifically, we examine the effect of changes in Japanese consolidation policy on financial analysts’ perceptions of the persistence of subsidiary earnings. Previous research provides evidence that, prior to the change in consolidation policy, consolidated financial information was not used efficiently in the Japanese capital market. Prior research finds a positive relation between subsidiary earnings and future stock returns in Japan, indicating that investors underestimate the persistence of subsidiary earnings. Consistent with prior research using stock returns, we find that financial analysts also underestimate the persistence of subsidiary earnings in Japan. We document a significant positive relation between subsidiary earnings and future forecast errors of consolidated earnings. However, following the changes in consolidation policy in Japan, we find that financial analysts no longer underestimate the persistence of subsidiary earnings. Changes in Japanese consolidation policy in conformance with international standards increase decision usefulness by improving the ability of financial analysts to predict overall firm performance. One limitation of our research design relates to the adoption of mandated accounting policy changes by all sample firms in the same calendar time. This makes it difficult to control for the impact of correlated omitted variables. While this concern can never be completely eliminated, we provide additional tests that examine sample partitions by firm size and industry. These additional tests support the primary findings that Japan’s efforts to converge consolidation rules with international standards have improved analysts’ consolidated earnings forecasts.     

The valuation and behavior of black-scholes options subject to intertemporal default risk

This paper addresses the valuation and behavior of European options subject to intertemporal writer default risk. The framework allows the timing of default and recovery value to be uncertain. Default is said to occur if the writer's creditworthiness violates a specified critical level-both stochastic. Various recovery scenarios are considered including linking recovery to the moneyness of the option at the time of default. In an application of the model, it is estimated that current customer margin requirements for exchange-traded options are set far in excess of the fair market value.     

Commodity tax straddles and the valuation of domestic futures exchanges: An analysis of the 1981 Economic Recovery Tax Act

The Economic Recovery Tax Act (ERTA) of 1981 substantially altered the taxation of commodity tax straddles. Prior to 1981, commodity tax straddles were actively promoted and used to defer income, to convert ordinary income into capital gains, or to convert short-term into long-term capital gains. ERTA imposed a mark-tomarket rule of account settlement for the taxation of futures transactions. This study examines the impact of ERTA on the futures industry by utilizing futures exchange seat prices for all domestic futures exchanges. Futures exchange seats represent specialized capital assets whose value reflects the discounted present value of expected future economic rents derived from trading activity. The results indicate that ERTA produced a large decrease in the market valuation of futures exchange capital which was not recaptured in the ten months following the announcement.The financial support of the Columbia Futures Center was essential to the research reported here. The authors thank two anonymous reviewers for helpful suggestions, and Matthew Deno, Darrell Petter, and Shan Guo for valuable research assistance.     

An evaluation of journals used in doctoral marketing programs

Studies that rank the relative quality of scholarly marketing journals have relied primarily on expert opinion surveys and citation analyses. The authors use a new approach that combines elements of these two alternatives and compile a database of 6,294 citations (representing 3,423 different articles) from 109 syllabi obtained from a broad sampling of AACSB-International-accredited schools with marketing doctoral programs. The five most citedjournals (Journal of Marketing, Journal of Consumer Research, Journal of Marketing Research, Marketing Science, andJournal of the Academy of Marketing Science) account for 66.5 percent of citations in the syllabi. Rankings of journals other than the top five vary markedly from previous journal quality studies. Few articles are cited in common across programs, and the authors find considerable variation even within individual seminar types. The findings provide a new basis for assessing the quality of journals and provide new insights about the content of doctoral programs. Ronald J. Bauerly (RJ-Bauerly@wiu.edu; DBA, Southern Illinois University) is a professor at Western Illinois University. His research focuses on marketing education and online auctions. His work has appeared inManagerial Finance, College & Research Libraries, and theJournal of Marketing for Higher Education. Don T. Johnson (DT-Johnson@wiu.edu; Ph.D., University of Georgia) is a professor at Western Illinois University. His research interests are varied but are largely concentrated in the area of real estate. His work has appeared in theJournal of Real Estate Portfolio Management, Financial Services Review, and theJournal of Investing.