CONDITIONAL HETEROSCEDASTICITY IN THE MARKET MODEL AND EFFICIENT ESTIMATES OF BETAS

Previous studies have investigated only unconditional heteroscedasticity in the market model. This paper tests for both conditional and unconditional heteroscedasticities as well as normality. Using the monthly stock rate of return data secured from the Center for Research in Security Prices (CRSP) tape for 1976 through 1983, this paper shows that conditional heteroscedasticity is more widespread than unconditional heteroscedasticity, suggesting the necessity of model refinements that take conditional heteroscedasticity into account. This paper provides an alternative estimation of betas of individual securities and portfolios based on the autoregressive conditional heteroscedastic (ARCH) model introduced by Engle. The efficiency of the market model coefficients is markedly improved across all firms in the sample through the ARCH technique.     

Estimating the autocorrelated error model with trended data

A Monte Carlo study of the small sample properties of various estimators of the linear regression model with first-order autocorrelated errors. When independent variables are trended, estimators using Ttransformed observations (Prais-Winsten) are much more efficient than those using T–1 (Cochrane–Orcutt). The best of the feasible estimators isiterated Prais-Winsten using a sum-of-squared-error minimizing estimate of the autocorrelation coefficient ?. None of the feasible estimators performs well in hypothesis testing; all seriously underestimate standard errors, making estimated coefficients appear to be much more significant than they actually are.     

The effect of fair disclosure regulation on timeliness and informativeness of earnings announcements

This paper examines the effect of Korea’s fair disclosure regulation on the timeliness and informativeness of earnings announcements. The present regulation for Korean listed firms requires that if a company’s sales revenue, operating income (or loss) and net income (or loss) have changed by over 30% compared to the prior year, the firm must disclose this information through a preliminary financial report (PFR) even before the company is audited by external auditors. To analyze the effects of this policy, we first investigate the timeliness of preliminary financial report disclosures. We examine the extent to which Korean listed companies actually comply with the requirement for prompt notification of information concerning material changes in financial performance. Second, we investigate the informativeness of preliminary financial reports by analyzing differential stock market reactions to different timings of preliminary financial report disclosures. Our empirical results reveal that more than half of our sample firms release their preliminary financial reports after external audits are completed, thereby potentially invalidating the effectiveness of the regulation. In addition, we find that preliminary financial reports have information value only if they are disclosed prior to annual audit report dates. This finding supports the notion that timeliness increases the informativeness of preliminary financial report disclosure by curbing insiders’ ability to potentially profit from their information advantage.     

Firm size,age, industrial networking,and growth: a case of the Korean manufacturing industry

This paper investigates the roles of firm size, age, and industrial networking in determining firm growth. Analyses using the 2-year panel data of 7,889 Korean manufacturing firms between 1994 and 2003 confirm that firm size and age have significant negative effects on firm growth and significant positive impacts on firm survival. R&D and export activities are found to facilitate both firm growth and survival. The primary focus of this study is to examine the effects of industrial networking, such as subcontracting and clustering, on firm growth. The results show that subcontracting does not yield any positive effect for firm growth, but encumbers survival, which may be accounted for by the high subcontracting intensity among small firms. Clustering, on the other hand, is found to promote firm growth and survival. There is, however, little evidence that such a positive effect of clustering is derived from network externalities through cooperation and competition among firms in a cluster per se.     

The role of interactivity in e-tailing: Creating value and increasing satisfaction

The purpose of this study is to examine the relationships between three dimensions of interactivity (controllability, synchronicity, and bi-directionality) and consumers’ perceived value composed of utilitarian and hedonic values on e-shopping, finally determining the level of overall satisfaction on using interactivity features in e-tailing service. A total of 451 respondents participated and the usable sample size was 427 after the screening process. The results indicate that bi-directionality is a key interactivity feature for consumers’ hedonic value creation in e-tailing service settings while synchronicity is a key for utilitarian value.     

Microstructure-based manipulation: Strategic behavior and performance of spoofing traders

We examine how investors strategically spoof the stock market by placing orders with little chance of being executed, but which mislead other traders into thinking there is an imbalance in the order book. Using the complete intraday order and trade data of the Korea Exchange (KRX) in a custom data set identifying individual accounts, we find that investors strategically placed spoofing orders which, given the KRX's order-disclosure rule at the time, created the impression of a substantial order book imbalance, with the intent to manipulate subsequent prices. This manipulation, which made use of specific features of the market microstructure, differs from previously studied forms of manipulation based on information or transactions. Roughly half of the spoofing orders were placed in conjunction with day trading. Stocks targeted for manipulation had higher return volatility, lower market capitalization, lower price level, and lower managerial transparency. We also find that spoofing traders achieved substantial extra profits. The frequency of spoofing orders decreased drastically after the KRX altered its order-disclosure rule.