ANALYST BEHAVIOR SURROUNDING TENDER OFFER ANNOUNCEMENTS

We examine the usefulness and credibility of analyst recommendations by focusing on their behavior surrounding tender offer announcements. For our 1998–2001 sample, we find analysts did not identify takeover targets through their recommendations nor did they distinguish between wealth‐increasing and wealth‐decreasing tender offers. We find some evidence of conflicts of interest in analyst recommendations, but it is confined to the 1999–2000 dot‐com period. However, the long‐run performance following recommendations suggests that these conflicts have little ultimate cost to investors.     

Henry George and the Ethics of Economics

Abstract . Henry George's Progress and Poverty (1879) is a great ethical masterpiece. Its moral tone distinguishes the book. More than an economics test, it is a philosophic quest for justice, an impassioned declaration of the rule of natural law. Indignantly attacking the contention that economics has no place for natural law or ethics, George exclaims: “She [economics] has been degraded and shackled; her truths dislocated; her harmonies ignored.” On the contrary, George stresses, political economy (economics) is a science, and like all sciences, is governed by natural law. Furthermore, it is basically “moral.” Science must, of necessity, always lead to ethics. Natural law must, of necessity, always lead to morality, or justice.“The law of human progress, what is it but the moral law?” George asks. “Unless its foundation be laid in justice the social structure cannot stand.” The social ill that perpetuates poverty and the manifold evils it causes is private ownership of land and the private privilege of collecting its rent. “The fundamental law of nature, that the enjoyment by man shall be consequent upon his exertion, is thus violated.”     

Neuroeconomics as a Natural Extension of Bioeconomics: The Shifting Scope of Standard Economic Theory

Synopsis Neuroeconomics rightly has been claimed to be a natural extension of bioeconomics. One of the things bioeconomics investigates is what behavioral dispositions and what behavioral patterns evolutionary processes have produced. Neuroeconomics extends this to the study of evolved mechanisms that are at work in decision-making at the neural level of the brain. The paper argues that in another respect neuroeconomics and bioeconomics are discontinuous, however. Bioeconomics maintains that the applicability of standard economic theory’s constrained maximization framework is not confined to human behavior. The constrained maximization framework is believed to be suitable to describe behavior throughout the animal kingdom. By contrast, despite some minor internal disagreements all neuroeconomists seem to agree that human behavior is predicted poorly by standard economic theory in several social and economic situations. Neuroscience is believed to hold out the hope of an advanced understanding of when and why this is the case.      

Rent extraction,principal–agent relationships,and pricing strategies: vendor licensing during the 1996 Olympic Games in Atlanta

Two‐part pricing, price‐discrimination, rent creation and extraction, principal–agent theory, and public choice perspectives on public bureaucracies are used to interpret a vendor‐license marketing arrangement and controversy arising out of the 1996 Olympic Games in Atlanta, GA. Containing features predicted by principal–agency theory, Atlanta's arrangement with its marketing agent was a response to the behavior of public bureaucracies and a low cost method of converting visitors' consumer surplus to rent, which could be extracted by the marketing agent and then by Atlanta. Atlanta's incentive to enforce vendor property rights was influenced by the nature of the game between Atlanta and prospective vendors. Copyright © 2001 John Wiley & Sons, Ltd.     

Binomial option pricing with stochastic parameters: A beta distribution approach

This research extends the binomial option-pricing model of Cox, Ross, and Rubinstein (1979) and Rendleman and Barter (1979) to the case where the up and down percentage changes of stock prices are stochastic. Assuming stochastic parameters in the discrete-time binomial option pricing is analogous to assuming stochastic volatility in the continuous-time option pricing. By assuming that the up and down parameters are independent random variables following beta distributions, we are able to derive a closed-form solution to this stochastic discrete-time option pricing. We also derive an upper and a lower bounds of the option price.     

Nonf arm Labor Market Participation of Farm Women

Structural changes in Saskatchewan agriculture have led to significant changes in the time allocation of labor of farm women. This paper analyzes the nonfarm labor market participation and labor supply of farm women in the theoretical context of a household production function and contrasts them with those of men. Participation is analyzed using probit models, and nonfarm labor supply functions are estimated using tobit models. Personal characteristics such as age, education, number of children and nonfarm labor participation of the spouse are significantly related to the nonfarm labor market participation and labor supply of farm women, and the direction of influence is as expected. Farm characteristics such as farm size and type are significant in the case of males but not for females. Labor market characteristics are represented only by distance to the nearest center of Complete Shopping Center status or higher and, while this variable is negatively significant for males as expected, it is not significant for females Les changements structurels qui on frappé l'agriculture de la Saskatchewan ont entraîné des modifications significatives à la répartition du temps des agricultrices en matière de travail. L'article présente une analyse de la participation au marché du travail non agricole, ainsi que de l'offre de main-d'oeuvre des agricultrices, dans le contexte théorique d'une fonction de production de ménage, en comparaison avec la situation observée chez les hommes. Le degré de participation e'tait analysé à partir de modèles probit et les fonctions d'offre de main-d'oeuvre non agricole étaient estimées à partir de modéles tobit. Les caractères personnels comme l'âge, I'instruction, le nombre d'enfants et la participation du conjoint à un travail non agricole étaient significativement reliés, dans le sens attendu, à la participation des femmes au marché du travail non agricole et au temps qu'elles pouvaient y consacrer. Les caractères de l'exploitation, superficie et type, n'étaient significatifs que pour les hommes mais pas pour les femmes. Le seul caractére du marché de main-d'oeuvre considéré était la distance entre la ferme et l'agglomération la plus proche de niveau de centre commercial complet ou de niveau supérieur. Bien que, comme on pouvait s'y attendre, cette variable était significativement négative dans le cas des hommes, elle n'avait pas de valeur significative pour les femmes     

Regulatory Uncertainty and Financial Contagion: Evidence from the Hybrid Capital Securities Market

This paper examines the negative market impact that resulted from the insurance regulators’ potential reclassification of 140 hybrid capital securities in spring and summer 2006. It illustrates how financial contagion can spring from a regulatory policy change that lacks transparency. We investigate the impact of the uncertainty surrounding the regulators’ true classification criteria by measuring the effect of the reclassification announcements on hybrid new issue volume, cumulative average abnormal returns, bid‐ask spreads, and yield spreads. The financial contagion adversely affected the entire hybrid capital securities market for six months. The effect was most pronounced among those hybrids that were eventually reclassified as common equity equivalents. It was greater for Yankee Tier 1 hybrids, which had been more popular with insurance firm investors prior to the reclassifications, than among non‐Tier 1 hybrids.     

Analysis of efficient markets

A simple trading model is presented in which Bayes’ rule is used to aggregate traders’ forecasts about risky assets’ future returns. In this financial market, Bayes’ rule operates like an omnipotent market-maker performing functions that in 1776 Adam Smith attributed to an “invisible hand.” We have analyzed two distinct cases: in the first scenario, the traders’ forecast errors are uncorrelated, and in the second scenario, the traders’ forecast errors are correlated. The contribution of our paper is fourfold: first, we prove that the “efficient market” mean-return can be expressed as a complex linear combination of the traders’ forecasts. The weights depend on the forecast variances, as well as on the correlations among the traders’ forecasts. Second we show that the “efficient” variance is equal to the inverse of the sum of the traders’ precision errors, and is also related to the correlations among the traders’ forecast errors. Third, we prove that the efficient market return is the best linear minimum variance estimator (BLMVE) of the security’s mean return (in the sense that it minimizes the sum of the traders’ mean squared forecast errors). Thus, an efficient market aggregates traders’ heterogeneous information in an optimal way. Fourth, we prove that an efficient market produces a mean return (price) as a Blackwell sufficient (most informative) experiment among all possible aggregated expected return (price) forecasts.