Preemptive bidding in takeover auctions with affiliated values

This paper extends Fishman's (1988) model of preemptive bidding in takeover auctions to auctions with affiliated values. It shows that preemptive bidding transfers wealth from the seller to the first bidder without affecting the profit of the second bidder and social welfare. It also shows that higher correlation between bidders’ values leads to higher preemption rates but has an ambiguous effect on the size of the opening bid. Finally, it shows that in auctions with affiliated values, even infinitesimal entry costs may lead to a preemptive jump bidding that allows the reallocation of the entire surplus from the seller to the first bidder.     

Much ado about making money: the impact of disclosure,news and rumors on the formation of security market prices over time

Journal of Economic Interaction and Coordination - This article develops an agent-based model of security market pricing process, capable to capture main stylised facts. It features collective...     

What does the financial market pricing do? A simulation analysis with a view to systemic volatility,exuberance and vagary

Biondi et al. (Phys A 391(22):5532–5545, 2012) develop an analytical model to examine the emergent dynamic properties of share market price formation over time, capable to capture important stylized facts. These latter properties prove to be sensitive to regulatory regimes for fundamental information provision, as well as to market confidence conditions among actual and potential investors. We comparatively assess accounting models belonging to two main families: historical cost accounting and mark-to-market (fair value) accounting regimes. Regimes based upon mark-to-market measurement of traded security, while generating higher linear correlation between market prices and fundamental signals, also involve higher market instability and volatility. These regimes also incur more relevant episodes of market exuberance and vagary in some regions of the market confidence space, where lower market liquidity further occurs.     

Socio-economic influences of population density

While population density represents an important socio-economic parameter, its role is rarely studied in the economic literature （contrary to natural sciences）. Population density plays an important role in harvesting societies, i.e. those that depend on agriculture and natural resources. With the development of industry and services and emergence of urban areas, population density becomes less economically important unless we consider aspects related to pollution. There exists a phase transition between rural and urban area which makes population density less important in urban area contrary to rural. However, the economic influence of population density in harvesting societies is also not straight forward. Too high population density decreases the natural endowment per capita, but eases the development of infrastructure, leading to existence of an optimal population density for economic growth. It also influences the demand for a monopolistic product, where too little density can lead to non-survival of a monopoly. Emergence of ethnic communities is based on more cooperative behavior in the case of low cultural and physical distances. At the same time, higher probability of large projects （like infrastructure） leads to development of cooperative behavior in the society. Elaboration along these lines leads to the conclusion that population density positively correlates with individualistic （non-cooperative, non-altruistic） behavior, through less time spent in cooperative infrastructure projects and higher frequency of meetings between individuals that with some probability lead to non-cooperative games.     

On bubbling dynamics generated by a stochastic model of herd behavior

This paper suggests a class of stochastic collective learning processes exhibiting very irregular behavior. In particular, there are multimodal long run distributions. Some of these modes may vanish as the population size increases. This may be thought of as “bubbles” persistent for a finite range of population sizes but disappearing in the limit. The limit distribution proves to be a discontinuous function of parameters determining the learning process. This gives rise to another type of “bubbles”: limit outcomes corresponding to small perturbations of parameters are different. Since an agent's decision rule involves imitation of the majority choice in a random sample of other members of the population, the resulting collective dynamics exhibit “herding” or “epidemic” features. RID="*" ID="*" We are grateful to two anonymous referees for the comments and suggestions. Correspondence to: L. Gaio     

No-arbitrage criteria for financial markets with transaction costs and incomplete information

This note deals with criteria of absence of arbitrage opportunities for an investor acting in a market with frictions and having a limited access to the information flow. We develop a mathematical scheme covering major models of financial markets with transaction costs and prove several results including a criterion for the robust no-arbitrage property and a hedging theorem.      

Optimal Incentive Contracts for Loss‐Averse Managers: Stock Options versus Restricted Stock Grants

This paper provides an explanation for the widespread use of stock option grants in executive compensation. It shows that the optimal incentive contract for loss‐averse managers must contain a substantial portion of stock options even when it should consist exclusively of stock grants for “classical” risk‐averse managers. The paper also provides an explanation for the drastic increase in the risk‐adjusted level of CEO compensations over the past two decades and argues that more option‐based compensation should be used in firms with higher cash flow volatility and in industries with a higher degree of heterogeneity among firms.     

Asymptotic arbitrage in large financial markets

A large financial market is described by a sequence of standard general models of continuous trading. It turns out that the absence of asymptotic arbitrage of the first kind is equivalent to the contiguity of sequence of objective probabilities with respect to the sequence of upper envelopes of equivalent martingale measures, while absence of asymptotic arbitrage of the second kind is equivalent to the contiguity of the sequence of lower envelopes of equivalent martingale measures with respect to the sequence of objective probabilities. We express criteria of contiguity in terms of the Hellinger processes. As examples, we study a large market with asset prices given by linear stochastic equations which may have random volatilities, the Ross Arbitrage Pricing Model, and a discrete-time model with two assets and infinite horizon. The suggested theory can be considered as a natural extension of Arbirage Pricing Theory covering the continuous as well as the discrete time case.