Who Writes the News? Corporate Press Releases during Merger Negotiations

Firms have an incentive to manage media coverage to influence their stock prices during important corporate events. Using comprehensive data on media coverage and merger negotiations, we find that bidders in stock mergers originate substantially more news stories after the start of merger negotiations, but before the public announcement. This strategy generates a short‐lived run‐up in bidders' stock prices during the period when the stock exchange ratio is determined, which substantially impacts the takeover price. Our results demonstrate that the timing and content of financial media coverage may be biased by firms seeking to manipulate their stock price.     

Estimation and Evaluation of Conditional Asset Pricing Models

We find that several recently proposed consumption‐based models of stock returns, when evaluated using an optimal set of managed portfolios and the associated model‐implied conditional moment restrictions, fail to capture key features of risk premiums in equity markets. To arrive at these conclusions, we construct an optimal Generalized Method of Moments (GMM) estimator for models in which the stochastic discount factor (SDF) is a conditionally affine function of a set of priced risk factors, and we show that there is an optimal choice of managed portfolios to use in testing a null model against a proposed alternative generalized SDF.     

Convergence or Divergence in Final-Offer Arbitration in Professional Baseball

Many labor relations practitioners and theorists believe that final-offer arbitration by a neutral third party encourages union and management officials to resolve their bargaining differences. However, decision scientists have found that there is no median convergence between the parties. Using professional baseball in our model, we test the assumption that major league owners tend to maximize expected monetary value (EMV), finding that claims of divergence are invalidated in dispute management contexts where there is a broad range of other motivations for settling. Decision models offer even further support for the use of final-offer arbitration in such settings.     

Taxes and the Pricing of Stock Index Futures

Stock index futures prices are generally below the level predicted by simple arbitrage models. This paper suggests that the discrepancy between the actual and predicted prices is caused by taxes. Capital gains and losses are not taxed until they are realized. As Constantinides demonstrates in a recent paper, this gives stockholders a valuable timing option. If the stock price drops, the investor can pass part of the loss on to the government by selling the stock. On the other hand, if the stock price rises, the investor can postpone the tax by not realizing the gain. Since this option is not available to stock index futures traders, the futures prices will be lower than standard no-tax models predict.     

IMPACTS OF PRIVATISATION POLICY IN EUROPE

This paper examines the economic implications of the privatisation that has been occurring in Europe. Different sectors and different countries have developed separately, but policymakers can learn common lessons. Considerable experience of privatisation has produced a mounting body of empirical evidence. Developing more powerful analytical tools also permits greater rigour in studying the behaviour of newly privatised undertakings. This paper examines the nature of privatisation processes and looks at the forms of adjustment to regulatory regimes that have occurred to accommodate the newly privatised undertakings. It draws upon new empirical evidence and previous econometric studies to consider privatisation's efficiency effects, especially regarding technical or X-efficiency.¹     

Price Discovery in the U.S. Treasury Market: The Impact of Orderflow and Liquidity on the Yield Curve

We examine the role of price discovery in the U.S. Treasury market through the empirical relationship between orderflow, liquidity, and the yield curve. We find that orderflow imbalances (excess buying or selling pressure) account for up to 26% of the day‐to‐day variation in yields on days without major macroeconomic announcements. The effect of orderflow on yields is permanent and strongest when liquidity is low. All of the evidence points toward an important role of price discovery in understanding the behavior of the yield curve.     

Effects of Capital Gains Taxation on Life-Cycle Investment and Portfolio Management

We examine the impact of capital income taxation, both accrual forms of taxation and taxation of realized capital gains, on total savings and the demand for corporate financial instruments. We find that investors may hold both debt and equity in the face of effective collection of capital gains taxation even in a flat tax system. We also find that the two taxes will have substantially different effects on saving and consumption behavior, making it unlikely that the tax structure can be summarized by any single equivalent accrual tax rate.