Futures hedging using dynamic models of the variance/covariance structure

Dynamic futures‐hedging ratios are estimated across seven markets using generalized models of the variance/covariance structure. The hedging performances of the resultant dynamic strategies are then compared with static and naïve strategies, both in‐ and out‐of‐sample. Bayesian‐adjusted hedge ratios also are employed as error purgers. The empirical results indicate that the generalized dynamic models are well specified and that their use in determining optimal hedge ratios can lead to improvements in hedging performance as measured by the volatilities of the returns on the optimally hedged position. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:241–260, 2003     

Directly measuring early exercise premiums using American and European S&P 500 Index options

The Chicago Board Options Exchange concurrently listed European‐style and American‐style options on the Standard and Poor's 500 Index from April 2, 1986 through June 20, 1986. This unique time period allows for a direct measurement of the early exercise premium in American‐style index options. In this study, using ask quotes, we find average early exercise premiums ranging from 5.04 to 5.90% for calls, and from 7.97 to 10.86% for puts. Additionally, we are able to depict a potentially useful functional form of the early exercise premium. As in previous studies, we find some instances of negative early exercise premiums. However, a trading simulation shows that traders must be able to trade within the bid–ask spread to profit from these apparent arbitrage opportunities. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:287–313, 2003     

The effect of spot and futures trading on stock index market volatility: A nonparametric approach

This article provides empirical evidence on the intraday relation between spot volatility and trading volume in the Spanish stock index futures market. GARCH methodology is used to estimate spot volatility. We analyze the potential relation between spot and futures trading volume and spot volatility by estimating the corresponding conditional density functions as proposed in Quah (1997). Our results reveal no significant link between those variables. Similar findings arise when expected and unexpected volume is considered. Our results suggest that derivative market is not a force behind episodes of significant spot jump volatility. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:841–858, 2003     

MANAGING VENDOR INVENTORY IN A DUAL LEVEL DISTRIBUTION SYSTEM

Collaborative arrangements among members of the supply chain have received a great deal of interest in recent years as a means of reducing costs. One such arrangement is vendor managed inventory (VMI). VMI allows the vendor to make decisions concerning the quantity and timing of deliveries to the retailer. Such an arrangement offers the potential of a more efficient supply chain by removing the negative effects of retail ordering policies. A thorough review of the literature was conducted to identify factors likely to impact the performance of a VMI partnership. Computer simulation was used to study the effects of these factors from both the vendor's and retailer's perspectives. The results lend insight into the performance of VMI and guidance for managers as to the environments in which VMI is most effective.     

LOGISTICS OUTSOURCING RELATIONSHIPS: CUSTOMER PERSPECTIVES

This study attempts to infuse relationship marketing theory into the study of logistics outsourcing relationships. In particular, the study demonstrates that not all of the partnerships between customers and providers of third‐party logistics services are the same in terms of their level of development. The existence of distinct levels of partnership established previously in the logistics literature is partially supported and a relationship between level of partnership development and the customer perceptions of key relationship marketing elements and outcomes is established. While exploratory in nature, these findings suggest there are benefits for the increased costs of developing closer partnerships.     

Price rigidities and institutional variations in markets with posted prices

Summary Standard laboratory posted-offer markets respond slowly and incompletely to demand shocks. In these one-sided markets, where sellers control the setting of prices, very little information is transmitted via the process of exchange. For this reason, traders have trouble distinguishing randomness in their own experience from changes in market fundamentals. This paper reports the results of twelve laboratory markets conducted to assess whether some common variants to standard posted-offer rules can correct the adjustment deficiences. Although discounting, multiple postings and excess demand information all improve performance, we find that response remains poor, and efficiencies low.Support for this research was provided by the National Science Foundation (SBR 9319842 and SBR 9320044), and the University of Virginia Bankard Fund. Data are archived at FTP address: fido.econlab.arizona.edu. We wish to thank Charles Plott and Shyam Sunder for useful comments on an earlier draft of this paper. The usual disclaimer applies.     

The Recognition and Timing of Deferred Tax Liabilities

Abstract:   This paper examines the characteristics of firms that account for deferred tax liabilities related to government investment grants under an extended adoption timing period. Not only the recognition but also the timing decision is associated with changes in future performance and changes in the debt structure. Recognisers outperform non‐recognisers in the future, while early recognition is related to post recognition performance but only for those firms that currently perform well. Changes in the balance sheet structure are also related to both decisions. Firms with recent increases in the debt level tend to postpone recognition, while currently well‐performing firms that increase their future debt level are less likely to recognise deferred taxes.     

Sources of Bank Interest Rate Risk

We investigate bank stocks'sensitivity to changes in interest rates and the factors affecting this sensitivity. We focus on whether the exposure of commercial banks to interest rate risk is conditioned on certain balance sheet and income statement ratios. We find a significantly negative relation between bank stock returns and changes in interest rates over the period 1991–1996. We also find that bank characteristics measured from basic financial statement information explain bank stocks'sensitivity to interest rate changes. These results suggest that bank managers, analysts, and regulators can use this information to assess the relative risk exposure of banks.