Discussion of “Differential Market Reactions to Revenue and Expense Surprises”

Ertimur et al. (2003, this issue) study the difference in the market;s reaction to revenue versus expense surprises. The discussion first reviews their main findings and assesses the paper's potential contributions. Alternative explanations are then considered for the base-line result that the market reacts more to revenue surprises than to expense surprises. The hypothesized reasons for revenue surprises to matter more are critiqued, as are the tests of the hypotheses, and potential extensions that would link these test to financial statement analysis are suggested. Finally, two aspects of the assessment of how the reaction to revenue and expense surprises differs across value and growth firms are discussed: The definitions of value and growth firms and the potential benefits of assessing why analyst revenue forecasts are (not) observed for many value (growth) firms.     

A derivatives trading recommendation system: The mid‐curve calendar spread case

Derivative traders are usually required to scan through hundreds, even thousands of possible trades on a daily basis. Up to now, not a single solution is available to aid in their job. Hence, this work is aimed to develop a trading recommendation system, and to apply this system to the so‐called Mid‐Curve Calendar Spread (MCCS) trade. To suggest that such approach is feasible, we used a list of 35 different types of MCCSs; a total of 11 predictive and 4 benchmark models. Our results suggest that linear regression with l1‐regularisation (Lasso) compared favourably to other approaches from a predictive and interpretability point of views.     

Welfare indicators for public facility investments in urban renewal areas

To evaluate the effects of alternative public investment policies in terms of the welfare status of human beings thereby affected, we must have a clear delineation of social, economic, or other roles that such investment is intended to play. This paper defines a role for public facility investment in urban renewal areas that is based on analysis of both the intrinsic characteristics of these investments and the policy environment—defined by a set of renewal objectives—in which they are made. Benefits and costs are seen to accrue to society—individuals, households, business, or the community-at-large—from appropriately defined categories of public facility investment impact. A set of welfare indicators, comprised of benefit-cost measurements related to the categories of investment impact, emerges from our analysis to provide a basis for re-evaluation of certain aspects of renewal policy.     

American Labor and Europa's Recovery

On the morrow of President Truman's election the newspapers announced that the first person the President had received was the President of the powerful American syndical organisation known throughout the world under the name of C.I.Q. (Congress of Industrial Organizations). We know that this organisation as well as the other central organisation, the American Federation of Labour, had unequivocally taken up its stand in favour of Truman's candidacy. As the legislative elections had at the same time given the majority to the Democratic Party it was immediately declared on all hands that trade-unionism was going to exert considerable influence on American policy. These facts conferred a great importance on the memorandum addressed by Mr. Philipp Murray, in November 1947, to President Truman; a memorandum which was officially communicated by the C.I.O. to the International Trades Unions Conference for the recovery and reconstruction of Europe held in London on the 9th and 10th of March, 1948. We are especially pleased to put this document, which constitutes a declaration of principles of tie utmost interest, before the readers of the Annals.     

Debt enforcement,investment, and risk taking across countries

We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder–debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41 countries with heterogeneous debt enforcement characteristics. Consistent with our model, we find that the relation between debt enforcement and firms’ investment and risk depends on the firm-specific probability of default. A differences-in-differences analysis of firms’ investment and risk taking in response to bankruptcy reforms that make debt more renegotiable confirms the cross-country evidence.     

Does the Stock Market Compensate Banks for Diversifying into the Insurance Business?

This paper explores a wide range of corporate restructurings, all available deals from wire services, in the banking and insurance sectors that led to bancassurance ventures. An event study methodology is employed to calculate excess returns on and around the deals’ announcement date. Using both univariate and multivariate analysis the paper finds bank driven mergers, deal's size and regional categorization all triggering positive and significant market reactions. Unlike the univariate framework, multivariate analysis shows that geographic focus and language are not significant factors. The results also indicate that markets are indifferent with respect to bank withdrawals from the bank‐insurance operations. Finally, Canadian, U.S. and European bank‐insurance deals produce positive results, while Australasian bidders offer statistically insignificant equity returns.