The completion of security markets

Abstract In this article we study the completion by options of a two-period security market in which the space of marketed securities is a subspace X of . Although there are important results about the completion (by options) Z of X, the problem of the determination of Z in its general form is still open. In this paper we solve this problem by determining a positive basis of Z. This method of positive bases simplifies the theory of security markets and also answers other open problems of this theory. In the classical papers of this subject, call and put options are taken with respect to the riskless bond 1 of . In this article we generalize this theory by taking call and put options with respect to different risky vectors u from a fixed vector subspace U of . This generalization was inspired by certain types of exotic option in finance. Mathematics Subject Classification (2000): 46B40, 46A35, 91B28, 91B30 Journal of Economic Literature Classification: G190, D520     

The accounting valuation of bank stocks in Europe

In this study we examine the validity of the earnings-book value capitalization model in the pricing of bank stocks in Europe. We perform cross-sectional tests using a sample of banks operating in 21 European Union countries. We split our sample into code and common law countries to control for the influence of the financial reporting system upon the pricing of earnings and book value. Our empirical findings suggest that disaggregating total reported clean surplus income into reported gains and losses from securities and other income increases the explanatory power of the accounting valuation model. Indeed, reported gains and losses from securities are priced lower than other income, irrespective of whether the financial reporting system is classified as a code or a common law system, probably because the market considers the former as a less stable source of income. Additionally, we observe that the pricing of both earnings and book value is influenced by the financial reporting system. We conclude that earnings announced under a common law financial reporting system are priced differently from those reported under the respective code law system. Finally, we provide evidence that comprehensive and dirty surplus income are two value relevant variables for banks reporting earnings under the code law system, although dirty surplus income is priced lower than clean surplus income.     

Modelling the Blind Principal Bid Basket Trading Cost

A blind principal bid (BPB) is one of the mechanisms for simultaneously trading a basket of stocks at a pre‐determined execution price. In a BPB, asset managers auction a basket of stocks directly to liquidity providers who do not know the identities of the individual stocks in the basket. Unlike other methods of trading, the cost and composition of the BPB basket are not reported in a standard and timely manner. Complete basket data are available only to the asset manager and the broker who won the auction. The current literature contains very little information on the BPB phenomenon, largely due to a lack of public data for research. This paper analyses a unique dataset of 140 executed baskets, building on the seminal papers of Kavajecz and Keim (2005) and Stoll (1978a, b) to develop empirical and structural models of BPB trading costs. Our research provides novel insights into the dynamics of pricing BPB trading costs, a topic that has rarely been examined in the literature. The research reported here also has significant practical applications. Asset managers obtain a benchmark for evaluating the lowest bid, and brokers obtain qualitative insights that can aid them in formulating their bids.     

Security analysis, agency costs, and UK firm characteristics

The paper examines the monitoring power of security analysts from the manager-shareholder conflict perspective. Our evidence supports the view that security analysis acts as a monitoring mechanism in reducing agency costs for smaller as opposed to larger firms. Moreover, we also find evidence that security analysis has a positive and significant impact on firm value only for smaller firms. These findings support the proposition that, as firms grow larger and more complex, the monitoring activity of security analysis becomes less effective. Our evidence also shows that the monitoring role of security analysts is not restricted to the US capital market environment.     

Two generalized rational models for forecasting innovation diffusion

This article demonstrates the development and use of two Generalized Rational Models I and II (GRM I and II) representing innovation diffusion. Specifically, the GRM II covers the same area as the NSRL model, which includes the Coleman and the Blackman/Fisher-Pry models, while the GRM I covers the same area as a modified NSRL model (mod. NSRL), also introduced hereby, and including Floyd, Blackman/Fisher-Pry, Sharif-Kabir and Exponential models. Both the GRM I and the GRM II provide a form of differential equation which always has for a solution a fact which cannot be met when dealing with the NSRL and mod. NSRL models.Some applications are presented, first to illustrate the wide applicability and the usefulness of the models and second to demonstrate the alternate use of the GRM I and mod. NSRL, and GRM II and NSRL models, which usually approximate very well.     

Internationalization, Strategic Behavior, and the Small Firm: A Comparative Investigation

Previous research on the internationalization of the small firm explored the relationship between the adoption of a global orientation and strategic thinking. However, there was difference in opinion between those arguing that there is a positive relationship between the two variables and others who contended that small firms may internationalize by adopting a passive or reactive approach to the external environment. Within this context, this study sets out to further the discussion by comparing the experience of small enterprises with their medium and large-scale counterparts. In doing so, it draws upon the findings of survey of 1,000 internationalized enterprises located in the main urban conurbations of England. The results suggest that overall there is little disparity in strategy development among internationalized enterprises of different sizes. However, whereas the incidence of strategic behavior among medium and large businesses increases with the complexity of international operations, this is not the case for small firms.     

Strategic interactions and airline network morphology under demand uncertainty

In this paper, we examine how strategic interactions affect airline network under demand uncertainty. We develop a three-stage duopoly game: at stage 1 airlines determine their network structure (linear versus hub-and-spoke); at stage 2 they decide on their capacities; at stage 3 firms compete in quantities. The main feature of the model is that firms have to decide on network structure and capacities while facing demand uncertainty. We show that while hubbing is efficient, airlines may choose a linear network for strategic reasons. Furthermore, we show that this structure softens competition by preventing contagion of competition across markets.     

Estimation of Price Elasticities for International Telecommunications Demand

This paper examines the effect of price per call minute on international telecommunications demand for calls made from Greece to five destination countries: Australia, the USA, Canada, the UK, and Germany. For this purpose the authors consider two different models, one with constant price elasticity, the log-linear demand function, and another one with time varying price elasticity, log-linear demand where all variables except price are in logarithms. These models were estimated for calls made during peak and off-peak periods, using quarterly data from 1997:I to 2003:IV. The outgoing traffic includes volume of calls in minutes made by the incumbent only and by the incumbent and the mobile providers.