Impact of warrant introductions on the behaviour of underlying stocks: Australian evidence

The present study examines the impact of first‐time introduction of warrants by third party issuers on the trading behaviour of a sample of underlying stocks listed on the Australian Stock Exchange. We investigate the price, liquidity and volatility impact of underlying stocks after warrant issuance and find considerable differences to those found for option listings. Significant negative abnormal returns on both the announcement and listing date of derivative warrants are reported, followed by a negative price drift. Relative trading volume and price volatility of underlying stocks are found to be significantly higher post‐warrant listing. Interestingly, we find that warrant holders are unable to realize gains for the majority of trading days when they are alive, consistent with the view that banks trade profitability from their issue.     

Cost-effectiveness of angiotensin-converting enzyme inhibitors versus angiotensin II receptor blockers as first-line treatment in autosomal dominant polycystic kidney disease

Background: Autosomal dominant polycystic kidney disease (ADPKD) is a rare kidney disorder impacting ～1:2,500 individuals among the general US population. Hypertension is a significant predictor of ADPKD progression, and a risk factor for development of cardiovascular disease (CVD), the most common cause for mortality among ADPKD patients. Angiotensin-converting enzymes inhibitors (ACE-I) are widely used as first-line treatment in ADPKD for the management of hypertension. However, their cost-effectiveness relative to other hypertensive medications, such as angiotensin II receptor blockers (ARB), has never been assessed.

Objective: To determine if ARB are more cost-effective than ACE-Is as first-line treatment in ADPKD.

Methods: A Markov-state decision model was constructed for estimation of cost and outcome benefits in hypertensive ADPKD patients. Transition probabilities were extrapolated from a retrospective cohort study comparing chronic kidney disease (CKD) stage transitions in ADPKD patients. Annual pharmaceutical costs per average daily dose per CKD stage were extracted from a US healthcare claims database. Median total healthcare costs per CKD stage or transplant were extracted from the published literature. The time horizon was set to 30 years, with 1-year duration to cycle shift. A cost-effectiveness analysis was conducted to estimate the incremental cost-effectiveness ratio (ICER) of ACE-I vs ARB per additional year of prevented transplant and/or death. A one-way probabilistic sensitivity analysis was conducted, with 10% variation in probabilities and cost.

Results: Total annual healthcare costs accrued after 30 years among ADPKD patients taking ACE-Is was estimated to be $3,505,028.41, compared to ARB at $3,644,327.65. Life expectancy was increased by 1.39 years among patients taking ACE-I. Approximate 10-year survival in patients taking ACE-Is was 47% compared to ARB at 34%.

Conclusions: ACE-I dominated ARB and displayed greater cost-effectiveness due to lower cost and increased capacity to prolong years of life without transplant or death among hypertensive ADPKD patients. This model strengthens the value of ACE-I over ARB as first-line treatment for hypertension management in ADPKD patients.     

IS THERE BIAS IN COMPUTING HOUSEHOLD EQUIVALENCE SCALES?

Household equivalence scales are often used to help perform welfare comparisons across households with different demographic composition. Abstracting from the problems of value judgments and ethical standards, the use of equivalence scales to perform welfare comparisons still faces several measurement problems, namely the identification problem and the endogeneity problem. This paper introduces and estimates an unconditional demand system that simultaneously addresses these two problems. By explicitly considering the demand for leisure, and the fact the household can choose some of its demographic characteristics, we deal with the endogeneity problem and obtain consistent estimates. We identify unconditional equivalence scales by estimating the demand for endogenous demographic variables along with the demand for leisure and consumer goods. More general equivalence scales allowing for better comparability are estimated and used for welfare comparisons.     

Dating structural changes: An illustration from financial deregulation

Recent developments in econometrics emphasize the importance of testing for structural breaks in time series analysis. The typical event study of financial economics examines abnormal stock market returns around arbitrarily established dates. The paper has two objectives. The first aim is to present an application of the switching regression methodology to date structural changes in the return-generating function of financial firms. The second objective is to assess the effectiveness of the conventional event methodology in dating regime shifts associated with regulatory changes in the financial services industry. (JEL C52, G21)     

Regulation—the corridor to liberalization: the experience of the Israeli phone market 1984–2005

The paper follows the regulatory experience of the Israeli communications industry over the last 20 years, and specifically the impact of the regulatory regime introduced in 1990. Since its initiation phone rates declined sharply, placing them among the lowest in Europe, the incumbent’s profits tripled, and the company’s labor force was slashed by 40 percent. What makes the Israeli experience unique is that throughout the period the monopoly was government owned and the regulatory process has been under government control. The Israeli regulator’s experience, though often running counter to conventional wisdom, seems relevant to two central themes in the new economics of regulation: the impact of the institutional environment on regulatory outcomes, and the effect of the asymmetry in information on the regulatory regime. The author was a member of the second phone-rates review committee, and headed the third and fourth committees.     

Capital markets' assessment of airline restructuring following deregulation

The Airline Deregulation Act of 1978 propelled the industry into a constant state of change, even turmoil, that prevails 14 years later. The purpose of this paper is to examine the capital markets' reactions to the dramatic restructuring of the airline industry. The results of an event study of 24 merger announcements indicates that stockholders of target firms experience positive abnormal returns of 14.5% over a three-day period around the merger announcement date. Bidding firms experience a 3.7% increase over the same time window. Clearly, the capital markets viewed this restructuring of the industry as positive.     

Time discounting for primary and monetary rewards

This paper reports a positive and statistically significant relation between short-term discount rates elicited with a monetary and a primary reward (chocolate). This finding suggests that high short-term discount rates are related to an underlying individual trait.