Multimarket trading and liquidity: a transaction data analysis of Canada–US interlistings

We use transaction data for Toronto Stock Exchange (TSE) listed stocks to examine the impact on trading costs of the decision to interlist on a US exchange. We measure trading costs using both ‘posted’ bid-ask spreads and ‘effective’ bid-ask spreads that measure actual transaction prices relative to standing bid-ask quotes. After controlling for price level, trade size and trading volume effects, we find that overall posted and effective spreads in the domestic (TSE) market decrease subsequent to the interlisting. However, the decrease in trading costs is concentrated in those TSE stocks that experience a significant shift of total trading volume (TSE and US) to the US exchange after listing. We interpret this result in the context of theories of multimarket trading as a competitive response by TSE market makers to the additional presence of US market makers.     

Imaginable surprise in global change science

Decisionmakers at all scales (individuals, firms, and local, national, and international governmental organizations) are concerned about reducing their vulnerability to (or the likelihood of) unexpected events, 'surprises.' After briefly and selectively reviewing the literature on uncertainty and surprise, we adopt a definition of 'surprise' that does not include the strict requirement that it apply to a wholly unexpected outcome, but rather recognizes that many events are often anticipated by some, even if not most observers. Thus, we define 'imaginable surprise' as events or processes that depart from the expectations of some definable community. Therefore, what gets labelled as 'surprise' depends on the extent to which what happens departs from community expectations and on the salience of the problem. We offer a typology of surprise that distinguishes imaginable surprises from risk and uncertainty, and develops several kinds of impediments to overcoming ignorances. These range from the need for more 'normal science' to phenomenological impediments (e.g., inherentunpredictability in some chaotic systems) to epistemological ignorance (e.g., ideological blocks to reducing ignorance). Based on the input of some two dozen scholars at an Aspen Global Change Institute Summer Workshop in 1994 *, we construct two tables in which participants offer many possible 'imaginable surprises' in the global change context, as well as their potential salience for creating unexpectedly high or low carbon dioxide emissions. Improving the anticipation of surprises is an interdisciplinary enterprise that should offer a sceptical welcoming of outlier ideas and methods.     

Takeovers and Corporate Governance: Whose Interests Do Directors Serve?

Using internal records of board meetings, this research explores issues relating to the motivation of directors' action during takeover negotiations. The records relate to a time period when regulation was low and directors had ample opportunity to engage in adverse selection and moral hazard. In such circumstances, it might be supposed that they would have sought to protect their own tenure rather than seek to maximize shareholder wealth by recommending acceptance of a bid. However, in the case study under examination the directors worked hard to maximize the bid price by auctioning the company despite having little equity exposure themselves. The directors also sought to protect the interests of the staff when negotiating with bidders. Intentionally this behaviour was not disclosed to the shareholders and, on occasion, threatened the success of the negotiations. The article concludes that the actions of the directors were motivated by strong reputational effects not widely recognized in the contemporary literature as being a force that powerfully drives corporate governance.     

The ambiguities of globalization

Current discussions of globalization are flawed by confusing two issues: (1) the economic competition among sovereign nation states—so-called “global competitiveness”—which is used as an excuse to reduce social support budgets; and (2) the value of worldwide international organizations set up on a non-state basis—humanitarian, environmental or human rights NGOs, professional, sporting, labor or whatever. Opposition to “globalization” in the first sense is no obstacle to support for the second (NGO) development: on the contrary, NGOs can be the best instrument for countering inhuman governmental policies. The cogency of these economic arguments rests, this paper argues, on confusing two interpretations of the terms “global” and “globalization”. In multinational businesses or other global enterprises, these terms imply that the economic role of governments will be reduced, and global competition will take place between corporations: Fuji vs Kodak, Boeing vs Airbus, Compaq vs Toshiba. In governments, by contrast, the same terms imply a continued—even, enhanced—economic role for governments, so that global competition takes place, rather, between countries: Britain vs Germany, Japan vs the United States, Europe vs America. Business and Government talk at cross-purposes. The steps that multinational corporations take to reduce other “non-wage” labor costs—notably, their taxes—are seen by politicians and journalists as unpatriotic. Rather than follow business onto the global stage, defenders of environmental and labour interests retreat to the domestic stage, and leave governments to bring the corporations into line. If tackled on this level alone, the economic arguments are, indeed, hard to undercut: addressed “one nation state at a time” (so to say) matters of “comparative advantage” tempt rival governments to engage in competitive cost cutting, and the costs of social services are an obvious target for cost cutting, e.g. in France or Sweden. Tackled on a wider (“global”) level, however, the same issues can be stated in terms less damaging to labour and environmental interests. A Global Labour Office capable of looking the World Trade Organization in the eye, for instance, could set standards protecting those interests as strongly as those insisted on by international agencies for “transparency” in accounting, “fair” competition and the like. Excessive cutbacks in social protections, indeed, can then be judged to be “unfair” competition, and penalized as such.     

INTERNATIONAL INVESTORS' EXPOSURE TO RISK IN EMERGING MARKETS

We examine the empirical differences in emerging market betas (β's) taken across four major currencies (U.S. dollar, British sterling, Japanese yen, and German mark) where the β's are either mean-variance or mean-lower partial moment β's. The mean variance β's are found to be statistically similar to lower partial moment β's in most cases, which suggests they are robust to nonnormality in the data. The difference between the two β's has become less significant in recent years as emerging markets have become more stable. Furthermore, evidence is presented that β's obtained from both risk measures and calculated from returns denominated in different currencies have the same ordinal association. This shows the primacy of local risk over foreign exchange risk. We conclude that international investors can continue to use the mean-variance β in assessing risk in emerging markets, although investors should not give it a conventional equilibrium interpretation.     

Regime-switching and interest rates in the European monetary system

This paper examines the impact that a currency target zone has on short-term interest rates. For a number of countries in the European Monetary System, we characterize the short rate using a regime-switching model that allows for a differently parameterized mean-reverting square-root process in each regime. We find that the volatility, the level, and the speed-of-adjustment are all higher in the regime that is operative during speculative attacks and currency crises. Moreover, we allow the conditional probability of being in each regime to be state-dependent so the model can be used to examine questions relating to the likelihood of realignments and the stability of the target zone system.