Diffusion with variable production lead times

When there is not one obvious candidate technology, entrants to a new industry face a non-trivial choice between longer lead times in the setting up of production and a better chance that the technology could successfully deliver. This paper shows how this tradeoff may yield gradual diffusion. Diffusion is more protracted in industries where learning opportunities are more bountiful. The equilibrium minimizes the long-run equilibrium price, just as in the standard Marshallian model of a competitive industry. The market structure does not seem to affect the rate of diffusion with the monopoly choosing the same rate of diffusion that prevails in competition despite restricting output.      

Volatility, trade size, and order imbalance in China and Japan exchange traded funds

In recent years there have been reports of excessive price volatility and value differences between prices of exchange traded funds (ETFs) and their underlying asset values. The objective of our study is to shed light on these facts by taking a closer look at the relationship between return volatility, trade size, and order imbalance for international ETFs. Even after controlling for order imbalance, volume as represented by number of trades in one of five trade size categories continues to have a significant and predominantly positive impact on volatility. Both trade size and order imbalance are important determinants of the Japan and China ETFs’ price volatility.     

Do Traditional Chinese Cultural Values Nourish a Market for Pirated CDs?

On one hand, Chinese consumers are well known for conspicuous consumption and the adoption of luxury products and named brands. On the other hand, they also have a bad reputation for buying counterfeit products. Their simultaneous preferences for two contrasting types of product present a paradox that has not been addressed in the literature. This study attempts to present an explanation of this paradox by examining the effects of traditional Chinese cultural values and consumer values on consumers’ deontological judgment of pirated CDs and the amount of social benefits they perceive they gain from them. We interviewed 300 Hong Kong Chinese consumers, and found that face consciousness increased materialism and risk aversion, thereby producing a favorable deontological judgment of pirated CDs. Face consciousness also has a direct effect on the amount of social benefits perceived in pirated CDs. Both favorable deontological judgment and perceived social benefits contributed to a strong intention to buy pirated CDs. The results are discussed in a cultural perspective.     

Signaling,Financial Slack and Corporate Acquisitions

This paper shows that under certain conditions a firm's decision concerning the optimal medium of exchange to use in acquiring another firm is related to the decision of which source of capital should be used to finance long-term projects. An example of this type of interaction occurs when the firm's only source of financing a positive net present value project is an equity issue. In a Myers and Majluf (1984) world of asymmetric information the value maximizing strategy for the firm is to forego the public equity offering and instead use a stock offer to acquire a firm possessing financial slack. The process is modeled using an extension of the Myers and Majluf (1984) model and demonstrates how the acquisition alternative allows managers to separate the signals regarding the investment and financing decisions. Including net pension assets into our measure of financial slack, we provide empirical supports for the ability of the extended model to explain observed merger activity.     

Modeling the fat tails in Asian stock markets

We test whether stock returns in the Asian markets are characterized by infinite variance or just large variance, which has an important implication for the applicability of many financial models in Asian market data. Employing the extreme value framework, we find that the Asian index return distributions are fat-tailed but have finite variance. However, the tails of the distributions behave similarly to those in the U.S. and the MSCI World index returns, suggesting that any financial model or risk management tool that incorporates the second moment would work equally well for the Asian market data as it does for developed market data. We apply the Value-at-Risk method using Asian and U.S. data and find no significant difference in performance.     

Consumer satisfaction as a process

Consumer satisfaction has been defined as an objective or subjective state variable. This paper presents an emerging view where satisfaction is construed as a subjective process of consumption experience. We examine studies that have explicitly or implicitly explored the conceptual and empirical domain of satisfaction as a multidimensional process of interactions among mental and overt behavior activities unfolding after purchase over time. Using a dynamic, six-dimension process framework we integrate previous, seemingly disjoint research efforts, and derive related research propositions. Issues in researching satisfaction as a process are also discussed.     

Pricing and Hedging of Discrete Dynamic Guaranteed Funds

We derive a risk‐neutral pricing model for discrete dynamic guaranteed funds with geometric Gaussian underlying security price process. We propose a dynamic hedging strategy by adding a gamma factor to the conventional delta. Simulation results demonstrate that, when hedging discretely, the risk‐neutral gamma‐adjusted‐delta strategy outperforms the dynamic delta hedging strategy by reducing the expected hedging error, lowering the hedging error variability, and improving the self‐financing possibility. The discrete dynamic delta‐only hedging not only causes potential overcharge to clients but also could be costly to the issuers. We show that a naive application of continuous‐time hedging formula to a discrete‐time hedging setting tends to worsen these possibilities.     

Does Index Speculation Impact Commodity Prices? An Intraday Analysis

Using intraday data, we find unidirectional causality from commodity index‐linked futures to nonindex‐linked commodity futures for up to one hour which disappears when using daily data. Also, the economic significance of index‐linked to nonindex commodity transmission declines to zero within about an hour. Finally, we find that the magnitude of index‐linked to nonindex return transmission is positively related to the amount of speculation, both long and short, in S&P GSCI commodity index futures. We conclude that speculative pressures exerted by commodity index futures can impact nonindex commodities, mainly through the activity of uninformed, positive feedback traders.     

Estimation of hyperbolic diffusion using the Markov chain Monte Carlo method

In this paper we propose a Bayesian method to estimate the hyperbolic diffusion model. The approach is based on the Markov chain Monte Carlo (MCMC) method with the likelihood of the discretized process as the approximate posterior likelihood. We demonstrate that the MCMC method Provides a useful tool in analysing hyperbolic diffusions. In particular, quantities of posterior distributions obtained from the MCMC outputs can be used for statistical inference. The MCMC method based on the Milstein scheme is unsatisfactory. Our simulation study shows that the hyperbolic diffusion exhibits many of the stylized facts about asset returns documented in the discrete-time financial econometrics literature, such as the Taylor effect, a slowly declining autocorrelation function of the squared returns, and thick tails.     

International transmission of information: evidence from the Euroyen and Eurodollar futures markets

This paper examines the information transmission between Japan and the US by using the Tokyo Euroyen and Chicago Eurodollar futures. These two interest rate futures markets provide a better understanding of international information transmission than stock markets, which have been shown to exhibit nonsynchronous trading and market segmentation. The results show that traders in Tokyo (Chicago) use information that is revealed overnight in Chicago (Tokyo). The bivariate EGARCH-t model provides no evidence of volatility spillovers in either direction, suggesting that the opening price rapidly reflects foreign information. The overall results support the hypothesis that the domestic market efficiently adjusts to foreign news. The results are also broadly consistent with the covered interest arbitrage effects.