A generalization of Condorcet’s Jury Theorem to weighted voting games with many small voters

We extend Condorcet’s Jury Theorem (Essai sur l’application de l’analyse à la probabilité des décisions rendues à la pluralité des voix. De l’imprimerie royale, 1785) to weighted voting games with voters of two kinds: a fixed (possibly empty) set of ‘major’ voters with fixed weights, and an ever-increasing number of ‘minor’ voters, whose total weight is also fixed, but where each individual’s weight becomes negligible. As our main result, we obtain the limiting probability that the jury will arrive at the correct decision as a function of the competence of the few major players. As in Condorcet’s result the quota q = 1/2 is found to play a prominent role. I wish to thank Maurice Koster, Moshé Machover, Guillermo Owen and two anonymous referees for helpful comments.     

Background Risk and the Performance of Insurance Markets under Adverse Selection

Background risk can influence the performance of insurance markets that must deal with adverse selection when applicants are risk vulnerable, since they are more averse to bearing the insurable risk as a result of their exposures to background risk. We show that background risk always results in a lower deductible for the incentive constrained contract, and that a broader range of markets attains the stable sequential equilibrium cross-subsidized pair of separating contracts. We conclude that background risk always improves the performance of markets for coverage against (insurable) foreground risks that must deal with adverse selection. We also find, however, that these improvements are never sufficient to offset the cost to insureds of bearing the background risk.     

Long-Term Performance Following Rights Issues and Open Offers in the UK

Abstract:  This study finds evidence of significant long-term underperformance following rights issues made during 1986-95 in the UK. The findings are resilient to a number of methodological controls. In contrast, our results for a smaller sample of open offers made during 1991-95 show strong positive performance over a 5-year post-issue period, implying that firms making open offers had better growth prospects than firms making rights issues. During 1986-90, a period when open offers were rarely used, firms appeared to be making rights issues to exploit overvaluation. However, this was not evident for rights issues made during 1991-95, a period when open offers were more commonly used.     

Dividend Imputation and Shareholder Wealth: The Case of New Zealand

On April 1, 1988, New Zealand stopped the double taxation of dividends by implementing a full dividend imputation program. Because many believed that the tax advantage of debt had led to more highly leveraged firms subject to greater financial risk than was socially optimal, it was hoped the removal of incentives to finance with debt would result in a more efficient allocation of capital. The empirical results suggest that the shareholder wealth gain from dividend imputation was more than offset in firms with large debt levels. Moreover, an examination of debt ratios indicates debt levels declined in the post–imputation period.     

ON ESTIMATING STOCK MARKET VOLATILITY: AN EXPLORATORY APPROACH

Traditional methods of estimating market volatility use daily return observations from a stock index to calculate monthly variance. We break with tradition and estimate stock market volatility using the daily, cross-sectional standard deviation of returns for all firms trading on the New York Stock Exchange and the American Stock Exchange. We find a significantly positive relation between risk and return. Market volatility is estimated to be about half the volatility level previously reported. The intraday, cross-sectional market volatility measure provides findings consistent with risk-return theory.     

Futures hedging using dynamic models of the variance/covariance structure

Dynamic futures‐hedging ratios are estimated across seven markets using generalized models of the variance/covariance structure. The hedging performances of the resultant dynamic strategies are then compared with static and naïve strategies, both in‐ and out‐of‐sample. Bayesian‐adjusted hedge ratios also are employed as error purgers. The empirical results indicate that the generalized dynamic models are well specified and that their use in determining optimal hedge ratios can lead to improvements in hedging performance as measured by the volatilities of the returns on the optimally hedged position. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:241–260, 2003     

Option volume and volatility response to scheduled economic news releases

In this article, we examine the impact of 21 different types of scheduled macroeconomic news announcements on S&P 100 stock‐index option volume and implied volatility. We find that there is a 2‐h delay after the announcement before volume increases. However, there is an immediate increase in volatility, which slowly dissipates over several hours. Further analysis shows that most of the high volume and volatility after announcements come from the announcements that are considered bad news. That is, bad news creates high volatility and high volume, whereas good news elicits lower volume and is not associated with higher volatility. These results are not consistent with the predictions of any one model. We also find that the announcements that cause the largest reaction in the equity option market are Consumer Credit, Consumer Spending, Factory Inventories, NAPM, and Non‐Farm Payrolls. Six other announcements elicit a mild response. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:315–345, 2003