The Profitability of Trading Strategies Based on Book Value and Earnings in Hong Kong: Market Inefficiency vs. Risk Premia

Using a sample of Hong Kong firms, we have examined the relative and incremental usefulness of book-to-price ratio (B/P), and earnings-to-price ratio (E/P) for providing profitable trading strategies or for predicting stock returns. Our results show that trading strategies based on B/P or E/P yield significant excess returns for various holding periods up to two years, and that B/P and E/P are not only individually but also incrementally useful for predicting stock returns. Further, results of various tests indicate that trading profits observed from the B/P strategy are likely to be a result of B/P proxying for risk differentials, while those from the E/P strategy are related to gains from exploitation of market inefficiency or mispricing. The two ratios appear to capture different aspects of firm value in Hong Kong.     

COST-VOLUME-PROFIT ANALYSIS UNDER UNCERTAINTY WHEN THE FIRM HAS PRODUCTION FLEXIBILITY

This study examines the behavior of the firm which faces uncertainty in demand but can adjust its output once the uncertainty is resolved, using contingentclaims analysis. The paper finds that (i) the optimal output of the firm with ex post adjustment capability is less than that of the firm without production flexibility; (ii) the optimal ex ante output increases with the higher interest rate; (iii) the greater the marginal cost associated with the expost adjustment and/or salvage value, the greater the optimal ex ante output; and (iv) the effect of demand volatility and production lead time on the optimal ex ante output could be either positive or negative. Based upon the study's findings, some important managerial decision implications are discussed.     

THE USE OF MULTIPLE INSTRUMENTS FOR MEASUREMENT OF EARNINGS FORECAST ERRORS, FIRM SIZE EFFECT AND THE QUALITY OF ANALYSTS'FORECAST ERRORS

This paper develops an instrumental variables framework to form a better proxy for earnings forecast errors. The key aspect of the approach is to extract information from alternative proxies for the same underlying variable, namely a portion of realized earnings signals unexpected by the market. We use signs of various proxies for earnings forecast errors obtained from different time-series forecasting models as multiple instruments. The results show that the instrumental variables approach is effective for reducing measurement errors inherent in various proxies for earnings forecast errors. It produces not only a smaller magnitude but also a narrower dispersion of earnings forecast errors. The paper provides evidence that the instrumental variables approach performs better for small-firm samples than for large-firm samples. Finally, we observe that analysts' forecast errors seasoned with the signs of various time-series forecast errors (as well as the signs of their own forecast errors) outperform those without seasoning. This indicates that analysts' forecast errors can still be improved by employing the instrumental variables technique.     

The liability of mimicry: Implementing “global human resource management standards” in United States and Indian subsidiaries of a South Korean multinational enterprise

There is increasing evidence that multinational enterprises (MNEs) from less dominant economies tend to mimic and disseminate human resource management (HRM) practices sourced from a dominant economy, usually the United States, to overcome their “liabilities of origin.” However, our understanding of the specific challenges involved in the implementation of such practices by firms across different national and subsidiary contexts remains limited. Drawing on evidence from a case study of a South Korean MNE, we examine the extent to which, and ways in which, global HRM policies mimicking U.S. practices are implemented across its sales, manufacturing, and research and development subsidiaries in the United States and India. We find discernible differences in the implementation of the global policies both between the two host country sites and across the three function-specific subsidiaries in each country, identifying a range of national and subsidiary-specific factors that inform these variable implementation outcomes. In addition to legitimacy challenges related to the source, appropriateness, and process of transfer, we note a unique form of legitimacy challenge—“the liability of mimicry”—whereby local actors can challenge head office policies on the basis of a claim to superior expertise in the dominant practices, as a particular concern of MNEs from emerging economies.     

Social exchange approach,job satisfaction,and turnover intention in the airline industry

Service Business - This paper investigates the effects of social exchange relationships on job satisfaction and turnover intention in the airline industry. To this end, two constructs of social...     

Time diversification: Definitions and some closed-form solutions

We establish general conditions under which younger investors should invest a larger proportion of their wealth in risky assets than older ones. In the finite horizon dynamic setting, we show that such phenomenon, known as ‘‘time diversification,” can occur in the presence of human wealth, guaranteed consumption, or mean-reverting stock returns. We formalize two alternative notions of time diversification commonly confounded in the literature. Analytic solutions are provided for both time-series and cross-sectional forms of time diversification. To our best knowledge, this paper is the first to solve in closed-form the hedging demand for a CARA investor with inter-temporal consumption and a finite horizon, facing mean-reverting expected returns. Our results indicate that horizon can have a significant effect on the portfolio demand of a CARA investor due to inter-temporal hedging.