On Equilibrium When Contingent Capital Has a Market Trigger: A Correction to Sundaresan and Wang Journal of Finance (2015)

This paper identifies an error in Sundaresan and Wang (2015, hereafter SW) that invalidates its Theorem 1. The paper develops a model of contingent capital (CC) with a stock price trigger that is consistent with SW's framework and yields closed‐form solutions for stock and CC prices. Yet, the model shows that unique stock price equilibria exist for a broader range of CC contractual terms than those required by SW. Specifically, when conversion terms benefit CC investors and penalize shareholders, a unique equilibrium can exist rather than the multiple equilibria stated in SW.     

Income Hedging,Dynamic Style Preferences,and Return Predictability

We propose a theoretical measure of income hedging demand and show that it affects asset prices. We focus on the value factor and first demonstrate that our demand estimates are correlated with the actual demands of retail and mutual fund investors. We then show that the aggregate high‐minus‐low (HML) demand predicts HML returns. Exploiting the state‐level variation in income risk, we demonstrate that state‐level hedging demands predict state‐level HML returns. A long‐short portfolio that exploits this hedging‐induced predictability earns an annualized risk‐adjusted return of 6%.     

Flexible Sojourning in the Era of Globalization: Cross‐border Population Mobility in the Hong Kong–Guangdong Border Region

This study of cross‐border population mobility in the Hong Kong–Guangdong region adopts a humanistic and disaggregate approach to analyzing how ordinary and sometimes underrepresented people, such as housewives, workers, low‐income households and elderly retirees, have engaged in border‐crossing as a personal strategy to actively negotiate with the reproduction of regional asymmetry in the era of uneven globalization. Flexible sojourning across the border has long been pursued by the local population in this region as a means of survival during natural catastrophes, economic downturns, wars and political turmoil. Cross‐border population mobility has acquired a new momentum in recent years subsequent to the uneven economic and social changes on the two sides of the border. The border‐crossers are, seemingly, a uniform group of people whose travel behavior does not deviate from the expectation of conventional wisdom. However, a closer analysis reveals significant differences among the border‐crossers. Four main types of border‐crossers are identified: shoppers, workers, homebuyers and elderly retirees. Each type demonstrates distinct patterns of border‐crossing and makes the trip out of different considerations. Border‐crossing has different meanings to people of different social identities. Cross‐border mobility can be and has been used by different kinds of people in different ways as a personal strategy to take on the challenges of structural changes at home and across the border. The article calls for an extension of border studies beyond the existing emphasis on border functioning, nation‐states and regional development toward examining more seriously and carefully the ordinary people who are involved in border‐crossing as a practice of their everyday life. D’approche humaniste et décomposée, cette étude sur la mobilité transfrontalière des populations dans la région de Hong‐Kong et de Guangdong analyse comment des populations ordinaires, et parfois sous‐représentées (femmes au foyer, ouvriers, ménages à faible revenu et retraités âgés, par exemple), ont entrepris de passer la frontière comme stratégie personnelle d’adaptation active à la reproduction de l’asymétrie régionale parallèlement à une mondialisation inégale. La population locale pratique des séjours transfrontaliers souples depuis longtemps, pour sa survie en cas de catastrophes naturelles, revers économiques, guerres et agitation politique. La mobilité transfrontalière s’est accélérée récemment après les évolutions économiques et sociales inégales des deux côtés de la frontière. Les transfrontaliers forment, parait‐il, un groupe uniforme de personnes dont le comportement de voyageur respecte les attentes de la prudence classique. Pourtant, une analyse plus poussée révèle d’importantes différences entre eux. Quatre grands types de transfrontaliers sont identifiés: consommateurs, travailleurs, acquéreurs de logement et retraités âgés. Chaque type suit un modèle transfrontalier distinct et fait le déplacement pour des motifs différents. La signification de ce déplacement diverge selon les identités sociales. Ainsi, la mobilité transfrontalière peut servir et a servi à différents types de personne de manières différentes comme stratégie personnelle pour affronter les difficultés nées des changements structurels des deux côtés de la frontière. Les études sur les frontières sont à prolonger au‐delà de l’intérêt actuel pour le fonctionnement aux frontières et pour l’évolution de régions ou d’États‐nations, afin d’examiner de façon plus sérieuse et minutieuse les populations ordinaires qui traversent les frontières dans leur pratique quotidienne.     

A review of:“DATA ANALYSIS & DECISION MAKING WITH MICROSOFT EXCEL ” By CHRISTIAN S. ALBRIGHT,WAYNE L. WINSTON,CHRISTOPHER ZAPPE Duxbury Press,Pacific Grove,California, 2002, xii + 998 pp. + accompanying CD: ISBN 0-534-38932-5. List: $97·95.

The assumption of a positive marginal tax rate in each period over the life of an investment project does not properly characterize the tax position of a significant number of firms. The paper develops a lower bound on the present value of the tax shield from declining balance depreciation given a reasonable assumption about the stochastic nature of the period by period marginal tax rate. It turns out that the standard textbook formula is a reasonably good approximation of the true present value of the tax shield since our lower bound is very close to the textbook formula.     

Bargaining Theory Meets Interest‐Based Negotiations: A Case Study1

This is a case study of the 2005 national contract negotiations between Kaiser Permanente and the Coalition of Kaiser Permanente Unions. Given the scale and complexity of these negotiations, their successful completion provides an exemplar for collective bargaining in this country. In 1997 Kaiser Permanente and the Coalition of Kaiser Permanente Unions formed a labor management partnership, and negotiations were structured around the principles of interest‐based negotiation (IBN). Drawing on direct observation of all parts of the bargaining process, interviews with individuals from Kaiser and the Coalition of Unions, and surveys we conducted after bargaining was completed, we conclude that the parties employed a mix of interest‐based and traditional negotiation processes across an array of integrative and distributive issues. We find that IBN techniques were used extensively and successfully to reach mutually satisfying agreements when the parties shared interests. When interests were in greater conflict, the parties resorted to more traditional, positional tactics to reach resolution. Strong intraorganizational conflicts limited the use of IBN and favored the use of more traditional positional bargaining. While a high level of trust enabled and supported the use of IBN, tensions that developed limited the use of IBN and required surfacing and release before either IBN or more traditional positional processes could proceed effectively. The use of IBN tools helped the parties apply the principles underlying the partnership in which these negotiations were embedded. We conclude that IBN served as a way of applying or operationalizing integrative bargaining and affected the process dynamics in ways the Walton and McKersie theory predicted. As such we see IBN as techniques that neither displace nor render obsolete other aspects of bargaining theory or practice but that show considerable promise for helping collective bargaining to address the complex issues and challenges found in contemporary employment relationships.     

State‐Level Business Cycles and Local Return Predictability

This study examines whether local stock returns vary with local business cycles in a predictable manner. We find that U.S. state portfolios earn higher future returns when state‐level unemployment rates are higher and housing collateral ratios are lower. During the 1978 to 2009 period, geography‐based trading strategies earn annualized risk‐adjusted returns of 5%. This abnormal performance reflects time‐varying systematic risks and local‐trading induced mispricing. Consistent with the mispricing explanation, the evidence of predictability is stronger among firms with low visibility and high local ownership. Nonlocal domestic and foreign investors arbitrage away the predictable patterns in local returns in 1 year.     

The Structure of São Paulo Street Markets: Evolving Patterns of Retail Institutions

Development in emerging economies leads to a cohabitation of traditional and modern forms of retailing. This diversity allows for centuries' old consumer behavior patterns to continue along with new options. The street markets or Feira Livres¹ of São Paulo, Brazil demonstrate how consumption patterns are culturally determined. Participant observation, both in supermarkets and at feiras, and interviews with consumers and vendors are used to investigate consumer shopping patterns, along with evolving patterns of retail structure. We find that informal markets, such as the feira, are able to coexist with modern, Western-style retail institutions, partly because of ingrained food preparation habits and deep-seated consumer impressions about superior qualities offered by feiras (e.g., the perceived freshness of the produce). Our findings support the Natural Selection Theory of retail development in that we find evidence of adaptation. Specifically, the supermarkets in Brazil have evolved to include departments that imitate some of the popular characteristics of the feiras.     

REAL ESTATE TAX IN URBAN CHINA

Since its foundation in 1949, the People's Republic of China (PRC) has adopted several contrasting policies to address the urban housing problem. Among them have been changes in real estate tax law. The first real estate tax laws in the PRC were promulgated in January 1950. Amended several times, they became ineffective after 1973. In September 1986, the State Council promulgated a new real estate tax law affecting all urban properties. According to this new law, real estate taxes are to be levied on owners, so that most real estate taxes have been paid by enterprises rather than households. However, with the recent drive to privatize housing in urban China, property rights are being transferred from public to private ownership, and in conjunction with real estate taxes, this is producing undesired inequalities. This paper investigates the development of real estate taxation, examines the role of property tax in the ongoing housing reform, and recommends changes in real estate taxes that would better achieve the government's egalitarian goals. ( JEL H20, R31)