Stock index dynamics and derivatives pricing with stochastic interest rates

The paper analyzes the equilibrium valuation of stock index derivatives in an economy with stochastic interest rates and with a representative agent having time-additive power utility. The equilibrium short interest rate dynamics and the equilibrium term structure of interest rates are described by an affine one-factor term structure model. In equilibrium the value of the stock index is a non-trivial function of the short interest rate. The paper investigates the consequences of the induced stock index dynamics for the theoretical spreads between index forward prices and index futures prices and the consequences for the valuation of options on stock index futures.The paper was written while the author was a visiting scholar at Department of Finance, Kellogg Graduate School of Management, Northwestern University. I thank for helpful comments and suggestions from Gurdip Bakshi, Avi Bick, Menachem Brenner (the editor), Zhiwu Chen, San-Lin Chung, Mark Fisher, Andreas Höger, Marti Subrahmanyam, two anonymous referees, and participants at the Western Finance Association meeting in San Diego, the European Financial Management Association meeting in Istanbul, the European Finance Association meeting in Vienna, and the Center of Analytical Finance workshop at University of Aarhus. Financial support from the Danish Natural Science and Social Science Reasearch Councils is gratefully acknowledged.     

Informed Traders and Price Variations in the Betting Market for Professional Basketball Games

This paper examines betting line changes from the opening to the closing of the point spread betting market on National Basketball Association games for evidence of informed trader betting. We show that within-betting period line changes significantly improve the accuracy of betting lines as forecasts of game outcomes. We examine individual line change magnitudes and show that these are directly and proportionately related to biases in opening lines. Further, line changes are of sufficient magnitude to remove these biases by the close of betting. We interpret these results as evidence that informed traders are influential in this market.     

A dyadic study of interpersonal information search

Although interpersonal word-of-mouth communication, by definition, takes place between two people, rarely has the phenomenon of word of mouth been studied using both members of the dyad. Building on the literature, this article offers a model of active interpersonal information search that is tested by using a method in which information seeker and source perceptions were obtained. Source characteristics were important determinants of interpersonal influence, but seeker characteristics also played an important role. Interestingly, it proved useful to distinguish between demographic and attitudinal homophily of seeker and source as the former was inversely and the latter directly related to interpersonal influence. Mary C. Gilly is an associate professor in the Graduate School of Management and associate dean of Graduate Studies at the University of California, Irvine. Her Ph.D. is in marketing from the University of Houston. Her research interests include the unintended effects of marketing actions, such as the effects of advertising on employees. She also has interests in services marketing, such as customer service, including consumer complaint handling, and cross-cultural service encounters. Her work has been published in theJournal of Marketing, theJournal of Consumer Research, theJournal of Business Research, and other academic journals. John L. Graham is a professor in the Graduate School of Management at the University of California, Irvine. His Ph.D. is in marketing from the University of California, Berkeley. His primary research interests regard international marketing, international business negotiations, and structural equations modeling. His work has been published in theJournal of Marketing, theJournal of Consumer Research, Marketing Science, theJournal of International Business Studies, Management Science, and other academic journals. Mary Finley Wolfinbarger is an associate professor at California State University, Long Beach and is doing research on the topics of internal marketing and gift giving. She teaches Marketing Principles and Marketing Research. She received her Ph.D. in marketing from the University of California, Irvine. Her work has appeared in theJournal of Marketing and other academic journals. Laura J. Yale came to Fort Lewis College in 1991. She holds degrees in Hotel, Restaurant, and Travel Administration from the University of Massachusetts, Amherst, and received her Ph.D. from the University of California, Irvine. She teaches a variety of courses in Marketing and Travel and Tourism Administration, including Marketing Research, International Marketing and Services. Her industry experience and most of her research interest are in the services sector, particularly the tourism industry. She is on sabbatical leave this academic year, writing an introductory textbook on the tourism industry. She will return to teaching in September 1998.     

The Impact of Industry Structure and Penalty Policies on Incentives for Compliance and Regulatory Enforcement

This paper examines the optimal fine for violations of environmental regulations, taking into account financial constraints facing regulated firms and the hierarchical structure of regulatory enforcement. Contrary to the existing literature, which suggests that maximal fines are sub-optimal, we find that the optimal fine is either the maximum amount the firm can afford to pay or zero (i.e., no regulation). The impact of a change in industry structure on the optimal fine, firm compliance and regulatory resource strategies is considered. We identify conditions under which the equilibrium level of regulatory resources decreases with an increase in the number of firms in the industry.     

Cross-Subsidization,Cost Allocation,and Tacit Coordination

This paper considers the prospect that multiproduct firms facing each other in separate markets might tacitly coordinate their production through strategic common service cost allocations and mutually benefit from such action as a consequence. Our analysis suggests that decentralization cum tacit coordination may be possible in equilibrium, with or without public disclosure of allocation choices. In turn, tacit coordination may contribute to explanations for multiproduct firms' decisions to decentralize. The implications for trade oversight bodies are ambiguous. While tacit coordination results in an anti-competitive distortion toward monopolies, it also induces greater specialization which reduces the diseconomies of scope.     

Analysts' Forecasts of German Firms' Earnings: a Comparative Analysis

This paper examines analysts' forecasts of the annual earnings per share of German firms over the period of February 1987 to December 1995. The German case is particularly interesting as the accounting and institutional structures vary from those in more thoroughly researched markets such as the U.S. or U.K. The paper therefore considers the features of the German forecasting environment which distinguish it from the Anglo-American model, and whether these might be reflected in forecasting performance. The results for Germany show that the accuracy of analysts' forecasts improves as the forecast horizon shortens, are less accurate than a naive prediction model over longer horizons, and contain a positive bias. When the results for Germany are contrasted with the results for the U.K., as reported in a recent paper, they are found to be a little less accurate but the positive bias is greater in U.K. forecasts. Taken overall the forecasting process in Germany appears to be less efficient than in the U.K., but this may be due to the distinct features of the German forecasting environment.