Slow price reactions to analysts’ recommendation revisions

This study explores the reasons for the slow price reactions to analysts’ recommendation revisions. We predict that analysts’ recommendation revisions contain earnings-related information that is not incorporated in analysts’ earnings forecasts and that the slow price reaction is attributable to a gradual incorporation of this earnings-related information into stock prices. We find that, consistent with our prediction, stocks with recommendation upgrades subsequently experience more upward earnings forecast revisions than stocks with recommendation downgrades, and that the differences in subsequent stock returns between upgraded and downgraded stocks is attributable to differences between subsequent earnings forecast (especially, FY2 earnings forecast) revisions.     

Semi-Static Hedging Based on a Generalized Reflection Principle on a Multi Dimensional Brownian Motion

On a multi-assets Black-Scholes economy, we introduce a class of barrier options, where the knock-out boundary is a cone. In this model we apply a generalized reflection principle in a context of the finite reflection group acting on a Euclidean space to give a valuation formula and the semi-static hedge. The result is a multi-dimensional generalization of the put-call symmetry by Bowie and Carr (Risk (7):45–49, 1994), Carr and Chou (Risk 10(9):139–145, 1997), etc. The important implication of our result is that with a given volatility matrix structure of the multi-assets, one can design a multi-barrier option and a system of plain options, with the latter the former is statically hedged.     

International Transmission of the 2007–2009 Financial Crisis: Evidence from Japan

We investigate the international transmission of the 2007–2009 financial crisis to Japanese firms by examining both stock returns and changes in operating performance during the crisis. Our results indicate that Japanese firms were affected by the crisis mainly through the trade channel in both stock returns and changes in operating performance. We also find that the liquidity channel played a role in the fall of stock returns in response to the crisis and in the changes in return on assets during the first year of the crisis. We obtain weak evidence for the credit crunch channel and no evidence to support the trade finance channel.     

Japanese comments on the extraterritorial effects of U.S. Chapter 15

As a basic principle, subject to defined exceptions, the effects of a bankruptcy proceeding commenced under Chapter 15 should be restricted to assets of the debtor located within the territorial jurisdiction of the United States. But Section 1528 provides broader exceptions to the above‐mentioned principle than those stated in Article 28 of the UNCITRAL Model Law. Using the Yukos and Maruko cases as illustrations, the author concludes that U.S. judges should exercise their jurisdictional powers conservatively and American courts should be careful not to appear to export their own system of justice abroad. Copyright © 2007 John Wiley & Sons, Ltd.     

Infinite-horizon choice functions

We analyze infinite-horizon choice functions within the setting of a simple technology. Efficiency and time consistency are characterized by stationary consumption and inheritance functions, as well as a transversality condition. In addition, we consider the equity axioms Suppes–Sen, Pigou–Dalton, and resource monotonicity. We show that Suppes–Sen and Pigou–Dalton imply that the consumption and inheritance functions are monotone with respect to time—thus justifying sustainability—while resource monotonicity implies that the consumption and inheritance functions are monotone with respect to the resource. Examples illustrate the characterization results.     

Responding to the global financial crisis: Vietnamese exchange rate policy, 2008–2009

The paper presents an analysis of exchange rate policy in Vietnam during 2008–2009. In early 2008, the country faced a sudden reversal of capital flows as signs of developing domestic vulnerabilities became evident. The downward pressure on the dong then intensified with the onset of the global financial crisis in the fall. In these environments, the Vietnamese authorities responded with various exchange rate policy measures. The paper documents a shift in Vietnam's de facto exchange rate regime, from a basket peg to a simple US dollar peg, when the domestic vulnerabilities became compounded by the evolving global crisis. The authorities utilized additional measures to relieve pressure on the parallel exchange rate. An event study methodology finds little evidence of systematic effectiveness for these policy actions; any effectiveness was short-lived. A close examination of individual actions suggests that the impact of foreign exchange market intervention appeared more consistent than any other type of measure and most effective when combined with other measures.     

Post-restructuring performance in Japan

Peek and Rosengren (2005) showed that after the end of the bubble economy era in Japan, regulatory forbearance and perverse incentives allowed Japanese banks to engage extensively in “evergreening”. Inoue et al. (2008) also showed that, compared to out-of-court settlements in the United States, agreements on out-of-court restructuring are attained more easily in Japan. However, widespread forbearance by banks and affiliated companies in addressing the needs of distressed firms indicated a serious weakness of banks and affiliated companies in instituting discipline. This is the first empirical study to examine the performance of Japanese firms that experienced out-of-court restructuring in Japan from January 1990, when the bubble economy burst, to March 2005, when the Koizumi Cabinet declared the bad debt problems of major firms to be resolved. Our results show that important biases permitted deeply unprofitable firms to survive in Japan. This finding is similar to research by Hotchkiss (1995), who analyzed post-restructuring performance in the United States. We also find that out-of-court restructurings of troubled firms in Japan were less effective in improving profitability than restructurings under Chapter 11 in the United States. However, we find that restructurings associated with new capital injections and new outside management are more likely to lead to genuine improvement in financial performance.     

The migration function and the Todaro paradox

"The purpose of this paper is to present a microeconomic foundation of the migration function and to discuss the impact of an increase in the job creation rate on migration and urban unemployment. Each rural worker must estimate his expected urban income on the basis of his own expected numbers of both newly created jobs and migrants during the coming period. Workers whose expected urban income is greater than the rural one decide to migrate, while those who estimate smaller urban income stay on." The geographical focus is on developing countries.