A further look at transaction costs,short sale restrictions,and futures market efficiency: The case of Korean stock index futures

Persistent underpricing in the Korean stock index futures market is documented and alternative explanations are examined. No-arbitrage pricing bands are computed using alternative sets of transaction costs and short sale restrictions faced by different investor groups. We find that a substantial portion of the mispricing can be explained by these factors, though a high incidence of mispricing remains after accounting for costs faced by the marginal trader group—the KSE exchange members. We also observe frequent underpricing of futures during periods of downward market trends. This is attributed in part because of unique restrictions on short sales and accounting conventions in the Korean market. In addition, tests of alternative futures pricing models are conducted that provide mixed results. Though we do not reject the standard cost-of-carry model, an equilibrium pricing model provides reasonable explanatory power. Further, use of the cost-of-carry model does not appear to be driving the findings of persistent underpricing. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 153–174, 1999     

Risk analysis for electronic commerce using case-based reasoning

Electronic commerce (EC) appears to be essential for an organization’s survival and growth. Then the security of the EC systems, which ensures authorized and correct transaction processing, becomes one of the most critical issues in implementing the systems. The analysis of risk that a system faces is the core part of security management since risk analysis can identify the principal assets, the threats and the vulnerabilities of those assets, and the risks confronting the assets. This study intends to develop a risk analysis system in an EC environment using the case-based reasoning (CBR) technique. The process of the proposed system is composed of four steps: initial data collection, asset evaluation, threat and vulnerability evaluation, and result generation of risk analysis. This process follows the traditional risk analysis process. This system employs the casebase of past analyses and security accidents. Although some studies introduced several case-based systems for risk analysis of traditional information system, none of them is under an EC environment. The proposed system is the first to apply the CBR technique for risk analysis of an EC system. Copyright © 1999 John Wiley & Sons, Ltd.     

Equity market valuation of human capital and stock returns

We investigate whether and how well firms’ stock market valuations reflect their employees’ collective skills and effectiveness relative to that of their industry peers and competitors. We devise a relative stock market valuation measure of human capital intangibles (EVHC) and find that portfolios of low EVHC firms systematically outperform portfolios of high EVHC firms by an average 1.34% per month. However, this is primarily a small firms effect, because for large firms the excess returns of the arbitrage portfolio that is long on the low EVHC stocks and short on the high EVHC stocks is zero. Our results suggest that reliance on human capital intangibles may proxy for risk not fully accounted for by conventional asset pricing models, or alternatively, that the market cannot correctly price human capital intangibles for small size firms.     

How corporate governance affects payout policy under agency problems and external financing constraints

This paper analyzes the effect of corporate governance on the payout policy when a firm has both agency problems and external financing constraints. We empirically test whether strong corporate governance would lead to higher payout to minimize agency problems (outcome hypothesis), or to lower payout to avoid costly external financing (substitute hypothesis). We find that firms with higher (lower) external financing constraints tend to decrease (increase) payout ratio with an improvement in their corporate governance. The results are consistent with our hypothesis that the relation between payout and corporate governance is reversed depending on the relative sizes of agency and external financing costs.     

Derivatives Use, Information Asymmetry, and MNC Post-Acquisition Performance

We utilize a sample of US acquiring firms that engaged in international M&As to document the effects of corporate derivatives use on post-M&A long-term performance. We find that derivatives users outperform nonusers. Furthermore, we find that acquirers with derivative policies that are more comprehensive and sophisticated outperform those with less comprehensive and sophisticated policies. They, in turn, outperform acquirers with no existing policies in place. Our results are consistent with the notion that the use of derivatives lowers information asymmetry related agency problems. Furthermore, our evidence indicates that derivatives use is an important corporate activity that has a profound effect on post-M&A performance.     

Rational expectations and the short-run Phillips curves

The purpose of the present paper is to study certain derivable implications of the rational expectations hypothesis (REH) in the context of a simultaneous wage-price model of the U.S. economy and to subject the REH to statistical tests. The empirical evidence indicates that implementation of the REH in the context of these models does wipe out the conventional short-run Phillips curves, and the assumption that public expectations of future rates of inflation are true conditional mathematical expectations based on all available information is indeed borne out quite well against its alternatives.     

Is there a causal relationship between exchange rate volatility and unemployment?

In his article on “Germany's Stake in Exchange Rate Stability” (INTERECONOMICS, September/October 1996), Daniel Gros recently wrote that, as he sees it, the exchange rate volatility of the D-Mark against the other European currencies has a causal impact on the German unemployment rate. In the following it is examined whether Granger causality tests support this view and whether it is possible to infer from this that the establishment of a monetary union in Europe will contribute to a significant easing of unemployment problems.     

The choice of a monetary instrument in a small open economy: The case of Korea

Using a small macroeconometric model of Korea, this paper evaluates the correct choice of a monetary instrument (either the money stock or the interest rate), the optimal multiperiod policy, and the value of current information on some monetary varialbles.     

Ownership structure and earnings informativeness: Evidence from Korea

This paper examines the relationship between corporate ownership structure in Korea and the informativeness of earnings. Korean ownership structure is characterized by the dominance of one primary owner who also participates in firm management. Existing literature offers two alternative perspectives on the behavior of such owner-manager firms, convergence of interests, and management entrenchment hypotheses. We tested the alternative views to see how they are reflected in earnings informativeness. The results show that earnings are more informative as holdings of the owner increase, supporting the convergence of interest explanation for the owner-manager structure. Second, we examine the role of institutional investors and blockholders. On the one hand, institutions/blockholders have incentives to actively monitor management. However, on the other hand, institutions/blockholders may not render effective monitoring because they lack expertise, suffer from freerider problems, or strategically ally with management. These opposing views predict conflicting signs on the relation between the earnings informativeness and holdings of institutions/blockholders. We find that earnings informativeness increases with the holdings of institutions and blockholders. This supports the active monitoring role of institutions/blockholders. Finally, we test the relationship between earnings informativeness for chaebol (Korean business group)-affiliated companies vs. that for nonchaebol-affiliated companies, and find no significant relationship between the owner-largest shareholder's holdings and earnings informativeness. This provides evidence that for chaebol companies, the negative effect of management entrenchment/expropriation of minority shareholders offsets the positive effects. This phenomenon is stronger for chaebol-affiliated companies than for nonchaebol affiliates.