Binomial Option Pricing with Skewed Asset Returns

This research presents a method for estimating the parameters of the binomial option pricing model necessary to appropriately price calls on assets with asymmetric end-of-period return distributions. Parameters of the binomial model are shown to be a function of the mean, variance, and skewness of the underlying return distribution. It is also shown that failure to incorporate skewness results in the mispricing of the call.     

Tax Law Improvement in Australia and the UK: The Need for a Strategy for Simplification

In both Australia and the UK, programmes are under way to simplify tax legislation by rewriting it. This paper demonstrates that tax simplification is a complicated concept and concludes that sustainable improvement is unlikely to be achieved if reform is limited only to linguistic changes. Tax law is complicated because there are powerful pressures that tend to increase the complexity of modern tax systems and these should also be considered in any simplification programme. In addition, tax simplification may be promoted by the greater use of purposive legislation — that is, legislation drafted in terms of general principles rather than much more comprehensive legislation designed to deal with every likely possibility. The paper examines the progress of the Australian Tax Law Improvement Project and argues that what is needed is a strategy for tax simplification that is incorporated into the process of generating tax policy itself. JEL classification: H20.     

Can Managers Successfully Time the Maturity Structure of Their Debt Issues?

This paper provides a rational explanation for the apparent ability of managers to successfully time the maturity of their debt issues. We show that a structural break in excess bond returns during the early 1980s generates a spurious correlation between the fraction of long‐term debt in total debt issues and future excess bond returns. Contrary to Baker, Taliaferro, and Wurgler (2006) , we show that the presence of structural breaks can lead to nonsense regressions, whether or not there is any small sample bias. Tests using firm‐level data further confirm that managers are unable to time the debt market successfully.     

SAVINGS MOBILIZATION,FINANCIAL DEVELOPMENT AND LIBERALIZATION: THE CASE OF MALAYSIA

This paper attempts to identify the key factors behind Malaysia's remarkable savings performance. Drawing on the life cycle theory, the saving function is estimated by incorporating other relevant structural features and institutional settings of the Malaysian economy into the specification. Particular emphasis has been placed on the roles of financial factors in mobilizing funds in the private sector. The results suggest that financial deepening and increased banking density tend to encourage private savings. Development of insurance markets and liberalization of the financial system, however, tend to exert a dampening effect on private savings.     

EXPLAINING VARIANCE IN THE PERFORMANCE OF LONG-TERM CORPORATE BLOCKHOLDERS

This study measures and explains variance in the performance of corporations that purchase and hold blocks of stock in other corporations. Results show that following the purchase of between 5 and 50 percent of a target corporation's common stock, blockholder performance improves on average for 15 months. After 3, 7, 11, and 15-month intervals, performance is positively associated with (1) investments in targets that are suppliers or customers, (2) targets that make cross-investments into the equity securities of the blockholder, and (3) a blockholding value ratio that contrasts the value of the blockholding with the value of the blockholder.     

Selecting Pesticides and Nonchemical Alternatives: Green Thumbs' Rules of Thumb Decision Tools

This study of a sample of home gardeners indicates that rules of thumb, or heuristics, are used to select between chemical pesticides and nonchemical alternatives. Such rules of thumb serve to simplify otherwise complicated choice decisions. Heuristics commonly used to choose pesticides include how safe, effective, efficacious, and economical they are, whereas for alternative products consumers more often take into account convenience, efficiency, competency, and handiness. Generally, in an overall ranking of 24 individual choice attributes, pesticies rank low on these attributes where alternatives rank high and vice versa. Gender, age, and years using pesticides are significantly correlated with pesticide selection.     

A Test of Consumer Awareness for Adults

The purpose of this study was to develop an instrument to measure adult awareness of consumer product/service information sources, consumer protection laws and channels of recourse. The process included identification of prevalent consumer problems, development of test items based on the identified problems, and assessments of the content validity and the reliability of the instrument. The process of construct validity was initiated by developing and testing hypotheses concerning the relationships between scores on the instrument and selected socio-economic characteristics of consumers. Low consumer awareness scores were predominant, supporting the need for consumer education for adults.