Confirming Management Earnings Forecasts, Earnings Uncertainty, and Stock Returns

In this study we examine the association among confirming management forecasts, stock prices, and analyst expectations. Confirming management forecasts are voluntary disclosures by management that corroborate existing market expectations about future earnings. This study provides evidence that these voluntary disclosures affect stock prices and the dispersion of analyst expectations. Specifically, we find that the market's reaction to confirming forecasts is significantly positive, indicating that benefits accrue to firms that disclose such forecasts. In addition, although we find no significant change in the mean consensus forecasts (a proxy for earnings expectations) around the confirming forecast date, evidence indicates a significant reduction in the mean and median consensus analyst dispersion (a proxy for earnings uncertainty). Finally, we document a positive association between the reduction of dispersion of analysts' forecasts and the magnitude of the stock market response. Overall, the evidence suggests that confirming forecasts reduce uncertainty about future earnings and that investors price this reduction of uncertainty.     

Internet impacts on supply chain management

The traditional way of managing supply chains has changed dramatically over the last 5 years. Face-to-face management, manual tracking systems, paper-dominated order processing systems, and wired communication links were the primary management tools available to logistics managers. Today, they are obsolete. The article provides an overview of some of the new tools and trends discussed in this issue, including website structure, e-purchasing, electronic marketplaces, building vendor relationships, and the use of the Internet in managing supply chains in China.     

Strategic Internet application trends in supply chain management

The Internet is evolving as a powerful force in the new marketplace where the nexus of competition has changed from individual firms to efficient supply chain networks both between firms and within industries. This study explores Internet adoption patterns and operational applications in US supply chain networks. The data reveal that the integration of the Internet into supply chain management applications has increased and has moved away from indiscriminate application of novel Internet technologies towards becoming a focused endeavor with precise expectations and measurable goals. Specifically, the study finds that Internet usage within supply chains is maturing as evidenced by enhanced and increased productivity, reduced costs and increased profit for participating firms.     

Do Daily Price Limits Act as Magnets? The Case of Treasury Bond Futures

This article examines price behavior in the U.S. Treasury bond futures market in the mornings after large overnight price moves, using data from 1980 to 1987. The article tests whether price behavior is affected by proximity to a price limit, and whether the effect is a magnet effect or a calming effect. In that period, the price tends to reverse direction after the morning open, and the reversal appears to reflect a calming effect of the price being close to the limit. An alternative hypothesis—that morning price behavior reflects the overnight price change rather than proximity to the price limit per se—is also tested, and does not perform as well in explaining price behavior.     

Evidence on the Timing and Determinants of Overfunded Pension Plan Termination

This paper examines the factors associated with the timing of overfunded pension plan termination.     

The Relationship Between Market Efficiency and Insider Ownership in Large and Small Firms

The study examines insider ownership in large and small firms in relation to market efficiency. Recent studies have found a positive and significant relation between inside ownership and stock market performance. Such a finding is predicated upon the idea that inside ownership minimizes agency costs caused by the conflict between hired managers and shareholders. It is argued here that semi-strong form market efficiency requires that all public information, including insider ownership, be quickly impounded into the price of a stock. If that is the case, the expected present value of a change in agency cost should be incorporated into the stock price shortly after any significant change in ownership. Hence, if the estimate is unbiased, the longer-term performance of firms should not be effected by such changes. The issue is examined for both large, well-known firms and for smaller, less-known firms. The hypothesis that markets are generally efficient with respect to insider ownership information is rejected.     

Insurance Derivatives: A New Asset Class for the Capital Markets and a New Hedging Tool for the Insurance Industry

The number and severity of natural catastrophes has increased dramatically over the last decade. As a result, there is now a shortage of capacity in the property catastrophe insurance industry in the U.S. This article discusses how insurance derivatives, particularly the Chicago Board of Trade's catastrophe options contracts, represent a possible solution to this problem. These new financial instruments enable the capital markets to provide the insurance industry with the reinsurance capacity it needs. The capital markets are willing to perform this role because of the new asset class characteristics of securitized insurance risk: positive excess returns and diversification benefits.
The article also demonstrates how insurance companies can use insurance derivatives such as catastrophe options and catastrophe-linked bonds as effective, low-cost risk management tools. In reviewing the performance of the catastrophe contracts to date, the authors report promising signs of growth and liquidity in these markets.     

Calibrating an algorithm for estimating transactions from FXFX exchange rate quotes

In this paper we investigate the efficiency of a class of transaction-generating algorithms, originally suggested in Bollerslev and Domowitz (1993). Our comparison utilizes real transaction data recorded over Reuters D2000-2 electronic broking system for 7 h in June 1993 and transaction data generated from FXFX quotations over an identical period. Results suggest that, at this high-frequency data sampling, the performance of these transaction-generating algorithms is poor, with the most likely explanation of this outcome due to the high-frequency characteristics of FXFX spreads and quotation intensity.     

Do central banks lose on foreign-exchange intervention? A review article

Estimates of central bank intervention losses or profits vary widely; some estimates find substantial losses, others profits. In most cases, estimated profits are not risk-adjusted, and risk adjustment can have large effects. Furthermore, profit estimates involve variables integrated of order one, and because of this test-statistics may have nonstandard distributions; few studies take this into account. Estimates of risk-adjusted profits for the US Fed and the Swedish Riksbank, with allowances for possible nonstandard distributions, suggest that neither made losses and might have made significant profits.     

Risk and Return to Housing, Tenure Choice and the Value of Housing in an Asset Pricing Context

Homeowners do not diversify their risky home equity because of fixed costs of issuing securities and information costs. An asset pricing model is developed for homeowners with the undiversifiable home equity asset. Homeowner value and house value to diversified landlords are compared, and a tenure choice equation is developed. We demonstrate the existence of a rational expectations equilibrium under appropriate conditions.