A novel measure of liquidity premium: application to the Korean stock market

This study proposes a novel measure for an asset’s liquidity premium. Applying Brownian first-passage time distribution properties, we derive an explicit form of liquidity premium embedded in the asset price. Our liquidity premium measure is intuitive because it assesses the extent to which the value of the asset should be increased from the current market price if investors were allowed to retain the asset until they achieve an investment goal. This measure is readily available for assessing an asset’s liquidity because it does not require information on the asset’s transactional characteristics. Our empirical experiment using Korean stock market data suggests that the liquidity premium in this study is inversely related to Amihud’s (2002) illiquidity ratio, which is commonly used to measure stocks’ illiquidity.     

Empirical tests on the asset pricing model with liquidity risk: An unobserved components approach

The aim of this paper is to test empirically the conditional liquidity-adjusted capital asset pricing model (L-CAPM) developed by Acharya and Pedersen (2005). Accordingly, we propose to estimate the L-CAPM using unobserved components methodology, which allows us to take into account the main stylized facts characterizing liquidity. Based on a sample of firms listed on the NASDAQ, our empirical analysis reveals several findings. Firstly, we show that liquidity is time-varying and exhibits strong seasonality. Secondly, we highlight the impact of the liquidity level premium on asset prices. Thirdly, we show that the most important liquidity risk is related to the covariance between portfolio illiquidity and market returns. Fourthly, we observe a negative relationship between portfolio returns and market illiquidity. Fifthly, we find that liquidity risk and illiquidity level are not always positively correlated.     

Differential risk premiums and the UIP puzzle

We respecify the uncovered interest rate parity (UIP) conditions by inverting the market price of the risk (Sharpe ratio) formula. Our empirical model provides new insight indicating that violations to the UIP stem from the existence of a risk premium in the exchange rates and from observed market return differentials being a noisy statistic of the markets’ expected return differentials in our respecified model. Using an integrated macro‐micro structure framework for expected market return differentials improves our model fit and the validity of UIP.     

Can mispricing explain the value premium?

Empirical research finds that stocks with low market-to-book (MTB) ratios outperform stocks with high MTB ratios. Rhodes-Kropf, Robinson, and Viswanathan separate the MTB ratio into mispricing and growth options components. We report that the mispricing component, but not the growth options component, predicts abnormal returns for up to 5 years. We also find that the mispricing component, but not the growth options component, provides incremental information relative to existing asset pricing models. Moreover, after controlling for mispricing, value no longer beats growth. Overall, our evidence is consistent with a behavioral explanation of the value premium.     

The economic value of VIX ETPs

The fairly new VIX ETPs have been promoted for providing effective and easily accessible diversification, while at the same time having large negative returns. We examine the economic value of using VIX ETPs for diversification of stock–bond portfolios. Our analysis begins in 2009, when the first VIX ETPs are introduced, and therefore only considers the period after the recent financial crisis. For investors with a constant allocation strategy, the diversification benefits of the VIX ETPs do not offset their negative returns. This implies negative economic value of a constant allocation. For a dynamic allocation strategy, including short VIX ETPs in the investment opportunity set can have substantial positive economic value.     

Information disclosure,firm growth,and the cost of capital

We study how information disclosure affects the cost of equity capital and investor welfare in a dynamic setting. We show that a firm’s cost of capital decreases (increases) in the precision of public disclosure if the firm’s growth rate is below (above) a certain threshold. The threshold growth rate is higher when the firm’s cash flows are more persistent, or when other firms in the economy are growing at low rates. While current shareholders always prefer maximum public disclosure, future shareholders’ welfare decreases (increases) in the precision of public disclosure if the firm’s growth rate is below (above) the threshold.     

Time-Varying Variance Risk Premium and the Predictability of Chinese Stock Market Return

A number of studies have shown that the variance risk premium (VRP), defined as the difference between risk-neutral and physical expected variances, has strong predictive power for the excess stock market return, and this predictability peaks at 3- to 6-month prediction horizons. However, little research presents empirical evidences for Chinese stock market due to the absence of option market. Under general equilibrium asset pricing framework, this article estimates time-varying VRP using the Chinese stock market data. We find that the estimated VRP predicts the excess Chinese stock market return, and this forecasting power is stronger at 4- and 5-month horizons, which is consistent with the findings of existing literature.     

谈非货币性交易会计处理存在的缺陷及修正方法

非货币性交易准则,在换入资产入账价值方面、补价收益确认方面及存货公允价值认定方面等存在着缺陷,笔者从以下3个方面阐述了修正以上缺陷的观点和方法:(1)当换出资产的公允价值低于其账面价值时,其差额作为当期损失,换入资产的入账价值,以换出资产的公允价值为基础进行确认;(2)与补价有关的税金及附加有:增值税、消费税、营业税、城市维护建设税和教育费附加,当换出资产的公允价值高于其账面价值时,应确认的收益=〔换出资产的公允价值-换出资产账面价值-与补价有关的税金及附加〕÷换出资产的公允价×收到的补价;(3)存货的公允价值应包含增值税。     

Note on Self‐Selection of Auditors in the Municipal Sector*

The objective of this article is to revisit the literature on Big‐N audit fee premiums in the municipal setting using a methodology that controls for self‐selection bias. Because auditor choices can be predicted based on certain client characteristics, using standard one‐stage ordinary least squares regressions to draw inferences about the presence or absence of such a premium in the extant public‐sector audit fee studies may not be appropriate. Results indicate that, after controlling for a self‐selection bias, Big‐6 (non‐Big‐6) municipal clients on average pay a fee premium, compared to the case if they were to retain a non‐Big‐6 (Big‐6) auditor. Results continue to hold when we conduct further analyses on a subset of municipalities with access to both Big‐6 and non‐Big‐6 auditors in a local market defined by a 60‐km radius, rather than over a province‐wide audit market. The existence of non‐Big‐6 audit fee premiums has not been documented previously in the private‐ or public‐sector audit fee literature. We surmise that it may be caused by the dominance (79.4 percent) of non‐Big‐6 auditors in the Ontario municipal market, compared to most private‐sector audit markets where their market share generally does not exceed 20 percent. The strong market position of non‐Big‐6 firms in turn may have allowed these auditors to command a fee premium for the subset of municipalities that self‐selects to be audited by them. An implication from our study is that Ontario municipalities often choose to be audited by more costly auditors, even though they could have paid lower audit fees by switching to an alternative auditor type. These results do not support those reported by Chaney et al. (2004) , who find that U.K. private firms are audited by the least costly auditor type. The conflicting findings may be attributable to the fact that the Ontario municipal audit market is subject to regulation by not just the audit profession but also the Ontario government and that, unlike business corporations, municipalities receive funding from provincial governments to fulfil much of their financial requirements. Thus, municipal clients may be relatively more willing to accept higher audit fees provided their chosen auditor (or auditor type) matches their needs.     

Habit formation,the cross section of stock returns and the cash-flow risk puzzle

Non-linear external habit persistence models, which feature prominently in the recent “equity premium” asset pricing and macroeconomics literature, generate counterfactual predictions in the cross-section of stock returns. In particular, we show that in the absence of cross-sectional heterogeneity in firms’ cash-flow risk, these models produce a “growth premium,” that is, stocks with high price-to-fundamental ratios command a higher premium than stocks with low price-to-fundamental ratios. This implication is at odds with the well-established empirical observation of a “value premium” in the cross-section of stock returns. Substantial heterogeneity in firms’ cash-flow risk yields both a value premium as well as most of the stylized facts about the cross-section of stock returns, but it generates a “cash-flow risk puzzle”: Quantitatively, value stocks have to have “too much” cash-flow risk compared to the data to generate empirically plausible value premiums.