Semistatic hedging and pricing American floating strike lookback options

We price an American floating strike lookback option under the Black–Scholes model with a hypothetic static hedging portfolio (HSHP) composed of nontradable European options. Our approach is more efficient than the tree methods because recalculating the option prices is much quicker. Applying put–call duality to an HSHP yields a tradable semistatic hedging portfolio (SSHP). Numerical results indicate that an SSHP has better hedging performance than a delta-hedged portfolio. Finally, we investigate the model risk for SSHP under a stochastic volatility assumption and find that the model risk is related to the correlation between asset price and volatility.     

Advertising and brand attitudes: Evidence from 575 brands over five years

Quantitative Marketing and Economics - Little is known about how different types of advertising affect brand attitudes. We investigate the relationships between three brand attitude variables...     

DO FIRMS SEEK A TARGET BOARD STRUCTURE? EVIDENCE FROM THE POST‐SOX PERIOD

We investigate whether firms restructure board composition to align with changes in their contracting environment. Board size and independence increase with firm complexity, consistent with theoretical predictions. However, the hypothesized negative relation between board independence and information costs is evident only for firms completing acquisitions. Furthermore, board independence increases to offset increases in CEO power in a sample of firms making acquisitions, but decreases when CEO power increases in a large cross‐section of firms. We conclude that after the Sarbanes–Oxley Act of 2002, firms face constraints adjusting to target board structure, but these constraints can be mitigated by a shock to the contracting environment via acquisition.     

Evidence on the motivation for management forecasts of corporate earnings

A multivariate model of the process by which managers decide to release public forecasts of their firms' earnings is developed, based on factors that are hypothesized to affect the demand for and the willingness to supply such forecasts. We test the model on data from a comprehensive sample of earnings forecasts, and find support for our hypotheses about the likely joint influence of those factors. Larger firm size, greater leverage, higher and more stable earnings rates and less rapid growth rates are found to be associated with an increased propensity for management to provide earnings forecasts for their firms.     

Class length and student performance: An extended study

Many accounting educators believe that the student learning of accounting is better facilitated over a longer period of time, rather than a shorter period of time. This study examined the results of student performance in two introductory accounting courses, comparing student performance results of four-week summer classes with the results of traditional 16-week courses. In this research, the same professor taught the spring and summer ACC 201 courses, and two other professors taught both the spring and summer ACC 211 courses. Also held constant were the lecture material, course assignment, and test content. The results of the study indicate that in general, students taking introductory accounting over four weeks fare about as well as students who take introductory accounting over a traditional 16-week period. These results have potential importance beyond accounting education and provide support to universities offering more block courses to better serve individual student needs.     

Earnings management by firms announcing earnings after SEC filing

This study examines motivation and stock market reactions of firms announcing earnings in the Wall Street Journal (WSJ) after filing with the Security Exchange Commission (SEC). Most firms announce earnings in the WSJ before SEC filing. Firms that reverse this sequence are voluntarily delaying public earnings announcements. The authors find that these firms are not only poor financial performers but also engage in earnings managements. They are delaying their WSJ announcements to postpone announcing bad news. The authors find significant stock price reactions to both the SEC filing and the WSJ announcement. The price reaction to earnings is incomplete at the SEC filings. The market continues reacting to firms' subsequent WSJ announcements as if the SEC filing fails to communicate earnings information to some investors.     

Inoculating consumers against deception: The influence of framing and executional style

This study examines conditions affecting consumer susceptibility to advertising deception and educational efforts designed to inoculate consumers against it. Results show that consumers are best able to detect deception when their frame of reference (cognitive or affective) is incongruent with the advertisement's executional style (attribute or emotional). Attempts to inoculate consumers against deception by providing factual brand comparisons have their strongest effect among consumers with an affective frame of reference and for emotionally charged ads.

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Die Immunisierung von Konsumenten gegen werbliche Irreführung: Der Einflu der persönlichen Informationsausrichtung und des werblichen Argumentationsstils

Zusammenfassung Die Studie befa\t sich mit den Bedingungen werblicher Irreführung von Konsumenten und mit den Bemühungen der Verbrauchererziehung, Konsumenten durch vergleichende Warentestergebnisse gegen solche Irreführung zu immunisieren. Ihre Ergebnisse zeigen, da\ Konsumenten werbliche Irreführung am ehesten dann durchschauen, wenn ihre persönliche Informationsausrichtung (kognitiv oder affektiv) nicht mit dem werblichen Argumentationsstil (informativ oder emotional) übereinstimmt. Versuche, Konsumenten mit Hilfe vergleichender Warentest-Informationen gegen werbliche TÄuschung zu immunisieren, sind am wirkungsvollsten bei Konsumenten mit affektiver Informationsausrichtung und bei emotionshaltiger Werbung.

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The authors wish to thank Joel Cohen and the Editors and reviewersof Journal of Consumer Policy for their valued suggestions, and Jill Joyce for assistance in data collection and analysis.     

Public utility valuation and risk under incentive regulation

The objective of providing inducements for public utilities to seek to improve the efficiency of their operations has been a longstanding regulatory concern. Among the evolving strategies for furthering that objective is a shift toward what has come to be referred to as incentive regulation. We examine here how this departure from past regulatory practice will affect the market value and market risk of the utility firm, and the specific manner in which an incentive mechanism can be implemented in order to achieve a desired valuation outcome. A particular focus is the establishment of boundaries on allowed rates of return under incentive regulation which are consistent with that desired outcome. The likely impact on utility ratepayers is considered.     

The Informational Role of Stock and Option Volume

This article analyzes the intraday interdependence of orderflows and price movements for actively traded NYSE stocks andtheir Chicago Board Options Exchange (CBOE)-traded options.Stock net trade volume (buyer-initiated volume minus seller-initiatedvolume) has strong predictive ability for stock and option quoterevisions, but option net trade volume has no incremental predictiveability. This suggests that informed investors initiate tradesin the stock market but not in the option market. On the otherhand, both stock and option quote revisions have predictiveability for each other. Thus, while information in the stockmarket is contained in both quote revisions and trades, informationin the option market is contained only in quote revisions.     

Spreads, Depths, and Quote Clustering on the NYSE and Nasdaq: Evidence after the 1997 Securities and Exchange Commission Rule Changes

This paper examines liquidity and quote clustering on the NYSE and Nasdaq using data after the two market reforms—the 1997 order–handling rule and minimum tick size changes. We find that Nasdaq–listed stocks exhibit wider spreads and smaller depths than NYSE–listed stocks and stocks with higher proportions of even–eighth and even–sixteenth quotes have wider quoted, effective, and realized spreads on both the NYSE and Nasdaq. This result differs from the findings by Bessembinder (1999, p. 404) that "trade execution costs on Nasdaq in late 1997 are no longer significantly explained by a tendency for liquidity providers to avoid odd–eighth quotations," and "odd–sixteenth avoidance has little relevance for explaining post–reform Nasdaq trading costs."