LIQUIDITY AND ASSET PRICING UNDER THE THREE‐MOMENT CAPM PARADIGM

We examine whether the use of the three‐moment capital asset pricing model can account for liquidity risk. We also make a comparative analysis of a four‐factor model based on Fama–French and Pástor–Stambaugh factors versus a model based solely on stock characteristics. Our findings suggest that neither of the models captures the liquidity premium nor do stock characteristics serve as proxies for liquidity. We also find that sensitivities of stock return to fluctuations in market liquidity do not subsume the effect of characteristic liquidity. Furthermore, our empirical findings are robust to differences in market microstructure or trading protocols between NYSE/AMEX and NASDAQ.     

Green marketing,public policy and managerial strategies

Green marketing subsumes greening products as well as greening firms. In addition to manipulating the 4Ps (product, price, place and promotion) of the traditional marketing mix, it requires a careful understanding of public policy processes. This paper focuses primarily on promoting products by employing claims about their environmental attributes or about firms that manufacture and/or sell them. Secondarily, it focuses on product and pricing issues. Drawing on multiple literatures, it examines issues such as what needs to be greened (products, systems or processes), why consumers purchase/do not purchase green products and how firms should think about information disclosure strategies on environmental claims. Copyright © 2002 John Wiley & Sons, Ltd and ERP Environment.     

Bank mergers and components of risk: An evaluation

The present study empirically examines the contribution of the acquired banks in only the nonconglomerate types of mergers (i.e., banks with banks), where the bulk of the payment is in the form of equity to the acquiring bank and finds overwhelmingly statistically significant evidence that nonconglomerate types of mergers definitely reduce the total as well as the unsystematic risk while having no statistically significant effect on systematic risk. Therefore, it seems that diversification may be a possible motive for bank mergers.     

Globalization and the Good Corporation: A Need for Proactive Co-existence

Large corporations are coming under intense pressure to act in a socially responsible manner. Corporations have accepted this notion provided that it is exercised voluntarily. It has also been argued that corporations can do well by doing good, and that good ethics is good business. This paper presents an alternative viewpoint by demonstrating that while voluntary socially responsible conduct is desirable, it plays a rather small role in inspiring good corporate conduct. Instead, (a) it is the external economic-competitive conditions that define the parameters and opportunities for good corporate conduct; and (b) the values and traditions of the corporations, and their perceived risk in exploiting those opportunities, that influence the extent of a corporation's socially responsible conduct. The framework presented here analyzes certain market-competitive conditions, which determine the scope and direction of socially responsible corporate conduct, and the instruments available to society to enhance ethical corporate conduct. It suggests that from society's perspective, we should move away from the notion of corporate social responsibility and toward corporate social accountability. Most modern economies operate under conditions of imperfect competition where corporations gain above-normal profits, i.e., market rent, from market imperfections. Therefore, corporations should be held accountable for a more equitable distribution of these above-normal profits with other groups, e.g., customers, employees, etc., who were deprived of their market-based gains because of market imperfections and corporate power. Three approaches are suggested for measuring corporate accountability through corrections. These are: information imbalance, bargaining power imbalance, and, adjudication, remedy and relief imbalance.     

Exchange traded funds: leverage and liquidity

This paper examines the differences between leveraged and unleveraged Exchange Traded Funds (ETFs), particularly for liquidity and volatility characteristics. The impact of leverage on intraday liquidity (spread and depth) is analysed in two periods – one of normal volatility and the other of abnormal/high volatility. There is a significant difference in spread and depth of leveraged and unleveraged ETFs in periods of both normal volatility and high volatility; however, this difference is more pronounced in higher volatility periods. In high volatility periods, liquidity typically diminishes in all ETFs, and this is even more so for the leveraged ETFs. When leveraged ETFs are segregated into multiples based on their power to replicate the underlying benchmark (i.e. multiples of ?3, ?2, ?1, 2, 3), the difference in spreads between normal and high volatility periods is typically larger. The double-leveraged ETF has the most significant difference between the positive and negative counter parts. However, the relationship in the progression of the multiples does not change linearly to correspond with the level of volatility. This may be due to the nonlinear relation between volume and volatility. We shed light on the magnification effect of financial leverage on microstructure of the ETFs.     

A new‐institutionalist perspective on ISO 14000 and Responsible Care

This paper examines why US firms are lukewarm towards ISO 14000 while the US chemical industry has enthusiastically adopted Responsible Care. It also briefly explores why European and Asian firms are eagerly adopting ISO 14000. Employing a new‐institutionalist framework it argues that firms have incentives to adopt beyond‐compliance voluntary programs only if they perceive excludable benefits exceeding excludable costs. Institutions, the central conceptual pillar in a new‐institutionalist framework, are important in shaping perceptions of benefits and costs and the extent of their excludability. US regulators can encourage adoption of ISO 14000 by granting attorney–client privileges and enhancing levels of regulatory relief. Firms, in turn, need to appreciate the political constraints of the EPA on this issue. They could relax these constraints by addressing the apprehensions of EPA’s key constituents. Copyright © 1999 John Wiley & Sons, Ltd and ERP Environment.