The Price of Options Illiquidity

The purpose of this paper is to examine the effect of illiquidity on the value of currency options. We use a unique dataset that allows us to explore this issue in special circumstances where options are issued by a central bank and are not traded prior to maturity. The value of these options is compared to similar options traded on the exchange. We find that the nontradable options are priced about 21 percent less than the exchange-traded options. This gap cannot be arbitraged away due to transactions costs and the risk that the exchange rate will change during the bidding process.     

Semiparametric and nonparametric testing for long memory: A Monte Carlo study

The finite sample properties of three semiparametric estimators, several versions of the modified rescaled range, MRR, and three versions of the GHURST estimator are investigated. Their power and size for testing for long memory under short-run effects, joint short and long-run effects, heteroscedasticity andt-distributions are given using Monte Carlo methods. The MRR with the Bartlett window is generally robust with the disadvantage of a relatively small power. The trimmed Whittle likelihood has high power in general and is robust except for large short-run effects. The tests are applied to changes in exchange rate series (daily data) of 6 major countries. The hypothesis of no fractional integration is rejected for none of the series.     

Return and risk in initial public offerings of both shares and warrants

In the past few years there has been an increasing number of new issues of shares of common stock together with warrants intended to raise interest in initial public offerings of relatively young, growing firms. In this study we examine the pricing efficiency of stocks and warrants offered simultaneously to the public as a single unit. We present a model for evaluating the warrants in such offerings and test it empirically against data from the Tel-Aviv Stock Exchange, where such offerings have become standard. We find that the issued units are usually undervalued, allowing for significant abnormal positive returns. But, while the warrants are usually underpriced, the stocks are overpriced. Largely consistent with the evidence from other financial markets around the world, we also find abnormal negative rates of return in the long run.     

Do analysts who understand accounting conservatism exhibit better forecasting performance?

This study investigates the performance of analysts when they match the asymmetric timeliness of their earnings forecast revisions (i.e., asymmetric forecast timeliness) with the asymmetric timeliness of firms’ reported earnings (i.e., asymmetric earnings timeliness). We find that better timeliness‐matching analysts produce more accurate earnings forecasts and elicit stronger market reactions to their forecast revisions. Further, better timeliness‐matching analysts issue less biased earnings forecasts, more profitable stock recommendations and have more favorable career outcomes. Overall, our results indicate that analysts’ ability to incorporate conditional conservatism into their earnings forecasts is an important reflection of analyst expertise and professional success.     

Armut in Deutschland – versagt der Sozialstaat?

Empirische Untersuchungen haben nachgewiesen, dass es in Deutschland in einem betr?chtlichen Ausma? Armut gibt. Wie wird Armut definiert? Wie kann man Armut messen? Hat in Deutschland die Ungleichheit der Einkommensverteilung zugenommen? Welche Ma?nahmen müssten ergriffen werden, um Armut zu verhindern? Prof. Dr. Richard Hauser, 70, ist Emeritus des Lehrstuhls für Volkswirtschaftslehre, insbesondere Verteilungs- und Sozialpolitik, an der Johann-Wolfgang-Goethe-Universit?t in Frankfurt am Main. * Vortrag gehalten im Rahmen der Tagung der Akademie für politische Bildung Tutzing in Zusammenarbeit mit dem Studienseminar für Berufliche Schulen in Südbayern zum Thema Umbau oder Abbau – wie viel Zukunft hat der deutsche Sozialstaat? vom 18.-20. Dezember 2006 in Tutzing.     

Contestability and Pay Differential in the Executive Suites

In comparison to the abundant evidence on CEOs' compensations, little is known about the compensation of other senior executives, and on how the pay differential between CEO and other senior executives affects firm performance. We examine several potential explanations of the pay differential in the executive suite, using a sample of 367 Israeli firms listed on the Tel-Aviv Stock Exchange. The empirical results fail to support the tournament and pay equity models. Instead, our evidence suggests a model where senior executives are encouraged (by the structure implied in their pay contract) to cooperate with each other (the team playing model). In a subset of firms managed by their owners we observe greater pay differentials between the owner-CEO and other senior executives. Interestingly, only in this subset of owner-managed firms, higher pay differentials can be associated with better firm performance.     

Entrepreneurship in Europe

This article focuses on the changes in attitude and venture capital provision that the author believes are necessary to rekindle the spirit of entrepreneurship in Europe. The article goes on to discuss technology clusters and the role of stock markets. It then describes the way the Cambridge-based Amadeus venture capital company sets about the venture capital process. It concludes with a plea for entrepreneurship centres to be set up in each university and for some changes in government policy.     

ECONOMIC BURDENS OF MARITAL DISRUPTIONS: A COMPARISON OF THE UNITED STATES AND THE FEDERAL REPUBLIC OF GERMANY

Longitudinal data from the Panel Study of Income Dynamics and the German Socio-Economic Panel are used to show that women and children are worse off following a marital split than are men in both the United States and Germany. The size of the difference is sensitive to the equivalence scale used, but despite its far more extensive tax and transfer system the disparate impact of divorce or separation on women and children persisted in Germany at a level at least as high as in the United States.