This study investigates the valuation impact of a firm’s decision to cross-list on a more (or less) prestigious stock exchange relative to its own domestic market. We use network analysis to derive broad market-based measures of prestige for forty-five country or regional stock exchange destinations between 1990 and 2006. We find that firms cross-listing in a more prestigious market enjoy significant valuation gains over the five-year period following the listing. We also document a reverse effect for firms cross-listing in less prestigious markets: These firms experience a significant decline in valuation over the five years following the listing. The reputation of the cross-border listing destinations is therefore a useful signal of a firm’s value going forward. Our findings are consistent with the view that cross-listing in a prestigious market enhances a firm’s visibility, strengthens corporate governance, and l owers informational frictions and capital costs.
Researchers on variance bounds tests of stock price volatility recognized early that risk aversion can increase the volatility of prices implied by the present-value model. This finding suggests that specifying risk neutrality may induce a bias toward rejecting the present-value model insofar as real-world investors are risk averse. However, establishing that risk aversion may increase stock price volatility does not, by itself, have implications for the presence or absence of excess volatility. This is so because risk aversion also affects the upper-bound volatility measure computed from « perfect foresight » (or « ex post rational ») stock prices. Consequently, while high risk aversion implies high volatility in some settings, it may or may not imply excess volatility. This paper compares price volatility computed from real-world data to model-predicted volatility measures in a setting that allows for risk aversion. Using v ariance bounds tests based on the price-dividend ratio, we find evidence of excess volatility in long-run U.S. stock price data for relative risk aversion coefficients below 5. For higher degrees of risk aversion, the evidence for excess volatility is less clear. We also ask whether variance bounds for returns can be established in settings involving risk aversion and autocorrelated dividend growth. We show that the answer is no. Except in special cases, the present-value model does not impose bounds on return volatility in our setting.
Stock – Prices
Relative performance of SRI equity funds: An analysis of European funds using Data Envelopment Analysis
Antonella Basso (Dept. of Applied Mathematics, University Ca’Foscari of Venice and SSAV)
Stefania Funari (Dept. of Applied Mathematics, University Ca’Foscari of Venice)
The main aims of this contribution are first to analyse the ethical level of European socially responsible investment (SRI) funds, secondly to measure the overall performance of the European SRI mutual funds with an appropriate data envelopment analysis (DEA) model and, finally, to investigate the relationship between the ethical level of mutual funds and their financial performance. In order to do so, we build an ethical measure, based on the main socially responsible features usually taken into account by SRI mutual funds, which evaluate their ethical strategies. In the time period of economic recession considered in the analysis, the triennium June 2006-June 2009, the mean returns of most mutual funds are negative, preventing the usual DEA models from being applied. In order to overcome this difficulty, we apply a special modification of these DEA models which can be used regardless of the phase of business cycle.
performance evaluation; SRI mutual funds; data envelopment analysis.
The Global Financial Crisis and its Impact on Emerging Market Economies in Europe and the CIS: Evidence from mid-2010
Emerging market economies were major beneficiaries of the economic boom before 2007. More recently, they have become victims of the global financial crisis. Their future development depends, to a large extent, on global economic prospects. Today the global economy and the European economy are much more integrated and interdependent than they were ten or twenty years ago. Every country must recognize its limited economic sovereignty and must be prepared to deal with the consequences of global macroeconomic fluctuations. The statistical data for 2009 provides a mixed picture with respect to the impact of the crisis on various groups of countries and individual economies. On average, Central and Eastern Europe experienced a smaller output decline than the Euro area and the entire EU while the CIS, especially its European part, contracted more dramatically. However, there was a deep differentiation within each country group. Looking globally, richer countries, which are more open to trade and in which the banking sector plays a larger role and which rely more on external financing, suffered more than less sophisticated economies, which are less dependent on trade and credit (especially from external sources). With some exceptions, the previous good growth performance helped rather than handicapped countries in the CEE and CIS regions in the crisis year of 2009. The post-crisis recovery has been rather modest and incomplete. It remains vulnerable to new shocks (like the Greek Fiscal crisis), the danger of sovereign default and other uncertainties. Full post-crisis recovery and increasing potential growth will require far going economic and institutional reforms on both national, regional (e.g., EU) and global levels.
global financial crisis, emerging-market economies, European Union, Economic and Monetary Union, Central and Eastern Europe, Commonwealth of Independent States, sovereign debt crisis, global policy coordination
The household finance literature documents a large fraction of the population not participating in stock markets. It is also puzzling that a much greater share of households do not participate in foreign stock markets. Recent empirical evidence points towards the role of information in determining agents’ portfolio choices. I test these results into a model that incorporates information on agents’ portfolio allocation decision. In the model, consumers can invest in both domestic and foreign stocks and to update their information set, agents have to pay a cost implying that consumers update their portfolio only infrequently. In addition, to account for the initial costs of acquiring information about stock investments, a version of the model also features an entry-cost to be paid at the first period by agents that decide to enter stock market. Agents that invest in foreign stocks are more attentive, updating their portfoli o more frequently. After calibrating the model to match returns and volatility for the U.S. economy and di¤erent foreign stock investments, I obtain that the minimum entry cost necessary to drive households completely out of stock markets is large (and in line with the equity premium puzzle literature). However, once agents already invest in domestic stock markets, the minimum cost that would drive investors out of foreign stocks market is much smaller. The size of the latter minimum entry cost depends on model parameters assumptions, and small variations on risk aversion and uncertaintly about foreign asset returns can bring this entry cost down enough to justify the substancial non-participation in foreign stock markets.
Stockholders ; Stock market
Private-activity municipal bonds: the political economy of volume cap allocation
State governments allocate authority, under a federally imposed cap, to issue tax-exempt bonds that fund “private activities” such as industrial expansion, student loans, and low-income housing. This paper presents political economy models of the allocation process and an empirical analysis. Due to an idiosyncrasy of the tax code, the annual per capita volume cap varies widely across states. I estimate that, on average, there is an additional $0.80 per capita per year of borrowing for each additional dollar per capita of volume cap. This confirms that the cap is a binding constraint in most cases, and authority to issue tax-exempt bonds is a scarce resource. I find that mortgage revenue bonds and student loan bonds are the most responsive to differences in the cap. The gross state product and employment in manufacturing and utilities drive allocations to industrial development bonds and utilities bonds. While controll ing for the size of the education sector, I find campaign contributions from educational interests are associated with higher authorizations for student loans. One result runs counter to the theoretical models. Higher campaign contributions from utilities interests are associated with lower utilities borrowing. Unions do not have an independent effect on allocations.
Municipal bonds ; Tax exemption
An Ordinal Approach to Risk Measurement
Marta Cardin (Dept. of Applied Mathematics, University Ca’Foscari of Venice)
Miguel Couceiro (Mathematics Research Unit, University of Luxembourg)
In this short note, we aim at a qualitative framework for modeling multivariate risk. To this extent, we consider completely distributive lattices as underlying universes, and make use of lattice functions to formalize the notion of risk measure. Several properties of risk measures are translated into this general setting, and used to provide axiomatic characterizations. Moreover, a notion of quantile of a lattice-valued random variable is proposed, which shown to retain several desirable properties of its real-valued counterpart.