Regression-based tests of the market pricing of accounting numbers: the Mishkin test and ordinary least squares

Author(s):

Arthur Kraft

 et al.
Topic:
Finance
Industry:
Banking

The test developed in Mishkin [1983] (hereafter, MT) is widely used to test the rational pricing of accounting numbers. However, contrary to the perception in the accounting literature, the exclusion of variables from the MT's forecasting and pricing equations leads to an omitted variables problem that affects inferences about the rational pricing of accounting variables.

Updated: 22/09/2011
Comments:
Views: 3,871

Dollar-weighted returns to stock investors: a new look at the evidence

Author(s):

Aneel Keswani

Topic:
Finance
Industry:
Banking

Dichev [2007. American Economic Review 97, 386-401], in an influential paper, examines the gap between the performance of major stock markets and the dollar-weighted performance of investors in these markets. He finds a significant gap of 1.3 percent per year for NYSE/AMEX and 1.5 percent internationally. We question these results.

Updated: 22/09/2011
Comments:
Views: 3,790

Mutual fund performance persistence and competition: a cross-sector analysis

Author(s):

Aneel Keswani

Topic:
Finance

Existing work on mutual fund performance persistence obtains diverse results, depending on the group of funds studied. We examine whether performance persistence within a peer group of competing mutual funds depends on the group's composition.

Updated: 22/09/2011
Comments:
Views: 4,308

Perpetual call options with non-tradability

Author(s):

Ashay Kadam

 et al.
Topic:
Finance
Industry:
Banking

We explicitly solve an optimal stopping problem related to the exercise of a perpetual American call option when the option holder cannot trade the underlying asset.

Updated: 22/09/2011
Comments:
Views: 3,908

Optimal bankruptcy time and consumption/investment policies on an infinite horizon with a continuous debt repayment until bankruptcy

Author(s):

Ashay Kadam

 et al.
Topic:
Finance
Industry:
Banking

In this paper we consider the optimization problem of an agent who wants to maximize the total expected discounted utility from consumption over an infinite horizon. The agent is under obligation to pay a debt at a fixed rate until he/she declares bankruptcy. At that point, after paying a fixed cost, the agent will be able to keep a certain fraction of the present wealth, and the debt will be forgiven. The selection of the bankruptcy time is taken to be at the discretion of the agent. The novelty of this paper is that at the time of bankruptcy the wealth process has a discontinuity, and that the agent continues to invest and consume after bankruptcy. We show that the solution of a free boundary problem satisfying some additional conditions is the value function of the above optimization problem. Particular examples such as the logarithmic and the power utility functions will be provided, and in these cases explicit forms will be given for the optimal bankruptcy time, investment and consumption processes.

Updated: 22/09/2011
Comments:
Views: 3,698

Estimation in the continuous time mover-stayer model with an application to bond ratings migration

Author(s):

Ashay Kadam

 et al.
Topic:
Finance

The aim of this paper is to introduce a continuous, time-nonhomogeneuous model for bond ratings migration, which also incorporates a simple form of population heterogeneity.

Updated: 22/09/2011
Comments:
Views: 4,198

Bayesian inference for issuer heterogeneity in credit ratings migration

Author(s):

Ashay Kadam

 et al.
Topic:
Finance
Industry:
Banking

In this paper, we provide Bayesian estimates to mitigate the problem of data sparsity. We apply them to the Moodys corporate bond default database.

Updated: 22/09/2011
Comments:
Views: 3,767

Executive stock options: value to the executive and cost to the firm

Author(s):

Ashay Kadam

 et al.
Topic:
Finance
Industry:
Banking

We develop a continuous time utility-based model for valuing executive stock options (ESOs). Assuming that the ESO is perpetual (has infinite maturity) and has no vesting restrictions, we explicitly solve for the optimal exercise policy and the value of an ESO from the executive's perspective.

Updated: 22/09/2011
Comments:
Views: 4,094

An overview of the issues surrounding stock market volatility

Author(s):

Elena Kalotychou

Topic:
Finance
Industry:
Banking

The current chapter provides an overarching review of the equity market volatility, covering areas that have caught the attention of practitioners and academics alike.

Updated: 22/09/2011
Comments:
Views: 3,665