Challenge and Opportunity - The impact of the RDR on the UK's market for financial advice

Author(s):

Andrew Clare

 et al.
Topic:
Finance

After a development period of six years, the implementation of the Retail Distribution Review (RDR) was completed on 31 December 2012. The implementation of RDR will usher in several important changes to the financial advice landscape. Cass Business School and BNY Mellon have collaborated on a study to examine the consequences of RDR on the adviser community; one of the first on this topic.

Updated: 22/07/2013
Comments:
Views: 16,116

The Sale of Price Information by Stock Exchanges: Does it Promote Price Discovery?

An essential function of securities markets is to discover asset values. The function is critical for an efficient allocation of capital in the economy, as better price discovery in the stock market translates into better capital allocation decisions. For this reason, regulators and academics often see the maximisation of price discovery as an extremely important goal. Market design depends in large part on the decisions of stock exchanges and stock exchanges themselves are now for-profit firms. Their income derives from trading revenues and increasingly from the sale of information on prices. In this paper, we show that the efficiency of price discovery is, among other factors, determined by the fee charged by exchanges for price information.

Updated: 06/03/2013
Comments:
Views: 8,108

A Simple Method for Estimating the Marketability Discount of Large Blocks of Shares

Author(s):

Enrique Schroth

 et al.
Topic:
Finance

An inherent difficulty in estimating the value of large blocks of shares is the need to account for their limited marketability. To date, there are no estimates of the marketability discount that explicitly take into account the illiquidity of the market for corporate control. In this article, results from previous work by the authors are used to produce a simple method to estimate the marketability discount under different firm, industry and macroeconomic scenarios. This method is applicable to public firms that have non-traded controlling blocks of shares, as well as fully private firms, and it helps investors determine what discounts to apply on top of the more traditional valuation methods (multiples based methods, DCF analysis).

Updated: 31/12/2014
Comments: 13
Views: 7,359

Strategic Default and Equity Risk Across Countries

When a firm is in financial distress, its shareholders and debt holders may benefit from a debt renegotiation to avoid an inefficient bankruptcy or liquidation. The prospect of a debt reduction through a renegotiation may, however, induce shareholders to default even if the firm is solvent. The view that shareholders may default for strategic rather than for solvency reasons has proved useful in understanding, among other things, the theoretical determinants of corporate bond spreads, dividend policies, the optimal debt structure, and the valuation of debt and equity.

This paper asks whether the option of shareholders to default strategically on the firm's debt explains differences in firms' equity risk across countries. It claims that the risk of equity should be lower for firms that operate in countries where the insolvency procedure favours debt renegotiations

Updated: 28/12/2014
Comments: 9
Views: 4,125

Differences in beliefs and currency risk premia

Author(s):

Alessandro Beber

 et al.
Topic:
Finance

Standard asset pricing theories have difficulty explaining episodes that are not simply linked to fundamentals. Notable examples in the dynamics of capital markets are the equity premium puzzle or the excess volatility puzzle.

These puzzles have motivated an increasingly large literature over the last couple of decades that explores the general equilibrium implications of uncertainty for asset prices.This paper studies the importance of heterogeneous beliefs for the dynamics of asset prices.

Updated: 14/01/2013
Comments:
Views: 4,777

Risk management issues in European equity funds

Author(s):

Natasa Todorovic

 et al.
Topic:
Finance

The 2008 financial crisis highlighted the lack of effective risk management in the asset management industry. There was a lack of transparency and feasibility in the quantitative tools used to compute the value and risk management for the exotic credit derivatives products. Clearly, risk management was not well understood or used properly by financial companies that operated in this turbulent environment.

This paper provides a comprehensive analysis of current risk management practices of active European equity long-only funds and hedge funds.

Updated: 26/11/2014
Comments: 4
Views: 6,473

Are positive reactions to bad news plausible? The consideration of fraud in audit and reporting delays

Author(s):

Andrew Yim

Topic:
Finance

In June 2009 came the news of the alleged fraud in Countrywide Financial, one of the largest mortgage loan providers in the US before the credit crunch hit. The allegation against Countrywide reminded people of an unfulfilled role of auditors in the financial market: fraud detection.

Considering previous literature, the majority of which focuses on accounting fraud, this paper focuses on the misappropriation of assets and draws a range of conclusions.

Updated: 14/01/2013
Comments:
Views: 5,295

Monetary policy, asset prices and actuarial practice

Author(s):

Philip Booth


The operation of monetary policy may have an impact on securities markets and asset values. This is of relevance to many in the actuarial industry, particularly to actuaries who work in non-bank financial institutions such as pension funds and insurance companies.

This review paper presents mainstream theories of monetary policy and draws out the implications that are regarded as most important for actuaries and actuarial research.

Updated: 14/01/2013
Comments:
Views: 4,830

What does equity sector orderflow tell us about the economy?

Investors rebalance their portfolios as their views about expected returns and risk change.

In this study empirical measures of portfolio rebalancing were used to back out investors' views, specifically their views about the state of the economy.

Contrary to many theories of price formation, did trading activity therefore contain information that that is not entirely revealed by resulting relative price changes?

Updated: 28/12/2014
Comments: 37
Views: 6,075