The conditions under which pension schemes merge is an important issue that has been under-researched. Mergers can affect the strength of the sponsor’s covenant and the balance of power between the trustees and the sponsor, as well as the scheme funding ratio. This paper sets out two financial...

The trustees of funded defined benefit pension schemes must make two vital and inter-related decisions - setting the asset allocation and the contribution rate. While these decisions are usually taken separately, it is argued that they are intimately related and should be taken jointly. The...

The price-earnings effect has been thoroughly documented and widely studied around the world. However, it has always been calculated on the basis of the previous year’s earnings. We show that the power of the effect has until now been seriously underestimated, due to taking too short-term a...

This paper provides an empirical study of the effectiveness of hedging the spider, a passive exchange traded fund (ETF) that replicates the S&P500 index. The spider is by far the largest ETF in the world: trading on the spider has grown so much during the past few years that it is now amongst...

Sweeping regulatory reforms in Britain resulted in the formation of the Financial Services Authority (FSA). Because greater transparency of information is a major objective for this Act, shifting from one information system to another has re-distributive effects. We identify these effects at a...

Some recent specifications for GARCH error processes explicitly assume a conditional variance that is generated by a mixture of normal components, albeit with some parameter restrictions. This paper analyses the general normal mixture GARCH(1,1) model which can capture time-variation in both...

This study examines the abnormal returns, trading activity and long term performance of stocks that were added to the S&P 500 Index during the period 1990 to 2002. By using a three-factor pricing model that allows for firm size and value characteristics as well as market risk, we are able to...

The skewness in physical distributions of equity index returns and the implied volatility skew in the risk-neutral measure are subjects of extensive academic research. Much attention is now being focused on models that are able to capture time-varying conditional skewness and kurtosis. For this...

We derive the local volatility hedge ratios that are consistent with a stochastic instantaneous volatility and show that this ‘stochastic local volatility’ model is equivalent to the market model for implied volatilities. We also show that a common feature of all Markovian single factor...