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An affine asset pricing model in which agents have rational but heterogeneous expectations about future asset prices is developed. We estimate the model using data on bond yields and individual survey responses from the Survey of Professional Forecasters and perform a novel three-way...
Persistent link: https://www.econbiz.de/10011084555
We analyse the effects of insider trading on real investment and welfare, and the consequences of different regulatory policies: a disclose-or-abstain rule, ‘fair’ disclosure, laissez-faire and forbidding insider trades based on ‘precise’ information. We perform the analysis in a model...
Persistent link: https://www.econbiz.de/10005791877
The efficient markets hypothesis implies that, in the presence of rational investors, bubbles cannot develop. We analyse the trading behaviour of a sophisticated investor, a London goldsmith bank, during the South Sea bubble in 1720. The bank believed the stock to be overvalued, yet found it...
Persistent link: https://www.econbiz.de/10005136583
We show that the sensitivity of corporate investment to stock price is higher for firms cross-listed in the U.S. than for firms that never cross-list. This difference is strong, does not exist prior to the cross-listing date, and does not vanish over time after this date. Moreover, the impact of...
Persistent link: https://www.econbiz.de/10009003378
This paper derives a tax-adjusted discount rate formula with a constant proportion leverage policy, investor taxes, and risky debt. The result depends on an assumption about the treatment of tax losses in default. We identify the assumption that justifies the textbook approach of discounting...
Persistent link: https://www.econbiz.de/10005504394
Corporations in many countries are run by controlling shareholders whose cash flow rights in the firm are substantially smaller than their control rights. This separation of ownership and control allows the controlling shareholders to pursue private benefits at the cost of minority investors by...
Persistent link: https://www.econbiz.de/10005497980
We investigate the timing and the valuation of strategic investment aimed at enhancing entry opportunities in related market segments. As demand is uncertain, entry options should be exercised at the optimal time, trading off the market share gain against the option to wait until more...
Persistent link: https://www.econbiz.de/10005662306
This Paper analyses corporate bond valuation and optimal call and default rules when interest rates and firm value are stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate bond sensitivity to interest rates and firm...
Persistent link: https://www.econbiz.de/10005123555
This paper examines the extent to which individual investors provide liquidity to the stock market, and whether they are compensated for doing so.We show that the ability of aggregate retail order imbalances, contrarian in nature, to predict short-term future returns is significantly enhanced...
Persistent link: https://www.econbiz.de/10011096103
applications of our theory. We first show that predictions of our model provide a novel theoretical justification and are … theory of debt versus equity. Third, we provide conditions under which permanent over- or under-pricing of assets is …
Persistent link: https://www.econbiz.de/10011083236