optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

a theory of corporate financial decisions with liquidity and solvency concerns this paper studies the impact of both liquidity and solvency concerns on corporate finance i present a tractable model of a firm that optimally chooses capital structure cash holdings dividends and default while facing cash flows with long term uncertainty and short term liquidity shocks the model explains how changes in solvency affect liquidity and also how liquidity concerns affect solvency via capital structure choice these interactions result in a dynamic cash policy in which cash reserves increase in profitability and are positively correlated with cash flows the optimal dividend distributions implied by the model are smoothed relative to cash flows i also find that liquidity concerns lead to a decrease of dispersion of credit spreads

close the gaps a learning while doing algorithm for single product revenue management problems we consider a retailer selling a single product with limited on hand inventory over a finite selling season customer demand arrives according to a poisson process the rate of which is influenced by a single action taken by the retailer such as price adjustment sales commission advertisement intensity etc the relationship between the action and the demand rate is not known in advance however the retailer is able to learn the optimal action on the fly as she maximizes her total expected revenue based on the observed demand reactions using the pricing problem as an example we propose a dynamic learning while doing algorithm that only involves function value estimation to achieve a near optimal performance our algorithm employs a series of shrinking price intervals and iteratively tests prices within that interval using a set of carefully chosen parameters we prove that the performance of our algorithm is among the best of all possible algorithms in terms of the asymptotic regret the relative loss compared to the full information optimal solution our result closes the performance gaps between parametric and nonparametric learning and between the post price mechanism and the customer bidding mechanism important managerial insight from this research is that the values of information on both the parametric form of the demand function as well as each customer s exact reservation price are less important than prior literature suggests our results also suggest that firms would be better off to perform dynamic learning and action concurrently rather than sequentially

optimal liberalization of financial markets abstract as financial markets become completely liberalized countries gain from improved risk sharing but less wealthy countries can no longer profit from borrowing abroad at the lower rate and reinvesting at home at the higher rate with decreasing rather than constant returns to capital the gain from risk sharing is more likely to dominate the loss of the difference between the borrowing rate abroad and the decreasing reinvestment rate at home complete liberalization is likely to be optimal for less wealthy countries unless their labor endowment is large their productivity is large or holdings by foreigners are small as in china

simultaneously learning and optimizing using controlled variance pricing price experimentation is an important tool for firms to find the optimal selling price of their products it should be conducted properly since experimenting with selling prices can be costly a firm therefore needs to find a pricing policy that optimally balances between learning the optimal price and gaining revenue in this paper we propose such a pricing policy called controlled variance pricing cvp the key idea of the policy is to enhance the certainty equivalent pricing policy with a taboo interval around the average of previously chosen prices the width of the taboo interval shrinks at an appropriate rate as the amount of data gathered gets large this guarantees sufficient price dispersion for a large class of demand models we show that this procedure is strongly consistent which means that eventually the value of the optimal price will be learned and derive upper bounds on the regret which is the expected amount of money lost due to not using the optimal price numerical tests indicate that cvp performs well on different demand models and time scales this paper was accepted by assaf zeevi stochastic models and simulation

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

bayesian analysis of structural credit risk models with microstructure noises in this paper a markov chain monte carlo mcmc technique is developed for the bayesian analysis of structural credit risk models with microstructure noises the technique is based on the general bayesian approach with posterior computations performed by gibbs sampling simulations from the markov chain whose stationary distribution converges to the posterior distribution enable exact finite sample inferences of model parameters the exact inferences can easily be extended to latent state variables and any nonlinear transformation of state variables and parameters facilitating practical credit risk applications in addition the comparison of alternative models can be based on deviance information criterion dic which is straightforwardly obtained from the mcmc output the method is implemented on the basic structural credit risk model with pure microstructure noises and some more general specifications using daily equity data from us and emerging markets we find empirical evidence that microstructure noises are positively correlated with the firm values in emerging markets

the market reaction to international cross listings evidence from depositary receipts abstract this paper examines the stock price impact of international dual listings the sample consists of 181 firms from 35 countries that instituted their first depositary receipt program over the period 1985 1995 the market reaction to a depositary receipt program is larger in magnitude and more pervasive than previously reported the stock price reaction is related to choice of exchange geographical location i e emerging or developed markets and avenues for raising equity capital i e public versus private offerings

the potential for using excise taxes to reduce smoking we examine the potential for reducing cigarette smoking through increases in cigarette excise taxes by estimating the price elasticity of demand for cigarettes using information on individual smoking behavior from the 1976 health interview survey we estimate the adult price elasticity of demand for cigarettes to be 0 42 we find that price has its greatest effect on the smoking behavior of young males and that it operates primarily on the decision to smoke rather than via adjustments in the quantity of cigarettes smoked an excise tax increase would discourage smoking by successive cohorts of young adults and those reduced smoking levels would be reflected in aggregate smoking as these cohorts mature

a joint test of market segmentation and exchange risk factor in international capital market market segmentation and exchange risk are two main factors that distinguish international financing and investment decisions from domestic ones existing studies of market segmentation have been conducted within a framework in which exchange risk is not explicitly recognized this paper performs a joint test of market segmentation and exchange risk pricing based on individual stock data from seven major countries outside of the u s for the period january 1981 to december 1989 the theoretical framework used is a multifactor model with domestic and world market factors and an exchange risk factor the maximum likelihood method is used to estimate risk premia and factor analysis is used to provide additional evidence on the pricing of risk factors the results indicate that a the factor structure of asset returns is internationally heterogeneous b many national capital markets can be described as partially segmented rather than the polar cases of complete segmentation or integration and c exchange risk is a significant factor affecting asset returns in addition to the domestic and world market risk factors

do expenditures on tobacco control decrease smoking prevalence effectiveness of tobacco control programmes in reducing smoking prevalence during 2001 to 2005 is examined tobacco control spending is found to exert no significant effects on smoking prevalence across the 50 states cigarette prices are found to lower prevalence of daily smokers but exert no effect on nondaily smoking prevalence several reasons are suggested for why these results might conflict with previous research these include that most previous studies examined two states california and massachusetts with long standing tobacco control programmes and that most studies examined periods in which many of the states in their samples did not actively fund their programmes another reason may be that unlike most previous studies this study controls for the possibility that tobacco control spending is endogenous when for example states exhibiting relatively low smoking prevalence are also states with relatively high distaste for smoking and accordingly fund tobacco control programmes more generous

home bias in equity portfolios inflation hedging and international capital market equilibrium we test whether the home bias in equity portfolios is caused by investors trying to hedge inflation risk the empirical evidence is consistent with this motive only if investors have very high levels of risk tolerance and equity returns are negatively correlated with domestic inflation we then develop a model of international portfolio choice and equity market equilibrium that integrates inflation risk and deadweight costs using this model we estimate the levels of costs required to generate the observed home bias in portfolios consistent with different levels of risk aversion for a level of risk aversion consistent with standard estimates of the domestic equity market risk premium these costs are about a few percent per annum greater than observable costs such as withholding taxes thus the home bias cannot be explained by either inflation hedging or direct observable costs of international investment unless investors have very low levels of risk aversion article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

further evidence on closed end country fund prices and international capital flows using cointegration analysis i establish a long run relationship between country fund premiums and international capital flows in six out of 10 emerging markets and in two out of seven developed markets examined this relationship is explored to derive an intuitive measure of capital market segmentation that accounts for investment barriers and does not rely on a specific asset pricing model i find that most emerging markets are segmented but some exhibit a clear trend toward integration whereas most developed countries exhibit no evidence of segmentation the segmentation measure reveals that the process toward integration is gradual and can be reversed

stock prices and monetary variables the international evidence according to one explanation of the observed negative relation between u s stock returns and inflation a drop in stock prices signals a drop in economic activity which leads to a reduction in government revenues an increase in the budget deficit and an increase in the expected inflation rate the latter may or may not be accompanied by an increase in real interest rates depending upon whether or not the government borrows to finance the budget deficit evidence from nine major world stock markets seems to support this theory stock returns exhibit a strong negative correlation with changes in expected inflation as proxied by the short term interest rate a much weaker correlation with the level of inflation there also appears to be a significant although small real rate effect especially in those countries such as japan germany and switzerland that finance an unexpected deficit by borrowing other internationally oriented monetary variables appear to have little influence on equity returns despite increased international investing and the increase in exchange rate volatility since the advent of flexible rates changes in real exchange rates and in real interest rate differentials are only weakly correlated with stock returns and their influence is dwarfed by the effects of domestic interest rate changes

an intertemporal model of international capital market segmentation this paper develops an intertemporal model of international capital market segmentation within the model under various forms of segmentation integration the equilibrium asset prices and allocations the risk free interest rate and the intertemporal consumption behavior and welfares of two countries are derived and compared it is shown that the equilibrium interest rate is increased on integration and that integrating markets may be significantly welfare decreasing for one of the countries conditions that may lead to a decrease in welfare are investigated the conclusions as to the effects of segmentation on asset prices in the mean variance model of the existing finance segmentation literature are also shown to break down in an intertemporal model

will a special tax on tobacco reduce lung cancer mortality evidence for eu countries this article carrys out a quantitative evaluation of the effects on the health of smokers of increasing a special tobacco tax using the mortality rate from lung cancer as an indicator to that end it estimates two models that relate tobacco consumption the mortality rate and this special tax employing data drawn from a sample made up of 12 eu countries and covering the years 1983 1993 the results show that increasing the special tax is a useful tool for reducing lung cancer mortality specifically it finds that a 10 increase will reduce the lung cancer mortality rate by 1 21 in the first year with such a reduction implying the avoidance of 1707 deaths in the sample countries

on the surprising sufficiency of linear models for dynamic pricing with demand learning we consider a multiperiod single product pricing problem with an unknown demand curve the seller s objective is to adjust prices in each period so as to maximize cumulative expected revenues over a given finite time horizon in doing so the seller needs to resolve the tension between learning the unknown demand curve and maximizing earned revenues the main question that we investigate is the following how large of a revenue loss is incurred if the seller uses a simple parametric model that differs significantly i e is misspecified relative to the underlying demand curve we measure performance by analyzing the price trajectory induced by this misspecified model and quantifying the magnitude of revenue losses as a function of the time horizon relative to an oracle that knows the true underlying demand curve the price of misspecification is expected to be significant if the parametric model is overly restrictive somewhat surprisingly we show under reasonably general conditions that this need not be the case this paper was accepted by gerard cachon stochastic models and simulation

dynamic pricing and learning with finite inventories we study a dynamic pricing problem with finite inventory and parametric uncertainty on the demand distribution products are sold during selling seasons of finite length and inventory that is unsold at the end of a selling season perishes the goal of the seller is to determine a pricing strategy that maximizes the expected revenue inference on the unknown parameters is made by maximum likelihood estimation we show that this problem satisfies an endogenous learning property which means that the unknown parameters are learned on the fly if the chosen selling prices are sufficiently close to the optimal ones we show that a small modification to the certainty equivalent pricing strategy which always chooses the optimal price w r t current parameter estimates satisfies regrett olog2t where regrett measures the expected cumulative revenue loss w r t a clairvoyant who knows the demand distribution we complement this upper bound by showing an instance for which the regret of any pricing policy satisfies i log t

blind network revenue management we consider a general class of network revenue management problems where mean demand at each point in time is determined by a vector of prices and the objective is to dynamically adjust these prices so as to maximize expected revenues over a finite sales horizon a salient feature of our problem is that the decision maker can only observe realized demand over time but does not know the underlying demand function that maps prices into instantaneous demand rate we introduce a family of blind pricing policies that are designed to balance trade offs between exploration demand learning and exploitation pricing to optimize revenues we derive bounds on the revenue loss incurred by said policies in comparison to the optimal dynamic pricing policy that knows the demand function a priori and we prove that asymptotically as the volume of sales increases this gap shrinks to zero

risk sharing market imperfections asset prices evidence from china s stock market liberalization abstract we examine the roles of risk sharing and other factors in stock price revaluation during a recent liberalization episode in china consistent with the theoretical prediction that liberalizations reduce systematic risk we find that risk sharing explains approximately one fourth of the price revaluation of investible stocks during the eight month window between reform announcement and implementation the firm specific information generated by the reform is more efficiently priced into stocks that have a higher degree of market liquidity information transparency and informed trading

international price discovery in finnish stock index futures and cash markets abstract this paper investigates empirically how the information of the world s stock markets is reflected in the thin finnish stock index futures and cash markets the world wide returns seem to have a significant leading ability for predicting finnish stock index futures returns however this kind of causal relation is not observed between the world wide and stock market returns the finnish stock index futures returns then show significant granger causality with finnish stock market returns the stock market being the lagging one the relationship is improved by allowing the association between markets to be different for positive and negative returns the findings of this study suggest short selling restrictions and other market frictions to be a significant factor leading to a delay in the pricing process in the stock market

foreign equity investment restrictions capital flight and shareholder wealth maximization theory and evidence this article provides a theory of foreign equity investment restrictions we consider a model where the demand function for domestic shares differs between domestic and foreign investors because of deadweight costs in holding domestic and foreign securities that depend on the country of residence of investors we show that domestic entrepreneurs maximize firm value by discriminating between domestic and foreign investors the model implies that countries benefitting from capital flight have binding ownership restrictions such that foreign investors pay a higher price for shares than domestic investors the empirical implications of this theory are supported by evidence from switzerland article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

equity markets and personal taxation the ex dividend day behaviour of finnish stock prices abstract this paper analyzes the ex dividend day behaviour of stock prices in the finnish stock market the tax structure in finland is strikingly similar to the new tax structure in the u s which was for the first time in effect during the fiscal year 1987 the results in this paper may thus also illuminate the ex dividend day behaviour in the u s stock markets under the new tax law our empirical data show that the average drop in the stock prices on their ex dividend days has been 90 of the amount of the dividend during the years of 1974 to 1985 this is shown to be consistent with the tax explanation taking into account the finnish tax laws it is especially shown that the marginal seller on the ex dividend days is an individual investor with a marginal tax rate of approximately 50

on the effects of barriers to international investment a simple model is presented in which it is costly for domestic investors to hold foreign assets the implications of the model for the composition of optimal portfolios at home and abroad are derived it is shown that all foreign assets with a beta larger than some beta plot on either one of two security market lines some foreign assets with a beta smaller than are not held by domestic investors even if their expected return is increased slightly while it is obviously not true that asset markets are completely segmented between countries there is evidence of barriers to international investment although reality seems to lie in that grey area between complete segmentation and no segmentation at all most international asset pricing models are concerned with the extreme case of no barriers to international investment no effort seems to have been made to study the effect on portfolio choice of such barriers which make it costly to hold foreign securities as opposed to domestic securities but which do not in general render international diversification so onerous that investors avoid foreign securities completely casual empiricism suggests that models without barriers to international investment should be suspect those models cannot explain why it appears that in every country investors on average hold more domestic securities than would be required if they held the world market portfolio 2 this paper constructs a model of international asset pricing in which there is a cost associated with holding either long or short risky foreign securities for the sake of simplicity in most of the paper we assume that while domestic investors face barriers to international investment foreign investors face no such barriers it turns out that nothing significant is lost with such an assumption the main conclusions of this paper for the case in which foreign investors face no barriers to international investment are 1 in the presence of barriers to international investment some risky foreign

continuous time methods in finance a review and an assessment i survey and assess the development of continuous time methods in finance during the last 30 years the subperiod 1969 to 1980 saw a dizzying pace of development with seminal ideas in derivatives securities pricing term structure theory asset pricing and optimal consumption and portfolio choices during the period 1981 to 1999 the theory has been extended and modified to better explain empirical regularities in various subfields of finance this latter subperiod has seen significant progress in econometric theory computational and estimation methods to test and implement continuous time models capital market frictions and bargaining issues are being increasingly incorporated in continuous time theory the roots of modern continuous time methods in finance can be traced back to the seminal contributions of merton 1969 1971 1973b in the late 1960s and early 1970s merton 1969 pioneered the use of continuous time modeling in financial economics by formulating the intertemporal consumption and portfolio choice problem of an investor in a stochastic dynamic programming setting merton 1973b also showed how such a framework can be used to develop equilibrium asset pricing implications thereby significantly extending the asset pricing theory to richer dynamic settings and expanding the scope of applications of continuous time methods to study problems in financial economics 1 within a span of about 30 years from the publication of merton s inf luential papers continuous time methods have become an integral part of financial economics indeed in certain core areas in finance such as e g asset pricing derivatives valuation term structure theory and portfolio selection continuoustime methods have proved to be the most attractive way to conduct research and gain economic intuition the continuous time approach in these areas has produced models with a rich variety of testable implications the econometric theory for testing continuous time models has made rapid strides in the last decade and has thus kept pace with the impressive progress on the theoretical front one hopes that the actual empirical investigations and estimation using the new procedures will follow suit soon

technical note dynamic pricing and demand learning with limited price experimentation in a dynamic pricing problem where the demand function is not known a priori price experimentation can be used as a demand learning tool existing literature usually assumes no constraint on price changes but in practice sellers often face business constraints that prevent them from conducting extensive experimentation we consider a dynamic pricing model where the demand function is unknown but belongs to a known finite set the seller is allowed to make at most m price changes during t periods the objective is to minimize the worst case regret i e the expected total revenue loss compared with a clairvoyant who knows the demand distribution in advance we demonstrate a pricing policy that incurs a regret of ologmt or m iterations of the logarithm furthermore we describe an implementation of this pricing policy at groupon a large e commerce marketplace for daily deals the field study shows significant impact on revenue and bookings the e companion is available at https doi org 10 1287 opre 2017 1629

creditor races and contingent claims abstract recent research has begun the task of integrating contingent claims analysis with modern corporate finance by incorporating strategic behaviour in dynamic models of corporate security valuation this paper reports on and illustrates these developments by presenting a simple pricing model in which two debt holders with incomplete information about each other s type decide when to foreclose on a financially distressed firm

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

a dynamic equilibrium model of imperfectly integrated financial markets abstract this paper analyzes the determination of global equity portfolios and stock returns in the context of imperfectly integrated stock markets we consider a continuous time two country endowment economy where the level of financial integration is captured by a proportional tax on foreign dividends despite the investor heterogeneity induced by this tax we obtain approximate closed form expressions for asset prices and characterize equity holdings and the joint process followed by country level stock returns in equilibrium our model is consistent with a broad range of empirical findings on international financial integration when the endogenous cross country return correlation is high small frictions in equity markets can generate a substantial home bias in portfolios in the baseline version of our model the cross country return correlation is driven by the fundamental correlation and portfolio rebalancing in a two good extension of the model the adjustment of relative good prices can generate a high stock return correlation even for a low level of fundamental correlation magnifying the impact of the financial friction on portfolios we assess the quantitative performance of the model in a calibration exercise using data from g7 countries

explaining share price disparity with parameter uncertainty evidence from chinese a and h shares abstract the price disparity between the a and h share markets for dual listed firms in china is one of the most intriguing puzzles in the mainland and hong kong financial markets in this paper we revisit this price disparity puzzle using the channel of parameter uncertainty in the presence of information asymmetry and market segmentation investors have different views on a firm s asset volatility and hence different valuations of the same reference firm we estimate a structural model for equity pricing using a bayesian approach in which the uncertainty of investor model parameters is represented by the posterior standard deviation of the firm s asset volatility our regression analysis shows that in addition to other market based and macro factors parameter uncertainty explains variations in price disparity

high yield bond default and call risks this paper empirically investigates high yield bond default and call behavior using a competing risks hazard model that simultaneously estimates the impact of bond age issue specific characteristics and business conditions on both events results reveal nonmonotonic aging effects default rates increase and then drop while call rates first increase and then level off rating and coupon size affect default risk while maturity and issue size impact only call rates defaults are more likely when economic conditions have worsened and no improvement is anticipated calls are more likely when interest rates have decreased but are expected to rise

dynamic asset pricing theory with uncertain time horizon abstract this paper addresses the problem of pricing and hedging a random cash flow received at a random date in a general setup with a random time that is not a stopping time of the filtration generated by asset prices we first provide an explicit characterization of the set of equivalent martingale measures we also present price bounds consistent with perfect replication in the absence of arbitrage as is often the case such bounds are too wide to be of any practical use and we consider several choices for narrowing down to one the number of equivalent martingale measures

intraday market price integration for shares cross listed internationally this study investigates market price integration by testing per share trade execution price or cost tep c differentials for matched intraday trades for a sample of canadian shares cross listed in the u s the tse trade price advantage over the entire time period changed significantly after both the tse s own minimum quotation increment reduction and that of its u s competitors we show that the differential tep c is equivalent to the international effective spread differential and that market quality comparisons which benchmark using the national instead of the international bbo need to compare both national effective half spread and midspread differences our cross sectional regression results support our predictions that tep c differentials can be explained by differences in national midspreads and by ex ante proxies of national effective half spreads the tep c differentials vary inversely with increasing levels of our measure of signed market nonfragmentation

integration vs segmentation in the canadian stock market this paper examines the issue of integration versus segmentation of the canadian equity market relative to a global north american market we compare the international and domestic versions of the capm and find that integration or the mean variance efficiency of the global market index is rejected by the data segmentation is the preferred model based on a maximum likelihood procedure correcting for thin trading we further divide the sample into securities that are interlisted in canada and the u s and those that are not integration is rejected for both groups which indicates that the source of segmentation can be traced to legal barriers based on the nationality of issuing firms empirical studies of international capital markets have left the issue of segmentation versus integration largely unresolved yet the question of national or international pricing of assets has crucial implications for financial decisions if national stock markets are segmented then international portfolios should display superior risk adjusted performance because some of the priced domestic systematic risk is diversifiable also with segmentation many irrelevance propositions for corporate financial strategy break down home firms face optimal hedging decisions as well as optimal foreign versus home borrowing decisions finally criteria for capital budgeting decisions will be quite different under national and international pricing the purpose of this paper is to shed some light on this integration versus segmentation question for the canadian equity market vis a vis a global north american market in this paper integration is defined2 as a situation where investors earn the same risk adjusted expected return on similar financial instruments in different national markets the key problem of course is the pricing

dynamic pricing with a prior on market response we study a problem of dynamic pricing faced by a vendor with limited inventory uncertain about demand and aiming to maximize expected discounted revenue over an infinite time horizon the vendor learns from purchase data so his strategy must take into account the impact of price on both revenue and future observations we focus on a model in which customers arrive according to a poisson process of uncertain rate each with an independent identically distributed reservation price upon arrival a customer purchases a unit of inventory if and only if his reservation price equals or exceeds the vendor s prevailing price we propose a simple heuristic approach to pricing in this context which we refer to as decay balancing computational results demonstrate that decay balancing offers significant revenue gains over recently studied certainty equivalent and greedy heuristics we also establish that changes in inventory and uncertainty in the arrival rate bear appropriate directional impacts on decay balancing prices in contrast to these alternatives and we derive worst case bounds on performance loss we extend the three aforementioned heuristics to address a model involving multiple customer segments and stores and provide experimental results demonstrating similar relative merits in this context

the pricing of emerging market country funds this paper provides an analysis of the equilibrium pricing of closed end country funds cecfs from emerging and nascent markets under the condition of segmented capital markets where an investment company acquires a set of eligible securities from the home country to form a cecf and issues shares to the residents of the host country the key findings are first a country fund will trade at its net asset value zero premium mimicking an open end status if the fund acquires as much of eligible securities as the differential substitution demand for them between the host and home country investors the differential substitution demand is shown to represent the equilibrium demand for eligible securities by the host country investors when they do not face supply restrictions second the fund will command a higher premium the more close a substitute the fund is for the market portfolio of the home country and the more risk averse the home country investors are collectively third the basic functional form of the fund premium is robust to the inclusion of freely tradable securities however the fund premium would additionally depend on the spanning ability of freely tradable securities

bayesian dynamic pricing policies learning and earning under a binary prior distribution motivated by applications in financial services we consider a seller who offers prices sequentially to a stream of potential customers observing either success or failure in each sales attempt the parameters of the underlying demand model are initially unknown so each price decision involves a trade off between learning and earning attention is restricted to the simplest kind of model uncertainty where one of two demand models is known to apply and we focus initially on performance of the myopic bayesian policy mbp variants of which are commonly used in practice because learning is passive under the mbp that is learning only takes place as a by product of actions that have a different purpose it can lead to incomplete learning and poor profit performance however under one additional assumption a constrained variant of the myopic policy is shown to have the following strong theoretical virtue the expected performance gap relative to a clairvoyant who knows the underlying demand model is bounded by a constant as the number of sales attempts becomes large this paper was accepted by gerard p cachon stochastic models and simulation

the only game in town stock price consequences of local bias abstract theory suggests that in the presence of local bias the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region using data on u s states and census regions we find clear cut support for this proposition most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita regions with low population density e g the deep south are home to relatively few firms per capita which leads to higher stock prices via an only game in town effect

forecasting bankruptcy more accurately a simple hazard model i argue that hazard models are more appropriate than single period models for forecasting bankruptcy single period models are inconsistent while hazard models produce consistent estimates i describe a simple technique for estimating a discrete time hazard model i find that about half of the accounting ratios that have been used in previous models are not statistically significant moreover market size past stock returns and idiosyncratic returns variability are all strongly related to bankruptcy i propose a model that uses both accounting ratios and market driven variables to produce out of sample forecasts that are more accurate than those of alternative models copyright 2001 by university of chicago press

price differences between equity classes corporate control foreign ownership or liquidity abstract this paper is the first comprehensive study of price differences for dual class equity at the oslo stock exchange it analyzes the relative importance of corporate control foreign ownership restrictions and stock market liquidity for the price differences the norwegian market has the peculiar feature that in part of the sample period non voting shares were trading at a premium to voting shares i e what is usually termed the voting premium was negative this result can be rationalized by restrictions on foreign ownership in the later part of the period with no regulatory restrictions on foreign ownership the voting premium is positive and related to corporate governance and liquidity

international investment restrictions and closed end country fund prices some closed end country funds trade at large premiums relative to their net asset values this paper examines whether international investment restrictions raise country fund price net asset value ratios by segmenting international capital markets we test whether a relation exists between announcements of changes in investment restrictions and changes in these ratios using weekly data from may 1981 to january 1989 the results provide evidence that some foreign markets are at least partially segmented from the u s capital market

reoptimization and self adjusting price control for network revenue management we consider a standard dynamic pricing problem with finite inventories finite selling horizon and stochastic demands where the objective of the seller is to maximize total expected revenue we introduce a simple improvement of the popular static price control known in the literature the proposed heuristic only requires a single optimization at the beginning of the selling horizon and does not require any reoptimization at all this provides an advantage over the potentially heavy computational burden of reoptimization especially for very large applications with frequent price adjustments in addition our heuristic can be implemented in combination with a few reoptimizations to achieve a high level revenue performance this hybrid of real time adjustment and reoptimization allows the seller to enjoy the benefit of reoptimization without overdoing it

on the design of contingent capital with a market trigger contingent capital cc which intends to internalize the costs of too big to fail in the capital structure of large banks has been under intense debate by policy makers and academics we show that cc with a market trigger in which direct stake holders are unable to choose optimal conversion policies does not lead to a unique competitive equilibrium unless value transfer at conversion is not expected ex ante the no value transfer restriction precludes penalizing bank managers for taking excessive risk multiplicity or absence of an equilibrium introduces the potential for price uncertainty market manipulation inecient capital allocation and frequent conversion errors these results point to the need to explore alternative designs of a prudential capital structure for banks jel classication

corporate liquidity and capital structure we solve for a firm s optimal cash holding policy within a continuous time contingent claims framework using dividends short term borrowing and equity issues as controls assuming mean reversion of earnings optimal cash is non monotone in business conditions and increasing in the level of long term debt the model matches closely a wide range of empirical benchmarks and predicts cash and leverage dynamics in line with the empirical literature firm value is quite insensitive to changes in the level of long term debt the model has interesting implications for asset substitution hedging and pecking order growth opportunities do not greatly affect cash holding policy

pricing derivatives on financial securities subject to credit risk this article provides a new methodology for pricing and hedging derivative securities involving credit risk two types of credit risks are considered the first is where the asset underlying the derivative security may default the second is where the writer of the derivative security may default we apply the foreign currency analogy of jarrow and turnbull 1991 to decompose the dollar payoff from a risky security into a certain payoff and a spot exchange rate arbitrage free valuation techniques are then employed this methodology can be applied to corporate debt and over the counter derivatives such as swaps and caps the purpose of this article is to provide a new theory for pricing and hedging derivative securities involving credit risk two sources of credit risk are identified and analyzed the first is where the asset underlying the derivative security may default paying off less than promised this is the case for example with imbedded options on corporate debt the second is the credit risk introduced by the writer of the derivative security who may also default examples include over the counter writers of options on eurodollar futures swaps and swaptions for pricing derivative securities involving credit risk there are currently two approaches the first views these derivatives as contingent claims not on the financial securities themselves but as compound options on the assets underlying the financial securities this is the case for example with the pricing of imbedded options on corporate debt see merton 1974 1977 black and cox 1976 ho and singer 1982 chance 1990 and kim ramaswamy and sundaresan 1993 or the pricing of vulnerable options see johnson and stulz 1987 in practice however this valuation methodology is difficult to use first the assets underlying the financial security are often not tradeable and therefore their values are not observable this makes application of the theory and estimation of the relevant parameters problematic second as in the case of corporate debt all of the other liabilities of the firm senior to the corporate debt must first and simultaneously be valued this generates significant computational difficulties as a result this approach has not

asset pricing in partially segmented markets evidence from the finnish market this paper analyzes asset pricing in a partially segmented market where citizens of a small country are allowed to hold only their domestic securities whereas the rest of the investors foreigners are essentially allowed to hold all securities in this market setting it may occur that the citizens of the small country are willing to pay less for their domestic securities than are the foreign investors the paper derives equilibrium required rates of return for different investors in this market setting which perfectly occurred in finland and tests this equilibrium model using data from the finnish stock market empirical results are consistent with the hypotheses derived from the model several studies see e g solnik 1974a and grauer and hakansson 1987 have shown that investors should diversify internationally as by so doing they can reduce the risk of their portfolio without lowering the expected return this implies that if the citizens of a certain country are by legal restrictions prohibited from holding foreign securities they may require a higher rate of return on the domestic securities than the foreign investors do this may happen because the domestic investors cannot diversify away the specific country risk in the same way that the foreign investors can thus if we could observe the prices which the foreign and domestic investors are willing to pay for these domestic securities we would expect them to differ because of this diversification effect the finnish law prohibited finnish investors from investing in foreign securities until 1986 while simultaneously allowing foreign investors to own up to 20 of the shares of any finnish company moreover since 1984 the helsinki stock exchange hse has separately quoted the prices for the unrestricted shares which can be owned both by foreign and domestic investors and for the restricted shares owned solely by domestic investors thus the market setting depicted in the previous paragraph occurred perfectly in finland during the years 1984 and 1985 in this paper our objective is to develop and test an asset pricing model which takes into account the legal restrictions in the finnish stock market in section i we specify the market structure in the finnish stock market in more detail by explaining the relevant legal restrictions affecting the market we also present some descriptive statistics on the prices of the restricted and the unrestricted on

partially segmented international capital markets and international capital budgeting abstract evidence suggests that international capital markets are neither fully integrated nor completely segmented there is however currently no general method available for computing the required return on corporate investments in such capital markets this paper uses a model of partially integrated international capital markets to derive optimal international capital budgeting rules we show how capital budgeting rules depend on the level of investor costs to cross border investment both directly and also indirectly through the portfolio specialization they induce we explain how required returns differ for different companies raising capital in such markets and how these costs of capital may be estimated we also explain how these differences in required returns can be consistent with general equilibrium and the effect they have on incentives for foreign direct investment

the efficiency of the finnish market for right issues abstract this paper analyzes the efficiency of the finnish market for right issues the rights traded on the helsinki stock exchange hse are similar instruments to warrants with some special features attached to them the paper first derives appropriate arbitrage conditions for these rights which must be satisfied in informationally efficient markets and then examines these conditions using both ex post and ex ante test procedures the ex post tests which jointly examine market efficiency and synchroneity of the rights and stock market show a staggering amount of violations against the arbitrage bounds however the ex ante tests reveal that high transaction costs prevent normal investors from benefitting from these violations stockbrokers themselves however seem to be able to earn arbitrage profits in the rights market

optimal incentives and securitization of defaultable assets abstract we study optimal securitization in the presence of an initial moral hazard a financial intermediary creates and then sells to outside investors defaultable assets whose default risk is determined by the unobservable costly effort exerted by the intermediary we calculate the optimal contract for any given effort level and show the natural emergence of extreme punishment for defaults under which investors stop paying the intermediary after the first default with securitization contracts optimally designed we find securitization improves the intermediary s screening incentives furthermore the equilibrium effort level and the surplus converge to their first best levels with sufficiently many assets

barriers to portfolio investments in emerging stock markets the authors examine to what extent features of the international tax system and indicators of transaction costs affect the required rates of return on emerging stock markets they show that the capital gains withholding tax levied on foreign portfolio investors increases required pre tax rates of return as countries generally do not index their capital gains taxes it follows that inflation increases the capital gains tax base as well as the required rate of return on equity dividend withholding taxes instead appear not to increase the required pre tax equity returns significantly the differing results for capital gains and dividend taxes reflect the fact that foreign investors generally can receive domestic tax credits only for foreign withholding taxes paid on dividends the return on equity is part of the issuing firm s cost of capital so capital gains withholding taxes imposed on nonresidents increase the cost of capital for domestic firms and discourage physical investment private investment levels have tended to be low in developing countries in the 1980 s the cost of equity finance in developing countries has gained in importance in the last decade as these countries access to international lending capital has been limited during most of the decade what do these findings imply for the design of tax policy in relation to foreign portfolio investment in developing countries the existence of foreign tax credits for dividend taxes paid suggest that a country should tax capital gains more lightly than repatriated dividends as do greece pakistan portugal and venezuela each of these countries has positive dividend withholding taxes but no capital gains taxes imposed on non residents colombia and india do the exact opposite they tax capital gains far more heavily than dividends despite what appears optimal the trend in developing countries is toward lower dividend withholding taxes with little change in the average level of capital gains taxation it appears desirable for developing countries to index their capital gains taxes to prevent them from being higher than anticipated

capital account liberalization and dynamic price discovery evidence from chinese cross listed stocks abstractwe analyse the effects of a recent financial reform shanghai hong kong stock connect that enables cross market investment between hong kong and shanghai stock exchanges using a vecm we find that the reform announcement considerably narrows the equilibrium level of price disparity and strengthens the price comovement of shares that are cross listed in both markets the estimated equilibrium relationship is in support of the relative law of one price we find that both markets adjust in response to a disequilibrium in price disparity leading to a sizeable error correction activity the shanghai market contributes to approximately two thirds of the price discovery process competition and informativeness of trading affect the relative role of price discovery in each market finally the reform implementation reinforces the long run cointegration relationship and strengthens the short run price comovements of cross listed stocks despite the widening price disparity during the period

dynamic pricing under a general parametric choice model we consider a stylized dynamic pricing model in which a monopolist prices a product to a sequence of t customers who independently make purchasing decisions based on the price offered according to a general parametric choice model the parameters of the model are unknown to the seller whose objective is to determine a pricing policy that minimizes the regret which is the expected difference between the seller s revenue and the revenue of a clairvoyant seller who knows the values of the parameters in advance and always offers the revenue maximizing price we show that the regret of the optimal pricing policy in this model is theta sqrt t by establishing an omega sqrt t lower bound on the worst case regret under an arbitrary policy and presenting a pricing policy based on maximum likelihood estimation whose regret is cal o sqrt t across all problem instances furthermore we show that when the demand curves satisfy a well separated condition the t period regret of the optimal policy is log t numerical experiments show that our policies perform well

debt valuation renegotiation and optimal dividend policy the valuation of debt and equity reorganization boundaries and firm s optimal dividend policies are studied in a framework where we model strategic interactions between debt holders and equity holders in a game theoretic setting which can accommodate varying bargaining powers to the two claimants two formulations of reorganization are presented debt equity swaps and strategic debt service resulting from negotiated debt service reductions we study the effects of bond covenants on payout policies and distinguish liquidity induced defaults from strategic defaults we derive optimal equity issuance and payout policies the debt capacity of the firm and the optimal capital structure are characterized

credit swap valuation this review of the pricing of credit swaps a form of derivative security that can be viewed as default insurance on loans or bonds begins with a description of the credit swap contract turns to pricing by reference to spreads over the risk free rate of par floating rate bonds of the same quality and then considers model based pricing the role of asset swap spreads as a reference for pricing credit swaps is also considered

interdependencies among the nordic and u s stock markets using the concept of granger causality interdependencies among the stock market indices for four nordic countries and the u s are examined the vector autoregressive model results indicate that the u s market affected only the danish but not the norwegian finnish or swedish markets the swedish market was causally prior to both the norwegian and finnish markets the norwegian danish and finnish markets did not granger cause any other market the results indicate that the nordic stock markets are less than fully integrated

term structures of credit spreads with incomplete accounting information we study the implications of imperfect information for term structures of credit spreads on corporate bonds we suppose that bond investors cannot observe the issuer s assets directly and receive instead only periodic and imperfect accounting reports for a setting in which the assets of the firm are a geometric brownian motion until informed equityholders optimally liquidate we derive the conditional distribution of the assets given accounting data and survivorship contrary to the perfect information case there exists a default arrival intensity process that intensity is calculated in terms of the conditional distribution of assets credit yield spreads are characterized in terms of accounting information generalizations are provided

risk reduction by diversification in the nordic stock markets empirical examination of the ex post potential gains of risk reduction through international portfolio diversification started with grubel 1968 levy and sarnat 1970 solnik 1974 and lessard 1974 in their survey of international finance adler and dumas 1983 p 938 summed up the results the potential for international diversification to reduce risk seems unquestionable in the wake of increasing liberalization for international portfolio investment more recent contributions include jorion 1985 1989 grauer and hakansson 1987 and levy and lerman 1988 the results of the pioneers have been corroborated by contemporary research and according to jorion 1989 p 54 international diversification extolled by grubel as early as 1968 seems to have delivered on its promises despite the long tradition of studies in international portfolio diversification there has been no such work regarding the nordic markets this paper fills the gap through an analysis of potential gains from international diversification for different nordic investors danish finnish norwegian and swedish if they invest in all the nordic equity markets until the beginning of the 1980s nordic investors particularly in finland and sweden faced legal restrictions on investment abroad see nordiska radet 1987 adler and dumas 1983 have pointed out that such restrictions would lead to partially or fully segmented markets and hietala 1989 has shown the existence of premiums in the finnish stock market in our study we do not make any direct test of whether the nordic equity markets have been segmented or integrated but our results might provide some indirect evidence the nordic countries are generally viewed as fairly homogeneous from a social political and economic point of view while international diversifi

nonparametric advertising budget allocation with inventory constraint abstract in this paper we study the optimization problem of the advertising budget allocation for revenue management faced by a marketer besides the advertising budget the marketer is subject to an inventory constraint during the promotion season the marketer can affect sales by spending on advertising but does not initially know the relationship between the advertising expense and consequent sales we propose a nonparametric learning while doing budget allocation policy for the problem specifically we first conduct a sequence of advertising experiments to learn predict the market sales response through observing realized sales exploration then based on the learned sales function determine the following budget allocation planning exploitation in particular during the exploration and exploitation phases we need to balance the advertising and inventory budgets simultaneously we show that our policy is asymptotically optimal as the size of the market increases by constructing a worst case example we show that our policy achieves near best asymptotic performance we also provide numerical illustrations to show how our policy works and discuss how its performance changes as the system parameters vary we also glen some managerial implications of our model and policy from the numerical results

learning and pricing models for repeated generalized second price auction in search advertising abstract in search advertising how much an advertiser is willing to pay for a click or tap on his search ad is private information which hampers an ad seller s ability to set the best reserve price to increase the revenue for the generalized second price gsp auctions used to allocate ad slots we present a series of learning and pricing models for repeated gsp auctions selling multiple heterogeneous items this paper contributes to the literature in dynamic pricing with learning and complements the existing off line studies on impact of the reserve price in the multi billion dollar online advertising business with few restrictions on the distribution function of the unknown parameter algorithms are developed to estimate the empirical distribution function and determine the best reserve price to reduce the revenue loss regret over time when bidders bid in the locally envy free equilibrium we present an algorithm that has the best attainable regret upper bound when bidders do not bid in the locally envy free equilibrium we propose a gsp auction with position specific reserve prices and develop an algorithm with the same regret bound to mitigate the risk of strategic bidding with a high volatility involved learning becomes more active while earning is more effective when bidders coordinate bidding the properly selected starting reserve prices can substantially reduce the revenue loss from possible collusive bidding behaviors

foreign currency denominated debt an empirical examination we examine the determinants of debt issuance in 10 major currencies by large u s firms using the fraction of foreign subsidiaries and tests exploiting the disaggregated nature of our data we find strong evidence that firms issue foreign currency debt to hedge their exposure both at the aggregate and the individual currency levels we also find some evidence that firms choose currencies in which information asymmetry between domestic and foreign investors is low we find no evidence that tax arbitrage liquidity of underlying debt markets or legal regimes influence the decision to issue debt in foreign currency

long and short term dynamic causal transmission amongst international stock markets abstract this paper investigates the dynamic causal linkages amongst nine major international stock price indexes in order to gauge the causal transmission patterns we employ very recent methods of i vector error correction modeling and ii level var modeling with possibly integrated and cointegrated processes advocated by i toda and phillips econometrica 61 1993 1367 and ii toda and yamamoto j econometrics 66 1995 225 respectively the paper illustrates how such methods may be appropriately augmented in a compatible fashion to unearth previously unfounded linkage properties inherent amongst a system of stock price indexes in particular we demonstrate that previous research by using ordinary difference vars ignored an important component of linkages displayed purely over the long run this untapped evidence essentially provides robust and very useful information to international financial analysts and investors at a substantive level results of this study tend to support the contention offered by several studies in the literature of significant interdependencies between the established oecd and the asian markets and also the leadership of the us and uk markets over the short and long run the levels var however illustrate the japanese market s influence as an additional long run leader findings seem to be plausible given that these three markets us uk and japan have consistently contributed over 75 of global stock market capitalization over the major part of the sample under consideration at a methodological level this analysis also provides a primer for the wealth of applied financial econometric research focusing on dynamic causal inference which involve systems containing possibly integrated and cointegrated processes

us bank credit spreads during the financial crisis this paper argues that first passage time models are likely to better than affine hazard rate models in modelling stressed credit markets and confirms their superior performance in explaining the behavior of credit default swap rates for the major us banking groups over the period of the financial crisis affine models find it hard to deal with periods of exceptionally high or low default risk given their assumption of a constant rate of mean reversion in the hazard rate in contrast first passage time models are specified in terms of the distance to default rather than the hazard rate the persistence of shocks varies with the distance to default allowing the default curve to invert sharply compress when the distance to default is low high i use an empirical version of the collin dufresne et al 2003 model which contains a smoothing parameter that allows it to control the relative effect of these shocks on the short spreads and can be interpreted as an information lag

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

government as a discriminating monopolist in the financial market the case of china abstract we show that the many unusual features of china s financial markets are consistent with a government choosing regulations to maximize a standard type of social welfare function under certain conditions these regulations are equivalent to imposing explicit taxes on business and interest income yet should be much easier to enforce the observed implicit tax rates are broadly in line with those observed in other countries the theory also forecasts however that china will face increasing incentives over time to shift to explicit taxes

international investment barriers in general equilibrium abstract this paper examines quantitative international investment barriers in a general equilibrium model the constraints force otherwise similar agents to hold different portfolios of risky assets we show that this induces lending and borrowing this in turn instroduces a hedging motive against shifts in the interest rate the factors affecting agents portfolio choice the allocation of capital across countries as well as the interest rate are charcterized we conjure that the equilibrium world interest rate will be lower in the constrained situations than with free capital flows

gains from international diversification 1968 85 returns on portfolios of stocks and bonds this paper applies the multi period investment model to a universe of international securities on the basis of the simple probability assessment approach our principal findings are 1 the gains from including non u s asset categories in the universe were remarkably large in some cases statistically significant especially for the highly risk averse strategies 2 the gains from removing the no leverage constraint were more substantial than they were in the absence of non u s securities and 3 there is strong evidence of market segmentation in that the optimal levels of investment in u s securities were mostly zero in the presence of the non u s asset categories