Mark Kritzman, Simon Myrgren, and Sebastien Page
A technique called dynamic programming can be used to identify an optimal rebalancing schedule, which significantly reduces rebalancing and sub-optimality costs. Dynamic programming provides solutions to multi-stage decision processes in which the decisions made in prior periods affect the choices available in later periods. Dynamic programming provides the optimal year-by-year decision policy by working backwards from year 10. The results of the test of the relative efficacy of dynamic programming and the MvD heuristic with data on domestic equities, domestic fixed income, non-US equities, non-US fixed income, and emerging market equities, show that the MvD heuristic performs quite well compared to the dynamic programming solution for the two-asset case and substantially better than other heuristics. The increase in the number of assets reduces the advantage of dynamic programming over the MvD heuristic and is reversed at the level of five assets. Dynamic programming cannot be applied beyond five assets, but the MvD heuristic can be extended up to 100 assets. The MvD heuristic reduces total costs relative to all of the other heuristics by substantial amounts. The performance of the MvD heuristic improves relative to the dynamic programming solution as more assets are added but this improvement reflects a growing reliance on an approximation for the dynamic programming approach.
This chapter examines the potential discrepancies in the regulation applied to overseas issuers, as opposed to domestic issuers, of four leading financial centers. They are New York, London, Hong Kong, and Singapore. It consists of three substantive sections. The first section will reviews existing literature and empirical evidence concerning the motivations and current state of cross-listing. The second section examines the listing route for an overseas issuer and inquires how it might differ from a domestic listing in the host country. This chapter particularly concerns the potential discrepancies of rules between a foreign listing and a domestic listing and asks if those discrepancies would lead to better or inferior investor protection. The third section examines the continuing regulation of foreign-listed companies, reviewing some regulatory concerns involving cross-listed companies and discussing what can be done to curb the problems, for instance, through regulatory cooperation between home and host regulators.
C.A. Knox Lovell and Emili Grifell-Tatje
We study various analytical frameworks relating productivity change to change in the cost structure and cost efficiency of the firm. We begin by motivating a focus on the cost side, and not the revenue side, of the profit objective of the firm. We continue by relating the cost accounting tool of standard cost variance analysis to the economics tool of cost efficiency analysis. We focus on managerially controllable drivers of cost efficiency, including productivity change and its components. We conclude by noting some significant empirical applications of the analysis, by recommending cost efficiency analysis as a valuable tool for benchmarking against the best, and by suggesting some new directions for research.
Marina Della Giusta, Maria Laura di Tommaso, and Sarah L. Jewell
In this chapter, we analyze the demand for paid sex of British men utilizing the British National Survey of Sexual Attitudes and Lifestyles based on interviews in the period 2010–2012. The paper tests a theoretical model of demand for paid sex (Della Giusta et al. 2009a) where demand for paid sex depends on income, the amount of free sex, stigma, and reputation. A novelty of this chapter consists of analyzing the roles of income and religion. We find that the probability that men pay for sex is 6 percentage points higher for men with an income between £40,000 and £50,000, controlling for education and professional status. The probability of paying for sex increases between 2 and 5 percentage points if the man is religious, after controlling for conservative opinions.
Randall Morck and Bernard Yeung
This article discusses agency problems and capitalism. It suggests that real social costs of agency problems lie deeper, in the inner workings of the economy. Inefficient resource allocation by firms costs money, as do the monitoring and control mechanisms that might limit those problems. Some level of agency costs is thus unavoidable. But both firms and economies can seek ways to reduce unavoidable agency costs.
Petter N. Kolm and Lee Maclin
This article discusses the portfolio optimization with market impact costs, combining execution and portfolio risk, and dynamic portfolio analysis. A multi-period portfolio optimization model is proposed that incorporates permanent and temporary market impact costs, and alpha decay. There are five popular algorithmic trading strategies that include arrival price, market-on-close, participation, time-weighted average price (TWAP), and volume-weighted average price (VWAP). For a VWAP benchmark, the lowest risk execution is obtained by trading one's own shares in the same fractional volume pattern as the market. VWAP execution is expected to result in the lowest temporary market impact costs. The temporary market impact in a rate of trading model is a function of one's own rate of trading expressed as a fraction of the absolute trading activity of the market. One popular interpretation of the model is that the markets are relatively efficient with respect to the relationship between trading volume and volatility, which are typical inputs of the model. Any reduction in impact that results from more trading volume would be offset by an increase in impact due to increased volatility. The lowest absolute rate of trading can be realized by distributing one's orders evenly over time. This is called a time-weighted average price (TWAP) execution.
All Ties Are Not Created Equal: Institutional Equity Ties, IPO Performance, and Market Growth of New Ventures
Yong Li and Beiqing Yao
This chapter examines whether and how different types of institutional ties affect new venture performance at different organizational stages. The authors propose that equity ties to government agencies will enhance the speed and returns of initial public offerings (IPOs) but hinder post-IPO market growth. By contrast, equity ties to research institutes will contribute positively to both IPO performance and post-IPO market growth. The authors build their arguments on how the two types of institutional ties meet new ventures’ need to be legitimate and competitive pre- and post-IPO. They test their hypotheses with new ventures in the pharmaceutical and chemical industries that went public in China and find supportive evidence.
Armin Schwienbacher and Benjamin Larralde
This article discusses crowdfunding as an alternative way of financing projects, with a focus on small, entrepreneurial ventures. It first provides a description of crowdfunding and discusses existing research on the topic. The next section looks at crowdfunding in the context of entrepreneurial finance and thereby describes factors affecting entrepreneurial preferences for crowdfunding as a source of finance. Thereafter it elaborates different business models used to raise money from the crowd, in particular with respect to the structure of the crowdfunding process. Building on this discussion, the article presents and discusses extensively a case study, Media No Mad (a French start-up). It concludes with recommendations for entrepreneurs seeking to make use of crowdfunding and with suggestions for researchers about yet-unexplored avenues of research.
Antony Davies, Kajal Lahiri, and Xuguang Sheng
This article illustrates how frameworks built around multidimensional panel data of forecasts can be used not only to test the rational expectations hypothesis correctly, but also to study alternative expectations-formation mechanisms, to distinguish anticipated from unanticipated shocks, and to distinguish forecast uncertainty from disagreement.
Francis Breedon and Robert Kosowski
The article aims to discuss the optimal asset allocation for sovereign wealth funds (SWF). The main purpose of a commodity based sovereign wealth fund is to create a permanent income stream out of a temporary one and so allow consumption smoothing over time. The asset allocation framework typically consists of an objective function that implies a preference for the highest return for a given level of risk. The ultimate objective of a SWF is to smooth consumption and achieve intergenerational transfers. The accumulation of financial assets presupposes functioning markets for consumption goods such as food products. Another consideration that may guide the investment behavior of sovereign wealth funds and that highlights the role of liabilities is food security. Future food imports are a key component of the balance of payments identity. A rigorous analysis of the commodity fund's optimal asset allocation policy must take into account the role of liabilities and therefore requires an analysis of the country's balance of payments. The ALM takes into account the role of liabilities and the resulting additional hedging demands. The asset liability management (ALM) examines both assets and financial liabilities and models the return on assets and the return on liabilities.