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Market Setting (market + setting)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	83%

Selected Abstracts

Independence in Appearance and in Fact: An Experimental Investigation,

CONTEMPORARY ACCOUNTING RESEARCH, Issue 1 2003
Nicholas Dopuch
Abstract In this study, we use experimental markets to assess the effect of the Security and Exchange Commission's (SEC's) new independence rule on investors' perceptions of independence, investors' payoff distributions, and market prices. The new rule requires client firms to disclose in their annual proxy statements the amount of nonaudit fees paid to their auditors. The new disclosure is intended to inform investors of auditors' incentives to compromise their independence. Our experimental design is a 2 3 between-subjects design, where we control the presence (unbiased reports) or absence of auditor independence in fact (biased reports). While independence in fact was not immediately observable to investors, we controlled for independence in appearance by varying the public disclosure of the extent of nonaudit services provided by the auditor to the client. In one market setting, investors were not given any information about whether the auditor provided such nonaudit services; in a second setting, investors were explicitly informed that the auditor did not provide any non-audit services; and in a third setting, investors were told that the auditor provided nonaudit services that could be perceived to have an adverse effect on independence in fact. We found that disclosures of nonaudit services reduced the accuracy of investors' beliefs of auditors' independence in fact when independence in appearance was inconsistent with independence in fact. This then caused prices of assets to deviate more from their economic predictions (lower market efficiency) in the inconsistent settings relative to the no-disclosure and consistent settings. Thus, disclosures of fees for nonaudit services could reduce the efficiency of capital markets if such disclosures result in investors forming inaccurate beliefs of auditor independence in fact - that is, auditors appear independent but they are not independent in fact, or vice versa. The latter is the maintained position of the American Institute of Certified Public Accountants (AICPA), which argued against the new rule. Further research is needed to assess the degree of correspondence between independence in fact and independence in appearance. [source]

Constructing Reform Coalitions: The Politics of Compensations in Argentina's Economic Liberalization

LATIN AMERICAN POLITICS AND SOCIETY, Issue 3 2001
Sebastián Etchemendy
ABSTRACT It is frequently argued that the key to "successful" economic liberalization is to marginalize interest groups that profit from existing regulatory regimes. This paper contends that some established interests can craft public policies to protect their rents in the new market setting. The state may shape the interests of social actors and create proreform constituencies out of old populist and interventionist groups. In Argentina, this coalition building was achieved by constructing reform policies that granted rents in new markets to business and organized labor and by deliberately avoiding unilateral deregulation in sectors where reform would hurt traditionally powerful actors. This argument is developed through a comparative analysis of policy reform in the labor market institutions and protected industrial sectors, areas where the costs of deregulation are said to be unavoidable for the established actors. [source]

PRICING IN AN INCOMPLETE MARKET WITH AN AFFINE TERM STRUCTURE

MATHEMATICAL FINANCE, Issue 3 2004
Virginia R. Young
We apply the principle of equivalent utility to calculate the indifference price of the writer of a contingent claim in an incomplete market. To recognize the long-term nature of many such claims, we allow the short rate to be random in such a way that the term structure is affine. We also consider a general diffusion process for the risky stock (index) in our market. In a complete market setting, the resulting indifference price is the same as the one obtained by no-arbitrage arguments. We also show how to compute indifference prices for two types of contingent claims in an incomplete market, in the case for which the utility function is exponential. The first is a catastrophe risk bond that pays a fixed amount at a given time if a catastrophe does not occur before that time. The second is equity-indexed term life insurance which pays a death benefit that is a function of the short rate and stock price at the random time of the death of the insured. Because we assume that the occurrence of the catastrophe or the death of the insured is independent of the financial market, the markets for the catastrophe risk bond and the equity-indexed life insurance are incomplete. [source]

Are Judgment Errors Reflected in Market Prices and Allocations?

THE JOURNAL OF FINANCE, Issue 3 2004
Experimental Evidence Based on the Monty Hall Problem
The question of whether individual judgment errors survive in market equilibrium is an issue that naturally lends itself to experimental analysis. Here, the Monty Hall problem is used to detect probability judgment errors both in a cohort of individuals and in a market setting. When all subjects in a cohort made probability judgment errors, market prices also reflected the error. However, competition among two bias-free subjects was sufficient to drive prices to error-free levels. Thus, heterogeneity in behavior can be an important factor in asset pricing, and further, it may take few bias-free traders to make asset prices bias-free. [source]

Presidential Address: Asset Price Dynamics with Slow-Moving Capital

THE JOURNAL OF FINANCE, Issue 4 2010
DARRELL DUFFIE
ABSTRACT I describe asset price dynamics caused by the slow movement of investment capital to trading opportunities. The pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal. The amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade, such as search costs for trading counterparties or time to raise capital by intermediaries. I discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions, which subsided afterward. After presenting examples of price reactions to supply shocks in normal market settings, I offer a simple illustrative model of price dynamics associated with slow-moving capital due to the presence of inattentive investors. [source]

Heterogeneous expectations of traders in speculative futures markets

THE JOURNAL OF FUTURES MARKETS, Issue 5 2001
Darren L. Frechette Assistant Professor
The representative agent hypothesis is disputable on theoretical grounds because it is inconsistent with observed trading behavior and the existence of speculative markets. In such markets, the representative agent hypothesis implies agents hold homogeneous expectations. If this were true, speculative markets would fail as only one side of the market would be represented, either demand or supply. Nonetheless, the homogeneity assumption has been maintained in the past to ensure tractability because of the difficulty of explicit aggregation across heterogeneous expectations. In this article, we present and apply an approach for analyzing heterogeneity in specific market settings. To do so, our approach specifies an underlying distribution of expectations that is consistent with heterogeneity across expectations. To demonstrate the utility of the approach, we present results from its application to a time series of commodity futures prices. Results are consistent with the conclusion that significant heterogeneity in expectations exists in speculative futures markets. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:429,446, 2001 [source]