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Premium
Kinds of Premium Terms modified by Premium Selected AbstractsCOMMENT ON THE PUPIL PREMIUMECONOMIC AFFAIRS, Issue 2 2008Michael Gove No abstract is available for this article. [source] GLOBAL EVIDENCE ON THE EQUITY RISK PREMIUMJOURNAL OF APPLIED CORPORATE FINANCE, Issue 4 2003Elroy Dimson The size of the equity risk premium,the incremental return that shareholders require to hold risky equities rather than risk-free securities,is a key issue in corporate finance. Financial economists generally measure the equity premium over long periods of time in order to obtain reliable estimates. These estimates are widely used by investors, finance professionals, corporate executives, regulators, lawyers, and consultants. But because the 20th century proved to be a period of such remarkable growth in the U.S. economy, estimates of the risk premium that rely on past market performance may be too high to serve as a reliable guide to the future. The authors analyze a 103-year history of risk premiums in 16 countries and conclude that the U.S. risk premium relative to Treasury bills was 5.3% for that period,lower than previous studies suggest,as compared to 4.2% for the U.K. and 4.5% for a world index. But the article goes on to observe that the historical record may still overstate expectations of the future risk premium, partly because market volatility in the future may be lower than in the past, and partly because of a general decline in risk resulting from new technological advances and increased diversification opportunities for investors. After adjusting for the expected impact of these factors, the authors calculate forward-looking equity risk premiums of 4.3% for the U.S., 3.9% for the U.K., and 3.5% for the world index. At the same time, however, they caution that the risk premium can fluctuate over time and that managers should make appropriate adjustments when there are compelling economic reasons to think that expected premiums are unusually high or low. [source] A THEORETICAL AND PRACTICAL PERSPECTIVE ON THE EQUITY RISK PREMIUM,JOURNAL OF ECONOMIC SURVEYS, Issue 2 2008Roelof SalomonsArticle first published online: 10 MAR 200 Abstract In historical perspective, equity returns have been higher than interest rates but have also varied a good deal more. However, the average excess return has been larger than what could be expected based on classical equilibrium theory: the equity risk premium (ERP) puzzle. This paper has two objectives. First, the paper presents a comprehensive overview of the vast literature developed aimed at adjusting theory and testing the robustness of the puzzle. Here we will show that the failure of theory to link asset prices to economics is mostly quantitative by nature and not qualitative (anymore). Second, beyond providing a survey of theory, we aim for a relevant practical angle as well. Our main contribution is that we spend time on why returns have been higher than investors reasonably could have expected. We present evidence that forecasts of equity returns can be enhanced by valuation models: low valuation levels (low price-to-earnings ratios) portend high subsequent returns. While conventional wisdom (several years ago) was to use historical returns to forecast future returns, a growing consensus now recognizes that the predictive power of valuation ratios is preferred. Finally we provide some practical implications based on this predictability. While the ERP is essentially a long-term issue, the likelihood of a lower risk premium increases risk for many and means that short-term volatility might not be neglected. [source] EFFECT OF IT JOB TRAINING ON EMPLOYMENT AND WAGE PREMIUM: EVIDENCE FROM KOREA PANEL DATATHE DEVELOPING ECONOMIES, Issue 4 2003Hong-Kyun KIM In this paper, we examine whether IT job training raises the probability of getting employed and enables the trainee to obtain a high wage. In this paper, it is reported that, in the Republic of Korea, IT job training as a whole affects not only employment but also wage premium, even though the effect on wage premium is somewhat less conspicuous. In particular, the intensity of IT job training is more instrumental in the opportunity of getting employed than simply whether receiving IT job training or not. This effect is intensified in the low-education group. In this group, the probability for the persons who undergo IT job training for more than six months of getting employed is higher than that for a person without any job training. Additionally, provision of IT job training by a private institute and cost sharing with the government enhances the opportunity of employment. [source] EXPLAINING THE EQUITY RISK PREMIUM,THE MANCHESTER SCHOOL, Issue 6 2006LAURIAN LUNGU We develop a simple overlapping generations model in which the young have a choice in investing in equities or index-linked bonds. Projections of share price uncertainty over a 30-year period show that the risk associated with such long-term investments predicts an equity premium that matches historical values. Moreover, we calibrate the model and show that it can predict up to the fourth moment of both the observed risk premium and the real rate of interest. [source] Earnings Quality and the Equity Risk Premium: A Benchmark Model,CONTEMPORARY ACCOUNTING RESEARCH, Issue 3 2006Kenton K. Yee Abstract This paper solves a model that links earnings quality to the equity risk premium in an infinite-horizon consumption capital asset pricing model (CAPM) economy. In the model, risk-averse traders hold diversified portfolios consisting of risk-free bonds and shares of many risky firms. When constructing their portfolios, traders rely on noisy reported earnings and dividend payments for information about the risky firms. The main new element of the model is an explicit representation of earnings quality that includes hidden accrual errors that reverse in subsequent periods. The model demonstrates that earnings quality magnifies fundamental risk. Absent fundamental risk, poor earnings quality cannot affect the equity risk premium. Moreover, only the systematic (undiversified) component of earnings-quality risk contributes to the equity risk premium. In contrast, all components of earnings-quality risk affect earnings capitalization factors. The model ties together consumption CAPM and accounting-based valuation research into one price formula linking earnings quality to the equity risk premium and earnings capitalization factors. [source] Price Differentials between Dual-class Stocks: Voting Premium or Liquidity Discount?EUROPEAN FINANCIAL MANAGEMENT, Issue 3 2003Robert Neumann G32; G34 Abstract A series of papers suggest that private benefits can explain the price differentials between stock classes carrying different voting rights. However, in Denmark the premium is negative for several firms over long periods. This indicates that in the absence of takeover contests, where the voting right becomes crucial in a transfer of corporate control, the price differential in stock classes with identical dividend rights is more likely to reflect investors' liquidity risks. Whereas the existing literature tends to focus primarily on corporate control-related explanations, this paper documents the impact of liquidity on price spreads between dual-class shares. [source] Deal Size, Bid Premium, and Gains in Bank Mergers: The Impact of Managerial MotivationsFINANCIAL REVIEW, Issue 3 2007Atul Gupta G14; G21; G34 Abstract Do mergers with greater target relative to acquirer size create more value than mergers with smaller relative sized targets? Do larger bid amounts represent wealth transfers from acquirers or do they signal greater expected merger gains? We hypothesize that the relations among aggregate merger gains, relative size, and bid premiums are asymmetric across mergers made by value-enhancing versus value-reducing managers. We use a large sample of bank mergers to test these predictions and find that the value response to different explanatory variables is asymmetric. Our findings provide new insights into how the market values merger bids. [source] Previous Marriage and the Lesbian Wage PremiumINDUSTRIAL RELATIONS, Issue 3 2009NASSER DANESHVARY This paper provides insight into the wage gap between partnered lesbians and other groups of women. Using data from the 2000 Decennial Census, we find that wages of never-married lesbians are significantly higher than wages of previously married lesbians and other groups of women. Results indicate that controlling for previous marriage reduces the estimated lesbian wage premium by approximately 20 percent. Our research also reveals that wage patterns of previously married lesbians mirror those of cohabiting heterosexual women. Overall, our results are consistent with the notion that the lesbian wage premium is driven, in part, by differences in the labor-market commitment of lesbians and heterosexual women. [source] Estimation Uncertainty and the Equity Premium,INTERNATIONAL REVIEW OF FINANCE, Issue 3 2009HONG YANArticle first published online: 25 AUG 200 ABSTRACT This paper studies a dynamic equilibrium model of asset prices in a partially observable exchange economy. It shows that the precautionary savings motive in response to estimation uncertainty can dominate the risk aversion effect, resulting in the reduction of the equity premium over short horizons. This exacerbates the equity premium puzzle. Over longer holding horizons, however, estimation uncertainty does induce higher risk premiums on equity over risk-free coupon bonds of matching maturities, as long-term bond yields are lowered due to the precautionary savings effect. [source] Human Capital and Stock Returns: Is the Value Premium an Approximation for Return on Human Capital?JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 3-4 2004Article first published online: 28 MAY 200, Bo Hansson This study, using a direct measure of the wage growth rate within firms, examines the value premium in relation to human capital. The results suggest that the dispersion in wage growth in value and growth stocks explains a large portion of the differences in stock returns. It appears that value stocks are less exposed to shocks in rents to human capital. Differences in labor force characteristics among value and growth stocks also proved to be an important factor in determining both the impact of future changes in labor income growth rate and firm value. The present findings are understood to mean that the ability of investors to forecast the dispersion in wage growth in firms is limited. [source] Estimating the Equity Risk Premium Using Accounting FundamentalsJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 9-10 2000John O'Hanlon This study uses recent developments in the theoretical modelling of the links between unrecorded accounting goodwill, accounting profitability and the cost of equity, together with Capital Asset Pricing Model (CAPM) betas, to estimate the ex-ante equity risk premium in the UK. The results suggest that, over our sample period from 1968 to 1995, the premium has been in the region of 5%. Our estimate lends support to the view that the ex-ante equity risk premium is substantially less than the historical average of the excess of equity returns over the risk-free rate, and is similar to the rates applied recently by UK competition regulators. [source] Pricing of Forward and Futures ContractsJOURNAL OF ECONOMIC SURVEYS, Issue 2 2000Ying-Foon Chow There has long been substantial interest in understanding the relative pricing of forward and futures contracts. This has led to the development of two standard theories of forward and futures pricing, namely, the Cost-of-Carry and the Risk Premium (or Unbiased Expectations) hypotheses. These studies have modelled the relationship between spot and forward/futures prices either through a no-arbitrage condition or a general equilibrium setting. Relatively few studies in this area have considered the impact of stochastic trends in the data. With the emergence of non-stationarity and cointegration in recent years, more sophisticated models of futures/forward prices have been specified. This paper surveys the significant contributions made to the literature on the pricing of forward/futures contracts, and examines recent empirical studies pertaining to the estimation and testing of univariate and systems models of futures pricing. [source] Are Frequent-Flyer Programs a Cause of the "Hub Premium"?JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY, Issue 1 2008Mara Lederman This paper estimates the relationship between frequent-flyer programs (FFPs) and fares at hub airports. I exploit the formation of partnerships that allowed members of one airline's FFP to earn that airline's points on flights operated by its partner. If FFPs allow an airline to charge higher fares on routes that depart from its hubs, these partnerships should allow an airline's partner to charge higher fares on routes that depart from these same airports. I find that offering the FFP points of the dominant carrier at an airport does, indeed, lead to higher fares. Combining these estimates with estimates of the "hub premium" suggests that FFPs may account for at least 25% of the "hub premium." [source] Price Premium and Foreclosure RiskREAL ESTATE ECONOMICS, Issue 2 2006Seow Eng Ong Many previous studies identify loan, property, borrower and environmental factors that impact the probability of foreclosure. Implicit in these studies is the assumption that the property was purchased at fair value. We question this assumption based on several empirical findings regarding property value uncertainty. In contrast to previous research, we explicitly quantify the price premium from a hedonic pricing model. Using a comprehensive database of real estate transactions in Singapore during 1989,2000, we document a price premium associated with properties that are subsequently foreclosed based on actual sales transactions. In addition, we find that the premium paid at purchase significantly increases the probability of foreclosure. These results are robust and continue to hold after controlling for other property-specific factors, time-varying macroeconomic conditions, alternative model specifications and definitions of price premium. [source] Financial Market Design and the Equity Premium: Electronic versus Floor TradingTHE JOURNAL OF FINANCE, Issue 6 2005PANKAJ K. JAIN ABSTRACT We assemble the announcement and actual introduction dates of electronic trading by the leading exchanges of 120 countries to examine the impact of automation, controlling for risk factors and economic conditions. Dividend growth models and international CAPM suggest a significant decline in the equity premium, especially in emerging markets. Consistent with this reduction in the equity premium in the long run, there is a positive short-term price reaction to the switch. Further analysis of trading turnover supports the notion that electronic trading enhances the liquidity and informativeness of stock markets, leading to a reduction in the cost of capital. [source] Diversification Discount or Premium?THE JOURNAL OF FINANCE, Issue 2 2004New Evidence from the Business Information Tracking Series ABSTRACT I use the Business Information Tracking Series (BITS), a new census database that covers the whole U.S. economy at the establishment level, to examine whether the finding of a diversification discount is an artifact of segment data. BITS data allow me to construct business units that are more consistently and objectively defined than segments, and thus more comparable across firms. Using these data on a sample that yields a discount according to segment data, I find a diversification premium. The premium is robust to variations in the sample, business unit definition, and measures of excess value and diversification. [source] A Closer Look at the Size and Value Premium in Emerging Markets: Evidence from the Kuala Lumpur Stock ExchangeASIAN ECONOMIC JOURNAL, Issue 4 2002Michael E. Drew In this study of asset pricing in emerging markets, two questions are asked. First, Is there a size and value premium in markets outside the USA? Second, Can the multifactor model of Fama and French (1996) capture the cross,section of average stock returns for the Malaysian setting? The answers from this study suggest that size and value premium exist in markets outside the USA. We find that the two mimic portfolios, ,small minus big' (SMB) and ,high minus low' (HML), generate a return of 17.70% and 17.69% per annum, respectively, while the market generates a return of 1.92% per annum. Our findings suggest that the multi,factor model of Fama and French (1996) is a parsimonious representation of the risk factors for Malaysia, explaining returns in an economically meaningful manner. Our findings also reject the claim that the multifactor model results can be explained by the turn,of,the,year effect. [source] Negative Market Volatility Risk Premium: Evidence from the LIFFE Equity Index Options,ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 5 2009Bing-Huei Lin Abstract We provide non-parametric empirical evidence regarding negative volatility risk premium using LIFFE equity index options. In addition, we incorporate the moment-adjusted option delta hedge ratio to mitigate the effect of model misspecification. From the results, we observe several interesting phenomena. First, the delta-hedged gains are negative. Second, with a correction for model misspecification, higher-order moments measures show less significance and the volatility risk premium still plays a key role in affecting delta-hedged gains. All empirical evidence supports the existence of negative volatility risk premium in LIFFE equity index options. [source] Skill Premium, Biased Technological Change and Income DifferencesCHINA AND WORLD ECONOMY, Issue 6 2009Wei Zou D24; D33; O14 Abstract Using 1987,2006 panel data for China, we explore the dynamics of the skill premium. The present paper focuses on the skill premium as an explanation for why income differences are so large in China. Our empirics show that: the rise in the relative supply of skilled labor results in an increase, instead of a decrease, in the skill premium; domestic investment is not complementary with skill formation; the skillpremium is higher in more developed provinces; economic openness facilitates an increase in the skill premium; whether foreign direct investment induces skill-based technology change or not, it drives up the skillpremium. An array of policy prescriptions for reducing income differences and ensuring sustained economic growth are provided. [source] Audit Pricing, Legal Liability Regimes, and Big 4 Premiums: Theory and Cross-country Evidence,CONTEMPORARY ACCOUNTING RESEARCH, Issue 1 2008Jong-Hag Choi First page of article [source] Split Bond Ratings and Information Opacity PremiumsFINANCIAL MANAGEMENT, Issue 2 2010Miles Livingston This paper examines the relationship between split bond ratings and bond yields at the notch level for newly issued corporate bonds. We find that split rated bonds average a 7-basis-point yield premium over nonsplit rated bonds of similar credit risk. The yield premium increases from 5 basis points for one-notch splits to 15 (20) basis points for two-notch (three-notch) splits. These findings indicate that investors demand higher yields for split rated bonds to compensate for the information opacity of such bonds. In addition, the yield premium for split rated bonds is higher during economic recessions, indicating investors are more risk averse during economic downturns. Consequently, split ratings impose higher borrowing costs for firms, especially during economic downturns. [source] Equity Risk Premiums (ERP): Determinants, Estimation and Implications , A Post-Crisis UpdateFINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 5 2009Aswath Damodaran First page of article [source] School Attendance and Skill Premiums in France and the US: A General Equilibrium Approach,FISCAL STUDIES, Issue 4 2007David De La Croix We evaluate the effect of education policies, welfare programmes, technology and demographics on the differential evolution of the skill premium and on the rise in education investment in France and the US. We use a computable general equilibrium model with overlapping generations of individuals and endogenous education decisions. Human capital has two substitutable components - experience and education - both of which evolve endogenously over time. We use an original method to calibrate our model properly on the post-war period and run counterfactual experiments to assess the relative contributions of the different exogenous variables. The expansionary French education policy boosted the supply of skills and kept the skill premium low. In contrast, increasing education costs in the US contributed to increased wage differentials by reducing the rise in educational attainment. Skill-biased technical change is key to understanding rising school attendance and skill premiums in the US. It has a less important role and appears to be delayed in France. [source] The Effect of Benefits, Premiums, and Health Risk on Health Plan Choice in the Medicare ProgramHEALTH SERVICES RESEARCH, Issue 4p1 2004Adam Atherly Objective. To estimate the effect of Medicare+Choice (M+C) plan premiums and benefits and individual beneficiary characteristics on the probability of enrollment in a Medicare+Choice plan. Data Source. Individual data from the Medicare Current Beneficiary Survey were combined with plan-level data from Medicare Compare. Study Design. Health plan choices, including the Medicare+Choice/Fee-for-Service decision and the choice of plan within the M+C sector, were modeled using limited information maximum likelihood nested logit. Principal Findings. Premiums have a significant effect on plan selection, with an estimated out-of-pocket premium elasticity of ,0.134 and an insurer-perspective elasticity of ,4.57. Beneficiaries are responsive to plan characteristics, with prescription drug benefits having the largest marginal effect. Sicker beneficiaries were more likely to choose plans with drug benefits and diabetics were more likely to pick plans with vision coverage. Conclusions. Plan characteristics significantly impact beneficiaries' decisions to enroll in Medicare M+C plans and individuals sort themselves systematically into plans based on individual characteristics. [source] Consumer willingness to pay for locally grown products: the case of South CarolinaAGRIBUSINESS : AN INTERNATIONAL JOURNAL, Issue 3 2009Carlos E. Carpio A contingent valuation framework is used to evaluate South Carolina consumers' willingness to pay for the "locally grown" characteristic (defined here as South Carolina grown) in produce and animal products and to identify the sociodemographic characteristics affecting consumer preferences for this characteristic. Findings show that South Carolina consumers are willing to pay an average premium of 27% for local produce and 23% for local animal products. Premiums for local products are influenced by age, gender, and income as well as by perceived product quality, a desire to support the local economy, patronage of farmers markets, and consumer ties to agriculture. [JEL Categories: D12, Q13]. © 2009 Wiley Periodicals, Inc. [source] Acquisition Premiums, Subsequent Workforce Reductions and Post-Acquisition PerformanceJOURNAL OF MANAGEMENT STUDIES, Issue 5 2007Hema A. Krishnan abstract This study suggests that paying acquisition premiums leads to workforce reductions in the merged firm, which in turn results in poorer post-acquisition performance. This issue is important to scholars and practising managers given the pervasiveness and importance of knowledge and human capital to competitive advantage. In a sample of 174 major related acquisitions completed in the period 1992,98, results show a positive relationship between the premium paid for an acquisition and subsequent workforce reductions, controlling for a number of alternative explanations. Additionally, workforce reduction mediates the negative relationship between premiums and post-acquisition performance. The results suggest that the effects of workforce reductions following large premiums paid for the acquired firm can be detrimental to the interests of the organization. [source] Nonlinear Cointegration Relationships Between Non-Life Insurance Premiums and Financial MarketsJOURNAL OF RISK AND INSURANCE, Issue 3 2009Fredj Jawadi The aim of this article is to study the adjustment dynamics of the non-life insurance premium (NLIP) and test its dependence to the financial markets in five countries (Canada, France, Japan, the United Kingdom, and the United States). First, we justify the linkage between the insurance and the financial markets by the underwriting cycle theory and financial models of insurance pricing. Second, we examine the relationship between the NLIP, the interest rate, and the stock price using the recent developments of nonlinear econometrics. We use threshold cointegration models: the switching transition error correction models (STECM). We show that STECM perform better than a linear error correction model (LECM) to reproduce the NLIP dynamics. Our empirical results show that the adjustment of the NLIP in France, Japan, and the United States is rather discontinuous, asymmetrical, and nonlinear. Moreover, we suggest a strong evidence of significant linkages between insurance and financial markets, show two regimes for the NLIP, and find that the NLIP adjustment toward equilibrium is time varying with a convergence speed that varies according to the insurance disequilibrium size. [source] Do Temporary Workers Receive Risk Premiums?LABOUR, Issue 4 2002Assessing the Wage Effects of Fixed, term Contracts in West Germany by a Matching Estimator Compared with Parametric Approaches The wage effects of fixed,term contracts (FTCs) are analysed with the German Socio,Economic Panel (GSOEP) for West Germany. Taking selection on observables into account results in an estimated wage effect of ,6 percent up to ,10 percent. Controlling additionally for selection on unobservables leads to wage effects of ,23 percent, which may be explained by self,selection of workers. The results also highlight the importance of asymmetric information as an explanation for the incentive for employers as well as workers to enter FTCs. [source] Put Option Premiums and Coherent Risk MeasuresMATHEMATICAL FINANCE, Issue 2 2002Robert Jarrow This note defines the premium of a put option on the firm as a measure of insolvency risk. The put premium is not a coherent risk measure as defined by Artzner et al. (1999). It satisfies all the axioms for a coherent risk measure except one, the translation invariance axiom. However, it satisfies a weakened version of the translation invariance axiom that we label translation monotonicity. The put premium risk measure generates an acceptance set that satisfies the regularity Axioms 2.1,2.4 of Artzner et al. (1999). In fact, this is a general result for any risk measure satisfying the same risk measure axioms as the put premium. Finally, the coherent risk measure generated by the put premium's acceptance set is the minimal capital required to protect the firm against insolvency uniformly across all states of nature. [source] | |||||||||||||||||||||||||||||||||||||||||||