Articles scientifiques

A Generalized Stochastic Differential Utility

A. LAZRAK, M. Quenez

Mathematics of Operations Research

février 2003, vol. 28, n°1, pp.154-180

Départements : Finance

Auctions vs. Book-building and the Control of Underpricing in Hot IPO Markets

F. DERRIEN, K. Womack

Review of Financial Studies

printemps 2003, vol. 16, n°1, pp.31-61

Départements : Finance, GREGHEC (CNRS)

Market returns before the offer price is set affect the amount and variability of initial public offering (IPO) underpricing. Thus, an important question is 'what IPO procedure is best adapted for controlling underpricing in 'hot' versus 'cold' market conditions?' The French stock market offers a unique arena for empirical research on this topic, since three substantially different issuing mechanisms (auctions, bookbuilding, and fixed price) are used there. Using 1992-1998 data, we find that the auction mechanism is associated with less underpricing and lower variance of underpricing. We show that the auction procedure's ability to incorporate more information from recent market conditions into the IPO price is an important reasonKeywords Plus: INITIAL PUBLIC OFFERINGS; OWNERSHIP; ISSUES; PRICE

Behavioral heterogeneity and the income effect

L. E. CALVET, E. Comon

Review of Economics and Statistics

août 2003, vol. 85, n°3, pp.653-669

Départements : Finance, GREGHEC (CNRS)

Inspired by the recent literature on aggregation theory, this paper introduces HITS, a semiparametric model of consumer demand that allows for diversity in tastes. The strong variation of budget shares observed across income groups has two possible origins: the individual income effect, and taste differences between poor and rich households. Consumer surveys reporting repeated cross sections do not permit the direct measurement of these two effects. In HITS, linear heterogeneity allows the GMM estimation of structural coefficients on an aggregate series. The joint density of spending and tastes is then recovered from cross sections by a nonparametric procedure involving a deconvolution. We estimate the model on British data (1968-1998) and report that taste heterogeneity explains a large fraction of the variation of budget shares with income.

Commons with Increasing Marginal Costs: Random Priority Versus Average Cost

H. CRES, H. Moulin

International Economic Review

août 2003, vol. 44, n°3, pp.1097-1115

Départements : Finance

Indivisible units are produced with increasing marginal costs. Under average cost, each user pays average cost. Under random priority, users are randomly ordered (without bias) and successively offered to buy at the true marginal cost. Both average cost (AC) and random priority (RP) inefficiently overproduce. RP tends to overproduce less, but which game collects more surplus depends much on the demand configuration. We show that a key to compare the welfare properties of the two mechanisms is the crowding factor, i.e., the number of potential users over the number of units of output users can afford: The more crowded the commons, the more RP outperforms AC. In the quadratic cost case, beyond the threshold value of 2.4 for the crowding factor, RP strongly outperforms AC; beneath it AC only mildly outperforms RP. Thus the RP mechanism manages crowded commons better than AC.

Conditional Volatility, Skewness, and Kurtosis: Existence, Persistence, and Comovements

M. ROCKINGER, E. Jondeau

Journal of Economic Dynamics and Control

août 2003, vol. 27, n°10, pp.1699-1737

Départements : Finance

Mots clés : Volatility, Skewness, Kurtosis, Generalized Student-t distribution, GARCH, Stock indices, Exchange rates, SNOPT

Recent portfolio-choice, asset-pricing, value-at-risk, and option-valuation models highlight the importance of modeling the asymmetry and tail-fatness of returns. These characteristics are captured by the skewness and the kurtosis. We characterize the maximal range of skewness and kurtosis for which a density exists and show that the generalized Student-t distribution spans a large domain in the maximal set. We use this distribution to model innovations of a GARCH type model, where parameters are conditional. After demonstrating that an autoregressive specification of the parameters may yield spurious results, we estimate and test restrictions of the model, for a set of daily stock-index and foreign-exchange returns. The estimation is implemented as a constrained optimization via a sequential quadratic programming algorithm. Adequacy tests demonstrate the importance of a time-varying distribution for the innovations. In almost all series, we find time dependency of the asymmetry parameter, whereas the degree-of-freedom parameter is generally found to be constant over time. We also provide evidence that skewness is strongly persistent, but kurtosis is much less so. A simulation validates our estimations and we conjecture that normality holds for the estimates. In a cross-section setting, we also document covariability of moments beyond volatility, suggesting that extreme realizations tend to occur simultaneously on different markets