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

Corporate Walkout Decisions and the Value of Default

T. Dahlstrom, P. MELLA-BARRAL

Review of Finance

2003, vol. 17, pp.325-360

Départements : Finance

We present a continuous-time asset pricing model of the levered firm where shareholders select not only the timing but also the form of abandonment. Shareholders can walk out of the firm either by (i) defaulting on their debt obligations or (ii) selling their shares to alternative operators of the technologies, as in a corporation sale. The structural model relates shareholders' ex-post choice to both technological and financial factors. Considering that operators' technological supremacy is not universal, we obtain that whereas default necessarily involves an inefficient timing of ownership transfer, corporation sales do not. Then, the likelihood of default being chosen instead of a corporation sale increases with (i) the degree of leverage displayed by the firm and (ii) its technological supremacy. By ignoring corporation sales, existing defaultable bond pricing models have thus a tendency to exaggerate risk premia and underestimate the borrowing ability (debt capacity) of firms

Economic aspects of human cloning and reprogenetics


Economic Policy

avril 2003, n°36, pp.73-122

Départements : Finance

While most discussions of human cloning start and end with ethics, this paper analyses the economics of human cloning. I analyse the incentives for cloning and its implications for the long-run distribution of skills and income. I discuss models of human cloning for different motives, focusing on those that tend to produce new human beings with improved ability. I distinguish three cases: cloning as a means of assisted reproduction for infertile couples, cloning by fertile couples aimed at producing high ability offspring and, finally, financially motivated cloning. The third case supposes that the creator of a clone can appropriate some fraction of the clone's future income. Even if this fraction is small, the possibility of producing exceptionally talented clones with correspondingly high incomes might make it profitable, and thus turn cloning into a form of financial investment. An important consequence of these models is that to the extent that ability is genetically determined and cloners prefer to make high-ability clones, cloning will act as a form of what might be called 'unnatural selection'. Following standard Darwinian logic, such selection will tend to increase the proportion of high ability people in society. Indeed, under some assumptions the distribution of ability eventually converges to a mass point at the highest possible ability level. Under weaker assumptions, it is shown that ability-reducing genes are eventually eliminated. These results do not depend on cloning displacing sexual reproduction or even being widespread; they hold even if a small, or even negligible number of top ability workers are cloned at a small (but not negligible) number of copies. The paper discusses the plausibility of the models and their results in light on the evidence on marriage markets, child selection, human assisted reproduction and animal husbandry. Finally, it is shown how the analysis can be used to help formulate policies toward cloning, whether they aim at preventing it or managing its external effects

Equivariant K-Theory and Equivariant Cohomology

A. Knutson, I. ROSU

Mathematische Zeitschrift

2003, vol. 243, pp.423-448

Départements : Finance, GREGHEC (CNRS)

For T an abelian compact Lie group, we give a description of T-equivariant K-theory with complex coefficients in terms of equivariant cohomology. In the appendix we give applications of this by extending results of Chang-Skjelbred and Goresky-Kottwitz-MacPherson from equivariant cohomology to equivariant K-theory.

Explaining movements in the labor share

S. Bentolila, G. SAINT-PAUL

Contributions to Macroeconomics

2003, vol. 3, n°1

Départements : Finance

In this paper we study the evolution of the labor share in the OECD. We show it is essentially related to the capital-output ratio; that this relationship is shifted by factors like the price of imported materials or capital-augmenting technological progress: and that discrepancies between the marginal product of labor and the real wage -due to, e.g., labor adjustment costs or union wage bargaining- cause departures from it. We also provide empirical evidence on the determinants of the labor share with panel data on 13 industries and 12 countries for 1972-93

Information Sharing, Liquidity and Transaction Costs in Floor-Based Trading Systems

T. FOUCAULT, L. Lescourret


décembre 2003, vol. 24, pp.45-78

Départements : Finance, GREGHEC (CNRS)

Nous analysons le partage d'information entre des opérateurs boursiers possédant des informations de nature différentes: (i) des informations sur la valeur fondamentale d'un actif risqué ou (ii) des informations sur le volume des ordres émanant d'investisseurs échangeant pour des raisons de liquidité dans le marché de cet actif risqué. Nous montrons qu'il existe des cas dans lesquels ces opérateurs peuvent augmenter leur profit moyen en mettant en commun leur information. Nous montrons également que ce partage d'information augmente toujours l'efficience informationnelle du marché er réduit sa volatilité. Il peut diminuer ou augmenter la liquidité du marché mais dans tous les cas il réduit les coûts de transactions des investisseurs échangeant pour des raisons de liquidité. Notre analyse suggère donc que les mécanismes facilitant le partage d'information entre les opérateurs boursiers peuvent améliorer la qualité du marché.