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Author: Bjorn Jorgensen Publisher: ISBN: Category : Languages : en Pages : 24
Book Description
Verrecchia (1983) investigates a manager's incentives for costly, discretionary disclosure of his information to risk-averse traders when the functional form of prices is exogenously specified. We extend Verrecchia (1983) by deriving the endogenously determined functional form of prices that would arise when all traders have constant risk tolerance. We show that these endogenously determined prices are inconsistent with the assumed prices in Verrecchia (1983) when the manager elects to not disclose. We derive the manager's disclosure strategy for our setting and extend the comparative static results in Verrecchia (1990) for risk-neutral traders to a setting where traders have constant risk tolerance and prices are endogenously derived. Further, in our setting, discretionary disclosure does not affect how traders price risk of different outcomes. Also, we offer a representation of risk-averse traders' prices using risk-adjusted distributions. Finally, these results provide implications for empirical-archival discretionary disclosure studies.
Author: Bjorn Jorgensen Publisher: ISBN: Category : Languages : en Pages : 24
Book Description
Verrecchia (1983) investigates a manager's incentives for costly, discretionary disclosure of his information to risk-averse traders when the functional form of prices is exogenously specified. We extend Verrecchia (1983) by deriving the endogenously determined functional form of prices that would arise when all traders have constant risk tolerance. We show that these endogenously determined prices are inconsistent with the assumed prices in Verrecchia (1983) when the manager elects to not disclose. We derive the manager's disclosure strategy for our setting and extend the comparative static results in Verrecchia (1990) for risk-neutral traders to a setting where traders have constant risk tolerance and prices are endogenously derived. Further, in our setting, discretionary disclosure does not affect how traders price risk of different outcomes. Also, we offer a representation of risk-averse traders' prices using risk-adjusted distributions. Finally, these results provide implications for empirical-archival discretionary disclosure studies.
Author: Michael Kirschenheiter Publisher: ISBN: Category : Languages : en Pages : 48
Book Description
We develop the first general equilibrium exchange economy with risk-averse investors where firm managers can voluntarily make costly, discretionary disclosures regarding the liquidating value of the firm. This extends the discretionary disclosure setting of Verrecchia (1983) by relaxing the assumption of mean-variance pricing. Instead, we derive the equilibrium prices when risk-averse investors optimally allocate funds between a risk-free bond and risky stocks. We establish that these prices are equivalent to prices that would prevail if investors were risk neutral using risk-adjusted variables. The intuition for the required change in probability measure is analogous to the intuition for the adjustments required for option pricing. We show that in this setting, managers' optimal discretionary disclosure strategy is characterized by a disclosure threshold. We provide comparative static results for changing costs, signal variances, and asset variances. Further, we show that the structure of the prices and strategies derived is robust to the introduction of correlation in the future firm values.probability measure.
Author: Bjorn Jorgensen Publisher: ISBN: Category : Languages : en Pages :
Book Description
We model managers' equilibrium strategies for voluntarily disclosing information about their firm's risk. We consider a multi-firm setting in which the variance of each firm's future cash flow is uncertain. A manager can disclose, at a cost, this variance before offering the firm for sale in a competitive stock market with risk-averse investors. In our partial disclosure equilibrium, managers voluntarily disclose if their firm has a low variance of future cash flows, but withhold the information if their firm has highly variable future cash flows. We establish how the manager's discretionary risk disclosure affects the firm's share price, expected stock returns, and beta, within the framework of the Capital Asset Pricing Model. We show that whereas one manager's discretionary disclosure of his firm's risk does not affect other firms' share prices, it does affect the other firms' betas. Also, we demonstrate that a disclosing firm has lower risk premium and beta ex-post than a non-disclosing firm. Finally, we show that ex-ante, the expected risk premium and expected beta of each firm are higher under a mandatory risk disclosure regime than in the partial disclosure equilibrium that arises under a voluntary disclosure regime.
Author: Stephen Lenkey Publisher: ISBN: Category : Languages : en Pages :
Book Description
I model the effect of disclosure on the trade-off between information risk, liquidity risk, and price risk for a well-informed, risk-averse insider. Revealing some information before trading decreases the variability of the insider's information advantage and thus reduces his information risk. Disclosure also lowers adverse selection costs for market makers, which reduces the insider's liquidity risk by increasing his trading flexibility. However, disclosure increases price risk for the insider because the price fully reflects the revealed information. The reduction in information and liquidity risks outweigh the rise in price risk when the insider is less risk averse because a less risk-averse insider's information-based motive for trading is stronger than his hedging motive. The opposite relation holds when the insider is more risk averse. Therefore, a less (more) risk-averse insider experiences an increase (decrease) in welfare when he discloses some information before trading. Cost of capital and policy implications are identified.
Author: Nicholas L. Georgakopoulos Publisher: Cambridge University Press ISBN: 1108146171 Category : Law Languages : en Pages : 215
Book Description
This book opens with a simple introduction to financial markets, attempting to understand the action and the players of Wall Street by comparing them to the action and the players of main street. Firstly, it explores the definition of a security by its function, the departure from the buyer beware environment of corporate law and the entrance into the seller disclose environment of securities law. Secondly, it shows that the cost of disclosure rules is justified by their capacity to combat irrationalities, fads, and panics. The third section explains how the structure of class actions is designed to improve deterrence. Next it explores the economic harm from insider trading and how the law fights it. In sum, the book shows how all these parts of securities law serve the virtuous cycle from liquidity to accurate prices and more trading and how the great recession showed that our securities regulation reacted mostly adequately to the crisis.
Author: Xavier Vives Publisher: Princeton University Press ISBN: 140082950X Category : Business & Economics Languages : en Pages : 422
Book Description
The ways financial analysts, traders, and other specialists use information and learn from each other are of fundamental importance to understanding how markets work and prices are set. This graduate-level textbook analyzes how markets aggregate information and examines the impacts of specific market arrangements--or microstructure--on the aggregation process and overall performance of financial markets. Xavier Vives bridges the gap between the two primary views of markets--informational efficiency and herding--and uses a coherent game-theoretic framework to bring together the latest results from the rational expectations and herding literatures. Vives emphasizes the consequences of market interaction and social learning for informational and economic efficiency. He looks closely at information aggregation mechanisms, progressing from simple to complex environments: from static to dynamic models; from competitive to strategic agents; and from simple market strategies such as noncontingent orders or quantities to complex ones like price contingent orders or demand schedules. Vives finds that contending theories like informational efficiency and herding build on the same principles of Bayesian decision making and that "irrational" agents are not needed to explain herding behavior, booms, and crashes. As this book shows, the microstructure of a market is the crucial factor in the informational efficiency of prices. Provides the most complete analysis of the ways markets aggregate information Bridges the gap between the rational expectations and herding literatures Includes exercises with solutions Serves both as a graduate textbook and a resource for researchers, including financial analysts
Author: Paul U. Ali Publisher: CRC Press ISBN: 1420074032 Category : Business & Economics Languages : en Pages : 452
Book Description
Insider trading has long been considered an endemic feature of the world's financial markets. It is unsurprising that the recent growth in mergers and acquisitions worldwide has been accompanied by a growth in insider trading, on a scale not witnessed since the 1980's takeovers boom. Insider Trading: Global Developments and Analysis brings together the latest law and finance research on insider trading. It provides expert coverage on the established US, European, and Asia-Pacific securities markets, as well as the key emerging markets of Brazil and the greater China region. Providing high interest and up-to-date content, the book features several recent cases, including that of Martha Stewart.
Author: Nikiforos T. Laopodis Publisher: Routledge ISBN: 1000506088 Category : Business & Economics Languages : en Pages : 787
Book Description
Financial Economics and Econometrics provides an overview of the core topics in theoretical and empirical finance, with an emphasis on applications and interpreting results. Structured in five parts, the book covers financial data and univariate models; asset returns; interest rates, yields and spreads; volatility and correlation; and corporate finance and policy. Each chapter begins with a theory in financial economics, followed by econometric methodologies which have been used to explore the theory. Next, the chapter presents empirical evidence and discusses seminal papers on the topic. Boxes offer insights on how an idea can be applied to other disciplines such as management, marketing and medicine, showing the relevance of the material beyond finance. Readers are supported with plenty of worked examples and intuitive explanations throughout the book, while key takeaways, ‘test your knowledge’ and ‘test your intuition’ features at the end of each chapter also aid student learning. Digital supplements including PowerPoint slides, computer codes supplements, an Instructor’s Manual and Solutions Manual are available for instructors. This textbook is suitable for upper-level undergraduate and graduate courses on financial economics, financial econometrics, empirical finance and related quantitative areas.
Author: Bjorn Jorgensen
Author: Bjorn Jorgensen
Author: Michael Kirschenheiter
Author: Bjorn Jorgensen
Author: Stephen Lenkey
Author: Nicholas L. Georgakopoulos
Author: Xavier Vives
Author: Lawrence D. Cluff
Author: Paul U. Ali
Author: Nicholas L. Georgakopoulos
Author: Nikiforos T. Laopodis