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1 – 10 of over 123000Charles N. Noussair and Owen Powell
This paper aims to study how the trajectory of fundamental values affects price discovery in an experimental asset market.
Abstract
Purpose
This paper aims to study how the trajectory of fundamental values affects price discovery in an experimental asset market.
Design/methodology/approach
An experiment is conducted with two treatments, in which the time path of fundamentals differs between treatments. In the peak treatment, fundamentals first rise and then fall, while in the valley treatment fundamentals first fall and then recover. The experiment allows market prices to be compared to fundamental values.
Findings
Both peak and valley treatments experience bubbles when traders are inexperienced. However, price discovery is more rapid and complete in the peak than in the valley treatment. In the peak treatment, prices track the value, the direction of the trend, and changes in trend, more closely than in the valley treatment.
Originality/value
This paper documents the first experimental results regarding pricing behavior in markets with non‐monotonic fundamentals. It creates an environment (the valley treatment) in which convergence to close to fundamentals does not occur even with repetition of the market under identical conditions. The results demonstrate that the likelihood that an asset market tracks fundamentals depends on the time path of fundamentals.
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Zhongzhi (Lawrence) He and Lawrence Kryzanowski
Researchers have proposed characteristics‐based pricing models as an alternative to risk‐based pricing models. While supported empirically, these characteristic‐based models lack…
Abstract
Purpose
Researchers have proposed characteristics‐based pricing models as an alternative to risk‐based pricing models. While supported empirically, these characteristic‐based models lack theoretical support. This paper seeks to reformulate an asset‐pricing model (RAPM) to demonstrate why firm characteristics help to explain stock returns.
Design/methodology/approach
The RAPM is grounded in an economic setting where two groups of agents hold different beliefs about firm fundamental values, and the more sophisticated group (rationals) adopts contrarian strategies against the naïve group (quasis). The model is derived in a static equilibrium within the consumption‐investment framework with heterogeneous agents.
Findings
The key theoretical result is a parsimonious equation of cross‐sectional expected returns that not only are specified by the traditional risk‐return relation, but also are determined by contrarian adjustments at both market‐wide and firm‐specific levels. When the model is taken to empirical specifications, it leads to consistent explanations for the behaviors of growth and value stocks, and for size and book‐to‐market effects.
Research limitations/implications
The RAPM is a one‐period model that assumes that “rationals” have perfect knowledge about “quasis” sentiment parameter and their relative market weights. In future research, it is planned to extend this static model to multiple periods to incorporate a learning process by which “rationals” learn these parameters over time.
Practical implications
The RAPM clearly identifies four criteria for implementing arbitrage opportunities in investments. These criteria formalize the common practices in the mutual/hedge fund industry.
Originality/value
The paper develops an original framework that formally supports the characteristics‐based models. It offers insights for researchers in behavioral finance and guidelines for investment practitioners.
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A comparison of fundamental house prices with actual prices indicates that house prices fluctuate more than fundamentally justified, a fact difficult to explain with standard…
Abstract
Purpose
A comparison of fundamental house prices with actual prices indicates that house prices fluctuate more than fundamentally justified, a fact difficult to explain with standard rational agent models. The purpose of this paper is to evaluate to what extent herding behaviour among investors can be seen as an explanation for deviations of house prices from their fundamental value.
Design/methodology/approach
To see whether house prices fluctuate more than fundamentally justified, the paper calculates a fundamental house price and compares it to the actual price for seven European and three non‐European OECD countries. Then the paper incorporates herding behaviour into the house‐price model and examines its influence on the development of prices.
Findings
A comparison of the fundamental house prices with actual prices indicates that house prices fluctuate more than fundamentally justified. The calibration of the herding model indicates that it can help to explain fluctuations of actual house prices.
Originality/value
The incorporation of herding behaviour into a housing model and the calibration of its impact are the main innovations of this paper.
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We develop a credit-risk model to study the informational role of investment in an economy susceptible to large liquidity shocks. Firms' investment decisions carry information…
Abstract
We develop a credit-risk model to study the informational role of investment in an economy susceptible to large liquidity shocks. Firms' investment decisions carry information about their asset quality, thereby mitigating informational frictions when firms enter bankruptcy. An increase in aggregate investment can reduce the informational value of investment, depressing firms' recovery values. Therefore, policies boosting investment can decrease debt and firm values by reducing the informational value of investment. The presence of debt overhang may enhance firm value by making firms' investment decisions more informative. We present suggestive empirical evidence consistent with model predictions on the relation between firms' investments and recovery rates.
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Susana Alves Pereira, Nuno Rebelo dos Santos, Leonor Pais and Salvatore Zappalà
This paper aims to describe and characterise the actions carried out by Italian organisations participating in the Economy for the Common Good (ECG) movement and to analyse these…
Abstract
Purpose
This paper aims to describe and characterise the actions carried out by Italian organisations participating in the Economy for the Common Good (ECG) movement and to analyse these actions through the lens of decent work (DW), identifying patterns leading to a typology and conceptual propositions on the subject.
Design/methodology/approach
A documentary analysis was conducted on 14 reports describing the actions taken by Italian organisations that belong to the ECG movement. Qualitative content analysis was performed using QSR-NVivo12. The descriptive analysis of the codes was made, as well as a cluster analysis based on coding similarity.
Findings
A total of 1,497 actions were coded, and four clusters, grouping sets of the common good reports, were identified. Results suggest that Customers, Business Partners and Staff and Owners are the most addressed stakeholders, human dignity and environmental sustainability are the most addressed values and Fulfilling and Productive Work and Fundamental Principles and Values at Work are the most addressed DW dimensions. Additionally, all clusters are intensive in environmental concerns but have differentiated priorities. Cluster analysis suggests three drivers: recognition, core business closeness and social common good impact. A total of five conceptual propositions are being made useable by organisational leaders who intend to adhere to the ECG movement.
Research limitations/implications
The main limitation is the low number of organisations participating in the ECG movement in Italy, which restricts the scope of the conclusions.
Practical implications
The results are helpful as inputs for designing interventions in organisations that intend to start or strengthen their involvement in the ECG movement.
Originality/value
Identifying DW aspects related to common good indicators and the four approaches to the ECG adhesion corresponding to the four clusters.
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