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The causes for the formation of a bubble in the collateral market when agents are provided with homogeneous expectations are explored. This bubbly dynamics will define a sufficient condition for deleveraging.

Theoretical approach with neutral deleveraging.

Findings of the study are defined sufficient conditions for a behavioral rational bubble's formation in a market of collateral and the subsequent deleveraging. The crowd-in effect of the representative bubble is caused by errors in extrapolating information and thus by representativeness, while the crowd-out effect of deleveraging is set off by reverting to a rational heuristic.

The limit is that it is a homogeneous expectations approach, the implication is that cannot be rational speculation.

Even in a simple model of homogeneous expectations a bubble may arise with serious effect on the demand side: models that detect just rational mispricings cannot account for behavioral components that have financial and real effects.

The paper defines how deleveraging may occur even in case of homogeneous expectations. The latter should not be seen just as a limit but also as a signal of the importance of being aware of behavioral components.

This paper provides some justification for the observation that managers hedge transaction and translation risk through financial contracts and not economic risk as recommended by economists. One reason for the observed behavior is uncertainty in the perception of economic risk. If the manager is more heavily penalized for mishedging than rewarded for proper hedging, then uncertainty of perception may induce him not to hedge economic risk. Another reason is that accounting rules may lead to high accounting losses if economic risk is properly hedged by financial contracts.

The purpose of this paper is to examine the impact of heterogeneous expectations on the equilibrium value of a risky asset in a capital market populated by investors that choose mean‐variance efficient portfolios.

A single‐period, discrete‐time version of Williams' capital asset pricing model that incorporates heterogeneous beliefs regarding the mean vector of rates of return and homogeneous beliefs regarding the variance‐covariance matrix of rates of return is developed. It is then employed to gauge the impact of both divergence of opinion and increases thereof on the equilibrium price of a risky asset.

The value of a risky asset under heterogeneous beliefs differs from that under homogeneous beliefs as the former is biased towards the beliefs of wealthier and/or more risk tolerant investors. If the latter set of investors is optimistic (pessimistic), the value is higher (lower) than that which prevails in the absence of divergence of beliefs. Increasing divergence of opinion likewise affects the equilibrium price of a risky asset to accord more with the beliefs of wealthier and/or more risk tolerant investors. If the latter set of investors is optimistic (pessimistic), increasing dispersion of beliefs causes the value of a risky asset to rise (fall).

A novel simplification and application of Williams' model of capital asset pricing is presented. The findings differ from conclusions derived in previous theoretical treatments of divergence of opinions in capital markets.

The purpose of this paper is to apply a third-person effects theory to the study of corporate social responsibility communications. Previous studies have asked what importance investors assign to the socially responsible activities of corporations. However, in the context of publicly-traded companies, it becomes important not only to calculate the effects of available information on an individual investor, but also to estimate the effects of every piece of information on the investor’s perception of the investment community at large.

The study uses a survey methodology in order to evaluate what value respondents assign to socially responsible behaviors as well as to identify a presence of third-person effects in the corporate social responsibility evaluations. Using an online survey, the respondents were asked to read a modified news article and the respond to a series of questions. In total, 96 completed surveys were collected and analyzed.

The research finds the presence of third-person effects incorporate socially responsibility message processing. The results of the study show that, while individually people are supportive of the socially responsible behaviors of corporations, they perceive others to be less supportive of such behaviors; they also see others as less likely to encourage such behaviors through action. As a result, people are less likely to act on their own views of corporate socially responsibility as they perceive themselves to be outliers. These findings lead to important consequences for investor communications, which are discussed in light of the efficient market hypothesis.

From an academic standpoint, the study proposed that in investor and financial communication, third-person effects could play a significant role. Yet, third-person effects research in investor relations literature simply does not exists. Thus, the study’s main contribution is expanding third-person effects theory into the field of the investor relations research.

From practical standpoint, expectations and perception of corporate social responsibility have a significant effect on corporate reputation and, thus, communication about corporate social responsibility become important as they shape these perceptions and expectations. Yet, such corporate social responsibility issues may include a variety of matters, such as governance, responsibility, and the quality of social and economic choices, sometimes even contradictory to each other. It becomes a job of investor relations managers to study, analyze, and respond to these competing demands.

From societal standpoint, the study advances the debate on the role of corporations in the society. With such concepts as social license to operate and creating shared value, and the growing expectations about corporate behavior, understanding the stakeholders perceptions of socially responsible behavior of corporations as a function of their perceptions of other stakeholders’ viewpoints, creates a better understanding of the complexities involved in the issue of corporate social responsibility reporting.

Since investors and other financial publics are not homogenous and may have different perspectives, opinions, values, etc., they may react to the same information differently. Furthermore, they may expect others to behave differently and such perceptions, whether accurate or not, may, in fact, influence their own behavior, as third-person effects theory would suggest. Investor relations, then, becomes a function of managing these expectations. The presence of the third-person effects in investor communications can have a strong effect on market behavior and, thus, must become an important part of the investor relations professionals’ job – how the messages are crafted, communications, and measured. Yet, third-person effects is non-existent in the investor relations literature. Thus, the study provides an original contribution by applying a third-person effects theory in the investor relations research.

In an introductory finance course, business school students often report difficulty in dealing with several variables and regression equations in testing the forward market efficiency and its relevant hypotheses: forward rate unbiasedness, rational expectations, risk neutrality and homogeneous expectations. The paper aims to discuss these issues.

Although each of these hypotheses may be relatively easy to understand one by one, it is harder to see their linkages. Thus, the author develops the loop diagram for supplementing traditional instruction methods.

The author finds that a significant majority of students prefer the loop diagram approach. Furthermore, students using loop diagram display more understanding of the forward market efficiency than those with access to a conventional instruction.

The loop diagram provides students a simple visual aid for formulating a complete set of regressions and enables them to analyze a richer set of relationships between several hypotheses than what they typically see in finance textbooks.

Empirical researchers should recognize that opening and closing prices are not simple reflections of underlying fundamental values, as studies of stock price behavior have documented a U‐shaped intra‐day volatility pattern that is a manifestation of noise. While implicit transaction costs and the tactical trading of informed participants are contributing factors, they do not provide a sufficient explanation. The purpose of this paper is to focus on an additional factor – price discovery and present a formulation which allows investors with divergent expectations to respond rationally to each other's valuations, and which implies elevated volatility even when information is common knowledge.

This is a conceptual paper with empirical implications for the dynamic process of price formation in an equity market. The work is motivated by the well‐documented finding that intra‐day stock prices are excessively volatile, especially at market openings and closings. The paper's theoretical construct shows that the volality accentuation can be attributed to the dynamic process of price discovery.

The paper's chief finding is that price discovery is a protracted, path‐dependent process in an environment characterized by divergent expectations and adaptive valuations. The protracted, path‐dependent process of price discovery can account for the observed elevation of intra‐day price volatility.

This is an original research paper. The formulation is a novel and innovative treatement of a divergent expectations, adaptive valuations paradigm.

Reports some findings with respect to the possibility of classifying service consumers on the basis of their quality expectations. After reviewing traditional types of market segmentation, two hypotheses related to the applicability of service quality expectations as a grouping variable are formulated. Then, findings from a study developed in the tourism industry are presented, using the Chow test to verify the mentioned hypotheses. The study indicates that the segmentation proposed is operational and that, in general, the aspects for which the customers have greater expectations are those which influence their satisfaction to a greater extent. Finally, managerial implications are discussed based on the results of the study

Small and medium‐sized companies (SMEs) have started to generate intellectual capital (IC) reports in order to enhance their management and corporate reporting. While the impact of a better management is quite clear, it is still unclear if an IC report has any impact on the rating of a company. The aim of this paper is to determine whether intellectual capital reports of SMEs generate any impact on the valuation behavior of analysts.

A test design was developed which comprised a literature review, a brain trust with financial experts, a quantitative survey, and an experiment with analysts based on two case studies.

If some requirements about structure and content of an IC report are fulfilled, it contributes to a more homogeneous rating than a rating based solely on information from financial reporting. Therefore, intellectual capital reports reduce risks for both investors/banks and SMEs.

The research is based solely on German entities. It focuses on SMEs and their relevant capital market partners, which are banks. The results of the study indicate that also international analysts and companies could profit from additional information about IC.

The results of the study can be used to further develop and adapt IC reports to complement annual reporting according to analysts' requirements.

The paper helps to cover a well‐documented information need of companies that want to communicate their IC to the capital market and do not know how and what kind of impact can be expected.

The purpose of this paper is to develop a model to analyze the role of exchange rate appreciation expectation in trade invoicing from the perspective of importers, then empirically analyze it using Japanese export data.

Constructing a theoretical model of importer behavior by analyzing the importer's utility function under an assumption such as “menu cost”, then using econometric method to justify the theoretical model's finding.

It was found that under the assumption of “menu cost”, risk neutrality and price rigidity, there are three directions of appreciation expectation's effect: increasing, unchanged and decreasing theoretically; but under common condition, only a large appreciation expectation will cause an importer to reduce the use of exporter's currency, and the role is constricted by exporters' bargaining capacity. The empirical results of Yen's use in Japan's exports justifies the model's conclusion and shows that commercial pressure and political events are the most important signals to form large appreciation expectation.

This paper has important policy implications for Renminbi (RMB)'s exchange rate policy under the context of RMB internationalization, in order to promote RMB's use in exports; China should control the large appreciation expectation of RMB and the best way is to rigorously tackle trade deficit with US and European countries, and to eliminate the explicit appreciation signal.

The paper analyzes the role of exchange rate appreciation in trade invoicing theoretically and empirically for the first time; and reasonably explains the development of currency invoicing in Japanese exports and contemporary Chinese exports, as well as having important policy implications for Chinese exchange rate policy.

The capital asset pricing model (CAPM) is the most widely used asset pricing model that measures risk–return relationship. The CAPM is based on Markowitz’s mean variance analysis. The advancement of Islamic finance leads to the question whether or not the practice of modern investment theories and analyses such as the Markowitz’s mean variance analysis and CAPM are in accordance to shariah and could be used in pricing Islamic financial assets. Therefore, this paper aims to present a review of the CAPM and to discourse the set of assumptions underlying the model in terms of shariah compliance.

Although most of the assumptions are not contradictory to shariah principles, there are Islamic variables such as prohibition of short selling, purification and zakat that should be taken into consideration when pricing Islamic financial assets. We then develop a mathematical model which is a modification of the traditional CAPM that incorporates principles of Islamic finance and integrating zakat, purification of return and exclusion of short sales.

As a proof-of-concept, this paper presents the results of an empirical study on the proposed shariah-compliant CAPM in comparison to the traditional CAPM. The results show that the proposed Islamic CAPM is appropriate and applicable in examining the relationship between risk and return in the Islamic stock market.

This study contributes to existing body of knowledge by presenting an algorithm and mathematical derivation of the shariah-compliant CAPM which has been lacking in the literature of Islamic finance. The paper offers a novel approach in pricing Islamic financial assets in accordance to shariah, advocated by modern investment theories of Markowitz’s mean variance analysis and CAPM.