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This paper identifies the “idiosyncratic basis”, the residual premia computed from stripping away the hypothetical cross-currency basis (CCB) from the cross-currency credit spread (CCCS) of eligible senior corporate dollar-denominated bonds relative to their hypothetical euro-denominated comparator of identical seniority, duration, credit risk and issuer. The adherence of the idiosyncratic basis to the no-arbitrage condition is subsequently evaluated through the application of an indicative market-neutral credit strategy that is designed to harvest the apparent static arbitrage opportunities. The success of the strategy, which systematically captures the idiosyncratic basis as it adheres to the no-arbitrage conditions, is validated retrospectively to frame the basis as an additional class of alternative risk premia (ARP), which investors can seek to optimise exposure to in a long-only context.

The empirical studies of the options market efficiency have reported contradictory results, which sometimes confuse practitioners and academicians. The aim of this study was to clarify several aspects of options market efficiency by exploring the answers to two main questions: Under what conditions is the options market more efficient? Are the discrepancies in the estimated efficiency due to the reality of efficiency or mismeasurement?

Using a meta-analysis approach, 54 studies have been analyzed, which included 1,315 tests. The sum of the observations for all of the tests is 3.7 m observation sets. The effect size (type r) has been used to compare the different statistics in different studies. The cumulative effect size and its diversification have been calculated by the random effects model and Q statistic, respectively.

The most interesting finding of the study was that the options market, in all circumstances, is significantly inefficient. Another important finding was that the heterogeneity of options market efficiency is due to the complexity of pricing relations, test time, violation index and price type. To overcome this heterogeneity and accuracy, future studies should test the no-arbitrage options pricing relations at different times and by different price types, using complex and simple pricing relations and either mean violation or violation ratio efficiency measures.

Public disagreement about the options market efficiency in past studies means that this variable is heterogeneous in different conditions. As a significant contribution, this study develops the literature by proposing the causes of options market efficiency heterogeneity.

This paper proposes a discrete time real options model with time‐dependent and serial correlated return process for a real estate development problem with waiting options. Based on a Martingale condition, the paper claims to be able to relax many unrealistic assumptions made in the typical real option pricing methodology. Our real option model is a new one without assuming the return process as “Ito Process”, specifically, without assuming a geometric Brownian motion. We apply the model to the condominium market in Tokyo metropolitan area in the period 1971‐1997 and estimate the value of waiting to invest in 1998‐2007. The results partly provide realistic estimates of the parameters and show the applicability of our model.

The purpose of this paper is to discuss the relevance and evolution of adaptive markets hypothesis (AMH) that has gained traction in the recent years, as it provides a dynamic perspective to the concept of informational efficiency.

This paper discusses several issues related to the concept of informationally efficient markets that have indicated efficient market hypothesis to be an incomplete portrayal of stock market behavior.

The authors find that a strict and perpetual adherence to informational efficiency is highly unlikely, and AMH provides a much more plausible description of the behavior of stock markets.

The authors provide a description of studies that examine the testable implications of AMH.

The KOSPI 200 options at its initial stage generated a significant number of violations in no-arbitrage conditions which involve both options and the underlying index. However, when the arbitrage conditions are formed independent of the underlying index, the average size of violation is not large and few arbitrage opportunities exist. There are more frequent violations on near-maturity days, with in-the-money options and larger violation sizes during opening and closing hours. The arbitrage opportunities remain intact even after realistic transaction costs are taken into account and index futures prices are used instead of the stock index in an alternative specification.

This paper attempts to investigate what kind of firms is more likely to use capital structure to signal; and in particular to investigate the impacts of corporate ownership structures on firms' capital structure signalling decisions.

The paper develops theoretical models and then uses OLS multiple regression, piecewise regression and logistic regression analysis on a set of data derived from 327 UK firms listed in the FTSE ALL share index to test the hypotheses.

The empirical results show that capital structure is not homogeneously used as a signalling tool; and firms with insider ownerships less or equal to 1.14 per cent are more likely the signallers.

Although other variables have been examined, this paper focuses on the impacts of insider ownership on capital structure signalling. Further work is required to investigate other variables that are mentioned but they are outside the scope of this paper.

This paper provides useful practical insights to both managers and investors to help them better understand and interpret firms' capital structure signals.

Before this paper, most people commonly agreed that capital structure contains signalling values. However, the findings suggest that it is not always the case.

This chapter develops a no-arbitrage, futures equilibrium cost-of-carry model to demonstrate that the existence of cointegration between spot and futures prices in the New York Mercantile Exchange (NYMEX) crude oil market depends crucially on the time-series properties of the underlying model. In marked contrast to previous studies, the futures equilibrium model utilizes information contained in both the quality delivery option and convenience yield as a timing delivery option in the NYMEX contract. Econometric tests of the speculative efficiency hypothesis (also termed the “unbiasedness hypothesis”) are developed and common tests of this hypothesis examined. The empirical results overwhelming support the hypotheses that the NYMEX future price is an unbiased predictor of future spot prices and that no-arbitrage opportunities are available. The results also demonstrate why common tests of the speculative efficiency hypothesis and simple arbitrage models often reject one or both of these hypotheses.

Should the central bank target asset price inflation? In their 1999 paper Bernanke and Gertler claimed that price stability and financial stability are “mutually consistent objectives” in a flexible inflation targeting regime which “dictates that central banks … should not respond to changes in asset prices.” This conclusion is straightforward within their framework in which asset price inflation shows up as a factor “augmenting” the IS curve. In this chapter, we pursue a different modeling strategy so that, in the end, asset price dynamics will be incorporated into the NK Phillips curve. We put ourselves, therefore, in the best position to obtain a significant stabilizing role for asset price targeting. It turns out, however, that inflation volatility is higher in the asset price targeting case. After all, therefore, targeting asset prices may not be a good idea.

I survey applications of Markov switching models to the asset pricing and portfolio choice literatures. In particular, I discuss the potential that Markov switching models have to fit financial time series and at the same time provide powerful tools to test hypotheses formulated in the light of financial theories, and to generate positive economic value, as measured by risk-adjusted performances, in dynamic asset allocation applications. The chapter also reviews the role of Markov switching dynamics in modern asset pricing models in which the no-arbitrage principle is used to characterize the properties of the fundamental pricing measure in the presence of regimes.

This paper shows that for a large class of single and multi‐factor term structure models, including the affine class, the market price of risk is directly related to the parameters of the stochastic processes of the underlying factors of the economy. It is shown that the market price of risk is proportional to the limit of the volatility of zero coupon bond returns. This means that the market price of risk is not entirely arbitrary. Not only it must be consistent with no arbitrage conditions, also it must be consistent with the parameters of stochastic processes of the factors that describe the economy. If the market price of risk is not correctly specified, then it could lead to profit opportunities of the type discussed in Backus et al (1996). Another consequence of our result is that in empirical tests of interest rate processes, the market price of risk should not be specified exogenously since its value is a function of the parameters of the model. We extend our result to forward processes. The market price of risk is shown to be a function of the volatility of the forward rate processes.