Mutual Fund Daily Conditional Performance
Frank Coggins
Université de Sherbrooke
Marie-Claude Beaulieu
Université Laval
Michel Gendron
Université Laval
Abstract
The empirical finance literature reveals that conditional models estimated with monthly data generally improve fund performance. Furthermore, it has been shown that using daily instead of monthly returns in an unconditional framework increases the proportion of abnormal performances relative to timing. In this article, we study conditional performance estimated with daily data in a bivariate generalized autoregressive conditional heteroskedasticity (GARCH) framework. Our daily conditional alphas and global performances with GARCH are significantly better than those estimated with other parametrizations and they persist over time. Finally, the proportion of abnormal timing performances diminishes significantly when conditional parametrizations are used.
How Do Managers Behave in Stock Option Plans? Clinical Evidence from Exercise and Survey Data
Zacharias Sautner
University of Amsterdam
Martin Weber
University of Mannheim
Abstract
We use unique case study data to analyze the behavior of top managers in an executive stock option plan. We gather questionnaire data on the managers' traits and combine it with exercise data. Managers in our sample expect low volatilities (compared with historical estimates) and are well diversified and modestly risk averse. This implies that the value-cost wedge of options can be smaller than usually assumed. The exercise decisions vary with expected volatility, managerial wealth, and mental accounting. Managers expecting lower volatility exercise earlier. This result is consistent with the predictions of expected utility models using our managers' survey parameters.
Why Most Firms Choose Linear Hedging Strategies
Dennis Frestad
University of Agder, Norway
Abstract
I investigate the efficiency of alternative hedging strategies of nonfinancial firms facing hedgeable price risk, unhedgeable quantity risk, and financial contracting costs in low-profit events. The analysis suggests that variance minimizing hedging strategies are very close in economic terms to optimal (value-maximizing) hedging strategies for most firms. Furthermore, the marginal gains from shifting to nonlinear hedging strategies are often small enough to be neglected. These results illuminate some puzzling findings in survey studies of firms' hedging practices and suggest an alternative view on firms' selective hedging practices termed "cautious selective hedging".
Does Privatization Foster Changes in the Quality of Legal Institutions?
Narjess Boubakri
American University of Sharjah and HEC Montréal
Jean-Claude Cosset
HEC Montréal
Houcem Smaoui
King Fahd University of Petroleum and Minerals
Abstract
We analyze the impact of privatization on the quality of legal institutions of governance. Our findings suggest that large-scale privatization (in terms of progress and volume) increases the risk of corruption in developing countries but has no effect on the legal institutions of governance (i.e., law and order and investor protection). The method of privatization (public share issues versus private sales) helps curb corruption and improve the quality of law enforcement and of investor protection. In developed countries, the progress and volume of privatization reduce the risk of corruption, while the method of privatization enhances the quality of law enforcement.
Takeover Exposure, Agency, and the Choice Between Private and Public Debt
Matteo P. Arena
Marquette University
John S. Howe
University of Missouri - Columbia
Abstract
We examine how governance characteristics are related to the corporate choice between public and private debt. We find that firms with fewer takeover defenses and larger outside blockholder ownership are more likely to borrow from banks and to issue 144A debt. We also document that public debt cost is more sensitive to takeover exposure than bank debt cost. These results are consistent with the hypothesis that banks mitigate the expected negative impact of takeovers on debt value through covenants and debt renegotiations. Moreover, we show that firms with weaker internal monitoring are less likely to borrow from banks.