Search results for "FINANCIAL ECONOMICS"

Warren Buffett versus Zvi Bodie: Should You Buy Or Sell Put Options?

2021

Academics and investment professionals often disagree when it comes to investment advice. Legendary investor Warren Buffett is a proponent of time diversification and firmly believes that stocks are less risky in the long run. Therefore, he often sells long-term put options instead of buying them for portfolio protection. By contrast, the famous finance professor Zvi Bodie argues that time diversification is a fallacy and, therefore, his advice to fund managers is to buy long-term portfolio insurance. In this article, we consider the optimal portfolio choice problem for a loss-averse investor. First, we demonstrate that our loss-averse investor subscribes to the principle of time diversific…

Influence of economic crisis on new SME survival: reality or fiction?

2016

AbstractThe aim of this research was to analyse the survival of new ventures during periods of economic crisis. The article compares survival probability during growth and crisis periods. An empirical study was used to analyse new venture survival probability. Results show that new firms have a greater likelihood of surviving during crisis periods than they do during growth periods. An additional aim of the study was to analyse the survival probability of opportunity and necessity entrepreneurs during crisis periods. Results show that gaps in survival likelihood between opportunity and necessity entrepreneurship are bigger during times of crisis than they are during growth periods.

Indicators of banking efficiency: An international application

1995

(When) Should We Use Foreign Direct Investment Data to Measure the Activities of Multinational Corporations? Theory and Evidence

2016

This paper reviews the different concepts of measuring activities of multinational corporations. It aims at working out the economic relationships that theoretically exist between these measures under general economic assumptions and then empirically investigates to which extent such relationships exist in the data. As a main conclusion, foreign direct investment (FDI) stock data is indeed a good proxy for measuring most real economic activities of multinational firms. Discrepancies between FDI stock and other data can to a large extent be given a reasonable economic meaning, but observed asset-to-employment patterns in multinational production also call for more thorough future research.

Extreme value theory versus traditional GARCH approaches applied to financial data: a comparative evaluation

2013

Although stock prices fluctuate, the variations are relatively small and are frequently assumed to be normally distributed on a large time scale. But sometimes these fluctuations can become determinant, especially when unforeseen large drops in asset prices are observed that could result in huge losses or even in market crashes. The evidence shows that these events happen far more often than would be expected under the generalised assumption of normally distributed financial returns. Thus it is crucial to model distribution tails properly so as to be able to predict the frequency and magnitude of extreme stock price returns. In this paper we follow the approach suggested by McNeil and Frey …

Effects of Behavioural Finance on Emerging Capital Markets

2014

Abstract A recent common view of finance experts is that it is becoming increasingly difficult to understand how the economy as a whole works. Although the efficient market theory might be considered an ideal model enabling the interpretation of market behavior, it has begun to lose ground, and the rationality hypothesis failed to explain the excessive volatility of the returns and trading volume recorded on both developed capital markets and emerging ones. Adding the behavioral finance perspective to the equation can help us to understand better how market agents will react. In this article, we investigate the factors that may explain the trading volume evolution on two emerging capital ma…

Effects of Behavioural Factors on Human Financial Decisions

2014

Abstract In this article, we investigate the factors that may explain the trading volume evolution on two emerging capital markets, Romania and Brazil. We analyze the impact of both investors who ground their trading behaviour on rational expectations and investors who show psychological and emotional facets of the human decision, which we call behavioural errors, as independent variables on the trading volume as dependent variable. The results indicate that trading is influenced by the investors’ irrational behaviour. Thus, the rationality hypothesis can be rejected for both capital markets.

Modeling the Dynamics of a Financial Index after a Crash

2004

Supply and demand are perhaps the most fundamental concepts in economics. In a financial market they reflects the orders of the agents to buy or sell a given asset. In turn the fluctuations of supply and demand influence the dynamics of the price of an asset, as, for example, a stock or a financial index. Therefore the dynamics of the price of an asset is affected by the actions and of the beliefs of the agents. It is known that the dynamics of the price of an asset is far from simple, Several stylized facts has been empirically discovered such as, for example, the fat tails in the return distribution and the clustered volatility. These stylized facts has been detected by considering long t…

Contract and Asset Values in Venture Capital Financings

2009

In venture capital financings a venture capitalist buys some fraction of a company, for a stated amount of money, through preferred shares. It is common practice in empirical and theoretical analyses to infer from this transaction a value for the entire company, which we call the contract value. Owners do not hold shares with the same rights and so the contract value misrepresents the company value of all assets (asset value). This paper studies a stylized venture capital market, calculates the ratio of contract to asset value, and derives the expected returns both at the level of venture capital funds and at the company level. We study quantitatively the impact on econometric analyses and …

Putable common stock

2004

Abstract The underpricing of initial public offerings is a well-documented phenomenon in the financial literature. The purpose of this paper is to show how this empirical regularity could be solved by an appropriate choice of financing instruments, namely, by an intelligent mix of common stocks and put options. The latter additional instrument, modeled in this paper as a lump sum paid by insiders of the firm to outsiders, helps alleviate the asymmetry of information existing between insiders and outsiders of the corporation, allowing good firms to sell the package they offer at the full information value.