Publications

Several studies indicate that stock option plans are becoming more and more a substantial part of compensation schemes in U.S. companies. This paper argues that for an employer the attractiveness of stock options arises from the U.S. Generally Accepted Accounting Principles (US-GAAP) which require no charge to earnings for specifically designed stock option plans if a company opts for footnote disclosure. This poses a substantial problem for security analysis since a firm's earnings may be considerably upward biased. Based on a case study of 20 companies out of the S&P 500 which rely heavily on employee stock options we arrive at the conclusion that the amount of hidden compensation cost can be significant. For some of the companies the misrepresentation of stated earnings exceeds usual immateriality limits by far. Therefore, we propose that the fair value method of Statement No. 123 Financial Accounting Standards Board should be made compulsory in order to restore the true and fair view which 'income as stated' should provide.

Strong lending relationships between banks and small and medium-sized enterprises (SMEs) play a key role in the bank-based financial system of Germany. So far, they have been mainly described by the notion of a housebank and transactional features of long-term bank-customer relationships. In contrast, the present paper also considers interactional variables which try to measure social relationships between loan officer and firm manager. Using bank survey data, the relationship and interaction variables prove to affect loan prices, collateral requirements and credit availability.

In a continuous time, arbitrage free, non-complete market with a zero bond, we find the intertemporal price for risk to equal the standard deviation of the discounted variance optimal martingale measure divided by the zero bond price. We show the Hedging Numéraire to equal the Market Portfolio and find the mean-variance efficient portfolios.

Dieses Papier untersucht die Ausgestaltung der deutschen Einkommensteuer und die neuen Regelungen der letzten Steuerreformen (1999, 2000) hinsichtlich ihrer Wirkungen auf das zu Grunde liegende Besteuerungssystem. Es wird gezeigt, daß die umfassende Einkommensermittlung bei Privatpersonen nur mehr eine formal-rechtliche Hülle ist und das Einkommensteuersystem Elemente sowohl einer Schedulensteuer als auch einer konsumorientierten Einkommensteuer enthält. In der Besteuerung der Altersrenten und Pensionen gehen die Regelungen der deutschen Einkommensteuer sogar über die Entlastungswirkungen einer konsumorientierten Einkommensteuer hinaus.

Do financial market analysts use structural economic models when forecasting exchange rates? This is the leading question analysed in this paper. In contrast to other sudies we use expectations instead of realised data. Therefore we analyse the implicite structural models forecasters have in mind when forming ther exchange rate expectations. Using expected short- and long-term interest rates and business expectations as explanatory variables we estimate latent structural models to explain expected exchange rates. A special hypothesis is whether exchange rate expectations are formed according to monetary models. The currencies included in the study are US dollar, British pound, Japanese yen, French franc and Italian lire, each defined against the German mark. A major finding of the analysis is that expected GDP is the most important variable (form the set of our variables) for the determination of exchange rate expectations. For the DM/US dollar expectations a Mundell-Fleming type model is compatible with the data. This means, that increasing interest rates will lead to an appreciation of the corresponding currency. The opposite result have been found for French franc and Italian lire where high expected interest rates indicate a weak currency.

Models of international tax competition typically assume the existence of a benevolent government. This paper presents a model which integrates the view of government as source of inefficiency with an analysis of distorting taxes on capital investment, savings and labor income in a common theoretical framework. The model yields the conclusion that the effects of international tax coordination on the welfare of residents can be ambiguous because the costs of inefficient public good supply are lowered but wasteful government consumption increased. However, the above finding is derived when the residence-based capital tax is not available. In contrast, government use of taxes clearly is inefficient from the viewpoint of residents in the presence of residence-based capital taxation.

This paper compares generalized method of moments (GMM) and simulated maximum likeli-hood (SML) approaches to the estimation of the panel probit model. Both techniques circum-vent multiple integration of joint density functions without the need to restrict the error term variance-covariance matrix of the latent normal regression model. Particular attention is paid to a three-stage GMM estimator based on nonparametric estimation of the optimal instru-ments for given conditional moment functions. Monte Carlo experiments are carried out which focus on the small sample consequences of misspecification of the error term variance-covariance matrix. The correctly specified experiment reveals the asymptotic efficiency ad-vantages of SML. The GMM estimators outperform SML in the presence of misspecification in terms of multiplicative heteroskedasticity. This holds in particular for the three-stage GMM estimator. Allowing for heteroskedasticity over time increases the robustness with respect to misspecification in terms of multiplicative heteroskedasticity. An application to the product innovation activities of German manufacturing firms is presented.

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dc.contributor.author: Reunanen, Esa; Suikkanen, Risto

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This paper analyzes optimal hedging of a tradable risk (e.g. price risk or exchange rate risk) with forward contracts in the presence of untradable in ation risk. Utility is defined over real wealth. Optimal forward positions are derived relative to a given initial exposure in the tradable risk. A nominally unbiased forward market usually implies a non-zero real risk premium and hence some risk taking. If untradable in ation risk is a monotone function of the tradable risk plus noise, cross hedging and speculating on the real risk premium are con icting objectives; the level of relative risk aversion determines which objec- tive is dominant in a nominally unbiased forward market.

This paper investigates the use of price intensities to estimate volatilities based on high-frequency data. We interpret the conditional probability for the occurence of a price event within a certain time horizon as a risk measure which allows us to obtain an estimator of the conditional volatility per time. This kind of volatility estimation solves the problem of an appropriate aggregation level by defining explicitly price events. To consider grouping caused by the nontrading period overnight we use a categorical duration model. This model allows us to take into account that durations which occur overnight can only be registered by a lower and an upper bound. The use of price durations based on different tick sizes makes it possible to investigate volatility patterns depending on different aggregation levels. Seasonalities are taken into account by including regressors based on a flexible Fourier form based on intraday and time to maturity seasonalities. Testing for serial correlation and controlling for unobservable heterogeneity permits us to check for misspecification on different aggregation levels. Empirical results are based on intraday transaction data of Bund Future trading at the LIFFE in London.

The paper employs a standard model of dynamic price competition to study how international principles of value-added taxation effect the stability of collusive agreements when producers in an international duopoly agree not to export into each other's home market.