SCH OF ECONOMICS & FINANCE
Researcher
: Bai C |
Project Title: |
The system of incentives for managers with multitasks: theory and evidence from Chinese state-owned enterprises |
Investigator(s): |
Bai C |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
01/2003 |
Abstract: |
To contribute to the general economic
literature on incentive issues in firms rather than policies about firms in |
List of Research Outputs |
Bai
C., Lu J. and Tao Z., Property Rights Protection And
Access To Bank Loans: Evidence From Private Enterprises In |
Researcher
: Carverhill AP |
Project Title: |
Non-parametric modelling of the term structure of interest rates, using Eurodollar futures |
Investigator(s): |
Carverhill AP |
Department: |
|
Source(s) of Funding: |
Seed Funding for New Staff |
Start Date: |
08/2002 |
Abstract: |
To model the Term Structure of Interest Rates, that is the ways in which interest rates of various maturities move, and the equilibrium relationships between then, taking as data the Eurodollar futures prices, and using a non-parametric modelling approach. |
Researcher
: Chan AWH |
List of Research Outputs |
Cheung H. and Chan A.W.H., How Culture Affects Female Inequality across Countries: An Empirical Study, Journal of Studies in International Education. Sage Publications, 2007, 11: 157-179. |
Researcher
: Chan K |
Project Title: |
The value of analyst coverage to IPOs |
Investigator(s): |
Chan K |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
12/2005 |
Abstract: |
Firms going to the public heavily rely on investment banks for various services, such as registration, pricing, marketing, distribution, stabilization, market making and security analyst coverage. Recently, research coverage has become one of the most important components of these services that issuing firms try to secure. For example, Loughran and Ritter (2004) find that the number of underwriters has increased significantly over time and their primary role is to provide research coverage. Cliff and Denis (2004) argue that issuing firms pay for research services through underpricing. Although it is believed that the analyst coverage is crucial, there is no systematic evidence suggesting that the coverage from security analysts really provides value for firms issuing equity. For example, Womack (1996) finds a positive market reaction to the favorable recommendation from analysts. On the other hand, Michaely and Womack (1999) propose a conflict of interest hypothesis where lead underwriters issue biased reports to secure their investment banking deals, and find consistent result that initial public offerings (IPOs) with lead underwriter recommendations significantly underperform. Therefore, one objective of this project is to test whether or not research coverage from these managing underwriters provides economic benefits to IPOs. The second issue we will examine is the role of analyst coverage in issuers’ decision to switch underwriters. Krigman, Shaw, and Womack (2001) document that IPO firms switch the lead underwriter in their seasoned equity offerings (SEOs) to obtain better research coverage. This result suggests that research coverage is an important factor in determining issuer’s switching decision. However, Fernando, Gatchev and Spindt (2005) argue that the matching between issuers and underwriters are based on firms’ characteristics at time of issuance, indicating that the research coverage is not the primary reason why issuers switch underwriters. Therefore, the literature provides mixed results regarding the role of research coverage in switching underwriter, and we attempt to address this issue in this project. In this project, we will examine the two aforementioned issues by focusing on the long-run performance of IPOs for the following two reasons. First, the finance literature suggests that the market is often slow to incorporate information in stock prices and thus lead to predictable future returns (e.g., value premium (Fama and French (1992), and the underperformance of equity offerings (Loughran and Ritter (1995)). As a result, it's also likely that the market may under or over-react to analyst coverage in the long-run. Second, analyst recommendations are generally long-term in nature. A lot of clients for security analysts are mutual fund and pension fund managers. The investment horizon for these professionals is typically one year or longer. Therefore, we need to examine longer horizon to test if analyst recommendations really provide value. References Cliff, M., and Denis, D., 2004. Do IPO firms purchase analyst coverage with underpricing? Journal of Finance 59, 2871-2901. Fama, E., and French, K., 1992. The cross-section of expected returns. Journal of Finance 47, 427-466. Fernando, C., Gatchev, V., and Spindt, P., 2005. Wanna dance? How firms and underwriters choose each other. Journal of Finance 60, 2437-2469. Krigman, L., Shaw, W., and Womack, K., 2001, Why do firms switch underwriters? Journal of Financial Economics 60, 245-284. Loughran, Tim, and Jay R. Ritter, 1995, The new issue puzzle. Journal of Finance 50, 23-51. Loughran, T., and Ritter, J., 2004. Why has underpricing changed over time? Financial Management 33, 5-37. Michaely, R., and Womack, K., 1999. Conflict of interest and the credibility of underwriter analyst recommendations. Review of Financial Studies 12, 653-686. Womack, K., 1996. Do brokerage analysts’ recommendations have investment value? Journal of Finance 51, 137-167. |
List of Research Outputs |
Chan
K., Ikenberry D. and Lee I., Do managers time
the market? Evidence from open-market share repurchases, NTU international
conference on finance, |
Chan
K., Ikenberry D., Lee I. and Wang Y., Share
repurchases as a manipulation tool: Evidence from earnings quality and stock
performance , 2006 |
Chan
K., Ikenberry D., Lee I. and Wang Y., Share
repurchases as a manipulation tool: Evidence from earnings quality and stock
performance, NTU international conference on finance, |
Researcher
: Chan PT |
List of Research Outputs |
Chan
P.T., Moshirian F., Ng D. and Wu E., The
underperformance of the growth enterprise market in |
Researcher
: Chan W |
Project Title: |
Help and factionalism in organizations |
Investigator(s): |
Chan W |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
01/2006 |
Abstract: |
To analyse formation of factions and help behaviour within factions in competitive environments; to analyse the sorting of heterogeneous agents into different roles within factions; to explore how reward schemes can be designed to foster cooperation or coordination among agents. |
List of Research Outputs |
Chan
W. and Man P., Help and Factionalism in
Organizations, 5th Global Conference on Business & Economics at |
Chan
W. and Man P., Help and Factionalism in
Politics and Organizations, Seminar at |
Chan W., Undergraduate Teaching Award, 2005/6, 2006. |
Researcher
: Ching STF |
List of Research Outputs |
Ching S.T.F., Associate Editor, International Game Theory Review. World Scientific, 2006. |
Researcher
: Chiu SYW |
Project Title: |
The Efficiency of Renegotiation and Collusion with a Supervisor |
Investigator(s): |
Chiu SYW, Chou ESW |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Small Project Funding |
Start Date: |
09/2005 |
Abstract: |
Collusion (defined as side contracting between agents) and renegotiation (defined as side contracting between a principal and an agent) coexist in many real-world situations. For example, a union can be viewed as a form of collusion among workers, and firms usually renegotiate with their workers about their compensations or benefits when the firms face financial problems. While there are many studies considering collusion or renegotiation separately, very few take both into account.By working on a model with one principal, one agent, and one supervisor who observes the agent's private information (effort or type), we find various interesting interactions between collusion and renegotiation that have different efficiency implications, depending on the exogenous features of the collusion technologies.More specifically, although in most contracting situations the presence of either collusion or renegotiation is known to be costly to the principal, we find that the principal can never be worse off with both collusion and renegotiation than with neither of them (the second best). We have verified that this result holds under two major types of collusion under moral hazard (when the agent's effort is not observable to the principal), namely mutual insurance and effort coordination; we expect it to hold as well with report manipulation under adverse selection (when agent's marginal cost is not observable to the principal). Specifically, under moral hazard the first best can be achieved when the mutual insurance is moderately cooperative, whereas the second best can be achieved when the mutual insurance is most cooperative or least cooperative. This suggests an interior optimal strength of collusion under moral hazard.In an abstract sense, the research suggests that collusion and renegotiation have to be considered in tandem in organizational and contract design. |
Researcher
: Chung KS |
Project Title: |
Robust Implementation in Extensive-Form Mechanisms |
Investigator(s): |
Chung KS |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
03/2007 |
Abstract: |
This project belongs to the literature of
robust mechanism design, to which I have made some contribution before.
Robust mechanism design is economists’ recent reaction to the two-decade long
literature of mechanism design. Mechanism design, in turn, is one of the most
important applications of game theory. Game theory is concerned of predicting
how rational people behave in strategic interactive situations (also known as
“games”). Mechanism design goes one step further: it is concerned of how to
design games such that players’ predicted behavior in those games would
satisfy certain nice properties. Examples of mechanism design include
designing auctions such that bidders do not shade their bids, and designing
contracts such that contracting parties do not behave opportunistically in
the future. Applications of mechanism design include the design of sprectrum
auctions by the |
List of Research Outputs |
Chung
K.S. and Ely J.C., Foundations of Dominant
Strategy Mechanisms, Review of Economic Studies. |
Researcher
: Hau TD |
List of Research Outputs |
Ho
H.W., Wong S.C. and Hau T.D., Existence and uniqueness of
a solution for the multi-class user equilibrium problem in a continuum
transportation system, Transportmetrica. |
Loo
B.P.Y., Wong S.C. and Hau T.D., Introducing Alternative
Fuel Vehicles In |
Researcher
: Jao YC |
Project Title: |
Financial reform in Hong Kong |
Investigator(s): |
Jao YC |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Other Funding Scheme |
Start Date: |
09/2000 |
Abstract: |
To examine the background, rational, and implementation of reform measures in the financial sector of Hong Kong, 1970-2000, and to evaluate their implications for Hong Kong's economic restructuring and position as an international financial centre. |
List of Research Outputs |
Jao
Y.C., Hong Kong as a Financial Centre of |
Researcher
: Lau SH |
Project Title: |
Achieving intertemporal efficiency and symmetry through intratemporal asymmetry: an analysis of turn taking |
Investigator(s): |
Lau SH |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Small Project Funding |
Start Date: |
11/2003 |
Abstract: |
To study when and how turn taking can be supported as an equilibrium outcome; to find a quantitative measure of the players' welfare gain in the turn-taking equilibrium, and to provide an economic interpretation of such gain; to study other welfare-improving methods (such as the use of correlated strategies, cheap talk) in addition to turn taking, and to assess the separate contribution of turn taking, cheap talk etc. in improving the players' payoffs. |
Project Title: |
The economics of turn taking |
Investigator(s): |
Lau SH |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
09/2004 |
Abstract: |
To study when and how turn taking can be supported as an equilibrium outcome; to assess the welfare-improving role of turn taking by proposing a quantitative measure of the players' welfare gain in the turn-taking equilibrium, and to provide an economic interpretation of the gain; to study other welfare-improving methods in addition to turn taking, and to assess the separate contribution of turn taking, cheap talk in improving the players' welfare; to design and conduct experiments to test various hypotheses developed in this project, and to provide experimental evidence regarding turn-taking behaviour. |
List of Research Outputs |
Lau S.H. and Ng H.T., Loglinear approximate solutions to real-business-cycle models: Some observations, Journal of Economic Education. 2007, 38 (No. 2): 194-207. |
Researcher
: Liu Q |
Project Title: |
Measuring the impact of corporate governance in China |
Investigator(s): |
Liu Q |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Small Project Funding |
Start Date: |
11/2004 |
Abstract: |
To systematically examine the dynamic
interactions between various corporate governance mechanisms and important
corporate decisions in the listed companies in |
Project Title: |
The impact of bond ratings changes on CEO incentives |
Investigator(s): |
Liu Q |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
08/2006 |
Abstract: |
To examine: (1) Does bond ratings change impact on CEO Compensation level and structure; (2) How does such an impact vary across firms? (3) Performance consequence of bond ratings changes. |
List of Research Outputs |
Arner
D.W., Park J.H., Lejot P.L. and Liu Q., Asia’s Debt Capital Markets:
Prospects and Strategies for Development, |
Arner
D.W., Booth C., Hsu B.F.C., Lejot P.L., Liu Q. and Pretorius F.I.H., Property Rights,
Collateral And Creditor Rights In East Asia, In: Ismail Dalla, |
Lejot
P.L., Arner D.W. and Liu Q., Contemporary Markets for
Asian Debt Capital Markets Instruments, In: Douglas Arner, Paul Lejot, |
Lejot
P.L., Arner D.W. and Liu Q., Policy Concerns and the Value
of Regional Markets, In: Douglas Arner, Paul Lejot, |
Liu
Q. and Qi R., Best paper award
"Information production and accrual strategy: when the market mis-price
the accruals?", the 2006 Financial Services Industry |
Liu Q. and Kang Q., Credit Rating Change and CEO Incentives, Financial Management Association Annual Meeting . 2006. |
Liu Q. and Qi R., Do We Accept Accruals Profits At Our Peril?, Financial Analysts Journal. 2006, 62: 62-75. |
Liu Q., External reviewer in the Business/Economics Panel for the National Science Foundation of China (NSFC), National Science Foundation of China. 2007. |
Liu
Q., Future of |
Liu
Q., Hong Kong vs. |
Liu Q., How good is good news? technology depth, book-to-market ratio, and innovative events, Journal of Accounting, Auditing, and Finance. 2006, 21 (3): 293 -321. |
Liu Q. and Qi R., Information and accrual strategy: when do the markets mis-price accruals?, Proceedings of the Financial Services Industry Symposium. 2006, 40. |
Liu Q., Interviewed / quoted numerous times by The Wall Street Journal, South China Morning Post on Chinese economic and financial issues, Wall Street Journal / South China Morning Post. 2007. |
Liu Q., Kang Q. and Qi R., Predicting Stock Market Returns with Aggregate (discretionary) Accruals, 2006 NTU International Conference in Finance. 2006. |
Liu Q., Kang Q. and Qi R., Predicting stock market return with aggregate (discretionary) accruals, 2006 European Finance Association Annual Meeting. 2006. |
Liu
Q., Starting 2006, I have been invited four
times by CNBC to comment on economic and financial issues on |
Liu
Q., Valuation and due diligence in M&As, Invited
Speaker for the Construction Bank of |
Siu
A.K.F. and Liu Q.,
Estimating Corporate Investment Inefficiency: Evidence from an Implied Return
on Capital in |
Researcher
: Meng R |
Project Title: |
The Double-Play Manipulation, Government Intervention and the Role of Transaction Tax |
Investigator(s): |
Meng R, Bai L |
Department: |
|
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
02/2005 |
Abstract: |
Some developing countries or regions have
established a currency board system whereby the local currency is pegged to a
more stable currency - typically the US dollar - or a composite of currencies
in order to maintain the stability of the local currency. One salient feature
of the currency board is that domestic interest rates adjust automatically to
pressures on the currency. During the Asian financial crisis that took place
in 1997 - 1998, a number of large investment houses were believed to have
engaged in a so-called "double-play manipulation" which inflicted
damages to affected Asian countries beyond the level justified by their own
weak economic fundamentals. Hidden among legitimate hedging and speculative
activities, these investment houses picked Asian currencies that were subject
to the pressure of devaluation from their fixed level and took small short
positions against them - to trigger a panic response in the currency market
which was on the verge of "a nervous breakdown" - but aware of the
local government's commitment to the peg, predicted a sharp increase in
interest rate, and simultaneously taking large short positions in interest
rates sensitive instruments, and in particular the equity market. In order to
deter such a manipulative scheme and alleviate the pressures that it had
imposed on the local currency and equity market, some Asian government, in
particular the Hong Kong Monetary Authority, took an unprecedented action by
intervening, not only in the currency market but also in the equity market,
to squeeze out the profit of manipulators. Mr Joseph Yam, the chief executive
of the Hong Kong Monetary Authority said "we wish to send the very clear
message to those manipulating our currency for this purpose that they may
stand to lose money instead." During the two-week intervention period
from August 14th to August 28th 1998, the government bought US$15 billion
(about 15.5% of |
Project Title: |
Strategic investments or acquisitions in a duopoly patent race under uncertainty |
Investigator(s): |
Meng R |
Department: |
|
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
08/2005 |
Abstract: |
To understand strategic investments and acquisitions made by a large firm in its small competitor. We will first develop a continuous-time real-options model to study a patent-race game between a large and a small firm. The large firm can make strategic investments or acquisitions in the small firm to gain synergy or cost savings, but exogenously imposed transactions costs make such transactions costly. We will try to answer such questions as: under what conditions do stragegic investments or acquisitions become optimal; what are the consequences of these strategic activities for investment behaviors and characteristics of firms' risk and return; and what is the role of transactions costs in firm value and firm beta. We will then bring the model to real data testing the hypothesis generated from the theoretical framework. |
List of Research Outputs |
Meng
R., Taught Postgraduate Teaching Awards, The
|
Researcher
: Ng HT |
List of Research Outputs |
Lau S.H. and Ng H.T., Loglinear approximate solutions to real-business-cycle models: Some observations, Journal of Economic Education. 2007, 38 (No. 2): 194-207. |
Researcher
: Shea KL |
Project Title: |
Should tax be damaged dependent in correcting externalities |
Investigator(s): |
Shea KL |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Other Funding Scheme |
Start Date: |
09/2002 |
Abstract: |
To compare the efficacy of three tax forms, namely, a fixed amount of tax, a tax that depends on the damage inflicted by externalties and one that depends on the fine. |
Project Title: |
Ad Valorem tariff versus specifid tariff |
Investigator(s): |
Shea KL |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Other Funding Scheme |
Start Date: |
09/2002 |
Abstract: |
To examine if ad valorem tariff and specific tariff are equivalent under duopoly. |
Researcher
: Song FM |
Project Title: |
Corporate
Governance and Market Valuation in |
Investigator(s): |
Song FM, Zhang JJ |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
The |
Start Date: |
07/2003 |
Abstract: |
To develop extensive knowledge and
expertise in the field of |
Project Title: |
Microstructure
of |
Investigator(s): |
Song FM, Chung RCK |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Small Project Funding |
Start Date: |
11/2004 |
Abstract: |
To introduce the order aggressiveness as a proxy for asymmetric information to explain spread. The dataset used in this study will be compiled from Trade Record and Bid and Ask Record from HKSE. |
List of Research Outputs |
Song F.M., A semi-parametric estimation of the optimal hedge ratio, Quarterly Review of Economics and Finance. 2007. |
Song
F.M., |
Song
F.M., Editorial |
Song F.M., Ai C. and Chatrath A., On the comovement of commodity prices, American Journal of agricultural economics. Blackwell, 2006, 88. |
Song F.M., Petroleum spreads and the term structure of futures prices, Applied Economics. 2006. |
Song F.M., 竟争、民营化、与公司治理, 经济研究, 2006. |
Song F.M., 民营化绩效研究, 经济研究, 2006. |
Researcher
: Suen WC |
Project Title: |
The media and electoral politics: a strategic information transmission perspective |
Investigator(s): |
Suen WC |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
09/2004 |
Completion Date: |
08/2006 |
Abstract: |
To provide a formal framework to understand the influence of the media in electoral politics; to contribute to the cheap talk literature by paying special attention to off-equilibrium beliefs; to provide welfare assessment about the regulation and the organization of the media industry |
List of Research Outputs |
Allen D., Pendakur K. and Suen W.C., No Fault Divorce and the Compression of Marriage Ages, Economic Inquiry. 2006, 44: 547-558. |
Suen W.C., Associate Editor, e-conomics. 2007. |
Suen
W.C., Special Term Professor, |
Researcher
: Tse CY |
List of Research Outputs |
Jovanovic B. and Tse C.Y., Creative Destruction in Industries, NBER working paper 12520. 2006. |
Tse
C.Y., Journal of Economics. |
Tse
C.Y., New product introduction with costly
search, Journal of Economic Dynamics and Control. |
Researcher
: Vere JP |
Project Title: |
Fertility and female labor supply |
Investigator(s): |
Vere JP |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
01/2005 |
Abstract: |
To study the causal effect of fertility
on female labour supply in Hong Kong and the |
Project Title: |
Studies in Household Labor Supply |
Investigator(s): |
Vere JP |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
05/2007 |
Abstract: |
The primary objective of this research project is to use data from the U.S. Current Population Surveys (CPS) to study the effects of fertility on household labor supply. This research is meant as preparatory to an RGC application to study similar questions on a larger scale. However, even if the RGC application is not successful, the results from this project should be publishable in their own right. The main analytical problem when calculating the causal effect of fertility on parents’ labor supply is the endogeneity of fertility. Because fertility is endogenous, correlations between the two are difficult to interpret. For instance, couples’ joint labor income often increases after the birth of a child; but whether couples increase their labor income because they have children, or have children because they anticipate higher future earnings is impossible to tell. This proposal addresses this issue by using a fixed-effects estimation strategy to correct for potential endogeneity bias. Panel data are expensive to collect, but public-use panel data sets like the CPS are nevertheless readily available and so this approach is well-established in the literature (see, for example, Korenman and Neumark (1992); Waldfogel (1997); and Lundberg and Rose (2002)). The advantage of using this strategy is that the validity of the estimates does not depend crucially on structural assumptions or the validity of a given instrumental variable. More details on the estimation procedure are given in section VII. However, since standards for high-quality fixed-effects estimates are well-known, I do not anticipate that the methodology should pose any particular problem. Korenman, Sanders, and David Neumark. 1992. “Marriage, Motherhood and Wages.” Journal of Human Resources 27(2), pp. 233-55. Lundberg, Shelly, and Elaina Rose. 2002. “The Effects of Sons and Daughters on Men’s Labor Supply and Wages.” Review of Economics and Statistics, 84(2), pp. 251-68. Waldfogel, Jane. 1997. “The Effects of Children on Women’s Wages.” American Sociological Review 62, pp. 209-17. |
List of Research Outputs |
Vere J.P., Editorial Board (Executive Editor), In: M. Dutta, Journal of Asian Economics. 2007. |
Vere J.P., Social Security and Elderly Workers’ Labor Supply: A New Look at the Notch Cohorts, Society of Labor Economists 12th Annual Meetings, 4-5 May 2007. |
Vere J.P., Sons, Daughters and Parents’ Labor Supply: New Evidence from Matched CPS Data, American Statistical Association Joint Statistical Meetings, 6-10 August 2006. |
Vere J.P., Taught Postgraduate Teaching Award, Faculty of Business and Economics. 2006. |
Researcher
: Wong KP |
List of Research Outputs |
Adam-Müller A.F.A. and Wong K.P., Restricted Export Flexibility and Risk Management with Options and Forward Contracts, Kredit und Kapital. 2006, 39: 211-232. |
Battermann H.L., |
Lien D. and Wong K.P., International Tenders and Futures Hedging, Managerial and Decision Economics. 2006, 27: 587-594. |
Wong K.P., Foreign Direct Investment and Forward Hedging, Journal of Multinational Financial Management. 2006, 16: 459-474. |
Wong K.P. and Xu J., Liquidity Risk and the Hedging Role of Options, Journal of Futures Markets. 2006, 26: 789-808. |
Wong K.P., Optimal Export and Hedging Decisions When Forward Markets Are Incomplete, Bulletin of Economic Research. 2007, 59: 67-81. |
Researcher
: Wong RYC |
Project Title: |
Institute of economics and business strategy |
Investigator(s): |
Wong RYC |
Department: |
V-C's Office |
Source(s) of Funding: |
Areas of Excellence Scheme |
Start Date: |
11/1999 |
Abstract: |
To study economic and business issues of strategic significance, to advance the frontiers of both theoretical and applied knowledge in this area and to have an impact on policy decisions and business practices through research, education and public information. |
List of Research Outputs |
Siu
A.K.F. and Wong R.Y.C., The
Asian Financial Crisis, Deflation, and Structural Change in Hong Kong, In: Y.
Shimizu, Economic Dynamism of |
Wong R.Y.C., Siu A.K.F., Choi G.S.W. and Chan K.Y., Made in PRD: Challenges & Opportunities for HK Industry, FHKI, 2007, 131 pages. |
Wong
R.Y.C., Tao
Z., Siu A.K.F., Lu X.W., Jiang
J.Y. and Sun Y.M., |
Researcher
: Xiao G |
List of Research Outputs |
Tu Z. and Xiao G., 中国工业增长模式的转变:大中型企业劳动生产率的非参数生产前沿动态分析, 管理世界, |
Researcher
: Xu J |
Project Title: |
Evolution of Market Confidence and the Joint Dynamics of Volatility and Volume |
Investigator(s): |
Xu J |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Small Project Funding |
Start Date: |
11/2005 |
Abstract: |
The dynamcis of volatility and volume has been found very difficult to explain. Extesnive empirical work have ducumented that 1) volaitlity is asymmetric (Black (1976), Christie (1982), Pindyck (1984), French, Schwert, and Stambaugh (1987), Campbell and Hentschel (1992), Bekaert and Wu (2000), etc.), 2) volaitlity is clsutered (Engle (1982), Bollerslev (1986), etc.), 3) volatility and volume are positively correlated (Karpoff (1987), Lo and Wang (2000), etc.), 4) volume and volatility share similar degree of persistence (Bollerslev and Jubinski (1999), Lobato and Velasco (2000), etc.). These patterns are found to be robust across time and markets.In contrast to the extensive empirical documentations, the finance literature has seen surprisingly scarcity of theoretical work to explain these well documented empirical patterns. Already proposed explanations are found to be insufficient to explain these patterns. In their review of the volatility clsutering literature, Bollerslev, Engle, and Nelson (1994) contrasted the explosion of descriptive volatility research with "the apparent lack of any structural dynamic economic theory explaining the variation of higher order moments", which remains to be correct until today. For other patterns, existing explanations are proposed to explain one or two of them but cannot explain all these patterns simultaneously. Even worse, empiral tests that are designed to investigate their explanatory power produced mixed evidence and provided at best weak support. For asymmetric volatility, the most venerable explanations are the "leverage effect" (Black (1976), Christie (1982)) and "volatility feedback" (Pindyck (1984), Campbell and Hentschel (1992)). These two explanations have been found to be insufficient to explain observed volatility movements (Christie (1982), Poterba and Summers (1986), Schwert (1989), Bekaert and Wu (2000)). For co-persistence of volatility and volume, the mixture of distributions (MDH) hypothesis (Clark (1973), Epps and Epps (1976), Tauchen and Pitts (1983)) is the only well established explanation that has ever been proposed, but empirical tests pointing to contradicting conclusions (Lamoureux and Lastrapes (1994), Richardson and Smith (1994), Anderson (1996)).This project will propose a novel explanation for all four volatility-volume patterns within a unified framework. Specifically, this project link the dynamcis of volatility and volume to the evolution of market confidence. The link is made possible through the negative correlation between the confidence in prior beliefs and the sensitivity to new information. That is, if one is more confident in her prior belief, she is less sensitive to newly observed information. This logic also applied to financial markets as the collection of investors who participate in the market. For financial markets, market confidence can be generally defined as the average confidnece of market participants. So the key issue is to identify the mechanism according to which market confidence evolves and the mechanism according to which the evolution of market confidence is manifested in the movements of volatility and volume. Particularly, it is essential to identify how market confidence co-move with market prices since asymmetric volatility concerns the dynamics of volatility conditional on price movements. |
Project Title: |
Momentum and Contrarian Trading by Heterogenously Confident Investors |
Investigator(s): |
Xu J |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
05/2007 |
Abstract: |
Recent finance studies pay increasing attention to investor behavior. A subset of these studies concern investor behavior toward past price movements (see, for example, Seyhun (1992), Keim and Madhavan (1995), Grinblatt, Titman, and Wermers (1995), Bohn and Tesar (1996), Rozeff and Zaman (1998), Choe, Kho, and Stulz (1999), Nofsinger and Sias (1999), Grinblatt and Keloharju (2000, 2001), Froot, O'Connell, and Seasholes (2001), Lakonishok and Lee (2001), Badrinath and Wahal (2002), Goetzmann and Massa (2002), Griffin, Harris, and Topaloglu (2003), and Piotroski and Roulstone (2005)). Accumulating evidence showes that different types of investors display different behavior toward past price movements. That is, while some investors tend to buy past price winners (be momentum chasers), some others tend to buy past price losers (be contrarians). In particular, it it found that:1) insiders are contrarians (see, for example, Seyhun (1992), Rozeff and Zaman (1998), Lakonishok and Lee (2001), Piotrosky and Roulstone (2005));2) institutional investors tend to be momentum chasers while individuals (households) tend to be contrarians (see, for example, Grinblatt, Titman, and Wermers (1995), Nofsinger and Sias (1999), and Griffin, Harris, and Topaloglu (2003));3) foreign investors are momentum chasers while domestic investors, particularly households, tend to be contrarians (see, for example, Bohn and Tesar (1996), Choe, Kho, and Stulz (1999), Grinblatt and Keloharju (2000, 2001), and Froot, O'Connell, and Seasholes (2001)).In contrast with the accumulating empirical documentation of who are contrarians and who are momentum chasers, structural explanations are rarely seen. Notable exceptions are Brennan and Cao (1997) and Brennan, Cao, Strong and Xu (2005). Both studies studies momentum behavior of foreign investors in the context of international investment flow. To the best of my knowledge, there is until now no theoretical studies on momentum and contrarian behavior within the group of domestic investors.This proposed project aims at understanding the driving forces behind momentum and contrarian behavior of different groups of investors. Specifically, the project links momentum and contrarian behavior to heterogeneity in investors' confidence. It is proposed that heterogeneity in confidence not only helps explain why traders trade in general, but also helps explain why some traders buy price ups while some others buy price downs. The intuition is that heterogenenous confidence implies heterogenous sensitivity to new inforamtion. Such heteroegnous sensitivty will causes relative changes in subjective and lead to trading. Particularly, less confident traders are more sensitive to new information. Thus they buy price ups and sell price downs because their asset valaution increases (decreases) more with a piece of good (bad) news. On the other hand, more confident traders are less sensitive to new information. They trade in the opposite dierction when they believe that those less confident traders overreact to the new information thus push price too high (low) with a piece of good (bad) news. The key issue for empirical examination is to identify who are more confident traders and who are less confident traders. My reading of the literature suggests that heterogenenous confidence have the potential to serve as a unified frameowrk to explain all the three findings about momentum and contrarian behavior stated above. More precisely, insider, individual, institutional and foreign investors display momentum or contrarian behavior in a way that is consistent with the relative strength of their beliefs. |
List of Research Outputs |
Wong K.P. and Xu J., Liquidity Risk and the Hedging Role of Options, Journal of Futures Markets. 2006, 26: 789-808. |
Xu J. and Zheng L., Short sale Constraints, Heterogeneous Interpretations, and Asymmetric Price Reactions to Earnings Surprises, In: Dongcheol Kim, the First International Conference on Asia-Pacific Financial Markets . 2006. |
Researcher
: Yetman JA |
Project Title: |
Optimal monetary policy with state dependent pricing |
Investigator(s): |
Yetman JA |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
10/2004 |
Abstract: |
To investigate optimal monetary policy in a model of state dependent pricing and contrast it with models incorporating time dependent pricing. |
Project Title: |
Aggregation Bias and Substitution Bias in Macroeconomic Models |
Investigator(s): |
Yetman JA |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
01/2007 |
Abstract: |
The conventional view that nominal shocks (for example, changes in the amount of money in the economy) first affect output, and then inflation, and that the effects on these variables last much longer than the shock itself, is difficult to square with existing theoretical macroeconomic models incorporating plausible assumptions about why nominal shocks have real effects at all. I believe that this difference may be explained at least in part by the role that aggregation bias (different firms behave differently) and substitution bias (consumers adjust their consumption in response to changed prices) may play in biasing the empirical evidence on which the conventional view is based. The starting point of this project is that prices are not fully flexible, so that both prices and quantities may respond to a nominal shock. The key issues are: 1) if firms face differing degrees of nominal rigidity, how do their price-setting decisions interact in generating aggregate prices? And 2) do standard price indices accurately capture the behaviour of the underlying “theoretically correct” price index against which to compare theoretical models? 1) On the first issue, existing studies in other areas of economics have demonstrated that aggregation across variables exhibiting differentiated behaviour under the implicit assumption that they exhibit the same behaviour can result in the incorrect appearance of excessive persistence in the aggregated variable. 2) On the second issue, while studies have shown that the average degree of substitution bias in the CPI is small, these typically focus on horizons of one year or more and do not necessarily preclude a high degree of substitution bias at shorter horizons of relevance to determing the persistent effects of nominal shocks, particularly if relative price changes across goods tend to reverse themselves later on. |
List of Research Outputs |
Yetman
J.A., Are Speed Limit Policies Robust?, In:
Douglas McMillin, Theodore Palivos, Chris Papageorgiou, Journal of Macroeconomics. |
Yetman
J.A., Currency Unions, Trade Flows, and
Capital Flows, In: Kenneth S. Chan, K. C. Fung, Pacific Economic Review. |
Researcher
: Yuen CW |
Project Title: |
Aggregate supply vs. the Phillips curve: inflation and output dynamics in open economies from a new keynesian perspective |
Investigator(s): |
Yuen CW |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Small Project Funding |
Start Date: |
11/2004 |
Abstract: |
To examine how openness interacts with the degree of price rigidity in the domestic economy to affect the dynamics of inflation and output under different exchange rate (ER) regimes |
Project Title: |
Monetary Policy under Rational Inattention |
Investigator(s): |
Yuen CW |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
03/2006 |
Abstract: |
PURPOSE The primary objective of this project is to examine how the limited ability of economic entities (such as households and business firms) in processing information, hence their apparent neglect of information relevant to their economic/financial decisions (known as "rational inattention" in the recent literature), determines the dynamic effects of different kinds of monetary policy on macroeconomic activities (esp. inflation and output). KEY ISSUES • In what ways can rational inattention (or information-processing constraints) on the part of households (e.g., in their saving/portfolio decisions) and of firms (e.g., in their pricing and investment decisions) generate more realistic inflation and output dynamics than standard monetary-policy models (esp. New Keynesian sticky-price models and New Classical limited-participation models)? In other words, does rational inattention provide a better framework for monetary-policy analysis? • How does rational inattention affect the macro effects of monetary policy? Among the various kinds of (rule-based and discretionary) monetary policy, we shall consider and compare the following (1) (Taylor-type) interest-rate rules; (2) monetary targeting; (3) inflation targeting; (4) price-level targeting; and (5) nominal-income targeting; • What are the implications of rational inattention for optimal (welfare-maximizing or loss-minimizing) monetary policy? |
List of Research Outputs |
Yuen
C.W., Lecture on Modern Public Finance, |
Yuen
C.W., Yet Another Long-Run Neutrality Result:
Absence of Tax-Induced Growth Effects under Implicit Intergenerational
Contracts, Economics Letters. The |
Researcher
: Zhang J |
Project Title: |
Volatility smirk implied in option pricing models |
Investigator(s): |
Zhang J |
Department: |
|
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
10/2004 |
Completion Date: |
09/2006 |
Abstract: |
To perform a comprehensive comparative study on different option-pricing models. |
Project Title: |
Diffusion Processes and Option Pricing |
Investigator(s): |
Zhang J |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Small Project Funding |
Start Date: |
12/2005 |
Abstract: |
In finance, the price of an underlying
asset is often modelled with a diffusion process. With the no-arbitrage
argument, the price of a derivative contract written on the asset can be
determined by solving an initial boundary value problem of a linear partial
differential equation (PDE), i.e., the generalized Black-Scholes equation. By
using the separating variable method, the problem becomes a spectral problem
of an ordinary differential equation (ODE). The eigenvalues and the
completeness of the eigenfunctions of the ODEs in a finite interval are
fundamental issues. For a simple singular second-order ODE (i.e. the
coefficient of the equation is singular at boundary point or the boundary
point tends to infinity), the issue of how to give a boundary condition
arises. In 1910, a famous mathematician, H. Weyl, pointed out that, for a
singular ODE, there are two different cases: a limit circle case and a limit
point case. In the first case, we have to give a boundary condition. In the
second case, it is unnecessary to give a boundary condition. This important
result had not been realized by physicists when they first solved the
Schrodinger equation in quantum mechanics. The same phenomenon appears in
quantitative finance as well when financial mathematicians solve the
generalized Black-Scholes equation. During the World War II, a mathematician
in the |
Project Title: |
VIX futures and options |
Investigator(s): |
Zhang J |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
01/2007 |
Abstract: |
(1) VIX model, (2) VIX futures market, (3) VIX options market. |
List of Research Outputs |
Zhu Y.Z. and Zhang J., Variance Term Structure and VIX Futures Pricing, International Journal of Theoretical and Applied Finance. 2007, 10(1): 111-127. |
Researcher
: Zhang JJ |
Project Title: |
The Financial and Operating Performance of Chinese Family-owned Listed Companies |
Investigator(s): |
Zhang JJ |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Seed Funding Programme for Basic Research |
Start Date: |
12/2004 |
Abstract: |
While existing studies often use
sector-level data to explain the phenomenal growth in the Chinese private
sector, this project attempts to use firm-level data to conduct a comparative
study on performance between family-owned and state-owned firms in |
Researcher
: Zhou X |
Project Title: |
Executive promotion and incentive contracts |
Investigator(s): |
Zhou X |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
01/2005 |
Abstract: |
To identify factors affecting executive promotion; to determine the effect of the promotion scheme on executive incentive contracts. |
Project Title: |
How do executive stock options affect managerial decisions and firm performance? |
Investigator(s): |
Zhou X, Zheng L |
Department: |
Sch of Economics & Finance |
Source(s) of Funding: |
Competitive Earmarked Research Grants (CERG) |
Start Date: |
10/2005 |
Abstract: |
To examine the roles of executive stock options by focusing on the performance of and decisions made by retiring CEOs. By using a control-sample comparison approach, this research will examine: (1) are there significant differences in performance between CEOs of high option holdings and those of low option holdings. The comparison will be made both for the final years before the CEO retires and for a few years after the CEO left the firm. (2) are there significant differences in corporate decisions made by retiring CEOs between those who have high option holdings and those of low option holdings? While our main focus will be on the first question, which addresses the performance effects of executive stock options, the second question is closely related to the first one and will also be examined. |
List of Research Outputs |
Merhebi R., Pattenden K., Swan P. and Zhou X., Australian Chief Executive Officer Remuneration: Pay And Performance, In: Robert Faff, Accounting and Finance. Blackwell Publishing, 2006, 46: 481-497. |
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