Sch of Economics & Finance

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 China.

Researcher : Carverhill AP

Project Title:	Non-parametric modelling of the term structure of interest rates, using Eurodollar futures
Investigator(s):	Carverhill AP
Department:	School of Business
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.

List of Research Outputs

Carverhill A.P., Structured Products and Hybrid Securities. , In: Prof Brian Everitt, London, and Ed Melrick, New York University, The Encyclopedia of Quantitative Risk Assessment. John Wiley & Sons, 2007.

Carverhill A.P., The Smirk in the S&P500 Futures Options Prices: a Linearized Factor Analysis, In: Charles Cao, Guofu Zhou, China International Conference in Finance, Chengdu, 2007.

Researcher : Chan AWH

List of Research Outputs

Chan A.W.H. and Cheung H., Common Cultural Relationships in Corporate Governance across Developed and Emerging Financial Markets, Applied Psychology: An International Review. USA, Blackwell Publishing, 2008, 57, no.2: 225-245.

Chan A.W.H. and Chen N., Convertible Bond Underpricing: Renegotiable Covenants, Seasoning and Convergence, Management Science. INFORMS, 2007, 53, no.11: 1793-1814.

Cheung H. and Chan A.W.H., Corruption across Countries: Impacts from Education and Cultural Dimensions, The Social Science Journal. Elsevier B.V, 2008, 45, no.2: 223-239.

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., Bradley D., Kim J. and Singh A., Are there long-run implications of analyst coverage for IPOs? , Journal of Banking and FInance. 2008, 32 (June): 1120-1132.

Chan K., Ikenberry D. and Lee I., Do managers time the market? Evidence from open-market share repurchases, Journal of Banking and Finance. 2007, 31 (September): 2673-2694.

Chan K., Cooney J., Kim J. and Singh A., The IPO Derby: Are there consistent losers and winners on this track? , Financial Management. 2008, 37 (Spring): 45-79.

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., Li H. and Suen W.C., A Signaling Theory of Grade Inflation, In: Randall Wright, Charles Y. Horioka, International Economic Review. 2007, 48: 1065-1090.

Chan W. and Man P., Help and Factionalism in Politics and Organizations, Conference on Tournaments, Contests and Relative Performance Evaluation. 2008.

Researcher : Cheung MT

List of Research Outputs

Liao Z... and Cheung M.T., Measuring Consumer Satisfaction in Internet Banking: A Core Framework, Communications of the ACM. New York, Association for Computing Machinery, 2008, 51: 47-51.

Researcher : Ching STF

List of Research Outputs

Ching S.T.F., Associate Editor, International Game Theory Review. World Scientific, 2007.

Ching S.T.F., Stable and Equal Marriages, The Asian Decentralization Conference 2007.

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.

List of Research Outputs

Chatterjee K. and Chiu S.Y.W., When Does Competition Lead to Efficient Investments?, In: Aaron Edlin, Sandeep Baliga, Federio Echenique, Roger Laqunoff, John Morgan, Aemin Schmutzler, Hyun Song Shin, The B.E. Journal of Theoretical Economics. 2007.

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 U.S. government, the design of pollution reduction pledges scheme by the U.K. government, the design of student-university matching mechanism by the Turkish government, etc. The problem with the traditional mechanism design literature is, paradoxically, rooted in its tremendous success. Over the past two decades, economists have successfully design games that are too good to be true. For example, Cremer and McLean (1985, Econometrica) constructed a powerful (auction) game that could help the auctioneer to extract the whole share of trade surplus and leave nothing to the bidders; and Jackson, Palfrey, and Srivastava (1994, Games and Economic Behavior) constructed a powerful game that could help contracting parties to prevent all future opportunistic behavior. None of these designs changed the world, of course, as they never made it into the real world. The reason was that even the economists who designed them found them counter-intuitive, so much so that no one dares to sell them to the real world with straight face. The whole mechanism design literature is hence in jeopardy. To restore its credibility, economists need to explain why the theory would sometimes deliver counter-intuitive results. Without such an explanation, we would not know when we should and when we should not trust the theory’s conclusion, and we would be left with no choices other than tossing out the theory in its entirety. As we now understand it, the problem arises from some “common-knowledge” assumptions hidden in the theory. “Common-knowledge” assumptions refer to assumptions that certain facts being known to everyone, known to everyone that those facts are known to everyone, known to everyone that it is know to everyone that those facts are known to everyone…, ad infinitum. If asked, most economists would proclaim that they never meant to assume something like that. But they assumed them nevertheless, and often did so without being aware of it. It turned out that these assumptions were the driving force of most of the counter-intuitive results in the literature. For example, Neyman (2004, Journal of Economic Theory) showed that Cremer and McLean’s (1985) result was not robust to relaxation of these common-knowledge assumptions. Similarly, in Chung and Ely (2003, Econometrica), my colleague and I also showed that Jackson, Palfrey, and Srivastava’s (1994) result was not robust to relaxation of these common-knowledge assumptions. These recent studies have now been collectively called the literature of robust mechanism design. The literature of robust mechanism design inspires a new ways to do mechanism design: one should lay bare all the hidden common-knowledge assumptions, and make those assumptions only if he really means it. For example, in Chung and Ely (forthcoming, Review of Economic Studies), my colleague and I re-did the optimal auction design exercise using this approach, and showed that when only minimal common-knowledge assumptions were imposed, a cautious auctioneer should indeed use an auction that we had already seen used a lot in the real world. Bergemann and Morris (2005, Econometrica) re-did the efficient mechanism design exercise and obtained similar results. The so-called “implementation theory” is a special case of mechanism design. Although I shall defer the details to Section VI, it suffices to say that this sub-literature needs to be completely re-done as well. Bergemann and Morris (2006, working paper) started the first step, and obtained a negative result. They found that, when only common knowledge of rationality was assumed, one could design games to solve the implementation problem only if a stringent condition, first identified by my colleague and I in Chung and Ely (2003, working paper), was satisfied. However, Bergemann and Morris’ (2006) result is not yet definitive, because they considered only a very special kind of games: static games. Static games are games that have no time dimension, and do not take time to unfold. The reason they focused on static games was totally accidental --- in the previous literature, it is indeed a theorem that focusing on static games is without loss of generality. What Bergemann and Morris (2006) forgot was that this theorem no longer holds under the new approach. My objective in this project is therefore to revisit the implementation problem, using the new approached inspired by the literature of robust mechanism design, and allow for all extensive-form games instead of only static games.

Researcher : Hau TD

List of Research Outputs

Hau T.D., Charging for Congestion: An Economic Rationale, CILT International Conference, Hong Kong, May 30, 2008, 2008.

Hau T.D., Economic Basis for a Feasible Implementation of Road Pricing: Perspectives from an Economist in Hong Kong, Seminario de Transporte Urbano, Codatu and Inter-American Development Bank, Santiago de Chile, October 8-13, 2007. 2007.

Hau T.D., Workshop on Road Pricing and Air Pollution, Transport Policy Committee, The Chartered Institute of Logistics and Transport in Hong Kong, July 4, 2007, 2007.

Ho H.W., Wong S.C. and Hau T.D., A multi-class congestion pricing problem in a continuum transportation system, Journal of the Eastern Asia Society for Transportation Studies. Japan, Eastern Asia Society for Transportation Studies, 2007, 7: 238-253.

Ho H.W., Wong S.C. and Hau T.D., A multi-class congestion pricing problem in a continuum transportation system, Paper presented at the Seventh Conference of the Eastern Asia Society for Transportation Studies, 24-27 September, Dalian, China.. 2007.

Ho H.W., Wong S.C. and Hau T.D., Theoretical bounds of congestion-pricing efficiency for a continuum transportation system, In: R.E. Allsop, M.G.H. Bell and B.G. Heydecker, Transportation and Traffic Theory 2007. London, Elsevier Ltd., 2007, 263-280.

Li L.M.J., Wong S.C., Loo B.P.Y. and Hau T.D., Preliminary findings on empirical analysis of work trip scheduling in Hong Kong, Proceedings of the Twelfth International Conference of Hong Kong Society for Transportation Studies, 8-10 December, Hong Kong. Hong Kong, Hong Kong Society for Transportation Studies Ltd., 2007, 69-77.

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.

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., Using an error-correction model to test whether endogenous long-run growth exists, Journal of Economic Dynamics and Control. Elsevier, 2008, 32 (No. 2): 648-676.

Researcher : Li LMJ

List of Research Outputs

Li L.M.J., Wong S.C., Loo B.P.Y. and Hau T.D., Preliminary findings on empirical analysis of work trip scheduling in Hong Kong, Proceedings of the Twelfth International Conference of Hong Kong Society for Transportation Studies, 8-10 December, Hong Kong. Hong Kong, Hong Kong Society for Transportation Studies Ltd., 2007, 69-77.

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 China.

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

Liu Q., A generic framework of croporate governance, Citicorp NXGEN Conference. Hong Kong, 2007.

Liu Q. and Lu J.Z., Corporate governance and earnings management in the Chinese listed firms: a tunneling perspective, Journal of Corporate Finance . 2007, 13: 881-906.

Liu Q., Arner D.W. and Lejot P.L., Finance in Asia: institution, market, and regulation. London-New York: Routledge, 2008.

Liu Q. and Siu A.K.F., Financial development, insititutions, and corporate investment : evidence from an implied return on capital, China International Conference in Finance (CICF). 2007.

Liu Q., Kang Q. and Qi R., Market timing strategy with aggregate accruals, Journal of Investment Management (forthcoming). 2008.

Liu Q. and Qi R., Stock trading and diversification discount , Economics Letters . 2007, 98(1): 35-40.

Researcher : Lo P

List of Research Outputs

Lo P., "Language and Coordination Games", 1. 26th Arne Ryde Symposium on Communication in Games and Experiments at Lund; 2. The 18th Stony Brook International Conference on Game Theory Canadian Economic Theory Conference, 2007; 3. Fall Midwest International Economics and Economic Theory Meetings, 2006. 2007.

Researcher : Luo Y

List of Research Outputs

Luo Y., Consumption Dynamics Under Information Processing Constraints, In: Narayana Kocherlakota , The Review Of Economic Dynamics. Amsterdam, The Netherland, Elsevier, 2008, 11: 20.

Luo Y., Consumption Dynamics under Information Processing Constraints, In: Narayana Kocherlakota , The Review of Economic Dynamics. St. Louis, MO 63146 USA, Elsevier, 2008, 11: 20.

Researcher : Meng R

Project Title:	The Double-Play Manipulation, Government Intervention and the Role of Transaction Tax
Investigator(s):	Meng R, Bai L
Department:	School of Business
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 Hong Kong's foreign reserves) worth of local stocks and long positions in Hang Seng index futures. For the single day of August 28th, when the August Hang Seng Index futures contract was expiring, the government was forced to lay out at least US$8 billion. The action held the Hang Seng to a 1.2% drop on a day when markets around the world plummeted. There was a mixed response to the Hong Kong government's intervention in the stock and futures markets. Nobel laureate Milton Friedman blasted the government's shopping spree as "insane". He said that the government's purchasing of shares undermined the credibility of its currency system. At a meeting of the Hong Kong Legislative Council, legislator Emily Lau slammed the HKMA's decision not to consult with law-makers before spending "hard-earned tax-payers dollars" to buy shares in a bid to foil speculators. Ms. Lau, said the government must "draw a line in the sand" and immediately stop spending money intervening in the stock market. The finance professionals questioned the sustainability of the government's intervention policy because, in the end, no government could withstand month after month of attacks on its currency and bourses by striking back through interventions. Indeed the battle did not end with the expiration of the August contract. Many traders were rolling over their short positions from the August contract to September, sensing the Hang Seng Index remained a tempting target. On August 31st 1998, the government stepped back from its intervention in the stock market. Hang Seng Index plunged 7%. This paper will consider a policy that the government imposes a temporary and one-way "Tobin-Tax" type transaction tax on short positions in the equity market and uses the tax revenue to support its intervention. The tax is effective during the period when the government believes that the double-play manipulation exists and has caused the market to deviate from its natural path. This paper will discusses the conditions under which the tax will prompt a manipulator to reduce short positions and examines whether such conditions exist by analyzing historical events of transaction cost changes that took place in bear markets.

Project Title:	Strategic investments or acquisitions in a duopoly patent race under uncertainty
Investigator(s):	Meng R
Department:	School of Business
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. and Wong K.P., Currency Hedging for Multinationals under Liquidity Constraints, Journal of Multinational Financial Management. 2007, 17: 417-431.

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 : Siu AKF

List of Research Outputs

Liu Q. and Siu A.K.F., Financial development, insititutions, and corporate investment : evidence from an implied return on capital, China International Conference in Finance (CICF). 2007.

Researcher : Song FM

Project Title:	Corporate Governance and Market Valuation in China and Hong Kong
Investigator(s):	Song FM, Zhang JJ
Department:	Sch of Economics & Finance
Source(s) of Funding:	The University of Hong Kong Foundation Seed Grant
Start Date:	07/2003

Abstract:

To develop extensive knowledge and expertise in the field of China and Hong Kong's corporate governance; to play an important role in the reform of corporate governance in China and Hong Kong.

Project Title:	Microstructure of Hong Kong stock exchanges: order aggressiveness, volume, and liquidity
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

Zhou L., Tao Z., Xie D. and Song F.M., Contributions to Modern Economics Research: in honor of Professor Gregory Chow, In: Lin ZHOU, Zhigang Tao, Danyang Xie, and Min Song, Shanghai, Shanghai People's Press, 2008.

Researcher : Suen WC

List of Research Outputs

Chan W., Li H. and Suen W.C., A Signaling Theory of Grade Inflation, In: Randall Wright, Charles Y. Horioka, International Economic Review. 2007, 48: 1065-1090.

Lui H.K. and Suen W.C., Men, Money, and Medals: An Econometric Analysis of the Olympic Games, Pacific Economic Review. 2008, 13: 1-16.

Suen W.C., The Comparative Statics of Differential Rents in Two-Sided Matching Markets, Journal of Economic Inequality. 2007, 149-158.

Researcher : Tang Y

List of Research Outputs

Tang Y. and Griffin J., CDO Credit Rating, In: Rene Stulz, BSI Gamma Foundation. 2008.

Tang Y. and Yan H., Liquidity and Credit Default Swap Spreads, Best Paper Award, 2008 NTU International Conference. 2008.

Tang Y. and Yan H., Liquidity and Credit Default Swap Spreads, Seminar, Chinese University of Hong Kong. 2008.

Tang Y. and Yan H., Market Conditions, Default Risk and Credit Spreads, McGill University Second Risk Management Conference. 2008.

Tang Y. and Yan H., Market Conditions, Default Risk and Credit Spreads, Second NUS Risk Management Conference. 2008.

Researcher : Tse CY

List of Research Outputs

Tse C.Y., Diffusion with variable production lead times, Journal of Economics. Wien, Austria, SpringerWienNewYork, 2008, 93: 177-202.

Tse C.Y., Journal of Economics. Wien, Austria, Springer Wien New York, 2008, 84.

Tse C.Y., Learning investment and industrial diversity in urban growth, Review of Economic Dynamics. Amsterdam, Elsevier, 2008, 11: 413-433.

Researcher : Tse KS

List of Research Outputs

Arner D.W., Chau K.W., Hsu B.F.C., Pretorius F.I.H., Pu L. and Tse K.S., Basel II and Its Impact on the Property Market in the Hong Kong Special Administrative Region, The Banking Law Journal. U.S.A., A.S. Pratt & Sons, 2008, 125: 527-550.

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 United States.

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., Dragon Children: Identifying the Causal Effect of the First Child on Female Labour Supply with the Chinese Lunar Calendar, Oxford Bulletin of Economics and Statistics. 2008, 70(3): 303-325.

Vere J.P., Editorial Board (Executive Editor), In: M. Dutta, Journal of Asian Economics. 2008.

Vere J.P., ‘Having It All’ No Longer: Fertility, Female Labor Supply, and the New Life Choices of Generation X, Demography. 2007, 44(4): 821-828.

Researcher : Wong KP

List of Research Outputs

Meng R. and Wong K.P., Currency Hedging for Multinationals under Liquidity Constraints, Journal of Multinational Financial Management. 2007, 17: 417-431.

Wong K.P., Cross-Hedging for the Multinational Firm under Exchange Rate Uncertainty, In: Frank Columbus, International Business and Finance Issues. Nova Science Publishers, Inc., 2007, 149-167.

Wong K.P., Hedging, Liquidity, and the Multinational Firm under Exchange Rate Uncertainty, In: Frank Columbus, International Business and Finance Issues. Nova Science Publishers, Inc., 2007, 197-222.

Wong K.P., Operational and Financial Hedging for Exporting Firms, International Review of Economics and Finance. 2007, 16: 459-470.

Wong K.P., The Effect of Uncertainty on Investment Timing in a Real Options Model, Journal of Economic Dynamics and Control. 2007, 31: 2152-2167.

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.

Researcher : Wu JSK

List of Research Outputs

Herbst A.F. and Wu J.S.K., Foreign investment with inflation-linked securities: A natural hedge under Fisher theory?, Global Finance Journal. The Netherlands, Elsevier, 2008, 18, issue 3: 416-425.

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

Xu J., Price Convexity and Skewness, In: Campbell Harvey, Journal of Finance. 2007.

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., Explaining Hump-shaped Inflation Responses to Monetary Policy Shocks, In: Daniel Levy, Managerial University. Emory, Wiley Interscience, 2007, 28(6): 605-617.

Yetman J.A. and Ho W.Y.A., The Real Effects of Inflation in Continuous versus Discrete Time Sticky Price Models, In: Daniel Levy, Managerial and Decision Economics. Emory University, Wiley Interscience, 2007, 28(6): 633-638.

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., Lectures on Dynamic Macroeconomics, School of Finance, Renmin University, Beijing, China. 2007.

Yuen C.W., When Farmers Met Shepherds: A Possible Resolution of the Needham Puzzle?, Conference in honor of Robert E. Lucas, Jr., to celebrate the 20th anniversary of the publication of his "On the Mechanics of Economic Development" paper [in the Journal of Monetary Economics 22 (1988), pp.3-42], Clemson University. 2007.

Researcher : Zhang J

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 United Kingdom, E.C. Titchmarsh, performed a serious research on the eigenvalue problem of the Schrodinger equation. In 1946, his work was published as a monograph by Oxford University. In 1950, B. M. Levitan published a similar monographs in Russia. The self-adjoint differential operator theory in Hilbert space is established by many mathematicians, see e.g., Naimark's and Weidmann's books. It was found that the properties for the regular and singular cases are different not only in the boundary condition but also in the eigenvalues, such as the point spectrum and the continuous spectrum. We need to introduce Stieltjes integral in order to prove the completeness of the eigenfunctions. These results establish the mathematical foundation of quantum mechanics. By using the separating variable method, the generalized Black-Scholes equation, arising from option pricing, can be transformed into a Schrodinger equation, which has been well studied in quantum mechanics. Based on the theory of Schrodinger equation, we are able to establish a rigorous mathematical foundation for the problem of option pricing in finance. That is the purpose of this project. The key issues and problems being addressed are: 1. The transition probability density function: Finding the transition probability is essential in derivative pricing and model parameter estimation. In a risk-neutral world, the expected return is known to be the difference between risk-free rate and dividend yield, but the volatility is a function of asset price and time for a general diffusion process. The transition probability density is not known in general. In this project, we will try to find analytical formulas for some other diffusion processes. 2. The generalized Black-Scholes PDE: For a general diffusion, the PDE is a linear diffusion equation with a variable coefficient. Analytical solutions are available only for a few limited cases, such as, normal, lognormal, constant elasticity of variance (CEV) and quadratic volatility models. When an analytical solution is not available, practitioners rely on numerical methods such as finite difference, binomial trees, or Monte-Carlo simulation. However, for certain volatility functions, the generalized Black-Scholes equation can be transformed into the standard heat equation which, in turn, can be solved analytically. Even for the case that the problem cannot be reduced to the standard heat equation, it is still possible to solve the problem analytically for some particular volatility functions. Identifying new solvable volatility functions becomes an issue. 3. The estimation and calibration of the option-pricing model: Each option-pricing model has certain number of embedded parameters, which are usually determined from market information with one of the two different approaches. The first one is to estimate the parameters by using historical data of underlying stock price. The second one is to calibrate the parameters from the current market prices of options. With the transition probability density function, we can estimate the parameters by using maximum-likelihood method. With the option-pricing formula, we can calibrate the paramters by minimizing the sum of the squared errors. Developing an efficient algorithm for the parameter estimation and model calibration is one of our tasks in the project.

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

Zhang J., Outstanding Teacher Award (TPG teaching), 2007.

Zhang J. and Xiang Y., The Implied Volatility Smirk, Quantitative Finance. 2008, 8(3): 263-284.

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 China. Specifically, we attempt to use the whole population of listed firms for the latest period to analyze their financial performances. W propose five measures: (1) revenue per employee, (2) revenue per unit of cost, (3) net profit per employee, (4) return on assets, and (5) market to book ratio. These measures capture firm's human resource performance, operating efficiency, productivity, economic profitability and market value, respectively. Specifically, we attempt to address the following question: Do different ownership structures lead to different performances? We also plan to control for other firm characteristics, such as size, leverage and industry belonging, in the project. Our predicted results are that family-owned companies will have significantly superior performance as compared to state-owned enterprises.

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.

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