Quarterly publication of the Multinational Finance Society     ISSN 1096-1879

Timing Decisions in a Multinational Context: Implementing the Amin/Bodurtha Framework
(Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 157–178)

Manfred Frühwirth
Vienna University of Economics and Business Administration, Austria
Paul Schneider
Vienna University of Economics and Business Administration, Austria
Markus S. Schwaiger
Austrian Central Bank and Vienna University of Economics and Business Administration, Austria

The Amin/Bodurtha framework was developed for the valuation of American-style financial instruments driven by three sources of uncertainty— domestic interest rate risk, foreign interest rate risk and exchange rate risk. The model is not only appropriate for pricing a number of financial derivatives, but also, as we show, for valuing foreign investment projects in the presence of real options. In this paper we propose the most natural directly implementable specification within the Amin/Bodurtha framework that permits all combinations of up and down moves of these three risk factors without restricting volatility functions of the factors or correlations between them. By use of the depth-first algorithm, we can show that this specification is implementable at reasonable computation times (JEL: G13, G31, F30).

Keywords: American-style derivatives, multinational timing decisions, depth-first algorithm.

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Asymmetric Return and Volatility Responses to Composite News from Stock Markets
(Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 179–210)

Thomas C. Chiang
Drexel University, U.S.A.
Cathy W.S. Chen
Feng Chia University, Taiwan
Mike K.P. So
The Hong Kong University of Science and Technology, China

This paper examines the hypothesis that both stock returns and volatility are asymmetric functions of past information derived from domestic and U.S. stock-market news. The results show the presence of negative autocorrelation, which is consistent with the dominance of positive-feedback trading behavior. By employing a double-threshold autoregressive GARCH model to investigate four major index-return series, the study finds significant evidence to sustain the asymmetric hypothesis of stock returns. Specifically, this paper finds that negative news will cause a decline in national stock returns that is larger than the gain caused by good news of an equivalent magnitude. This also holds true for the conditional variance. The return appears to be more volatile and persistent when bad news hits the market than when good news does (JEL: C15,
C22, G12).

Keywords: asymmetry, threshold GARCH, volatility, Bayesian estimation, posterior-odds ratio.

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Ownership-Control Discrepancy and Firm Value: Evidence from France
(Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 211–252)

Sabri Boubaker
Université Paris XII, Val de Marne, France

The purpose of this study is to provide an empirical analysis of the relationship between ownership structure of French firms and their value. Using data for 510 French publicly traded firms, the current study provides evidence in support of the entrenchment hypothesis. The results show that large controlling shareholders maintaining grip on control while holding only small fraction of cash flow rights are inclined to expropriate minority shareholders, which in turn detrimentally affects the firm’s valuation. The evidence also indicates that pyramiding is the main device set to unduly entrench the large controlling shareholder. Additional analysis reveals that the identity of the second largest controlling shareholder matters. Sharing control with a family constrains the largest controlling shareholder to steer clear of self-serving behavior. However sharing control with a widely held firm or with a financial institution fosters this self-serving behavior (JEL: G32, G34).

Keywords: ownership structure, corporate governance, minority expropriation.

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Swedish Stock Recommendations: Information Content or Price Pressure?
(Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 253–285)

Erik R. Lidén
Göteborg University, Sweden

The paper analyzes stock-price reactions to stock recommendations published in printed Swedish media and also trading volumes at and around the publication day, bid/ask spreads, and the post publication drift in recommended stocks for the period 1995 – 2000. Its small size and limited number of actors makes the Swedish stock market an interesting comparison to the U.S. stock markets. The positive publication-day effect for buy recommendations was almost fully reversed after 20 days, supporting the price pressure hypothesis, and the effect for sell recommendations was negative and prices continued to drift down, supporting the information hypothesis. Analysts seem to hand their information to clients before publication, whereas no such information leaking pattern was observed for journalists. The impact to recommendations from journalists was significantly larger than analyst recommendations, implying a tradeoff between the size of pre-publication cumulative abnormal returns and the publication-day effect (JEL: G10, G14, G20).

Keywords: price pressure hypothesis, information hypothesis, journalists, analysts.

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Stationary Component in Stock Prices: A Reappraisal of Empirical Findings
(Multinational Finance Journal, 2007, vol. 11, no. 3/4, pp. 287–322)

Haitham A. Al-Zoubi
United Arab Emirates University, UAE
Aktham Maghyereh
United Arab Emirates University, UAE

This paper re-examines the issue of mean reversion in stock prices by incorporating the structural break effect in the long horizon regression. Before adjusting for structural break, the paper finds that previous studies understate the evidence of mean-reversion. The understatement is mainly due to the clustering heteroskedasticity and autocorrelation in the overlapping returns. After adjusting for structural break(s), no evidence of predictability for value-weighted returns has been documented. However, stronger evidence of mean reversion in stock prices is documented for equally-weighted portfolios. The reverse effect of structural break can be explained by the switch to mean aversion in the last subperiod of value-weighted portfolios while no such switch in equally weighted portfolios (JEL: G1, C22).

Keywords: moving blocks bootstrap, mean reversion, structural change, long-horizon regressions.

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