PRICING SECURITIES WITH EXCHANGE-IMPOSED PRICE LIMITS VIA RISK NEUTRAL VALUATION

2007 ◽  
Vol 10 (03) ◽  
pp. 399-406 ◽  
Author(s):  
ARIE HAREL ◽  
GIORA HARPAZ ◽  
JACK CLARK FRANCIS
Keyword(s):  
Financial Markets ◽  
Cash Flows ◽  
Price Limits ◽  
Price Fluctuation ◽  
Futures Exchanges ◽  
The Us ◽  
Risk Neutral ◽  
Security Price ◽  
Security Valuation ◽  
Future Cash Flows

Asian and European financial markets impose daily price fluctuation limits on individual securities. In the US several futures exchanges are regulated by price fluctuation limits as well. The price limits in most exchanges are set daily, and they are usually based on a percentage change from the previous day's closing price. We show that the future cash flows of a security subject to price limit regulation resemble that of a distinctive contingent claim. Assuming that the security price follows a lognormal distribution, we use the risk-neutral valuation relation (RNVR) developed by [4] to derive the security valuation, in the presence of price fluctuation limits. The characteristics of the pricing formula are examined analytically and numerically.

scholarly journals Stock Performance When Facing the Unexpected

2020 ◽  
Author(s):  
Alfonso Dufour
Keyword(s):  
Financial Markets ◽  
Economic System ◽  
Cash Flows ◽  
Stock Performance ◽  
Systemic Risks ◽  
Asset Values ◽  
The World ◽  
End Of The World ◽  
Future Cash Flows ◽  
Flexible Models

The COVID-19 crisis has had enormous costs. The effects on financial markets were exacerbated by panic, fear of the unknown, fear of the end of the world as we knew it. This panic obfuscated our ability to make rational predictions on future cash flows and asset values. Overall though, our economic system is bouncing back. We can learn from this experience and build more flexible models which can help us to better manage severe systemic risks.

Does the Mandatory Adoption of IFRS Improve the Association between Accruals and Cash Flows? Evidence from Accounting Estimates

2018 ◽  
Vol 33 (1) ◽  
pp. 39-59
Author(s):  
Jimmy F. Downes ◽  
Tony Kang ◽  
Sohyung Kim ◽  
Cheol Lee
Keyword(s):  
Financial Reporting ◽  
Cash Flows ◽  
Data Availability ◽  
The European Union ◽  
Accounting Quality ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Accounting Estimates ◽  
Accounting Accruals ◽  
Future Cash Flows

SYNOPSIS We investigate the effect of mandatory International Financial Reporting Standards (IFRS) adoption in the European Union on the association between accounting estimates and future cash flows, a key concept of accounting quality within the International Accounting Standard Board conceptual framework. We find that the predictive value of accounting estimates improves after IFRS adoption. This improvement is largely driven by specific types of accounting estimates, such as accounts receivable, depreciation, and amortization expense. We also find that the improvement is concentrated in countries with larger differences between pre-IFRS domestic GAAP and IFRS. Our findings suggest that IFRS allow managers to exercise their judgment to provide information about future cash flows through the more subjective/judgmental portion of accounting accruals. JEL Classifications: M16; M49; O52. Data Availability: The data used in this study are from public sources identified in the study.

Discretionary Risk Disclosures

2003 ◽  
Vol 78 (2) ◽  
pp. 449-469 ◽  
Author(s):  
Bjorn N. Jorgensen ◽  
Michael T. Kirschenheiter
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Voluntary Disclosure ◽  
Cash Flows ◽  
Share Price ◽  
Risk Disclosure ◽  
Share Prices ◽  
Ex Post ◽  
Partial Disclosure ◽  
Future Cash Flows

We model managers' equilibrium strategies for voluntarily disclosing information about their firm's risk. We consider a multifirm setting in which the variance of each firm's future cash flow is uncertain. A manager can disclose, at a cost, this variance before offering the firm for sale in a competitive stock market with risk-averse investors. In our partial disclosure equilibrium, managers voluntarily disclose if their firm has a low variance of future cash flows, but withhold the information if their firm has highly variable future cash flows. We establish how the manager's discretionary risk disclosure affects the firm's share price, expected stock returns, and beta, within the framework of the Capital Asset Pricing Model. We show that whereas one manager's discretionary disclosure of his firm's risk does not affect other firms' share prices, it does affect the other firms' betas. Also, we demonstrate that a disclosing firm has lower risk premium and beta ex post than a nondisclosing firm. Finally, we show that ex ante, the expected risk premium and expected beta of each firm are higher under a mandatory risk disclosure regime than in the partial disclosure equilibrium that arises under a voluntary disclosure regime.

Disruptive Soft Law and Post-Crisis US Reform

2018 ◽  
Author(s):  
Abraham L. Newman ◽  
Elliot Posner
Keyword(s):  
Financial Markets ◽  
Great Recession ◽  
Regulatory Reform ◽  
The United States ◽  
Soft Law ◽  
Long Term Effects ◽  
The Great Recession ◽  
The Us ◽  
International Interaction

Chapter 6 examines the long-term effects of international soft law on policy in the United States since 2008. The extent and type of post-crisis US cooperation with foreign jurisdictions have varied considerably with far-reaching ramifications for international financial markets. Focusing on the international interaction of reforms in banking and derivatives, the chapter uses the book’s approach to understand US regulation in the wake of the Great Recession. The authors attribute seemingly random variation in the US relationship to foreign regulation and markets to differences in pre-crisis international soft law. Here, the existence (or absence) of robust soft law and standard-creating institutions determines the resources available to policy entrepreneurs as well as their orientation and attitudes toward international cooperation. Soft law plays a central role in the evolution of US regulatory reform and its interface with the rest of the world.

FINANCIAL DERIVATIVES - INTEREST RATE SWAP

2004 ◽  
Vol 10 (3-4) ◽  
pp. 161-168
Author(s):  
Zoran Ivanović ◽  
Elvis Mujačević
Keyword(s):  
Cash Flows ◽  
Basic Form ◽  
Over The Counter ◽  
Interest Rate Swap ◽  
Market Participants ◽  
Forward Contract ◽  
Financial Derivative ◽  
Future Cash Flows ◽  
Interest Payments ◽  
Rate Swap

Swap as a portfolio of forward contract is a financial derivative traded on the over-the-counter market. In its basic form, swap is based on the exchange of future cash flows between two market participants in accordance with the agreed terms. The cash flows that are exchanged are the interest payments and in some circumstances even the notional amount, and transactions are carried out in a period of two to thirty years. Swaps first appeared in 80's, and have evolved from back-to-back loans.

Market reaction to the Karachi stock exchange floor imposition

2015 ◽  
Vol 4 (2) ◽  
pp. 275-291 ◽  
Author(s):  
Saqib Sharif
Keyword(s):  
Financial Markets ◽  
Market Reaction ◽  
Stock Exchange ◽  
Price Volatility ◽  
Price Limits ◽  
Content Type ◽  
Market Intervention ◽  
Price Floor ◽  
Price Freeze ◽  
Regulatory Intervention

Purpose – The purpose of this paper is to investigate the market reaction to the decision made by the management of the Karachi Stock Exchange (KSE) to impose a price floor that resulted in trading curbs in 2008. The paper analyzes if regulatory intervention helped in restoring investor confidence. Design/methodology/approach – The paper examines the effect of enforcement of a price floor and trading curbs by splitting the time period studied into two periods: pre-floor and post-floor period. The parametric t-statistics and non-parametric Mann-Whitney test are used to compare the abnormal returns (ARs), abnormal trading volume, bid-ask spread, Amihud illiquidity ratio, and price volatility between the two periods. Event study was conducted to observe the behavior of market returns surrounding market-wide price floor. Finally, multivariate regression analysis was also applied by controlling for factors that might influence valuation, liquidity, and volatility. The standard errors have been corrected for cross-sectional clustering due to market-wide restrictions. Findings – The study found an adverse impact of price freeze and trading curb in the KSE, following the relaxation of floor (resumption of active trading). First, the price of securities (or ARs) significantly declined following the relaxation of the price freeze. Second, the market liquidity deteriorated following the relaxation of the price floor. Third, the price volatility increased in the post-floor period. It seems that the decision made by the KSE’s board to implement lower cap on prices for an extended period was ineffective. Practical implications – Market intervention by regulators to bring calm in the financial markets have negative consequences across the globe. The results presented in this paper suggest that implementing price floor brought inefficiency in the market and prevented firms from raising capital to finance their future investments. The author believe this study will add to the knowledge base of regulatory intervention and its impact on the performance of financial markets. Originality/value – There is no empirical evidence on the impact of price limits on volatility in emerging markets. The author selected Pakistan as a case study, where we particularly focus upon impact of the enforcement of a price floor around the peak of Global Financial Crisis (or market intervention) in Pakistan. This study also documents the effect of trading curb on liquidity and volatility in an emerging market, given that a majority of research on trading halt/price limits is based on developed markets.

scholarly journals Kemampuan Laba dan Arus Kas Operasi dalam Memprediksi Laba dan Arus Kas Masa Depan

2018 ◽  
pp. 80
Author(s):  
Frans AP Dromexs Lumbantoruan ◽  
I Gusti Ngurah Agung Suaryana
Keyword(s):  
Cash Flow ◽  
Stock Exchange ◽  
Linear Regression Analysis ◽  
Flow Property ◽  
Multiple Linear Regression Analysis ◽  
Cash Flows ◽  
Future Earnings ◽  
Analysis Technique ◽  
Operating Cash Flow ◽  
Future Cash Flows

This study aims to determine the ability of earnings and operating cash flows in predicting earnings and future cash flows. This research was conducted on property and real estate companies listed on the Indonesia Stock Exchange. The samples used by 20 companies with 40 observations. The sampling was done by nonprobability samplingmethod with purposive samplingtechnique. The analysis technique used is multiple linear regression analysis. Based on the result of the analysis, earnings influences in predicting future earnings. Likewise, earnings and operating cash flow have an effect in predicting future cash flows. However, operating cash flow is not influential in predicting future earnings. Keywords: profitability, cash flow, property

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