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Government Shutdown: A test of Market Efficiency

October 2015

Authors:

Longwood University

The purpose of this event study is to test market efficiency theory by analyzing the impact of the government shutdowns of 1995/1996 and 2013 on two samples of 50 firms each. This research tests whether the information embedded in a government shutdown announcement exhibits weak or semi-strong market efficiency. This study tests market efficiency theory by analyzing the impact of two recent US Government shutdowns on the risk adjusted stock pr:ice returns of a sample of 100 firms. This study uses the standard risk adjusted event study methodology found in the finance literature. Evidence confirms the significant and consistent negative reaction of the risk adjusted returns for the two samples of government contracting firms up to 30 days prior to the announcements of the 1995 and 2013 government shutdown. Results demonstrate that the announcements of the 1995 and 2013 government shutdown had a significant negative impact on the firm's share price up to 30 days prior to announcement day O with a continuous negative trend up to 30 following day 0.

SSRG International Journal of Economics and Management Studies

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Article

What Is the Intrinsic Value of the Dow?

February 1999 · The Journal of Finance

We model the time-series relation between price and intrinsic value as a cointegrated system, so that price and value are long-term convergent. In this framework, we compare the performance of alternative estimates of intrinsic value for the Dow 30 stocks. During 1963-1996, traditional market multiples (e.g., B/P, E/P, and D/P ratios) have little predictive power. However, a V/P ratio, where V is ... [Show full abstract] based on a residual income valuation model, has statistically reliable predictive power. Further analysis shows time-varying interest rates and analyst forecasts are important to the success of V. Alternative forecast horizons and risk premia are less important. Copyright The American Finance Association 1999.

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November 2010 · International Journal of the Economics of Business

Vicente Salas

Abstract We model contracting for joint production between workers and shareholders when investment in knowledge is non‐verifiable and the resulting specific human capital embedded in the workers is non‐tradable. The model explains how the effective cost of human capital services will vary depending on whether the investment in knowledge is financed by the workers or by the shareholders. We apply ... [Show full abstract] the results of the modeling to identify which firms are expected to gain and which to lose from posted trends in higher employability and lower empowerment of workers in modern market economies. Finally, we present conditions on the self‐interest of current shareholders to empower workers as a way to stimulate their investment in firm‐specific human capital.

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July 2021 · The Journal of Geometric Mechanics

Simone Farinelli

This paper is essentially a new version of the published article, where some flaws have been amended. We have embedded the classical theory of stochastic finance into a differential geometric framework called Geometric Arbitrage Theory and show that it is possible to: • Write arbitrage as curvature of a principal fibre bundle. • Parameterize arbitrage strategies by its holonomy. • Give the ... [Show full abstract] Fundamental Theorem of Asset Pricing a differential homotopic characterization. • Characterize Geometric Arbitrage Theory by five principles and show they they are consistent with the classical theory of stochastic finance. • Derive for a closed market the equilibrium solution for market portfolio and dynamics in the cases where: – Arbitrage is allowed but minimized. – Arbitrage is not allowed. • Prove that the no-free-lunch-with-vanishing-risk condition implies the zero curvature condition. • If the Novikov condition for the SDE describing the asset dynamics is satisfied, so is the no-free-lunch-with-vanishing-risk condition.

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Recurrent Embedding Kernel

November 2018

Stock price movement is typically affected by a lot of hidden factors. Predicting stock price direction, especially short-term direction, is very challenging and consistently attracts researches. Deep recurrent neural networks, such as Long Short-Term Memory, typically outperform statistical time series models and traditional machine learning approaches with their mechanisms of learning to ... [Show full abstract] vectorize historical information. However, encoding entire history into a vector may unavoidably causes information loss regardless of memory learning and updating mechanisms, especially for those tasks where decisions need to be made on the current time point and similar historical time points are of great references to the decision making. In this paper, we propose a new deep architecture called Recurrent Embedding Kernel(REK) that can learn to make optimal decisions by referring to the entire history instead of just current memory vectors. Experimental results on multiple stock ETFs with different long-term trends show that REK outperforms RNN, LSTM, and GRU, on predicting daily price direction.

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The Dynamics of Ex-Ante Weighted Spread: An Empirical Analysis

January 2016 · SSRN Electronic Journal

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Delivery Uncertainty and the Efficiency of Futures Markets

March 1990 · Journal of Financial and Quantitative Analysis

Avraham Kamara

This paper examines the effects of the delivery basis risk embedded in nearly all futures contracts on efficiency tests of these markets. Examining soybean futures contracts, we show that delivery basis risk has important implications for market efficiency tests. Assuming no delivery basis risk, the market efficiency hypothesis is rejected. However, futures prices contain significant time-varying ... [Show full abstract] expected delivery basis and time-varying expected delivery risk premiums. Once these expected delivery basis and delivery risk premiums are accounted for, the apparent inefficiency is eliminated. Equilibrium spot prices also contain significant time-varying expected delivery risk premiums.

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February 2009 · Financial Review

Employing comprehensive limit-order data which identify investor types, this paper examines the clustering pattern of limit-order prices. First, limit orders, particularly those submitted by individual investors (IIs), tend to cluster at integer and even prices. Second, nonmarketable limit-order prices cluster more than marketable limit-order prices, indicating that aggressive limit orders ... [Show full abstract] generally embed more information. Third, investors choosing even-priced limit orders are not penalized by lower execution ratios. Fourth, investors (particularly IIs) strategically exhibit front-running behavior. Fifth, price clustering indeed creates price barriers. Finally, the degree of price clustering using trade data is significantly underestimated, compared to that using limit-order data. Copyright (c) 2009, The Eastern Finance Association.

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August 2017 · North American Actuarial Journal

This article presents a numerical method of pricing the surrender risk in Ratchet equity-index annuities (EIAs). We assume that log-returns of the underlying fund belong to a class of regime-switching models where the parameters are allowed to change randomly according to a hidden Markov chain. The defining feature of these models is the fact that in each regime the characteristic function of ... [Show full abstract] log-returns is assumed to have an analytical form. The presented method provides an unified pricing framework within this class and includes the recently developed COS method as a particular case. This aspect of the method is particularly useful when pricing Ratchet options embedded in EIAs, for which the COS method exhibits a low rate of convergence. Our numerical results confirm that for models considered in this article the proposed approach improves convergence of the COS method without increasing the computational burden.

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This paper has two parts. In the first part, we review stable pairs and triples on curves, leading up to Thaddeus' diagram of flips and contractions starting from the blow-up of projective space along a curve embedded by a complete linear series of the form K + ample. In the second part, we identify log canonical divisors which exhibit Thaddeus' flips and contractions as "log" flips and ... [Show full abstract] contractions in the sense of the log-minimal-model program.

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February 1984 · The Journal of Finance

Stephen Figlewski

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Surety Bonds with Fair and Unfair Pricing

May 2010 · The Geneva Papers on Risk and Insurance Theory

Surety bonds are instruments used by governments to avoid the problem of insolvency of contractors. A surety company issuing such a bond guarantees to the government that in case of insolvency it will either finish the project itself or pay the bond to the government. This situation is analysed under the assumption that the bond is either priced fairly, or a risk loading is imposed which is ... [Show full abstract] proportional to the money at risk. If the surety is priced fairly, full insurance (or even overinsurance) is optimal. If the surety is priced unfairly, full insurance might still be optimal.

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The pricing of embedded lease contracts options

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