2012 - Working Papers: Finance, Accounting and Insurance

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Conditional persistence and accounting anomalies, 44 pp.
E. Amir and I. Kama
(Working Paper No. 4/2012)

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Accounting-based anomalies are often attributed to investors’ misconceptions concerning the persistence of earnings. Relatedly, it has been shown that the market reaction to an accounting variable depends not on its unconditional persistence (a variable’s autocorrelation coefficient), but on its conditional persistence (the power of a variable’s persistence to explain the persistence of a variable higher in the hierarchy). Here, we assert that investors’ over-emphasis on a variable’s unconditional persistence, rather than on its conditional persistence, provides a plausible partial explanation for some of these anomalies.  Specifically, we show that when the conditional persistence of operating profit margin (OPM) is relatively low the post-earnings-announcement drift decreases substantially, and the post-revenue-announcement drift vanishes. Furthermore, the accrual anomaly is also related to the conditional persistence of accruals, and it largely disappears when the conditional persistence of accruals is relatively high. In addition, we find that analysts’ forecast attributes are associated with the conditional persistence of both OPM and accruals.

Valuing employee stock options and restricted stock in the presence of market imperfections, 25 pp.
M. Abudy and S. Benninga
(Working Paper No. 6/2012)

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We develop a new technology for valuing financial assets such as employee stock options and restricted stocks. Our model takes explicit account of the non-diversification of the owner of the asset. The model is an extension of the common binomial pricing model and is relatively easy to implement. This paper explains the issues and uses a database of employee stock options to estimate the model parameters and the value of stock options grants to employees. Using our model, we find that the value of employee stock options on the grant date is approximately 50% of a plain vanilla call option calculated using the Black and Scholes formula.

The effects of a shift in China’s corporate governance regime on firm performance: An analysis by economic regions, 35 pp.
Y. G. Shan and J. Aharony
(Working Paper No. 11/2012)

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The objective of this paper is two-fold: (1) to examine whether the shift in China's corporate governance regime is positively affecting publicly listed Chinese firm performance; (2) to compare the effect of the shift in China's corporate governance in the eastern, central and western regions, three areas that are very different in their level of economic development. The reason that we select 2001-2005 as our sample period is that in 2002-2003 The Code of Corporate Governance for Listed Companies in China was formally introduced and mandated. In an attempt to detect distinctive behavioural firm performance patterns of firms in the three geographical regions in the context of corporate governance factors, we divide the sample period into three sub-periods: 2001: the pre-Code period; 2002-2003: the corporate governance regime shift period; 2004-2005: the post-Code period. We provide evidence that an improvement in China's corporate governance regime positively affects publicly listed Chinese firms' performance and, further, has a relatively greater impact on firm performance in the least economically developed western region.

Investor sophistication:  A case to consider, 35 pp.
M. Haziza and A. Kalay
(Working Paper No. 15/2012)

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In this unique empirical investigation investors need to decide whether or not to allow their fund manager to receive a portion of their managed portfolio transaction fees. This arrangement can cause the manager to increase the volume of trade thus increase his income and lower investor’s return. Though common-sense and financial literature suggest investors should not agree evidence show most of the investors in the sample (88.7%) agreed. We differentiate between sophisticated and unsophisticated investors using two different proxies: professional occupations vs. non-professionals and firms vs. private clients. We find consenting investors to underperform 4% in the year following the decision. Under the two definitions sophisticated investors tend not to agree relative to other investors.

ביצועי קרנות הנאמנות בישראל  2003-2008, 23 עמודים
The performance of mutual funds in Israel, 2003-2008, , 23 pp.
M. Barel and A. Wohl
(Working Paper No. 18/2012)

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בעבודה זו נבחנו ביצועי של קרנות נאמנות בישראל בין השנים 2003-2008. נבחנו כמעט כל הקרנות, שהיו פעילות בתקופה זו או בחלקה (קרנות שלא נכללו במדגם: כספיות, מחקות, אגד ישראלי, אגד חוץ וקרנות "חייבות במס"). ביצועי הקרנות נבחנו באמצעות השוואה למדדי ייחוס שנבנו בעזרת רגרסיות של תשואות הקרנות מול: מדד אג"ח ממשלתיות צמודות מדד, מדד אג"ח ממשלתיות שקליות, מדד אג"ח לא ממשלתיות צמודות למדד, מדד המניות הכללי, מדד מניות עולמיMSCI World Index  ותשואה שקלית של השקעה בריבית דולרית. הקרנות קובצו בהתאם לסיווגן לשלושה אפיקי השקעה ובשלושתם נמצאו תשואות חסר שנתיות: אג"ח ממשלתי – -2.08%, אג"ח חברות - -3.35%, קרנות לא אג"חיות (בעיקר מניות) -  -3.62%. תשואות חסר אלו, שהינן מובהקות מבחינה סטטיסטית, נמצאו גם בחלוקה לתתי תקופות. הסיבה העיקרית לביצועי חסר אלה היא דמי הניהול שגובות הקרנות, אך גם לפני דמי הניהול נמצאו ביצועי חסר: אג"ח ממשלתי –   -0.69%, אג"ח חברות - -1.72%, קרנות לא אג"חיות (בעיקר מניות) -1.00% . ביצועי החסר של התשואות לפני דמי ניהול (ברוטו) אינם מובהקים סטטיסטית. החישובים לעיל בוצעו לפי מיצוע פשוט של תשואות הקרנות בכל אפיק. שקלול התשואות לפי ערך שוק של הקרנות אינו משנה את התוצאות באופן מהותי. נמצא שקיימת התמדה לא גבוהה בביצועי משפחות קרנות הנאמנות - כל 1% תשואה עודפת בין השנים2003-2005   מסביר כ- 0.28%  תשואה עודפת בין השנים 2006-2008.

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