Catálogo de publicaciones - libros

In this article, the history and the success of Real Estate Investment Trusts (REITs) and Mortgage-Backed Securities (MBS) in the U.S. financial market are discussed. Both securities are derived from real estate related assets and are able to increase the liquidity on real estate investment. They also provide investors with the opportunity to diversify portfolios because real estate assets are relatively less volatile and less correlated to existing investment instruments. Therefore, REITs and MBS enhance the width and the depth of the financial market.

Experimental findings and in particular Prospect Theory and Cumulative Prospect Theory contradict Expected Utility Theory, which in turn may have a direct implication to theoretical models in finance and economics. We show growing evidence against Cumulative Prospect Theory. Moreover, even if one accepts the experimental results of Cumulative Prospect Theory, we show that most theoretical models in finance are robust. In particular, the CAPM is intact even if investors make decisions based on change of wealth, employ decision weights, and are risk-seeking in the negative domain.

Along with globalization, merger and acquisition has become not only a method of external corporate growth, but also a strategic choice of the firm enabling further strengthening of core competence. The megamergers in the last decades have also brought about structural changes in some industries, and attracted international attention. A number of motivations for merger and acquisition are proposed in the literature, mostly drawn directly from finance theory but with some inconsistencies. Interestingly, distressed firms are found to be predators and the market reaction to these is not always predictable. Several financing options are associated with takeover activity and are generally specific to the acquiring firm. Given the interest in the academic and business literature, merger and acquisition will continue to be an interesting but challenging strategy in the search for expanding corporate influence and profitability.

We explore primarily the problems encountered in multivariate normal integration and the difficulty in root-finding in the presence of unknown critical value when applying compound real call option to evaluating multistage, sequential high-tech investment decisions. We compared computing speeds and errors of three numerical integration methods. These methods, combined with appropriate root-finding method, were run by computer programs Fortran and Matlab. It is found that secant method for finding critical values combined with Lattice method and run by Fortran gave the fastest computing speed, taking only one second to perform the computation. Monte Carlo method had the slowest execution speed. It is also found that the value of real option is in reverse relation with interest rate and not necessarily positively correlated with volatility, a result different from that anticipated under the financial option theory. This is mainly because the underlying of real option is a nontraded asset, which brings divide nd-like yield into the formula of compound real options.

In empirical study, we evaluate the initial public offering (IPO) price of a new DRAM chipmaker in Taiwan. The worldwide average sales price is the underlying variable and the average production cost of the new DRAM foundry is the exercise price. The twin security is defined to be a portfolio of DRAM manufacturing and packaging firms publicly listed in Taiwan stock markets. We estimate the dividend-like yield with two methods, and find the yield to be negative. The negative dividend-like yield results from the negative correlation between the newly constructed DRAM foundry and its twin security, implying the diversification advantage of a new generation of DRAM foundry with a relative low cost of investment opportunity. It has been found that there is only a 4.6 percent difference between the market IPO price and the estimated one.

Market efficiency is one of the most fundamental research topics in both economics and finance. Since formally introduced the concept of market efficiency, studies have been developed at length to examine issues regarding the efficiency of various financial markets. In this chapter, we review elements, which are at the heart of market efficiency literature: the statistical efficiency market models, joint hypothesis testing problem, and three categories of testing literature.

The vast empirical failure of standard macro exchange rate determination models in explaining exchange rate movements motivates the development of microstructure approach to exchange rates in the 1990s. The microstructure approach of incorporating “order flow” in empirical models has gained considerable popularity in recent years, since its superior performance to macro exchange rate models in explaining exchange rate behavior. It is shown that order flow can explain about 60 percent of exchange rate movements versus 10percent at most in standard exchange rate empirical models. As the microstructure approach to exchange rates is an active ongoing research area, this chapter briefly discusses key concepts that constitute the approach.

Arbitrage is central to finance. The classical implications of the absence of arbitrage are derived in economies with no market frictions. A recent literature addresses the implications of no-arbitrage in settings with various market frictions. Examples of the latter include restrictions on short sales, different types of impediments to borrowing, and transactions costs. Much of this literature employs assumptions of continuous time and a continuous state space. This selected review of the literature on arbitrage and market frictions adopts a framework with discrete states. It illustrates and discusses a sample of the principal results previously obtained in continuous frameworks, clarifying the underlying intuition and enabling their accessibility to a wider audience.

This article discusses some fundamental cost-benefit tradeoffs involving publicly traded corporations from a corporate finance viewpoint. The fundamental benefits include greater access to capital at a lower cost and economies of scale. The potential costs are associated with two fundamental problems: principal-agent conflicts of interest and information asymmetry. Various mechanisms have evolved in the United States to mitigate these problems and their costs, so that the bulk of the fundamental benefits can be realized.

The Mexican Peso Crisis was the byproduct of various developments including large inflows of short-term foreign capital, prolonged current account deficit, and political instability. Between 1990 and 1993, investors in the United States were particularly eager to provide loans, many of them short-term, to the Mexican government and to Mexican corporations. Throughout this period, the share of foreign capital inflows exceeded the current account deficit. However, political instability and U.S. interest rate hikes soon changed the optimism for Mexico’s economic outlook. At the beginning of 1994, this did not affect the value of the peso, for Mexico was operating with a target zone exchange rate and its central bank stood ready to accept pesos and pay out dollars at the fixed rate. Yet Mexico’s reserves of foreign currency were too small to maintain its target zone exchange rate. When Mexico ran out of dollars at the end of 1994, the Mexican government announced a devaluation of the peso. As a r esult, investors avoided buying Mexican assets, adding to downward pressure on the peso.

Overall, the Mexican meltdown of 1994–1995 had many facets. Yet couple of lessons are particularly clear: while foreign capital can make up for the shortfall in domestic saving, only long-term capital — in the forms of foreign direct investment or long-term debt — is conducive to domestic investment; large and abrupt movements of capital across national borders can cause excessive financial market volatility and undermine economic stability in the countries involved. Last and most importantly, prolonged current account deficit should be remedied by allowing the domestic currency to depreciate, promoting savings, or cutting back government expenditure rather than financed by foreign capital inflows. Countries with protracted current account deficits such as Argentina, the Philippines, Indonesia, Thailand, and Saudi Arabia, with Thailand in particular, should heed Mexico’s experience.

The portfolio performance evaluation involves the determination of how a managed portfolio has performed relative to some comparison benchmark. Performance evaluation methods generally fall into two categories, namely conventional and risk-adjusted methods. The most widely used conventional methods include benchmark comparison and style comparison. The risk-adjusted methods adjust returns in order to take account of differences in risk levels between the managed portfolio and the benchmark portfolio. The major methods are the Sharpe ratio, Treynor ratio, Jensen’s alpha, Modigliani and Modigliani, and Treynor Squared. The risk-adjusted methods are preferred to the conventional methods.