What type of feedback would you like to send?
Abstract: Damage measures in securities fraud cases are very imprecise because they are based on security price changes that reflect both the correction of previous misrepresentation and other independent information. Consequently, potential plaintiffs have a valuable "free option" to decide whether or not to file suit, and average damage awards are greater than actual damages, much greater when markets are volatile. The "Private Securities Litigation Reform Act of 1995" was intended to curb abusive litigation and to address the problem of excessive damage awards. Motivated by a misdiagnosis that excess awards are due to temporary price drops, the Act limits damages to the difference between the purchase price and the time-average trading price from the release of the corrective information until 90 days later or until the sale of the security, whichever is first. Unfortunately, the Act's modified measure of damages suffers from a more severe free-option problem than did the traditional measure. Also, the Act introduced an additional new option to time the sale of the security; the effects of these options may be mitigated by the impact of the positive drift in stock prices over time, if the time-average price is not adjusted for market movements. As a result, the bias can be larger or smaller under the new Act, depending on how severe the free-option problem is. We propose an alternative approach to addressing the issue of excessive damages: courts should adopt a threshold of measured damages below which no damage would be awarded. The threshold would depend on several factors, most notably the volatility of the stock in the period under question. That is, damages will be awarded only if measured damages exceed the threshold, and awards would be capped by the formula presented in the Reform Act.
Damages awards, securities litigation, free option
Abstract: We investigate the role of index bonds in a dynamic consumption and asset allocation model where the rate of real consumption at any given time cannot fall below a fixed level. An explicit form of the optimal consumption and portfolio rule for a class of Constant Relative Risk Aversion (CRRA) utility functions is derived. Consumption increases above the subsistence level only when wealth exceeds a threshold value. Risky investments in equity and nominal bonds are initially proportional to the excess of wealth over a lower bound, and then increase nonlinearly with wealth. The desirability of investing in the risky assets are related to the agent's risk preference, the equity premium, and the inflation risk premium. The demand for index bonds is also obtained. The results should be useful for the management of defined benefit pension funds, university endowments, and other portfolios which have a withdrawal pre-commitment in real terms.
Portfolio choice, Portfolio insurance, Index bonds, Bellman equation, Inflation risk
Abstract: This paper examines a unique stock market monitoring program used by the Australian Stock Exchange (ASX). When the ASX observes unusual share price or trading volume changes of a listed company, it sends a letter demanding an explanation. Companies need to respond publicly to several stylized questions. Such public communications between the stock exchange and listed companies contain information. This paper documents how companies respond to the ASX inquiry and how the market reacts to the replies. It is found that some companies do release new information to the market when asked. After the firm's reply is posted, the average trading volume and the bid-ask spread are reduced, and in most cases, the share price is also stabilized with the following two exceptions: (1) The price will continue to rally on average if the company releases only partial information when questioned after a significant price jump; (2) The downward price trend will be reversed if the company states that no new information could explain the decline. Furthermore, there are statistically significant, positive abnormal returns for the first five trading days, which are not conditional upon the replies firms give to the ASX inquiries.
stock market monitoring, information disclosure, liquidity
Abstract: A benefactor's leadership gift can be packaged as seed money or a matching grant. Small donors, charities and benefactors may disagree about this choice. Small donors' preferences will depend on their utility functions, the donor base and the size of the leadership gift. For any given leadership gift, a matching scheme will raise more money and hence is preferred by both charities and benefactors. If small donors decrease their giving at higher match ratios, benefactors may prefer smaller matching gifts to the larger gifts they would make if restricted to seed money. When this means that matching raises less in total, the charity and benefactor will disagree.
Nonprofit Organizations, fundraising, public goods
Abstract: For any given leadership gift, matching schemes raise more than seed money schemes. When small donors’ contributions decline with the match ratio, then, in conflict with the lead donor’s preference, charities can prefer a seed approach. When the apparent lead donor is a ‘socially-responsible’ firm, an employee matching scheme can reduce free-riding by ‘socially-conscious’ employee-donors who value the public good. But, unless teams of such employees are either more productive or enjoy a collective ‘warm glow,’ all workers will defect to regular firms offering higher wages. Given greater productivity or warm glow, socially-responsible firms can compete by offering low match-ratios.
Charitable fund-raising, corporate social responsibility, employee matching grant schemes
© 2010 Social Science Electronic Publishing, Inc. All Rights Reserved. FAQ Terms of Use Privacy Policy Copyright This page was served by apollo1 in 0.078 seconds.
