Philippe Grégoire

Managers' Perceptions of Export Barriers

Abstract Exports continue to be one of the fastest-growing economic activities in our world today. However, the rate at which countries develop substantial levels of export activity appears to vary. Firm-level decisions regarding export initiation are motivated in part by the perceptions of management, leading to the principal question of this study. Do managers of exporting firms in India perceive different export obstacles to those in the United States? In an examination of 255 Indian and American engineering firms, logistic regression and other significance testing is performed to identify any differences in export barrier variables. Findings indicate that there are in fact differences in manager perceptions of export barriers between the firms from each country lending credence to differing export activity levels. Furthermore, identification of specific variables allow for the formulation of both firm and public policy in an effort to mitigate the impact of these variables on export initiation.

INSIDER TRADING AND VOLUNTARY DISCLOSURE

We set up a model to study the voluntary disclosure of information by insiders of publicly traded companies. We consider a trading framework as in [14] with many assets and one insider per asset. There is one discretionary liquidity trader who can allocate his trades across the different assets and many noise traders who trade with equal intensity in all assets. Before trade begins, insiders can disclose information in order to attract the discretionary liquidity trades. We show that if the level of noise trading is above a certain threshold, then there is an equilibrium where all insiders do not disclose any information. Below this threshold, equilibria are such that some information is always revealed by insiders. We also find that the greater the number of assets, the smaller the intensity of noise trading must be in order to induce insiders to disclose some information, and we find that insiders reveal all their information when the intensity of noise trading approaches zero.

Maturity effect and storage announcements: the case of natural gas

This paper considers the maturity effect in the nearby natural gas futures contract while controlling for the impact of the weekly change in gas inventories as released by the USA Energy Information Administration (EIA). Using data from January 2005 until July 2007, we investigate whether the surprise created by the EIA announcement, i.e. the difference between the numbers released and what was expected by a group of analysts surveyed by Bloomberg, also has an influence on the volatility of natural gas futures prices. We also investigate whether the variance of the survey estimates has a significant influence on the futures price volatility. We find that volatility is higher on announcement days, especially when gas inventories are lower than expected. The magnitude of the surprise also has a significant impact on volatility on announcement days. The variance of the survey estimates, on the other hand, is rarely significant.

Measuring infrastructure investment option value

Purpose - – The purpose of this paper is to propose a risk-based framework to estimate the option value of infrastructure investment, accounting for the stochastic behavior of both financial and physical (engineering) variables. Design/methodology/approach - – This study uses a real-options approach and computes the optimal investment dates and option values using Least Squares Monte Carlo, both the original Longstaff – Schwartz algorithm and the constrained Least Squares approach of Le tourneau – Stentoft. Findings - – Real-option value for infrastructure investment is substantial. It is beneficial to model jointly financial and engineering risks to better understand the timing and real-option value of infrastructure investment. The analysis further shows which variables are option value drivers. Research limitations/implications - – Future work could integrate financing constraints into the model, consider path dependency in the physical state variables or integrate sovereign risk, expropriation risk, operational risk or other project risks. Practical implications - – Financial practitioners and investment managers interested in infrastructure risk finance or project finance will benefit from a novel framework to analyze infrastructure investments in which engineering and financial risks interact in a tractable way. Social implications - – Public decision-makers will benefit from a better understanding of what determines the value of infrastructure investments, how real-option value affects optimal investment timing and how both are determined by financial and engineering risks. Originality/value - – The analysis considers financial and engineering risks in a single framework to better understand option value in infrastructure investment. The framework and findings are useful both to risk finance and project finance practitioners and investors as well as engineers and public sector decision-makers.

Is backdating executive stock options always costly to shareholders

We use a binomial model to investigate the cost to shareholders of backdating employee stock option (ESO) grants to award in‐the‐money rather than at‐the‐money options to a manager. When the expected return of the stock underlying an ESO is sufficiently close to the risk‐free rate, a backdating arrangement can always be structured to simultaneously improve shareholders’ wealth and the managers utility. The smaller the managers non‐option wealth, personal income tax rate or risk tolerance, the more likely a backdating arrangement can be welfare improving.

Informed and Uninformed Trading with Correlated Assets: An Experimental Study

We examine the use of market and limit orders by informed and uninformed traders in an experimental market with two correlated assets. Some traders receive private information about one asset, referred to as the main asset, which conveys information about the value of another asset, referred to as the substitute. A continuous flow of information allows uninformed traders to form expectations about the liquidation value of each asset throughout a trading session. When dealing in the main asset, we find that informed traders’ submission rate is relatively constant over time while their taking rate has a U-shape. With the substitute, insiders’ submission and taking rates follow a similar evolution as those of the uninformed traders. Insiders realize greater profits with the substitute than with the main asset, and realize their biggest gains when insider trading is prohibited in the main asset. Hence substitute trading can be highly profitable to an insider.

Commercial leases, terms and options in the light of game theory

In this paper, a lease rate valuation model is developed whereby the market rent is subject to binomial movements. We then consider a commercial leasing game where different renters, large and small, find a location in different buildings owned by competing landlords operating under a rent negotiation process. When supply for office space exceeds demand from large firms, the latter always pay an advantageous rent. We demonstrate theoretically that small firms are better off in a building containing a large firm and thus will accept to pay a premium to lodge in such buildings rather than opting for a lower rent in a building occupied by small firms. The conditions leading to opposite results are also discussed in the paper. Using data from New York City, Chicago and Los Angeles, we discuss lease rates in light of the predictions of our theoretical model.

Gift Exchange with Surprise

We consider a wage-effort psychological game (Geanakoplos, Pearce and Stacchetti, 1989) where the agents reciprocal behavior depends on the surprise generated by the wage paid by the principal. The agent works harder when the wage is greater than expected and works less when the wage is smaller than expected. Consistent equilibrium beliefs oblige the principal to randomize in order to surprise the agent, which results in the principal being worse off than if she were dealing with an agent unaffected by surprise.We consider a wage-efiort game where the agent’s reciprocal behavior depends on the surprise generated by the wage paid by the principal. The agent works more when the wage is greater than expected and works less when the wage is smaller than expected. This is done by incorporating the agent’s beliefs into his utility function, implying that players are involved in a psychological game (Geanakoplos, Pearce and Stacchetti, 1989). Beliefs have to be consistent in equilibrium, forcing the principal to randomize in order to surprise the agent. This consistency condition results in the principal being worse ofi trying to manipulate the agent than paying the minimum wage with certainty.

The pricing of embedded lease contracts options

In all the major asset class, implied volatility is obtained from the quotations of the derivatives market. However, in real estate, derivatives market is almost inexistent and volatility pricing face many difficulties. This paper proposes a methodology to determine implied volatility of real estate market based on options embedded in lease contracts. Leases are generally agreed for long term with possible options to leave in favour of the tenant during the course of the lease. Tenants that have no break-options during the life of their lease expect either to pay a lower rent or to receive more gratuities (rent free, financial incentives...) than those with options to leave. We built up a model that allows estimating implied volatility based on the leasing transactions by analogy between lease options and financial options.

The Effect of Brokers on the Dynamics of a Walrasian Auction

We study the effect of the presence of brokers in an experimental exchange market using the Walrasian tâtonnement mechanism. We find that brokers tend to act as liquidity providers, submitting orders likely to equilibrate supply and demand given the orders they receive from other participants. As a result, average excess demand and prices are less volatile, and markets reach equilibrium more often, when brokers are present compared with the case without brokers. Brokers’ liquidity-providing behavior is more pronounced when their compensation includes, in addition to their trading profit, a component related to trading volume when equilibrium is reached. Under-revelation, a strategic behavior inherent to Walrasian auctions, is about the same with and without brokers when markets clear, yielding similar levels of market efficiency, measured as total surplus divided by potential surplus.