Shi-Miin Liu

GARCH-Stable as a Model of Futures Price Movements

A GARCH-stable process is tested as a model of the distribution of daily futures prices. The GARCH-stable process cannot be rejected as a model of 12 of the 37 price series considered. The evidence regarding stable distributions as a model of futures prices is not as unfavorable as suggested by some past research. The remaining rejections of the GARCH-stable model could be due to the inappropriateness of the stable distribution assumption or to other factors such as ignoring day-of-the-week effects and price limits.

Dynamic Incentive Contracts under No-Commitment to Periodic Auditing and a Non-retrospective Penalty System

This paper generalizes Khalil’s (1997) static model to a multiperiod one. The associated optimal dynamic contracts are derived and analyzed. At every-period’s equilibrium, the principal conducts no sure auditing. While duplication of the Baron-Myerson-type (1982) contract cannot be optimal, duplication of the Khalil-type (1997) contract can be optimal when the cheating penalty is large or discount factors are small. This implies that static contracts with no-commitment to auditing can describe players’ long-run behavior only under specific conditions. Moreover, our separating and pooling equilibria are compared with Baron and Besanko’s (1984a) and Laffont and Tirole’s (1987) equilibria, respectively.

Slippage Costs in Order Execution for a Public Futures Fund

The trading records of a commodity futures trading fund were examined to determine slippage on the funds futures market transactions. Slippage was about double that found in previous research that included all traders. Slippage was largest on days with large price movements and for large orders. Funds appear to trade at times when the market is moving quickly and brokers have trouble filling orders at the target price. Since funds use similar systems, as a group they may be responsible for increasing intraday price movements because a large number of funds want to trade at the same time.

Optimal concession contracts for landlord port authorities to maximize traffic volumes

This article analyzes optimal concession contracts offered by a landlord port authority to competing operators of container terminals. The port authority pursues traffic-volume maximization. Three contract schemes considered are fixed-fee, unit-fee, and two-part tariff. A two-stage game is constructed to characterize interactions between the port authority and two terminal operators. We discover that the fixed-fee contract is the best choice for the authority. Terminal operators’ congestion costs and competition modes have no impact on this contract choice. Our results demonstrate that port authority’s goal is an important factor in determining optimal concession contracts.

Tradeable-permit pollution control systems with and without commitment to auditing

This article analyzes and compares behaviors of a regulator and polluting firms in tradeable permit systems with and without commitment to auditing. If all firms are compliant, the equilibria under both of the schemes are the same. In contrast, if noncompliant firms exist, the equilibria under the two systems differ. The optimal permit number could affect the equilibrium auditing probability in the no-commitment case, while this impact would not appear in the commitment case. Moreover, the regulator will audit more under no commitment to auditing. The system with no commitment to auditing is less efficient than that with commitment to auditing.

INCENTIVE CONTRACTS UNDER IMPERFECT AUDITING

In this paper we analyze the optimal incentive contracts under imperfect auditing. Both principals commitment and no commitment to auditing cases are investigated. In the commitment case, the Baron-Besanko-type (RAND Journal of Economics, Vol. 15 (1984), pp. 447-470) contract would fail under imperfect auditing. In the no-commitment case, the Baron-Myerson (Econometrica, Vol. 50 (1982), pp. 911-930) and the Khalil-type (RAND Journal of Economics, Vol. 28 (1997), pp. 629-640) contracts could survive under specific misjudging probabilities. In addition, there exists a separate equilibrium with the agents full compliance and the principals sure ex post auditing. Copyright

An emission tax pollution control system with imperfect monitoring

This article analyzes regulator and polluting firm behavior in an emission tax system with imperfect monitoring, and contrasts the associated results with those under perfect monitoring. It is found that the firm’s optimal emissions may depend on either monitoring probability or emission tax for perfect monitoring, while they are affected by both monitoring probability and emission tax in imperfect monitoring. Moreover, as monitoring probability increases, the firm could abate fewer emissions in imperfect monitoring. The relative sizes of equilibrium monitoring probability in the two monitoring setups are uncertain.

Optimal concession contracts for landlord port authorities with different pursuing goals

ABSTRACT This paper investigates how landlord port authorities should offer concession contracts to their terminal operators under two different goals, by building a two-stage game for each goal. If maximizing the weighted sum of fee revenues and throughout benefits is port authorities’ goal, then the optimal concession contract can be any of the two-part tariff, the unit-fee, and the fixed-fee contracts. Accordingly, our special cases include previous works assuming that port authorities maximize either fee revenues or throughput benefits. By contrast, if maximizing the social welfare is the goal, then we find that subsidizing terminal operators, instead of charging them, is port authorities’ best choice. This result is not yet discovered in the literature.

Forward Pricing Efficiency and Risk Premium of Stock Indices Futures in Pacific-Rim Countries: A Fractional (Co)integration Analysis

This article investigates unbiased efficiency and patterns of forward risk premium using FPH tests and some auxiliary quantitative criteria for Pacific-rim stock indices futures in Australia, Hong Kong, Japan, the U.S. and Canada. Unbiased efficiency is found consistently and solely in All Ordinaries Share Price Indexs two-month and Hang Seng Indexs one-month forward pricing intervals. And fractional cointegration between spot and distant futures prices is detected only in the maturer US markets. Significantly positive and negative risk premium is discovered, respectively, in Standard & Poor 500 index and Toronto 35 index futures, and in Nikkei 225 index futures. While risk premium in nearby futures is almost all stationary, risk premium in five- and ten-month forward pricing intervals exhibits long-memory mean-reverting properties.