Earnings management in Spain. Some evidence from companies quoted in the Spanish stock exchange

After the accounting scandals that have taken place mainly in the UnitedStates during the last years, some Spanish leading authorities havedefended the idea that this kind of accounting problems cannot happen inSpain. They argue that accounting regulation in Europe, and specificallyin Spain, make more difficult the use of creative accounting practices.The objective of this paper is to identify some evidence about thesituacion in Spain. The study tries to demonstrate that some accountingpractices of several of the companies quoted in the Spanish Stock Exchangecould be qualified as earnings management.To carry out this study, the authors have analysed the accounts of the 35companies included in the stock market index IBEX 35. This index iscalculated with the share prices variations of the most importantcompanies quoted in the Spanish Stock Exchange.

Scaling and data collapse for the mean exit time of asset prices

We study theoretical and empirical aspects of the mean exit time (MET) of financial time series. The theoretical modeling is done within the framework of continuous time random walk. We empirically verify that the mean exit time follows a quadratic scaling law and it has associated a prefactor which is specific to the analyzed stock. We perform a series of statistical tests to determine which kind of correlation are responsible for this specificity. The main contribution is associated with the autocorrelation property of stock returns. We introduce and solve analytically both two-state and three-state Markov chain models. The analytical results obtained with the two-state Markov chain model allows us to obtain a data collapse of the 20 measured MET profiles in a single master curve.

Security prices and market transparency: the role of prior information

This paper analyzes the role of traders' priors (proper versus improper) on the implications of market transparency by comparing a pre-trade transparent market with an opaque market in a set-up based on Madhavan (1996). We show that prices may be more informative in the opaque market, regardless of how priors are modelled. In contrast, the comparison of market liquidity and volatility in the two market structures are affected by prior specification. Key words: Market microstructure, Transparency, Prior information

Reference prices: the spanish way

The aim of this paper is to analyse the effects of recent regulatory reforms that Spanish Health Authorities have implemented in the pharmaceutical market: the introduction of a reference price system together with the promotion of generic drugs. The main objectives of these two reforms are to increase price competition and, ultimately, reduce pharmaceutical costs. Before the introduction of reference prices, consumers had to pay a fixed copayment of the price of whatever drug purchased. With the introduction of such system, the situation differs in the following way: if (s)he buys the more expensive branded drug, then (s)he pays a sum of two elements: the copayment associated to the reference price plus the difference between the price of this good and the reference price. However, if the consumer decides to buy the generic alternative, with price lower than the reference price, then (s)he has to pay the same copayment as before. We show that the introduction of a reference price system together with the promotion of generic drugs increase price competition and lower pharmaceutical costs only if the reference price is set in a certain interval. Also profits for the duopolists might be reduced. These results are due to the opposing effects that reference prices have on branded and generic producers respectively.

The Determinants of pricing in pharmaceuticals: are U.S. prices really higher than those of Canada?

This paper studies price determination in pharmaceutical markets using data for 25 countries, six years and a comprehensive list of products from the MIDAS IMS database. We show that market power and the quality of the product has a significantly positive impact of prices. The nationality of the producer appears to have a small and often insignificant impact on prices, which suggests that countries which regulates prices have relatively little power to do it in a way that advances narrow national interest. We produce a theoretical explanation for this phenomenon based on the fact that low negotiated prices in a country would have a knock-on effect in other markets, and is thus strongly resisted by producers. Another key finding is that the U.S. has prices that are not significantly higher than those of countries with similar income levels. This, together with the former observation on the effect of the nationality of producers casts doubt on the ability of countries to purs

A Multisectorial model of prices: the SAM approach

Social Accounting Matrices (SAM) are normally used to analyse the income generation process. They are also useful, however, for analysing the cost transmission and price formation mechanisms. For price contributions, Roland-Holst and Sancho (1995) used the SAM structure to analyse the price and cost linkages through a representation of the interdependence between activities, households and factors. This paper is a further analysis of the cost transmission mechanisms, in which I add the capital account to the endogenous components of the Roland-Holst and Sancho approach. By doing this I reflect the responses of prices to the exogenous shocks in savings and investment. I also present an additive decomposition of the global price effects into categories of interdependence that isolates the impact on price levels of shocks in the capital account. I use a 1994 Social Accounting Matrix to make an empirical application of the Catalan economy. Keywords: social accounting matrix, cost linkages, price transmission, capital account. JEL Classification: C63, C69, D59.

A nonlinear threshold model for the dependence of extremes of stationary sequences

One of the main implications of the efficient market hypothesis (EMH) is that expected future returns on financial assets are not predictable if investors are risk neutral. In this paper we argue that financial time series offer more information than that this hypothesis seems to supply. In particular we postulate that runs of very large returns can be predictable for small time periods. In order to prove this we propose a TAR(3,1)-GARCH(1,1) model that is able to describe two different types of extreme events: a first type generated by large uncertainty regimes where runs of extremes are not predictable and a second type where extremes come from isolated dread/joy events. This model is new in the literature in nonlinear processes. Its novelty resides on two features of the model that make it different from previous TAR methodologies. The regimes are motivated by the occurrence of extreme values and the threshold variable is defined by the shock affecting the process in the preceding period. In this way this model is able to uncover dependence and clustering of extremes in high as well as in low volatility periods. This model is tested with data from General Motors stocks prices corresponding to two crises that had a substantial impact in financial markets worldwide; the Black Monday of October 1987 and September 11th, 2001. By analyzing the periods around these crises we find evidence of statistical significance of our model and thereby of predictability of extremes for September 11th but not for Black Monday. These findings support the hypotheses of a big negative event producing runs of negative returns in the first case, and of the burst of a worldwide stock market bubble in the second example. JEL classification: C12; C15; C22; C51 Keywords and Phrases: asymmetries, crises, extreme values, hypothesis testing, leverage effect, nonlinearities, threshold models

Wealth constraints, skill prices or networks: what determines emigrant selection?

The productive characteristics of migrating individuals, emigrant selection, affect welfare. The empirical estimation of the degree of selection suffers from a lack of complete and nationally representative data. This paper uses a new and better dataset to address both issues: the ENET (Mexican Labor Survey), which identifies emigrants right before they leave and allows a direct comparison to non-migrants. This dataset presents a relevant dichotomy: it shows on average negative selection for Mexican emigrants to the United States for the period 2000-2004 together with positive selection in Mexican emigration out of rural Mexico to the United States in the same period. Three theories that could explain this dichotomy are tested. Whereas higher skill prices in Mexico than in the US are enough to explain negative selection in urban Mexico, its combination with network effects and wealth constraints is required to account for positive selection in rural Mexico.

License prices for financially constrained firms

It is often alleged that high auction prices inhibit service deployment. We investigate this claim under the extreme case of financially constrained bidders. If demand is just slightly elastic, auctions maximize consumer surplus if consumer surplus is a convex function of quantity (a common assumption), or if consumer surplus is concave and the proportion of expenditure spent on deployment is greater than one over the elasticity of demand. The latter condition appears to be true for most of the large telecom auctions in the US and Europe. Thus, even if high auction prices inhibit service deployment, auctions appear to be optimal from the consumers' point of view.

Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation

We examine why firms combine convertible debt offerings with stock repurchases. In 2006, 33% of the convertible issuers in the US simultaneously repurchased stock. These combined transactions are inconsistent with traditional motivations for convertible issuance. We document that convertible arbitrage drives these stock repurchases. Convertible debt arbitrageurs simultaneously buy convertibles and short sell the issuer’s common stock, resulting in downward pressure on the stock price. To prevent such short-selling activity, firms repurchase their stock directly from arbitrageurs. We show that combined transactions exhibit lower short-selling activity and that convertible arbitrage explains both the size and speed of the stock repurchases.

Stock market integration between new EU member states and the Euro-zone

This paper measures the degree in stock market integration between five Eastern European countries and the Euro-zone. A potentially gradual transition in correlations is accommodated by smooth transition conditional correlation models. We find that the correlation between stock markets has increased from 2001 to 2007. In particular, the Czech and Polish markets show a higher correlation to the Euro-zone. However, this is not a broad-based phenomenon across Eastern Europe. We also find that the increase in correlations is not a reflection of a world-wide phenomenon of financial integration but appears to be specific to the European market. JEL classifications: C32; C51; F36; G15 Keywords: Multivariate GARCH; Smooth Transition Conditional Correlation; Stock Return Comovement; New EU Members.

The Role of model uncertainty and learning in the U.S. postwar policy response to oil prices

This paper studies optimal monetary policy in a framework that explicitly accounts for policymakers' uncertainty about the channels of transmission of oil prices into the economy. More specfically, I examine the robust response to the real price of oil that US monetary authorities would have been recommended to implement in the period 1970 2009; had they used the approach proposed by Cogley and Sargent (2005b) to incorporate model uncertainty and learning into policy decisions. In this context, I investigate the extent to which regulator' changing beliefs over different models of the economy play a role in the policy selection process. The main conclusion of this work is that, in the specific environment under analysis, one of the underlying models dominates the optimal interest rate response to oil prices. This result persists even when alternative assumptions on the model's priors change the pattern of the relative posterior probabilities, and can thus be attributed to the presence of model uncertainty itself.

Did the cooperative start life as a Joint-Stock company? business law and cooperatives in Spain, 1869–1931

Studies of Spanish cooperatives date their spread from the Law on Agrarian Syndicates of 1906. But the first legislative appearance of cooperatives is an 1869 measure that permitted general incorporation for lending companies. The 1931 general law on cooperatives, which was the first act permitting the formation of cooperatives in any activity, reflects the gradual disappearance of the cooperative’s "business" characteristics. In this paper we trace the Spanish cooperative’s legal roots in business law and its connections to broader questions of the freedom of association, the formation of joint-stock enterprises, and the liability of investors in business and cooperative entities. Our account underscores the similarities of the organizational problems approach by cooperatives and business firms, while at the same time respecting the distinctive purposes cooperatives served.

Public and private learning from prices, strategic substitutability and complementarity, and equilibrium multiplicity

We study a general static noisy rational expectations model where investors have private information about asset payoffs, with common and private components, and about their own exposure to an aggregate risk factor, and derive conditions for existence and uniqueness (or multiplicity) of equilibria. We find that a main driver of the characterization of equilibria is whether the actions of investors are strategic substitutes or complements. This latter property in turn is driven by the strength of a private learning channel from prices, arising from the multidimensional sources of asymmetric information, in relation to the usual public learning channel. When the private learning channel is strong (weak) in relation to the public we have strong (weak) strategic complementarity in actions and potentially multiple (unique) equilibria. The results enable a precise characterization of whether information acquisition decisions are strategic substitutes or complements. We find that the strategic substitutability in information acquisition result obtained in Grossman and Stiglitz (1980) is robust. JEL Classification: D82, D83, G14 Keywords: Rational expectations equilibrium, asymmetric information, risk exposure, hedging, supply information, information acquisition.

Quantiles of the Realized Stock-Bond Correlation

Abstract: We scrutinize the realized stock-bond correlation based upon high frequency returns. We use quantile regressions to pin down the systematic variation of the extreme tails over their economic determinants. The correlation dependence behaves differently when the correlation is large negative and large positive. The important explanatory variables at the extreme low quantile are the short rate, the yield spread, and the volatility index. At the extreme high quantile the bond market liquidity is also important. The empirical fi…ndings are only partially robust to using less precise measures of the stock-bond correlation. The results are not caused by the recent …financial crisis. Keywords: Extreme returns; Financial crisis; Realized stock-bond correlation; Quantile regressions; VIX. JEL Classifi…cations: C22; G01; G11; G12