Price divergence from fundamental value and the value relevance of accounting information

By employing two alternative measures of fundamental value, we reexamine the value relevance of accounting information over time. Consistent with some recent studies, we do not find evidence on the temporal decline in R 2s of conventional value-relevance regressions when the stock price is replaced by these measures as the dependent variable. Further, our results show that the divergence between fundamental value and the prevailing stock price (a) increases over time and (b) is associated with measures of noise trading and other arbitrage risks and costs. Additional analyses also reveal that proxies measuring the extent of noise trading increase over time. Overall, we do not find evidence that there is a loss over time in the value relevance of accounting information with respect to fundamental value. More importantly, we show that measures of price divergence are associated with noise trading as well as other arbitrage costs and risks (such as transaction costs and information uncertainty) that prohibit market prices from converging to fundamental values.

If the price is right : vagueness and values clarification in contingent valuation

The use of willingness to pay to value the benefits of health care is increasing. Much of this work assumes that health preferences are well formed or complete and readily revealed if the right question is asked in the right way. We examined this assumption, seeking evidence in a mixed-methods study that explored the meaning and implications of vague responses to a payment-scale based willingness to pay exercise.

One-half of the sample said that their vagueness meant that their maximum willingness to pay was actually greater than the amount that they had previously said it was. Thirty percent agreed that they would probably pay £10 more than a sum that they had previously said they would most definitely not pay, if they found this to be the cost of the vaccine. Interview data supported the view that the payment scale had failed to elicit the maximum willingness to pay and that some participants used the information on cost to help clarify their values, in contrast to the theory underpinning willingness to pay. The results suggest a need to consider values-clarification in health economic evaluations. Copyright © 2002 John Wiley & Sons, Ltd.

Exploring the oil price and real GDP nexus for a small island economy, the Fiji Islands

The goal of this paper is to examine the relationship between real GDP and oil prices using time series data for the period 1970–2005. Our main finding is that an increase in oil has a positive, albeit inelastic, impact on real GDP, inconsistent with the bulk of the literature. We argue that this is not a surprising result for the Fiji Islands. Our central argument focuses on two aspects of the Fijian economy: (1) the fact that actual output in Fiji has been around 50 per cent less than potential output; thus, Fiji's actual output has not reached a threshold level at which oil prices can negatively impact output; and (2) a rise in oil prices filters through to value added, which in turn is reflected in a larger actual output.

Identifying house price diffusion patterns among Australian state capital cities

Prior research supports the proposition that house price diffusion shows a ripple effect along the spatial dimension. That is, house price changes in one region would reflect in subsequent house price changes in other regions, showing certain linkages among regions. Using the vector autoregression model and the impulse response function, this study investigates house price diffusion among Australia's state capital cities, examining the response of one market to the innovation of other markets and determining the lagged terms for the maximum absolute value of the other markets' responses. The results show that the most important subnational markets in Australia do not point to Sydney, rather towards Canberra and Hobart, while the Darwin market plays a role of buffer. The safest markets are Sydney and Melbourne. This study helps to predict house price movement trends in eight capital cities.

The adverse effect of dummy auction bids on market value

The popularity of an auction as a means of selling residential real estate has increased markedly in recent years. The effectiveness of an auction program is heavily promoted by most real estate agents, claiming it to be the best means of attracting the best price from the highest bidder, It is based on the theory of gathering all buyers together at a publicised time, and then offering the property for sale to the open market.

In theory, the person most willing to buy the property will have the highest bid, supposedly agreeing at market value with the vendor (although above the vendor's reserve I. Unfortunately, the practice of dummy bidding has recently resurfaced and highlights serious flaws in the auction system, with hundreds of residential auctions conducted across Australia every weekend.

Clearly, it is in the vendor's best interests land the auctioneer's best interests, who is paid even more by the vendor if the price is higherl to achieve the highest offer from the last bidder. The tactic of dummy bids is designed to deceive genuine purchasers into a false sense of perception, where there appears to be more competition for the property than there actually exists.

This paper examines the auction process with the emphasis placed on the practice of dummy biding, It considers the broad implications for the definition of market value and also the overall residential market. Useful advice is also included for real estate valuers relying upon auction sale properties in their market analysis. As well as strongly supporting the auction concept, the authors suggest improvements to the overall auction process to ensure relevance to the definition of market value is maintained.

Valuing creativity in the higher education sector : what price the creative knowledge economy?

Contemporary economic and social contexts including the creative knowledge economy provide competing perspectives on ‘the future’ of higher education and the role of the academic within these contexts. Increasingly educators and educationa leaders are expected to act in ‘futures’ oriented ways whilst remaining true to the professional standards of their present environments. Working in the creative industries or as part of the creative knowledge economy increasingly contributes to Australia’s strategic directions for the future but also has an influence on what is valued in the higher education sector.
This paper explores the impact of the creative knowledge economy on the higher education sector and its response to the changing educational landscapes. An exploration is undertaken of the shift towards creative industries where the value of creativity and the arts is linked to economic value. It is argued that this shift requires researchers to alter their identities from that of having ‘academic’ value to engaging with the commodification of knowledge. The paper concludes with a suggested way forward for both the creative industries and the higher education sector using Giri’s (2002) model for transdisciplinarity.

An agent-based approach to value theory and wealth distribution in economics

Any attempt to model an economy requires foundational assumptions about the relations between prices, values and the distribution of wealth. These assumptions exert a profound influence over the results of any model. Unfortunately, there are few areas in economics as vexed as the theory of value. I argue in this paper that the fundamental problem with past theories of value is that it is simply not possible to model the determination of value, the formation of prices and the distribution of income in a real economy with analytic mathematical models. All such attempts leave out crucial processes or make unrealistic assumptions which significantly affect the results. There have been two primary approaches to the theory of value. The first, associated with classical economists such as Ricardo and Marx were substance theories of value, which view value as a substance inherent in an object and which is conserved in exchange. For Marxists, the value of a commodity derives solely from the value of the labour power used to produce it - and therefore any profit is due to the exploitation of the workers. The labour theory of value has been discredited because of its assumption that labour was the only ‘factor’ that contributed to the creation of value, and because of its fundamentally circular argument. Neoclassical theorists argued that price was identical with value and was determined purely by the interaction of supply and demand. Value then, was completely subjective. Returns to labour (wages) and capital (profits) were determined solely by their marginal contribution to production, so that each factor received its just reward by definition. Problems with the neoclassical approach include assumptions concerning representative agents, perfect competition, perfect and costless information and contract enforcement, complete markets for credit and risk, aggregate production functions and infinite, smooth substitution between factors, distribution according to marginal products, firms always on the production possibility frontier and firms’ pricing decisions, ignoring money and credit, and perfectly rational agents with infinite computational capacity. Two critical areas include firstly, the underappreciated Sonnenschein-Mantel- Debreu results which showed that the foundational assumptions of the Walrasian general-equilibrium model imply arbitrary excess demand functions and therefore arbitrary equilibrium price sets. Secondly, in real economies, there is no equilibrium, only continuous change. Equilibrium is never reached because of constant changes in preferences and tastes; technological and organisational innovations; discoveries of new resources and new markets; inaccurate and evolving expectations of businesses, consumers, governments and speculators; changing demand for credit; the entry and exit of firms; the birth, learning, and death of citizens; changes in laws and government policies; imperfect information; generalized increasing returns to scale; random acts of impulse; weather and climate events; changes in disease patterns, and so on. The problem is not the use of mathematical modelling, but the kind of mathematical modelling used. Agent-based models (ABMs), objectoriented programming and greatly increased computer power however, are opening up a new frontier. Here a dynamic bargaining ABM is outlined as a basis for an alternative theory of value. A large but finite number of heterogeneous commodities and agents with differing degrees of market power are set in a spatial network. Returns to buyers and sellers are decided at each step in the value chain, and in each factor market, through the process of bargaining. Market power and its potential abuse against the poor and vulnerable are fundamental to how the bargaining dynamics play out. Ethics therefore lie at the very heart of economic analysis, the determination of prices and the distribution of wealth. The neoclassicals are right then that price is the enumeration of value at a particular time and place, but wrong to downplay the critical roles of bargaining, power and ethics in determining those same prices.

Market analysis study of the value technology systems to home owners

Smart Technology involves the integration of a variety of home systems including lighting, climate control, security etc. to enhance the comfort, convenience and economy of the home for its users. It is currently unknown if home buyers believe that these systems add value to the home. This study used the market value of home sales and an attitudinal survey of home buyers, to determine the increased value of homes containing Smart Technology. The results demonstrated that a significant price premium was paid by for the incorporation of the technology into new homes. In addition, the research suggests that the use of this technology is not limited to high income earners or other demographic stereotypes. Instead it has broad market appeal and the potential to save energy for the community at large.

Analysis of the value of home automation systems

Smart technology involves the integration of a variety of home systems including lighting, climate control, security etc. to enhance the comfort, convenience and economy of the home for its users. It is currently unknown if homebuyers believe that these systems add value to the home. This study used the market value of home sales and an attitudinal survey of homebuyers, to determine the increased value of homes containing smart technology. The results demonstrated that a significant price premium was paid for the incorporation of the technology into new homes. In addition, the research suggests that the use of this technology is not limited to high-income earners or other demographic stereotypes. Instead it has broad market appeal and the potential to save energy for the community at large.

An examination of Australian gold mining firms' exposure over the collapse of gold price in the late 1990s

Purpose – The purpose of this study is to examine the exposures of Australian gold mining firms in the highly volatile period from 1995 to 2000. This period has been characterized by significant changes in gold price due to bulk sale of gold by collective central banks. Specifically, the paper aims to investigate several firm-specific factors that are hypothesized to carry substantial influence on gold beta.

Design/methodology/approach – To estimate gold beta, we use the following multifactor model: R_g,_t = a+ß_gGPR_t + ß_xFXR_t + ß_mR_m,_t + _Et , where R_g,_t is the return on the gold stock Index at time t, GPR_t is the gold price return denominated in US dollar at time t, FXR_t is the foreign exchange return of Australian dollar in terms of US dollar at time t, R_m,t is the market return at time t, and _Et is the random error term at time t.

Findings – The paper finds that the values of gold beta are consistently greater than one, implying the sensitive nature of firms’ stock returns to gold price changes. This also suggests that investors holding gold mining stock would receive higher percentage increases in stock returns from a percentage increase in gold price returns, as opposed to investors holding gold bullion. Furthermore, these values have changed substantially over time with significant changes in gold price volatility. The most important and consistent relationship that we find is the impact of firms’ hedging behavior on their respective gold betas. This is consistent with Tufano’s study. It implies that firms, which hedge a greater proportion of their gold reserves, are less sensitive to movements in gold prices. The finding therefore supports the risk management theory that hedging increases shareholder’s wealth. However, cash operating costs, cash reserves and the level of gold production seem to influence very little on the firms’ exposure to gold price changes.

Originality/value – This study is of interest and important to the stock mining companies and investors because the extent of the effect of gold price movements on the stock returns of gold mining companies has significant impacts on returns for both firms and investors especially in their risk management and investment decisions, respectively.

Changes in use of types of tobacco products by pack sizes and price segments, prices paid and consumption following the introduction of plain packaging in Australia

Objectives: To describe changes among smokers in use of various types of tobacco products, reported prices paid and cigarette consumption following the standardisation of tobacco packaging in Australia.
Methods: National cross-sectional telephone surveys of adult smokers were conducted from April 2012 (6 months before transition to plain packaging (PP) to March 2014 (15 months afterwards). Multivariable logistics regression assessed changes in products, brands and pack types/sizes; multivariable linear regression examined changes in inflation-adjusted prices paid and reported cigarette consumption between the pre-PP and three subsequent periods – the transition phase, PP year 1 and PP post-tax (post a 12.5% tax increase in December 2013).
Results: The proposition of current smokers using roll-your-own (RYO) products fluctuated over the study period. Proportions using value brands of factory-made (FM) cigarettes increased from pre-PP (21.4%) to PP year 1 (25.5%; p=0.002) and PP post-tax (27.8%; p<0.001). Inflation-adjusted prices paid increased in the PP year 1 and PP post-tax phases; the largest increases were among premium FM brands, the smallest among value brands. Consumption did not change in PP year 1 among daily, regular or current smokers declined significantly in PP post-tax (mean=14.0, SE=0.33) compared to PP year 1 (mean=14.8, SE=0.17; p=0.037).
Conclusions: Introduction of PP was associated with an increase in use of value brands, likely due to increased numbers available and smaller increases in prices for value relative to premium brands. Reported consumption declined following the December 2013 tax increase.

The economic value of wetlands in developing countries: a meta-regression analysis

This paper presents the first comprehensive synthesis of economic valuations of wetlands in developing countries. Meta-regression analysis (MRA) is applied to 1432 estimates of the economic value of 379 distinct wetlands from 50 countries. We find that wetlands are a normal good, wetland size has a negative effect on wetland values, and urban wetlands and marine wetlands are more valuable than other wetlands. Wetland values estimated by stated preferences are lower than those estimated by market price methods. The MRA benefit transfer function has a median transfer error of 17%. Overall, MRA appears to be useful for deriving the economic value of wetlands at policy sites in developing nations.

Stock market liquidity and firm value : an empirical examination of the Australian market

We document a positive relation between stock liquidity and firm value. We examine the mechanism through which stock market liquidity enhances firm value by dividing firm value, as measured by Tobin’s Q, into three components, namely, operating income to price, leverage, and operating income to assets. Using the switch to broker anonymity as an exogenous shock to market liquidity, we show that the increase in liquidity around the shock leads to an increase in firm value. Our results suggest that higher firm value for more liquid stocks seems to stem from enhanced stock prices rather than from better operating performance.

Economic evaluation of price discounts and skill-building strategies on purchase and consumption of healthy food and beverages: The SHELf randomized controlled trial

OBJECTIVE: Pricing strategies are a promising approach for promoting healthier dietary choices. However, robust evidence of the cost-effectiveness of pricing manipulations on dietary behaviour is limited. We aimed to assess the cost-effectiveness of a 20% price reduction on fruits and vegetables and a combined skills-based behaviour change and price reduction intervention. DESIGN AND METHODS: Cost-effectiveness analysis from a societal perspective was undertaken for the randomized controlled trial Supermarket Healthy Eating for Life (SHELf). Female shoppers in Melbourne, Australia were randomized to: (1) skill-building (n = 160); (2) price reductions (n = 161); (3) combined skill-building and price reduction (n = 161); or (4) control group (n = 161). The intervention was implemented for three months followed by a six month follow-up. Costs were measured in 2012 Australian dollars. Fruit and vegetable purchasing and consumption were measured in grams/week. RESULTS: At three months, compared to control participants, price reduction participants increased vegetable purchases by 233 g/week (95% CI 4 to 462, p = 0.046) and fruit purchases by 364 g/week (95% CI 95 to 633, p = 0.008). Participants in the combined group purchased 280 g/week more fruits (95% CI 27 to 533, p = 0.03) than participants in the control group. Increases were not maintained six-month post intervention. No effect was noticed in the skill-building group. Compared to the control group, the price reduction intervention cost an additional A$2.3 per increased serving of vegetables purchased per week or an additional A$3 per increased serving of fruit purchased per week. The combined intervention cost an additional A$12 per increased serving of fruit purchased per week compared to the control group. CONCLUSIONS: A 20% discount on fruits and vegetables was effective in promoting overall fruit and vegetable purchases during the period the discount was active and may be cost-effective. The price discount program gave better value for money than the combined price reduction and skill-building intervention. The SHELf trial is registered with Current Controlled Trials Registration ISRCTN39432901.