Do Tender Offers Create Value? New Methods and Evidence

We develop the Probability Scaling Method, which rescales short-window announcement period returns; and the Intervention Method, which uses returns associated with intervening events, to estimate value improvements from tender offers. These methods address biases in conventional techniques, which measure only a fraction of the total tender offer gain; and which include revelation about bidder stand-alone value. Perceived value improvements are much larger than traditional methods indicate, so that we cannot reject the hypothesis that bidders on average pay fair prices for targets. Furthermore, our new methods affect inferences about economic forces in the takeover market. We identify several effects (higher combined bidder-target stock returns for hostile offers, lower for equity offers, and lower for diversifying offers) that reflect differences in revelation about stand-alone value, not gains from combination.Tender offers, value improvements, truncation dilemma, revelation bias, agency

Do Individual Investors Drive Post-Earnings Announcement Drift? Direct Evidence from Personal Trades

This study examines whether individual investors are the source of post- earnings announcement drift (PEAD). We provide evidence on how individual investors trade in response to extreme quarterly earnings surprises and on the relation between individual investors' trades and subsequent abnormal returns. We find no evidence that either individuals or any sub-category of individuals in our sample cause PEAD. Individuals are significant net buyers after both negative and positive earnings surprises. There is no indication that trading by any of our investor sub-categories explains the concentration of drift at subsequent earnings announcement dates. While post-announcement individual net buying is a significant negative predictor of stock returns over the next three quarters, individual investor trading fails to subsume any of the power of extreme earnings surprises to predict future abnormal returns.post earnings-announcement drift, trading activity, individual investors, market efficiency

Time walkers and spatial dynamics of ageing information

The distribution of information is essential for living system's ability to coordinate and adapt. Random walkers are often used to model this distribution process and, in doing so, one effectively assumes that information maintains its relevance over time. But the value of information in social and biological systems often decay and must continuously be updated. To capture the spatial dynamics of ageing information, we introduce time walkers. A time walker moves like a random walker, but interacts with traces left by other walkers, some representing older information, some newer. The traces forms a navigable information landscape. We quantify the dynamical properties of time walkers moving on a two-dimensional lattice and the quality of the information landscape generated by their movements. We visualise the self-similar landscape as a river network, and show that searching in this landscape is superior to random searching and scales as the length of loop-erased random walks

Model of macroeconomic evolution in stable regionally dependent economic fields

We develop a model for the evolution of economic entities within a geographical type of framework. On a square symmetry lattice made of three (economic) regions, firms, described by a scalar fitness, are allowed to move, adapt, merge or create spin-offs under predetermined rules, in a space and time dependent economic environment. We only consider here one timely variation of the ''external economic field condition''. For the firm fitness evolution we take into account a constraint such that the disappearance of a firm modifies the fitness of nearest neighboring ones, as in Bak-Sneppen population fitness evolution model. The concentration of firms, the averaged fitness, the regional distribution of firms, and fitness for different time moments, the number of collapsed, merged and new firms as a function of time have been recorded and are discussed. Also the asymptotic values of the number of firms present in the three regions together with their average fitness, as well as the number of respective births and collapses in the three regions are examined. It appears that a sort of $critical$ selection pressure exists. A power law dependence, signature of self-critical organization is seen in the birth and collapse asymptotic values for a high selection pressure only. A lack of self-organization is also seen at region borders.Comment: 11 figures double columns on 7 page

On the lease rate, convenience yield and speculative effects in the gold futures market

By examining data on the gold forward offered rate (GOFO) and lease rates over the period 1996- 2009, we conclude that the convenience yield of gold is better approximated by the lease rate than the interest-adjusted spread of Fama & French (1983). Using the latter quantity, we study the relationship between gold leasing and the level of COMEX discretionary inventory and exhibit that lease rates are negatively related to inventories. We also show that Futures prices have increasingly exceeded forward prices over the period, and this effect increases with the speculative pressure and the maturity of the contracts

Strategically Equivalent Contests

Using a two-player Tullock-type contest, we show that intuitively and structurally different contests can be strategically equivalent. Strategically equivalent contests generate the same best response functions and, as a result, the same equilibrium efforts. However, strategically equivalent contests may yield different equilibrium payoffs. We propose a simple two-step procedure to identify strategically equivalent contests. Using this procedure, we identify contests that are strategically equivalent to the original Tullock contest, and provide new examples of strategically equivalent contests. Finally, we discuss possible contest design applications and avenues for future theoretical and empirical research

Naïve diversification and narrow framing among individual investors

We provide the first tests to distinguish whether individual investors equally balance their overall portfolios (naive portfolio diversification - NPD) or, in contrast, equally balance the values of same-day purchases of multiple assets (naive buying diversification - NBD). We find NBD in purchases of multiple stocks, and in mixed purchases of individual stocks and funds. In contrast, there is little evidence of NPD. Evidence suggest NBD arises due to stock picking behaviour and neglect of diversification. These findings suggest that behavioral finance theory should incorporate transaction as well as portfolio framing

Deriving an underlying mechanism for discontinuous percolation

Understanding what types of phenomena lead to discontinuous phase transitions in the connectivity of random networks is an outstanding challenge. Here we show that a simple stochastic model of graph evolution leads to a discontinuous percolation transition and we derive the underlying mechanism responsible: growth by overtaking. Starting from a collection of $n$ isolated nodes, potential edges chosen uniformly at random from the complete graph are examined one at a time while a cap, $k$, on the maximum allowed component size is enforced. Edges whose addition would exceed $k$ can be simply rejected provided the accepted fraction of edges never becomes smaller than a function which decreases with $k$ as $g(k) = 1/2 + (2k)^{-\beta}$. We show that if $\beta < 1$ it is always possible to reject a sampled edge and the growth in the largest component is dominated by an overtaking mechanism leading to a discontinuous transition. If $\beta > 1$, once $k \ge n^{1/\beta}$, there are situations when a sampled edge must be accepted leading to direct growth dominated by stochastic fluctuations and a "weakly" discontinuous transition. We also show that the distribution of component sizes and the evolution of component sizes are distinct from those previously observed and show no finite size effects for the range of $\beta$ studied.Comment: 6 pages. Final version appearing in EPL (2012