THE PRICE OF OPTIONS ILLIQUIDITY

The purpose of this paper is to examine the effect of illiquidity on the value of currency options. We use a unique data set which allows us to explore this issue in special circumstances where options are issued by a central bank and are not traded prior to maturity. The value of these options is compared to similar options traded on the exchange. We find that the non-tradable options are priced about 21 percent less than the exchange traded options. This gap cannot be arbitraged away due to transactions costs and the risk that the exchange rate will change during the bidding process

Allocations, Adverse Selection and Cascades in IPOs Evidence from Israel

This paper examines three theories of IPO underpricing, using data from Israel where the allocations to subscribers are equally prorated and publicly known. Rock’s (1986) theory of adverse selection is supported: subscribers receive greater allocations in overpriced IPOs. And, while the average IPO excess return is 12%, the simulated allocation weighted return to uninformed investors is slightly negative. Welch’s (1992) theory of information cascades is supported by the pattern of allocations: demand is either extremely high or there is undersubscription, with very few cases in between. Also supported is the proposition that underpricing is a means to increase ownership dispersion

Allocations, Adverse Selection and Cascades in IPOs: Evidence from Israel

This paper examines three theories of IPO underpricing, using data from Israel where the allocations to subscribers are equally prorated and publicly known. Rock’s (1986) theory of adverse selection is supported: subscribers receive greater allocations in overpriced IPOs. And, while the average IPO excess return is 12%, the simulated allocation-weighted return to uninformed investors is slightly negative. Welch’s (1992) theory of information cascades is supported by the pattern of allocations: demand is either extremely high or there is undersubscription, with very few cases in between. Also supported is the proposition that underpricing is a means to increase ownership dispersion

Allocations, Adverse Selection and Cascades in IPOs: Evidence from Israel

This paper examines three theories of IPO underpricing, using data from Israel where the allocations to subscribers are equally prorated and publicly known. Rock’s (1986) theory of adverse selection is supported: subscribers receive greater allocations in overpriced IPOs. And, while the average IPO excess return is 12%, the simulated allocation-weighted return to uninformed investors is slightly negative. Welch’s (1992) theory of information cascades is supported by the pattern of allocations: demand is either extremely high or there is undersubscription, with very few cases in between. Also supported is the proposition that underpricing is a means to increase ownership dispersion

The Value of Voting Rights to Majority Shareholders: Evidence from Dual Class Stock Unifications

We study transactions of voting rights. In our sample of 67 dual class unifications superior vote shareholders give up their superior voting status (all firm stocks become “one share one vote”), and receive (in most cases) compensation in the form of additional stocks. Based on the compensation granted, the median price of 1% of the vote is about 0.1% of firm’s equity. More interestingly, the price of vote decreases with institutional holdings, and increases with the percentage vote lost by the majority shareholders. The position and interests of the majority holders appear as the main determinants of the price of vote

The Value of Voting Rights to Majority Shareholders: Evidence from Dual-Class Stock Unifications

We study 84 dual-class stock unifications, where superior vote shareholders gave up their superior voting status (all firm stocks became "one share one vote") and received (in most cases) compensation in the form of additional shares. Unifications are essentially intrafirm transactions of voting rights, and afford observation of the intrafirm-assessed price of vote. The price of vote in unifications (1) increases with the percentage vote lost by the majority shareholders, (2) is higher in family-controlled firms, (3) decreases with institutional investor holdings, and (4) is similar to the "outside" price of vote implicit in the market prices of stocks. Copyright 2004, Oxford University Press.