Liquidity and Asset Prices

We review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories. The theory predicts that both the level of liquidity and liquidity risk are priced, and empirical studies find the effects of liquidity on asset prices to be statistically significant and economically important, controlling for traditional risk measures and asset characteristics. Liquidity-based asset pricing empirically helps explain (1) the cross-section of stock returns, (2) how a reduction in stock liquidity result in a reduction in stock prices and an increase in expected stock returns, (3) the yield differential between on- and off-the-run Treasuries, (4) the yield spreads on corporate bonds, (5) the returns on hedge funds, (6) the valuation of closed-end funds, and (7) the low price of certain hard-to-trade securities relative to more liquid counterparts with identical cash flows, such as restricted stocks or illiquid derivatives. Liquidity can thus play a role in resolving a number of asset pricing puzzles such as the small-firm effect, the equity premium puzzle, and the risk-free rate puzzle.Liquidity; Liquidity Risk; Asset Prices

The Impact of Computer Mediation on Group and Individual Preferences in Social Dilemmas

As sensitivity to social issues increases, corporations face a particularIy difficult challenge when confronted with trade-oEs between corporate self-interest and the public interest. The difficulty OE resolving sese socid d i l e m a s in groups is amplified by value conflicts across group members and also b y conflicts bciween an individual\u27s p e r s o d values and those of the corporation. This study investigates the impact of group suppol-\u27,s y s t e ~ (sGSS) on persuasive processes md fiecison outcomes associated with social dilerrunas. The theoretical foundafronfor the study is the literature on group gol&zation, in particular the theories of persuasive arguments and social comparison (Isen\u27ksg 1986)

Market Microstructure and Securities Values: Evidence From the Tel Aviv Stock Exchange

This paper examines the value effects of improvements in the trading mechanism. Stocks on the Tel Aviv Stock Exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions. This event was associated with a positive and permanent price appreciation. The cumulative average market-adjusted return over a period that started five days prior to the announcement and ended 30 days after the stocks started trading by the new method was approximately 5.5%. In addition, we find positive liquidity externalities (spillovers) across related stocks, and improvements in the value discovery process due to the improved trading method. Finally, there was a positive association between liquidity gains and price appreciation. Our results suggest that improvements in market microstructure are valuable

Market Microstructure and Securities Values: Evidence From the Tel Aviv Stock Exchange

This paper examines the value effects of improvements in the trading mechanism. Stocks on the Tel Aviv Stock Exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions. This event was associated with a positive and permanent price appreciation. The cumulative average market-adjusted return over a period that started five days prior to the announcement and ended 30 days after the stocks started trading by the new method was approximately 5.5%. In addition, we find positive liquidity externalities (spillovers) across related stocks, and improvements in the value discovery process due to the improved trading method. Finally, there was a positive association between liquidity gains and price appreciation. Our results suggest that improvements in market microstructure are valuable

Should the Core Information Systems Curriculum be Structured Around a Fundamental Question?

This panel will discuss and debate whether the core Information Systems course in a business school should be structured around one central, fundamental question, and if so, what are the competing alternatives for this question. A recent Assocation to Advance Collegiate Schools of Business (AACSB) report strongly recommends including IT as part of the MBA core education. But there is little consensus at the current time on whether this core education should address a fundamental question, and if so, what the question should be. Moreover, a substantial fraction of leading MBA programs do not have an IS core course. The current situation is especially striking for the following reasons: • Information technology continues to be both a major factor in productivity as well as the major driver of changes in industry structure and business models • There is evidence of significant variance in the performance of companies based on how they use information technology • Knowledge about how systems work and how they enable commerce is becoming increasingly important for people in their careers • Using and managing systems as an executive requires a clear understanding of the possibilities that are enabled by information technologies in markets and organizations, as well as an appreciation of the risks and time scales associated with management of technology projects and personne