Audit fees and IFRS accounting - Is information costly?

Since 2005 companies with equity instruments traded on regulated markets in the European Economic Area have prepared their financial reports in accordance with accounting standards issued by the IASB. A survey conducted in 2007 indicated that most of the EU companies that changed from local to IFRS rules incurred additional costs in connection with the transition. Also, companies expected additional future costs from using IFRS. Although the main part of these stemmed from the companies’ internal work on IFRS statements, additional costs for external auditing and other external services were identified as substantial but independent of company size. We analyze whether the application of IFRS standards has increased Danish companies’ cost of auditing. Our study is based on a sample of financial reports from large Danish companies from 2002 to 2008. Controlling for a number of general audit fee driving aspects, we find that overall, audit fees have not increased significantly for companies using IFRS rules. However, when combining IFRS with company size and complexity, we find that large and complex companies using IFRS pay a heavy audit fee premium compared to small and less complex companies that also use IFRS. Our results for nonaudit fees are less conclusive.Audit fees; non audit fees; IFRS; transition of accounting regime; empirical study

Probability measures, L\'{e}vy measures and analyticity in time

We investigate the relation of the semigroup probability density of an infinite activity L\'{e}vy process to the corresponding L\'{e}vy density. For subordinators, we provide three methods to compute the former from the latter. The first method is based on approximating compound Poisson distributions, the second method uses convolution integrals of the upper tail integral of the L\'{e}vy measure and the third method uses the analytic continuation of the L\'{e}vy density to a complex cone and contour integration. As a by-product, we investigate the smoothness of the semigroup density in time. Several concrete examples illustrate the three methods and our results.Comment: Published in at http://dx.doi.org/10.3150/07-BEJ6114 the Bernoulli (http://isi.cbs.nl/bernoulli/) by the International Statistical Institute/Bernoulli Society (http://isi.cbs.nl/BS/bshome.htm

Absolute Moments of Generalized Hyperbolic Distributions and Approximate Scaling of Normal Inverse Gaussian Lévy-Processes

Expressions for (absolute) moments of generalized hyperbolic (GH) and normal inverse Gaussian (NIG) laws are given in terms of moments of the corresponding symmetric laws. For the (absolute) moments centered at the location parameter mu explicit expressions as series containing Bessel functions are provided. Furthermore the derivatives of the logarithms of (absolute) mu-centered moments with respect to the logarithm of time are calculated explicitly for NIG Levy processes. Computer implementation of the formulae obtained is briefly discussed. Finally some further insight into the apparent scaling behaviour of NIG Levy processes (previously discussed in Barndorff-Nielsen and Prause (2001)) is gained

Multipower Variation and Stochastic Volatility

In this brief note we review some of our recent results on the use of high frequency financial data to estimate objects like integrated variance in stochastic volatility models. Interesting issues include multipower variation, jumps and market microstructure effects.

Inflation from Asymptotically Safe Theories

We investigate models in which inflation is driven by an ultraviolet safe and interacting scalar sector stemming from a new class of nonsupersymmetric gauge field theories. These new theories, differently from generic scalar models, are well defined to arbitrary short distances because of the existence of a controllable ultraviolet interacting fixed point. The scalar couplings at the ultraviolet fixed point and their overall running are predicted by the geometric structure of the underlying theory. We analyse the minimal and non-minimal coupling to gravity of these theories and the consequences for inflation. In the minimal coupling case the theory requires large non-perturbative quantum corrections to the quantum potential for the theory to agree with data, while in the non- minimal coupling case the perturbative regime in the couplings of the theory is preferred. Requiring the theory to reproduce the observed amplitude of density perturbations constrain the geometric data of the theory such as the number of colors and flavors for generic values of the non-minimal coupling.Comment: 6 pages, 6 figure

Econometric Analysis of Realised Covariation: High Frequency Covariance, Regression and Correlation in Financial Economics

This paper analyses multivariate high frequency financial data using realised covariation. We provide a new asymptotic distribution theory for standard methods such as regression, correlation analysis and covariance. It will be based on a fixed interval of time (e.g. a day or week), allowing the number of high frequency returns during this period to go to infinity. Our analysis allows us to study how high frequency correlations, regressions and covariances change through time. In particular we provide confidence intervals for each of these quantities.Power variation; Realised correlation; Realised covolatility; Realised regression; Realised variance; Semimartingales; Covolatility

Integrated OU Processes

In this paper we study the detailed distributional properties of integrated non-Gaussian OU (intOU) processes. Both exact results and approximate results are given. We emphasise the study of the tail behaviour of the intOU process. Our results have many potential applications in financial economics, for OU processes are used as models of instantaneous volatility in stochastic volatility (SV) models. In this case an intOU process can be regarded as a model of integrated volatility. Hence the tail behaviour of the intOU process will determine the tail behaviour of returns generated by SV models.Background driving Levy process; Chronometer; Co-break; Econometrics; Integrated volatility; Kumulant function; Levy density; Option pricing; OU processes; Stochastic volatility

Power and bipower variation with stochastic volatility and jumps

This paper shows that realised power variation and its extension we introduce here called realised bipower variation is somewhat robust to rare jumps. We show realised bipower variation estimates integrated variance in SV models --- thus providing a model free and consistent alternative to realised variance. Its robustness property means that if we have an SV plus infrequent jumps process then the difference between realised variance and realised bipower variation estimates the quadratic variation of the jump component. This seems to be the first method which can divide up quadratic variation into its continuous and jump components. Various extensions are given. Proofs of special cases of these results are given. Detailed mathematical results will be reported elsewhere.

Econometrics of testing for jumps in financial economics using bipower variation

In this paper we provide an asymptotic distribution theory for some non-parametric tests of the hypothesis that asset prices have continuous sample paths. We study the behaviour of the tests using simulated data and see that certain versions of the tests have good finite sample behaviour. We also apply the tests to exchange rate data and show that the null of a continuous sample path is frequently rejected. Most of the jumps the statistics identify are associated with governmental macroeconomic announcements.Bipower variation; Jump process; Quadratic variation; Realised variance; emimartingales; Stochastic volatility.