London Business School

About: London Business School is a education organization based out in London, England, United Kingdom. It is known for research contribution in the topics: Portfolio & Equity (finance). The organization has 1138 authors who have published 5118 publications receiving 437980 citations. The organization is also known as: LBS.

SEC Comment Letters and Insider Sales

Abstract: We document that insider trading is significantly higher than normal levels prior to the public disclosure of SEC comment letters relating to revenue recognition. Furthermore, insider trading is triple its normal level for firms with high short positions. We find a small negative return at the comment letter release date and a negative drift in returns of one to five percent over the next 50 days following the release. We also find that greater pre-disclosure sales are associated with a stronger negative drift. This evidence suggests that insiders appear to benefit from trading prior to revenue recognition comment letters. We investigate whether the delayed price reaction to comment letter releases is due to investor inattention. Consistent with this explanation, we document that comment letters are downloaded infrequently from EDGAR in the days following their public disclosure.

Herding and Delegated Portfolio Management: The Impact of Relative Performance Evaluation on Asset Allocation

Abstract: This paper investigates the effect of fund managers' performance evaluation on their asset allocation decisions. We derive optimal contracts for delegated portfolio management and show that they always contain relative performance elements. We then show that this biases fund managers to deviate from return-maximising portfolio allocations and follow those of their benchmark (herding). In many cases the trustees of the fund who employ the fund manager prefer such a policy. We also show that fund managers in some situations ignore their own superior information and "go with the flow" in order to reduce deviations from their benchmark. We conclude that incentive provisions for portfolio managers are an important factor in their asset allocation decisions.

Recent developments in corporate finance: Costs to crossborder investment and international equity market equilibrium

Abstract: Introduction The Sharpe–Lintner Capital Asset Pricing Model (CAPM), which is based upon mutual fund theorems applied to a single domestic capital market, suggests that with homogeneous expectations and opportunity sets, all investors will hold identical portfolios of risky assets. Aggregation of investors' portfolios to get a market equilibrium implies that all individuals will choose their portfolios from two funds: the market portfolio of risky assets and the risk free asset, or a zero beta portfolio if there is no riskless asset. The CAPM cannot be extended into an international CAPM by simply extending the opportunity set to include the world market portfolio, since the international capital markets differ from the domestic capital markets in certain important aspects, such as different currency areas, different socio–economic systems, taxes and barriers to capital flows. Several international capital market models have been developed to capture these complexities of the international capital markets. Most of these models treat exchange risk as the prime factor making international capital market equilibrium different from domestic equilibrium. For instance, Grauer, Litzenberger and Stehle (1976) assume that exchange risk is due to different stochastic national inflation rates, while on the other hand Solnik (1974), Sercu (1980) and Adler and Dumas (1983) assume that exchange risk stems from differences in consumption baskets between investors of different origin.

New Brands and the Existing Market

Abstract: In as far as the brand is new, its ultimate sales performance will naturally be difficult to predict. But for packaged grocery products or 'fmcgs', it is known that the established brands all attract much the same patterns of buyer behaviour (e.g. Ehrenberg 1972; 1988). As a result, any sales target for the new brand can be translated into predictions about its penetration, repeat–buying rates, and competitive performance for when the new brand has 'settled down' and itself become an established brand. Such fleshing out of a brand’s sales target in consumer terms – which is the topic of this paper – provides yardsticks for judging the new brand concept, its proposed marketing support, and its pre–launch and early launch performance.