Melbourne Business School

About: Melbourne Business School is a based out in . It is known for research contribution in the topics: Bayesian probability & Copula (probability theory). The organization has 155 authors who have published 764 publications receiving 37402 citations.

Do Voluntary Disclosures that Disavow the Reliability of Mandated Fair Value Information Reflect Legitimate Concerns About Reliability

Abstract: One consequence of the shift to fair value measurement is the emergence of voluntary disclosures in audited financial statements that question the reliability of mandated fair value information. We refer to these disclosures as reliability disavowals and address three questions: Are fair value estimates less reliable for firms that disavow? Do managers of disavowal firms have reason to believe that they cannot reliably estimate the disavowed fair values? Are factors indicative of reliability problems associated with the decision to disavow? We address these questions in the context of managers’ stock option compensation estimates disclosed under SFAS 123. Our results suggest reliability disavowals reflect legitimate reliability concerns, consistent with managers believing that supplemental disclosures about fair value estimates provide useful information about the limitations of the estimates, which is the FASB’s position in SFAS 157.

Trading Volume, Volatility, and the Serial Correlation of Stock Market Returns

Abstract: In this paper we study the dynamic relationship between trading volume, volatility, and stock returns at international stock markets. We test a number of theoretical models which suggest that the trading volume and volatility can predict future behavior of stock returns. Our analysis uses both semi-nonparametric (Flexible Fourier Form) and parametric techniques. Our findings suggest that the main factor driving the magnitude of the return reversals is stock market volatility and not trading volume. First, apart from a direct effect on expected returns with mixed signs, we find no evidence of the trading volume affecting the serial correlation of stock market returns, as predicted by Campbell et al. (1993) and Wang (1994). Second, the stock market volatility has a negative and statistically significant impact on the serial correlation of the stock market returns, consistent with the “positive feedback” trading model of Sentana and Wadhwani (1992). Third, the lagged trading volume is positively related to the stock market volatility, supporting the “information flow” theory (Clark, 1973). Moreover, we find that taking into account both trading volume and volatility improves the accuracy of the out-of-sample forecasts of the stock market behavior.

Is Price Regulation of Payment Card Associations Effective? Evidence from a Dramatic Policy Experiment

Abstract: After the removal of no surcharging rules, average credit card interchange fees in Australia were cut almost in half in 2003 as part of a suite of credit card industry reforms, aimed at reducing the relative attractiveness of credit card use. This paper tests whether the reforms are associated with a negative structural break in credit card use. The exogenous and endogenous break point tests do not support a negative structural break in credit card usage levels, growth rates or market shares at the time of the reforms. This provides support for the interchange fee being neutral under surcharging.

Litigation Settlements, Market Expectations, and Financial Distress Costs

Abstract: This study examines stock returns around announcements of litigation settlements to investigate the market expectations of corporate litigation outcomes and the importance of financial distress costs. Prior research regards a settlement as an exogenous shock; however, this study draws from analytical models in the economics literature to analyze how the market forms expectations prior to settlements and how these expectations affect market reactions after the announcement of a settlement. Consistent with the implications of these models, we find that returns around settlements are more positive when higher-stakes lawsuits are settled. We also find evidence of the existence of financial distress costs, although our results contradict a conclusion drawn in prior research — that the primary benefit of litigation settlements is the unexpected relief from financial distress.

Persistence of Output Fluctuations Under Alternative Exchange Rate Regimes

Abstract: In a recent paper Giugale and Korobow (2000) present evidence to suggest the time that output takes to return to its trend following a negative shock is faster under a flexible exchange rate regime than under a fixed exchange rate. In this paper VAR models are used to provide empirical evidence on the speed of recovery of real output following an interest rate shock for a number of Asian economies. We find little evidence that the degree of persistence in output is systematically related to the type of exchange rate regime that particular countries have adopted. Across a number of specifications we find that real output for Hong Kong and Australia has the least persistence following a negative interest rate shock. These countries represent the two ends of the spectrum, the former has an exchange rate that is pegged to the U.S. dollar via a currency board and the latter has one of the more flexible exchange rates in the Asian region.