We ask what determines the profitability of candlestick trading strategies. Is it the definition of trend and/or the holding strategy that one uses in candlestick charting analysis? To answer this, we systematically consider three definitions of trend and four holding strategies. Applying candlestick trading strategies to the DJIA component data, we find that regardless of which definition of trend is used, eight three-day reversal patterns with a Caginalp–Laurent holding strategy are profitable when we set the transaction cost at 0.5% and after we account for data-snooping bias, while the patterns with a Marshall–Young–Rose holding strategy are not profitable. For sensitivity analysis, we also find that our results are not qualitatively changed on a lower transaction cost of 0.1%, or when we conduct the subsample analyses based on three equal periods and three distinct market conditions. When considering a more volatile market, evidence in favor of candlestick trading strategies is strengthened.

This paper reexamines the explanatory power of Taylor rule fundamentals for real exchange rate determination. We assume the agents know the time-varying parameters in central bank policy rules. The empirical results suggest that a monetary policy rule with regime switching is better able to explain the real Deutschemark/dollar exchange rate from 1976 to 1998 compared with a fixed-regime monetary policy rule. The findings show the importance of accounting for the expectation formation effect in changing policy rules as emphasized by the Lucas critique. Ignoring these effects can undermine the value of the rational expectations models.

Firms can effectively stave off outside takeover bids using private investments in public equity (PIPEs) when they face strong takeover pressure. Greater takeover pressure makes PIPE issuers more likely to grant investors large blocks of shares, price discounts, generous dividends, and board seats. Takeover pressure also encourages issuers to place more shares with friendly investors such as managerial investors and strategic alliance investors. The evidence is consistent with the regular methods of the white squire defense. PIPEs can be a preferred method in the choice of a white squire defense when poorly performing and highly overleveraged firms face severe takeover pressure. There is a negative relation between takeover probability and post-issue performance of issuers, which supports the managerial entrenchment hypothesis over the shareholder interest hypothesis. Therefore PIPEs can increase, not mitigate, agency problems.

In this paper, we propose a new spot-futures hedging method that determines the optimal hedge ratio by minimizing the riskiness of hedged portfolio returns, where the riskiness is measured by the index of Aumann and Serrano (2008). Unlike the risk measurements widely used in the literature, the riskiness index employed in our method satisfies monotonicity with respect to stochastic dominance. We also provide an empirical example to demonstrate how to estimate and test this optimal hedge ratio in equity data by the method-of-moments.

This study investigates the relation between IPO underwriting and subsequent lending. We find that when a bank underwrites a firm’s IPO, the bank is more likely to provide the issuer with future loans at a lower cost, compared to banks without an IPO underwriting relationship. The evidence also suggests that the underwriting banks share information surplus with the IPO firms in the post-IPO loans, supporting the cost-saving hypothesis. Overall, the evidence for the relation between prior IPO underwriting and subsequent lending supports the notion that firms can derive value from investment bank relationships.