Knowledge that Transforms

This paper examines how the stocks' investability affects the cross-sectional behavior of stock return volatility in emerging markets. We find that the highly investable stocks experienced higher volatility even after controlling for the country, industry, size, and turnover. We show that the highly investable emerging market portfolio is more correlated with the world market, and the non-investable portfolio is less correlated. The volatility of highly investable stocks increases substantially around the 1998 financial crisis, while the volatility of non-investable does not jump as much.

JFE Engineering has developed clathrate hydrate slurry (CHS) for use in next-generation energy-saving air-conditioning systems. Clathrate hydrate slurry is suitable for cooling applications as it possesses latent heat in the range of 5-12°C, has a cooling storage capacity 2-3 times as large as that of the conventional chilled water, and displays excellent pumpability. Because CHS is a cooling medium with high thermal density, air-conditioning systems using CHS are expected to substantially reduce cooling medium transportation costs and make an important contribution to energy savings, with attendant benefits in reducing CO 2 emissions. This paper describes the properties of CHS and the results of a trial calculation of the energy-saving effect of an office building air-conditioning system using CHS.

There are a number of circumstances in finance in which it is useful to estimate diffusion processes conditional on some event. In this paper, we develop the theoretical and numerical tools necessary to perform conditional estimation of diffusion processes within a generalized method of moments framework. We illustrate our method by estimating a univariate diffusion process for a standard time-series of interest rate data conditioned to remain between lower and upper boundaries. A test statistic fails to reject by a wide margin the linearity of the conditionally estimated drift coefficient.

We examine the Paris Bourse, whose electronic limit order market closely resembles the downstairs markets envisioned by theorists, to test several theoretical predictions regarding upstairs trading. We present direct evidence in support of the Grossman (J. Business (1992) 509) prediction that upstairs brokers lower execution costs by tapping into unexpressed liquidity, as actual execution costs upstairs are on average only 20% (35%) as large as they would be if block trades were executed against displayed (displayed and hidden) liquidity in the downstairs limit order book. Consistent with prior analyses, the Paris data also support the Seppi (J. Finance (1990) 73) hypothesis that upstairs brokers certify trades as uninformed. We also find that participants in stocks with less restrictive crossing rules agree to outside-the-quote executions for more difficult trades and at times when downstairs liquidity is lacking. These likely represent trades that could not have been otherwise completed, suggesting that market quality can be enhanced by allowing participants more flexibility to execute blocks at prices outside the quotes.

We compare turnover of subsidiary managers inside conglomerate firms to turnover of CEOs of comparable stand-alone firms. We find that, compared to turnover of CEOs, subsidiary manager turnover is significantly more sensitive to changes in performance and significantly more likely following poor performance. For subsidiary managers, the relation between turnover and performance is significantly stronger when the subsidiary operates in an industry that is related to the parent's primary industry. Results suggest that boards of directors are relatively ineffective disciplinarians of CEOs and despite their other apparent failings, conglomerate firms have relatively strict disciplining mechanisms for subsidiary managers.

Aggregate real dividends paid by industrial firms increased over the past two decades even though, as Fama and French (J. Financial Econ. 60, 3) (2001a) document, the number of dividend payers decreased by over 50%. The reason is that (i) the reduction in payers occurs almost entirely among firms that paid very small dividends, and (ii) increased real dividends from the top payers swamp the modest dividend reduction from the loss of many small payers. These trends reflect high and increasing concentration in the supply of dividends which, in turn, reflects high and increasing earnings concentration. For example, the 25 firms that paid the largest dividends in 2000 account for a majority of the aggregate dividends and earnings of industrial firms. Industrial firms exhibit a two-tier structure in which a small number of firms with very high earnings collectively generates the majority of earnings and dominates the dividend supply, while the vast majority of firms has at best a modest collective impact on aggregate earnings and dividends.