This paper extends the classic two-armed bandit problem to a many-agent setting in which N players each face the same experimentation problem. The main change from the single-agent problem is that an agent can now learn from the current experimentation of other agents. Information is therefore a public good, and a free-rider problem in experimentation naturally arises.
This paper considers whether stock price elasticity affects corporate financial decisions. Basic economic principles and the existing theoretical literature predict that firms choosing the Dutch auction instead of the fixed price tender offer should be those firms expecting to face greater stock price elasticity.
Both managerial ownership and performance are endogenously determined by exogenous (and only partly observed) changes in the firm's contracting environment. We extend the cross-sectional results of Demsetz and Lehn (1985), (Journal of Political Economy, 93, 1155?1177) and use panel data to show that managerial ownership is explained by key variables in the contracting environment in ways consistent with the predictions of principal-agent models. A large fraction of the cross-sectional variation in managerial ownership is explained by unobserved firm heterogeneity.
This paper considers efficient estimation of value-at-risk, which is an important problem in risk management. The value-at-risk is an extreme quantile of the distribution of the loss in portfolio value during a holding period. An effective importance sampling technique is described for this problem. The importance sampling can be further improved by combining it with stratified sampling. In this setting, an effective stratification variable is the likelihood ratio itself.
The following two articles, "Market Transparency: Who Wins and Who Loses?" by Robert Bloomfield and Maureen O'Hara and "Quote Disclosure and Price Discovery in Multipele Dealer FInancial Markets" by Mark D. Flood, Ronald Huisman, Kees G. Koedijk, and Ronald J. Mahieu are the first two experimental microstructure articles that the Review of Financial Studies (RFS) has published. We, the editors of the RFS, hope that they are not the last. Therefore I take the unconventional step of introducing the two articles.
This paper develops methods for relating the prices of discrete- and continuous-time versions of path-dependent options sensitive to extremal values of the underlying asset, including lookback, barrier, and hindsight options. The relationships take the form of correction terms that can be interpreted as shifting a barrier, a strike, or an extremal price. These correction terms enable us to use closed-form solutions for continuous option prices to approximate their discrete counterparts.
In this paper we develop a residual-income model showing how taxes on dividends affect the relative valuation of retained earnings versus contributed equity, as well as the value of expected future earnings. Tests of predictions from our model for a sample of Compustat firms from 1975-94 suggest that overall firm value, and the relative valuation weights investors assign to retained earnings, contributed equity, and current earnings, all critically depend on dividend taxes.
Recent research on business investment decisions suggests that real investment in plant and equipment is quite sensitive to changes in the user cost of capital, pointing to the possibility that long-run changes in tax policy may have a significant impact on an economy's capital stock. Indeed, many countries have at times adopted investment tax incentives to stimulate investment. The prevalence of investment incentives suggests that local policy-makers believe these are effective in increasing investment at a reasonable cost in terms of lost revenue.