We consider the problem faced by a privately informed issuer holding a portfolio of securities that can be sold to raise cash. If good news about one security is good news for all the securities held, then a unique equilibrium satisfies the Intuitive Criterion. If, in addition, the securities can be ordered in terms of their sensitivity to the issuer’s private information, then the issuer sells...

The development of liquid, efficient securities markets has been a major goal for policy makers in the third world. Casual empiricism suggests that small countries are unlikely to obtain liquid securities markets. There are only 16 countries in the world where the annual turnover on the stock market exceeds 75% of the market capitalisation of the stock market. All but one of these countries has...

The violations of expected utility axioms displayed in the Ellsberg paradox have recently been attributed to ambiguity aversion. In this paper, we study the impact of ambiguity aversion on equilibrium asset pricing and portfolio holdings in competitive financial markets. We pay particular attention to potential heterogeneity, because a significant minority usually does not violate expected util...

This study examines the financing choices of firms operating in a weak institutional environment. We argue that in relationship-based systems, global financing and strong political connections are alternative means to create firm value. Well-connected firms might be less inclined to access global capital markets because (state-owned) domestic banks provide capital at low cost. Moreover, the exp...

The United States securities markets have served as the subject of a continuing debate regarding the structure most beneficial to local market participants. A consolidated market structure reduces transactions cost by increasing liquidity in the shares of a security. Conversely, fragmentation creates a system wherein competition flourishes and innovation is fostered. Balancing these opposing vi...

This paper addresses a very European issue, the consolidation of securities trading and settlement infrastructures. In a two-country model, we analyze welfare implications of di¤erent types of consolidation. We …nd that in our model, full technical horizontal integration of settlement systems is better than vertical integration of exchanges and settlement systems, but vertical integration is st...

The fixed income (FI) market is a financial market where debt securities are traded commonly in the form of bonds. Unlike equity securities which are traded on exchanges, the debt securities are primarily traded in over-the-counter (OTC) markets. While the use of electronic trading systems in the fixed income market is growing, the majority of the FI market is still driven by broker-dealer rela...

* Group Treasurer, Colonial Limited. 1 The Tripartite Group of Banking, Securities and Insurance Regulators defined a financial conglomerate as “any group of companies under common control whose exclusive or predominant activities consist of providing significant services in at least two different financial sectors (banking, securities, insurance)” (see Tripartite Group of Banking, Securities a...

This study analyses and compares various Principal Component-based methods of fixed income security immunization. We show that the methods are effective in terms of reducing the volatility of the security returns; however, none of the Principal Component-based techniques outperforms the mean-variance optimization. We conclude that the Principal Component-based immunization is more effective whe...

Drawing upon Markowitz’s mean–variance model, this paper proposes a method for constructing an optimal portfolio using historical data for the estimation of portfolio risk and the choice of securities. First, we establish that the portfolio risk produced by substituting the estimates of the means and the covariance matrix in Markowitz’s formula has a serious downward bias relative to the actual...