Abnormal Prices Research Articles

Can Europe live without Russian natural gas?

This paper analyses the implications of a complete halt of natural gas flows from Russia to the European Union (EU). The most challenging time horizon for the EU will be the winter of 2022/23 due to the little time available to roll out necessary measures to diversify the gas supply and develop alternatives to Russian gas. We explore supply availability and constraints as well as demand curtailment options. The challenge of refilling EU gas storage levels at the current abnormal prices for natural gas is also addressed. Finally, we consider the Russian standpoint and whether they would be able to redirect gas flows where European demand to suddenly dry up.

Abnormal pricing in international commodity trading: Evidence from Ghana

Mispricing of international trade in natural resources contributes to significant tax base erosion from developing countries but is difficult to measure using aggregate trade statistics. In this paper, we apply a novel approach motivated by legal rules for trade and transfer mispricing to estimate abnormal pricing in gold and cocoa exports from Ghana, i.e., exports valued outside an assumed arm's length price range that indicates fair market values. Using daily frequency, transaction-level data from Ghana Customs, our results indicate abnormally undervalued exports of gold and cocoa from Ghana equalled USD 8.8 billion in constant prices (base year 2011) or USD 4.1 billion in current prices between 2011 and 2017. Approximately 11% of gold doré exports, 1% of cocoa bean exports, and 7.2% of cocoa paste exports appear abnormally undervalued. The implied corporate tax base erosion equals USD 2.2 billion in constant prices (base year 2011), corresponding to an average annual decrease of 0.3% in Ghana's tax-to-GDP ratio.

Abnormal pricing in international commodity trade: Empirical evidence from Switzerland

Mispricing of international trade in natural resources poses a significant risk for tax base erosion from resource-rich, developing countries, while also contributing to regulatory and financial risks for commodity trading hubs. This paper presents a novel empirical approach which combines statistical price-filter analysis methods with commodity market research to provide evidence on the magnitude of abnormally priced Swiss commodity imports. Our analysis compares transaction-level import prices to an arm's length price range representing fair market value and defined using contemporaneous benchmark prices from commodity exchanges, adjusted for product-specific factors. We find a significant magnitude of abnormally under-valued unwrought gold doré imports as well as relatively smaller magnitudes of abnormally under-valued cocoa and coffee imports. Next, we contrast our new estimates with traditionally used proxies for trade mispricing based on aggregate mirror trade statistics to highlight the unreliability of widely used methods and data sources. Finally, we discuss the limitations in our analysis even using the best available administrative data which reinforces the urgency to improve the statistical infrastructure used to record international commodity trading in order to promote transparency and improve international trade governance.

RELIABILITY OF UNDERINVOICING REVEALING METHODS: CASE STUDY UKRAINE

Goods mispricing in international trade is regarded as customs fraud according to the WCO typology and reveals itself as a great challenge for customs and tax bodies all over the world. Revenue losses, tax avoidance, mispricing and other types of fraud create significant obstacles in the development of the social sphere, especially in the government programs implementing, which in the long run has a very negative impact on the investment climate and the development of national economies in general. Empirical data are examined to estimate accuracy and reliability of certain methods of statistical analysis in the context of targeted control enhancing. The benefits of multistage approach are shown, which can be used to reveal possible violations of customs law and prevent significant under-invoicing of imported goods. The objective of this research is to study the basic features of the most widely applied methods of abnormal pricing estimation and to examine a possibility to combine two mainly applied approaches to enhance robustness of the obtained data and credibility of the analysis results. An attempt is made to define basic efficient tool which could be used by customs authorities for further development of customs value control strategy. To accomplish the research task, general scientific methods are applied, such as inductive logic, comparative and statistical analysis as well as generalisation. The main points of widely applied mirror data analysis and price filter method are examined focusing special attention on the shortcomings and ways to diminish possible mistakes. Crucial role of appropriate statistical data and other available information using is shown to reveal potential underinvoicing, tax avoidance and other fraudulent trade activities. Possibilities of the two-staged statistical analysis of customs value indices as risks-oriented mechanism in national customs valuation database are investigated. The calculated figures show noticeable discrepancies in customs values declared at export and import. The paper identifies advantages of multistage analysis of available trade statistics data to facilitate the customs valuation control targeting and further process automation.

Does The Association Between Abnormal Trading Volumes And Historical Prices Explain Disposition Effect?

Investment behavior is influenced by various behavioral biases. Two among them are disposition effect and anchoring. Using market level data, we investigate the presence of disposition effect in Indian stock markets. Initially, it was found that high (low) trading volumes are not associated with winner (loser) stocks. Further based on the evidence provided by studies done on market level data, we consider abnormal trading volumes as the proxy for disposition effect. Investors’ tendency to update their reference points and the prominence of historical prices (anchors) as reference points allowed a study to test the association between abnormal trading volumes and historical prices. Except for familiar and highly liquid stocks (Nifty50 index stocks) this study found that abnormal trading volumes are associated with a significantly more percentage of winning days than that of losing days. This study is useful for investors and fund managers while taking trading decisions and also when forming the portfolios.

Strategies for Improving V-KOSPI 200 Index

The study examines not only the methods for eliminating stale or abnormal prices but also strategies for enhancing liquidity in the KOSPI 200 index options market, for compensating the defects of V-KOSPI 200. First, introducing market making scheme in the KOSPI 200 options market can be the direct solution to prevent temporary fluctuations and spikes of the index arising from abnormal orders and to alleviate unnatural low variability (level) of the index through decreasing the use of stale market prices (model prices). Second, if weekly options underlying KOSPI 200 index are available for trading and investor interest in the weeklys are surged, Korea Exchange can enhance V-KOSPI 200 to include series of KOSPI 200 weekly options. The inclusion for at least 5~6 weekly options available for trading allow V-KOSPI 200 to be calculated with KOSPI 200 index option series that most precisely match the 30-day target time-frame for expected volatility that the Index is intended to represent. Along with these strategies for enhancing liquidity in the KOSPI 200 index options market, the study suggests the methodology which can prevents temporary fluctuations and spikes of the index by substituting stale or abnormal prices for normal prices.

The effects of executive compensation and outside monitoring on firms’ pre-repurchase disclosure behavior and post-repurchase performance

We show that corporate governance mechanisms play an important role in controlling managers’ opportunistic behavior. Low executive equity compensation and a high intensity of outside monitoring help to discourage undesirable self-interested disclosure decisions by management before share repurchases. Corporate governance mechanisms also have a significant impact on long-run abnormal stock prices and operating performance. Firms that manipulate pre-repurchase disclosures experience positive long-term abnormal stock returns. However, we do not find that these firms experience positive long-run operating performance. Corporate governance mechanisms significantly attenuate the tendency toward negative pre-repurchase disclosures and their effects on stock prices and operating performance.

A Macroeconomic Model with Price Flexibility

A simple macroeconomic model is used to show that the market failure to maintain macroeconomic stability can be due to (a) price rigidity or (b) price flexibility that allows false and abnormal prices to prevail. The macroeconomic literature typically considers the first case only; this article focuses on the second case. Besides the Keynesian fiscal policy, this article considers a Pigouvian tax–subsidy scheme; the latter can be used to correct each false price individually (this use in macroeconomics resembles the more familiar use in public economics). This helps alleviate the scarcity of instruments with policymakers. As in the writings of Keynes, price stability (or rigidity) here is a policy target rather than an assumption in the model. There has been a general need to reconsider macroeconomic models since the Great Recession of 2008; this article contributes in this endeavour. JEL: E12, E62, H20

Was the Missing 2013 WASDE Missed?

AbstractGovernment crop data have been shown to contribute to the efficient operation of agricultural commodity markets. In 2013, the USDA curtailed its crop report publication for the first time in decades due to an appropriations lapse, thereby offering the chance to study the impact on markets of missing government data. As expected, derivatives markets for corn and soybeans did not display characteristic short‐run patterns in terms of uncertainty resolution and price changes that are normally observed around scheduled USDA release times. We are unable to detect evidence of a prolonged period of heightened uncertainty, realized volatility around the missing report, or abnormal pricing errors in the absence of government data. However, an unsurprisingly large 2013 corn and soybean crop could confound that attempt.

Value relevance of financial statements in convergence with IFRS: analyses in the abnormal pricing error method

ABSTRACTWe use an econometrically distinct method to test whether the value relevance of financial statements, especially during convergence with International Financial Reporting Standards (IFRS), has improved in Taiwanese firms in 1990–2011. In contrast to a prior study, our results show that given transformation between two high-quality accounting standards, convergence with IFRS will not lead to further increases in value relevance of financial statements. Our findings may provide implications for international standard-setters and regulators, especially countries undecided about adopting or converging with IFRS.

Assessing the potential impact of abnormal pricing violations on state corporate tax receipts

This paper examines the state corporate tax implications of abnormal transfer-pricing by U.S. companies involved in international trade. The state corporate tax cost of improperly priced imports and exports is estimated through analysis of every import and export transaction for the years 2005 through 2009 using the interquartile range methodology provided in regulations to Internal Revenue Code Section 482. Calculation of the interquartile range using the entire population of international transactions addresses interpretive issues related to abnormal prices that occur with the smaller samples normally used in such analyses. A policy recommendation is made for improving tax compliance through more rigorous state involvement in transfer pricing enforcement and greater formal collaboration with the Internal Revenue Service with respect to transfer pricing.

Measuring abnormal pricing – an alternative approach

Purpose – The purpose of this study is to examine the degree of trade mispricing in the US fresh banana trade with Latin American and Caribbean countries using a new alternative measure in estimating arm’s length price. Design/methodology/approach – A key feature of the research design is that we use the actual free market price of commodity (e.g. fresh banana price) as a benchmark for arm’s length price rather than relying on interquartile range, which is known to be problematic. Findings – The paper finds that when the degree of mispricing is measured by two widely used methods, interquartile price filter and partner-country methods, we find little evidence of undervaluation or overvaluation of US banana import. However, when we use the free-market price of fresh banana as a benchmark for arm’s length price, first adopted in this study, the average undervalued amount of trade compared to the total banana import declared value by the US importers is on average 54 per cent during the period between 2000 and 2009. Originality/value – This study suggests a new simple measure in estimating arm’s length traction price in studying trade mispricing.

Calibrated GARCH models and exotic options

This article examines the differences between various Generalized Autoregressive Conditional Heteroscedastics (GARCH) models in pricing exotic options, given that the models have been calibrated on the same data sets using information on both returns and plain vanilla options. We focused on four widely recognized specifications: the Heston–Nandi (HN), Leverage, News and Power models, of which the first is an affine model, and the others represent the family of nonaffine models. First, we found that when the models were calibrated using option data, the previously reported superiority of nonaffine models over the HN in option pricing may not be generally true. On the other hand, the HN, Leverage and News models priced various exotic options quite similarly; but contrary to the others, the Power model yielded somewhat abnormal prices, especially for barrier options. Using the Maximum Likelihood Estimation (MLE) approach with return data, however, yielded different conclusions. Especially with long in-sample...

Assessing Financial Markets Through System Complexity Management

Today’s data-driven, electronic financial markets, wherein highly automated and, often, high frequency trading has become the norm for major participants, present significant technical challenges that complicate effective monitoring of their most fundamental functions, trade and the price discovery. Though regulators are implementing new surveillance systems capable of capturing all necessary market data to describe the details of market events, the fact that markets are fundamentally "complex systems" often undermines the use of conventional assessment techniques. The research work underlying this dissertation provides new approaches for analyzing financial markets that can help overcome these problems and demonstrates how each can be used to better understand the state of the market’s trading and price discovery processes. These approaches utilize adaptations of methods employing data visualizations, Markov State modeling, and agent based simulations that have been more commonly used in other fields.The occurrence of abnormal pricing anomalies in today’s complex markets has particularly intensified the demand for better monitoring and assessment, as it is crucial for regulators to be able to work to protect orderliness in markets and, thus, build confidence for both the industry and the public. These anomalies are transient, unique events that suddenly and unexpectedly take place in markets which are fundamentally complex systems environments with large numbers of participants each having their own, individual, ever-adapting views and decision-making processes. Much of the research effort in the dissertation is aimed at improving the capabilities of financial regulators and exchanges to better understand the precursors of such abnormal events and approach their investigation using methods that help overcome the effects of systematic complexities inherent in today’s data intensive markets.Through examination of financial markets as complex systems designed to support efficient and fair trade and pricing, this work has focused on untangling behavioral complexities by demonstrating how to apply techniques used in engineering that are well suited for the study of such systems. By breaking down the complexities based on the desired tasks and objectives, this work shows how issues arising from imaginary, periodic, and combinatorial complexities can be managed by using visual analytical techniques, Markov anomaly detection, and agent-based simulation. Through the use of such tools, regulators and exchanges can not only improve their analysis of markets post an event of interest, such as a "Flash Crash", but, also, analyze behaviors peri- and pre-events of interest.

What Does the Sec Choose to Investigate?

Using a broad sample of merger announcements, I find unusual option volume right before these announcements. The abnormal option volume provides new information about the pre-merger stock price runup beyond what is incorporated in the stock market. I also find that there exists abnormal option pricing in that the implied volatility spread of target stock options accumulates before merger announcements and leads stock pricing. Moreover, the simultaneity between the volume effect and pricing effect suggests informed trading about the merger announcements most likely drives both of these two effects. I further show that trading options immediately before merger announcements is highly profitable. Using a unique sample of merger announcements that have illegal insider trading as released by the SEC, I find that the cumulative abnormal option volume and the profitability of pre-merger option trading help detect illegal insider trading. Overall, this paper has important implications for the SEC's regulatory efforts to curb illegal insider trading before material corporate information events.

The Puzzle of Warrants Trading Below Their Intrinsic Values in China's A-Share Market

Warrants on China's A-share market exhibited prolonged abnormal patterns by trading significantly below their intrinsic values. One might simply deem this phenomenon as uninteresting by pointing out that the A-share market is incomplete, for short selling of stocks is prohibited. This reasoning would not be satisfactory, however, because those warrants should still trade above their intrinsic values even without the mechanism of short sales, as this paper shows. Intriguingly, it is found that the peculiar T 1 rule of trading stocks, which dictates that shares bought on day T can only be sold the next day (or T 1) at the earliest, could be used to partially explain this abnormality, while investors' irrational behavior and limited knowledge about the pricing of warrant could be the other contributing factors. It is believed that those abnormal prices, once observed, present certain arbitrage opportunity that should be taken advantage of, by utilizing one of the rational trading strategies proposed in the paper.

Detecting Abnormal Prices in Housing Transactions Database

Detecting Abnormal Prices in Housing Transactions Database

Warrant Pricing During the Financial Crisis

This study analyzes the pricing of warrants written on the Swiss Market Index (SMI) during the financial crisis. Of particular interest is how changes in warrant pricing errors, i.e. the difference in the pricing between bank-issued options and their exchange-traded counterparts, may be related to an increased awareness of issuer risk, as well as to a general sell-off of risk assets, predominantly by retail investors in the warrants market with speculative motives vs. larger, institutional investors in the traditional options market, in the wake of the market turbulences in fall 2008. We extend prior literature by studying how warrant pricing errors change over time and by analyzing a comprehensive set of factors that drive warrant overpricing to determine whether there is evidence for a decrease due to a credit risk effect. Using an event study approach, we investigate how the pricing of warrants has changed in the event window compared to the estimation period. We find that the pricing errors have in fact decreased significantly during the period of interest suggesting that warrant prices have not properly accounted for the inherent credit risk. Specifically, average abnormal pricing errors and cumulative average abnormal pricing errors across issuers and different strikes are statistically and economically significant in the event window which strongly supports the thesis of a repricing of credit risk. To validate these implications we perform regression analyses that account both for a structural break and the unit root properties of the variables and conclude that there has been a significant change in the relationship of pricing errors and credit risk post September. Also, we find that part of the decrease can be related to a sell-off of warrants by predominantly individual investors with speculative motives, while larger, institutional and more hedging-oriented clients in the options market show less activity, as evidenced by a strong increase in traded warrant contracts and a positive relationship of pricing errors to the broader Swiss equity market. Our cointegration analysis allows for a consistent estimation of the long-run relationship of pricing errors and a number of factors by properly accounting for the short-run dynamics. Overall, our results suggest that going forward pricing errors should react stronger to changes in credit risk while warrants will remain more volatile than options in general due to institutional differences and differing clientele of the two markets.

Capital movement through trade misinvoicing: the case of Africa

PurposeThe purpose of this paper is to identify capital flows due to trade misinvoicing in 30 African nations.Design/methodology/approachData from 30 African nations were examined for deviations from average import and export prices as an indicator of capital flows This paper uses US customs data to document the amount of capital flows which may be hidden in commodity trade. Deviations from average prices (price filter matrix) within these commodity classes are used to identify abnormal prices and to produce conservative estimates of the amount of capital movement from 30 countries in Africa to the USA.FindingsThe results of this study demonstrate that, between 2000 and 2005, capital outflows from all 58 countries in Africa to the USA grew by more than 50 percent, through both low‐priced exports and high‐priced imports.Research limitations/implicationsA clear understanding as to the true purpose of the overall capital movement is not easy to determine from the data. Approximately half of the countries (16 out of 30) utilized low‐priced exports as a means to move more money into the USA, while the other half (14 out of 30) used high‐priced exports to move the most money.Practical implicationsWhen trade misinvoicing is used as a tool to move capital in and out of a country or continent in order to evade taxes and/or customs duties, avoiding quotas, smuggling, and laundering illegally obtained money, or as a means of capital flight, the economic development of the given country is severely hindered. This movement of capital may be due to tax evasion, duty reduction, money laundering, capital flight, or other reasons beyond the scope of this paper.Originality/valueThe technique of using a price filter matrix can be of value to researchers and governments to identify capital flows due to trade misinvoicing.

An empirical assessment of the Feltham-Ohlson models considering the sign of abnormal earnings

This paper provides an empirical assessment of the Feltham-Ohlson models, distinguishing between firms with positive and negative abnormal earnings. Abnormal earnings persistence and conservatism parameters differ for these two groups; this implies different earnings prediction models and valuation functions for both profit-making and loss-making firms. The analysis refers to the period 1991-1999 and uses a sample of Spanish firms quoted on the Madrid S.E. The results suggest that our contextual approach is more useful than the non-contextual one to predict future abnormal earnings and explain current prices. Although the Ohlson (1995) model is accurate in forecasting future abnormal earnings and stock prices, the results improve when firms with negative abnormal earnings are valued using a temporary model and firms with positive abnormal earnings using a more permanent one. The Feltham and Ohlson (1995) model generates the lowest forecast errors in the prediction of positive abnormal earnings, but it produces the least accurate results in forecasting prices.