Large Price Increases Research Articles

Lottery stocks and stop-loss rules

We show that stop-loss rules increase the returns to investment in stocks with lottery features. These stocks typically have sporadic big gains and frequent small losses. However, stop-loss rules can reduce losses and allow investors to receive the gains from large price increases. We also highlight that sell signals of popular technical rules resemble stop-loss rules and are effective at increasing risk-adjusted returns for lottery stock. These rules could have helped investors avoid losses from major historical drawdowns, are particularly beneficial in declining markets, and are robust to the inclusion of transaction costs.

Economies of Scale in Brazilian Supplementary Health

Low profitability has been responsible for the insolvency of a large number of health plan operators (HPO) in recent years, which increasingly requires these entities to assess which services can be optimized without compromising their final activities. An answer to this problem may lie in the adequate dimensioning of support activities. Therefore, the aim of this study is to investigate the economies of scale in the support activities of Brazilian HPO. In the presence of such economies, it can be considered that operators have room to dilute their administrative expenses, suggesting that profitability can be increased without the need for large price increases, which can guarantee the survival of companies in the sector without penalizing their customers. For this purpose, panel data regressions with Random Effects (RE), Fixed Effects (FE) and pooled were estimated, considering 5,185 observations for the period 2011 – 2018. The results found by estimating the total cost function were favorable to the hypothesis of economies of scale in the supplementary health sector. Finally, it was also possible to verify that the type of operator and the geographic location of the administrative headquarters of these entities contribute to the scale effect to a greater or lesser extent. These results show that the economies of scale existing in the sector can significantly contribute to the operational and financial maintenance of various HPO, providing an alternative to mitigate the low profitability of these companies.

Management geographical proximity and stock price crash risk

PurposeThis study provides empirical support for the cultural economics model between executive team and firm performance and offers important implications for policy selection and appointment of managers in China.Design/methodology/approachFrom the perspective of relationship embeddedness, the authors explore the impact of management geographical proximity (GP) on stock price crash risk in China. Using archival data from China's unique dataset about birthplace culture, the authors find that management GP experiences a large increase in corporate stock price crash risk for the period 2009–2018.FindingsThe impact of management GP on stock price crash risk is more pronounced when the company is located in areas with weaker formal legal environment and stronger Confucian culture. Furthermore, the impact has a significant links with firm characteristics such as information transparency, over-investment and tax aggressiveness.Originality/valueFirst, the research extends the literature on the empirical determinants of stock price crash risk. These studies focus on formal institution, not on informal institution, such as relational culture. Second, the research provides evidence for economic consequences on relational governance from executive birthplace culture to explore the economic consequences of geographical relational governance but takes stock price crash risk to present executives' behavior strategies and market reaction via exploring asymmetrical variation of market stock price. Finally, the paper provides reference to corporate governance arrangement and executive appointment.

Oil shocks and stock market volatility: New evidence

This paper investigates the effect of oil shocks on U.S. stock market volatility based on a new hybrid model that combines the least absolute shrinkage and selection operator (LASSO) with the Markov regime-switching model (MS-LASSO). Considering five oil shocks, the results show that the LASSO method containing Markov regime-switching improves forecasting accuracy from the statistical and economic perspectives. These results are confirmed in robustness checks of alternative evaluation method, alternative forecasting horizons, and alternative historical years. Moreover, we find that the net price increase indicator (NPI2) is an effective oil shock, while the large price increase (LPI) has nearly no influence during the sample period. Furthermore, we find that oil shocks have time-varying performance, which highlights the importance of considering regime switching.

Population characteristics, use, and spending on sole‐source, off‐patent drugs among commercial insurance members in the United States—An analysis of outpatient claims data at a single health plan

AbstractIntroductionLarge price increases of off‐patent drugs with one manufacturer are common in the US due to the monopoly power afforded to single manufacturers. Little is known about the patients using these drugs, including the prevalence of use or the cost to patients and health systems.ObjectiveTo analyze patient characteristics, prevalence of use, and spending on sole‐source off‐patent drugs among a commercially‐insured population in 2017.MethodsWe evaluated the prevalence of use of sole‐source off‐patent drugs overall and use of sole‐source off‐patent drugs with large price increases according to member demographic characteristics and medical conditions. We calculated total and out‐of‐pocket spending per member and total and out‐of‐pocket spending on all sole‐source off‐patent drug fills. We evaluated by insurance status, a drug's history of a large price increase, and drug classification. We determined the top ten sole‐source off‐patent drugs by highest overall spending.ResultsUse of sole‐source off‐patent drugs was observed in 9% of patients. Use was more common among adults with chronic medical conditions, whereas use of drugs with large price increases was rare. Out‐of‐pocket spending was highest among Medicare‐insured patient. Insulin accounted for a disproportionate share of total spending.ConclusionSole‐source off‐patent drug use among patients with chronic medical conditions was common, suggesting these populations are vulnerable to future price increases. Policies that promote manufacturer competition and limit out‐of‐pocket spending for these drugs, particularly insulin, are likely to benefit patients.

PRS25 Transparency Helped a Small Pharmaceutical Company to Have the Price of Their Drug with Few Million Euro Annual Revenue in Poland Practically Increased by 168% by the Minister of Health - a Case Study of Publicly Available Documents from Administrative Proceedings on Novo-Helisen Depot

A small (6.5 million EUR reimbursement cost in Poland in 2018) pharmaceutical company was under pressure by German HQ to increase the official price of Novo-Helisen Depot (NHD) by est. 2 times to catch up with other European countries prices. The drug is indicated for dust mites allergen immunotherapy with no reimbursed equivalents in Poland. This study aims to present the case of how unconventional transparency-based approach helped to achieve a seemingly impossibly large price increase which could potentially result in 8 million EUR budget impact. We analysed documents made public either directly by the company or by the Foundation for Transparency and Predictability of Administrative Decisions. Having submitted on 2019-05-15 the applications (1) to increase NHD initial set price by 128%, (2) to increase NHD one-vial maintenance set price by 228%, (3) to reimburse NHD two-vials maintenance set with a price per vial 228% higher than the reimbursed product price, the company published unredacted argumentation to MoH at https://allergopharmanexter.pl/application/files/5715/5860/5403/Pismo_do_MZ.pdf. They also sponsored the press conference “Does the Minister of Health in Poland Have the Absolute Power in the Reimbursement Proceedings?” on 2019-09-12 during which the Foundation’s president and first author of this study highlighted MoH failures to proceed lawfully based on administrative documents shared by the company (available at https://www.dlaprzejrzystosci.pl/pytanie-z-konferencji-czy-minister-zdrowia-jest-wladca-absolutnym-refundacji-w-polsce-ciagle-aktualne/). Just a month later on 2019-10-14 the Minister of Health took a positive decision to reimburse the two-vials maintenance set with ex-factory price per vial 168% higher than the most recent official reimbursed price (490.00PLN vs 183.10PLN), without a content-related justification although the company provided it. In countries like Poland where positive reimbursement decisions on drugs and their prices lack content-related justification smaller companies may use openness and transparency to communicate the rational justification of their applications and to obtain fair decisions which otherwise apparently would not be achieved.

African swine fever in China: Impacts, responses, and policy implications

African Swine Fever broke out in China in August 2018 and has caused a substantial loss to China’s hog industry. Pork is the dominant meat in the Chinese diet with its price being a critical component of China’s Consumer Price Index. In 2019, large increases in the pork price caused by the sharp reduction in pork supply incentivized the government to suppress the price by subsidizing large-scale hog farms. With an updated estimation of China’s meat demand, we argue that the ongoing policy interventions may not be the most efficient for achieving short-run reductions in the pork price. Subsidizing the production of chicken, a major substitute for pork and currently accounting for a relatively small share of meat consumption in China, could help suppress the pork price faster and at lower government costs. We estimate price dynamics and compute consumer surplus of multiple subsidy plans over a 30-month window from the third quarter of 2019 to the last quarter of 2021. Simulation outcomes suggest that allocating some subsidies from hog to chicken farms is likely to benefit consumers, producers, and the government. Our novel proposal of expanding production of a substitute meat to help lower the pork price after a large loss of the hog stock may be useful to other countries that suffer or may suffer from severe livestock losses due to animal epidemics.

Analyzing Poverty and Resilience to Shocks of Bamboo Producing Smallholders in North-West Ethiopia

Exploring and understanding the multiple purposes of bamboo on enhancing and sustaining the livelihood of smallholders’ through multidimensional poverty reduction and mitigating shocks is so crucial. Data analysis was done using both descriptive and econometric analysis using the software package of stata thirteen. As the result revealed that, pests affecting crops and the large increase in input price were relatively high frequent shocks in the households. As the finding shows that, 29.13 percent of the smallholder farmers were multidimensional poor. To examine resilience to shocks of smallholder, RIMA models using factors analysis was run. As the factory analysis explored that, 233(47.94 percent) of smallholder were resilient to shocks and 253(52.06 percent) were non-resilient. Among bamboo, users80.15percent were resilient while the non-user (32.92percent). The study recommends on the need for policy and strategies design to enhance the well-being of smallholder and to build resilience to shocks, organizing bamboo producer smallholder in a bamboo cooperative, providing extension service proper processing of bamboo value chain should have to a policy in North- West Ethiopia. DOI: 10.7176/JPID/59-01 Publication date: February 28 th 2021

The State Price Density Implied by Crude Oil Futures and Option Prices

Abstract Both large oil price increases and decreases are associated with deteriorating economic conditions. The projection of the state price density (SPD) onto oil returns estimated from oil futures and option prices displays a U-shaped pattern. Because investors assign high state prices to large negative and large positive oil returns, the U-shaped SPD may steepen in either tail when economic conditions deteriorate. The positive return region of the SPD is more closely related to economic conditions. The oil SPD contains information about economic conditions and future security returns that is distinct from the information in the stock index SPD.

Price Gouging in a Pandemic

The ongoing COVID-19 pandemic has led to acute supply shortages across the country as well as concerns over price increases amid surging demand. In the process, it has reawakened a debate about whether and how to regulate “price gouging.” Animating this controversy is a longstanding conflict between laissez-faire economics (which champions price fluctuations as a means to allocate scarce goods) and perceived norms of consumer fairness (which are thought to cut strongly against sharp price hikes amid shortages). This article provides a new, empirically grounded perspective on the price gouging debate that challenges several aspects of conventional wisdom. We report results from a survey experiment administered to a large, nationally representative sample during the height of the pandemic’s initial wave. We presented participants with a variety of vignettes involving price increases, eliciting their reactions along two dimensions: the degree of unfairness they perceived, and the legal response they favored. Overall, we find that participants are more tolerant of price increases than either the existing behavioral economics literature predicts or most state price gouging statutes countenance. But we also find that price fairness perceptions can be highly sensitive to context. For example, participants are much more tolerant of moderate price increases if they previously are asked to contemplate large price increases. Moreover, participants are substantially more willing to accept a price increase when it is accompanied by an apology and/or a public-minded rationale (such as supporting furloughed employees). We explore the implications of our findings for behavioral economics, pricing practices, and legal reform.

Lottery Stocks and Stop-loss Rules

We show that stop-loss rules increase the returns to investment in stocks with lottery features. These stocks, which are popular with individual investors, typically have sporadic big gains and frequent small losses. However, stop-loss rules can reduce losses and allow investors to receive the gains from large price increases. We also highlight the sell signals of popular technical rules are like stop-loss rules and are effective at increasing lottery stock risk-adjusted returns. These rules could help investors avoid instances of major historical drawdowns, are particularly beneficial in declining markets, and are robust to the inclusion of transaction costs.

An assessment of the relationship between sweetener prices and high fructose corn syrup deliveries in the United States

ABSTRACT This paper uses an application of the Bertrand model to explain the relationship between HFCS deliveries and the prices of HFCS-42 and sugar. It finds that the HFCS deliveries and the prices of HFCS-42 and refined sugar are cointegrated over the period 1994:q1-2020:q1. The main results, based on the estimated long-run elasticities, show that a one percent increase in the price of HFCS-42 decreases HFCS deliveries by 0.153 percent. One implication of this result is that it would be helpful for the HFCS industry to prevent large increases in the HFCS price, which would prevent large decreases in HFCS deliveries and its share in the U.S. sweetener market. In addition, the price of sugar does not have a significant effect on HFCS deliveries.

Energy price reform in Saudi Arabia: Modeling the economic and environmental impacts and understanding the demand response

Saudi Arabia has regulated domestic energy prices for decades, setting them below international market levels. Energy subsidies in Saudi Arabia are generally implicit because they lead to foregone revenues for the government. Low energy prices also encourage rapid energy demand growth and wasteful consumption, while limiting incentives to invest in energy efficiency. Saudi Arabia recently started to reform energy prices, leading to large increases in gasoline and residential electricity prices in 2018. To measure the economic and environmental impacts of energy price reform, we econometrically model gasoline and residential electricity demand using Harvey's (1990) Structural Time Series Model. Our estimated equations reveal that gasoline demand and residential electricity demand in Saudi Arabia are strongly price and income inelastic, despite the major reforms that were recently implemented. Our welfare analysis also shows that the energy price reforms in 2018 in gasoline and residential electricity respectively delivered welfare gains of 8.8 and 3.8 billion SAR annually (2.3 and 1.0 billion US$). Additionally, our decomposition analysis reveals that these energy price reforms were the largest contributors to the observed decreases in gasoline and residential electricity consumption in 2018.

Information Design in Financial Markets

We study the optimal disclosure policy of a firm that wishes to maximize its expected stock price in the classic setting in which its stock is traded by risk-averse investors and noise traders. The optimal policy is imprecise and leads to skewed posterior beliefs. This policy subjects short positions to tail risk, causing investors to demand a large increase in price to absorb noise-trader purchases and leading to overvaluation. Despite providing purely firm-specific information, this policy impacts the firm's expected returns. We further show the firm can inflate its price even when restricted to simple policies that withhold news lying above or below a threshold.

Impact of cigarette tax increase on health and financing outcomes in four Indian states

Background: In India, about one million deaths occur every year due to smoking. Tobacco taxation is the most effective intervention in reducing smoking. In this paper, we examine the impact of a one-time large cigarette price increase, through an increase in excise tax, on health and financing outcomes in four Indian states. Methods: We used extended cost-effectiveness analysis to estimate, across income quintiles, the life-years gained, treatment cost averted, number of men avoiding catastrophic health expenditures and extreme poverty, additional tax revenue collected, and savings to the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) with a cigarette price increase to Indian Rupees (INR) 10 plus 10% ad valorem in four Indian states. Results: With the price increase, about 1.5 million men would quit smoking across the four states, with the bottom income group having 7.4 times as many quitters as the top income group (485,725 vs 65,762). As a result of quitting, about 665,000 deaths would be averted. This would yield about 11.9 million life-years, with the bottom income group gaining 7.3 times more than the top income group. Of the INR 1,729 crore in treatment cost averted, the bottom income group would avert 7.4 times more than the top income group. About 454,000 men would avoid catastrophic health expenditures and 75,000 men would avoid falling into extreme poverty. The treatment cost and impoverishment averted would save about INR 672 crore in AB-PMJAY. The tax increase would in turn, generate an additional tax revenue of about INR 4,385 crore. In contrast to the distribution of health benefits, the extra revenue generated from the top income group would be about 3.1 times that from the bottom income group. Conclusions: Cigarette tax increase can provide significant health and economic gains and is a pro-poor policy for India.

Impact of cigarette tax increase on health and financing outcomes in four Indian states.

Background: In India, about one million deaths occur every year due to smoking. Tobacco taxation is the most effective intervention in reducing smoking. In this paper, we examine the impact of a one-time large cigarette price increase, through an increase in excise tax, on health and financing outcomes in four Indian states. Methods: We used extended cost-effectiveness analysis to estimate, across income quintiles, the life-years gained, treatment cost averted, number of men avoiding catastrophic health expenditures and extreme poverty, additional tax revenue collected, and savings to the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) with a cigarette price increase to Indian Rupees (INR) 10 plus 10% ad valorem in four Indian states. Results: With the price increase, about 1.5 million men would quit smoking across the four states, with the bottom income group having 7.4 times as many quitters as the top income group (485,725 vs 65,762). As a result of quitting, about 665,000 deaths would be averted. This would yield about 11.9 million life-years, with the bottom income group gaining 7.3 times more than the top income group. Of the INR 1,729 crore in treatment cost averted, the bottom income group would avert 7.4 times more than the top income group. About 454,000 men would avoid catastrophic health expenditures and 75,000 men would avoid falling into extreme poverty. The treatment cost and impoverishment averted would save about INR 672 crore in AB-PMJAY. The tax increase would in turn, generate an additional tax revenue of about INR 4,385 crore. In contrast to the distribution of health benefits, the extra revenue generated from the top income group would be about 3.1 times that from the bottom income group. Conclusions: Cigarette tax increase can provide significant health and economic gains and is a pro-poor policy for India.

Commercial Real Estate and Migration: What Can the Employment Composition of Local Job Markets Tell Us About Future Demand?

Demographics and population growth are among the most important factors affecting real estate markets. Differences in population growth between U.S. metros are driven largely by domestic migration patterns. What explains migration patterns, and can this help anticipate future conditions in commercial real estate markets? We examine the structure of local job markets and find that metros with higher concentrations of certain professions like management, business and finance, have persistently higher in-migration, while metros with greater focus on production, transport (and “material moving”) saw lower in-migration or net outmigration. Jobs in computer, science, and engineering were the largest driver for international migration. These migration patterns have a statistically significant impact on apartment and office markets, including higher rent growth, larger price increases, stronger demand growth and new construction. Among metros like Seattle and Austin, high levels of construction may be warranted by future in-migration in response to the composition of professions in the local job market.

IMMEDIATE AND LONGER-TERM STOCK PRICE DYNAMICS FOLLOWING LARGE STOCK PRICE CHANGES

The study explores the correlation between the immediate and the longer-term stock returns following large daily price moves. Following the previous literature, which documents a tendency for price reversals after initial large price moves, I suggest that if a large stock price move is immediately followed by a short-term price drift, then it may indicate that the company-specific shock is more completely incorporated in the stock price, significantly increasing the probability of subsequent longer-term price reversal. Analyzing a vast sample of large stock price moves, I document that negative (positive) longer-term stock price reversals after large price increases (decreases) are significantly more pronounced if the latter are immediately followed by relatively high (low) short-term cumulative abnormal returns, that is, by short-term price drifts. The effect remains significant after accounting for additional company-specific (size, market model beta, historical, or conditional volatility) and event-specific (stock’s return and trading volume on the event day) factors.

Bitcoin, corruption and economic freedom

PurposeThe purpose of this study is to test whether the price traders are prepared to pay for Bitcoin, over the market price, is related to a country’s level of corruption and lack of economic freedom, during Bitcoin’s most turbulent period, 2017-2018.Design/methodology/approachBitcoin premiums (the excess over the market price) are calculated for 17 countries from April 2017 to September 2018, using daily weighted Bitcoin prices compared to the market price and testing against the Corruption Perception Index, the Index of Economic Freedom and changes in the Economic Uncertainty Index.FindingsOn testing Bitcoin premiums across 17 countries, it is found that the price paid for Bitcoin above the market price goes hand-in-hand with the level of corruption and decline in economic freedom. As corruption increases so does the premium paid for Bitcoin, and as the level of economic freedom declines, the premium increases. This relationship holds during very different market conditions: the increasing Bitcoin price from April to September 2017; the rise and fall in Bitcoin prices from October 2017 to March 2018; the declining market price from April to September 2018; and in December 2017 when Bitcoin reached over US$19,000.Originality/valueRather than focussing on daily returns which measure changes from day to day, this research uses all transactions during the day focussing on an intra-day consensus price measured in local currency. With such large price increases, percentage measures can hide the size of the monetary response. By focussing on the monetary impact, the differences between countries become more apparent.

Anti-Price Gouging Laws, Shortages, and COVID-19: Big Data Insights from Consumer Searches

Several states have laws that prohibit large increases in prices on consumer good, or “price gouging,” during emergency situations like pandemics. We investigate the impact of such laws on online consumer behavior using data from Google Shopping Trends during the onset of the COVID-19 pandemic. We focus on hand sanitizer and toilet paper, two staples predominantly bought in-stores in regular times, which experienced substantial in-store shortages since the onset of the pandemic. We find robust evidence indicating anti-price gouging laws are associated with significant increases in online searches for hand sanitizer, and some evidence that these laws increase searches for toilet paper as well. These results imply the possibility that anti-price gouging laws lead to shortages for consumer staples during pandemics. Our results inform the ongoing and rigorous debate surrounding anti-price gouging laws and their potential effects during public health emergencies like COVID-19.