Price Disparity Research Articles

Dual-Listed Shares and Trading

We study companies with dual-listed shares in China (mainland) and Hong Kong. When China has a short-sale ban, Chinese stock prices are 1.8 as high as Hong Kong prices (on average). Stock pairs with higher fundamental volatilities or more volatile order ows have higher price disparities (on average). The average stock pair’s return dierence is volatile and has a standard deviation of 8.8% per week. This paper shows that order ows can aect both a company’s fundamental price and/or its transitory prices. In Hong Kong, transitory variance accounts for 39% of a stock’s total variance. These results are surprising because the average market capitalization is over USD 8 billion for the Hong Kong-listed shares and the turnover is over 2.5 per annum. We exploit a quasi-natural experiment in which the short-sale ban is lifted for some Chinese stocks but not others. After the ban is lifted, the aected shares trade at parity. We estimate that lifting the short-sale ban in China (mainland) reduces weekly transitory volatility in Hong Kong by 49 bp per week because it enables a hedging mechanism.

Impact on US Gasoline Prices of Eliminating Biofuels Production: An Equilibrium Analysis

A combination of mandates, credits, and subsidies are employed in the US to encourage biofuel production. Recent demands for reduced federal spending have increased scrutiny of these incentives just as many are set to expire if not soon renewed by Congress. In this context, it becomes important to understand what impacts ethanol production has had on food and fuel markets and what changes can be expected if ethanol production is eliminated. We report here on a modeling study of these questions. Using a computable general equilibrium model that captures the market effects of the various interactions among fuel production, imports, exports, and consumption in equilibrium, we study two policy scenarios to elucidate the effects of ethanol production: (1) a future hypothetical scenario in which ethanol production is eliminated at the end of 2011 and (2) a historical counterfactual scenario in which ethanol production was eliminated in 1999, before it became a substantial proportion of US fuel markets. We evaluate these relative to a baseline scenario in which corn ethanol production peaks at 15 Bg/yr (in 2012) and stays fixed.We also examine the sensitivity of model outputs along two parameter dimensions: the price elasticity of the global oil supply and the elasticity of US consumer demand for gasoline. Within acceptable ranges for both parameters, we find that wholesale gasoline prices between 2000 to 2010 would have been 1.7-2.5% higher on average without the contribution of ethanol to the fuel supply. For 2012 viewed apart, this effect is substantially stronger, showing a 6-8.6% increase in the wholesale gasoline price in the no-ethanol scenario.Further, due to the fact that simulation results in these scenarios generally show prices for crude oil and refined petroleum increasing faster than those for corn and corn-based ethanol, the price disparity continues to grow larger even after ethanol production peaks in 2012. In 2025, the difference between the wholesale gasoline price in the baseline and no-ethanol scenarios is 12.5%, with a sensitivity range from 7.0 to 23.6%.We compare these results to a series of recent estimates of similar measures from Xiaodong Du and Dermot Hayes. We find that both their published results [Du and Hayes, 2009] and a recent unpublished extension of these results [Du and Hayes] imply a consistently much larger price effect of ethanol production (a 16% average increase between 2000 and 2010 relative to the mean and a 41% marginal increase in 2010). Regarding their recent unpublished extension [Du and Hayes], we discuss a number of compounding circumstances that could contribute in whole or in part to these very high estimates. While we cannot compare our results directly to either of the estimates, because of significant methodological differences, we conclude that their highly nonstandard treatment of fuel imports and the selection of elasticity parameters well below typical values is likely responsible for the high result. Although highly inelastic fuel supply conditions, such as might lead to large price spikes given sudden supply shocks in ethanol production, are certainly not impossible in the very short run, we note two points: (1) a return to the peak levels of gasoline imports of 2006 itself could make up for more than half the fuel lost from a complete elimination of fuel ethanol, and (2) given the size of the ethanol production market in the US and the import market for sugarcane based ethanol, we find it unlikely that a single disturbance, be it from drought or public policy, could provide as strong a shock as considered in Du and Hayes (i.e., a complete and immediate elimination of all fuel ethanol production).

Determinants and Dynamics of Price Disparity in Onshore and Offshore Renminbi Forward Exchange Rate Markets

Price disparities between the renminbi onshore deliverable forward and offshore non-deliverable forward exchange rates is an intriguing puzzle in financial economics. This paper investigates the determinants of these price disparities focusing on the possibility of parameter uncertainty. In the presence of information asymmetry and market segmentation among onshore and offshore investors, it is possible that they formulate different views on the Mainland economy which translate into a different assessment of the outlook for Mainland interest rates. Through a no arbitrage condition that relates the forward rate to the spot rate and interest rate differential, a different assessment of the path of interest rates can lead to a different valuation of forward prices. We estimate a term structure model for the implied renminbi interest rate using a Bayesian approach, in which investors’ model parameter uncertainty is represented by the posterior standard deviation of the volatility of the interest rate. We show that parameter uncertainty can help to explain price disparities, in addition to market-wide aggregate uncertainty and illicit capital flows in the Mainland’s balance of payment.

Price Disparity of Chinese A/H Dual Listed Stocks: Does Investor Sentiment Matter?

Price Disparity of Chinese A/H Dual Listed Stocks: Does Investor Sentiment Matter?

Credit Risk – Creating System of Credit Risk Management in Changing Economic Conditions in Macedonian Banks

Credit risk policy is one of the most important instruments of economic policy. Experiences from developed countries and countries in transition show that the optimal credit risk policy is an essential prerequisite for accelerating economic development. The effectiveness of the mechanism in achieving this goal involves the fulfilment of certain conditions: stabilization of prices and elimination of price disparities, coordination of movements of exchange rates, inflation and interest rates, etc. In countries with a diversified financial structure, achieving these prerequisites, as well as the formation of interest rates on the balanced value is realized through the action of the market mechanism. Given that most of these issues are present in Macedonia, it is necessary to identify and critically re-assess the effects of credit risk policy on economic developments, as well as preventive measures to reduce risk11Brown C. Keith, Reilly K. Frank: Investment portfolio Analysis and Portfolio Management, Thomson South Western, 2004, pp 243. While financial institutions have faced difficulties over the years for a multitude of reasons, the major cause of serious banking problems continues to be directly related to 1ax credit standards for borrowers and counterparties, portfolio risk management, or a lack of attention to changes in economic or other circumstances that can lead to a deterioration in the credit standing of a bank's counter counterparties. The aim of the paper is to give a view of the concentration of the financial system, credit risk to which are exposed Macedonian banks as well as measures that are to be taken preventively in order to influence the reduction of credit risk.

Explaining Share Price Disparity with Parameter Uncertainty: Evidence from Chinese A- and H-Shares

The price disparity between the A- and H-share markets for dual-listed firms in China is one of the most intriguing puzzles in the mainland and Hong Kong financial markets. In this paper, we revisit this price disparity puzzle using the channel of parameter uncertainty. In the presence of information asymmetry and market segmentation, investors have different views on a firm's asset volatility, and hence different valuations of the same reference firm. We estimate a structural model for equity pricing using a Bayesian approach, in which the uncertainty of investor model parameters is represented by the posterior standard deviation of the firm's asset volatility. Our regression analysis shows that in addition to other market-based and macro factors, parameter uncertainty explains variations in price disparity.

Another Look at the Underlying Cause of the End of the Bretton Woods System: International Price Differences Perspective

In this study, the sustainability of the Bretton Woods system from the standpoint of purchasing power parity is discussed. The paper uses wholesale price indexes of the group of seven industrialized countries (G-7) and examines when persistent price disparities among the countries occurred by applying the panel unit root tests. It is found that the price indexes of G-7 countries began to diverge in the first half of the 1960s. Evidence from international price differences suggests that the price indexes may have signaled the breakdown of the Bretton Woods system before the inflation rate in the USA accelerated.

Spatial Patterns of Subprime Mortgages by Local Banks, Nonlocal Banks, and Independents in the Continental US

Mortgage innovations and New Deal agencies facilitated lower priced loans for prime borrowers and minimum price disparities across US regions. In the 1980s deregulation removed price restrictions on banks' mortgages and also removed geographic distance restrictions on lending, opening the subprime industry. Global and local Moran indices identified interregional price disparities based upon proportions of subprime mortgage originations. A cluster of high-priced mortgage originations was found along the Gulf States both before and after the subprime collapse of 2007. Local banks, perceived to have special underwriting knowledge about their markets, and who were more likely to offer preferred prices, were compared with nonlocal banks and independent mortgage companies on their spatial distributions of mortgage pricing. During the boom and bust years from 2005 to 2008, the regional patterns of proportions of subprime mortgages for each mortgage institution type were similar, adversely impacting borrowers in the Southern Gulf region. These spatial patterns suggest that nonlocal banks and independents made the same underwriting conclusions about borrowers in regional markets as the local bank specialists.

A Monetary Explanation for the Recession of 1797

This paper presents a monetary explanation the US recession of 1797. Credit expansion initiated by Bank of the United States in the early 1790s unleashed a bout of inflation and low real interest rates which spurred a speculative investment bubble in real estate and capital intensive manufacturing and infrastructure projects. A correction occurred as domestic inflation created a disparity in international prices that led to a reduction in net exports. Specie flowed out of the country, prices began to fall, and real interest rates spiked. In the ensuing credit crunch businesses reliant upon rolling over short term debt were rendered unsustainable. The general economic downturn which ensued throughout 1797 and 1798 involved declines in the price level and nominal GDP, the bursting of the real estate bubble, and a cluster of personal bankruptcies and business failures. We detail the scope of the credit expansion, price level movements, fluctuations in interest rates, and the investment errors that these conditions spawned in several sectors of the economy.

Improved rapid authentication of vanillin using δ13C and δ2H values

Vanilla still remains one of the most important and widely used flavours in the food industry and is also extensively employed by fragrance and pharmaceutical manufacturing companies. Natural vanilla flavour, extracted from the pods of the tropic orchid vanilla, is considerably more expensive than synthetic vanillin. The disparity of prices between natural vanillin and that derived from other sources has given rise to many cases of fraudulent adulteration, and for more than 30 years, strenuous efforts have been made to authenticate sources of vanillin. Stable isotope analysis is one of the most powerful analytical tools to distinguish between natural vanillin and that originating from other sources. Recently, a rapid and precise method for analysis of both δ13C and δ2H values of plant methoxyl groups has been published. Here, we report an application of the method for the control of authenticity of vanillin. Carbon and hydrogen stable isotope values of the vanillin molecule and vanillin methoxyl groups of vanillin samples of different origins including authentic and synthetic samples were measured. The results clearly show that use of this approach provides a rapid and reliable authenticity assessment of vanillin. The technique used for these studies is robust and rapid, involves minimum sample preparation and requires only a small amount of vanillin sample, usually 1 mg for stable carbon and 4 mg for stable hydrogen analysis.

Index arbitrage and the pricing relationship between Australian stock index futures and their underlying shares

AbstractThis paper examines the mispricing of Australian stock index futures. Exogenous and endogenous price volatility is confirmed to have a positive impact on the mispricing spread, after filtering out predictable time series components. More accurate pricing associated with surprise trading volume in the underlying stocks is consistent with arbitrageurs acting to narrow price disparities relative to the futures market. Ex‐ante interest rate volatility is the primary source of risk faced by arbitrageurs and fluctuations in the transaction cost of opening index arbitrage positions influence the extent to which they drive prices towards theoretical fair values.

The rising disparity in the price of healthful foods: 2004–2008

Nutrient-dense foods that are associated with better health outcomes tend to cost more per kilocalorie (kcal) than do refined grains, sweets and fats. The price disparity between healthful and less healthful foods appears to be growing. This study demonstrates a new method for linking longitudinal retail price data with objective, nutrient-based ratings of the nutritional quality of foods and beverages. Retail prices for 378 foods and beverages were obtained from major supermarket chains in the Seattle, WA for 2004–2008. Nutritional quality was based on energy density (kcal/g) and two measures of nutrient density, calculated using the Naturally Nutrient Rich (NNR) score and the Nutrient Rich Foods index (NRF 9.3). Food prices were expressed as $/100 g edible portion and as $/1000 kcal. Foods were stratified by quintiles of energy and nutrient density for analyses. Both measures of nutrient density were negatively associated with energy density and positively associated with cost per 1000 kcal. The mean cost of foods in the top quintile of nutrient density was $27.20/1000 kcal and the 4-year price increase was 29.2%. Foods in the bottom quintile cost a mean of $3.32/1000 kcal and the 4-year price increase was 16.1%. There is a growing price disparity between nutrient-dense foods and less nutritious options. Cost may pose a barrier to the adoption of healthier diets and so limit the impact of dietary guidance. Nutrient profiling methods provide objective criteria for tracking retail prices of foods in relation to their nutritional quality and for guiding food and nutrition policy.

Trading Imbalances, Liquidity, and the Law of One Price

This paper studies trading and prices of dual/cross-listed stocks (i.e., equities from a single company that trade in more than one country). We focus on PRC rms with shares listed in Shanghai and Hong Kong. well-publicized index tracks the average price disparity across the two exchanges and shows signi cant variation over time. We show that di erences in order imbalances (in Shanghai vs Hong Kong) explain contemporaneous changes in relative prices at daily and weekly frequencies. Our results help clarify liquidity-driven explanations from sentiment-based ones.

The Effect of Cross-Channel Price Dis/parity on Ethicality Evaluations and Purchase Intent: The Moderating Role of Price Frame

Using a scenario-based survey with a factorial between-subject experimental design, this study examines the effect of price dis/parity across multiple channels of distribution on customers' ethicality evaluations and purchase intent, with the focus on the moderating role of price frame. Results show that when the varying prices of the disparity policy were all lower than or equal to the uniform price of the parity policy, consumers did not evaluate the disparity policy as significantly less ethical than the parity policy, and were more likely to purchase from the firm with the disparity policy. However, when at least one of the varying prices of the disparity policy was higher than the uniform price of the parity policy, they evaluated the disparity policy as less ethical, and, therefore, were more likely to purchase from the firm with the parity policy, despite price incentives offered by the disparity policy. This finding suggests that the success of a cross-channel price disparity policy depends on the price frame.

Assessing Competencies for Obesity Prevention and Control

Obesity is the result of people consistently consuming more calories than they expend. A complex interaction of social and environmental conditions affects both energy consumption and physical activity levels. These conditions include, but are not limited to the following factors: the availability of affordable and healthy food; price disparities between healthy and less healthy foods; access to or perceived safety of recreation facilities; and the conduciveness of the physical environment to active modes of transportation, such as walking and biking. As outlined in the “Assessing Laws and Legal Authorities for Obesity Prevention and Control” paper in this supplement issue, laws and government policies in the United States influence nearly all of these social and environmental factors.

Influence of Race, Ethnicity, and Culture on Childhood Obesity: Implications for Prevention and Treatment

Influence of Race, Ethnicity, and Culture on Childhood Obesity: Implications for Prevention and Treatment

Index Arbitrage and the Pricing Relationship between Australian Stock Index Futures and Their Underlying Shares

This paper examines the mispricing of Australian stock index futures. Exogenous and endogenous price volatility is confirmed to have a positive impact on the mispricing spread, after filtering out predictable time series components. More accurate pricing associated with surprise trading volume in the underlying stocks is consistent with arbitrageurs acting to narrow price disparities relative to the futures market. Ex-ante interest rate volatility is the primary source of risk faced by arbitrageurs and fluctuations in the market impact cost of opening index arbitrage positions influence the extent to which they drive prices towards theoretical fair values.

Illicit Agricultural Trade

Agricultural and wildlife trade is subject to sudden, disruptive import restrictions arising from concerns over sanitary and phytosanitary safety and the conservation of natural resources. These restrictions can create significant international price differences that encourage the smuggling of goods across borders. This article presents an equilibrium model of smuggling where the supply and demand for smuggled goods depend on interregional price disparities in the presence of a trade ban. In this model, smuggling is more prevalent when demand and supply among trade partners is more inelastic or when there are fewer total trade partners at the time a trade ban is enacted. Applications are presented for regionalization, destruction of goods in government eradication programs, price support, stockpiling, and the development of substitutes. Regionalization may increase smuggling under certain production and consumption patterns.

Market liberalization within a country

China's B-share market, which used to be restricted to foreign investors, was partially opened up in February 2001 to Chinese local investors. We take this as a controlled experiment in cross-border trading on a small scale. We find mild but positive effects on the B-share market, with higher volumes, lower levels of volatility, lower bid–ask spreads and more liquidity after liberalization. Between A- and B-shares, price disparities narrowed; the correlation and the co-integration relationships became stronger; and the flow of information became more balanced. More new individual investors entered into the B-share market without crowding out existing institutional investors. Even though the liberalization measure is partial and one-way, it has helped to improve the quality of the B-share market, and our results lend no support to the popular claim that liberalization does nothing but help the existing foreign shareholders to cash out.

The Context for Choice: Health Implications of Targeted Food and Beverage Marketing to African Americans

Targeted marketing of high-calorie foods and beverages to ethnic minority populations, relative to more healthful foods, may contribute to ethnic disparities in obesity and other diet-related chronic conditions. We conducted a systematic review of studies published in June 1992 through 2006 (n = 20) that permitted comparison of food and beverage marketing to African Americans versus Whites and others. Eight studies reported on product promotions, 11 on retail food outlet locations, and 3 on food prices. Although the evidence base has limitations, studies indicated that African Americans are consistently exposed to food promotion and distribution patterns with relatively greater potential adverse health effects than are Whites. The limited evidence on price disparities was inconclusive.