Portuguese Economic Journal, 2003, Volume 2, Nº 3
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- Crime and social normsPublication . Garoupa, NunoIn this paper, we develop a general equilibrium model of crime. It is shown that law and norms are substitutes in achieving a stable equilibrium. Here we offer a new interpretation of different theories of social norms in the context of crime and deterrence. The law and economics theory is presented as an ‘opportunism- limiting’ approach to norms whereas the evolutionary theory is presented as an ‘opportunity cost’ approach.
- Takeover bids : evidence from the Portuguese marketPublication . Rodrigues, VascoThroughout the nineties, a number of tender offers occurred in the Por- tuguese market. This article employs event study methodology to investigate their effects on the involved firms’ shareholders. On average, these operations increased the market value of the involved firms by 2% to 3%. However, target sharehold- ers appropriated most of this gain, earning 18% over their firms’ previous value, whereas bidder shareholders seem to have gained nothing. These averages bent in bidders shareholders favour, however, when bidders held significant positions in the targets’ capital before the bid.
- Maturity and volatility effects on UK smiles or dying smiling?Publication . Duque, João L.C.; Lopes, Patrícia TeixeiraThe “smile effect” is a result of an empirical observation of the options’ implied volatility with the same expiration date, across different exercise prices. However, its shape has been under discussion seeming to be dependent on the option underlying security. In this paper, and filling up a scarce empirical research on the topic, we used liquid equity options on 9 stocks traded on the London International Financial Futures and Options Exchange (LIFFE) between August 1990 and December 1991. We tested two different hypothesis for testing two different phenomena: (1) the increase of the “smile” as maturity approaches; (2) and the association between the smile and the volatility of the underlying stock. In order to estimate implied volatilities for unavailable exercise prices, we modelled the smile using cubic B-spline curves. We found empirical support for the smile intensification (the U-shape is more pronounced) as maturity approaches as well as when volatility rises. However, we found two major sources of disagreement with the literature on stochastic volatility models. First, as maturity approaches, out-of-themoney options’ implied volatility tends to be higher than the implied volatility of in-the-money options. Second, as the volatility of the underlying asset increases, the implied volatility of in-the-money options tends to be higher than implied volatility of out-of-the-money options.
- Real exchange rates and target interest rates in a simple VAR modelPublication . Mollick, André VarellaThis paper proposes a simple vector autoregressions (VAR) model with (real) output and exchange rate shocks on interest rates. Rather than assuming non- recursive identification schemes, we test the identifying assumption of the error term decompositions. Applying the model to quarterly data on major currencies against the U.S. dollar (USD) from 1974 to 1997, interest rate shocks explain – after 3 years – 16% of Canadian dollar/USD (CAD) real exchange rate variations and less than 2% for the mark/USD and yen/USD. Positive innovations of interest rates bring about (transitory) CAD real appreciations in differences and (permanent) appreciations in levels. Canadian real output is more explained by domestic interest rate shocks (19%) than Germany’s (5%) or Japan’s (0.2%). Canada is smaller than the other economies and CAD has been shown to suffer from “fear of floating”. Our findings support the proposition that domestic shocks dominate output variance under fixed exchange rates. They are also consistent with structural interpretations of the VAR.