Professor Stephen Easton

Average price options are based on the average (either arithmetic or geometric) price of the underlying asset during an option's life. Recently, Australia's largest private bank, the National Australia Bank, and the regional Metway Bank, have issued bonds that contain embedded arithmetic average share index options. The purpose of this paper is to value these options using Monte Carlo simulation, and then to value the bonds themselves. Using a wide range of estimates of the parameters that determine the values of these bonds, it would appear that the fixed-term deposits offered by these same banks represent more profitable investments. © The University of New South Wales.

The paper examines the initial pricing of all Australian government sector initial public offerings (IPOs) that have been made over the last six years. A statistically significant first-day average abnormal return of approximately 8% is found. Contrary to overseas findings, there is no evidence that these government sector IPOs were more underpriced than Australian private sector IPOs.

Transaction costs have been offered as the most likely explanation for apparent mispricing found in recent studies of the Australian options market. This paper suggests that another feature of the market, namely non-simultaneity between option prices and the price of the underlying share, offers a more powerful explanation. It is demonstrated that the types of violations of put-call parity that have been observed in Australia are the types of violations that are to be expected when non-simultaneity is present. It is shown that apparent mispricing in tests of put-call parity will, in the presence of non-simultaneity, be greater for short-term options. Conversely, mispricing will be less for options which are at-the-money, and when the risk-free rate of interest is high. Non-simultaneity is likely to result in put options appearing to be undervalued relative to call options and the underlying share. © 1994, SAGE Publications. All rights reserved.

The present study analyses the robustness of the day-of-the-week effect in Australia. The results show that sample size can distort the interpretation of classical test statistics unless the significance level is adjusted downward. After providing for sample size adjustment, the evidence of a day-of-the-week in Australia is considerably weakened. Further, error distribution specification tests also reveal widespread departures from ordinary least squares (OLS) assumptions. However, tests conducted using robust techniques that are insensitive to the failure of maintained assumptions provide evidence of a day-of-the-week effect which is very similar to the evidence from OLS regressions. This contrasts with Connolly (1989) who found that the evidence of the day-of-the-week effect in the US market was considerably diminished by the application of these techniques. Robust statistical techniques also show that the Australian day-of-the-week effect is independent of the US day-of-the-week effect. © 1994, Taylor & Francis Group, LLC. All rights reserved.

The turn of the year effect is an empirical regularity which refers to the observation that equity returns on days around the turn of the calendar year are significantly high. A common explanation for the effect is the tax-loss selling hypothesis. Three studies have tested this hypothesis by examining equity returns before and after the introduction of the War Revenue Act of 1917. However, these studies have reached inconsistent conclusions. Following these inconsistent findings, this paper examines whether the previous findings are robust to the extension of the pre-tax period, or whether the previous findings are robust to the use of daily data. In contrast to the evidence from existing research which has used daily data, a significant turn of the year effect is found prior to 1917. Furthermore, this effect is shown to be independent of other empirical regularities such as the turn of the month effect and the holiday effect, and seasonality in dividend payments cannot explain the finding. Thus, we conclude that the tax-loss selling hypothesis cannot offer a complete explanation of the turn of the year effect. © 1993.

Abstract: Part of the argument put forward in support of amalgamating local government authorities is that large councils have advantages of economies of scale. This article quantifies scale economies by a range of expenditure functions. It shows that amalgamation benefits may be as readily achieved through combining functions as in changing geographic boundaries. Furthermore, the study provides clear evidence that larger councils not only offer more services to ratepayers than smaller councils, but receive less support per capita than small councils from state and commonwealth government sources. This latter conclusion has important implications for those charged with the task of administering the scarce funds available through intergovernment financial arrangements. Copyright © 1987, Wiley Blackwell. All rights reserved