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Volume 30 - Numéro 2

December 2009

Is employee ownership so senseless - 15 December 2009

AUBERT, Nicolas ; GRAND, Bernard ; LAPIED, André ; ROUSSEAU, Patrick

Since Enron and the ruin of thousands of its employees, employee ownership is harshly criticized. Investing savings in employer’s stock would be equivalent to bet on only one asset. Moreover, employee ownership’s debated efficiency would not justify employers to grant company stock to their employees. Still, employee ownership is put in place by thousands of companies and withhold by millions of employees throughout the world. This paper considers a moral hazard setting where a risk neutral entrepreneur grants company stock to its risk averse employee as an incentive. We show that there is an optimal transfer of employee ownership that satisfies employee’s risk preference and has an incentive effect. We thus bring about rational argument in favor of employee ownership.


Idiosyncratic Volatility Change and Event Study Tests - 15 December 2009

AKTAS, Nihat ; DE BODT, Éric ; COUSIN, Jean-Gabriel

The idiosyncratic volatility is a key input to the standard event-study method. The recent literature has suggested that the idiosyncratic volatility is not stable through time. This paper investigates the extent to which the event-study method is affected by this economic phenomenon. Using both simulation and real dataset analyses, we show that standard event-study methods suffer from a significant loss of power in the presence of increasing idiosyncratic volatility, as intuition would suggest. This affects the comparability of event study results obtained in two different empirical contexts (time periods or geographical zones). Therefore, to compare results between high and low regime of idiosyncratic volatility on a fair ground, everything else being equal, the ratio of the sample sizes needs to be equal to the ratio of the idiosyncratic variances in the two contexts.


Dynamics of Implied Distributions: Evidence from the CAC 40 Options Market - 15 December 2009


This paper discusses the dynamics of the entire risk-neutral density, based on a Principal Component Analysis (PCA) of distribution curves calculated using a moneyness metric. The PCA revealed a limited number of factors that influence these dynamics. This paper outlines the time series of these factors and shows that at least one of them, displaying a strong correlation with the distribution variance, contains jumps. These findings are consistent with recent research showing that a jump component exists in the shock factors affecting implied volatility surfaces. Finally, this paper gives an example of how these findings can be applied to options portfolio hedging.