Volume 25 Number 1 June 2000
Editor - Robert Marks
|I s this the first issue of the new millennium? Or will that honour lie with the first issue of 2001? As the editors of the recent millennial issue of the Journal of Economic Perspectives (Krueger, De Long & Taylor 2000) argue, the choice of a calendar and of key anniversaries are cultural decisions, not physical laws. Most people seem to have taken the 'odometer' approach to the millennium, celebrating its arrival last January 1st.|
|So the first issue of the Journal in the new century and the new millennium is now in your hands or on your screen. This issue contains five papers, four in finance, and one in marketing. At first sight, there is little in common among the papers: the four finance papers are concerned with stock-market prices, in one way or another - two directly, and two indirectly - whereas, although the marketing paper sees 'financial performance' as one of the three correlates of a successful new product launch, this is an accounting measure, not a financial market measure. But two of the finance papers consider the stock-market performance of 'new' firms - completely new mining companies, and synthetically new, merged companies.|
|The stock market, as I have written before, provides a mechanism for exchanging risk, and in the absence of a full set of contingent markets, a la Arrow-Debreu, provides a social service. To do this, as with other markets, it relies on the motivation of individual investors, or groups of investors in mutual funds, to maximise their returns, subject to their risk preferences. So, although the caption on the William Hamilton cartoon in the New Yorker - 'I'll tell you why we were put on this planet. We were put on this planet to out-perform the market.' - sounds wry on the face of it, in fact speculators and hedgers do provide a public service. It follows that better understanding of how financial markets work will benefit us all.|
|Finn and Koivurinne's paper asks questions about the possibility of 'beating the market', and Julia Sawicki's paper examines the sensitivity of investors to respond to greater or lesser success in the market by supporting, or not, investment managers once their past performance is known. Da Silva Rosa et al. are interested in the stock market performance of newly merged companies, while Janice How considers the performance of new mining companies (although the mines may be acquired rather than newly excavated).|
|An ex ante efficient stock market index is, by definition, the best portfolio of stocks that can be formed at any given time. So if an investor hopes to do better (on average, let alone consistently) than a specific index (the benchmark) over a long period, the benchmark must necessarily be ex ante inefficient. Finn and Koivurinne examine the ex ante efficiency of Australian stock-market indices with respect to a number of investment sets. In particular, they ask whether it might have been possible to use particular investment sets to exploit any index inefficiency. As well as looking in particular at the Australian mining and property sectors, Finn and Koivurinne examine the effect of restrictions on short selling on the ex ante efficiency of the indices.|
|With a mean-variance paradigm (which ignores higher moments of the distribution of returns), they find that restrictions on short selling meant that the ex ante efficiency of none of the benchmarks considered can be rejected. With such restrictions, however, they find that the industrials index is a more efficient benchmark than a broader index which contains mining and/or property. They conclude with a caveat about the Capital Asset Pricing Model (which assumes that the market portfolio is efficient): it turns out that an ex ante efficient benchmark (with no short-selling restrictions) gives the hope to investors of out-performing the index, but deprives them of an appropriate method of evaluating whether this has happened.|
|'Build a better mousetrap . . .' But it's not always true that the world will beat a path to your door. And anyway, what is meant by 'better'? The art and science of marketing has been examining these issues. Cooper and Kleinschmidt compare Australian data with North American and European data on the factors that are correlated with successful new products.|
|Their Australian data include 110 new products from 55 firms. After winnowing their multi-attribute space to three dimensions (Financial Performance, Window-of-Opportunity, and Efficiency), they find that their data fall into five clusters, from 'Stars' to 'Dogs.' Their extended discussion of the correlates of success and failure and in-between results in nine 'lessons' for firms considering launching new products.|
|How significant is a portfolio manager's record in influencing investors' choice of fund? Or, put another way, to what extent do investors punish bad performance or reward good performance by withdrawing or depositing assets with a specific manager's fund? Anecdotally, we would all believe that investors would actually move assets, even if it is only past performance that can be seen, not future.|
|Julia Sawicki investigates this, using data from 124 Australian wholesale funds over a 15-year period (wholesale, for institutions, not retail, for private individuals). She finds a clear and robust link between fund performance in the past year and the flow of monies. Whereas US studies have shown that mutual funds investors are quicker to flock to outstanding prior performance but are not so quick to flee from poorly performing funds, her studies suggest that Australian managers are relatively quicker to discipline poorly performing funds by moving monies away.|
|During a historically high period of merges and acquisitions, a study which examines how the post-bid share-market performance of Australian bidders and targets may be correlated with the proposed medium of exchange - cash or shares - is timely. The existence of asymmetric information, transactions costs, and taxes may well influence both the method of exchange and the subsequent performance. Indeed, bidders may more likely offer shares when they believe that their shares are overvalued. This would help explain the previous evidence that bidder and target firms earn higher abnormal returns over the bid announcement period when cash is offered as the medium than when the bidder's shares are offered.|
|Da Silva Rosa, Izan, Steinbeck and Walter find some evidence of a medium-of-exchange effect, but it is limited: cash bidders obtain higher returns than do share bidders, but not abnormally high. Offers of a mix of cash and shares performed better than a linear interpolation would suggest. The authors discuss the theoretical weaknesses of their method, and possible explanations of the choice of the medium of exchange.|
|Recent stock-market exuberance, and the dot-com mania, have focussed attention on the enriching process of floating one's dot-com company through an Initial Public Offer, watching the share price rise, rise, and rise again, and then perhaps realising some of that paper wealth. No doubt, in the future there will be studies on the extent to which such IPOs undervalued the prices of the shares, and Robert Shiller's new book, Irrational Exuberance (Shiller 2000), points the way.|
|In the meantime, Janice How's study of Australian miners reveals that, unlike the IPOs of Australian stocks (pre-dot-com), such IPOs understate the stocks' price by under half, on average. She explains this by noting the lag between the registration of the prospectus and the stock's listing, and the subsequent state of the market. In the long run, however, she finds evidence of significant underpricing.|
The E. Yetton Award for 1999 and Other Matters
In 1999 the Journal published nine papers. Each year the area editors and I vote for which is the best paper and which is the runner up. A previous editor of the Journal, Philip Yetton, endowed a prize of $500 for the best paper published each year. The winning author is also presented with a plaque recognising the achievement.
|This is the fifth time the E. Yetton Award has been made. (For previous winners, see www.agsm.edu.au/eajm/yettonaward.html) The winner for Volume 24 (1999) was Stephen King's paper, 'Price Discrimination, Separation and Access: Protecting Competition or Protecting Competitors', and the runner up was Joshua Turkington and David Walsh's paper, 'Price Discovery and Causality in the Australian Share Price index Futures Market.' Stephen King has received his cheque, and will have received his plaque by the time you read this. Congratulations, all three.|
|Negotiations are under way to add a fourth non-exclusive contract for distribution of the contents of the Journal through a commercial agency. In 1997 we signed up with UMI and with the Information Access Company (now the Gale Group) for distribution in microform, electronic (CD-ROM and on-line), and paper formats. In 1998 UnCover joined the ranks. This year, it is likely that we will sign up with EBSCO.|
|The main purpose of welcoming such arrangements is to enhance the availability of the Journal around the world. Although the services include a large number of journals, it is in their interests to publicise their new acquisitions, such as the Journal. Although we have not raised our subscription prices to anything like the levels of other academic journals, there is still the risk that making the content of the Journal available, paper by paper, through such services will cannibalise our subscription base for the traditional printed hard-copy version of the Journal. Despite the imposition of a value-added tax (known locally as the Goods and Services Tax, or GST), the prices of the Journal will not rise for 2001. After twelve months under the new regime, we shall reconsider our policy, and also see whether the availability of our papers on the four services is eroding our subscription base. Until then, here in Sydney we have the Olympics to look forward to, or not, as the case may be.|
|Meanwhile, as interest in the Internet grows and grows (it's estimated that close to 50% of Australian households have access to it), there is a developing debate of print versus online publications. To what extent can a journal entirely on-line substitute for a traditional, print publication, especially for promotion and tenure assessments? This issue is also involved with the economics of publishing (printing, paper, and delivery), so it would be a foolish person who denied the apparent inevitability of the rise to dominance of the on-line only publication.|
|It was in the June, 1991, issue of the Journal that Boris Kabanoff first appeared as an area editor (unattributed, but for Organisational Behaviour). In the past nine years, both in Sydney and at the Queensland University of Technology, to which he moved as head of the School of Management in 1997, Boris has been responsible for many fine Organisational Behaviour papers appearing within the pages of the Journal, the better for the care and attention he and his referees have lavished on the manuscripts. Boris has signalled that he wishes to stand down soon, and I am currently talking to possible successors.|
|Mark Uncles is finalising a special Marketing issue, which we hope to have in your hands before the end of September. We are looking forward to this special issue, and perhaps others to come. If one looks back at the papers over the last 23 years of the Journal, one notices a preponderance of finance and accounting papers. There are clear reasons for this (the first editor, Ray Ball, was an internationally recognised finance accounting researcher, few venues for Australian- based finance research, the revolution in our understanding of stock- market behaviour and pricing including the synthesis of derivatives), but it is healthy for the Journal to retain a mix of papers, as reflected eight areas of interest and the Objectives and Scope of the Journal.|
|For this reason we welcome the fact that an economic theory paper (applied, more the less, to a competition policy issue) won the E. Yetton award for 1999, and the forthcoming special issue in Marketing.|
|We have not acknowledged our referees for some years. Later in this issue you will find a list of some 128 referees' names, from 36 institutions, public and private, academic and non-academic, across the world. Without their time, energy, and discrimination, the Journal could not be produced, to the benefit of its authors and its readers. Interestingly, the most popular institutions in the list are the University of Melbourne (25 referees), the Australian Graduate School of Management (18), University of Technology, Sydney, and Queensland University of Technology (both 8), and the University of Queensland (7). Thank you referees, one and all.|
|A personal note. Sonal Bhalla, the Journal's Manager, gave birth to Ayesha in early March. Congratulations to Sonal, and thanks to Linda Camilleri, Kristie Clemow, and Sandra Hoey for their assistance in producing the Journal in Sonal's absence.|
King, S.P. 1999, 'Price discrimination, separation and access: Protecting competition of protecting competitors?' Australian Journal of Management, vol. 24, no. 1, pp. 21-35.
Krueger, A.B., De Long, J.B. & Taylor, T. 2000, 'Reflection on economics at the turn of the millennium', Journal of Economic Perspectives, vol. 14, no. 1, pp. 3-5.
Shiller, R. 2000, Irrational Exuberance, Princeton University Press, Princeton.
The E. Yetton Award Winners, http://www.agsm.edu.au/eajm/yettonaward.html
The Gale Group, http://www.galegroup.com
Turkington, J. & Walsh, D. 1999, 'Price discovery and causality in the Australian share price index futures market', Australian Journal of Management, vol. 24, no. 2, pp. 97-113.
A Note from the Editors
The editors of the Australian Journal of Management would like to thank the following researchers and practitioners who reviewed articles for the Journal during the period from 1996 through 1999. Thank you.
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