There are 20 companies that launched their stock buyback programs this year and half of these yielded negative residual returns
due to the rise in interest rates recently.
In general, under FIN 46(R), an equity investor consolidates the VIE when that investor retains a majority interest in the VIE's expected losses or a majority interest in the VIE's residual returns
. If the equity interest investor retaining a majority interest in VIE's residual returns
differs from the equity interest investor retaining a majority interest in its expected losses, FIN 46(R) requires the latter to consolidate the VIE.
Fitch expects residual performance to improve, consistent with initial expectations as more meaningful residual returns
From (9), we can see that inverting the transport operator on the directional residual returns
the estimated error.
Using CRSP daily returns, we estimate idiosyncratic volatility or the standard deviation of daily residual returns
, where residual returns
are errors from a daily four-factor model.
Illiquidity Premium in Absolute and Residual Returns
* The holders of equity interest, as a group, do not possess the power to direct the activities of the company through voting rights; the obligation to absorb expected losses or the right to receive expected residual returns
(management derives the expected losses and expected residual returns
based on the estimated cash flows); and disproportionate voting rights in comparison to economic interest.
In order to do this, the expected residual losses and expected residual returns
of the VIE must be estimated and then allocated to the enterprises that hold variable interests in the VIE.
"The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns
, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity that change with changes in the fair value of the entity's net assets excluding variable interests." (FIN 46 R)
This suggests that past residual returns
have an influence on current EAFE returns.
Our surplus duration measures were then obtained by regressing total rates of return on each insurer's common stock against the composite return on zero coupon bonds, as well as the stock market return residuals (obtained by regressing the stock market returns against the zero coupon composite returns) and the insurance industry residuals (obtained by regressing the industry returns against the zero coupon composite returns and the stock market residual returns
They reported residual returns
of -12% during the bankruptcy for the New York Stock Exchange and American Stock Exchange firms and residual returns
of -91% for the Nasdaq firms.