The structure of information release and the factor structure of returns
ساختار افشای اطلاعات و ساختار عاملی بازگشت ها-2018
We model how firms releasing information on different dates causes the CAPM to fail, requiring an additional factor based on the information structure to price assets. We exemplify this mechanism’s empirical relevance using quarterly earnings announcements, which cluster across months along size and book-to-market. Seventy percent of the alpha reduction from including SMB and HML occurs in the four main earnings announcement months. The information structure factor accounts for all of SMB and HML’s seasonal alpha reduction and one third of their overall alpha reduction. Controlling for size and book-to-market, exposures to SMB and HML vary with firms’ earnings announcement month.
keywords: Earnings announcements |CAPM|Factor models |SMB|HML
All’s well that ends well? On the importance of how returns are achieved
چیزی خوب است که خوب تمام شود؟ درمورد اهمیت چگونگی به دست آمدن بازگشت ها-2018
We demonstrate that investor satisfaction and investment behavior are influenced substantially by the price path by which the final investor return is achieved. In a series of experiments, we analyze various different price paths. Investors are most satisfied if their assets first fall in value and then recover, and they are least satisfied with the opposite pattern, independent of whether the final return is positive or negative. Price paths systematically influence risk preferences, return beliefs, and ultimately trading decisions. Our results enable a much more holistic perspective on a wide range of topics in finance, such as the disposition effect, risk-taking behavior after previous gains and losses, and behavioral asset pricing.
keywords: Investor satisfaction |Reference points |Risk tolerance |Investor behavior |Experimental finance
Management sub-advising in the mutual fund industry
توصیه فرعی مدیریتی در صنعت سرمایه گذاری دوطرفه-2018
This is a study of how contractual mechanisms can mitigate agency conflicts in sub-advised mutual funds. Sub-advising contracts allow fund families to expand their product offerings to include new investment styles and thereby gain market share. We show that costly contractual arrangements, such as co-branding, multi-advising, and performance-based compensation, can mitigate agency conflicts in outsourcing and protect investors from potential underperformance. Fund families will find it cost-effective to implement such incentive mechanisms only when investors are sophisticated in assessing manager skill. The findings help to explain why a large percentage of fund families outsource their funds to advisory firms.
keywords: Outsourcing |Sub-advisor |Mutual funds |Management company |Incentive contracts |Fund performance |Market share |Agency issue
Non-interest income and bank lending
درآمد غیر بهره ای و وام دهی بانک-2018
This paper examines the influence of non-interest activities on bank lending in terms of loan quality and interest spread. We also investigate the possible existence of profit complementarities between non-interest activities and lending. Using quarterly data on 6921 U.S. commercial banks between 2007:Q3 to 2016:Q3 we find that non-interest activities have no adverse influence on bank credit risk. This is the case for banks of different asset size (including systemically important banks) as well as for distressed banks. There is evidence that banks with assets between $100 million and $1 billion that have a greater share of fiduciary income have lower credit risk. They also have lower interest rates on loans secured by real estate, and higher franchise values, particularly post-crisis. Moreover, banks in the aforementioned size range benefit from synergies in joint production of non-interest income and lending, whereas other banks, in particular smaller banks (below $100 million in assets) suffer from diseconomies of joint production. Larger banks exhibit cross-subsidization between several non-interest activities and lending business.
keywords: Non-interest income |Fiduciary |Credit risk |Spread |Profit complementarities
Board diversity, firm risk, and corporate policies
تنوع هیئت مدیران، خطر شرکتی و سیاست های شرکتی-2018
We examine the effects of diversity in the board of directors on corporate policies and risk. Using a multidimensional measure, we find that greater board diversity leads to lower volatility and better performance. The lower risk levels are largely due to diverse boards adopting more persistent and less risky financial policies. However, consistent with diversity fostering more efficient (real) risk-taking, firms with greater board diversity also invest persistently more in research and development (R&D) and have more efficient innovation processes. Instrumental variable tests that exploit exogenous variation in firm access to the supply of diverse nonlocal directors indicate that these relations are causal.
keywords: Diversity |Board of directors |Governance |Firm risk |Performance
The impact of more frequent portfolio disclosure on mutual fund performance
تاثیر افشای متناوب تر دارایی روی عملکرد سرمایه ای دوطرفه-2018
This paper analyzes the impact of more frequent portfolio disclosures on performance of mutual funds. Since 2004, SEC requires all U.S. mutual funds to disclose their portfolio holdings on a quarterly basis from semi-annual previously. This change in regulation provides a natural setting to study the impact of frequency of disclosure on performance of mutual funds. Prior to the policy change, we find that successful semi-annual funds outperform successful quarterly funds by 17–20 basis points a month. After 2004, their performance goes down and they no longer outperform successful quarterly funds. This reduction in performance is higher for semi-annual funds holding illiquid assets. These results support our hypothesis that the performance of funds with more frequent disclosure, particularly of those holding illiquid assets, suffer more from front running activities. We also find complementary evidence that the profitability of a hypothetical front running strategy based on public disclosures goes up with the frequency of portfolio disclosures.
keywords: Portfolio disclosure frequency |Mutual fund performance |Front running |Free riding |SEC regulation |Difference-in-difference test |Illiquid funds
We apply the concept of carry, which has been studied almost exclusively in currency markets, to any asset. A security’s expected return is decomposed into its “carry,” an ex-ante and model-free characteristic, and its expected price appreciation. Carry predicts returns cross-sectionally and in time series for a host of different asset classes, including global equities, global bonds, commodities, US Treasuries, credit, and options. Carry is not explained by known predictors of returns from these asset classes, and it captures many of these predictors, providing a unifying framework for return predictability. We reject a generalized version of Uncovered Interest Parity and the Expectations Hypothesis in favor of models with varying risk premia, in which carry strategies are commonly exposed to global recession, liquidity, and volatility risks, though none fully explains carry’s premium.
keywords: Carry trade |Predictability |Stocks |Bonds |Currencies |Commodities |Corporate Bonds |Options |Liquidity risk |Volatility risk
Fraud recovery and the quality of country governance
بازیابی تقلب و کیفیت نظارت کشوری-2018
Using supervisory data from U.S. financial institutions on fraud-related losses in foreign markets, we find that losses in countries with poor governance have lower recovery rates. Our results are robust to accounting for potential endogeneity and reverse causality concerns, among numerous robustness checks. The association is driven by intuitive governance dimensions such as control of corruption, rule of law, regulatory quality and government effectiveness. In addition, country governance plays a particularly important role in fraud recovery for firms with poor risk management quality. Overall, this paper presents unique and novel evidence tying country governance quality to firm-level risk realizations.
keywords: Crime |Fraud |Recovery |International markets |Banking |Country institutions |Governance
Threat of entry and debt maturity: Evidence from airlines
تهدید ورود و سررسید بدهی: شواهدی از شرکتهای هواپیمایی-2018
I explore the effect of the threat posed by low-cost competitors on debt structure in the airline industry. I use the route network expansion of low-cost airlines to identify routes where the probability of future entry increases dramatically. I find that when a large portion of their market is threatened, incumbents significantly increase debt maturity before entry occurs. Overall, the main findings suggest that airlines respond to entry threats trading off the benefits of short-term financing for lower rollover risk. The results are consistent with models in which firms set their optimal debt structure in the presence of costly rollover failure.
keywords: Competition |Debt maturity |Rollover risk |Threat of entry
On fair reinsurance premiums; Capital injections in a perturbed risk model
درباره اجرت های مطلوب بیمه کردن مجدد؛ تزریق سرمایه ها در یک مدل خطر آشفته-2018
We consider a risk model where deficits after ruin are covered by a new type of reinsurance contract that provides capital injections. To allow the insurance company’s survival after ruin, the reinsurer injects capital only at ruin times caused by jumps larger than a chosen retention level. Otherwise capital must be raised from the shareholders for small deficits. The problem here is to determine adequate reinsurance premiums. It seems fair to base the net reinsurance premium on the discounted expected value of any future capital injections. Inspired by the results of Huzak et al. (2004) and Ben Salah (2014) on successive ruin events, we show that an explicit formula for these reinsurance premiums exists in a setting where aggregate claims are modeled by a subordinator and a Brownian perturbation. Here ruin events are due either to Brownian oscillations or jumps and reinsurance capital injections only apply in the latter case. The results are illustrated explicitly for two specific risk models and in some numerical examples.
keywords: Reinsurance |Capital injections |Ruin |Successive ruin events |Spectrally negative Lévy process |Scale function |Expected present value |Gerber–Shiu function