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Report of the Editor of The Journal of Finance for the Year 2023 J. Financ. (IF 7.915) Pub Date : 2024-03-16 ANTOINETTE SCHOAR
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BRATTLE GROUP AND DIMENSIONAL FUND ADVISORS PRIZES FOR 2023 J. Financ. (IF 7.915) Pub Date : 2024-03-16
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Report of the Executive Secretary and Treasurer for the Fiscal Year Ending June 30, 2023 J. Financ. (IF 7.915) Pub Date : 2024-03-16
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Modeling Conditional Factor Risk Premia Implied by Index Option Returns J. Financ. (IF 7.915) Pub Date : 2024-03-09 MATHIEU FOURNIER, KRIS JACOBS, PIOTR ORŁOWSKI
We propose a novel factor model for option returns. Option exposures are estimated nonparametrically, and factor risk premia can vary nonlinearly with states. The model is estimated using regressions with minimal assumptions on factor and option return dynamics. We estimate the model using index options to characterize the conditional risk premia for factors of interest, such as the market return,
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Does Alternative Data Improve Financial Forecasting? The Horizon Effect J. Financ. (IF 7.915) Pub Date : 2024-03-07 OLIVIER DESSAINT, THIERRY FOUCAULT, LAURENT FRESARD
Existing research suggests that alternative data are mainly informative about short‐term future outcomes. We show theoretically that the availability of short‐term‐oriented data can induce forecasters to optimally shift their attention from the long term to the short term because it reduces the cost of obtaining short‐term information. Consequently, the informativeness of their long‐term forecasts
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Due Diligence J. Financ. (IF 7.915) Pub Date : 2024-03-04 BRENDAN DALEY, THOMAS GEELEN, BRETT GREEN
We propose a model of due diligence and analyze its effect on prices, payoffs, and deal completion. In our model, if the seller accepts an offer, the winning bidder (or “acquirer”) can gather information and chooses when to complete the transaction. In equilibrium, the acquirer engages in “too much” due diligence. Our quantitative results suggest that the magnitude of the distortion is economically
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Measuring “Dark Matter” in Asset Pricing Models J. Financ. (IF 7.915) Pub Date : 2024-03-03 HUI CHEN, WINSTON WEI DOU, LEONID KOGAN
We formalize the concept of “dark matter” in asset pricing models by quantifying the additional informativeness of cross-equation restrictions about fundamental dynamics. The dark-matter measure captures the degree of fragility for models that are potentially misspecified and unstable: a large dark-matter measure indicates that the model lacks internal refutability (weak power of optimal specification
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Mergers, Product Prices, and Innovation: Evidence from the Pharmaceutical Industry J. Financ. (IF 7.915) Pub Date : 2024-03-02 ALICE BONAIMÉ, YE (EMMA) WANG
Using novel data from the pharmaceutical industry, we study product prices and innovation around mergers. Exploiting within‐deal variation in product market consolidation, we show that prices increase more for drugs in consolidating markets than for matched control drugs. Estimates indicate a 2% average price effect that persists for about one year. Price increases expand with acquirer‐target product
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Informed Trading Intensity J. Financ. (IF 7.915) Pub Date : 2024-02-27 VINCENT BOGOUSSLAVSKY, VYACHESLAV FOS, DMITRIY MURAVYEV
We train a machine learning method on a class of informed trades to develop a new measure of informed trading, informed trading intensity (ITI). ITI increases before earnings, mergers and acquisitions, and news announcements, and has implications for return reversal and asset pricing. ITI is effective because it captures nonlinearities and interactions between informed trading, volume, and volatility
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Fee Variation in Private Equity J. Financ. (IF 7.915) Pub Date : 2024-02-23 JULIANE BEGENAU, EMIL N. SIRIWARDANE
We study how investment fees vary within private equity funds. Net-of-fee return clustering suggests that most funds have two tiers of fees, and we decompose differences across tiers into both management- and performance-based fees. Managers of venture capital funds and those in high demand are less likely to use multiple fee schedules. Some investors consistently pay lower fees relative to others
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The Dark Side of Circuit Breakers J. Financ. (IF 7.915) Pub Date : 2024-02-23 HUI CHEN, ANTON PETUKHOV, JIANG WANG, HAO XING
Market-wide circuit breakers are trading halts aimed at stabilizing the market during dramatic price declines. Using an intertemporal equilibrium model, we show that a circuit breaker significantly alters market dynamics and affects investor welfare. As the market approaches the circuit breaker, price volatility rises drastically, accelerating the chance of triggering the circuit breaker—the so-called
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Choosing to Disagree: Endogenous Dismissiveness and Overconfidence in Financial Markets J. Financ. (IF 7.915) Pub Date : 2024-02-18 SNEHAL BANERJEE, JESSE DAVIS, NAVEEN GONDHI
The psychology literature documents that individuals derive current utility from their beliefs about future events. We show that, as a result, investors in financial markets choose to disagree about both private information and price information. When objective price informativeness is low, each investor dismisses the private signals of others and ignores price information. In contrast, when prices
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Leverage Is a Double-Edged Sword J. Financ. (IF 7.915) Pub Date : 2024-02-15 AVANIDHAR SUBRAHMANYAM, KE TANG, JINGYUAN WANG, XUEWEI YANG
We use proprietary data on intraday transactions at a futures brokerage to analyze how implied leverage influences trading performance. Across all investors, leverage is negatively related to performance, due partly to increased trading costs and partly to forced liquidations resulting from margin calls. Defining skill out-of-sample, we find that relative performance differentials across unskilled
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The Equilibrium Size and Value-Added of Venture Capital J. Financ. (IF 7.915) Pub Date : 2024-02-14 FRANCESCO SANNINO
I model positive sorting of entrepreneurs across the high and low value-added segments of the venture capital market. Aiming to attract high-quality entrepreneurs, inefficiently many venture capitalists (VCs) commit to provide high value-added by forming small portfolios. This draws the marginal entrepreneur away from the low value-added segment, reducing match quality in the high value-added segment
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Overconfidence and Preferences for Competition J. Financ. (IF 7.915) Pub Date : 2024-02-13 ERNESTO REUBEN, PAOLA SAPIENZA, LUIGI ZINGALES
We study when preferences for competition are a positive economic trait among high earners and the extent to which this trait can explain the gender gap in income among a master's degree in business administration (MBAs). Consistent with the experimental evidence, preferences for competition are a positive economic trait only for individuals who are not overconfident. Preferences for competition correlate
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Political Polarization Affects Households' Financial Decisions: Evidence from Home Sales J. Financ. (IF 7.915) Pub Date : 2024-02-11 W. BEN MCCARTNEY, JOHN ORELLANA-LI, CALVIN ZHANG
Political identity and partisanship are salient features of today's society. Using deeds records and voter rolls, we show that current residents are more likely to sell their homes when opposite-party neighbors move in nearby than when unaffiliated or same-party neighbors do. This is especially true when the new neighbors are politically active, consistent with an animosity between parties mechanism
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The Narrow Channel of Quantitative Easing: Evidence from YCC Down Under J. Financ. (IF 7.915) Pub Date : 2023-12-18 DAVID O. LUCCA, JONATHAN H. WRIGHT
We study the recent Australian experience with yield curve control (YCC) as perhaps the best evidence of how this policy might work in other developed economies. YCC seemingly worked well in 2020, when the market expected short rates to stay at zero for a long period of time. As the global recovery and inflation gained momentum in 2021, liftoff expectations moved up, the Reserve Bank of Australia purchased
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Foreign Exchange Fixings and Returns around the Clock J. Financ. (IF 7.915) Pub Date : 2023-12-18 INGOMAR KROHN, PHILIPPE MUELLER, PAUL WHELAN
The U.S. dollar appreciates in the run-up to foreign exchange (FX) fixes and depreciates thereafter, tracing a W-shaped return pattern around the clock. Return reversals for the top nine traded currencies over a 21-year period are pervasive and highly statistically significant, and they imply daily swings of more than one billion U.S. dollars based on spot volumes. Using natural experiments, we document
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The Decline of Secured Debt J. Financ. (IF 7.915) Pub Date : 2023-12-18 EFRAIM BENMELECH, NITISH KUMAR, RAGHURAM RAJAN
The share of secured debt issued (as a fraction of total corporate debt) declined steadily in the United States over the twentieth century. This stems partly from financial development giving creditors greater confidence that high-quality borrowers will respect their claims even if creditors do not obtain security upfront. Consequently, such borrowers prefer retaining financial flexibility by not giving
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Artificial Intelligence, Education, and Entrepreneurship J. Financ. (IF 7.915) Pub Date : 2023-12-12 MICHAEL GOFMAN, ZHAO JIN
We document an unprecedented brain drain of Artificial Intelligence (AI) professors from universities from 2004 to 2018. We find that students from the affected universities establish fewer AI startups and raise less funding. The brain-drain effect is significant for tenured professors, professors from top universities, and deep-learning professors. Additional evidence suggests that unobserved city-
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How Integrated are Credit and Equity Markets? Evidence from Index Options J. Financ. (IF 7.915) Pub Date : 2023-12-12 PIERRE COLLIN-DUFRESNE, BENJAMIN JUNGE, ANDERS B. TROLLE
We study the extent to which credit index (CDX) options are priced consistent with S&P 500 (SPX) equity index options. We derive analytical expressions for CDX and SPX options within a structural credit-risk model with stochastic volatility and jumps using new results for pricing compound options via multivariate affine transform analysis. The model captures many aspects of the joint dynamics of CDX
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Lender Automation and Racial Disparities in Credit Access J. Financ. (IF 7.915) Pub Date : 2023-12-11 SABRINA T. HOWELL, THERESA KUCHLER, DAVID SNITKOF, JOHANNES STROEBEL, JUN WONG
Process automation reduces racial disparities in credit access by enabling smaller loans, broadening banks' geographic reach, and removing human biases from decision making. We document these findings in the context of the Paycheck Protection Program (PPP), where private lenders faced no credit risk but decided which firms to serve. Black-owned firms obtained PPP loans primarily from automated fintech
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Legal Risk and Insider Trading J. Financ. (IF 7.915) Pub Date : 2023-12-11 MARCIN KACPERCZYK, EMILIANO S. PAGNOTTA
Do illegal insiders internalize legal risk? We address this question with hand-collected data from 530 SEC (the U.S. Securities and Exchange Commission) investigations. Using two plausibly exogenous shocks to expected penalties, we show that insiders trade less aggressively and earlier and concentrate on tips of greater value when facing a higher risk. The results match the predictions of a model where
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Prestige, Promotion, and Pay J. Financ. (IF 7.915) Pub Date : 2023-12-11 DANIEL FERREIRA, RADOSLAWA NIKOLOWA
We develop a theory in which financial (and other professional services) firms design career structures to “sell” prestigious jobs to qualified candidates. Firms create less prestigious entry-level jobs, which serve as currency for employees to pay for the right to compete for the more prestigious jobs. In optimal career structures, entry-level employees (“associates”) compete for better-paid and more
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Aversion to Student Debt? Evidence from Low-Wage Workers J. Financ. (IF 7.915) Pub Date : 2023-12-08 RADHAKRISHNAN GOPALAN, BARTON H. HAMILTON, JORGE SABAT, DAVID SOVICH
We combine state minimum wage changes with individual-level income and credit data to estimate the effect of wage gains on the debt of low-wage workers. In the three years following a $0.88 minimum wage increase, low-wage workers experience a $2,712 income increase and a $856 decrease in debt. The entire decline in debt comes from less student loan borrowing among enrolled college students. Credit
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Disclosing to Informed Traders J. Financ. (IF 7.915) Pub Date : 2023-12-08 SNEHAL BANERJEE, IVÁN MARINOVIC, KEVIN SMITH
We develop a model in which a firm's manager can voluntarily disclose to privately informed investors. In equilibrium, the manager only discloses sufficiently favorable news. If the manager is known to be informed but disclosure is costly, the probability of disclosure increases with market liquidity and the stock trades at a discount relative to expected cash flows. However, when investors are uncertain
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The Virtue of Complexity in Return Prediction J. Financ. (IF 7.915) Pub Date : 2023-12-08 BRYAN KELLY, SEMYON MALAMUD, KANGYING ZHOU
Much of the extant literature predicts market returns with “simple” models that use only a few parameters. Contrary to conventional wisdom, we theoretically prove that simple models severely understate return predictability compared to “complex” models in which the number of parameters exceeds the number of observations. We empirically document the virtue of complexity in U.S. equity market return
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Disclosing a Random Walk J. Financ. (IF 7.915) Pub Date : 2023-11-13 ILAN KREMER, AMNON SCHREIBER, ANDRZEJ SKRZYPACZ
We examine a dynamic disclosure model in which the value of a firm follows a random walk. Every period, with some probability, the manager learns the firm's value and decides whether to disclose it. The manager maximizes the market perception of the firm's value, which is based on disclosed information. In equilibrium, the manager follows a threshold strategy with thresholds below current prices. He
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Information Cascades and Threshold Implementation: Theory and an Application to Crowdfunding J. Financ. (IF 7.915) Pub Date : 2023-11-05 LIN WILLIAM CONG, YIZHOU XIAO
Economic interactions often involve sequential actions, observational learning, and contingent project implementation. We incorporate all-or-nothing thresholds in a canonical model of information cascades. Early supporters effectively delegate their decisions to a “gatekeeper,” resulting in unidirectional cascades without herding on rejections. Project proposers can consequently charge higher prices
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Liquidation Value and Loan Pricing J. Financ. (IF 7.915) Pub Date : 2023-11-03 FRANCESCA BARBIERO, GLENN SCHEPENS, JEAN-DAVID SIGAUX
This paper shows that the liquidation value of collateral depends on the interdependency between borrower and collateral risk. Using transaction-level data on short-term repurchase agreements (repo), we show that borrowers pay a premium of 1.1 to 2.6 basis points when their default risk is positively correlated with the risk of the collateral that they pledge. Moreover, we show that borrowers internalize
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Trading and Shareholder Democracy J. Financ. (IF 7.915) Pub Date : 2023-11-03 DORON LEVIT, NADYA MALENKO, ERNST MAUG
We study shareholder voting in a model in which trading affects the composition of the shareholder base. Trading and voting are complementary, which gives rise to self-fulfilling expectations about proposal acceptance and multiple equilibria. Prices and shareholder welfare can move in opposite directions, so the former may be an invalid proxy for the latter. Relaxing trading frictions can reduce welfare
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Intervention with Screening in Panic-Based Runs J. Financ. (IF 7.915) Pub Date : 2023-11-03 LIN SHEN, JUNYUAN ZOU
Policymakers frequently use guarantees to mitigate panic-based runs in the financial system. We analyze a binary-action coordination game under the global games framework and propose a novel intervention program that screens investors based on their heterogeneous beliefs about the system's stability. The program only attracts investors who are at the margin of running, and their participation boosts
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Financing the Gig Economy J. Financ. (IF 7.915) Pub Date : 2023-11-02 GREG BUCHAK
Unlike traditional firm production, gig economy workers provide their own physical capital. As a consequence, the low-income households for whom gig economy opportunities are most valuable often borrow to participate. In the context of ride share, difference-in-difference analysis reveals increased vehicle purchases, borrowing, utilization, and employment around entry, but financially constrained individuals
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Auctions with Endogenous Initiation J. Financ. (IF 7.915) Pub Date : 2023-11-02 ALEXANDER S. GORBENKO, ANDREY MALENKO
We study initiation of takeover auctions by potential buyers and the seller. A bidder's indication of interest reveals that she is optimistic about the target. If bidders' values have a substantial common component, as in takeover battles between financial bidders, this effect disincentivizes bidders from indicating interest, and auctions are seller-initiated. Conversely, in private-value auctions
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The Global Impact of Brexit Uncertainty J. Financ. (IF 7.915) Pub Date : 2023-11-02 TAREK A. HASSAN, STEPHAN HOLLANDER, LAURENCE VAN LENT, AHMED TAHOUN
We propose a text-based method for measuring the cross-border propagation of large shocks at the firm level. We apply this method to estimate the expected costs, benefits, and risks of Brexit and find widespread reverberations in listed firms in 81 countries. International (i.e., non-U.K.) firms most exposed to Brexit uncertainty (the second moment) lost significant market value and reduced hiring
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Front-Page News: The Effect of News Positioning on Financial Markets J. Financ. (IF 7.915) Pub Date : 2023-11-01 ANASTASSIA FEDYK
This paper estimates the effect of news positioning on the speed of price discovery, using exogenous variation in prominent (“front-page”) positioning of news articles on the Bloomberg terminal. Front-page articles see 240% higher trading volume and 176% larger absolute excess returns during the first 10 minutes after publication than equally important non-front-page articles. Overall, the information
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Booms, Busts, and Common Risk Exposures J. Financ. (IF 7.915) Pub Date : 2023-10-03 ALEXANDR KOPYTOV
I present a dynamic general equilibrium model in which commonality in bank assets endogenously changes over the business cycle and shapes systemic risk. To reduce individual risks, banks diversify, increasing portfolio overlap and hence the similarity of their exposures to fundamental shocks. Systemic financial crises burst at the end of credit booms when productive investment opportunities are exhausted
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The Legal Origins of Financial Development: Evidence from the Shanghai Concessions J. Financ. (IF 7.915) Pub Date : 2023-10-03 ROSS LEVINE, CHEN LIN, CHICHENG MA, YUCHEN XU
The primary challenge to assessing the legal origins view of comparative financial development is identifying exogenous changes in legal systems. We assemble new data on Shanghai's British and French concessions between 1845 and 1936. Two regime changes altered British and French legal jurisdiction over their respective concessions. By examining the changing application of different legal traditions
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Discount Rates, Debt Maturity, and the Fiscal Theory J. Financ. (IF 7.915) Pub Date : 2023-10-02 ALEXANDRE CORHAY, THILO KIND, HOWARD KUNG, GONZALO MORALES
This paper examines how the transmission of government portfolio risk arising from maturity operations depends on the stance of monetary/fiscal policy. Accounting for risk premia in the fiscal theory allows the government portfolio to affect expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory depend directly on the conditional
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Retail Trading in Options and the Rise of the Big Three Wholesalers J. Financ. (IF 7.915) Pub Date : 2023-10-02 SVETLANA BRYZGALOVA, ANNA PAVLOVA, TAISIYA SIKORSKAYA
We document a rapid increase in retail trading in options in the United States. Facilitated by payment for order flow (PFOF) from wholesalers executing retail orders, retail trading recently reached over 60% of total market volume. Nearly 90% of PFOF comes from three wholesalers. Exploiting new flags in transaction-level data, we isolate wholesaler trades and build a novel measure of retail options
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Attention Spillover in Asset Pricing J. Financ. (IF 7.915) Pub Date : 2023-09-25 XIN CHEN, LI AN, ZHENGWEI WANG, JIANFENG YU
Exploiting a screen display feature whereby the order of stock display is determined by the stock's listing code, we lever a novel identification strategy and study how the interaction between overconfidence and limited attention affect asset pricing. We find that stocks displayed next to those with higher returns in the past two weeks are associated with higher returns in the future week, which are
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Entrepreneurial Wealth and Employment: Tracing Out the Effects of a Stock Market Crash J. Financ. (IF 7.915) Pub Date : 2023-09-17 MARIUS A. K. RING
Using the dispersion in stock returns during the financial crisis as a source of exogenous variation in the wealth of Norwegian entrepreneurs who held listed stocks, I show that adverse shocks to the wealth of business owners had large effects on their firms' financing, employment, and investment. The effects on investment and employment are driven by young firms, that obtain differentially less bank
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Option Momentum J. Financ. (IF 7.915) Pub Date : 2023-09-17 STEVEN L. HESTON, CHRISTOPHER S. JONES, MEHDI KHORRAM, SHUAIQI LI, HAITAO MO
This paper investigates the performance of option investments across different stocks by computing monthly returns on at-the-money straddles on individual equities. We find that options with high historical returns continue to significantly outperform options with low historical returns over horizons ranging from 6 to 36 months. This phenomenon is robust to including out-of-the-money options or delta-hedging
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Household Liquidity Constraints and Labor Market Outcomes: Evidence from a Danish Mortgage Reform J. Financ. (IF 7.915) Pub Date : 2023-09-14 ALEX XI HE, DANIEL LE MAIRE
We study the causal effect of liquidity constraints on individual labor market outcomes by exploiting the 1992 mortgage reform in Denmark, which for the first time allowed homeowners to borrow against housing equity for nonhousing purposes. Following the reform, liquidity-constrained homeowners increased debt levels and had higher earnings growth and lower employment rates. The option to borrow against
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Neglected Risks in the Communication of Residential Mortgage-Backed Securities Offerings J. Financ. (IF 7.915) Pub Date : 2023-09-13 HAROLD H. ZHANG, FENG ZHAO, XIAOFEI ZHAO
Examining the contractual disclosures during the sale of private-label residential mortgage-backed securities before the 2008 financial crisis, we find that textual contents in the risk-factor section predict subsequent losses and yet were not reflected in pricing. Insurance companies, especially life insurers and insurers with low regulatory capital ratios, are more exposed to textual risks. Consistent
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Operating Hedge and Gross Profitability Premium J. Financ. (IF 7.915) Pub Date : 2023-09-13 LEONID KOGAN, JUN LI, HAROLD H. ZHANG
We show theoretically that variable production costs reduce systematic risk of firms' cash flows if capital and variable inputs are complementary in firms' production and input prices are procyclical. In our dynamic model, this operating hedge effect is weaker for more profitable firms, giving rise to a gross profitability premium. Moreover, gross profitability and value factors are distinct and negatively
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Interest Rate Skewness and Biased Beliefs J. Financ. (IF 7.915) Pub Date : 2023-09-13 MICHAEL BAUER, MIKHAIL CHERNOV
Conditional skewness of Treasury yields is an important indicator of the risks to the macroeconomic outlook. Positive skewness signals upside risk to interest rates during periods of accommodative monetary policy and an upward-sloping yield curve, and vice versa. Skewness has substantial predictive power for future bond excess returns, high-frequency interest rate changes around Federal Open Market
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Optimal Forbearance of Bank Resolution J. Financ. (IF 7.915) Pub Date : 2023-08-16 LINDA M. SCHILLING
This paper analyzes a regulator's optimal strategic delay of resolving banks when the regulator's announcement of the intervention delay endogenously affects the depositors' run propensity. Given intervention, the regulator either liquidates the remaining illiquid assets (“prompt corrective action”) or continues managing the assets at a reduced skill level (“resolution under receivership”). In either
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Informational Black Holes in Financial Markets J. Financ. (IF 7.915) Pub Date : 2023-08-15 ULF AXELSON, IGOR MAKAROV
We show that information aggregation in primary financial markets fails precisely when investors hold socially useful information for screening projects. Being wary of the Winner's Curse, less optimistic investors refrain from making financing offers, since their offers would be accepted only when a project is unviable. Their information is therefore lost. The Winner's Curse and associated information
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Global Pricing of Carbon-Transition Risk J. Financ. (IF 7.915) Pub Date : 2023-08-12 PATRICK BOLTON, MARCIN KACPERCZYK
The energy transition away from fossil fuels exposes companies to carbon-transition risk. Estimating the market-based premium associated with carbon-transition risk in a cross section of 14,400 firms in 77 countries, we find higher stock returns associated with higher levels and growth rates of carbon emissions in all sectors and most countries. Carbon premia related to emissions growth are greater
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Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors J. Financ. (IF 7.915) Pub Date : 2023-08-11 KLAKOW AKEPANIDTAWORN, RICK DI MASCIO, ALEX IMAS, LAWRENCE D.W. SCHMIDT
Are market experts prone to heuristics, and do these heuristics transfer across buying and selling domains? We investigate this question using a unique data set of institutional investors with portfolios averaging $573 million. A striking finding emerges: While there is evidence of skill in buying, selling decisions underperform substantially, even relative to random-selling strategies. This holds
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(Re-)Imag(in)ing Price Trends J. Financ. (IF 7.915) Pub Date : 2023-08-02 JINGWEN JIANG, BRYAN KELLY, DACHENG XIU
We reconsider trend-based predictability by employing flexible learning methods to identify price patterns that are highly predictive of returns, as opposed to testing predefined patterns like momentum or reversal. Our predictor data are stock-level price charts, allowing us to extract the most predictive price patterns using machine learning image analysis techniques. These patterns differ significantly
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Investor Tax Credits and Entrepreneurship: Evidence from U.S. States J. Financ. (IF 7.915) Pub Date : 2023-08-01 MATTHEW DENES, SABRINA T. HOWELL, FILIPPO MEZZANOTTI, XINXIN WANG, TING XU
Angel investor tax credits are used globally to spur high-growth entrepreneurship. Exploiting their staggered implementation in 31 U.S. states, we find that they increase angel investment yet have no significant impact on entrepreneurial activity. Two mechanisms explain these results: crowding out of alternative financing and low sensitivity of professional investors to tax credits. With a large-scale
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Dynamic Contracting with Intermediation: Operational, Governance, and Financial Engineering J. Financ. (IF 7.915) Pub Date : 2023-07-21 SEBASTIAN GRYGLEWICZ, SIMON MAYER
Private equity funds intermediate investment and affect portfolio firm performance by actively engaging in operational, governance, and financial engineering. We study this type of intermediation in a dynamic agency model in which an active intermediary raises funds from outside investors and invests in a firm run by an agent. Optimal contracting addresses moral hazard at the intermediary and firm
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Complex Asset Markets J. Financ. (IF 7.915) Pub Date : 2023-07-20 ANDREA L. EISFELDT, HANNO LUSTIG, LEI ZHANG
Investors' individual arbitrage models introduce idiosyncratic risk into complex asset strategies, driving up average returns and Sharpe ratios. However, despite the attractive risk-return trade-off, participation is limited. This is because effective Sharpe ratios in complex asset markets vary with investors' expertise. Investors with higher expertise, better models, and lower resulting idiosyncratic
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Monetary Policy and Inequality J. Financ. (IF 7.915) Pub Date : 2023-07-15 ASGER LAU ANDERSEN, NIELS JOHANNESEN, MIA JØRGENSEN, JOSÉ-LUIS PEYDRÓ
We analyze the distributional effects of monetary policy on income, wealth, and consumption. We use administrative household-level data covering the entire population in Denmark over the period 1987 to 2014 and exploit a long-standing currency peg as a source of exogenous variation in monetary policy. We find that gains from softer monetary policy in terms of income, wealth, and consumption are monotonically