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Household Financial Decision-Making After Natural Disasters: Evidence from Hurricane Harvey J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2024-01-09 Alejandro del Valle, Therese Scharlemann, Stephen Shore
We study household credit responses to Hurricane Harvey using new, geographically granular data on credit cards, mortgages, and flooding. Estimates from a differences-in-differences design that exploits the flooding gradient show that affected households only borrow at low-interest rates, often using promotional (zero interest) cards and that they quickly pay down balances. We also document that take-up
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Refinancing Inequality During the COVID-19 Pandemic J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-12-13 Sumit Agarwal, Souphala Chomsisengphet, Hua Kiefer, Leonard C. Kiefer, Paolina C. Medina
During the first half of 2020, the difference in savings from mortgage refinancing between high- and low-income borrowers was 10 times higher than before. This was the result of two factors: high-income borrowers increased their refinancing activity more than otherwise comparable low-income borrowers and, conditional on refinancing, they captured slightly larger improvements in interest rates. Refinancing
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Do Capital Markets Punish Managerial Myopia? Evidence from Myopic Research and Development Cuts J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-12-06 Jamie Y. Tong, Feida (Frank) Zhang
The literature provides conflicting arguments and mixed results regarding whether capital markets punish managerial myopia. Using managers cutting research and development (R&D) investments to meet short-term earnings goals as a research setting, this study reveals that capital markets penalize managerial myopia, especially for firms with high investor sophistication. Moreover, the negative market
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Corporate Venture Capital and Firm Scope J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-11-20 Yifei Zhang
This study examines whether and how corporate venture capital (CVC) spurs changes in firm scope. Using two text-based measures of firm scope, I provide evidence that CVC investments are strongly correlated with subsequent changes in firm scope among CVC parent firms, including seeding emerging businesses and creating new segments or divisions. Further evidence is consistent with an experimentation
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From L.A. to Boise: How Migration Has Changed During the COVID-19 Pandemic J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-11-14 Peter Haslag, Daniel Weagley
We examine how broad changes in work arrangements and lifestyles brought on by the COVID-19 pandemic have affected households’ location decisions. Using data on over 360,000 residential, interstate moves over the last 5 years, we find that more than 12% of moves were directly influenced by the pandemic. Among pandemic-influenced movers, over 15% of households cite that remote work influenced their
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Firm Size, Capital Investment, and Debt Financing over Industry Business Cycles J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-11-06 Praveen Kumar, Vijay Yerramilli
We find that capital investment and net debt issuance of large firms are, on average, more sensitive to industry business cycles than those of small firms, in stark contrast to the effect of size on investment sensitivity to macroeconomic cycles. We theoretically examine the role of firm size on firms’ responses to industry shocks. Consistent with our theoretical predictions, we find that large firms
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News and Markets in the Time of COVID-19 J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-31 Harry Mamaysky
The onset of COVID-19 was characterized by voluminous, negative news. Higher narrativity news topics (measured by textual proximity to articles describing the 1987 stock market crash and textual distance from Federal Reserve communications) were systematically associated with contemporaneous market responses, which were larger on high volatility days (hypersensitivity), and with markets–news feedback
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Stakeholder Value: A Convenient Excuse for Underperforming Managers? J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-31 Ryan Flugum, Matthew E. Souther
Firms falling short of earnings expectations are more likely to cite stakeholder-focused objectives in their public communications following earnings announcements. This behavior is consistent with managers preferring to be evaluated by subjective stakeholder-based performance criteria when falling short on objective shareholder-based measures. This increased use of stakeholder language is most evident
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Do Underwriters Short-Change Corporations Issuing Bonds? J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-27 Jeremy C. Goh, Lisa (Zongfei) Yang
We confirm prior evidence that bonds on average are offered at prices below their immediate post-offer secondary market prices. However, in cases where banks lead–manage their own bond offerings the underpricing is significantly less as compared with other non-self-marketed offerings. These findings are robust across various matched samples and selection models. Our results suggest that the bond offering
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Capital Structure with Information about the Upside and the Downside J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-25 Pierre Chaigneau
I introduce two dimensions of uncertainty, about the upside and the downside of an asset, in a model of asset valuation under asymmetric information. This justifies capital structures with equity and risky debt for information revelation purposes. However, a capital structure with only one information-sensitive security, equity, can be optimal when investors are less informed about the dimension that
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Overlapping Ownership Along the Supply Chain J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-23 Kayla M. Freeman
I find overlapping institutional ownership (OIO) in a customer and supplier increases the duration of their supply chain relationship. Results are stronger when vertical holdup is more severe. A quasi-natural experiment around mergers of financial institutions provides causal evidence of OIO improving relationship survival rates. Concurrent with longer-lived relationships, valuations and innovation
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The Valuation of Collateral in Bank Lending J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-23 Stephan Luck, João A. C. Santos
We study the valuation of collateral by comparing spreads on loans by the same bank, to the same borrower, at the same origination date, but backed by different types of collateral. Pledging collateral reduces borrowing costs by 23 BPS on average. The effect varies across different types of collateral, with marketable securities being most valuable, and real estate and accounts receivables and inventory
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Directors: Older and Wiser, or Too Old to Govern? J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-18 Ronald Masulis, Cong Wang, Fei Xie, Shuran Zhang
An unintended consequence of recent governance reforms in the United States is firms’ greater reliance on older director candidates, resulting in noticeable board aging. We investigate this phenomenon’s implications for corporate governance. We document that older independent directors exhibit poorer board meeting attendance, are less likely to serve on or chair key board committees, and receive less
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Information Spillover and Corporate Policies: The Case of Listed Options J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-17 Gennaro Bernile, Jianfeng Hu, Guangzhong Li, Roni Michaely
Information production associated with derivatives markets is not a sideshow; rather, it has significantly positive spillover effects on an array of corporate decisions of underlying firms. Using a regression-discontinuity design based on exogenous variation in options availability as an instrument for changes in the information environment, we show that options introductions have causal effects on
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Borrowing Stigma and Lender of Last Resort Policies J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-16 Yunzhi Hu, Hanzhe Zhang
How should the lender of last resort provide liquidity to banks during periods of financial distress? During the 2008–2010 crisis, banks avoided borrowing from the Fed’s long-standing discount window but actively participated in its special monetary program, the Term Auction Facility, although both programs had the same borrowing requirements. Using an adverse selection model with endogenous borrowing
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Credit Provision and Stock Trading: Evidence from the South Sea Bubble J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-16 Fabio Braggion, Rik Frehen, Emiel Jerphanion
This article studies the relationship between credit provision and stock trading behavior. We collect every stock transaction of the three major British companies during the 1720 South Sea Bubble and link stock trading to margin loan positions with the Bank of England. We give insights in the selection of traders into the loan facility by comparing the trading behavior and realized returns of borrowers
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Why Naive Diversification Is Not So Naive, and How to Beat It? J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-16 Ming Yuan, Guofu Zhou
We show theoretically that the usual estimated investment strategies will not achieve the optimal Sharpe ratio when the dimensionality is high relative to sample size, and the $ 1/N $ rule is optimal in a 1-factor model with diversifiable risks as dimensionality increases, which explains why it is difficult to beat the $ 1/N $ rule in practice. We also explore conditions under which it can be beaten
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Overcoming Arbitrage Limits: Option Trading and Momentum Returns J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-05 Abhay Abhyankar, Ilias Filippou, Pedro A. Garcia-Ares
Momentum profits depend mainly on the short leg and therefore on barriers to short sales. Our research indicates that the decline in momentum profitability in the past 2 decades is driven partly by a contemporaneous growth in stock options trading. Stock options offer an alternative to short selling, augmenting the stock lending market, and thereby contributing to improved pricing efficiency. The resulting
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How Forced Switches Reveal Switching Costs: Evidence from the Loan Market J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-10-04 Karolis Liaudinskas
This article proposes a novel way to estimate consumer switching costs and uses Lithuanian credit register data and two bank closures to provide this estimate for the loan market. I show that when a distressed bank’s closure forced firms to switch, they started borrowing at lower interest rates instantly and permanently and that this drop revealed the lower bound of firms’ ex ante switching costs.
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Big Banks, Household Credit Access, and Intergenerational Economic Mobility J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-09-29 Erik J. Mayer
Consolidation in the U.S. banking industry has led to larger banks. I find that low-income households face reduced access to credit when local banks are large. This result appears to stem from large banks’ comparative disadvantage using soft information, which is particularly important for lending to low-income households. In contrast, the size of local banks has little or no effect on high-income
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Common Lender, Ex-Banker Director, and Corporate Investment J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-09-25 Kentaro Asai, Thao Hoang, Takeshi Yamada
Due to the government-driven mergers of large banks, many competing firms in Japan ended up borrowing from a common lender. Using firm-level data, we find that the capital investments of competing firms that share a common lender decrease by 15% of the mean. When a common lender can exercise its voice through its former employees serving as firms’ executive directors, investments fall significantly
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Stress Testing Banks’ Digital Capabilities: Evidence from the COVID-19 Pandemic J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-09-25 Alan Kwan, Chen Lin, Vesa Pursiainen, Mingzhu Tai
Banks’ information technology (IT) capabilities affect their ability to serve customers during the COVID-19 pandemic, which generates an unexpected and unprecedented shock that shifts banking services from in-person to digital. Amid mobility restrictions, banks with better IT experience larger reductions in physical branch visits and larger increases in website traffic, implying a larger shift to digital
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Choosing Investment Managers J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-09-18 Amit Goyal, Sunil Wahal, M. D. Yavuz
Investment managers connected to plans sponsors are more likely to be hired than not-connected managers. The magnitude of the selection effect is comparable to that of prior performance. Ex post, connections do not result in higher post-hiring returns. Relationships are thus conducive to asset gathering by investment managers but do not generate commensurate pecuniary benefits for plan sponsors.
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Long-Run Labor Costs of Housing Booms and Busts J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-09-18 Taylor Begley, Peter Haslag, Daniel Weagley
We show large flows of workers into the real estate agent (REA) occupation during the early 2000s from virtually all parts of the skill, wage, and education spectrums. We find those entering REA in Metropolitan Statistical Areas (MSAs) with house price bubbles end up in occupations paying significantly less in the long-run as compared to similar REA entrants in non-bubble areas. Even in 2017, when
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CEO Political Ideology and Voluntary Forward-Looking Disclosure J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-09-12 Ahmed Elnahas, Lei Gao, Md Noman Hossain, Jeong-Bon Kim
This study investigates whether the management earnings forecasts of Republican and Democratic CEOs differ due to systematic differences in their information disclosure preferences. We find that Republican CEOs prefer a less asymmetric information environment than Democrat CEOs, and thus make more frequent, timelier, and more accurate disclosures than Democrat CEOs. Results using the propensity score
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Revisiting Family Firms J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-09-12 Gianpaolo Parise
I propose a novel measure to identify family firms based on the number of family links between high-ranking coworkers. Leveraging this measure, I reexamine previous findings in the literature and derive four novel facts: i) Measures of stock ownership misclassify firms with a large family presence. ii) Family-run firms exhibit value stock characteristics, whereas founder-CEO firms display growth stock
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The Deterrent Effect of Whistleblowing on Insider Trading J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-09-12 Jacob Raleigh
I study whether the Dodd–Frank whistleblower program reduced informed trading by corporate insiders. To identify the effect, I partition firms based on the extent to which this program affected the likelihood of whistleblowing at each firm. I find a relative reduction in trading profits on purchases made by insiders at more affected firms after the program was initiated. I analyze insider sales in
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Population Aging and Bank Risk-Taking J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-09-04 Sebastian Doerr, Gazi Kabaş, Steven Ongena
What are the implications of an aging population for financial stability? To examine this question, we exploit geographic variation in aging across U.S. counties. We establish that banks with higher exposure to aging counties increase loan-to-income ratios. Laxer lending standards lead to higher nonperforming loans during downturns, suggesting higher credit risk. Inspecting the mechanism shows that
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Initial Margin Requirements and Market Efficiency J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-08-31 Ferhat Akbas, Lezgin Ay, Paul D. Koch
We examine the association between margin requirements and the market’s efficiency in incorporating firm-specific and market-level public news. Combining the Fed’s 22 changes in margin requirements with a hand-collected sample of earnings announcements between 1934 and 1975, we show that higher margin requirements induce greater delay in incorporating earnings information into prices. We draw similar
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Option-Implied Dependence and Correlation Risk Premium J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-08-18 Oleg Bondarenko, Carole Bernard
We propose a novel model-free approach to obtain the joint risk-neutral distribution among several assets that is consistent with options on these assets and their weighted index. We implement this approach for the nine industry sectors comprising the S&P 500 index and find that their option-implied dependence is highly asymmetric and time-varying. We then study two conditional correlations: when the
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Informational Holdup by Venture Capital Syndicates J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-08-18 Suting Hong, Pierre Mella-Barral
We argue that syndicates associate venture capitalists (VCs) with uneven skill levels in order to lower their expected gains from threatening to stop financing: Non-continued participation would send a milder negative signal to alternative financiers. This can explain the empirical observations that i) early-round syndicates regularly associate VCs with different levels of experience and ii) follow-on
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Contracting Costs, Covenant-Lite Lending, and Reputational Capital J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-08-07 Dominique C. Badoer, Mustafa Emin, Christopher M. James
Using a large sample of leveraged loans, we provide evidence that, despite having fewer creditor control rights, covenant-lite (Cov-Lite) loans have similar recovery rates and significantly lower spreads than loans with maintenance covenants. We find that the propensity to borrow Cov-Lite is related to various proxies for the reputational capital of a borrowing firm’s private equity sponsor. We construct
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Earnings Autocorrelation and the Post-Earnings-Announcement Drift: Experimental Evidence J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-07-24 Josef Fink, Stefan Palan, Erik Theissen
Post-earnings-announcement drift (PEAD) is one of the most solidly documented asset pricing anomalies. We use the controlled conditions of the experimental lab to investigate whether earnings autocorrelation is the driving cause of this anomaly. We observe PEAD in settings with uncorrelated and correlated earnings surprises, confirming that earnings autocorrelation is not a necessary condition for
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Deep Learning in Characteristics-Sorted Factor Models J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-07-24 Guanhao Feng, Jingyu He, Nicholas G. Polson, Jianeng Xu
This article presents an augmented deep factor model that generates latent factors for cross-sectional asset pricing. The conventional security sorting on firm characteristics for constructing long–short factor portfolio weights is nonlinear modeling, while factors are treated as inputs in linear models. We provide a structural deep-learning framework to generalize the complete mechanism for fitting
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Friends During Hard Times: Evidence from the Great Depression J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-07-19 Tania Babina, Diego García, Geoffrey Tate
Using a novel data set of over 3,500 public and private firms, we construct the network of executive and director connections prior to the 1929 financial market crash. We find that more connected firms have 17% higher 10-year survival rates. Consistent with a working capital channel, the results are strongest for small, private, cash-poor firms, and firms located in counties with high bank suspension
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Currency Redenomination Risk J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-07-19 Lukas Kremens
A eurozone exit or breakup exposes bondholders to currency redenomination risk. I quantify redenomination risk since the sovereign debt crisis: It contributes substantially to credit spreads around changes in government in France and Italy. Bond prices suggest that markets have priced a potential Italian exit as isolated, and a French one as a breakup. Unlike conventional default risk, redenomination
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Hiring High-Skilled Labor Through Mergers and Acquisitions J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-07-19 Jun Chen, Shenje Hshieh, Feng Zhang
Using random H-1B visa lotteries as a natural experiment, we find that firms respond to shortages of high-skilled workers by acquiring firms that employ such workers. The effect is stronger among firms with high human capital and more senior workforces, firms facing tight labor markets and legal barriers to poaching workers, and firms lacking foreign affiliates. The acquired workers are highly educated
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TAXI! Do Mutual Funds Pursue and Exploit Information on Local Companies? J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-07-05 David C. Cicero, Andy Puckett, Albert Y. Wang, Shen Zhang
We use New York City (NYC) taxi data to identify trips between mutual fund offices and local firm headquarters. NYC funds overweight the stocks of local firms they visit via taxi, and firm visits are associated with superior investment performance. Firm visits are elevated prior to earnings announcements, and mutual fund trades that are associated with firm taxi visits predict earnings surprises. The
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Fast-Moving Habit: Implications for Equity Returns J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-07-04 Anthony W. Lynch, Oliver Randall
We find that the Campbell–Cochrane external-habit model can generate a value premium if the persistence of the consumption surplus is sufficiently low. Such low persistence is supported by micro evidence on consumption. If the mean and conditional volatility of consumption growth are highly persistent, as in the Bansal–Yaron long-run risk model, then fast-moving habit can also generate, without eroding
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Gender and Managerial Job Mobility: Career Prospects for Executives Displaced by Acquisitions J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-29 Xiaohu Guo, Vishal K. Gupta, Sandra Mortal, Vikram Nanda
We investigate how men and women fare in the managerial labor market in the plausibly exogenous circumstance of their firms being acquired when most target-firm managers (about 90%) are displaced. These career disruptions result in a larger drop in rank and compensation for female managers, despite similar job search attributes. Gender differences are mitigated when hiring firms have more women in
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Credit Default Swaps, Fire-Sale Risk, and the Liquidity Provision in the Bond Market J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-29 Massimo Massa, Lei Zhang
We study the effect of credit default swaps (CDSs) on the bond market. Using a comprehensive sample of U.S. corporate bonds, we document that the presence of CDSs significantly increases bond liquidity and reduces yield spreads for investment grade bonds. We show that CDSs influence the bond market by lowering the impact of fire sales of institutional bondholders and facilitating inventory management
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Networking Frictions in Venture Capital, and the Gender Gap in Entrepreneurship J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-23 Sabrina T. Howell, Ramana Nanda
We find that male participants in Harvard Business School’s New Venture Competition who were randomly exposed to more venture capital (VC) investors on their panel were substantially more likely to start a VC-backed startup post-graduation, indicating that access to investors impacts fundraising independent of the quality of ideas. However, female participants experience no benefit from exposure to
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Reintermediation in FinTech: Evidence from Online Lending J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-20 Tetyana Balyuk, Sergei Davydenko
We document the unique structure of the peer-to-peer lending market. Originally designed as decentralized, the market has become highly, but not fully, reintermediated. The platforms’ software now performs essentially all tasks related to loan evaluation, whereas most lenders are passive and automatically fund most applications on offer. Yet unlike banks, and in contrast to theories predicting full
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Is Carbon Risk Priced in the Cross Section of Corporate Bond Returns? J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-20 Tinghua Duan, Frank Weikai Li, Quan Wen
This article examines the pricing of a firm’s carbon risk in the corporate bond market. Contrary to the “carbon risk premium” hypothesis, bonds of more carbon-intensive firms earn significantly lower returns. This effect cannot be explained by a comprehensive list of bond characteristics and exposure to known risk factors. Investigating sources of the low carbon alpha, we find the underperformance
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Media Sentiment and Currency Reversals J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-15 Ilias Filippou, Mark P. Taylor, Zigan Wang
Analyzing 48 foreign exchange (FX) rates and 1.2 million FX-related news articles over a 35-year period, using digital textual analysis, we find that a currency reversal investment strategy that buys (sells) currencies with low (high) media sentiment offers strong positive and statistically significant returns and Sharpe ratios. The results are robust and the strategy adds value over other currency
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Measuring “State-Level” Economic Policy Uncertainty J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-13 Redouane Elkamhi, Chanik Jo, Marco Salerno
We develop 50 indices of state-level economic policy uncertainty (SEPU) based on newspaper coverage frequency using 204 million newspaper articles from Mar. 1984 to Dec. 2019. We assess the validity of our measures. Our SEPU indices vary counter-cyclically with respect to state-specific economic conditions, rise before close gubernatorial elections, and exhibit a large cross-sectional variation. We
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Fast Filtering with Large Option Panels: Implications for Asset Pricing J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-13 Arnaud Dufays, Kris Jacobs, Yuguo Liu, Jeroen Rombouts
The cross section of options holds great promise for identifying return distributions and risk premia, but estimating dynamic option valuation models with latent state variables is challenging when using large option panels. We propose a particle Markov Chain Monte Carlo framework with a novel filtering approach and illustrate our method by estimating index option pricing models. Estimates of variance
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In the CEO We Trust: Negative Effects of Trust Between the Board and the CEO J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-13 Kee-Hong Bae, Sadok El Ghoul, Zhaoran (Jason) Gong, Omrane Guedhami
In this study, we investigate whether and how trust between board members and the CEO (board–CEO trust) affects the performance of mergers and acquisitions. Contrary to conventional wisdom, we find that firms with higher levels of board–CEO trust exhibit poor M&A performance. High trust is associated with low acquisition announcement returns, long-term stock return performance, and post-deal operating
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Friendly Investing and Information Sharing in the Asset Management Industry J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-06-05 Benjamin Golez, Antonino Emanuele Rizzo, Rafael Zambrana
Do asset managers engage in friendly investing to obtain privileged investment information? We test this hypothesis in the context of mutual fund connections to financial groups. Using brokers as the source of connections, we find that funds overweight the stock of connected financial groups and side with management in contested votes. We also find that fund performance improves with the extent of
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Minimum Wage Hikes and Technology Adoption: Evidence from U.S. Establishments J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-23 Xin Dai, Yue Qiu
This article studies the effects of state minimum wage increase on information technology (IT) adoption at the establishment level in the United States. Our results show that treatment establishments on average allocate between $10,328 and $66,808 more per year to their IT budgets during the first 3 years after experiencing significant state minimum wage increases. Additional evidence shows that state
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Fintech Lending and Credit Market Competition J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-15 Yinxiao Chu, Jianxing Wei
This article studies how the rise of financial technology (Fintech) lending affects credit access, interest rates, and social welfare. We consider a lending competition model with two incumbent banks and a Fintech lender, which use different information and technologies to assess borrower creditworthiness. We show that Fintech lending could negatively affect high-quality borrowers’ access to credit
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Measuring Firm Complexity J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-15 Tim Loughran, Bill McDonald
In business research, firm size is both ubiquitous and readily measured. Complexity, another firm-related construct, is also relevant, but difficult to measure and not well-defined. As a result, complexity is less frequently incorporated in empirical designs. We argue that most extant measures of complexity are one-dimensional, have limited availability, and/or are frequently misspecified. Using both
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Labor Mobility and Loan Origination J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-11 Sumit Agarwal, Yupeng Lin, Yunqi Zhang, Zilong Zhang
We find that mortgage loans originated after the adoption of the inevitable disclosure doctrine (IDD; a mechanism discouraging loan officers’ labor mobility) have a lower default probability, a higher loan modification rate, and a lower foreclosure rate. These effects are unaccompanied by any reduction in loan supply and contribute to more stable housing prices. Using the adoption of the Uniform Trade
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The Smart Beta Mirage J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-11 Shiyang Huang, Yang Song, Hong Xiang
We document and explain the sharp performance deterioration of smart beta indexes after the corresponding exchange-traded funds (ETFs) are launched for investment. While smart beta is purported to deliver excess returns through factor exposures, the market-adjusted return of smart beta indexes drops from about 3% “on paper” before ETF listings to about −0.50% to −1% after ETF listings. This performance
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Standing Out from the Crowd via CSR Engagement: Evidence from Non-Fundamental-Driven Price Pressure J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-11 Lei Gao, Jie (Jack) He, Juan (Julie) Wu
We test the signaling view of corporate social responsibility (CSR) engagement using two complementary quasi-natural experiments that impose exogenous negative pressure on stock prices. Firms under such adverse price pressure increase CSR activities compared to otherwise similar firms. This effect concentrates among firms with stronger signaling incentives, namely, those facing greater information
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Uncovering Financial Constraints J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-05 Matthew Linn, Daniel Weagley
We use a random forest model to classify firms’ financial constraints using only financial variables. Our methodology expands the range of classified firms compared to text-based measures while maintaining similar levels of informativeness. We construct two versions of our constraint measures, one using many firm characteristics and the other using a small set of more primitive characteristics. Using
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Resolving a Paradox: Retail Trades Positively Predict Returns but Are Not Profitable J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-05 Brad M. Barber, Shengle Lin, Terrance Odean
Retail order imbalance positively predicts returns, but on average retail investor trades lose money. Why? Order imbalance tests equal-weighted stocks, but retail purchases concentrate on attention-grabbing stocks that subsequently underperform. Long–short strategies based on extreme quintiles of retail order imbalance earn dismal annualized returns of −14.8% among stocks with heavy retail trading
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Bank Influence at a Discount J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-03 Hans Gersbach, Stylianos Papageorgiou
In a general equilibrium framework, we show that banks may “buy” political influence at a discount: They offer disproportionately small campaign contributions compared to the influence they exert, thus generating abnormal returns. We distinguish between the direct effect of contributions which, as a cost, reduce bank returns, and the indirect effect of contributions which boost returns via inducing
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Corporate Financial Frictions and Employee Mental Health J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-05-02 Dániel Kárpáti, Luc Renneboog
This article argues that corporate financial frictions can have an adverse effect on employee mental health, an important determinant of employee productivity. To identify the causal effects of financial frictions, we exploit variation in firms’ need to refinance their long-term debt in 2008, a period when refinancing became more difficult due to the credit crunch. Using administrative microdata, we
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Does Shareholder Litigation Risk Cause Public Firms to Delist? Evidence from Securities Class Action Lawsuits J. Financ. Quant. Anal. (IF 4.337) Pub Date : 2023-04-27 Jonathan Brogaard, Nhan Le, Duc Duy Nguyen, Vathunyoo Sila
Using three exogenous shocks to ex ante litigation risk, including federal judge ideology and two influential judicial precedents, we find that lower shareholder litigation risk reduces a firm’s propensity to delist from the U.S. stock markets. The effect is at least partially driven by indirect costs of litigation and that being a private firm can significantly reduce the threat of litigation. Overall