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The role of intermediaries in derivatives markets: Evidence from VIX options Journal of Empirical Finance (IF 3.025) Pub Date : 2024-03-15 Kris Jacobs, Anh Thu Mai
Consistent with models of intermediaries who absorb demand pressure from end-users and respond by changing prices, net option demand is positively related to option prices in the market for VIX puts and calls. VIX and SPX option markets are integrated: market-makers absorb end-users’ net long volatility positions and net demand affects prices across markets. Net demand changes in the most liquid markets
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Instantaneous volatility of the yield curve, variance risk premium and bond return predictability Journal of Empirical Finance (IF 3.025) Pub Date : 2024-03-15 Ximing Yin, Ge Yang
This paper proposes a new way of estimating the instantaneous volatility of fixed income securities using derivatives data, which can further be used to construct the corresponding yield curve variance risk premium (VRP). We show that this VRP measure exhibits strong long-horizon predictive power for bond excess returns. After controlling for the shape of the yield curve, the VRP strongly predicts
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Equity markets volatility clustering: A multiscale analysis of intraday and overnight returns Journal of Empirical Finance (IF 3.025) Pub Date : 2024-03-15 Xiaojun Zhao, Na Zhang, Yali Zhang, Chao Xu, Pengjian Shang
Volatility clustering, widely observed in daily equity market returns, hasn’t been analyzed for high-resolution intraday and overnight returns, nor has its time scale dependency been systematically explored. This paper examines the volatility clustering of intraday and overnight returns in 15 global equity markets, both developed and emerging. Findings reveal universal volatility clustering in intraday
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Local predictability of stock returns and cash flows Journal of Empirical Finance (IF 3.025) Pub Date : 2024-03-15 Deshui Yu, Li Chen
Motivated by the present-value framework, this article proposes a novel and flexible semiparametric long-horizon time-varying model to investigate the so-called ‘pockets of predictability’, which refer to local periods in which stock returns or cash flows are significantly predictable. A semiparametric profile method is used to estimate both time-varying and constant parameters. In the empirical studies
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Reserve holding and bank lending Journal of Empirical Finance (IF 3.025) Pub Date : 2024-02-17 Chun Kuang, Jiawen Yang, Wenyu Zhu
Banks’ ability to convert liquidity into lending depends crucially on the various regulatory constraints they face. This paper investigates the differential lending responses of banks with varying levels of reserves, and their impact on the real economy. The distribution of reserves within the banking system became significantly more dispersed during the quantitative easing (QE) periods. Loan growth
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CEO narcissism and the agency cost of debt Journal of Empirical Finance (IF 3.025) Pub Date : 2024-02-15 J.H. John Kim, Ronald Anderson
This study investigates the relationship between CEO narcissism and debt financing costs, highlighting a potential trade-off between leadership traits and firm financial well-being. While prior research has identified potential benefits associated with narcissistic CEOs, such as enhanced innovation, we demonstrate that such leadership incurs higher borrowing costs, as evidenced by elevated bond yields
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Does Media Affect the Rival Response to Acquisition Targets? Journal of Empirical Finance (IF 3.025) Pub Date : 2024-01-26 Xin Gao, Zhe An, Donghui Li, Weidong Xu
Employing a sample of 6,084 acquisitions from 2001 to 2017, we show that higher media coverage of rival firms (i.e., in the same industry as the target) increases their likelihood of being subsequently targeted and the announcement CARs. We conduct various tests to alleviate the endogeneity concern. Our results are robust when controlling for analyst coverage and the media coverage of acquirer and
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Information in Unexpected Bonus Cuts: Firm Performance and CEO Firings Journal of Empirical Finance (IF 3.025) Pub Date : 2024-01-22 William M. Cready, Zhonglan Dai, Guang Ma, Vikram Nanda
An extensive literature finds that CEO compensation, especially bonus pay, exhibits downward rigidity. This is despite corporate boards usually retaining the discretion to deviate from their stated bonus formulae. We conjecture that the infrequent occasions in which there is an unexpected bonus cut, the board likely possesses unfavorable private information about the firm's long-term prospects and
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Enhancing betting against beta with stochastic dominance Journal of Empirical Finance (IF 3.025) Pub Date : 2024-01-09 Olga Kolokolova, Xia Xu
The performance of the widely used betting-against-beta (BAB) investment strategy is improved by controlling for the stochastic dominance (SD) relation between individual stocks and the market portfolio. Dominating stocks, preferred by all risk-averse and prudent investors, are excluded from the short leg of the BAB strategy. Stocks that are dominated by the market are excluded from the long leg of
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An adaptive long memory conditional correlation model Journal of Empirical Finance (IF 3.025) Pub Date : 2023-12-30 Jonathan Dark
We propose a conditional correlation model with long memory dependence and smooth structural change. Previous literature has considered correlation and covariance models with structural change or long memory, but this is the first paper to jointly model both features. The correlation matrix is decomposed into long and short run components. Short run correlations converge hypergeometrically towards
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House price bubbles under the COVID-19 pandemic Journal of Empirical Finance (IF 3.025) Pub Date : 2024-01-03 Jacob H. Hansen, Stig V. Møller, Thomas Q. Pedersen, Christian M. Schütte
We analyze bubble formations in house prices under the COVID-19 pandemic in 382 metropolitan areas in the U.S. with a special attention to the role of population density. We use a robust sieve-bootstrap version of the right-tailed unit root test procedure to identify periods of explosiveness in price-rent ratios across metro areas when controlling for fundamentals such as mortgage debt financing costs
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The effects of banking market structure on corporate cash holdings and the value of cash Journal of Empirical Finance (IF 3.025) Pub Date : 2023-12-25 Shengfeng Li, Liang Han, Biao Mi
We investigate the impact of the local banking market structure on the level of corporate cash holdings and the value of cash. We find that, in more concentrated banking markets, firms increase their cash holdings by issuing more equity. The marginal value of $1 cash increases by 10 cents with a one-standard-deviation increase in bank concentration. The positive relationship between bank concentration
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Horizontal mergers and heterogeneous firm investments: evidence from the United States Journal of Empirical Finance (IF 3.025) Pub Date : 2023-12-30 Dongxu Li
I find on average firms respond to a horizontal merger by investing less in PP&E, labor, and R&D. There is notable heterogeneity among the non-merging rivals. The laggard rivals reduce investments in PP&E, labor, and R&D while the neck-and-neck rivals do the opposite. There is an insignificant change for the leader rivals. These results support Aghion et al. (2005) on the inverted-U relationship between
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Carbon dioxide and asset pricing: Evidence from international stock markets Journal of Empirical Finance (IF 3.025) Pub Date : 2023-12-30 Zhuo Chen, Jinyu Liu, Andrea Lu, Libin Tao
We use carbon dioxide (CO2) emissions growth to measure consumption risk within a consumption-based capital asset pricing model framework. Given the comprehensive worldwide coverage of CO2 emissions, this measure allows us to use the full history of stock market data in the US, Europe, the world, and fifteen international markets. For the US (Europe/the world), we are able to explain the observed equity
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International asset pricing with heterogeneous agents: Estimation and inference Journal of Empirical Finance (IF 3.025) Pub Date : 2023-12-15 Roméo Tédongap, Jules Tinang
This paper empirically validates (Constantinides and Ghosh’s, 2017) heterogeneous-agents consumption-based asset pricing model for predicting expected returns in international equity markets. Using the model’s implications, we proxy the unobservable state variable driving income shocks with the principal component of consumption growth cumulants across agents. We confirm that both the level and changes
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Tail risks and private equity performance Journal of Empirical Finance (IF 3.025) Pub Date : 2023-12-01 Hrvoje Kurtović, Garen Markarian
We examine the drivers of private equity in response to the fully exogenous Covid-19 shock, employing listed private equity as a proxy for traditional non-listed private equity. This approach enables us to reliably measure firm characteristics and performance in real-time. Listed private equity firms, on average, underperformed significantly during the crisis, with a performance drop ranging from 9
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The effect of investor attention on stock price crash risk Journal of Empirical Finance (IF 3.025) Pub Date : 2023-11-26 Ting-Hsuan Chen, Kai-Sheng Chen
This study investigations the relationship between investor attention and stock price crash risk in different markets and different levels of natural-person ownership. Google's search volume is primarily employed as a proxy for investor attention. The empirical results show that the higher investor attention, the higher future crash risk, with this effect being more pronounced among firms listed on
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Climate change concerns and mortgage lending Journal of Empirical Finance (IF 3.025) Pub Date : 2023-11-14 Tinghua Duan, Frank Weikai Li
We examine whether beliefs about climate change affect loan officers’ mortgage lending decisions. We show that abnormally high local temperature leads to elevated attention to and belief in climate change in a region. Loan officers approve fewer mortgage applications and originate lower amounts of loans in abnormally warm weather. This effect is stronger among counties heavily exposed to the risk of
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Technological disparity and its impact on market quality Journal of Empirical Finance (IF 3.025) Pub Date : 2023-11-10 Kiseo Chung, Seoyoung Kim
Technological investments made by speed-sensitive market participants are increasingly frequent and have thus been a focal point of recent research. We examine an important, but unexplored facet of this trend: the technological disparity between the fastest market participants and the exchange itself. Using a proprietary dataset of a high-frequency market maker's limit orders and order acknowledgments
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Option gamma and stock returns Journal of Empirical Finance (IF 3.025) Pub Date : 2023-11-08 Amar Soebhag
Stocks with high net gamma exposure systematically underperform stocks with low net gamma exposure. This effect is distinct from other well-known return predictors, and survives many robustness checks. We show that stocks with low net gamma exposure negatively predict future realized volatility, and argue that investors command a risk premium to hold low net gamma exposure stocks, which are riskier
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A financial modeling approach to industry exchange-traded funds selection Journal of Empirical Finance (IF 3.025) Pub Date : 2023-11-06 Thomas Conlon, John Cotter, Illia Kovalenko, Thierry Post
This study uses a comprehensive approach to optimize the portfolio allocation to equity sector Exchange Traded Funds. We combine data on the market prices of options written on the funds, the Heston stochastic volatility model, risk premium transformation, copulas, and optimization with stochastic dominance constraints. This comprehensive strategy provides significant performance out-of-sample gains
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Expensive anomalies Journal of Empirical Finance (IF 3.025) Pub Date : 2023-11-03 Deniz Anginer, Sugata Ray, H. Nejat Seyhun, Luqi Xu
We show that thirteen well-known stock market anomalies have higher future abnormal returns when they exhibit a value orientation with respect to their historical levels. We find anomalies that exhibit a value orientation (cheap) outperform anomalies that exhibit a growth orientation (expensive) going forward by about 30 basis points (bps) per month. Furthermore, we find favorable anomalies based on
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Co-illiquidity management Journal of Empirical Finance (IF 3.025) Pub Date : 2023-10-28 Søren Hvidkjær, Massimo Massa, Aleksandra Rzeźnik
We study the link between illiquidity and co-movement in illiquidity and the way asset managers trade off illiquidity and co-illiquidity in their portfolio allocation decision. By exploring two experiments – the 2005 SHO Regulation and 2016 Tick Size pilot program – we document the way fund managers manage co-illiquidity risk and the implication for the market degree of illiquidity and co-illiquidity
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What drives the TIPS–Treasury bond mispricing? Journal of Empirical Finance (IF 3.025) Pub Date : 2023-11-02 Jungkyu Ahn, Yongkil Ahn
Inflation-swapped Treasury Inflation-Protected Securities (TIPS) are usually undervalued compared to cash flow-matched Treasury bonds. From 2005 to 2022, TIPS discounts are persistent, averaging approximately 3.18 % of the face value, with a peak of 16.10 %. We elucidate the factors associated with this persistent mispricing and the extent of this association. The results from feature selection techniques
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Is gold a hedge or a safe haven against stock markets? Evidence from conditional comoments Journal of Empirical Finance (IF 3.025) Pub Date : 2023-11-02 Lei Ming, Ping Yang, Qianqiu Liu
In this study, we estimate the conditional correlation and coskewness between gold and stock returns using a bivariate regime-switching model. Motivated by Yang, Zhou, and Wang (2010), we define gold as a strong hedge if the average correlation is negative and the coskewness is positive in the sample. Gold is a strong safe haven if these hold under market turmoil. We empirically examine the property
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Stock returns in global value chains: The role of upstreamness and downstreamness Journal of Empirical Finance (IF 3.025) Pub Date : 2023-10-31 Nicole Branger, René Marian Flacke, Paul Meyerhof, Steffen Windmüller
We study how upstreamness and downstreamness affect stock returns in global value chains. Upstreamness and downstreamness, which are computed from world input–output tables, measure the average distance from final consumption and primary inputs. We find that downstreamness explains expected returns, whereas upstreamness does not. The downstreamness return premium reflects investors’ compensation for
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The Effect of Venture Capital Backing on Innovation in Newly Public Firms Journal of Empirical Finance (IF 3.025) Pub Date : 2023-10-25 Serdar Aldatmaz, Ugur Celikyurt
We study the effect of VC-backing on innovation in newly public firms and find that it is negatively related to patents produced and citations received within the initial years following an IPO – our estimates indicate that VC-backed firms produce 13% fewer patents than nonVC-backed firms within the first year post-IPO. Our findings suggest that this adverse effect is a consequence of VCs timing their
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Forecasting realized volatility with wavelet decomposition Journal of Empirical Finance (IF 3.025) Pub Date : 2023-10-13 Ioannis Souropanis, Andrew Vivian
Forecasting Realized Volatility (RV) is of paramount importance for both academics and practitioners. During recent decades, academic literature has made substantial progress both in terms of methods and predictors under consideration albeit with scarce reference to technical indicators. This paper examines the out-of-sample forecasting performance of technical indicators for S&P500 RV relative to
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The commodity risk premium and neural networks Journal of Empirical Finance (IF 3.025) Pub Date : 2023-10-12 Hossein Rad, Rand Kwong Yew Low, Joëlle Miffre, Robert Faff
The paper uses linear and nonlinear predictive models to study the linkage between a set of 128 macroeconomic and financial predictors and the risk premium of commodity futures contracts. The linear models use shrinkage methods based on either naive averaging or principal components. The nonlinear models use feedforward deep neural networks (DNN) either as stand-alone or in conjunction with a long
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Counteroffers and Price Discrimination in Mortgage Lending Journal of Empirical Finance (IF 3.025) Pub Date : 2023-10-04 Steven Ongena, Florentina Paraschiv, Endre J. Reite
This study analyzes price discrimination and household switching in the residential mortgage market. Using a unique proprietary micro dataset from Norway, we examine the factors that influence a bank’s choice to counter an offer from a competing bank and the difference between the loan rate paid by current clients when receiving a competing offer from another bank and the concurrent best rate offered
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The role of human capital: Evidence from corporate innovation Journal of Empirical Finance (IF 3.025) Pub Date : 2023-10-05 Tong Liu, Yifei Mao, Xuan Tian
This paper examines the distinct roles played by inventors and firms in contributing to corporate innovation. Inventors are six to eight times as important as firms in contributing to innovation performance as measured by patent and citation counts, but their importance is about the same in innovation strategies as captured by patent exploratory and exploitative scores. Furthermore, when labor mobility
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Futures contract collateralization and its implications Journal of Empirical Finance (IF 3.025) Pub Date : 2023-10-04 Robert A. Jarrow, Simon S. Kwok
Defining a futures return as the rate of change of futures prices, as done in many empirical studies, implicitly implies that a futures contract is fully collateralized. We adjust futures’ returns to explicitly account for the holding of minimum margin (collateral) and the return to this collateral. Collateralization adjustment affects the dynamic properties of returns and modifies the risk profile
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A seesaw effect in the cryptocurrency market: Understanding the return cross predictability of cryptocurrencies Journal of Empirical Finance (IF 3.025) Pub Date : 2023-09-26 Yuecheng Jia, Yangru Wu, Shu Yan, Yuzheng Liu
This paper investigates the intraday return cross-predictability of cryptocurrencies. In contrast to the positive lead–lag effect for stocks, we document a negative lead–lag effect in the cryptocurrency market. Specifically, the large coins negatively predict the other coins but the small coins rarely predict the large coins. A trading strategy that exploits the cross-predictability via the Least Absolute
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Portfolio allocation over the life cycle with multiple late-in-life saving motives Journal of Empirical Finance (IF 3.025) Pub Date : 2023-09-23 Minjoon Lee
Older households face health-related risks, including risks related to long-term care and mortality. The effect of these risks on household financial portfolio choices depends on household preferences for long-term care and bequests. Using linked survey-administrative data on clients of a mutual fund company, this paper finds that the desire to have enough resources for long-term care and bequests
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Term premia and short rate expectations in the euro area Journal of Empirical Finance (IF 3.025) Pub Date : 2023-09-16 Andrea Berardi
Identifying the components of yields is a challenging task for monetary authorities. We use a term structure model with stochastic volatility and eurozone global macro factors to estimate time-varying term premia and short rate expectations for ten countries in the euro area. Unlike previous studies, we explicitly disentangle from these components the convexity effects that have substantial impact
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Managerial ability and financial statement disaggregation decisions Journal of Empirical Finance (IF 3.025) Pub Date : 2023-09-21 Dien Giau Bui, Yehning Chen, Yan-Shing Chen, Chih-Yung Lin
Firms with high-ability management teams disclose more disaggregated information in financial statements than other firms after accounting for endogeneity concerns. Investors deem the disaggregated information disclosed by high-ability managers to be more credible. More disaggregated accounting information reduces stock price crash risk and lowers the cost of equity to a greater extent when provided
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On the driving forces of real exchange rates: Is the Japanese Yen different? Journal of Empirical Finance (IF 3.025) Pub Date : 2023-09-14 Paulo Maio, Ming Zeng
We estimate variance decompositions of the real exchange rate (q) for 19 currencies based on a present-value relation. At very short horizons, the driving force of q is predictability of the future exchange rate. At long horizons, return predictability drives most variation in q, with predictability of interest differentials playing a secondary role. This pattern is especially strong for the Non-G10
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International comovement of r∗: A case study of the G7 countries Journal of Empirical Finance (IF 3.025) Pub Date : 2023-09-14 Eiji Goto
The natural rate of interest, r∗, is an important input to determine the appropriate monetary policy stance. Commonly, the measurement is estimated on a single-country basis, which ignores the international factors that may affect r∗. However, expanding to a multiple-country model adds substantive model complexity. In this paper, I exploit a Bayesian method to build a multi-country state space model
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Leasing and the allocation efficiency of finance Journal of Empirical Finance (IF 3.025) Pub Date : 2023-09-14 Weiwei Hu, Kai Li, Yiming Xu
This paper argues that leasing, as an important but often ignored source of external financing, facilitates the allocation efficiency of finance. We document a large overestimation of measured finance misallocation (Whited and Zhao, 2021) when lease-induced debt is ignored among US manufacturing firms. The losses in real value-added due to finance misallocation drop from 25% to 19% after appropriately
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The pricing of jump and diffusive risks in the cross-section of cryptocurrency returns Journal of Empirical Finance (IF 3.025) Pub Date : 2023-09-03 Minhao Leong, Simon Kwok
In this study, we investigate the pricing of risks in the cross-section of cryptocurrency returns. In doing so, we decompose total variations into systematic and idiosyncratic components, as well as differentiate jumps from diffusive variations. We show that a hedged portfolio sorted on idiosyncratic diffusive risk yields a weekly return of -1.11%, suggesting the existence of a low idiosyncratic risk
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Social capital and the pricing of initial public offerings Journal of Empirical Finance (IF 3.025) Pub Date : 2023-09-02 Yangyang Chen, Huu Nhan Duong, Abhinav Goyal, Madhu Veeraraghavan
Using a large sample of 4,892 IPOs in the United States, we establish that the level of social capital in the county of the IPO firm's headquarters is negatively associated with the level of IPO underpricing. The results hold for a range of robustness tests, including those addressing endogeneity. Additionally, the relation between social capital and IPO underpricing is weaker among IPO firms with
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Macroeconomic news and price synchronicity Journal of Empirical Finance (IF 3.025) Pub Date : 2023-08-30 Arbab K. Cheema, Arman Eshraghi, Qingwei Wang
Stock price synchronicity is a critical consideration for asset allocation, risk assessment, and hedging decision. We present novel evidence that individual stock returns comove more persistently on certain days of the week. Specifically, we show that release of macroeconomic news on Mondays, which typically see fewer announcements, leads to such stronger comovement, and that this is distinct from
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Bond issuance and the funding choices of European banks: The consequences of public debt Journal of Empirical Finance (IF 3.025) Pub Date : 2023-08-31 Michela Rancan, Jessica Cariboni, Kevin Keasey, Francesco Vallascas
European banks raise less funds in the bond market when there is a larger public debt in their national economies and this is reflected in lower leverage. We exploit numerous sources of heterogeneity in our data to demonstrate this result is driven by a crowding out effect from the public arena and not by a sovereign risk channel or political influence. The crowding out effect is stronger for less
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The effects of economic uncertainty on financial volatility: A comprehensive investigation Journal of Empirical Finance (IF 3.025) Pub Date : 2023-08-16 Chen Tong, Zhuo Huang, Tianyi Wang, Cong Zhang
We provide new empirical evidence of how financial volatility responds to an increase in economic uncertainty. Consistent with the implications derived from a theoretical equilibrium model in which investors are uncertain about the true state of the economy, our estimates for the contemporaneous effects of uncertainty on volatility are significantly positive, and their magnitudes critically depend
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Individual investors’ trading behavior and gender difference in tolerance of sex crimes: Evidence from a natural experiment Journal of Empirical Finance (IF 3.025) Pub Date : 2023-08-11 Huasheng Gao, Zhengkai Liu, Chloe Chunliu Yang
We present evidence that males are more tolerant of sex crimes than females. We exploit a natural experiment, in which a firm’s executive rapes a nine-year-old girl. Based on individual-level stock transaction data (over 0.2 million individual investors), we show that, after this crime, females are less likely to purchase this firm’s stock than males. This result is stronger for females who are likely
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Estimation with mixed data frequencies: A bias-correction approach Journal of Empirical Finance (IF 3.025) Pub Date : 2023-08-07 Anisha Ghosh, Oliver Linton
We propose a solution to the measurement error problem that plagues the estimation of the relation between the expected return of the stock market and its conditional variance due to the latency of these conditional moments. We use intra-period returns to construct a nonparametric proxy for the latent conditional variance in the first step which is subsequently used as an input in the second step to
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The money-inflation nexus revisited Journal of Empirical Finance (IF 3.025) Pub Date : 2023-08-01 Leopold Ringwald, Thomas O. Zörner
we propose a Bayesian Logistic Smooth Transition Autoregressive (LSTAR) model with stochastic volatility (SV) to model inflation dynamics in a nonlinear fashion. Inflationary regimes are determined by smoothed money growth which serves as a transition variable that governs the transition between regimes. We apply this approach to quarterly data from the US, the UK and Canada and are able to identify
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Dynamic relationship between Stock and Bond returns: A GAS MIDAS copula approach Journal of Empirical Finance (IF 3.025) Pub Date : 2023-08-01 Hoang Nguyen, Farrukh Javed
Stock and bond are the two most crucial assets for portfolio allocation and risk management. This study proposes generalized autoregressive score mixed frequency data sampling (GAS MIDAS) copula models to analyze the dynamic dependence between stock returns and bond returns. A GAS MIDAS copula decomposes their relationship into a short-term dependence and a long-term dependence. While the long-term
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Forecasting realized volatility with machine learning: Panel data perspective Journal of Empirical Finance (IF 3.025) Pub Date : 2023-07-28 Haibin Zhu, Lu Bai, Lidan He, Zhi Liu
Machine learning approaches have become very popular in many fields in this big data age. This paper considers the problem of forecasting realized volatility with machine learning using high-frequency data. Instead of treating the realized volatility as a univariate time series studied by many existing works in literature, we employ panel data analysis to improve forecasting accuracy in the short term
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Technology spillover, corporate investment, and stock returns Journal of Empirical Finance (IF 3.025) Pub Date : 2023-07-23 Yen-Ju Hsu, Yanzhi Wang
This study examines the role of technology spillover in the negative relationship between corporate investment and subsequent stock returns. Technology spillover is a well-documented phenomenon in the asset pricing literature. We employ asset growth, real investment, and net share issuance as proxies for corporate investment. The results reveal a strong negative relationship between corporate investment
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When “time varying” volatility meets “transaction cost” in portfolio selection Journal of Empirical Finance (IF 3.025) Pub Date : 2023-07-07 W. Qiao, D. Bu, A. Gibberd, Y. Liao, T. Wen, E. Li
We propose a new strategy for mean–variance portfolio selection that tackles transaction costs and change detection in covariance matrix simultaneously. The new strategy solely rebalances the portfolio when change points are detected in the covariance matrix, striking an optimal trade-off between rebalancing the portfolio to capturing the recent information in return data and avoiding excessive trading
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Industry regulation and the comovement of stock returns Journal of Empirical Finance (IF 3.025) Pub Date : 2023-06-28 Benjamin M. Blau, Todd G. Griffith, Ryan J. Whitby
Existing research highlights that observed levels of comovement among the returns of stocks exceed the levels predicted by theory. We develop and test the hypothesis that the degree of regulation in a particular industry can explain, at least in part, the comovement observed in the data. We find that stocks within industries that are most heavily regulated tend to exhibit the greatest levels of comovement
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Competition and risk taking in local bank markets: Evidence from the business loans segment Journal of Empirical Finance (IF 3.025) Pub Date : 2023-06-20 Chiara Canta, Øivind A. Nilsen, Simen A. Ulsaker
This paper studies empirically the relationship between competition and risk taking in banking markets. We exploit an unique dataset providing information about all bank loans to Norwegian firms over several years. Rather than relying on observed market shares, we use the distance between bank branches and firms to measure the competitiveness of local markets. The cross-sectional and longitudinal variation
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Customer–supplier relationships and non-linear financial policy response Journal of Empirical Finance (IF 3.025) Pub Date : 2023-06-19 Kacheng Wong, Longkai Zhao
We investigate whether changes in the capital structure of major customers play an important role in determining the firm’s financial policy. Following Leary and Roberts (2014) and using average customer idiosyncratic equity return shocks, we find that a firm’s leverage ratio is negatively and nonlinearly affected by the leverage ratio of its major customers. This “customer effect” occurs only when
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Time-varying Z-score measures for bank insolvency risk: Best practice Journal of Empirical Finance (IF 3.025) Pub Date : 2023-06-19 Vincent Bouvatier, Laetitia Lepetit, Pierre-Nicolas Rehault, Frank Strobel
We evaluate several alternative approaches to constructing time-varying Z-scores as bank insolvency risk measures. Focusing on US and European banks during the financial crisis of 2007–2008, we compare the different measures considered using a range of alternative testing procedures. For both US and European data, Z-scores computed with the exponentially weighted moments method are shown to be preferable
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Investor sentiment and global economic conditions Journal of Empirical Finance (IF 3.025) Pub Date : 2023-06-12 Miguel C. Herculano, Eva Lütkebohmert
The paper examines the macroeconomic relevance of the common component of discount rate news in firm-level stock returns for G7 countries (except for Italy, focusing on each country’s index constituents) by applying a hierarchical dynamic factor model to the Campbell and Ammer (1993) return decomposition. This approach offers advantages over alternative investor sentiment indicators and is easily extended
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Easy money and competitive industries’ booms and busts Journal of Empirical Finance (IF 3.025) Pub Date : 2023-06-05 Longfei Shang, Ji-Chai Lin, Nan Yang
Studies have documented that firms in competitive industries tend to invest inefficiently and suffer from booms and busts. We extend the literature by showing that high-sentiment signals from credit markets, an indication of easy money available, prompt firms in competitive industries to borrow and invest more than usual. The resulting excess investments collectively lead to overcapacity and, consequently
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CEO personality traits and corporate value implication of acquisitions Journal of Empirical Finance (IF 3.025) Pub Date : 2023-06-05 Tom Aabo, Jan Hanousek, Christos Pantzalis, Jung Chul Park
We investigate how CEO personality traits moderate the shareholder value creation from corporate acquisitions. First, we document that the likelihood of corporate acquisitions is positively associated with extravert and overconfident CEOs consistent with the evidence of prior literature. Second, and most importantly, we document that stock prices react positively to acquisitions undertaken by conscientious