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The Brand Premium Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-14 Hamid Boustanifar, Young Dae Kang
We highlight the limitations of using cumulative advertising expenses as an input measure of brand value. Using two output measures—Interbrand’s data and a novel text-based measure—we find that an equal-weighted portfolio of top brands yields an annual abnormal return of 3%. The excess returns are driven by companies that develop their brands internally. Intangible factors proposed in the literature
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Are Bankruptcy Professional Fees Excessively High? Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-13 Samuel Antill
Chapter 7 is the most popular bankruptcy system for U.S. firms and individuals. Chapter 7 professional fees are substantial. Theoretically, high fees might be an unavoidable cost of incentivizing professionals. I test this empirically. I study trustees, the most important professionals in chapter 7, who liquidate assets in exchange for legally mandated commissions. Exploiting kinks in the commission
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Syndicated Lending, Competition, and Relative Performance Evaluation Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-09 Thomas Schneider, Philip E Strahan, Jun Yang
Relative performance evaluation (RPE) intensifies competitive pressure by tying executive compensation to the profits of rivals. We show that these contracts make loan syndication harder by reducing banks’ willingness to participate in loans underwritten by banks named in their RPE contracts. Lead arranger banks, which are more frequently named in RPE, hold larger shares of the loans they syndicate
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The Technical Default Spread Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-09 Emilio Bisetti, Kai Li, Jun Yu
We study the quantitative impact of lender control rights on corporate investment, asset prices, and the aggregate economy. We build a general equilibrium model in which the breaching of a loan covenant (technical default) entails a switch in investment control rights from borrowers to lenders. Lenders optimally choose low-risk projects, thus mitigating borrowers’ risk-taking incentives and lowering
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Student Loans, Access to Credit, and Consumer Credit Demand Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-09 Alvaro Mezza, Daniel Ringo, Kamila Sommer
This paper provides novel evidence that increased student loan debts, caused by rising tuitions, increase borrowers’ demand for additional consumer debt, while simultaneously restricting their ability to access it. The net effect of student loan debt on consumer borrowing varies by market, depending on whether the supply or demand channel dominates. In loosely underwritten credit markets, increased
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Proxy Advisory Firms and Corporate Shareholder Engagement Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-05 Aiyesha Dey, Austin Starkweather, Joshua T White
We study how Institutional Shareholder Services (ISS) affect firms’ engagement with shareholders. Our analyses exploit a quasi-natural experiment using say-on-pay voting outcomes near a threshold that triggers ISS to review engagement activities. Firms receiving ISS treatment exhibit swift and substantive increases in extensive and intensive margins of engagement, especially when their boards have
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A Comprehensive 2022 Look at the Empirical Performance of Equity Premium Prediction Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-05 Amit Goyal, Ivo Welch, Athanasse Zafirov
Our paper reexamines whether 29 variables from 26 papers published after Goyal and Welch 2008a, as well as the original 17 variables, were useful in predicting the equity premium in-sample and out-of-sample as of the end of 2021. Our samples include the original periods in which these variables were identified, but end later. More than one-third of these new variables no longer have empirical significance
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Machine Learning for Continuous-Time Finance Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-05 Victor Duarte, Diogo Duarte, Dejanir H Silva
We develop an algorithm for solving a large class of nonlinear high-dimensional continuous-time models in finance. We approximate value and policy functions using deep learning and show that a combination of automatic differentiation and Ito’s lemma allows for the computation of exact expectations, resulting in a negligible computational cost that is independent of the number of state variables. We
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Horizon-Dependent Risk Aversion and the Timing and Pricing of Uncertainty Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-04 Marianne Andries, Thomas M Eisenbach, Martin C Schmalz
Inspired by experimental evidence, we amend the recursive utility model to let risk aversion decrease with the temporal horizon. Our pseudo-recursive preferences remain tractable and retain appealing features of the long-run risk framework, notably its success at explaining asset pricing moments. In addition, our model addresses two challenges to the standard model. Calibrating the agents’ preferences
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Credit Cycles, Expectations, and Corporate Investment Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-09-03 Huseyin Gulen, Mihai Ion, Candace E Jens, Stefano Rossi
We provide a systematic empirical assessment of the Minsky hypothesis that business fluctuations stem from irrational swings in expectations. Using predictable firm-level forecast errors, we build an aggregate index of irrational expectations and use it to provide three sets of results. First, we show that our index predicts aggregate credit cycles. Next, we show that these predictable credit cycles
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Heterogeneous Real Estate Agents and the Housing Cycle Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-08-30 Sonia Gilbukh, Paul Goldsmith-Pinkham
The real estate market is highly intermediated, with 90% of buyers and sellers hiring an agent. However, low barriers to entry and fixed commission rates result in large market share for inexperienced intermediaries. Using micro-level data on 8.5 million listings and a novel research design, we show that house listings by inexperienced agents have a lower probability of selling, and this effect is
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Informed Voting Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-08-16 Meng Gao, Jiekun Huang
Information production by shareholders is essential for proxy voting to produce efficient outcomes. We propose a stock return-based measure to capture informed voting. Our measure, the vote alpha, quantifies the extent to which a shareholder votes in the direction that the market perceives as value increasing. Using data on mutual funds’ proxy voting records, we find that the vote alpha exhibits persistence
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Conflicts of Interest in Municipal Bond Advising and Underwriting Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-08-16 Daniel G Garrett
When can financial advisor conflicts of interest generate worse outcomes for clients? A regulation following from Dodd-Frank prohibits municipal advisors from simultaneously acting as bond underwriters. Using a difference-in-differences approach and 20,051 bond auctions, I test whether limited advisor privileges affect financial advice and borrower outcomes. Financing costs of bonds with potential
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Tax Policy and Abnormal Investment Behavior Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-07-25 Qiping Xu, Eric Zwick
This paper studies tax-minimizing investment, whereby firms tilt capital purchases toward year-end to reduce taxes. We use this pattern to characterize how taxes affect investment behavior. We exploit variation in firm tax positions from administrative data to confirm that tax minimization causes spikes. Spikes increase when firms face financial constraints or higher option values of waiting. Cumulative
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Valuing Financial Data Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-07-22 Maryam Farboodi, Dhruv Singal, Laura Veldkamp, Venky Venkateswaran
How should an investor value financial data? The answer is complicated because it depends on the characteristics of all investors. We develop a sufficient statistics approach that uses equilibrium asset return moments to summarize all relevant information about others’ characteristics. Our approach values public or private data, data about one or many assets, and data relevant for dividends or sentiment
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Technological Progress and Rent Seeking Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-07-15 Vincent Glode, Guillermo Ordoñez
We model firms’ allocation of resources across surplus-creating (ie, productive) and surplus-appropriating (ie, rent-seeking) activities. Our model predicts that industry-wide technological advancements, such as recent progress in data collection and processing, induce a disproportionate and socially inefficient reallocation of resources toward surplus-appropriating activities. As technology improves
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Human Capital Portability and Careers in Finance Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-07-13 Janet Gao, Wenyu Wang, Yufeng Wu
How does firm-specific human capital shape careers in the finance industry? We build a dynamic model where workers accumulate portable and nonportable (firm-specific) human capital and learn about their match quality with employers. Estimating the model using granular data on M&A advisory bankers, we show that a large fraction of bankers’ human capital is nonportable, ranging from 12% to 46% across
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Why Did Bank Stocks Crash during COVID-19? Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-07-06 Viral V Acharya, Robert Engle, Maximilian Jager, Sascha Steffen
A two-sided “credit-line channel”—relating to drawdowns and repayments—explains the severe drop and partial subsequent recovery in bank stock prices during the COVID-19 pandemic. Banks with greater exposure to undrawn credit lines saw larger stock price declines but performed better outside of crises periods. Despite deposit inflows, high drawdowns led to reduced bank lending, suggestive of capital
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Estimating Discount Functions with Consumption Choices over the Lifecycle Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-07-02 David Laibson, Sean Chanwook Lee, Peter Maxted, Andrea Repetto, Jeremy Tobacman
We estimate β-δ time preferences and relative risk aversion (RRA) using a lifecycle model including stochastic income, liquid and illiquid assets, credit cards, dependents, Social Security, mortality, and bequests. Preference parameters are identified by cross-tabulating four lifecycle age intervals and four balance sheet moments: the share of households carrying (ie, revolving) credit card debt, average
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The Savings of Corporate Giants Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-06-29 Olivier Darmouni, Lira Mota
We construct a novel panel data set to provide new evidence on how the largest nonfinancial firms manage their financial assets. Our granular data show that, over the past decade, bond portfolios have grown to be at least as large as cash-like instruments, driven by the meteoric rise of corporate bond holdings. To shed light on the drivers of this growth, we conduct a pair of event studies around the
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Missing Financial Data Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-06-28 Svetlana Bryzgalova, Sven Lerner, Martin Lettau, Markus Pelger
We document the widespread nature and structure of missing observations of firm fundamentals and show how to systematically handle them. Missing financial data affects more than 70% of firms that represent about half of the total market cap. Firm fundamentals have complex systematic missing patterns, invalidating traditional approaches to imputation. We propose a novel imputation method to obtain a
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Firm Networks and Asset Returns Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-06-28 Carlos A Ramírez
Changes in the propagation of shocks along firm networks are important to understanding aggregate and cross-sectional features of stock returns. When calibrated to match key characteristics of supplier–customer networks in the United States, a model in which firms are interlinked via enduring relationships generates long-run consumption risks, high and volatile risk premiums, and a small and stable
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Price elasticity of demand and risk-bearing capacity in sovereign bond auctions Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-06-28 Rui Albuquerque, José Miguel Cardoso-Costa, José Afonso Faias
The paper uses bids submitted by primary dealer banks at auctions of sovereign bonds to quantify the price elasticity of demand. The price elasticity of demand correlates strongly with the volatility of returns of the same bonds traded in the secondary market but only weakly with their bid-ask spread. It predicts same-bond post-auction returns in the secondary market, even after controlling for pre-auction
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News Diffusion in Social Networks and Stock Market Reactions Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-06-25 David Hirshleifer, Lin Peng, Qiguang Wang
We study how the social transmission of public news influences investors' beliefs and the securities markets. Using data on social networks, we find that earnings announcements from firms in higher-centrality counties generate a stronger immediate price, volatility, and trading volume reactions. Post-announcement, such firms experience weaker price drift and faster volatility decay but higher and more
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Institutional Brokerage Networks: Facilitating Liquidity Provision Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-06-21 Munhee Han, Sanghyun (Hugh) Kim, Vikram K Nanda
We argue that institutional brokerage networks facilitate liquidity provision and mitigate the price impact of large non-information-motivated trades. Using commissions, we map trading networks of mutual funds (institutions) and their brokers. Central funds (institutions) tend to outperform their peripheral counterparts in terms of return gap (execution shortfall). This outperformance is more pronounced
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Computational Reproducibility in Finance: Evidence from 1,000 Tests Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-06-21 Christophe Pérignon, Olivier Akmansoy, Christophe Hurin, Anna Dreber, Felix Holzmeister, Jürgen Huber, Magnus Johannesson, Michael Kirchler, Albert J Menkveld, Michael Razen, Utz Weitzel
We analyze the computational reproducibility of more than 1,000 empirical answers to 6 research questions in finance provided by 168 research teams. Running the researchers’ code on the same raw data regenerates exactly the same results only 52% of the time. Reproducibility is higher for researchers with better coding skills and those exerting more effort. It is lower for more technical research questions
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The Bright Side of Political Uncertainty: The Case of R&D Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-05-24 Julian Atanassov, Brandon Julio, Tiecheng Leng
We use close gubernatorial elections as a quasi-natural experiment to document a positive effect of political uncertainty on firm-level R&D. This finding is in contrast to the existing literature documenting a negative impact of political uncertainty on capital investment. We examine potential mechanisms and find that our results are consistent with the growth option view of R&D investment. The effect
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The Dynamics of Loan Sales and Lender Incentives Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-05-24 Sebastian Gryglewicz, Simon Mayer, Erwan Morellec
How much of a loan should a lender retain, and how do loan sales affect loan performance? We address these questions in a model in which a lender originates loans that it can sell to investors. The lender reduces default risk through screening at origination and monitoring after origination, but is subject to moral hazard. The optimal lender-investor contract can be implemented by requiring the lender
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News and Asset Pricing: A High-Frequency Anatomy of the SDF Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-05-14 Saketh Aleti, Tim Bollerslev
Utilizing real-time newswire data, together with a robustly estimated intraday stochastic discount factor (SDF), we identify and quantify the economic news that is priced. News related to monetary policy and finance on average accounts for most of the variation in the SDF, followed by news about international affairs and macroeconomic data. We also document nontrivial temporal variation in the relative
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Who Can Tell Which Banks Will Fail? Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-05-13 Kristian Blickle, Markus Brunnermeier, Stephan Luck
We study the run on the German banking system in 1931 to understand whether depositors anticipate which banks will fail in a major financial crisis. We find that deposits decline by around 20% during the run. There is an equal outflow of retail and nonfinancial wholesale deposits from both failing and surviving banks. In contrast, we find that interbank deposits almost exclusively decline for failing
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Teams and Bankruptcy Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-05-07 Ramin P Baghai, Rui C Silva, Luofu Ye
We study how the human capital embedded in teams is affected by, and reallocated through, corporate bankruptcies. After a bankruptcy, U.S. inventors produce fewer and less impactful patents. Moreover, teams become less stable. Consequently, compared to inventors that rely less on teamwork, the performance of team inventors deteriorates more. These findings point to the loss of team-specific human capital
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The Coholding Puzzle: New Evidence from Transaction-Level Data Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-05-06 John Gathergood, Arna Olafsson
Why do individuals pay debt interest when they could use their savings to pay down the debt? We explore why individuals “cohold” debt and savings using detailed and highly disaggregated daily-level data on household finances. We find that coholding mostly occurs in short spells within the month and the level of coholding is typically modest. Periods of coholding are not associated with shocks at the
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Digitalization and Retirement Contribution Behavior: Evidence from Administrative Data Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-05-02 Claudio Daminato, Massimo Filippini, Fabio Haufler
Retirement savings decisions are increasingly mediated by digital technologies that promise to help individuals plan adequately for their retirement. We exploit a natural experiment to show that introducing a digital pension application increases the probability of making a voluntary retirement contribution by 1.8 percentage points, from an average pretreatment contribution rate of 2.8%. Men and higher-income
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Blood Money: Selling Plasma to Avoid High-Interest Loans Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-04-29 John M Dooley, Emily A Gallagher
Little is known about the motivations and outcomes of sellers in remunerated markets for human materials. We exploit dramatic growth in the U.S. blood plasma industry to shed light on the sellers of plasma. Sellers tend to be young and liquidity-constrained with low incomes and limited access to traditional credit. Plasma centers absorb demand for nontraditional credit. After a plasma center opens
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Managing Mental Accounts: Payment Cards and Consumption Expenditures Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-04-22 Michael Gelman, Nikolai Roussanov
Does mental accounting matter for total consumption expenditures? We exploit a unique setting in which individuals exogenously receive a new payment card, without requesting one. Using random variation in the time of receipt, we show that individuals temporarily increase total consumption expenditure by making purchases with the new card without reducing spending on the others. We do not observe a
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Size Discount and Size Penalty: Trading Costs in Bond Markets Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-04-02 Gabor Pinter, Chaojun Wang, Junyuan Zou
We show that larger trades incur lower trading costs in government bond markets (“size discount”), but costs increase in trade size after controlling for client identity (“size penalty”). The size discount is driven by the cross-client variation of larger traders obtaining better prices, consistent with theories of trading with imperfect competition. The size penalty, driven by the within-client variation
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Bond Price Fragility and the Structure of the Mutual Fund Industry Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-03-22 Mariassunta Giannetti, Chotibhak Jotikasthira
We conjecture that mutual funds with large shares of outstanding bond issues are more inclined to internalize the negative price spillovers of fire sales and thus sell their holdings in those issues, to a lower extent, when they experience redemptions. We provide evidence consistent with this conjecture and further show that ownership concentration limits bonds’ exposures to flow-induced fire sales
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A Theory of the Term Structure of Interest Rates under Limited Household Risk Sharing Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-03-19 Indrajit Mitra, Yu Xu
We present a theory in which the interaction between limited sharing of idiosyncratic labor income risk and labor adjustment costs (that endogenously arise through search frictions) determines interest rate dynamics. In the general equilibrium, the interaction of these two ingredients relates bond risk premiums, cross-sectional skewness of income growth, and labor market tightness. Our model rationalizes
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Fractional Trading Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-03-19 Zhi Da, Vivian W Fang, Wenwei Lin
Fractional trading (FT)—the ability to trade less than a whole share—removes barriers to high-priced stocks and facilitates entry by capital-constrained retail investors. We observe a surge of tiny trades, measured using off-exchange one-share trades, among high-priced stocks compared to low-priced stocks after FT is introduced to the U.S. equity markets. These tiny trades, when coordinated during
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Unsmoothing Returns of Illiquid Funds Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-03-09 Spencer J Couts, Andrei S Gonçalves, Andrea Rossi
Funds investing in illiquid assets report returns with spurious autocorrelation. Consequently, investors need to unsmooth these funds’ returns when evaluating their risk exposures. We show that funds with similar investments share a common source of spurious autocorrelation not fully resolved by traditional unsmoothing methods and thereby leading to underestimation of systematic risk. Thus, we propose
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Digital Payments and Consumption: Evidence from the 2016 Demonetization in India Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-03-07 Sumit Agarwal, Pulak Ghosh, Jing Li, Tianyue Ruan
We study how consumer spending responds to digital payments, using the differential switch to digital payments across consumers induced by the sudden 2016 Indian Demonetization for identification. Digital payment use rose by 2.94 percentage points and monthly spending increased by 2.38% for an additional 10 percentage points in prior cash dependence. Spending remained elevated even when cash availability
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Equity Return Expectations and Portfolios: Evidence from Large Asset Managers Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-03-05 Magnus Dahlquist, Markus Ibert
Collecting large asset managers’ capital market assumptions, we revisit the relationships between subjective equity premium expectations, equity valuations, and financial portfolios. In contrast to the well-documented extrapolative expectations of retail investors, asset managers’ equity premium expectations are countercyclical: they are high (low) when valuations are low (high). We find that asset
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A Dynamic Theory of Lending Standards1 Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-03-02 Michael J Fishman, Jonathan A Parker, Ludwig Straub
We analyze a dynamic credit market where banks choose lending standards, modeled as costly effort to screen out bad borrowers. Tighter standards worsen the borrower pool, increasing banks’ incentives to employ tight standards in the future. This dynamic complementarity in lending standards can amplify and prolong downturns, decreasing lending and increasing credit spreads. Because lending standards
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Which Subjective Expectations Explain Asset Prices? Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-02-29 Ricardo De la O, Sean Myers
We present a method for determining whether errors in expectations explain asset pricing puzzles without imposing assumptions about the error mechanism. Using accounting identities and survey forecasts, we find that errors in expected long-term inflation explain price variation, return predictability, and the rejection of the expectations hypothesis for aggregate stock and bond markets. Errors in short-term
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Missing Data in Asset Pricing Panels Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-01-28 Joachim Freyberger, Bjoern Hoeppner, Andreas Neuhierl, Michael Weber
We propose a simple and computationally attractive method to deal with missing data in in cross-sectional asset pricing using conditional mean imputations and weighted least squares, cast in a generalized method of moments (GMM) framework. This method allows us to use all observations with observed returns; it results in valid inference; and it can be applied in nonlinear and high-dimensional settings
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Corporate Climate Risk: Measurements and Responses Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-01-17 Qing Li, Hongyu Shan, Yuehua Tang, Vincent Yao
This paper conducts a textual analysis of earnings call transcripts to quantify climate risk exposure at the firm level. We construct dictionaries that measure physical and transition climate risks separately and identify firms that proactively respond to climate risks. Our validation analysis shows that our measures capture firm-level variations in respective climate risk exposure. Firms facing high
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The Effect of Carbon Pricing on Firm Emissions: Evidence from the Swedish CO2 Tax Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-01-17 Gustav Martinsson, László Sajtos, Per Strömberg, Christian Thomann
Sweden was one of the first countries to introduce a carbon tax back in 1991. We assemble a unique data set tracking CO2 emissions from Swedish manufacturing firms over 26 years to estimate the impact of carbon pricing on firm-level emission intensities. We estimate an emission-to-pricing elasticity of around two, with substantial heterogeneity across subsectors and firms, where higher abatement costs
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Using Social Media to Identify the Effects of Congressional Viewpoints on Asset Prices Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-01-17 Francesco Bianchi, Roberto Gómez-Cram, Howard Kung
We use a high-frequency identification approach to document that individual politicians affect asset prices. We exploit the regular flow of viewpoints contained in Congress members’ tweets. Supportive (critical) tweets increase (decrease) the stock prices of the targeted firm and the corresponding industry in minutes around the tweet. The bulk of the stock price effects is concentrated in the tweets
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Credit Freezes, Equilibrium Multiplicity, and Optimal Bailouts in Financial Networks Rev. Financ. Stud. (IF 6.8) Pub Date : 2024-01-05 Matthew O Jackson, Agathe Pernoud
We analyze how interdependencies in financial networks can lead to self-fulfilling insolvencies and multiple possible equilibrium outcomes. Multiplicity arises if a certain type of dependency cycle exists in the network. We show that finding the cheapest bailout policy that prevents self-fulfilling insolvencies is computationally hard, but that the optimal policy has intuitive features in some typical
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Systemic Risk and Monetary Policy: The Haircut Gap Channel of the Lender of Last Resort Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-12-25 Martina Jasova, Luc Laeven, Caterina Mendicino, José-Luis Peydró, Dominik Supera
We show that lender of last resort (LOLR) policy exacerbates bank interconnectedness. Using novel micro-level data, we analyze LOLR's haircut gaps: the differences between the private market and central bank haircuts. LOLR policy incentivizes banks to increase pledging and holdings of higher haircut-gap bonds, especially those issued by domestic and systemically important banks. Effects only apply
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Are Analyst “Top Picks” Informative? Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-12-23 Justin Birru, Sinan Gokkaya, Xi Liu, René Stulz
Following the Global Settlement, analysts extensively use a top pick designation allowing for greater granularity of information among buy recommended stocks, but conflicts of interest can potentially influence this designation. Examining a novel sample of top picks, we find that a calendar-time portfolio of top picks generates an abnormal performance of 17.6% per year. Top picks have greater investment
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Climate Change and Adaptation in Global Supply-Chain Networks Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-12-09 Nora M C Pankratz, Christoph M Schiller
This paper examines how physical climate exposure affects firm performance and global supply chains. We document that heat at supplier locations reduces the operating income of suppliers and their customers. Further, customers respond to perceived changes in suppliers’ exposure: when suppliers’ realized exposure exceeds ex ante expectations, customers are 7% more likely to terminate supplier relationships
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Short Campaigns by Hedge Funds Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-12-08 Ian Appel, Vyacheslav Fos
The number of short campaigns by hedge funds has dramatically increased over the last two decades. Nearly 80% of campaigns are undertaken by activist hedge funds, particularly those that employ hostile tactics in their long campaigns. Short campaigns are associated with negative abnormal returns of -7%, with aggregate valuation effects similar in magnitude to the gains from long activism campaigns
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Noise in Expectations: Evidence from Analyst Forecasts Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-12-07 Tim de Silva, David Thesmar
Analyst forecasts outperform econometric forecasts in the short run but underperform in the long run. We decompose these differences in forecasting accuracy into analysts’ information advantage, forecast bias, and forecast noise. We find that noise and bias strongly increase with forecast horizon, while analysts’ information advantage decays rapidly. A noise increase with horizon generates a mechanical
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Banking on Carbon: Corporate Lending and Cap-and-Trade Policy Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-12-06 Ivan T Ivanov, Mathias S Kruttli, Sumudu W Watugala
We estimate the effect of carbon pricing policy on bank credit to greenhousegas-emitting firms. Our analyses exploit the geographic restrictions inherent in California’s cap-and-trade bill and a discontinuity in the embedded free permit threshold of the federal Waxman-Markey cap-and-trade bill. Affected high emission firms face shorter loan maturities, lower access to permanent forms of bank financing
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Selective Default Expectations Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-12-04 Olivier Accominotti, Thilo N H Albers, Kim Oosterlinck
This paper explores how selective default expectations affect the pricing of sovereign bonds in a historical laboratory: the German default of the 1930s. We analyze yield differentials between identical government bonds traded across various creditor countries before and after bond market segmentation. We show that, when secondary debt markets are segmented, a large selective default probability can
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The Psychological Externalities of Investing: Evidence from Stock Returns and Crime Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-12-01 John R Huck
This paper investigates the psychological effects from stock market returns. Using an FBI database of over 55 million daily reported crime incidents across the United States, crime is proposed as a measure of psychological well-being. The evidence suggests that stock returns affect the well-being of not only investors but also noninvestors. Specifically, a contemporaneous negative (positive) relationship
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Disclosure of Bank-Specific Information and the Stability of Financial Systems Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-11-30 Liang Dai, Dan Luo, Ming Yang
We find that disclosing bank-specific information reallocates systemic risk, but whether it mitigates systemic bank runs depends on the nature of information disclosed. Disclosure reveals banks’ resilience to adverse shocks and shifts systemic risk from weak to strong banks. Yet, only disclosure of banks’ exposure to systemic risk can mitigate systemic bank runs because it shifts systemic risk from
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Health Care Costs and Corporate Investment Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-11-27 Joy Tianjiao Tong
Health care costs for U.S. employers have tripled over the past 20 years. Using firm-specific health expense data, I show that firms negatively adjust capital expenditures and R&D expenses in response to increases in health care costs. The effects are more pronounced for firms that are financially constrained, employ more high-skilled workers, and have less bargaining power relative to insurers. Furthermore
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Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes Rev. Financ. Stud. (IF 6.8) Pub Date : 2023-11-22 Atul Gupta, Sabrina T Howell, Constantine Yannelis, Abhinav Gupta
Amid an aging population and a growing role for private equity (PE) in the care of older adults, this paper studies how PE ownership affects U.S. nursing homes using patient-level Medicare data. We show that PE ownership leads to a patient population with lower health risk. However, after instrumenting for the patient-nursing home match, we find that PE ownership increases mortality by 11%. Declines