Research articles for the 2019-04-08

A Cross-sectional Theory of Price of Risk Proxies
de Oliveira Souza, Thiago
First, this paper theoretically reconciles the existence of the value premium in cross-section with the use of aggregate scaled-price ratios - including value spreads - as price of risk proxies. Scaled-price ratios are risk premium proxies because prices reflect risk premiums (and the price of risk) while scaling variables control for expected cash flows. Scaled-price ratios are not risk proxies, which forecast returns in cross-section but not in time-series. Finally, the paper offers a theoretical criterion to rank these proxies: The proxy's associated risk premium divided by the proxy's standard deviation over time.

A Forward Electricity Contract Price Projection: A Market Equilibrium Approach
Mateus A. Cavaliere,Sergio Granville,Gerson C. Oliveira,Mario V.F. Pereira

This work presents a methodology for forward electricity contract price projection based on market equilibrium and social welfare optimization. In the methodology supply and demand for forward contracts are produced in such a way that each agent (generator/load/trader) optimizes a risk adjusted expected value of its revenue/cost. When uncertainties are represented by a discrete number of scenarios, a key result in the paper is that contract price corresponds to the dual variable of the equilibrium constraints in the linear programming problem associated to the optimization of total agents' welfare. Besides computing an equilibrium contract price for a given year, the methodology can also be used to compute the evolution of the probability distribution associated to a contract price with a future delivery period; this an import issue in quantifying forward contract risks. Examples of the methodology application are presented and discussed

A Theory of Information overload applied to perfectly efficient financial markets
Giuseppe Pernagallo,Benedetto Torrisi

Before the massive spread of computer technology, information was far from complex. The development of technology shifted the paradigm: from individuals who faced scarce and costly information to individuals who face massive amounts of information accessible at low costs. Nowadays we are living in the era of big data and investors deal every day with a huge flow of information. In the spirit of the modern idea that economic agents have limited computational capacity, we propose an original model using information overload to show how too much information could cause financial markets to depart from the traditional assumption of informational efficiency. We show that when information tends to infinite, the efficient market hypothesis ceases to be true. This happens also for lower levels of information, when the use of the maximum amount of information is not optimal for investors. The present work can be a stimulus to consider more realistic economic models and it can be further deepened including other realistic features present in financial markets, such as information asymmetry or noise in the transmission of information.

Are Labor Market Indicators Telling the Truth? Role of Measurement Error in the U.S. Current Population Survey
Shibata, Ippei
Labor market indicators are critical for policymakers, but measurement error in labor force survey data is known to be substantial. In this paper, I quantify the implications of classification errors in the U.S. Current Population Survey (CPS), in which respondents misreport their true labor force status. Once I correct for measurement error using a latent variable approach, the unemployment rate is on average 0.8 percentage points (ppts) higher than the official unemployment rate, with a maximum of 2.0 ppts higher between 1996 and 2018. This paper further quantifies the contributions to business-cycle fluctuations in the unemployment rate from job separation, job finding, and participation. Correcting for misclassification changes previous studies' results about the contributions of these transition probabilities: job separation accounts for more of the unemployment fluctuations, while participation accounts for fewer. The methodology I propose can be applied to any other labor force survey in which labor force status is observed for three periods.

Bank Switching and Interest Rates: Examining Annual Transfers Between Savings Accounts
Gerritsen, Dirk,Bikker, Jacob Antoon
We study the savings transfers between banks by retail depositors. Our sample comprises annual savings account data from the Netherlands for the period from 2004 to 2014. We control for demographic factors and find that the differences in interest rates across savings accounts help explain the extent to which depositors reallocate their savings to either a newly opened or an existing account. The depositors in our sample transfer between 3 and 6% of their savings for each percentage point difference in the interest rates. This effect is robust across various selected samples and model specifications. In addition, we show that depositors transfer a higher proportion of their deposits during the 2008-2009 financial crisis than during non-crisis years. During that crisis, the difference in interest rates remained a highly important determinant of transfer behavior.

Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing
Brown, Jeffrey R.,Kapteyn, Arie,Luttmer, Erzo F. P.,Mitchell, Olivia S.,Samek, Anya Savikhin
This paper examines two behavioral factors that diminish people’s ability to value a lifetime income stream or annuity, drawing on a survey of about 4,000 adults in a U.S. nationally representative sample. By experimentally varying the degree of complexity, we provide the first causal evidence that increasing the complexity of the annuity choice reduces respondents’ ability to value the annuity, measured by the difference between the sell and buy values people assign to the annuity. We also find that people’s ability to value an annuity increases when we experimentally induce them to think jointly about the annuitization decision as well as how quickly or slowly to spend down assets in retirement. Accordingly, we conclude that narrow choice bracketing is an impediment to annuitization, yet this impediment can be mitigated with a relatively straightforward intervention.

Beware the Crash Risk: Tail Beta and the Cross-Section of Stock Returns in China
Long, Huaigang,Zaremba, Adam,Jiang, Yuexiang
We investigate the pricing of systematic tail risk measured by tail beta in the Chinese equity market. Using an array of tests, we examine the performance of more than 3,300 stocks for the years 1999 through 2018. Contrary to evidence from developed markets, we demonstrate a strong negative relationship between the tail beta and future returns. The effect is robust to many considerations and cannot be explained by established pricing factors or alternative risk or illiquidity measures. We link our findings to specific characteristics of the Chinese stock market.

Blindfolded monkeys or financial analysts: who is worth your money?
Giuseppe Pernagallo,Benedetto Torrisi

The efficient market hypothesis has been considered one of the most controversial arguments in finance, with the academia divided between who claims the impossibility of beating the market and who believes that it is possible to gain over the average profits. If the hypothesis holds, it means, as suggested by Burton Malkiel, that a blindfolded monkey selecting stocks by throwing darts at a newspaper's financial pages could perform as well as a financial analyst, or even better. In this paper we use a novel approach, based on confidence intervals for proportions, to assess the degree of inefficiency in the S&P 500 Index components concluding that several stocks are inefficient: we estimated the proportion of inefficient stocks in the index to be between the 12.13% and the 27.87%. This supports other studies proving that a financial analyst, probably, is a better investor than a blindfolded monkey.

CAPM: A Tale of Two Versions
Siddiqi, Hammad
Given that categorization is the core of cognition, we argue that investors do not view firms in isolation. Rather, they view them within a framework of categories that represent prior knowledge. This involves sorting a given firm into a category and using categorization-induced inferences to form earnings and discount-rate expectations. If earnings-aspect is categorization-relevant, then earnings estimates are refined, whereas discount-rates are confounded with the category-exemplar. The opposite happens when discount-rates are categorization relevant. Earnings-focused approach such as DCF, generally used by institutional investors, leads to a version of CAPM in which the relationship between average excess return and stock beta is flat (possibly negative). Value effect and size premium (controlling for quality) arise in this version. Discount-rate focused approach such as multiples or comparables valuation, typically used by individual investors, leads to a second version in which the relationship is strongly positive with growth stocks doing better. The two-version CAPM accounts for several recent empirical findings including fundamentally different intraday vs overnight behavior, as well as behavior on macroeconomic announcement days. Momentum is expected to be an overnight phenomenon, which is consistent with empirical findings. We argue that, perhaps, our best shot at observing classical CAPM in its full glory is a laboratory experiment with subjects who have difficulty categorizing (such as in autism spectrum disorders).

Capital Structure Management by Share Repurchase for Companies in Emerging Markets
Kulik, Julia,Makarova, Svetlana
According to foreign research into developed markets, share repurchasing influences the speed of adjustment of companies’ capital structure to the target level. It is worth noting that the number of such research studies for emerging markets is rather small.On the basis of an empirical study of a selection of 275 companies from BRICS countries involved in share repurchase for the period of 2005 to 2015 we prove here that share repurchase is an efficient method of correcting an existing capital structure, aligning it to approximate a target level in all BRICS countries. It should be noted that in accordance with our results, companies from Brazil and Russia show the highest speed of adjustment (within 63â€"80%). This indicates that these companies are able to achieve the target structure within a very short period. Companies from the other countries (India, China, and South Africa) also show a rather high rate of the speed of adjustment (in the range of 44 to 49%).It is worth noting that apart from the share repurchase itself, characteristic features of the companies (as well as special characteristics of local economic factors where they are relevant) influence the speed of adjustment to the target capital structure. We also found out that the most significant factors which have positive effects on the speed of adjustment are the company size, its growth prospects, share of repurchased shares, economic growth rate, inflation rate in the country which adversely affect to a great extent the speed of adjustment to the target capital structure. For Russian companies the most significant determinants are the company size, share of repurchased shares and inflation rate.An assessment of the speed of adjustment to the target capital structure of companies repurchasing shares showed that for Russian companies (for a balance sheet leverage) and for South African companies (for a market financial leverage) the speed of adjustment is not significant, however in general the countries selection and each sub-selection shows that BRICS countries’ companies are prone to adjust to the target capital structure quicker when the financial leverage is lower than the target value, while companies with an excess debt load optimize much slower.On the basis of the research results we offer an algorithm pertaining to capital structure management for the companies acting in emerging markets using share repurchase in an open market.

Cash Use Across Countries and the Demand for Central Bank Digital Currency
Khiaonarong, Tanai,Humphrey, David
The level and trend in cash use in a country will influence the demand for central bank digital currency (CBDC). While access to digital currency will be more convenient than traveling to an ATM, it only makes CBDC like a bank debit card-not better. Demand for digital currency will thus be weak in countries where cash use is already very low, due to a preference for cash substitutes (cards, electronic money, mobile phone payments). Where cash use is very high, demand should be stronger, due to a lack of cash substitutes. As the demand for CBDC is tied to the current level of cash use, we estimate the level and trend in cash use for 11 countries using four different measures. A tentative forecast of cash use is also made. After showing that declining cash use is largely associated with demographic change, we tie the level of cash use to the likely demand for CBDC in different countries. In this process, we suggest that one measure of cash use is more useful than the others. If cash is important for monetary policy, payment instrument competition, or as an alternative payment instrument in the event of operational problems with privately supplied payment methods, the introduction of CBDC may best be introduced before cash substitutes become so ubiquitous that the viability of CBDC could be in doubt.

China's Evolving Exchange Rate Regime
Das, Sonali
China's exchange rate regime has undergone gradual reform since the move away from a fixed exchange rate in 2005. The renminbi has become more flexible over time but is still carefully managed, and depth and liquidity in the onshore FX market is relatively low compared to other countries with de jure floating currencies. Allowing a greater role for market forces within the existing regime, and greater two-way flexibility of the exchange rate, are important steps to build on the progress already made. This should be complemented by further steps to develop the FX market, improve FX risk management, and modernize the monetary policy framework.

Climate Risk and Financial Stability in the Network of Banks and Investment Funds
Roncoroni, Alan,Battiston, Stefano,Escobar Farfàn, Luis Onésimo Leonardo,Martinez Jaramillo, Serafin
We develop a method to analyze the effects on financial stability of the interplay between climate policy shocks and market conditions. We combine the frameworks of the Climate Stress-test with the framework of the network valuation of financial assets, in which the valuation of interbank claims accounts for market volatility as well as for endogenous recovery rates consistent with the network of obligations. We also include the dynamics of common asset contagion involving not only banks but also investment funds, which are key players in the low carbon transition. We then apply the model to a unique supervisory data-set of banks and investment funds at the firm level in order to assess the impact for financial stability of shocks deriving from the disorderly alignment of energy and utility sectors in a range of climate policy scenarios. While under mild shock scenarios systemic losses are contained, we identify the climate policy scenarios and market conditions under which systemic losses can pose a threat to financial stability.

Credit Cycle and Capital Buffers in Central America, Panama, and the Dominican Republic
Flamini, Valentina,Bologna, Pierluigi,Di Vittorio, Fabio,Zandvakil, Rasool
Credit is key to support healthy and sustainable economic growth but excess aggregate credit growth can signal the build-up of imbalances and lead to systemic financial crisis. Hence, monitoring the credit cycle is key to identifying vulnerabilities, particularly in emerging markets, which tend to be more exposed to sudden external shocks and reversal in capital flows. We estimate the credit cycle in Central America, Panama, and the Dominican Republic and find that the creadit gap is a powerful predictor of systemic vulnerability in the region. We simulate the activation of the Basel III countercyclical capital buffers and discuss the macroprudential policy implications of the results, arguing that countercyclical macroprudential policies based on the credit gap could prove useful to enhance the resilience of the region's financial sector but the activation of macroprudential instruments should also be informed by the development of other macrofinancial variables and by expert judgment.

Cross-border Buyout Performance
Tian, Siyang,Tran, Anh L.
Using a novel dataset of 2,639 cross-border buyout investments during 1998-2007 in 38 countries, we find that the institutional quality of the portfolio company country, as measured by the ranking in the composite index of political, economic and financial risk, is an important determinant of cross-border buyout performance in terms of exit success. The higher the institutional quality of the portfolio company country, the higher the probability of a successful exit via IPO or M&A. PE firms’ international experience, industrial experience, and reputation based on deal experience help to improve buyout exit success and their industrial experience could mitigate the adverse influence of institutional distance between the portfolio company and the PE firm countries.

Debt Build-Up in Frontier Low-Income Developing Countries (Lidcs) Since 2012: Global or Country-Specific Factors and Way Forward?
de Soyres, Constance,Rogantini Picco, Anna,Sab, Randa
This paper focuses on the debt build-up that frontier low-income developing countries (LIDCs) have faced since 2012. First, it documents a 20-percentage point increase in the external and government debt-to-GDP ratios, a composition shift toward higher non-concessional debt, and a rise in interest rate payments. Second, using panel regressions, it shows that while both global and country-specific factors are correlated with debt-to-GDP ratios over 1998-2016, global factors dominate for the period 2012-16. Third, through a small open-economy model, it shows that the projected tightening in global financial conditions would reduce debt-to-GDP ratios by less than the increase associated with the expected rise in investment.

Demographics and the Natural Rate of Interest in Japan
Han, Fei
Japan's aging and shrinking population could lower the natural rate of interest and, together with low inflation expectations, challenge the Bank of Japan's efforts to reflate the economy. This paper uses a semi-structural model to estimate the impact of demographics on the natural rate in Japan. We find that demographic change has a significantly negative impact on the natural rate by lowering trend potential growth. We also find that the negative impact has been increasing over time amid stronger demographic headwinds. These findings highlight the importance of boosting potential growth to offset the negative demographic impact and lift the natural rate in Japan.

Derivatives Markets and Managed Money: Implications for Price Discovery
Arburn, Gregory W.,Harper, Laura
Derivatives markets determination of commodities prices should largely be based on production and utilization of the underlying commodity. Certainly, government programs designed to impact production or utilization including expectations associated with those programs, as well as, weather, geopolitical issues, related commodity dynamics, terrorism, etc. could potentially impact prices. Derivatives markets participants such as producers, merchants, warehousers, processors and end users play a fundamental role of providing liquidity through their management of risk. Of increasing significance is managed money. Hedge funds, commodities index contracts, and commodity Exchange Traded Funds (ETFs) are types of managed money that look to commodity derivatives markets to speculate. This research project utilizes panel data, commodities prices and Commodities Futures Trading Commission (CFTC) data on Commitment of Traders (COT) to isolate the impact that managed money has on commodities prices. To this end we employ regression analysis to analyze various periods of time to test our hypothesis that the flow of managed money into and out of commodities derivatives markets creates price changes not consistent with production and utilization.

Determinants of Currency Composition of Reserves: A Portfolio Theory Approach with an Application to RMB
Lu, Yinqiu,Wang, Yilin
The way central banks manage their foreign reserve assets has evolved over the past decades. Onemajor trend is managing reserves in two or more tranches-liquidity tranche and investmenttranche-especially for those with adequate reserves. Incorporating reserve tranching, we havedeveloped in this paper a central bank's reserve portfolio choice model to analyze the determinants ofthe currency composition of reserves. In particular, we adopt the classical mean-variance frameworkfor the investment tranche and the asset-liability framework for the liquidity tranche. Building onthese frameworks, the roles of currency compositions in imports invoicing and short-term externaldebt, and risk and returns of reserve currencies can be quantified by our structural model-a keycontribution of our paper given the absence of structural models in the literature. Finally, we estimatethe potential paths of the share of RMB in reserves under different scenarios to shed light on its statusas an international currency.

Deterrent Disclosure
Glaeser, Stephen,Landsman, Wayne R.
We examine how product market competition affects the disclosure of innovation. Theory argues that product market competition can cause firms to increase their disclosure of innovation to deter competitors. Consistent with this argument, we find that firms in more competitive industries voluntarily accelerate their patent disclosures, which are credibly disclosed via the United States Patent and Trademark Office. Our inferences are robust to using staggered changes in industry-level import tariffs as shocks to competition in a differences-in-differences design. In total, our results suggest that product market competition increases patent disclosure, consistent with firms using the disclosure of innovation to deter product market competition.

Digital Banking â€" Boon or Bane?
Fernandes, Divya J.,Crasta, Shawna J.,Hans, V. Basil
Living in the technological era, we see that traditional banking is driving us towards the cancer of corruption and it is incomprehensible. Corruption in the Indian banking system has slightly lowered since the launching of the Digital India Campaign. When the government of India made its first move (i.e., demonetization) to curb corruption the outcome was it disrupted the lives of innocent people, as a positive consequence it gave an immediate boost to e-transactions. In the present scenario, people are extensively using e-transaction because of the benefits/returns that they derive from them. In this context, banks must stimulate their customers to use digital banking systems. Thus in India, Digital banking could be a roadmap that curbs corruption to a certain measure.In this research paper, we have attempted to find out as to how Digital Banking helps to curb Corruption in India. The paper also highlights the objectives and functions of Digital Banking and how it contributes to the development of the nation. This research paper further explores the issues and the challenges faced in e-transactions. Finally, the paper examines and draws out a conclusion.

Do Temporary Business Tax Cuts Matter? A General Equilibrium Analysis
Gbohoui, William
This paper develops a dynamic general equilibrium model to assess the effects oftemporary business tax cuts. First, the analysis extends the Ricardian equivalence result toan environment with production and establishes that a temporary tax cut financed by afuture tax-increase has no real effect if the tax is lump-sum and capital markets areperfect. Second, it shows that in the presence of financing frictions which raise the cost ofinvestment, the policy temporarily relaxes the financing constraint thereby reducing themarginal cost of investment. This direct effect implies positive marginal propensities toinvest out of tax cuts. Third, when the tax is distortionary, the expectation of high futuretax rates reduces the expected marginal return on investment mitigating the directstimulative effects.

Does Money Illusion Delude Investors?
Heo, Yuna
This study investigates the role of money illusion in a broad set of anomaly-based strategies. To the extent that anomalies reflect mispricing, I examine whether money illusion predicts anomaly returns. I find that, following periods of high inflation, anomalies are stronger and returns in short leg portfolios are lower. However, following periods of deflation, returns in short leg portfolios are not lower and long-short strategies are not profitable. These findings indicate that money-illusioned investors excessively extrapolate the upside potential of stocks in short leg portfolios following periods of high inflation and, subsequently, experience negative returns. I find the effect of money illusion to remain largely unchanged after controlling for sentiment. Overall, this study presents evidence that money illusion leads to mispricing in the stock market.

Duality for pathwise superhedging in continuous time
Daniel Bartl,Michael Kupper,David J. Prömel,Ludovic Tangpi

We provide a model-free pricing-hedging duality in continuous time. For a frictionless market consisting of $d$ risky assets with continuous price trajectories, we show that the purely analytic problem of finding the minimal superhedging price of a path dependent European option has the same value as the purely probabilistic problem of finding the supremum of the expectations of the option over all martingale measures. The superhedging problem is formulated with simple trading strategies, the claim is the limit inferior of continuous functions, which allows for upper and lower semi-continuous claims, and superhedging is required in the pathwise sense on a $\sigma$-compact sample space of price trajectories. If the sample space is stable under stopping, the probabilistic problem reduces to finding the supremum over all martingale measures with compact support. As an application of the general results we deduce dualities for Vovk's outer measure and semi-static superhedging with finitely many securities.

Entrepreneurial Finance and Economic Growth: A Canadian Overview
Lortie, Pierre
Equity capital plays an important and growing role in connecting financial resources to investment opportunities in a highly productive manner. Exchange-listed companies, IPOs, venture capital and private equity are all complementary investment avenues. Each plays a vital role that allows companies more efficient access to capital for improving productivity, boosting long-term growth and innovation, and creating better jobs. On this dimension, Canada enjoys an enviable position. Despite these positive factors, Canada’s ranking compared to that of other major economies on key dimensions of competitiveness and drivers of sustainable economic growth has been declining. In 2009-10, Canada ranked ninth on the Global Competitiveness Index; in 2018, it had fallen to twelfth place. More worrisome for the future is that Canada’s lacklustre performance in areas known to be significant contributors to productivity, competitiveness and sustainable growth is pervasive across industries and regions. Although the Canadian financial industry cannot be held responsible for all the shortcomings in Canada’s performance, there is no escaping that a disconnect seems to exist between the generally favourable assessment of the effectiveness and strength of the Canadian financial industry and the overall competitiveness of the Canadian economy in the short and long run. One potential explanation has to do with the median size of exits in Canada, which is almost an order of magnitude smaller than in the United States. Moreover, institutional equity investors often engage in sales to foreign firms rather than IPOs. One powerful disincentive to exit through public markets is federal government tax policies that discriminate against and penalize Canadian innovative and high-growth companies that “go public.” In addition to correcting these counterproductive biases, serious consideration should be given to adopting a tax measure similar to the US Small Business Jobs Act of 2010, which provides for full exemption from federal taxation of capital gains realized on the sale of the shares of certain small businesses. There is empirical evidence that the exemption has had a significantly positive effect in the US. Serious consideration should also be given to reducing the capital gains tax on shares issued by qualified SMEs when they list on a Canadian stock exchange and are held by individual investors for a reasonable period of time, since evidence suggests that capital gains taxes influence the underpricing of IPOs. The adoption of such a tax measure applicable to exits by an IPO or upon listing the shares on a Canadian stock exchange would help establish a more neutral playground for the choice of exits, which, to a large extent, is the crux of the matter.

Flu Epidemic, Limited Attention and Analyst Forecast Behavior
Dong, G. Nathan,Heo, Yuna
This study provides the direct evidence that limited attention caused by exogenous distraction influences financial market participants. Specifically, we examine the changes of analyst forecast behavior during influenza epidemics when analysts are facing attention limits resulted from the distraction of experiencing flu symptoms by their family members, relatives, colleagues, and themselves. This paper finds that higher flu intensity in the New York and New Jersey region is associated with lower degree of disagreement on target-price forecasts among financial analysts. More interestingly, analysts are more likely to over-predict target-price for high-performing stocks and under-predict target-price for low-performing stocks. We verify this result using an alternative measure of exogenous distraction that limits analysts’ attention: vaccine side-effect incidence, and we find consistent evidence supporting the hypothesis that the limited attention or effort allocated to their work affects analysts’ forecast behavior; as a result, their ability to act as an important source of information revelation is reduced for at least a short period of time.

Growth at Risk: Concept and Application in IMF Country Surveillance
Prasad, A.,Elekdag, Selim,Jeasakul, Phakawa,Lafarguette, Romain,Alter, Adrian,Feng, Alan,Wang, Changchun
The growth-at-risk (GaR) framework links current macrofinancial conditions to the distribution of future growth. Its main strength is its ability to assess the entire distribution of future GDP growth (in contrast to point forecasts), quantify macrofinancial risks in terms of growth, and monitor the evolution of risks to economic activity over time. By using GaR analysis, policymakers can quantify the likelihood of risk scenarios, which would serve as a basis for preemptive action. This paper offers practical guidance on how to conduct GaR analysis and draws lessons from country case studies. It also discusses an Excel-based GaR tool developed to support the IMF's bilateral surveillance efforts.

Hedge Funds Versus Hedged Mutual Funds: An Examination of Long/Short Funds; A Performance Update
McCarthy, David,Wong, Brian
This paper presents a performance update of those equity long/short mutual funds that were first described and analyzed in “Hedge Funds Versus Hedged Mutual Funds: An Examination of Long/Short Funds” (The Journal of Alternative Investments, Winter 2014), extending that analysis to the period July 2013 - December 2018. The analyses below confirm that these equity long/short mutual funds provide investment exposure similar to leading equity long/short hedge fund indexes. However, in this later time period, these equity long/short mutual funds underperformed the S&P 500 Index and traditional hedge fund indexes. It is further shown that none of the indexes considered in this paper (i.e. the Index of Equity Long/Short Mutual Funds, the HFRI Equity Hedge Fund Index, or the DJ-CS L/S Equity Hedge Fund Index) had positive risk adjusted returns, as measured by alpha. In addition, none of the 26 equity long/short mutual funds with full data for the period July 2013 - December 2018 had positive alpha. Finally, the paper presents data on the lack of performance persistence across these equity long/short mutual funds, analyzes the considerable change in asset sizes of some of these funds, reports on the closure rate of equity long/short mutual funds over this time period, and notes the positive relationship between excess performance over the S&P 500 and equity long/short mutual fund net asset flows.

How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries
Poghosyan, Tigran
This paper assesses the effectiveness of lending restriction measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit. We use data on 99 lending standard restrictions implemented in 28 EU countries over 1990-2018. The results suggest that lending restriction measures are generally effective in curbing house prices and credit. However, the impact is delayed and reaches its peak only after three years. In addition, the impact is asymmetric, with tightening measures having weaker association with target variables compared to loosening measures. The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions. The results have practical implications for macroprudential authorities.

Initial Crypto-Asset Offerings (ICOs), Tokenization and Corporate Governance
Blemus, Stéphane,Guegan, Dominique
This interdisciplinary paper by a mathematician and a legal counsel, both from the Paris 1 Panthéon-Sorbonne University, discusses the potential impacts of the so-called “initial coin offerings”, and of several developments based on distributed ledger technology (“DLT”), on corporate governance. While many academic papers focus mainly on the legal qualification of DLT and crypto-assets, and most notably in relation to the potential definition of the latter as securities/financial instruments, the authors analyze some of the use cases based on DLT technology and their potential for significant changes of the corporate governance analyses.The authors examine in depth the opportunities and risks raised by ICOs, tokenization and distributed ledger technology in terms of corporate governance. First the concepts of ICO and tokenization, and beyond the consequences of distributed ledger technology, will be discussed in the context of a corporate governance perspective; secondly the potential rights granted by different types of crypto-asset holders (whether utility tokens or security tokens) will be carefully analyzed; thirdly the possible governance of a decentralized and distributed organization trying to answer the previous questions will be addressed.

Investigating Tax Culture of the Tax Payers of the Iranian Tax Administration
Niknamian, Sorush
The purpose of this study is to investigate the tax culture of tax payers in the Iranian Tax Administration. This was an applied-descriptive survey study. The statistical population was divided into three groups according to the share of tax revenue in 2017 and 12 provinces from 31 provinces selected by cluster and quota sampling. The sample size was calculated using the Cochran formula for a large population of 690 people for each group. A questionnaire was used to collect data. The content validity of the questionnaires was confirmed by the experts and the construct validity was verified by factor analysis. The reliability of the questionnaires was also calculated using Cronbach's alpha (0.925). The data were analyzed using correlation coefficient, mean test and factor analysis using the Structural Equation Modeling in LISREL. The results showed that each of the components of the tax culture of the tax payers was higher than satisfactory.

Loan Loss Provisions and Bank Stock Returns
Heo, Yuna
This paper examines the asset pricing implication of loan loss provisions (LLP). LLP is a bank’s dominant accrual and a key determinant of informativeness of banks’ financial reports. We find banks with low LLP have significantly higher returns than banks with high-LLP. A long-short investment strategy that buys stocks in the lowest LLP portfolio and sells in the highest LLP portfolio earns statistically significant alpha of 97 basis points per month. The predictive power of LLP is prevalent after controlling for size and bank capital. Further analyses suggest the effect of LLP arises because investors do not fully understand information on LLP, which leads to mispricing.

Mission Critical Products & Services â€" An Analytical Framework
Ramraika, CFA, Baijnath,Trivedi, Prashant,Gujar, Siddhi
Mission critical moats are one of the strongest forms of moats that we come across and also one of the least understood. There are four primary attributes to such moats, namely, product complexity, importance of reputation, low cost in relation to end product's total cost of production, and criticality to the customer. In this paper, we discuss an analytical process for evaluating such moats. Further, through the example of Givaudan, we show how we apply our framework in an effort to help the analyst with a practical framework.

Mobilization Effects of Multilateral Development Banks
Broccolini, Chiara,Lotti, Giulia,Maffioli, Alessandro,Presbitero, Andrea,Stucchi, Rodolfo
We use loan-level data on syndicated lending to a large sample of developing countries between 1993and 2017 to estimate the mobilization effects of multilateral development banks (MDBs), controllingfor a large set of fixed effects. We find evidence of positive and significant direct and indirectmobilization effects of multilateral lending on the number of deals and on the total size of bankinflows. The number of lending banks and the average maturity of syndicated loans also increase afterMDB lending. These effects are present not only on impact, but they last up to three years and are notoffset by a decline in bond financing. There is no evidence of anticipation effects and the results arenot driven by confounding factors, such as the presence of large global banks, Chinese lending andaid flows. Finally, the economic effects are sizable, suggesting that MBDs can play a vital role tomobilize private sector financing to achieve the goals of the 2030 Development Agenda.

Mr. Taylor and the Central Bank: Two Inference Exercises
Luna, Francesco
Many observers argue that the world has changed after the latest financial crisis. If that is the case, monetary policy and the process informing it will have to be reconsidered and 'learned' anew by all stakeholders. Perhaps, a new Taylor rule will emerge. A 'Taylor rule' is predicated upon two successful inference exercises: one by the researcher who is interested in identifying the Central Bank's behavior and one by the Central Bank, which tries to infer how the economy works and interacts with its monetary policy interventions. Because of certain granularities imposed by institutional arrangements and the need for transparent communication in policy making, this paper proposes an analytical framework based on computability theory to model these inference exercises and to assess their general possibility of success. So, is it possible to infer/learn the central bank's policy rule? The answer is a qualified positive and depends on the 'complexity' of the economy and on the quality of information. As for policy implications, the results show that transparency and understandable 'reaction functions' will go a long way in fostering learnability.

Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data
Bottero, Margherita,Minoiu, Camelia,Peydro , Jose-Luis,Presbitero, Andrea,Sette, Enrico
We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrativedata from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply---and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks withhigher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, notwith higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets tocredit-especially to riskier and smaller firms-and cut loan rates, inducing sizable real effects. Byshifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB.

Nonparametric Density Estimation by B-spline Duality
Cui, Zhenyu,Kirkby, Justin,Nguyen, Duy
In this paper, we propose a new non-parametric density estimator derived from the theory of frames and Riesz bases. In particular, we propose the so-called bi-orthogonal density estimator based on the class of B-splines, and derive its theoretical properties including the asymptotically optimal choice of bandwidth. Detailed theoretical analysis and comparisons of our estimator with existing local basis and kernel density estimators are presented. The estimator is particularly well suited for high frequency data analysis in financial and economic markets.

Order book model with herd behavior exhibiting long-range memory
Aleksejus Kononovicius,Julius Ruseckas

In this work, we propose an order book model with herd behavior. The proposed model is built upon two distinct approaches: a recent empirical study of the detailed order book records by Kanazawa et al. [Phys. Rev. Lett. 120, 138301] and financial herd behavior model. Combining these approaches allows us to propose a model that replicates the long-range memory of absolute returns and trading activity. We compare the statistical properties of the model against the empirical statistical properties of the Bitcoin exchange rates and New York stock exchange tickers. We also show that the fracture in the spectral density of the high-frequency absolute return time series might be related to the mechanism of convergence towards the equilibrium price.

Peer Monitoring, Syndication, and the Dynamics of Venture Capital Interactions: Theory and Evidence
Bayar, Onur,Chemmanur, Thomas J.,Tian, Xuan
We develop a theoretical model providing a new rationale for venture capital (VC) syndicateformation and empirically test our model predictions. An entrepreneur obtains financing and twodifferent value-adding inputs from a single VC or from two different VCs, each operating in hisarea of expertise. We characterize the entrepreneur’s equilibrium choice between contractingwith: a single VC; individually with multiple VCs; or with a VC syndicate. We show thatsyndicates mitigate VCs' moral hazard problem in value addition. We also analyze the dynamicsof VC syndicate composition. The results of our empirical analysis are consistent with ourmodel's predictions.

Pension Funds in Mexico and Chile: A Risk-Reward Comparison
Schlechter, Hans,Pagnoncelli, Bernardo,Cifuentes, Arturo
Mexico and Chile have Defined Contributions (DC) pension systems. In both cases affliates are offered several investment funds with, allegedly, different risk-return profiles. Analyzing actual return data for the April 2008-March 2018 period, and using a number of risk (and return) related metrics, we reach quite different conclusions in relation to such funds. In the case of Mexico, the funds delivered returns according to their intended risk profile, and they are consistently ranked correctly in terms of absolute risk, risk-adjusted returns, and cumulative returns. Chilean funds, on the other hand, exhibited erratic risk-return patterns, with the most conservative fund outperforming the riskiest fund in terms of cumulative returns. Overall our analysis is an indictment on the idea of using asset allocation limits to control portfolio risk (Chile), and supports the view that risk is much better controlled using an overall portfolio-level risk metric (Mexico). Since most pension funds still rely heavily on asset-class limits to manage risk, our results should serve as a serious warning against the danger of relying on this practice.

Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia
Cantelmo, Alessandro,Bonato, Leo,Melina, Giovanni,Salinas, Gonzalo
Resilience to climate change and natural disasters hinges on two fundamental elements: financial protection -insurance and self-insurance- and structural protection -investment in adaptation. Using a dynamic general equilibrium model calibrated to the St. Lucia's economy, this paper shows that both strategies considerably reduce the output loss from natural disasters and studies the conditions under which each of the two strategies provides the best protection. While structural protection normally delivers a larger payoff because of its direct dampening effect on the cost of disasters, financial protection is superior when liquidity constraints limit the ability of the government to rebuild public capital promptly. The estimated trade-off is very sensitive to the efficiency of public investment.

Proxyeconomics, A theory of proxy based competition
Oliver Braganza

When society maintains a competitive system to promote an abstract goal, competition by necessity relies on imperfect proxy measures. For instance profit is used to measure value to consumers, patient volumes to measure hospital performance, or the Journal Impact Factor to measure scientific value. Here we note that \textit{any proxy measure in a competitive societal system becomes a target for the competitors, promoting corruption of the measure}, suggesting a general applicability of what is best known as Campbell's or Goodhart's Law. Indeed, prominent voices have argued that the scientific reproducibility crisis or inaction to the threat of global warming represent instances of such competition induced corruption. Moreover, competing individuals often report that competitive pressures limit their ability to act according to the societal goal, suggesting lock-in. However, despite the profound implications, we lack a coherent theory of such a process. Here we propose such a theory, formalized as an agent based model, integrating insights from complex systems theory, contest theory, behavioral economics and cultural evolution theory. The model reproduces empirically observed patterns at multiple levels. It further suggests that any system is likely to converge towards an equilibrium level of corruption determined by i) the information captured in the proxy and ii) the strength of an intrinsic incentive towards the societal goal. Overall, the theory offers mechanistic insight to subjects as diverse as the scientific reproducibility crisis and the threat of global warming.

Rulemaking Petition for Real-Time Disclosure of Proxy Votes
McRitchie, James
Corporations have facilitated the most dynamic economic growth in history. Addressing adverse externalities, like dark money and climate change, has been hampered by dispersed ownership. Mechanisms are needed to define common values and increase individual empowerment within corporate dominated economies. Ironically, recent concentration of corporate ownership by giant index funds presents an opportunity to increase corporate accountability, creating an economy that better serves our larger society by empowering people.Real-time disclosure of corporate proxy votes will lead to competition among funds, based not only on historic costs and returns, but also on the values expressed in their proxy votes. Internet sites and phone applications will revolutionize how such information is shared, allowing much wider participation in the development of corporate strategies and practice around environmental, social and governance (ESG) issues. In this draft rulemaking petition to the SEC, I address how some adverse externalities and other concerns can be addressed on a near-term basis through a combination of emerging technologies, real-time disclosure of proxy votes, and market forces. Given the tenuous legitimacy of shareholder primacy, I end by arguing participation in share ownership and corporate governance needs to dramatically increase if democracy by the people is to be sustained.

Sorting and Fund Size in The Venture Capital Market
Sannino, Francesco
Venture capitalists (VCs) add value to the projects they finance. I develop a matching model where VCs span their attention over more projects, and the entrepreneurs, who own the projects, direct their search to VCs based on their projects' quality. VCs attention is diluted as the fund grows. I derive conditions for positive sorting over VC attention and project quality to emerge. Anticipating positive sorting, VCs shrink their funds excessively. The entry of unskilled VCs feeds back into equilibrium sorting, increases returns at the top of the distribution - consistently with empirical evidence - and leads to a Pareto-improvement. In a dynamic extension, the model provides a new rationale for the prevalence of funds as finitely lived limited partnerships, which emerge in equilibrium even when they are socially wasteful: they allow VCs to attract the best entrepreneurs, who most value the exclusivity that such a fund structure guarantees.

Sovereigns and Financial Intermediaries Spillovers
Tabarraei, Hamid,Rouabah, Abdelaziz,Pierrard, Olivier
We examine the spillover effects between sovereigns and banks in a model with a heterogeneous banking system. An increase in sovereign's default risk affects financial intermediaries through two channels in this model. First, banks' funding costs might increase, inducing higher interest rates on loans and bonds and a cut back in these assets. Second, financial regulator's risk-weighted asset framework would assign higher weights to lower quality assets, implying a portfolio rebalancing and more deleveraging. While capital adequacy requirements weaken the impact of shocks emerging from the real economy, they amplify the effect of shocks on banks' balance sheets.

Spectral backtests of forecast distributions with application to risk management
Michael B. Gordy,Alexander J. McNeil

We study a class of backtests for forecast distributions in which the test statistic depends on a spectral transformation that weights exceedance events by a function of the modeled probability level. The weighting scheme is specified by a kernel measure which makes explicit the user's priorities for model performance. The class of spectral backtests includes tests of unconditional coverage and tests of conditional coverage. We show how the class embeds a wide variety of backtests in the existing literature, and further propose novel variants which are easily implemented, well-sized and have good power. In an empirical application, we backtest forecast distributions for the overnight P&L of ten bank trading portfolios. For some portfolios, test results depend materially on the choice of kernel.

Stability of martingale optimal transport and weak optimal transport
Julio Backhoff-Veraguas,Gudmund Pammer

Under mild regularity assumptions, the transport problem is stable in the following sense: if a sequence of optimal transport plans $\pi_1, \pi_2, \ldots$ converges weakly to a transport plan $\pi$, then $\pi$ is also optimal (between its marginals).

Alfonsi, Corbetta and Jourdain asked whether the same property is true for the martingale transport problem. This question seems particularly pressing since martingale transport is motivated by robust finance where data is naturally noisy. On a technical level, stability in the martingale case appears more intricate than for classical transport since optimal transport plans $\pi$ are not characterized by a `monotonicity'-property of their support.

In this paper we give a positive answer and establish stability of the martingale transport problem. As a particular case, this recovers the stability of the left curtain coupling established by Juillet. An important auxiliary tool is an unconventional topology which takes the temporal structure of martingales into account. Our techniques also apply to the the weak transport problem introduced by Gozlan, Roberto, Samson and Tetali.

Supply Chain Relationships and Syndicate Loan Structure
Croci, Ettore,Degl'Innocenti, Marta,Zhou, Si
Supply chain relationships are thought to provide a certification of the borrower’s quality in the credit market as well as to expose lenders to additional risks. Consistent with the certification view, firms with supply chain links benefit from an easier access to loans. However, this effect is limited to loans in which the lead bank retains a high fraction, i.e. loans where the lender does not diversify. After showing that supply chain participation indeed increases the lead bank’s share, we document that supply chain relationships positively affect the cost of the loans indirectly through its effect on the loan structure, but no additional costs are associated with the supply chain per se. Indeed, lead agents demand higher markups for their lack of diversification. Our results are robust after addressing endogeneity concerns, specific supplier-customer relationship characteristics, and relationship lending.

The Impact of Community Based Health Insurance Schemes on Out-of-Pocket Healthcare Spending: Evidence from Rwanda
Woldemichael, Andinet,Gurara, Daniel,Shimeles, Abebe
Achieving universal health coverage, including financial risk protection and access to quality essential health-care services, is one of the main Sustainable Development Goals. In low-income countries, innovative and affordable health financing systems are key to realize these goals. This paper assesses the impacts of Community-Based Health Insurance Scheme in Rwanda on health-related financial risks using a nationally representative household survey data collected over a ten-year period. We find that the scheme significantly reduce annual per capita out-of-pocket spending by about 3,600 Rwandan Franc (about US$12) or about 83 percent of average per capita healthcare expenditure compared to the baseline level in 2000.The impacts however favor the rich as compared to the poor. The program also reduces the incidence of catastrophic healthcare spending significantly.

The Information Value of Past Losses in Operational Risk
Curti, Filippo,Migueis, Marco
Operational risk is a substantial source of risk for US banks. Improving the performance of operational risk models' allows banks' management to make better risk decisions by better matching economic capital and risk appetite, and allows regulators to better understand the risk of banks. We show that past operational losses are informative of future losses, even after controlling for an exhaustive set of financial characteristics. We propose that the information provided by past losses results from them capturing hard to quantify factors such as the quality of operational risk controls, the risk culture, and the risk appetite of the bank.

The Monitoring Board Revisited
Shishido, Zenichi
The monitoring model of the board of directors is influential worldwide despite being criticized from several perspectives. This article will examine the multi-dimensional rolesâ€"which include not only its monitoring role but also its role as a creator of synergistic effects â€" of the board from the perspective that utilizing outside directors maximizes firm value. In discussing the board’s variety of roles two tradeoffs will be confronted: the first is between monitoring management and management’s autonomy, and the second is between the amount of information shared with outside directions and the independence of outside directors. This article will analyze these two tradeoffs using a four-quadrant figure and identify implications on the direction future board systems will take.

The Performance of US Bond Mutual Funds
Clare, Andrew,O'Sullivan, Niall ,Sherman , Meadhbh ,Zhu, Sheng
We evaluate the performance of the US bond mutual fund industry using a comprehensive sample of bond funds over a long time period from January 1998 to February 2017. In this one study, we examine bond fund selectivity, market timing and performance persistence. We evaluate bond funds relative to their self-declared benchmarks and in terms of both gross-of-fee returns and net-of-fee returns. We document considerable abnormal performance among funds both to the fund (gross returns) and to the investor (net returns). Bond fund performance is found to be superior in the post financial crisis period. However, past strong performance cannot be relied upon to predict future performance. Finally, while some funds exhibit market timing ability; we find a predominance of negative market timing among US bond mutual funds.

The Role of Economic Uncertainty in UK Stock Returns
Gao, Jun ,Zhu, Sheng,O'Sullivan, Niall ,Sherman , Meadhbh
We investigate the role of domestic and international economic uncertainty in the cross-sectional pricing of UK stocks. We consider a broad range of financial market variables in measuring financial conditions in order to obtain a better estimate of macroeconomic uncertainty compared to previous literature. In contrast to many earlier studies using conventional principal component analysis to estimate economic uncertainty, we construct new economic activity and inflation uncertainty indices for the UK using a time-varying parameter factor-augmented vector autoregressive (TVP-FAVAR) model. We then estimate stock sensitivity to a range of macroeconomic uncertainty indices and economic policy uncertainty indices. The evidence suggests that economic activity uncertainty and UK economic policy uncertainty have power in explaining the cross-section of UK stock returns, while UK inflation, EU economic policy and US economic policy uncertainty factors are not priced in stock returns for the UK.

The Use of Data in Assessing and Designing Insolvency Systems
Garrido, José,Bergthaler, Wolfgang,DeLong, Chanda,Johnson, Juliet,Ras, Ami,Rosha, Anjum,Stetsenko, Natalia
To date, the use of empirical data in insolvency law analysis has been sporadic. This paper provides a conceptual framework for the use of data to assess the effectiveness and efficiency of insolvency systems. The paper analyzes the existing sources of data on insolvency proceedings, including general insolvency statistics, judicial statistics, statistics of insolvency regulators and other sources, and advocates for the design of special data collection mechanisms and statistics to conduct detailed assessments of insolvency systems and to assist in the design of legal reforms.

The X-Value Factor
de Oliveira Souza, Thiago
Value normalizes size by book equity, which is a (relatively bad) proxy for expected cash flows. X-value normalizes size by the recursive out-of-sample expectation of each firm's net income, based on its financials, with coefficients estimated by industry. Unlike value (but similarly constructed), the resulting X-value factor is unspanned by the Fama/French factors, market, size, value, investment and profitability, individually or in different combinations (each factor and the market; all factors together; all except value). X-value spans the value and investment premiums with a Sharpe ratio of 0.57 (compared to 0.39 for value).

The fragility of decentralised trustless socio-technical systems
Manlio De Domenico,Andrea Baronchelli

The blockchain technology promises to transform finance, money and even governments. However, analyses of blockchain applicability and robustness typically focus on isolated systems whose actors contribute mainly by running the consensus algorithm. Here, we highlight the importance of considering trustless platforms within the broader ecosystem that includes social and communication networks. As an example, we analyse the flash-crash observed on 21st June 2017 in the Ethereum platform and show that a major phenomenon of social coordination led to a catastrophic cascade of events across several interconnected systems. We propose the concept of ``emergent centralisation'' to describe situations where a single system becomes critically important for the functioning of the whole ecosystem, and argue that such situations are likely to become more and more frequent in interconnected socio-technical systems. We anticipate that the systemic approach we propose will have implications for future assessments of trustless systems and call for the attention of policy-makers on the fragility of our interconnected and rapidly changing world.

Trade Duration, Volatility and Market Impact
Capponi, Francesco,Cont, Rama,Sani, Amir
We perform an empirical investigation of 'market impact' of trades using a large dataset of transactions executed by institutional investors in the US equity market. We find that price variations during trade execution are mainly driven by the aggregate order flow imbalance rather than the direction or size of individual trades. We find the main determinants of the amplitude of these price variations to be market volatility and trade duration. By contrast, trade size and execution speed, as measured by the participation rate, are found to have little or no influence on 'market impact' for orderly trade executions.Conditional on trade duration, trade size is found to have little influence on price variations during execution. We find evidence for a square-root dependence of price changes on duration rather than trade size and propose a simple explanation for this dependence in terms of the well-known square-root scaling of volatility as a function of duration. Our explanation is consistent with previous empirical studies on market impact and provides a simple rationale for the ubiquity of the 'square-root law' in these studies. We also examine the role of the participation rate in determining 'market impact': using evidence from large VWAP trades with high participation rates, we show that conditional on duration, even large changes in participation rate have negligible influence on market impact, contradicting the assumption, common in optimal execution models, that impact increases with the participation rate. In fact, we provide evidence for the opposite effect: for a given trade size, the slower the execution, the higher the amplitude of price variations during the trade. Our findings highlight the need to revisit some common models of market impact and their use in the design of optimal execution, and suggest that it is more meaningful to focus on the modelling of aggregate order flow dynamics and the management of portfolio volatility during execution rather than the optimisation of 'impact' at a trade-by-trade level.

Unemployment Surges in the EU: The Role of Risk Premium Shocks
Bakker, Bas Berend,Korczak, Marta,Krogulski, Krzysztof
In the last decade, over half of the EU countries in the euro area or with currenciespegged to the euro were hit by large risk premium shocks. Previous papers havefocused on the impact of these shocks on demand. This paper, by contrast, focuses onthe impact on supply. We show that risk premium shocks reduce the output level thatmaximizes profit. They also lead to unemployment surges, as firms are forced to cutcosts when financing becomes expensive or is no longer available. As a result, allcountries with risk premium shocks saw unemployment surge, even as euro area corecountries managed to contain unemployment as firms hoarded labor during thedownturn. Most striking, wage bills in euro area crisis countries and the Balticsdeclined even faster than GDP, whereas in core euro area countries wage sharesactually increased.

Ð'ыбор структуры капитала компаниями на развивающихся рынках с учÑ'том бизнес-циклов экономики (Capital Structure Choice in Emerging Markets: Do Business Cycles Matter?)
Kokoreva, Maria,Nikiforov, Mikhail
Russian Abstract: Ð' данной статье представлены результаты исследования структуры капитала компаний, функцио-нирующих на развивающихся рынках капитала, с учетом бизнес циклов экономики. проведенное исследование на данных 581 компаний из стран Ð'рикс за 2002-2014 гг. позволил установить, что целевая структура капитала создается под воздействием одного набора факторов как в периоды экономического роста, так и в периоды спада. скорость приспособления к целевой структуре капи-тала при этом зависит от стадии бизнес цикла экономики: в период экономического роста скорость приспособления выше. в ходе исследования также выявлено, что направление влияния детерми-нант скорости приспособления меняется в зависимости от состояния экономики (отклонение от целевого показателя структуры капитала приводит к росту скорости приспособления в периоды подъема и к падению â€" в периоды экономического спада).English Abstract: This article presents the results of a study of corporate capital structure in emerging capital markets, taking into account the business cycles of the economy. Our study was conducted on the data of 581 companies from BRICS countries for the years 2002-2014. We revealed that the target capital structure is dependent on set of factors which is the same for both periods of economic growth and recession. The speed of adjustment to the target capital structure is dependent upon the stage of the business cycle of the economy and is higher for in economic growth periods. The study also found out that the direction of the impact of the determinants of the speed of adjustment varies depending on the state of the economy (the deviation from the target capital structure leads to an increase in the speed of adjustment in periods of growth and a fall - in times of recession).