Research articles for the 2019-05-06

A Binomial Asset Pricing Model in a Categorical Setting
Takanori Adachi,Katsushi Nakajima,Yoshihiro Ryu

Adachi and Ryu introduced a category Prob of probability spaces whose objects are all probability spaces and whose arrows correspond to measurable functions satisfying an absolutely continuous requirement in [Adachi and Ryu, 2019]. In this paper, we develop a binomial asset pricing model based on Prob. We introduce generalized filtrations with which we can represent situations such as some agents forget information at some specific time. We investigate the valuations of financial claims along this type of non-standard filtrations.

A Multicriteria Decision Making Approach to Study the Barriers to the Adoption of Autonomous Vehicles
Alok Raj,J Ajith Kumar,Prateek Bansal

The automation technology is emerging, but the adoption rate of autonomous vehicles (AV) will largely depend upon how policymakers and the government address various challenges such as public acceptance and infrastructure development. This study proposes a five-step method to understand these barriers to AV adoption. First, based on a literature review followed by discussions with experts, ten barriers are identified. Second, the opinions of eighteen experts from industry and academia regarding inter-relations between these barriers are recorded. Third, a multicriteria decision making (MCDM) technique, the grey-based Decision-making Trial and Evaluation Laboratory (Grey-DEMATEL), is applied to characterize the structure of relationships between the barriers. Fourth, robustness of the results is tested using sensitivity analysis. Fifth, the key results are depicted in a causal loop diagram (CLD), a systems thinking approach, to comprehend cause-and-effect relationships between the barriers. The results indicate that the lack of customer acceptance (LCA) is the most prominent barrier, the one which should be addressed at the highest priority. The CLD suggests that LCA can be rather mitigated by addressing two other prominent, yet more tangible, barriers -- lack of industry standards and the absence of regulations and certifications. The study's overarching contribution thus lies in bringing to fore multiple barriers to AV adoption and their potential influences on each other. Moreover, the insights from this study can help associations related to AVs prioritize their endeavors to expedite AV adoption. From the methodological perspective, this is the first study in transportation literature that integrates Grey-DEMATEL with systems thinking.

Assessing Buyer Power in Syndicated Loans
Köksal, Emin,Ardiyok, Sahin
Bu yazının Türkçe versiyonu şurada bulunabilir: main purpose of this study is to examine the buyer power of the borrowers at the multilateral loan market including the syndicated and club loans. Although there has not been a formal definition yet for the buyer power concept in the antitrust economics literature, it may be described as the power that is exercised by the buyers on market transactions. In some markets, it is observed that not the sellers but the buyers may exercise their power on market prices and/or quantities. Corporate multilateral loan market is one of those markets, mostly because of the characteristics of the borrowers which are large and financially sound companies.In this study, the analysis done for the multilateral loan market are based on the assessment of the borrowers’ buyer power and the lenders’ market power. While on one side the competitive conditions in the market and market power of lenders have been elaborated, on the other side factors that determine the buyer power of borrowers have been assessed. The study also provides a specific analysis for Turkish companies in multilateral loan market and their buyer power.Through reviewing the relevant scientific literature and based on the data, the study put the following findings concerning the buyer power of borrowers in multilateral (syndicated/club) loans:• Company characteristics -such as, company size, publicly available information and domestic/foreign ownership- are the most important determinants for the choice of debt instruments. Companies and financial institutions may reach alternative borrowing tools based on their characteristics.• Credit quality of some large companies -called blue-chips- enable them to directly access to the international capital markets and gives them bargaining power over lenders in multilateral loan market. This proves the significance buyer power of such companies in multilateral loan market.• Our analysis for the Turkish borrowers in multilateral loan market shows that Turkish companies have considerable buyer power because of the following reasons: (1) In Turkey the demand side of the multilateral loan market is shallow and concentrated, (2) the number of potential buyers for multilateral loans have been stable, (3) Turkish companies may switch to other debt instruments in case of cost increases.Based on the above findings and facts, we argue that a proper competition analysis which assesses the multilateral loan market -including syndicated and club loans- should consider the buyer power of borrowers as a significant factor.

Characterizing non-myopic information cascades in Bayesian learning
Ilai Bistritz,Nasimeh Heydaribeni,Achilleas Anastasopoulos

We consider an environment where a finite number of players need to decide whether to buy a certain product (or adopt a trend) or not. The product is either good or bad, but its true value is not known to the players. Instead, each player has her own private information on the quality of the product. Each player can observe the previous actions of other players and estimate the quality of the product. A player can only buy the product once. In contrast to the existing literature on informational cascades, in this work players get more than one opportunity to act. In each turn, a player is chosen uniformly at random from all players and can decide to buy or not to buy. His utility is the total expected discounted reward, and thus myopic strategies may not constitute equilibria. We provide a characterization of structured perfect Bayesian equilibria (sPBE) with forward-looking strategies through a fixed-point equation of dimensionality that grows only quadratically with the number of players. In particular, a sufficient state for players' strategies at each time instance is a pair of two integers, the first corresponding to the estimated quality of the good and the second indicating the number of players that cannot offer additional information about the good to the rest of the players. We show existence of such equilibria and characterize equilibria with threshold strategies w.r.t. the two aforementioned integers. Based on this characterization we study informational cascades and show that they happen with high probability for a large number of players. Furthermore, only a small portion of the total information in the system is revealed before a cascade occurs.

Co-jumping of Treasury Yield Curve Rates
Jozef Barunik,Pavel Fiser

We study the role of co-jumps in the interest rate futures markets. To disentangle continuous part of quadratic covariation from co-jumps, we localize the co-jumps precisely through wavelet coefficients and identify statistically significant ones. Using high frequency data about U.S. and European yield curves we quantify the effect of co-jumps on their correlation structure. Empirical findings reveal much stronger co-jumping behavior of the U.S. yield curves in comparison to the European one. Further, we connect co-jumping behavior to the monetary policy announcements, and study effect of 103 FOMC and 119 ECB announcements on the identified co-jumps during the period from January 2007 to December 2017.

Computing a Data Dividend
Eric Bax

Quality data is a fundamental contributor to success in statistics and machine learning. If a statistical assessment or machine learning leads to decisions that create value, data contributors may want a share of that value. This paper presents methods to assess the value of individual data samples, and of sets of samples, to apportion value among different data contributors. We use Shapley values for individual samples and Owen values for combined samples, and show that these values can be computed in polynomial time in spite of their definitions having numbers of terms that are exponential in the number of samples.

Continuous-Time Mean-Variance Portfolio Selection: A Reinforcement Learning Framework
Haoran Wang,Xun Yu Zhou

We approach the continuous-time mean-variance (MV) portfolio selection with reinforcement learning (RL). The problem is to achieve the best tradeoff between exploration and exploitation, and is formulated as an entropy-regularized, relaxed stochastic control problem. We prove that the optimal feedback policy for this problem must be Gaussian, with time-decaying variance. We then establish connections between the entropy-regularized MV and the classical MV, including the solvability equivalence and the convergence as exploration weighting parameter decays to zero. Finally, we prove a policy improvement theorem, based on which we devise an implementable RL algorithm. We find that our algorithm outperforms both an adaptive control based method and a deep neural networks based algorithm by a large margin in our simulations.

Corrections in the US Equity Markets
Schmidt, Anatoly B.
A rule-based definition of market corrections that depends on the asset price volatility is proposed. The statistics of corrections in several major US equity indexes and ETFs is compiled. It is found that the dummy variables that account for market corrections improve the accuracy of the ARMA+GARCH model for asset returns. According to the rule-based definition proposed in this work, the bear market of 2007 â€" 2009 had five distinct corrections, three of which exceeded 20%. Among other findings, volatility increases during market corrections. The losses of the S&P 500 growth index during the market corrections before 2007 were mostly higher than the losses of the S&P 500 value index; however, it is not the case since 2007. Corrections in the US equity sector ETFs are determined by the sector-specific trends rather than by their volatility. It is concluded that the rule-based definition of market corrections proposed in this work offers deeper insights into dynamics of bear markets. It also enables consistent comparison of corrections in different markets. The results obtained in this work may be useful for better understanding of business cycles and optimal portfolio rebalancing among various equity sectors.

Cross Currency Swap Trading & Pricing Formulae - A PowerPoint Overview with Excel Pricing Examples
Burgess, Nicholas
This document provides a summary of the more detailed cross pricing paper, see present a PowerPoint overview of cross currency swaps (Xccy Swaps) and the pricing formula as seen from a trading perspective. Firstly we outline swap preliminaries, reviewing interest rate swaps, yield curve construction, rates trading, pricing & risk. Secondly we outline and give a breakdown of the cross currency swap pricing formula and provide Excel pricing examples.

Decomposing Changes in the Functioning of the Sterling Repo Market
Noss, Joseph,Patel, Rupal
We identify the degree to which changes in gilt repo market functioning have been driven by changes in the supply of â€" and the demand for â€" market intermediation. To do so, we use a structural vector auto regression (SVAR) model with sign and zero restrictions. We find that changes in gilt repo market functioning over the past five years have been driven largely by changes in the supply of repo market intermediation by dealers, rather than by changes in the demand of end-users. Following the introduction of the UK leverage ratio, our model suggests that an increase in demand for repo by end-users results in a larger increase in the cost of repo transactions and a smaller increase in their volume. This effect is stronger in the case of transactions that are not nettable via central counterparties. These findings are consistent with the notion that the leverage ratio may reduce dealers’ ability and/or willingness to act as repo market intermediaries. This may have implications for the resilience of repo markets in future periods of stress.

Efficient Computation of Various Valuation Adjustments Under Local L\'evy Models
Anastasia Borovykh,Andrea Pascucci,Cornelis W. Oosterlee

Various valuation adjustments, or XVAs, can be written in terms of non-linear PIDEs equivalent to FBSDEs. In this paper we develop a Fourier-based method for solving FBSDEs in order to efficiently and accurately price Bermudan derivatives, including options and swaptions, with XVA under the flexible dynamics of a local L\'evy model: this framework includes a local volatility function and a local jump measure. Due to the unavailability of the characteristic function for such processes, we use an asymptotic approximation based on the adjoint formulation of the problem.

Evidence for Gross Domestic Product growth time delay dependence over Foreign Direct Investment. A time-lag dependent correlation study
Marcel Ausloos,Ali Eskandary,Parmjit Kaur,Gurjeet Dhesi

This paper considers an often forgotten relationship, the time delay between a cause and its effect in economies and finance. We treat the case of Foreign Direct Investment (FDI) and economic growth, - measured through a country Gross Domestic Product (GDP). The pertinent data refers to 43 countries, over 1970-2015, - for a total of 4278 observations. When countries are grouped

according to the Inequality-Adjusted Human Development Index (IHDI), it is found that a time lag dependence effect exists in FDI-GDP correlations.

This is established through a time-dependent Pearson 's product-moment correlation coefficient matrix.

Moreover, such a Pearson correlation coefficient is observed to evolve from positive

to negative values depending on the IHDI, from low to high. It is "politically and policy

"relevant" that

the correlation is statistically significant providing the time lag is less than 3 years. A "rank-size" law is demonstrated.

It is recommended to reconsider such a time lag effect when discussing previous analyses whence conclusions on international business, and thereafter on forecasting.

Female Directors, CEO Overconfidence and Excess Cash
El Kalak, Izidin,Tosun, Onur Kemal
Is the moderating effect of female board representation on the CEO overconfidence sufficiently strong to alter the firms’ excess cash decisions? We address this question using data on 1,163 US-listed firms for 2000-2017. Prior research posits that overly confident CEOs hold less cash compared to their rational counterparts. We show that having more female directors on the board not only stops the decline in excess cash due to the overconfident CEO but also increases excess cash holdings in those firms. Better female board representation enhances corporate decision making through effective monitoring and thus, taming the CEO’s biased behavior i.e., overconfidence.

Financial Modeling & Valuation: An Applied Integrated Framework for Practitioners
Tham, Joseph,Velez-Pareja, Ignacio
This is a draft of Chapter 1 for an upcoming book on Financial Modeling & Valuation. Informally, the chapter introduces the basic concepts in cash flow valuation. It reviews the different types of finite cash flows and discusses the cost of capital with and without taxes in a world with perfect capital markets. We present the Free Cash Flow (FCF) and the Capital Cash Flow (CCF). This chapter is the foundational background for understanding the subsequent chapters.

Functional central limit theorems for rough volatility
Blanka Horvath,Antoine Jacquier,Aitor Muguruza

We extend Donsker's approximation of Brownian motion to fractional Brownian motion with Hurst exponent $H \in (0,1)$ and to Volterra-like processes. Some of the most relevant consequences of our `rough Donsker (rDonsker) Theorem' are convergence results for discrete approximations of a large class of rough models. This justifies the validity of simple and easy-to-implement Monte-Carlo methods, for which we provide detailed numerical recipes. We test these against the current benchmark Hybrid scheme \cite{BLP15} and find remarkable agreement (for a large range of values of~$H$). This rDonsker Theorem further provides a weak convergence proof for the Hybrid scheme itself, and allows to construct binomial trees for rough volatility models, the first available scheme (in the rough volatility context) for early exercise options such as American or Bermudan.

Fundamental Theorem of Asset Pricing under fixed and proportional transaction costs
Martin Brown,Tomasz Zastawniak

We show that the lack of arbitrage in a model with both fixed and proportional transaction costs is equivalent to the existence of a family of absolutely continuous single-step probability measures together with an adapted process between the bid-ask spreads that satisfies the martingale property with respect to each of the measures. This extends Harrison and Pliska's classical Fundamental Theorem of Asset Pricing to the case of combined fixed and proportional transaction costs.

Gaussian stochastic volatility models: Scaling regimes, large deviations, and moment explosions
Archil Gulisashvili

In this paper, we study Gaussian stochastic volatility models. The evolution of volatility in such a model is described by a stochastic process, which can be represented as a nonnegative continuous function of a continuous Gaussian process. If the volatility process exhibits fractional features, then the model is called a Gaussian fractional stochastic volatility model. Important examples of fractional volatility processes are fractional Brownian motion, the Riemann-Liouville fractional Brownian motion, and the fractional Ornstein-Uhlenbeck process. If the volatility process admits a Volterra type representation, then the model is of Volterra type. In the paper, we provide a unified approach to various scaling regimes associated with Gaussian models. More precisely, large deviation, moderate deviation, and central limit scalings are introduced in the paper. We prove a sample path large deviation principle for the log-price process in a Volterra type Gaussian stochastic volatility model and a sample path moderate deviation principle for the same process in a Gaussian stochastic volatility model. We also study the asymptotic behavior of call pricing functions and the implied volatility in mixed scaling regimes. It is also shown that tail estimates arising in the large deviation theory are locally uniform. Another problem addressed in the paper concerns moment explosions for the asset price process in a Gaussian stochastic volatility model. We prove that for the asset price process in an uncorrelated Gaussian stochastic volatility model with the volatility function growing faster than linearly, all the moments of order greater than one are infinite. Explosions of all the moments of order $\gamma>(1-\rho^2)^{-1}$, where $\rho$ is the correlation coefficient, are shown for correlated models, and partial results are obtained for the case where $\gamma=(1-\rho^2)^{-1}$.

How Does Corruption Undermine Banking Stability? A Threshold Nonlinear Framework
Ben Ali, Mohamed Sami,Fhima, Fredj,Nouira, Ridha
This study assess the effect of corruption on the occurrence of banking crisis for a sample of 38 countries over the period 2000 â€" 2017. We consider both the direct and the indirect channels through which corruption might affect the occurrence of banking crisis. We also check using a threshold regression approach for the existence of a corruption threshold driving the existence of a regime switching in our sample countries for both high-income and low-income countries. Estimation outcomes show robust support to suggest that overall, corruption increase the probability of banking crisis. The indirect effect estimation suggest that corruption negatively affects the banks’ lending channel through excessive risk rather than their profitability channel. The panel threshold analysis provides evidence of a nonlinear corruption-banking stability relationship with the existence of two corruption-banking stability regimes. The study also provides evidence that corruption matter more for low-income than for high-income countries for their banking system stability.

How Does the Market React When Shareholders Lose Power?
Akyol, Ali C.
Using a decision made by a corporate vote tabulating firm which reduces shareholder power, I examine how the market views shareholder proposals and, in general, whether shareholder empowerment creates value. I find that the overall market reaction to the decision made by the vote tabulating firm was positive, suggesting that the market views the limiting of shareholder power favorably. I also find that the type of proposal as well as its sponsor matters. The market’s reaction was negative for better performing firms, firms which were targets of proxy fights, and firms which had proposals sponsored by hedge funds. On the other hand, the market’s reaction for firms with social responsibility proposals and firms with proposals submitted by individual investors was positive. My results suggest that it is important to understand how shareholders get involved in corporate affairs to correctly gauge the benefits and costs of shareholder empowerment.

Impact of Artificial Intelligence on Businesses: from Research, Innovation, Market Deployment to Future Shifts in Business Models
Neha Soni,Enakshi Khular Sharma,Narotam Singh,Amita Kapoor

The fast pace of artificial intelligence (AI) and automation is propelling strategists to reshape their business models. This is fostering the integration of AI in the business processes but the consequences of this adoption are underexplored and need attention. This paper focuses on the overall impact of AI on businesses - from research, innovation, market deployment to future shifts in business models. To access this overall impact, we design a three-dimensional research model, based upon the Neo-Schumpeterian economics and its three forces viz. innovation, knowledge, and entrepreneurship. The first dimension deals with research and innovation in AI. In the second dimension, we explore the influence of AI on the global market and the strategic objectives of the businesses and finally, the third dimension examines how AI is shaping business contexts. Additionally, the paper explores AI implications on actors and its dark sides.

Interbank Networks in the Shadows of the Federal Reserve Act
Anderson, Haelim,Erol, Selman,Ordoñez, Guillermo
Central banks provide public liquidity (through lending facilities and promises of bailouts) with the intent to stabilize the financial system. Even though this provision is restricted to member (regulated) banks, an interbank system can provide indirect access to nonmember (shadow) banks. We construct a model to understand how a banking network may change in the presence of central bank interventions and how those changes affect financial fragility. We provide evidence showing that the introduction of the Fed’s liquidity provision in 1913 increased systemic risk through three channels; it reduced aggregate liquidity, created a new source of financial contagion, and crowded out private insurance for smoothing cross-regional liquidity shocks (manifested through the geographic concentration of networks).

Is An Informative Stock Price Used Less in Incentive Contracts?
Swan, Peter L.
II address the way agency incentives evolve, from listed equity with low liquidity to highly liquid stocks with active informed speculators. I conclude that, as the informativeness of stock price about the manager’s actions improves, less weight needs to be given to both equity and non-price incentives due to this higher quality. Hence managerial pay-performance sensitivity should be lower in more liquid stocks but higher in illiquid start-ups and where face-to-face monitoring is impossible (franchise contracts). The model explains why firms with low inside-ownership and high liquidity increasingly dominate the U.S. market even as the total number of listings declines.

Matching Methods in Valuation with Finite Cash Flows: An Annotated Appendix
Tham, Joseph,Velez-Pareja, Ignacio
This is an annotated appendix that accompanies the paper. In this note, we provide detailed commentary on a numerical example that illustrates the ideas that we discuss in the main paper. The numerical example is in Table18.10, Chapter 8, page 656, of the third edition of Corporate Finance, 2014, by Berk & DeMarzo. Upon request, the authors would be delighted to share the EXCEL file. We welcome correspondence to exchange ideas.

Measuring the Spillovers of Uncertainty Shocks
Gonzalez-Perez, Maria T.
This article studies the spillovers of uncertainty shocks priced (and transmitted) in stock index options quotes in Europe from 2001 to 2018, focusing on the financial crisis, the EU sovereign debt crisis, and the Brexit periods. We estimate two spillover indices (for European and European Monetary Union markets) using the log-ratio of leading European volatility indices in a VAR framework, following Diebold & Yilmaz (2012), and study their dynamics. First, we find evidence of the ability of options markets to price uncertainty shocks resulting from political, economic and financial events, even those due to terror attacks. Second, although we find the UK and Swiss (non-EMU) options markets essential explaining the transmission of uncertainty shocks across EMU markets (mostly during the financial crisis), this role becomes significantly less important after the Brexit. Third, we find a non-linear relationship between the spillover dynamics and economic policy uncertainty that depends on the global financial cycle and the economic business cycle. Finally, regarding the effects of uncertainty shocks on return’s dynamics, we find a stronger leverage effect in times of uncertainty shock contagion (mostly before 2010) which would lead to different management strategies for different spillover index scenarios. Overall, the results improve our understanding of the inter-market connectedness and stock price dynamics, and our ability to estimate when the transmission of uncertainty shocks is likely. These results may help central banks explain the effectiveness of monetary policy (forward guidance), policymakers design policy to achieve similar effects in different regions and risk managers buy risk (volatility) protection at the lowest cost.

Model-free pricing and hedging in discrete time using rough path signatures
Terry Lyons,Sina Nejad,Imanol Perez Arribas

We make use of a family of primitive securities, in the spirit of Arrow-Debreu, to price and hedge in a model-free way path-dependent exotic derivatives in discrete time. These primitive securities are called signature payoffs. First, we show that cash flows of exotic derivatives in discrete time can be approximated arbitrarily well by these primitive securities, and we then conclude that signature payoffs can be used to price path-dependent exotic derivatives. Second, signature payoffs are used to derive a numerically feasible methodology to dynamically hedging exotic derivatives. It turns out that the only information one needs about the market to dynamically hedge exotic derivatives is the prices of these signature payoffs. These two aspects lead to a model-free approach to numerically price and hedge exotic derivatives from market data - more specifically, from market prices of other exotic derivatives. We demonstrate the feasibility of our approach in several numerical experiments.

New Essentials of Economic Theory II. Economic Transactions, Expectations and Asset Pricing
Olkhov, Victor
This paper presents further development of our economic model (see Part I). We describe economic and financial transactions between agents as factors that define evolution of economic variables. We show that change of risk ratings of agents as their coordinates on economic space due to their economic activity or other reasons induce flows of economic transactions that contribute significantly to macroeconomic evolution. Transactions are made under numerous expectations of agents and agents establish their expectations on base of economic variables, transactions, other factors that impact economic evolution. We argue that economic value of expectations should be regarded proportionally to economic value of transactions made under these expectations. We describe transition from modeling transactions and expectations of separate agents to description of density functions of transactions and expectations on economic space. We derive systems of equations that describe density functions of transactions, expectations and their flows. We explain how transactions and expectations determine asset pricing and derive price equations. In Part III we use our model equations on economic variables, transactions, expectations and their flows for description of particular economic problems.

Official Demand for US Debt: Implications for US Real Rates
Kaminska, Iryna,Zinna, Gabriele
We estimate a structural term-structure model of US real rates, where arbitrageurs accommodate demand pressures exerted by domestic and foreign official investors. Official demand affects rates by altering the aggregate price of duration risk, and thereby bond risk premiums. While foreign central banks’ demand contributed to reduce long-term real rates mainly in the years prior to the global-financial crisis, the Federal Reserve’s demand lowered rates during the QE period. Overall, the two-factor model, augmented to account for changing liquidity conditions, offers a good representation of real rates during the 2001â€"2016 period; however, we flag some caveats and possible extensions.

Optimal execution with dynamic risk adjustment
Xue Cheng,Marina Di Giacinto,Tai-Ho Wang

This paper considers the problem of optimal liquidation of a position in a risky security in a financial market, where price evolution are risky and trades have an impact on price as well as uncertainty in the filling orders. The problem is formulated as a continuous time stochastic optimal control problem aiming at maximizing a generalized risk-adjusted profit and loss function. The expression of the risk adjustment is derived from the general theory of dynamic risk measures and is selected in the class of $g$-conditional risk measures. The resulting theoretical framework is nonclassical since the target function depends on backward components. We show that, under a quadratic specification of the driver of a backward stochastic differential equation, it is possible to find a closed form solution and an explicit expression of the optimal liquidation policies. In this way it is immediate to quantify the impact of risk-adjustment on the profit and loss and on the expression of the optimal liquidation policies.

Portfolio Diversification and Oil Price Shocks: A Sector Wide Analysis
Ali, Mohsin,Azmi, Wajahat,Khan, Aftab Parvez
This paper investigates the time-varying relationship between the oil price and disaggregated stock market of India using dynamic conditional correlation multivariate GARCH and continuous wavelet transformation modelling approaches. Our findings reveal the evolving relationship between the oil price and disaggregated stock market. The correlations are generally volatile before the 2007-2008 crisis but since then the correlations are positive implying no diversification benefits for the investors during rising oil prices. As emerging markets in general, and India in particular, is expected to increase its share of oil consumption in the world’s energy market, therefore for the stock market to grow, especially the oil-intensive industries, we recommend the government should increase its reliance on alternative energy resources. Furthermore, as rising oil prices can also have its adverse effect through exchange rate channel, we suggest the monetary policies should be time varying to manage the oil inflationary pressures arising out of extreme volatility in the oil prices.

Principles of Financial Control, Applied by the State Financial Inspection Agency
Nedyalkova, Plamena
The “Principles of Financial Control, applied by the State Financial Inspection Agency” book deals with the issue of compliance and enforcement of certain control rules by control authorities. The principles of financial control determine its methodology. The impact that financial control seeks to achieve both on those directly affected and involved in the control process, but also on society, cannot be achieved without the proper observance and enforcement of control principles. Control principles are the main building block, on the basis of which not only the entire control process is carried out, but also the control technology. The control technology, applied by the different control bodies is different, which contributes to the diversity of the application of the principles of financial control. It can be assumed that they are the concept or the idea of its realization and performance. With the help of the principles of control, it is possible to provide independent, accurate and objective information about the status of the controlled object and help accurately assess the existence of quantitative and qualitative deviations from the accepted norms. The main problem in control practice is that never a single violation is the result of incorrect application and observance of just one principle; it is a consequence of the compiled non-observance of several principles. Each principle has its own peculiarities of how to apply it. The application of the principles is determined by the control environment, the powers of the control body, as well as the objectives and tasks set in the control process. The general requirements of compliance with any principle of financial control apply to all control bodies. The study of the application of the principles of financial control is a complex process due to the fact that the principles are a quality regularity that should be respected by the relevant control body. The approaches, presented in the book for studying the principles of financial control, are a proposal which the author hopes to find its practical purpose in the control practice. The dynamically changing legislation, in line with EU requirements, is a prerequisite for changing the existing and introducing new control principles. The book presents relevant issues, which are subject to research by inspectors, accountants, auditors, financiers, economists, but is also being analyzed by a wider audience.

Recovery Rates: Uncertainty Certainly Matters
Gambetti, Paolo,Gauthier, Geneviève,Vrins, Frédéric D.
Previous studies identify default rates as the main systematic determinant of bonds' recovery rates. In this work, we revisit this paradigm by investigating the impact of another factor: economic uncertainty. We study the influence of the latter and the one of traditional variables on the shape of recovery rates distributions, rather than on recovery rates themselves. Based on a wide sample of American default issues and statistical methods tailored to recovery rates data specificities, we show that economic uncertainty is the most important systematic determinant of recovery rates distributions. By contrast, default rate remains a key determinant of the dispersion of these distributions, but not for their means. Taking this evidence into account is critical for the sound implementation of stochastic recovery rates models used by financial institutions for the computation of regulatory capital.

Retail Attention, Institutional Attention
Liu, Hongqi,Peng, Lin,Tang, Yi
Using direct proxies for retail and institutional investor attention, we test and provide evidence for the hypothesis that investors’ attention allocation is important for information efficiency in financial markets. The presence of macroeconomic news crowds out retail investor attention to firms’ earnings announcements, while institutional attention remains unaffected. The crowding out effect is more pronounced during periods of greater macro uncertainty, and it is associated with lower return, volume, and volatility responses to earnings announcements. More generally, earnings news generate smaller return responses for stocks with lower retail attention, even after controlling for institutional attention.

Simple Better Market Betas
Welch, Ivo
The random-effects estimator in Vasicek (1973) and its variants provide the best predictors of market-beta known to date. However, they require multi-pass procedures (time-series and cross-section) and spookily entangle each stock’s beta estimate with unrelated stocks. Yet, the reason for their good performances has been misunderstood. They work so well because they pull in outliers. Thus, a much simpler robust estimator can predict future market-betas at least as well. It only requires first winsorizing stock returns at -1 and +3 times the market rate of return. A quick WLS decay of historical returns improves performance further. Moreover, my paper shows that the Dimson (1979) and Frazzini and Pedersen (2014) estimators are inferior even to plain OLS estimators. They should be considered de-facto inadmissible estimators of market-beta.

Social Status and Risk-Taking in Investment Decisions
Lindner, Florian,Kirchler, Michael,Rosenkranz, Stephanie,Weitzel, Utz
A pervasive feature in the finance industry is relative performance, which can include extrinsic (money), intrinsic (self-image), and reputational (status) motives. In this paper, we model a portfolio decision with two assets and investigate how reputational motives (i.e., the public announcement of the winners or losers) influence risk-taking in investment decisions vis-a-vis intrinsic motives. We test our hypotheses experimentally with 864 students and 330 financial professionals. We find that reputational motives play a minor role among financial professionals, as the risk-taking of underperformers is already increased due to intrinsic motives. Student behavior, however, is mainly driven by reputational motives with risk-taking levels that come close to those of professionals when winners or losers are announced publicly. This indicates that professionals show higher levels of intrinsic (self-image) incentives to outperform others compared to non-professionals (students), but a similar behavior can be sparked among the latter by adding reputational incentives.

Studying the Effect of Corporation’s Disclosure Quality Rank on Income-Smoothing and Informativeness of Tehran Stock Exchange’s Listed Companies
Foroughnejad, Heidar,Ahmadi, Shahin,sadat, amin
The study is to review the disclosure quality rank on income-smoothing and informativeness by means of four hypotheses. The timescale is between 2010 and 2016, and 149 TSE’s listed companies are studied. The first hypothesis examines the effect of higher disclosure quality rank on income informativeness. The result confirms that higher rank of disclosure quality improves income informativeness. The second hypothesis reviews the relationship between disclosure quality rank and income smoothing. The findings of this hypothesis indicate lower disclosure quality will increase income smoothing behavior. In the third hypothesis, the effect of income smoothing on informativeness is examined, which results in a statistical view that income smoothing has a sensible positive effect on informativeness. Finally, the effect of higher rank of disclosure quality on the informativeness of the smoothing listed companies in the fourth hypothesis. The findings indicate that income smoothing has a meaningful effect in strong disclosure quality companies.

The Idiosyncratic Behaviour of Bitcoin’s Price Across US$ Exchanges Around December 2017
Johnson, Jackie
Analysing the US$/Bitcoin market from 2014-2018 finds significant differences in exchange prices during Bitcoin’s meteoric price rise in December 2017, but surprisingly the range of prices each day is remarkedly similar across exchanges. The lack of a consistent Bitcoin trading price across exchanges points to an issue with using a single market price to gauge Bitcoin price behaviour and limits the possibility of any ‘set and forget’ trading strategy.

Trade Credit and Bank Credit as Alternative Governance Structures in South Africa: Evidence from Banking Sector Development
Mugova, Shame
Financial sector development is an influential force that outlines the financing and governance of firms in emerging economies. Suppliers and bankers represent alternative governance structures to a firm because of their trade credit and loan requirements, respectively. The continuous monitoring of investment by banks and suppliers impacts on corporate disclosure and practices. The study compares a sample of Johannesburg Stock Exchange (JSE) firms listed on the Socially Responsible Investment (SRI) index which measures corporate governance and those not listed on the index. A Generalized Least Squares (GLS) random effect regression of banking sector development and trade credit of firms listed on the JSE SRI and non-SRI listed firms was done to ascertain whether trade credit gives firms a preferred governance system and structure. The findings affirm that good corporate governance practices improve access to bank loans for working capital financing and good governance practices do not consequently result in more bank loan as a preferred governance structure for working capital financing compared to use of trade credit.

Understanding Informal Financing
Allen, Franklin,Qian, Meijun,Xie, Jing
This paper offers a framework to understand informal financing based on mechanisms to deal with asymmetric information and enforcement. We find that constructive informal financing such as trade credits and family borrowing that relies on information advantages or an altruistic relationship is associated with good firm performance. Underground financing such as money lenders who use violence for enforcement is not. Constructive informal financing is prevalent in regions where access to bank loans is extensive, while its role in supporting firm growth decreases with bank loan availability. International comparisons show that China is not an outlier but rather average in using informal financing.

the Weirdness and Absurdity of a Specific theory on the Present Value of the Tax Benefits (PVTB) from Debt Financing
Tham, Joseph,Velez-Pareja, Ignacio
In this note, we comment on and discuss the weirdness and absurdity of the idea that Professor Fernandez has argued for. The weirdness or absurdity of a theory does not automatically disqualify a theory; however, perhaps another review of the implications of the theory may have some merit. It seems that the definition of the present value of the tax benefits (PVTB) was revised to accommodate pre-existing ideas; perhaps the new theory is masquerading as a sort of reverse engineering.

Правовые вопросы вахтового метода организации работ (на материалах предприятий нефтегазового комплекса Западной Сибири) (Legal Issues Related to the Rotational Method of Work (On the Materials of Enterprises Working in the Oil and Gas Industry in Western Siberia)
Kryvoi, Viktor
English Abstract: Ð' автореферате изложены важнейшие результаты из научного исследования о вахтовом методе организации работ. Ð' современных условиях он получил широкое распространение (все более увеличивающееся) не только на удаленных и малоосвоенных территориях (Крайнего Севера и др.), как было в 1980-е годы, но и на так называемой «Ð'ольшой Земле», включая густозаселенные и обжитые районы, на континентальном шельфе и других морских пространствах, даже в космосе посредством замены экипажей орбитальных станций,Эта форма деятельности является весьма гибкой. Она позволяет использовать стандартные институты трудового права (договор, рабочее время и время отдыха, заработную плату, гарантии и компенсации, охрану труда и др.) в различных вариациях при сохранении их концептуальной направленности, определенной законодательством. Иными словами, речь идет о своеобразной «переплавке» всего комплекса обычно-трудоправового регулирования в более нежное â€" «симбиозное» формирование, требующееся для постоянных отклонений от откровенно прямого направления.Авторский подход основан не только на анализе юридических положений, географической, медицинской и социологической литературы. Он опирается и на богатый продолжительный (10 лет) опыт работы в производственном объединении «Уренгойнефтегазгеология», широко применявшем как обычный вахтовый метод, так и его экспедиционный вариант. Целый ряд диссертационных предложений нашел внедрение в законодательство и практику. Ð"ругие же стоят в очереди для восприятия в мыслях и соответствующего воплощения в конкретных нормативных актах.English Abstract: The abstract presents the most important results from a major scholarly study of the rotational method of work organization. In modern conditions, it has become widespread (ever increasing) not only in remote and underdeveloped territories (the Far North, etc.), as it was in the 1980s, but also in the so-called “Big Earth”, including densely populated and inhabited areas, on the continental shelf and other sea spaces, even in space, by replacing the crews of orbital stations,This form of activity is very flexible. It allows the use of standard labour law institutions (contract, working time and rest time, wages, guarantees and compensations, labour protection, etc.) in various variations, while maintaining their conceptual orientation, as defined by law. In other words, we are talking about a kind of “melting down” of the whole complex of the usual labour law regulations into a more gentle - “symbiotic” formation, which is required for constant deviations from the frankly direct direction.The author's approach is based not only on the analysis of legal provisions, geographical, medical and sociological literature. He also relies on a long and extensive (10 years) experience in the production association Urengoyneftegasgeologia, which has widely applied both the usual shift method and its expeditionary option. A number of dissertation proposals found implementation in law and practice. Others stand in line for perception in thoughts and the corresponding embodiment in specific regulatory acts.