Research articles for the 2019-08-03
International Capital Budgeting and Valuation: Review and Proposed Approach
SSRN
This review of international capital budgeting and valuation demonstrates how the traditional home-currency method, which translates expected cash flows between currency perspectives using forward foreign exchange (FX) rates, can result in a relatively large valuation error by ignoring the currency risk premium. The review also shows that empirical currency risk premium estimates can be material in the context of the international CAPM (ICAPM), and advocates for the foreign-currency approach with an ICAPM-estimated discount rate. A relatively simple method for incorporating FX misvaluation in international capital budgeting analyses is proposed that strengthens the case for using the foreign-currency approach.
SSRN
This review of international capital budgeting and valuation demonstrates how the traditional home-currency method, which translates expected cash flows between currency perspectives using forward foreign exchange (FX) rates, can result in a relatively large valuation error by ignoring the currency risk premium. The review also shows that empirical currency risk premium estimates can be material in the context of the international CAPM (ICAPM), and advocates for the foreign-currency approach with an ICAPM-estimated discount rate. A relatively simple method for incorporating FX misvaluation in international capital budgeting analyses is proposed that strengthens the case for using the foreign-currency approach.
TAQ for Teaching
SSRN
TAQ stands for the Trade and Quote Database and the time stamps of either second (MTAQ) or millisecond (DTAQ). The research area by using TAQ is called Market Microstructure. Many related findings help us understand how financial markets function. However, almost no instructors have discussed TAQ in their classrooms due to three reasons. First, TAQ’s huge size makes it difficult to process. Second, the price tag for the database is quite high. And finally, no good tool could be used to present the data to our students. In this paper, we discuss a simple way to show students both second-by-second and millisecond-by-millisecond high-frequency data. Students at various business schools, especially at teaching schools, can access sample high-frequency data and conduct some good term projects. For various Business Analytics/Data Analytics programs, the TAQ Database is an ideal database for them to practice dealing with big data.
SSRN
TAQ stands for the Trade and Quote Database and the time stamps of either second (MTAQ) or millisecond (DTAQ). The research area by using TAQ is called Market Microstructure. Many related findings help us understand how financial markets function. However, almost no instructors have discussed TAQ in their classrooms due to three reasons. First, TAQ’s huge size makes it difficult to process. Second, the price tag for the database is quite high. And finally, no good tool could be used to present the data to our students. In this paper, we discuss a simple way to show students both second-by-second and millisecond-by-millisecond high-frequency data. Students at various business schools, especially at teaching schools, can access sample high-frequency data and conduct some good term projects. For various Business Analytics/Data Analytics programs, the TAQ Database is an ideal database for them to practice dealing with big data.
The Effects of Financial Reporting and Disclosure on Corporate Investment: A Review
SSRN
A fundamental question in accounting is whether and to what extent financial reporting facilitates the allocation of capital to the right investment projects. Over the last two decades, a large and growing body of literature has contributed to our understanding of whether and why financial reporting affects investment decision-making. We review the empirical literature on this topic, provide a framework to organize this literature, and highlight opportunities for future research.
SSRN
A fundamental question in accounting is whether and to what extent financial reporting facilitates the allocation of capital to the right investment projects. Over the last two decades, a large and growing body of literature has contributed to our understanding of whether and why financial reporting affects investment decision-making. We review the empirical literature on this topic, provide a framework to organize this literature, and highlight opportunities for future research.
The Initiation of Audit Committee Interlocks and the Contagion of Accounting Policy Choices: Evidence from Special Items
SSRN
We document that the initiation of audit committee interlocks is associated with contagion in reported special items. We argue that this is, in part, attributable to contagion of accounting policy choices. We find that the special items of newly interlocked firms, unrelated before interlock, become positively correlated afterward, suggesting information transfer starts with interlock formation. This result holds for negative special items, key components of special items (asset impairments, restructuring costs, and gains/losses from asset sales), and is stronger for larger firms and for firms within the same industry.
SSRN
We document that the initiation of audit committee interlocks is associated with contagion in reported special items. We argue that this is, in part, attributable to contagion of accounting policy choices. We find that the special items of newly interlocked firms, unrelated before interlock, become positively correlated afterward, suggesting information transfer starts with interlock formation. This result holds for negative special items, key components of special items (asset impairments, restructuring costs, and gains/losses from asset sales), and is stronger for larger firms and for firms within the same industry.
The QMIT Leveraged Buyout (LBO) Model & Enhancements via Sentiment Based Alternative Data
SSRN
This paper introduces the QMIT LBO model and describes its salient characteristics. In addition to a 41% long term hit rate the Top 100 model predictions can be traded quite profitably as an equal weighted long portfolio. A Russell 2000 Value index hedge increases the Sortino ratio to ~2.5 over the 19-year history. It then synopsizes the SESI (sentiment) signal from RavenPack and investigates its merits as an overlay to the base level LBO Top 100 trading signal. Given that SESI captures newsbased sentiment which may include rumors on such LBO names it is logical to ascertain whether benefits may accrue from trading such a combined quantamental signal. We conduct a series of experiments involving the daily overlay of SESI for the 10-year period (2007-16) to the weekly rebalanced LBO Top 100 and find substantial improvements in annualized returns as well as Sharpe and Sortino ratios, not to mention the drawdown profile of the overlaid strategy. The best overlay scenario tested results in a 46% boost to the Sharpe ratio with an absolute +8.6% improvement to annualized returns.
SSRN
This paper introduces the QMIT LBO model and describes its salient characteristics. In addition to a 41% long term hit rate the Top 100 model predictions can be traded quite profitably as an equal weighted long portfolio. A Russell 2000 Value index hedge increases the Sortino ratio to ~2.5 over the 19-year history. It then synopsizes the SESI (sentiment) signal from RavenPack and investigates its merits as an overlay to the base level LBO Top 100 trading signal. Given that SESI captures newsbased sentiment which may include rumors on such LBO names it is logical to ascertain whether benefits may accrue from trading such a combined quantamental signal. We conduct a series of experiments involving the daily overlay of SESI for the 10-year period (2007-16) to the weekly rebalanced LBO Top 100 and find substantial improvements in annualized returns as well as Sharpe and Sortino ratios, not to mention the drawdown profile of the overlaid strategy. The best overlay scenario tested results in a 46% boost to the Sharpe ratio with an absolute +8.6% improvement to annualized returns.
Winemaking Sector in Greece. An Accounting - Based Approach
SSRN
The wine making sector is directly intertwined with viniculture, which has been known since ancient times. Nowadays, Greece offers outstanding value for its wines and there are many new varieties that will certainly expand the customer's palate. In order to explore the sector's potential, financial statements and ratio analysis is implemented. In this study, 14 financial ratios are estimated in order to examine the domestic wine sector. This sample consists of 51 domestic wine producing companies. The uniqueness of this analysis is based on the fact that the individual financial reports are edited and properly adjusted in order for a consolidated balance sheet and profit and loss account, representative of the sector, to be constructed. The wine sector's perspective seems conducive to better control regarding primarily operating expenses. The findings could aid producers in the Greek wine industry in providing them valuable considerations and guidelines. The wine market is considered as an enjoyable, collectible, tangible asset that has an exciting future.
SSRN
The wine making sector is directly intertwined with viniculture, which has been known since ancient times. Nowadays, Greece offers outstanding value for its wines and there are many new varieties that will certainly expand the customer's palate. In order to explore the sector's potential, financial statements and ratio analysis is implemented. In this study, 14 financial ratios are estimated in order to examine the domestic wine sector. This sample consists of 51 domestic wine producing companies. The uniqueness of this analysis is based on the fact that the individual financial reports are edited and properly adjusted in order for a consolidated balance sheet and profit and loss account, representative of the sector, to be constructed. The wine sector's perspective seems conducive to better control regarding primarily operating expenses. The findings could aid producers in the Greek wine industry in providing them valuable considerations and guidelines. The wine market is considered as an enjoyable, collectible, tangible asset that has an exciting future.
