Research articles for the 2019-10-01

A Game Theoretic Setting of Capitation Versus Fee-For-Service Payment Systems
Allison Koenecke

We aim to determine whether a game-theoretic model between an insurer and a healthcare practice yields a predictive equilibrium that incentivizes either player to deviate from a fee-for-service to capitation payment system. Using United States data from various primary care surveys, we find that non-extreme equilibria (i.e., shares of patients, or shares of patient visits, seen under a fee-for-service payment system) can be derived from a Stackelberg game if insurers award a non-linear bonus to practices based on performance. Overall, both insurers and practices can be incentivized to embrace capitation payments somewhat, but potentially at the expense of practice performance.

A New Set of Financial Instruments
Abootaleb Shirvani,Stoyan V. Stoyanov,Svetlozar T. Rachev,Frank J. Fabozzi

In complete markets, there are risky assets and a riskless asset. It is assumed that the riskless asset and the risky asset are traded continuously in time and that the market is frictionless. In this paper, we propose a new method for hedging derivatives assuming that a hedger should not always rely on trading existing assets that are used to form a linear portfolio comprised of the risky asset, the riskless asset, and standard derivatives, but rather should design a set of specific, most-suited financial instruments for the hedging problem. We introduce a sequence of new financial instruments best suited for hedging jump-diffusion and stochastic volatility market models. The new instruments we introduce are perpetual derivatives. More specifically, they are options with perpetual maturities. In a financial market where perpetual derivatives are introduced, there is a new set of partial and partial-integro differential equations for pricing derivatives. Our analysis demonstrates that the set of new financial instruments together with a risk measure called the tail-loss ratio measure defined by the new instrument's return series can be potentially used as an early warning system for a market crash.

An Integrated Analysis of the Fundamental Determinants of Credit Risk Premiums on Corporate Debt
Headley, Adrian,Murphy, Austin
This research investigates the fundamental components of corporate credit spreads through an integrated examination of how well different models, default probability functions, and market factors explain CDS prices. Individual company yield spreads are discovered to be determined by the interrelated risks of cash, income, and valuation insolvency, along with various measures of systematic downside risk. The empirical findings indicate that the priced risk of a jump to and at default is well explained by those fundamentals, including in ex-post tests, although the financial determinants of credit spreads are found to vary significantly across different groups of companies.

Anticipatory FinTech Regulation: On Deploying Big Data Analytics to Predict the Direction, Impact and Control of Financial Technology
Bagby, John W.,Reitter, David
Financial Technologies (FinTech) lie at the heart of disruptive innovation comprising critical infrastructure for much of modern business practice and national security. Modern FinTech sectors are data driven â€" startup finance, commodities and investment instrumentation, payment systems, trading platforms, exchange markets, market failure regulation, underwriting and syndication, risk assessment and management, advisory services, commercial banking, transaction settlement through financial intermediaries, corporate disclosure and governance, and currencies. This paper demonstrates that most FinTech innovations, scholarship and public policy development are significantly informed by big data analysis balancing: (1) FinTech innovation incentives, (2) market failure forensics, and (3) public policy development. FinTech almost always deserves a wary eye - experience reveals that many FinTech mechanisms externalize social costs of their design flaws, opacity/obscurity and malfunctioning. Some FinTechs appear intended to skirt regulation suffering regulatory lag, the delay following the first appearance of novel FinTechs and the later development, assessment, and deployment of reliable regulatory mechanisms. FinTech policy issues span from the traditional regulation of financial markets, through systemic costs of FinTech intellectual property (IP) concerns and ultimately to national security risks imposed by the financial system’s centrality among critical infrastructures.

Asset Pricing Anomalies â€" Liquidity Risk Spreaders or Liquidity Risk Hedgers?
Virk, Nader,Butt, Hilal
A unified explanation of risk and mispricing in stock returns underpinned by their aggregate liquidity risk is presented. We argue alternating liquidity exposures depict two distinct investment preferences-hedging against aggregate liquidity risk or betting on it. A three-factor model capturing these return variations is developed. Results show that our parsimonious factor model outperforms the majority of the latest asset pricing models in explaining spreads on a broad set of anomalies. Crucially, we identify that the better performance of recent models is driven by the inclusion of factors that mimic liquidity risk hedging. The imposition of stringent temporal restrictions on competing factor models shows that our model leads the pack.

Bonus Caps, Deferrals and Bankers' Risk-Taking
Jokivuolle, Esa,Keppo, Jussi,Yuan, Xuchuan
We derive a principal-agent model to analyze the effectiveness of bonus caps and deferrals in regulating banks’ risk-taking. We calibrate the model to a sample of large US banks on the eve of the Global Financial Crisis and run counterfactual analyses of the potential effects of the regulations. We find that the risk-reduction effect on the median bank is negligible as banks respond to the regulations by increasing the earnings sensitivity of bonuses. However, on a small number of banks with high bonus to salary ratios prior to 2008, the bonus cap has a sizeable risk reduction effect. In contrast, bonus deferrals have only negligible effects on all sample banks.

Bridging the Gap between Strategic Allocation and Investment Risk
Elkamhi, Redouane,Lee, Jacky S.H.,Sadik, Sheikh
For many institutional investors, there is a potential inconsistency between models used for long term strategic asset allocation and investment risk management. Investment risk models, often calibrated with a shorter history spanning five to fifteen years, could provide misleading results when used for portfolio construction decisions, which usually take into account longer term asset characteristics spanning multiple business cycles. In this article, we propose a methodology inspired by change of measure and importance sampling to address this challenge. We show that it is possible to reflect long term asset characteristics in the simulated scenarios generated by a risk system, creating a better alignment between the risk and long term asset allocation models. Our methodology allows institutional investors to better utilize their existing simulation from risk models for portfolio allocation, sensitivity analysis, stress testing and other portfolio applications.

CEO Succession Gap and Firm Performance
Zhang, Renzhu,Bhabra, Gurmeet S.,Chou, Hsin-I,Tan, Eric K. M.
In this study, we examine the effect of succession-induced gaps in CEO characteristics on subsequent firm performance. We show that a gap index constructed using differences in CEO attributes between the predecessor and the successor leads to deteriorating subsequent firm performance when the succession event itself is characterized as disruptive. However, under non-forced succession and when pre-succession performance has been good, a change in characteristics contributes positively to enhancing subsequent firm performance. Further analysis of the channels suggests that radically different CEOs are more likely to bring with them a higher proportion of co-opted directors, make downsizing and business divesting decisions, and lead firms characterized by higher levels of post- succession strategic instability when there is a mandate for change. Overall, our findings demonstrate that tapping successors who bring in a new set of attributes that are markedly different from those of their predecessors are not always value-enhancing. This is especially the case under forced succession and when the pre-succession firm performance is poor.

Capital Share Risk in International Asset Pricing
Müller, Birgit,Müller, Sebastian,Schiereck, Dirk
We study whether growth in the capital share (KS) of aggregate income (GDP) can explain equity portfolio returns in international stock markets as proposed by Lettau et al. (2019) for the U.S. market. We find that growth in local capital share has positive explanatory power for equity portfolio returns within Canada, Japan, and Emerging Markets as for instance India. Unlike the U.S. market, though, the information contained in the KS risk factor of these international markets does not subsume information contained in alternative factor models as for instance the Fama-French three factor or q-factor models, but rather adds additional explanatory content to these model specifications. At an aggregate level, a growth in capital share does hardly imply any growth in equity portfolio returns in the European and Pacific regions. We argue that reported differences might be driven by further macroeconomic variables as for instance a country’s level of private wealth inequality and its level of net public wealth as proposed within the most recent World Inequality Report by Alvaredo et al. (2018).

Common-Ownership and Portfolio Rebalancing
Yegen, Eyub
The empirical literature on the potential collusive effects of common-ownership relies heavily on financial institution mergers to make causal inferences. I find that more than 85% of newly-formed common-ownership relationships due to such financial institution mergers are no longer commonly-held by the acquiring institution during the post-merger period (with most being liquidated in the first quarter following the merger). Firms that are no longer commonly-held by the merged institution drive the anti-competitive results found in previous studies. The fact that portfolio firms are so quickly rebalanced casts doubt on the utility of financial institution mergers as a natural experiment. I also find evidence that portfolio rebalancing post-merger is driven by other factors, such as portfolio diversification or index tracking. Further, I find no significant positive risk-adjusted returns for a common-ownership based portfolio strategy, suggesting that investors do not make a profit from commonly-held stocks. Taken together, these findings suggest that empirical basis for claiming collusive effects of common-ownership is weaker than it appears and there is no strong evidence that provides a basis for policy concerns about institutional common-ownership.

Construction of Optimal Portfolio using Sharpe Index Model
M, Nagendra,Raveendra, P. V.,Brahmam, U.
The investor always likes to have less risk and higher returns. To reduce the risk investors will do diversification. Diversification means combination of securities which provides the highest return and has lowest risk. Combination of securities is called portfolio. Risk and Return are two basic factors for construction of a portfolio. The principle point of every investor in construction of a portfolio is to maximize the return and to minimize the risk. The portfolio which has highest return and lowest risk is termed as Optimal Portfolio. Sharpe Index Model is adequate and conceptually sound in construction of optimal portfolio. This paper makes an attempt to construct optimal portfolio using Sharpe Optimization Model from NSE NIFTY Stocks.

Corporate Social Responsibility and Bank Risk
Neitzert, Florian,Petras, Matthias
In this study, we analyse the impact of Corporate Social Responsibility (CSR) on idiosyncratic bank risk. Our sample comprises 3,392 banks from 121 countries over the period from 2002 to 2018. We approximate CSR by the Thomson Reuters' ESG company ratings. By using the risk measures z-score and risk density, we address both, default and portfolio risk. Based on the established theory, we assumed a negative relationship between CSR and idiosyncratic risk. Our empirical results confirm a risk-reducing effect of the overall CSR on default and portfolio risk. Looking separately at the three CSR-pillars - i.e. environmental, social, and governance - a significant negative influence on bank's individual default risk can be inferred. In addition, we observe a risk-reducing effect of the environmental pillar on portfolio risk. On a further disaggregated level, we find strong significance for five of ten sub-components of CSR. In particular, all environmental sub-components - i.e. Innovation, Emissions, and Resource Use - affect both risk measures significantly. On the other hand, Human Rights and the CSR-Strategy are the only sub-components from the social, respectively from the governance pillar with comparable significant effects. Finally, controversies decrease idiosyncratic bank stability.

Cross-Border Asset Pledgeability for Enhanced Financial Stability
Choi, Gongpil
Even with the sizable FX holdings and good credit ratings of its top assets, Asia remains vulnerable to various shocks. This paper highlights the limited cross-border asset pledgeability as a significant factor for the lingering vulnerability in Asia. The dichotomy in asset holdings between pledgeable FX and non-pledgeable domestic assets in major economies in Asia has been the source of increasing stabilization costs as well as weakened market momentum in the region. Specifically, the peculiar feature of asset holdings in Asia reflects seriously deficient cross-border asset pledgeability that is left unaddressed. Asset pledgeability contributes toward financial stability via three channels: capital market development by recognizing the role of collateral, increased shock absorption capacity via collateral management, and the newly activated safe asset provision. Therefore, it is important to go beyond the usual market development strategy and expand the overall asset pledgeability in the region that has remained unduly depressed.

Factor Investing in Emerging Market Credits
Dekker, Lennart,Houweling, Patrick,Muskens, Frederik
We examine factor investing in emerging market hard currency corporate bonds and find that size, low risk, value, and momentum factor portfolios obtain higher risk-adjusted returns than the market. Their outperformance is not explained by exposures to developed market credit factors or to equity factors. The factor portfolios benefit from bottom-up allocations to countries, sectors, ratings, and maturity segments, but the outperformance remains significant after controlling for these allocation effects. The results also hold within a liquid subsample of the market.

Framing Bias in Mortgage Refinancing Decisions and Monetary Policy Pass-Through
Gianinazzi, Virginia
This paper shows that households’ mortgage refinancing decisions suboptimally depend on uninformative reference points, imposing a friction to the refinancing channel of monetary policy. I study refinancing behavior in the UK, where on pre-determined dates initial fixed rates reset and mortgagors automatically move onto a reversion rate above market rates. A borrower’s expired fixed rate determines whether failing to refinance is perceived as a loss or as a gain, thus serving as a salient reference point. I find that borrowers for whom inaction implies a relative gain refinance on average 13.4% less than borrowers who face a loss. This evidence is at odds with optimal models of refinancing since future borrowing costs are unrelated to past rates.

High-dimensional statistical arbitrage with factor models and stochastic control
Jorge Guijarro-Ordonez

The present paper aims to provide a systematic study of high-dimensional statistical arbitrage that combines factor models with the tools from stochastic control, obtaining explicit closed-form optimal strategies which are both easily interpretable and computationally implementable in a high-dimensional setting. Our setup is based on a general statistically-constructed factor model with mean-reverting residuals, in which we show how to construct analytically market-neutral portfolios and we analyze the problem of investing optimally in continuous time and finite horizon under exponential and mean-variance utilities. We also extend our model to incorporate various constraints on the investor's portfolio and market frictions in the form of temporary quadratic transaction costs, provide extensive Monte Carlo simulations of the previous strategies with 100 assets, and describe further possible extensions of our work.

How Alternative are Private Markets?
Goetzmann, William N.,Gourier, Elise,Phalippou, Ludovic
We estimate a parsimonious set of factor portfolios out of a comprehensive panel of private market funds. We test whether these private market factors are spanned by commonly used public equity factors, and whether they are priced in the cross-section of private market funds. Four main private market factors explain returns in the cross-section; one of them, dominated by large leveraged buyout funds, generated a signi cant positive premium. Together with the second factor dominated by venture capital funds, it improved an investor Sharpe ratio over the past thirty years. The benefits of investing in factors related to real assets and private debt funds have been smaller but increasing over time.

Isogeometric analysis in option pricing
Jan Pospíšil,Vladimír Švígler

Isogeometric analysis is a recently developed computational approach that integrates finite element analysis directly into design described by non-uniform rational B-splines (NURBS). In this paper we show that price surfaces that occur in option pricing can be easily described by NURBS surfaces. For a class of stochastic volatility models, we develop a methodology for solving corresponding pricing partial integro-differential equations numerically by isogeometric analysis tools and show that a very small number of space discretization steps can be used to obtain sufficiently accurate results. Presented solution by finite element method is especially useful for practitioners dealing with derivatives where closed-form solution is not available.

Libra: Fair Order-Matching for Electronic Financial Exchanges
Vasilios Mavroudis,Hayden Melton

While historically, economists have been primarily occupied with analyzing the behaviour of the markets, electronic trading gave rise to a new class of unprecedented problems associated with market fairness, transparency and manipulation. These problems stem from technical shortcomings that are not accounted for in the simple conceptual models used for theoretical market analysis. They, thus, call for more pragmatic market design methodologies that consider the various infrastructure complexities and their potential impact on the market procedures. First, we formally define temporal fairness and then explain why it is very difficult for order-matching policies to ensure it in continuous markets. Subsequently, we introduce a list of system requirements and evaluate existing "fair" market designs in various practical and adversarial scenarios. We conclude that they fail to retain their properties in the presence of infrastructure inefficiencies and sophisticated technical manipulation attacks. Based on these findings, we then introduce Libra, a "fair" policy that is resilient to gaming and tolerant of technical complications. Our security analysis shows that it is significantly more robust than existing designs, while Libra's deployment (in a live foreign currency exchange) validated both its considerably low impact on the operation of the market and its ability to reduce speed-based predatory trading.

Lost in Transition? The Persistence of Dictatorship Mayors
González, Felipe,Munoz, Pablo,Prem, Mounu
Dictatorships can affect the functioning of new democracies but the mechanisms are poorly understood. We study the Pinochet dictatorship in Chile using new data and provide two findings. First, mayors appointed by Pinochet obtained a nine percentage point vote premium in the first local election in democracy. This premium is explained by an incumbency advantage and by an increase in local spending during the transition. Second, dictatorship mayors increased the vote share of right-wing political parties in democracy. We conclude that the dictatorship won "hearts and minds" before the transition and successfully maintained part of their political power.

Managerial Incentives and Its Credibility for Voluntary Announcements
Papiashvili, Nino
In this research I find that stock market participants react differently to firms’ voluntary announcements depending on the credibility they lend to the announcing managers. Using a sample of 762 earnings forecasts for the period of 2002-2010 I study intraday trading behavior around the forecast announcements. The results indicate that investors take into account the term-structure of managerial incentives when they trade on the announced forecasts. In particular, I find that positive forecast surprises by the managers with larger short-term equity-based compensation are treated as less credible by investors and they sell. Furthermore, the results also show that the biggest source of market’s mistrust comes from short-term option grants. The opposite is true for the announcements by the CEOs with larger long-term equity-based compensation i.e. investors buy abnormally more following positive earnings forecasts, specifically when the announcing CEO incentives contain larger long-term stock grants.

Mobile Phones for Financial Inclusion: What Explains the Diffusion of Mobile Money Innovations?
Lashitew, Addisu,van Tulder, Rob,Liasse, Yann
Mobile money innovations are expanding rapidly in developing countries, where they appear to be on track to extend financial services to billions of unbanked populations. However, adoption rates differ significantly across countries, and the success of innovations is radically different within countries. To understand the factors that affect the development and diffusion of mobile money services, this study uses a mixed research method that combines cross-country data of adoption rates and an in-depth case study of a successful mobile money innovation. Quantitative analysis of adoption rates across countries indicates the varying role of institutional and economic factors on the adoption and usage of mobile money innovations. We undertake an in-depth study of M-Pesa in Kenya, one of the world’s most known mobile money innovations, to gain nuanced understanding of the development and diffusion of the innovation. Analysis using the functional innovation system approach reveals the key role of the lead firm in guiding the innovation process, and the importance of a supportive regulatory environment that sought to advance financial inclusion. The results further reveal how the power and interest dynamics of key actors in the innovation system can shape the emergence of appropriate technologies that aim to address social issues.

Noise Fit, Estimation Error and a Sharpe Information Criterion: Linear Case
Dirk Paulsen,Jakob Söhl

When the in-sample Sharpe ratio is obtained by optimizing over a k-dimensional parameter space, it is a biased estimator for what can be expected on unseen data (out-of-sample). We derive (1) an unbiased estimator adjusting for both sources of bias: noise fit and estimation error. We then show (2) how to use the adjusted Sharpe ratio as model selection criterion analogously to the Akaike Information Criterion (AIC). Selecting a model with the highest adjusted Sharpe ratio selects the model with the highest estimated out-of-sample Sharpe ratio in the same way as selection by AIC does for the log-likelihood as measure of fit.

Non-Linearities, Cyber Attacks and Cryptocurrencies
Caporale, Guglielmo Maria,Kang, Woo-Young,Spagnolo, Fabio,Spagnolo, Nicola
This paper uses a Markov-switching non-linear specification to analyse the effects of cyber attacks on returns in the case of four cryptocurrencies (Bitcoin, Ethernam, Litecoin and Stellar) over the period 8/8/2015 - 28/2/2019. The analysis considers both cyber attacks in general and those targeting cryptocurrencies in particular, and also uses cumulative measures capturing persistence. On the whole, the results suggest the existence of significant negative effects of cyber attacks on the probability for cryptocurrencies to stay in the low volatility regime. This is an interesting finding, that confirms the importance of gaining a deeper understanding of this form of crime and of the tools used by cybercriminals in order to prevent possibly severe disruptions to markets.

Optimal Incentive Contract with Endogenous Monitoring Technology
Anqi Li,Ming Yang

Recent technology advances have enabled firms to flexibly process and analyze sophisticated employee performance data at a reduced and yet significant cost. We develop a theory of optimal incentive contracting where the monitoring technology that governs the above procedure is part of the designer's strategic planning. In otherwise standard principal-agent models with moral hazard, we allow the principal to partition agents' performance data into any finite categories and to pay for the amount of information that the output signal carries. Through analysis of the trade-off between giving incentives to agents and saving the monitoring cost, we obtain characterizations of optimal monitoring technologies such as information aggregation, strict MLRP, likelihood ratio-convex performance classification, group evaluation in response to rising monitoring costs, and assessing multiple task performances according to agents' endogenous tendencies to shirk. We examine the implications of these results for workforce management and firms' internal organizations.

Price Stabilization, Short Selling, and IPO Secondary Market Liquidity
Boulton, Thomas Jason,Braga-Alves, Marcus V.
Prior research shows that failures to deliver, which commonly occur around initial public offerings (IPOs), typically result from underwriter price stabilization. Additionally, investors often establish short positions in IPO stocks that are unrelated to underwriter price stabilization. We study the relation between failures to deliver, short sales, and IPO trading costs. We find that failures to deliver are associated with greater liquidity, especially for IPOs likely to receive underwriter price support. However, contrary to prior research that finds that short selling is associated with greater liquidity, we find that short selling is negatively correlated with liquidity for IPO stocks with strong investor demand.

Robust Portfolio Selection Using Sparse Estimation of Comoment Tensors
Lassance, Nathan,Vrins, Frédéric D.
It is well known that estimation issues severely impact the performances of investment strategies. This becomes even more problematic when accounting for higher moments as the number of parameters to be estimated quickly explodes with the number of assets. In this paper, we address this issue by relying on specific factor models. Although useful to reduce the dimension of the problem, principal component analysis (PCA) is only a partial solution. In particular, it does not break the exponential law that links the number of parameters to the moment order. This issue is tackled by using a new robust portfolio-selection technique that relies on independent component analysis (ICA). By linearly projecting the asset returns onto a small set of maximally independent factors, we obtain a sparse approximation of the comoment tensors of asset returns. This drastically decreases the dimensionality of the problem and, as expected, leads to well-performing, robust and low-turnover investment strategies.

Secondary Buyout Performance
Eschenröder, Tjark
There is an ambivalent discussion about the performance of secondary buyouts (SBOs): Private equity (PE) sponsors often assume an underperformance of SBOs compared to primary buyouts (PBOs). However, the share of SBOs grew significantly to more than 50 percent of all buyouts in 2018. This paper contributes to solve this apparent contradiction. It analyses the performance of SBOs compared to PBOs based on a dataset of 295 UK portfolio companies which underwent back-to-back buyout rounds. The analysis of the total sample shows that SBOs perform worse or at least not better than PBOs. A more detailed analysis of subsamples reveals that SBOs may be attractive PE targets: The underperformance is driven by size and time effects. SBOs perform worse at growing small and medium-sized portfolio companies and are inferior at developing the profitability of medium-sized companies. Interestingly, the underperformance diminishes in the core of time; SBOs do not perform differently compared to PBOs for the time after the financial crises. Considering the limited supply of investment opportunities for PBOs, I find that well-chosen SBOs outperform the remaining, low performing PBOs. Therefore, SBOs are not means of last resort for PE firms. SBOs have a promising potential of value creation, which may partly explain the significant growth of SBO deals.

Secured and Unsecured Interbank Markets: Monetary Policy, Substitution and the Cost of Collateral
Piquard, Thibaut,Salakhova, Dilyara
We study the substitution between secured and unsecured interbank markets. Banks are competitive andsubject to reserve requirements in a corridor rate system with deposit and lending facilities. Banks face counterparty risk in the unsecured market and incur an opportunity cost to pledge collateral. The model provides insights on interest rates, trading volumes and substitution between the two markets. Using transaction data on the Euro money market, we provide new empirical findings that the model accounts for: (i) borrowing banks are active on both markets even when their collateral constraint is not binding, (ii) secured interest rates may fall below the deposit facility rate. We derive and empirically test predictions on how "conventional" and "unconventional" monetary policies impact interbank markets, depending on whether marketable collateral is purchased or not.

Should we Worry about the Decline of the Public Corporation? A Brief Survey of the Economics and External Effects of the Stock Market
Koptyug, Nikita,Persson, Lars,TÃ¥g, Joacim
In recent years, the number of listed companies has been declining in many countries across the world. This paper provides a selective survey of the literature on the real economic effects of the stock market to assess the potential effects of this decline and determine whether it is likely to continue. The leading economic role of the stock market’s primary market, in which firms raise capital by issuing new shares, is to help growing firms secure financing. We discuss providing and certifying information, coordinating investors, and easing the redeployment of capital as the means through which capital allocation can be achieved efficiently. The main economic role of the stock market’s secondary market, the trade in existing shares, is to provide liquidity to shareholders, to aid in price discovery, and to provide diversification opportunities. Positive external effects from an active stock market may arise on consumers, labour and private firm due to increased corporate investment, more social responsible business strategies and a more positive business climate. Negative external effects on capital allocation and productivity can arise from short-termism, market mispricing, and increased cross-ownership. Local stock markets can spur innovation and foreign direct investment (FDI) and reduce the risk of early cross-border acquisitions. Given the myriad of useful economic functions the stock market performs, a future entirely absent of public companies is difficult to imagine and the decline is therefore likely at some point to come to an end. Whether we need to worry about the decline depends on the relative importance of the positive and negative external effects, a topic we feel warrants more research.

Stock Splits and Attracting Attention: Are Investors Buying Abnormally More Around Stock Split Announcements?
Papiashvili, Nino
In this research I study whether stock splits attract market’s attention by exploring how investors are trading around event announcement dates. By employing high frequency intraday trading data from NYSE Trades and Quotes (TAQ) database I compute net abnormal buying around split announcements. The empirical tests on a matched pair sample of splitting and matching firms show that stock splits serve as attention attracting tool and investors are buying abnormally more around the announcements. Additional analysis confirms this finding â€" abnormal buying is significantly higher for larger splits. Furthermore, investors are more attracted to the splits that deliver higher subsequent long run stock performance.

The Disposition Effect under the Reference Dependent Smooth Model of Ambiguity
Iwaki, Hideki,Yoshikawa, Daisuke
The disposition effect is one of the representative puzzles observed in the financial market. Several theoretical explanations for the disposition effect have been tried, but we cannot yet say that they have been successful. The seminal paper of Barberis and Xiong (2009), which tries to explain the disposition effect by prospect theory, concludes the opposite of the effect appears if an investor gets her/his utility from the terminal wealth while the effect can be partially explained if he/she gets her/his utility from the realized gains and losses. We try to explain the effect by incorporating ambiguity attitude which varies depending on the reference point. We extend the smooth model of ambiguity by Klibanoff et al. (2005) to depend on the reference point. Numerical example shows that the disposition effect is more pronounced under our reference dependent smooth model of ambiguity if the investor gets her/his utility from the realized gains and losses although we cannot find superiority to the results of Barberis and Xiong (2009) if the utility is obtained from the terminal wealth.

The Relationship Between Announcements of Complete Mergers and Acquisitions and Acquirers’ Abnormal CDS Spread Changes
Hippert, Benjamin
Employing a sample of 492 merger and acquisition (M&A) announcements from 284 acquirers across North America and Europe between 2005 and 2018, this study analyzes the impact of M&A announcements on an acquirers abnormal CDS spread changes. We find that spreads from CDS which are written on acquirers increase by 310 bps during a symmetric five-day event window suggesting that investors expect an increase in the acquirers credit risk exposure due to M&As. Next to this baseline finding, we conduct a large variety of sensitivity analyses to gain more insight into the driving factors of the rising risk perception of CDS investors due to M&A announcements.

Toward Fair and Sustainable Capitalism
A Comprehensive Proposal to Help American Workers, Restore Fair Gainsharing between Employees and Shareholders, and Increase American Competitiveness by Reorienting Our Corporate Governance System toward Sustainable Long-Term Growth and Encouraging Investments in America’s Future

Strine Jr. , Leo E.
To promote fair and sustainable capitalism and help business and labor work together to build an American economy that works for all, this paper presents a comprehensive proposal to reform the American corporate governance system by aligning the incentives of those who control large U.S. corporations with the interests of working Americans who must put their hard-earned savings in mutual funds in their 401(k) and 529 plans. The proposal would achieve this through a series of measured, coherent changes to current laws and regulations, including: requiring not just operating companies, but institutional investors, to give appropriate consideration to and make fair disclosure of their policies regarding EESG issues, emphasizing “Employees” and not just "Environmental, Social, and Governance” factors; giving workers more leverage by requiring all societally-important companies to have board level committees charged with ensuring fair treatment of employees, authorizing companies to use European-style works’ councils to increase employee voice, and reforming labor laws to make it easier for workers to join a union and bargain for fair wages and working conditions; reforming the corporate election system so that voting occurs on a more rational, periodic, and thoughtful basis supportive of sustainable business practices and long-term investment; improving the tax system to encourage sustainable, long-term investment and discourage speculation, with the resulting proceeds being used to revitalize and green America’s infrastructure, tackle climate change, invest in American workers’ skills, transition workers from carbon-intensive industries to jobs in the clean energy sector; and taking other measures, such as reform of corporate political spending and forced arbitration, to level the playing field for workers, consumers, and ordinary investors.

Turkey’s Unravelling Economy Resembles the Ottoman Empire’s Financial Collapse
Taskinsoy, John
Already fragile Turkish-American foreign relations became severely strained when US Pastor Andrew Brunson was indicted on espionage charges in October 2016 and was sentenced to 38 months in prison after a guilty verdict by one of Turkey’s high criminal courts. As a US retaliation, bank executive Mehmet Hakan Atilla (Turkey's state-controlled Halkbank) was arrested in New York in March 2017 and sentenced to 32 months after he was found guilty of helping Iran to evade the US sanctions. These along with the domestic issues fostered a currency crisis in August 2018 (most severe since the 2001 economic crisis), the farfetched implications of the currency and debt crisis caused the economy of Turkey to debilitate and find itself in a severe financial emergency. Since the August rout, the Turkish economy has been on a wild roller-coaster ride. First, all economic indicators recorded their worst levels in more than a decade (since 2003); interest rates in October 2018 skyrocketed, 36% for commercial loans, 28% for housing loans, and as high as 24% for deposits in lira. Second, after central bank (TCMB) has cut 750 basis points in its key policy rate (reduced from 24% to 16.50%), interest rates for commercial loans dropped to below 20%, 16% for housing loans, and as low as 14% for deposits in lira. The events that contributed to the Ottoman Empire’s collapse are strikingly similar to the financial collapse of the Turkish economy at the end of 2018. The Ottoman’s financial problems began with its engagement in the costly Crimean War (1853-56); likewise, Turkey’s gloomy economic situation was contributed by its war affairs alongside the Iraq and Syria borders as well as its costly military operations to eradicate terrorists at home and near borders. The Ottoman borrowing spree in mid-19th century onward turned into an elongated addiction to foreign capital which resulted in Ottoman’s default on its public debt in 1876, and in 1878 at the Congress of Berlin, France and Britain took control of the Ottoman finances by forcing sultan Abdülhamid II to create the Ottoman Public Debt Administration (OPDA) in 1881. Similarly, the increased military spending even though Turkey did not take part in WWII and repeated economic disruptions in the post-WWII era often resulted in balance of payments crises as well as consequent devaluations of the Turkish lira; political turmoil coupled with economic difficulties prompted the military to intervene (coup) in 1960 and this paved the road to Turkey’s first standby agreement with the IMF in 1961.

Who Holds the Reins? â€" Banks in the Crossfire of Global Platforms
Mattila, Juri,Seppala, Timo,Lahteenmaki, Ilkka
Banking and financial services have traditionally been a heavily regulated industry where technology alone has not been a sufficient factor to transform the operating architectures of the industry. The pervasive view in the financial industry has been that digitalization and its integrational development will take place on the platforms of the banks.Due to the inherent secondary nature of financial services, however, it is more likely that the customer interface of financial services will increasingly migrate towards primary service platforms. As a result, the commoditization of payment processing services is expected to increase. Additionally, the visibility into customer data will become more opaque and the value capturing capabilities of the financial industry will be radically redefined. Furthermore, a strategic impact can also be anticipated on several public institutions, such as financial supervisory authorities, the tax administration and other public registry holders.