Research articles for the 2019-11-26

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

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

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

A financial market with a local time drift term and delay
Nacira Agram,Bernt Øksendal

We study a financial market where the risky asset is modelled by a Brownian motion driven stochastic differential equation with a local time in the drift term. This models a situation where the asset price is partially controlled by a company which intervenes when the price is reaching a certain lower barrier in order to prevent it from going below that barrier. See e.g. Jarrow \& Protter \cite{JP} for an explanation and discussion of this model. As already pointed out by Karatzas \& Shreve \cite{KS} (see also Jarrow \& Protter \cite{JP} ) this allows for arbitrages in the market. The model is also relevant for high frequency trading issues. See e.g. Lachapelle \textit{et al} \cite{LLLL} and the references therein.

In this paper we consider the case when there is a delay $\theta> 0$ in the information flow available for the trader. Using white noise calculus we compute explicitly the optimal consumption rate and portfolio in this case and we show that the maximal value is finite as long as $\theta> 0$. This implies that there is no arbitrage in the market in that case. However, when $\theta$ goes to 0, the value goes to infinity. This is in agreement with the above result that is an arbitrage when there is no delay.

A new set of cluster driven composite development indicators
Anshul Verma,Orazio Angelini,Tiziana Di Matteo

Composite development indicators used in policy making often subjectively aggregate a restricted set of indicators. We show, using dimensionality reduction techniques, including Principal Component Analysis (PCA) and for the first time information filtering and hierarchical clustering, that these composite indicators miss key information on the relationship between different indicators. In particular, the grouping of indicators via topics is not reflected in the data at a global and local level. We overcome these issues by using the clustering of indicators to build a new set of cluster driven composite development indicators that are objective, data driven, comparable between countries, and retain interpretabilty. We discuss their consequences on informing policy makers about country development, comparing them with the top PageRank indicators as a benchmark. Finally, we demonstrate that our new set of composite development indicators outperform the benchmark on a dataset reconstrution task.

Assessment of Financial Potential as a Determinant of Enterprise Development
Zherlitsyn, Dmytro,Levytskyi, Stanislav,Mikhaylik, Denis,Ogloblina, Victoriia
Financial potential is an important part of enterprise activities. The technique of the enterprise’s financial potential assessment is offered in the paper. It is presented by particular stages, where each stage is related to a certain task. The characteristics of the company’s financial potential, based on the analysis of the related literature, are determined. The implementation of each task is carried out. Thus, the study proposes a mechanism for managing the financial potential of enterprises, which allows to emphasize the elements that can be useful for economic development. It is based on the general strategic principles of the enterprise management. The study results can be used to assess enterprise purposes and develop the formation goals of its financial potential. It can also help to forecast and separate main directions of accumulation, formation, and distribution of financial resources. It should be noted, that analysis and control over the financial potential formation strategy, as well as the use of analysis results for specifying the strategic directions of the enterprise development, are of high importance. Therefore, the management of the financial potential is a system of rational management of business financing, which includes the formation of financial relations, emerging as a result of finance resources flow.

Audit Fees and Cost of Debt: Differences in the Credibility of Voluntary and Mandatory Audits
Gandía, Juan L.,Huguet, David
Despite the extensive research on audit fees, few studies have examined the effect of audit fees on the cost of debt. Based on the credence goods theory, we examine whether the effect of audits on the cost of debt is affected by the type of audit (voluntary or mandatory) and the audit fees, as well as whether there is a combined effect of voluntary audits and audit fees, so that the effect of voluntary audits on the cost of debt is affected by audit fees. Using a sample of Spanish SMEs, we find an asymmetric effect of audit fees on the cost of debt: higher audit fees are associated with a lower cost of debt for voluntarily audited companies, while the association is not significant for mandatory audits. Results suggest that, although the type of audit and the audit fees do not have a direct effect on the credibility of audits, the combination of both factors has relevance for lenders, so that higher audit fees in the voluntary setting are positively valued by them. The study contributes to the literature on auditing by showing that voluntary audits are relevant for capital providers as long as audits are perceived of quality.

Bank Relationship, Covenant Enforcement, and Creditor Control
Gam, Yong Kyu,Liu, Chunbo
This paper investigates the effect of banking relationship on the likelihood of lenders’ enforcement of loan covenant violations. We find that if lenders have a long-run relationship with borrowers, these lenders enforce material covenant violations at a substantially lower rate when borrowers breach financial covenants. Moreover, borrowers with such relationships are less likely to experience raises in loan interest rates and a deterioration of subsequent financing and investment activities when they fail to fulfill their financial covenants. Further evidence shows that the mitigation of information asymmetry along the lending relationship is the driving force of the empirical findings.

Chilean Pension Fund Managers and Corporate Governance: The Impact on Corporate Debt
Jara, Mauricio,López-Iturriaga, Félix J.,SanMartín, Pablo,Saona, Paolo,Tenderini, Giannina
In this paper we analyze the relationship between the investment of Pension Funds Managers (AFPs) and the cost of corporate debt (public and private). Using a sample of 93 non-financial Chilean listed firms between 2009 and 2014, we find that AFP’s increases the probability to issue bonds. Moreover, according to our crowding-out hypothesis, we show that AFPs increases the cost of bank borrowing. In line with the monitoring view, we find that AFPs decrease bond yields. On average, our results suggest that AFP’s improve corporate governance by influencing the information disclosure and reducing the intensity of lending relationships with banks.

Closed Quantum Black-Scholes: Quantum Drift and the Heisenberg Equation of Motion
Will Hicks

In this article we model a financial derivative price as an observable on the market state function. We apply geometric techniques to integrating the Heisenberg Equation of Motion. We illustrate how the non-commutative nature of the model introduces quantum interference effects that can act as either a drag or a boost on the resulting return. The ultimate objective is to investigate the nature of quantum drift in the Accardi-Boukas quantum Black-Scholes framework which involves modelling the financial market as a quantum observable, and introduces randomness through the Hudson-Parthasarathy quantum stochastic calculus. In particular we aim to differentiate randomness that is introduced through external noise (quantum stochastic calculus) and randomness that is fundamental to a quantum system (Heisenberg Equation of Motion).

Commonality in Credit Spread Changes: Dealer Inventory and Intermediary Distress
He, Zhiguo,Khorrami, Paymon,Song, Zhaogang
Two intermediary-based factors - a broad financial distress measure and a dealer corporate bond inventory measure - explain about 50% of the puzzling common variation of credit spread changes beyond canonical structural factors. A simple model, in which intermediaries facing margin constraints absorb supply of assets from customers, accounts for the documented explanatory power and delivers further implications with empirical support.First, whereas bond sorts on margin-related variables (credit rating and leverage) produce monotonic patterns in loadings on intermediary factors, non-margin-related sorts produce no pattern. Second, dealer inventory co-moves with corporate-credit assets only, whereas intermediary distress co-moves even with non-corporate-credit assets. Third, dealers' inventory increases, and bond prices decline, in response to instrumented bond sales by institutional investors, using severe downgrades ("fallen angels'') and disaster-related insurance losses as IVs.

Corporate Governance of the Largest Russian Banks
Sprenger, Carsten,Todorović, Srdjan
Corporate governance can play an important complementary role in banking regulation by limiting excessive risk-taking by managers and shareholders at the expense of creditors, including small depositors. This paper provides a detailed analysis of corporate governance in Russia’s 30 largest banks during the period from 2007 to 2017. We look at several governance features, including ownership structure, the size, composition, and compensation of the boards of directors, as well as CEO characteristics. Based on our findings, we recommend policymakers focus on strengthening the role of independent directors in non-listed banks, address signs of managerial entrenchment in state-owned banks (long tenure and compensation above the level of private and foreign banks), and improve disclosure about board independence, board committees, and the backgrounds of board members.

Cyclical Consumption and Expected Returns: New Evidence - How Long Does it Take to Form the Habit in Habit Model?
Sun, Yulong
Atanasov, Møller, and Priestley (2019) find that cyclical consumption at 5-7 year frequency can predict (excess) returns at market level and they argue that low-frequency fluctuations in consumption capture slow-moving counter-cyclical variations in expected returns. Based on cross-sectional evidence, I find that their results are mainly driven by the large-capitalization stocks and cannot be extended to other sorted portfolios. Meanwhile, all firms' returns can be predicted by cyclical consumption at 1-2 year frequency and it suggests cyclical consumption may capture the risk premia at shorter business cycle frequency. I also find cyclical consumption growth is persistent and the persistence increases with time horizon and the future dividend-price ratio can be predicted by cyclical consumption. To rationalize the stylized facts, I modify the Campbell-Cochrane habit model by allowing persistent consumption growth and finite-horizon habit formation. The modified model can reproduce the inverse relation between cyclical consumption and future expected stock returns, consistent with empirical findings.

Daily Trading Patterns in the Bitcoin/Euro Market
Johnson, Jackie
Using bitcoin/euro transaction data from three exchanges of varying size and segmenting the Bitcoin transactions into periods based on market conditions, it can be seen that trading activity patterns change with market conditions and the Bitcoin exchange used. There is only limited evidence in support of a reduction in trading at the weekends which also depends on the exchange and market conditions. There is evidence to support Kurihara and Fukushima (2017) and Baur et al (2019) who find lower trading volume at the weekends, which is a direct reflection of fewer large transactions, as we find that for all three exchanges and in all market conditions the number of large transactions declines at the weekend.

Do We Need Stochastic Volatility and GARCH? Comparing Squared End-of-Day Returns on FTSE
Allen, David E.,McAleer, Michael
The paper examines the relative performance of Stochastic Volatility (SV) and GARCH(1,1) models fitted to ten years of daily data for FTSE. As a benchmark, we use the realized volatility (RV) of FTSE sampled at 5-minute intervals, taken from the Oxford Man Realised Library. Both models demonstrate comparable performance and are correlated to a similar extent with the RV estimates, when measured by OLS. However, a crude variant of Corsi's (2009) HAR model, applied to squared demeaned daily returns on FTSE, appears to predict the daily RV of FTSE better than either of the two models. Quantile regressions suggest that all three methods capture tail behaviour similarly and adequately. This leads to the question of whether we need either of the two standard volatility models, if the simple expedient of using lagged squared demeaned daily returns provides a better RV predictor, at least in the context of the sample.

Exploring Corporate Event Data and Volatility, Considerations for Academic and Financial Industry Research
Raines, Michael
Corporate events created by publicly traded companies or attended by their executives can provide compelling insight on the overall financial health of the companies involved. The digital revolution has resulted in an explosion of corporate event information--both in volume and in types of events.Publicly traded companies are constantly self-disclosing information in new ways. Uncovering and understanding the patterns within corporate events data â€" such as repetitive and sporadic scheduling, time/day of week schedules and a confluence of events at the same company or comparisons to peer companies â€" can advance academic research as well as benefit the financial community’s investing strategies.The aim of Exploring Corporate Event Data and Volatility is to provide guidance to researchers and practitioners on evaluating event data when researching alpha models or risk strategies.Offered within are examples of how several academic researchers have leveraged high-quality data to conduct independent research and publish their results in academic journals. This paper details what to look for in corporate event data and suggests best practices for sourcing highly accurate data.

Financial accumulation implies ever-increasing wealth inequality
Yuri Biondi,Stefano Olla

Wealth inequality is an important matter for economic theory and policy. Ongoing debates have been discussing recent rise in wealth inequality in connection with recent development of active financial markets around the world. Existing literature on wealth distribution connects the origins of wealth inequality with a variety of drivers. Our approach develops a minimalist modelling strategy that combines three featuring mechanisms: active financial markets; individual wealth accumulation; and compound interest structure. We provide mathematical proof that accumulated financial investment returns involve ever-increasing wealth concentration and inequality across individual investors through time. This cumulative effect through space and time depends on the financial accumulation process and holds also under efficient financial markets, which generate some fair investment game that individual investors do repeatedly play through time.

Firms’ Precautionary Savings and Employment during a Credit Crisis
Melcangi, Davide
Can the macroeconomic effects of credit supply shocks be large even when a small share of firms are credit-constrained? I use U.K. firm-level accounting data to discipline a heterogeneous-firm model in which the interaction between real and financial frictions induces precautionary cash holdings. In the data, firms increased their cash ratios during the last recession, and cash-intensive firms displayed higher employment growth. A tightening of firms’ credit conditions generates the same dynamics in the model. Unconstrained firms pre-emptively respond to credit supply shocks, and this precautionary channel crucially matters for the aggregate dynamics and the model fit with microeconomic data.

Implementing a Systematic Long-only Quality Strategy in the Indian Market
Raju, Rajan
We believe investors should be willing to pay a higher price for higher quality companies. We build a composite quality score using 'off -the-shelf' criteria and publicly available financial data and show that a quarterly-rebalanced, long-only portfolio of 12 stocks selected using our score in India significantly outperforms the NIFTY 100 Index - both in terms of absolute returns (by 5.50% pa) and risk adjusted returns - while having an acceptable annual turnover (a modal turnover of 41.67%). We show that our quality score predicts the persistence of quality for up to 3 years and there is a weak relationship between the price multiple and the quality score. We show that ESG criteria can be incorporated into a quality measure. Furthermore, we demonstrate that quality needs to be reviewed regularly - so a buy-and-hold approach may not be an ideal strategy for an investor. In the absence of cheap ETFs to get systematic exposure to quality, the systematic long-only strategy using 'off -the-shelf' criteria provides a practical, executable systematic investment methodology that exposes an investor to quality in the Indian market.

Income growth with high inequality implies loss of well-being: A mathematical model
Fernando Córdova-Lepe

A mathematical model of measurement of the perception of well-being for groups with increasing incomes, but proportionally unequal is proposed. Assuming that welfare grows with own income and decreases with relative inequality (income of the other concerning one's own), possible scenarios for long-term behavior in welfare functions are concluded. Also, it is proved that a high relative inequality (parametric definition) always implies the loss of the self-perception of the well-being of the most disadvantaged group.

Indirect transactions and requirements
Husna Betul Coskun

The formulation of the indirect transactions between the sectors of an economic system is a long-standing open problem. There have been numerous attempts to define and mathematically formulate this concept in various scientific fields in literature. The current indirect effects formulations for an economic system represent the sum of the subsequent gross outputs of goods and services at each step of a production chain to supply the final demands, generally after the first gross outputs from each sector in the system. These existing formulations cannot quantify the indirect interactions between any two sectors. The indirect transactions between two sectors of an economic system and the corresponding indirect requirements are introduced in the present article, based on the system decomposition theory. This novel concept of the indirect transactions is also compared with some existing indirect effect formulations, and the theoretical advancements brought by the proposed methodology are discussed. It is shown theoretically and through illustrative examples that the proposed indirect transactions better describe and quantify the indirect interactions than the current indirect effects formulations. The indirect requirements matrices for the US economy using aggregated input-output tables for multiple years are also presented and briefly analyzed.

Making Good on LSTMs Unfulfilled Promise
Daniel Philps,Artur d'Avila Garcez,Tillman Weyde

LSTMs promise much to financial time-series analysis, temporal and cross-sectional inference, but we find they do not deliver in a real-world financial management task. We examine an alternative called Continual Learning (CL), a memory-augmented approach, which can provide transparent explanations; which memory did what and when. This work has implications for many financial applications including to credit, time-varying fairness in decision making and more. We make three important new observations. Firstly, as well as being more explainable, time-series CL approaches outperform LSTM and a simple sliding window learner (feed-forward neural net (FFNN)). Secondly, we show that CL based on a sliding window learner (FFNN) is more effective than CL based on a sequential learner (LSTM). Thirdly, we examine how real-world, time-series noise impacts several similarity approaches used in CL memory addressing. We provide these insights using an approach called Continual Learning Augmentation (CLA) tested on a complex real world problem; emerging market equities investment decision making. CLA provides a test-bed as it can be based on different types of time-series learner, allowing testing of LSTM and sliding window (FFNN) learners side by side. CLA is also used to test several distance approaches used in a memory recall-gate: euclidean distance (ED), dynamic time warping (DTW), auto-encoder (AE) and a novel hybrid approach, warp-AE. We find CLA out-performs simple LSTM and FFNN learners and CLA based on a sliding window (CLA-FFNN) out-performs a LSTM (CLA-LSTM) implementation. While for memory-addressing, ED under-performs DTW and AE but warp-AE shows the best overall performance in a real-world financial task.

Microstructure of the Chinese Stock Market: A Historical Survey
Peng, Zhe
This paper examines how the Chinese stock market has evolved from the late 1980s to the end of 2018. We show that the current market design, trading mechanism, and regulatory framework are shaped not only by China's economic development and external events but also by frequent government interventions. The segmentation of the stock market is unique in the way that various sub-markets differentiate among target investors and types of listed firms. Since the degree of segmentation has varied over time, caution must be exercised when analyzing equity data that span multiple years and different trading venues. In the meanwhile, certain characteristics that were regarded as peculiarly ``of Chinese characteristics,'' such as the state-owned funds designed to cushion large market declines, also have their counterparts in developed markets. Since comprehensive accounts of these issues are limited, we summarize the existing empirical studies and mention some caveats. We also describe the available data-sets and suggest some topics for future research.

Neural network for pricing and universal static hedging of contingent claims
Vikranth Lokeshwar,Vikram Bhardawaj,Shashi Jain

We present here a regress later based Monte Carlo approach that uses neural networks for pricing high-dimensional contingent claims. The choice of specific architecture of the neural networks used in the proposed algorithm provides for interpretability of the model, a feature that is often desirable in the financial context. Specifically, the interpretation leads us to demonstrate that any contingent claim -- possibly high dimensional and path-dependent -- under the Markovian and the no-arbitrage assumptions, can be semi-statically hedged using a portfolio of short maturity options. We show how the method can be used to obtain an upper and lower bound to the true price, where the lower bound is obtained by following a sub-optimal policy, while the upper bound by exploiting the dual formulation. Unlike other duality based upper bounds where one typically has to resort to nested simulation for constructing super-martingales, the martingales in the current approach come at no extra cost, without the need for any sub-simulations. We demonstrate through numerical examples the simplicity and efficiency of the method for both pricing and semi-static hedging of path-dependent options

Optimal make-take fees for market making regulation
Omar El Euch,Thibaut Mastrolia,Mathieu Rosenbaum,Nizar Touzi

We consider an exchange who wishes to set suitable make-take fees to attract liquidity on its platform. Using a principal-agent approach, we are able to describe in quasi-explicit form the optimal contract to propose to a market maker. This contract depends essentially on the market maker inventory trajectory and on the volatility of the asset. We also provide the optimal quotes that should be displayed by the market maker. The simplicity of our formulas allows us to analyze in details the effects of optimal contracting with an exchange, compared to a situation without contract. We show in particular that it leads to higher quality liquidity and lower trading costs for investors.

Portfolio Optimization With a Guaranteed Minimum Maturity Benefit and Risk-Adjusted Fees
MacKay, Anne,Ocejo, Adriana
We study a portfolio optimization problem involving the rational policyholder of a variable annuity with a guaranteed minimum maturity benefit. This financial guarantee is financed via a fee withdrawn directly from the investment account, which impacts the net investment return. We propose a new fee structure that adjusts to the investment mix. A fair pricing constraint is defined in terms of the risk-neutral value of the final contract payout. We seek the investment strategy that maximizes the policyholder's expected utility of terminal wealth after the application of a financial guarantee and subject to the fair pricing constraint. We solve the associated constrained stochastic control problem using a martingale approach and analyze the impact of the fee structure on the optimal investment strategies and payoff. Numerical results show that it is possible to nd an optimal portfolio for a wide range of fees, while keeping the contract fairly priced.

Probabilistic Approach to Mean Field Games and Mean Field Type Control Problems with Multiple Populations
Masaaki Fujii

In this work, we systematically investigate mean field games and mean field type control problems with multiple populations using a coupled system of forward-backward stochastic differential equations of McKean-Vlasov type stemming from Pontryagin's stochastic maximum principle. Although the same cost functions as well as the coefficient functions of the state dynamics are shared among the agents within each population, they can be different population by population. We study the mean field limits of the three different situations; (i) every agent is non-cooperative; (ii) the agents within each population are cooperative; and (iii) only for some populations, the agents are cooperative within each population. We provide several sets of sufficient conditions for the existence of mean field equilibrium for each of these cases.

State-Owned Enterprises in Bosnia and Herzegovina: Assessing Performance and Oversight
Cegar, Bobana,Parodi, Francisco
Based on a new database of State-Owned Enterprise (SOE) financial statements, we find thatSOEs in Bosnia and Herzegovina are mostly in poor financial shape. We estimate the overallsize and composition of the SOE sector, and identify individual companies that affect fiscaland macroeconomic performance. Financial analysis suggests that SOEs are not contributingenough to the economy. We also review the SOE governance framework and find thatgovernments do not exercise their ownership function in line with WB/OECD guidelines.Reforms to the governance frameworks are necessary to foster transparency and improveaccountability. More fundamental reform of the SOE sector might increase overall GDP by 3percent per year.

Stochastic Orderings of Multivariate Elliptical Distributions
Chuancun Yin

Let ${\bf X}$ and ${\bf X}$ be two $n$-dimensional elliptical random vectors, we establish an identity for $E[f({\bf Y})]-E[f({\bf X})]$, where $f: \Bbb{R}^n \rightarrow \Bbb{R}$ fulfilling some regularity conditions. Using this identity we provide a unified derivation of sufficient and necessary conditions for classifying multivariate elliptical random vectors according to several main integral stochastic orders. As a consequence we obtain new inequalities by applying it to multivariate elliptical distributions. The results generalize the corresponding ones for multivariate normal random vectors in the literature.

Testing Model Adequacy â€" A Metric Approach
Stoyanov, Stoyan V.
The paper proposes a new method to assess model adequacy based on functionals with metric properties quantifying the deviation of the conditional expectation of a response variable Y from a suggested parametric non-linear model m(X). We derive the asymptotic distribution of a test statistic under linear and non-linear specifications, when the parameter estimator is asymptotically linear. We find that the power of the test in misspecified linear models is better or similar to some of the most commonly used alternatives in the literature. The metric properties uniquely position the proposed method to study the impact of three types of aggregation on the specification error â€" aggregation of observations across time, cross-sectional aggregation of variables, or aggregation of different models for the same variable. For example, neglected non-linearity in linear models is shown to be asymptotically negligible with a power-type rate of decay in the case of independent observations when data are aggregated across time. We provide an illustration from the field of finance with the capital asset pricing model (CAPM). The frequency of rejection of the linear specification of the CAPM can decline more than three times when the model is estimated with monthly rather than daily returns.

The Bright Side of Giving Managers Short-Horizon Incentives
Cihan, Mehmet,Tuncez, Ahmet M.
Managers with short-term incentive horizons are significantly less likely to acquire other firms. When firms with shorter incentive packages make an announcement of an M&A deal, both the short-term and long-term abnormal returns are greater than for firms whose managers have long-horizon incentives. Consistent with the positive abnormal returns, M&As conducted by short-horizon managers exhibit stronger post-M&A accounting-based performance. The results are surprising when viewed against the conventional wisdom that giving managers short-term incentives is suboptimal and imply that short-term incentives can be value increasing for some firms.

The Economic and Environmental Effects of Green Financial Policy in China: A DSGE Approach
Pan, Dongyang
可以發現,中國版本的這篇文章: paper explores the potential economic and environmental effects of the newly introduced “green financial policies” in China by an adjusted Dynamic Stochastic General Equilibrium (DSGE) model. This model is based on a basic Real Business Cycle (RBC) framework and introduces three novel aspects: (1) Banking sector offering green lending; (2) Firm sector conducting green and non-green production; (3) Central bank and fiscal sector implementing green financial policy. These new modules allow us to formally introduce green financing activity and policies aiming on it. This study finds that all three green financial policies assessed, namely relending, interest subsidy, and directional reduction for reserve ratio requirement, are effective instruments to incentivise green loan and have positive effects on the green economic transition and the environment. The cost is limited compared with the benefit.

Thy Neighbor's Vote: Peer Effects in Proxy Voting
Huang, Jiekun
Institutional investors' proxy voting decisions are influenced by their neighbors. I identify peer effects in proxy voting by exploiting the variation in the voting behavior of publicly traded financial institutions induced by close-call votes on shareholder-sponsored governance proposals at these institutions. I first show that the passage of a close vote at a focal institution increases the likelihood that the focal institution votes against management. Using a triple-differences approach, I find that passing a close vote at a focal institution increases the likelihood that its neighboring institutions vote against management in stocks that are heavily held by the focal institution. This effect is particularly strong when the proposal up for a vote is contentious. I further show that peer effects in voting behavior at the institution level have aggregate effects on actual vote outcomes. These results suggest that peer influence is an important determinant of proxy voting behavior.

Türkiye’de Kurumsal Yönetim (KY) İlkelerinde Yeni Raporlama Düzeni: Halka Açık Bankaların İlk KY Uyum Raporları Üzerine Bir İnceleme (New Reporting Scheme in Corporate Governance (CG) Principles in Turkey: An Examination upon First CG Compliance Reports of Publicly Traded Banks)
Kartal, Mustafa Tevfik,Yilmaz, Banu BudayoÄŸlu
English Abstract: Türkiye’de halka açık şirketler için KY uygulamaları Sermaye Piyasası Kurulu tarafından şekillendirilmektedir. Bu kapsamda, KY ilkelerine ilişkin raporlama çerçevesini 2019 itibarıyla geçerli olacak şekilde güncellenmiştir. Dolayısıyla, 2018 yılına ilişkin raporlar, KY Uyum Rapor Formatı (URF) ve KY Bilgi Formu (KYBF) olmak üzere iki ayrı rapor şeklinde yapılmaya başlanmıştır. Bu çalışma, bankaların URF formatında yaptıkları KY raporlarını konsolide ederek incelemek amacıyla hazırlanmıştır. Çalışma kapsamında, Türkiye’de halka açık 13 bankanın 2018 yılına ilişkin URF raporları analiz edilmiştir. Çalışma sonucunda, birçok ilkeye ilişkin raporlamaların yanlış/hatalı olduğu ve bu ilkelere ilişkin tercih edilen seçeneklerin değiştirilmesi gerektiği tespit edilmiştir. Bu kapsamda, raporlama yükümlülüklerinin değiştirilerek tüm ilkelere ilişkin detay açıklama zorunluluğu getirilmesi, bankaların iç kontrol ve iç denetim bölümleri tarafından URF raporlaması ile ilgili danışmanlık ve güvence verilmesi, bankaların kurumsal yönetim komitelerinin ve yönetim kurullarının URF raporlamasına daha fazla özen göstermesi önerilmektedir. English Abstract: CG practices for publicly traded companies in Turkey are characterized by Capital Market Board. In this context, the reporting framework for CG principles has been updated to become valid as of 2019. Therefore, the reports for 2018 have been issued as two separate reports consisting of CG Compliance Report Format (CRF) and CG Information Form (CGIF). The study is prepared in order to examine by consolidating CG reports of bank published in the format of CRF. Within the scope of the study, CRF reports of 13 publicly traded banks in Turkey are analyzed. As results of the study, they are determined that reporting regarding a variety of principles is inaccurate and options preferred in CGF reporting should be changed. In this context, it is recommended that reporting obligations should be amended to provide detailed explanations regarding all principles, internal control and internal audit departments of the banks should provide advisory and assurance about URF reporting, and corporate governance committees and boards of directors of the banks should pay more attention to URF reporting.

Wasserstein Index Generation Model: Automatic Generation of Time-series Index with Application to Economic Policy Uncertainty
Fangzhou Xie

I propose a novel method, the Wasserstein Index Generation model (WIG), to generate a public sentiment index automatically. To test the model`s effectiveness, an application to generate Economic Policy Uncertainty (EPU) index is showcased.

What Drives Corporate Philanthropy? The Role of Religiosity and National Culture
Chourou, Lamia
We study the relationship between corporate philanthropy and country level characteristics. Using 12,543 observations from 38 countries, we find that religiosity and the cultural dimensions of power distance and individualism are positively associated with corporate giving, while the cultural dimension of masculinity is negatively associated with philanthropy. Thus, religiosity and culture shape corporate philanthropy.

When Equity Factors Drop Their Shorts
Blitz, David,Baltussen, Guido,van Vliet, Pim
This paper makes a breakdown of common equity factor strategies into their long and short legs, and finds that (i) most added value tends to come from the long legs, (ii) the long legs of factors offer more diversification than the short legs, and (iii) the performance of the shorts is generally subsumed by the longs. These results hold across large and small caps, are robust over time, carry over to international equity markets, and cannot be attributed to differences in tail risk. Moreover, we do not even account for the substantially higher implementation costs involved with the shorts compared to the longs. We also challenge recent claims that the value and low-risk factors are subsumed by the new Fama-French factors, as we find that this result is entirely driven by the short legs of these factors and breaks down for the longs. Altogether, our findings show that decomposing factors into their long and short dimensions is crucial for understanding factor premiums and building efficient factor portfolios.

‘What to Expect When You Are Expecting’ an European Crowdfunding Regulation: The Current ‘Bermuda Triangle’ and Future Scenarios for Marketplace Lending and Investing in Europe
Macchiavello, Eugenia
Marketplace lending and investing have been recently attracting increasing regulatory attention. However, regulatory responses to such phenomenon have been extremely varied, even in Europe, characterized by maximum harmonization in the field of financial regulation, continuous efforts in creating a single market and in centralizing supervision. Such fragmented framework poses the risk of different levels of investor protection in Europe, regulatory arbitrage, competition distortions, obstacles to cross-border activity and to existing EU passports. The European Commission, after an initial “wait-and-see” approach, adopted in March 2018 a proposal for a Regulation on European Crowdfunding Service Providers (ECSPs) for businesses. Such proposal, nonetheless, has undergone a number of significant revisions during the trilateral negotiations among the European Commission, the European Parliament and the Council of the European Union, underlying the ambiguous nature of crowdfunding and the difficulty in reaching a common view on the same. The three European Institutions seem in fact to have divergent views of crowdfunding and different ideas on how to regulate it, this delaying the approval of the proposed Regulation. Will crowdfunding eventually escape such Bermuda Triangle receiving adequate regulation or is it destined to die in the process? The present paper, after briefly describing crowdfunding main features and regulatory trends in Member States, will critically analyze the ECSPs Regulation Proposal, with respect to all the three different versions, inferring from each text a different vision (and consequent envisioned regulation) of crowdfunding and of financial regulation in general, underlying their pros and cons and proposing adjustments to reach a functional, tiered and proportional regulation. Finally, after mentioning certain recent revisions in national crowdfunding laws (e.g. in Italy, Belgium, UK and Germany), the paper will conclude trying to forecast the future direction of the ongoing trilateral negotiations and the possible impact of the European Regulation on national crowdfunding laws and the sector.

基于DSGE模型的绿色信贷激励æ"¿ç­–ç "究 (China’s Incentive Policies for Green Loan: A DSGE Approach)
Wang, Yao,Pan, Dongyang,Peng, Yuchao,Xi, Liang
The English version of this paper can be found at Abstract: 在绿色é‡'融æ"¿ç­–实践与有关学术理论快速å'展的背景下,本文以绿色信贷的激励æ"¿ç­–为切入点,提供一种分析绿色é‡'融æ"¿ç­–的理论模型分析框架,并基于模型开展量化的æ"¿ç­–效果分析。本文在真实商业å'¨æœŸæ¡†æž¶çš„基础上引入é"¶è¡Œéƒ¨é—¨ï¼Œé€šè¿‡æ‹†åˆ†åŽ‚商部门为“绿色”与“其它”两部分,并设置中央é"¶è¡Œä¸Žè´¢æ"¿éƒ¨é—¨çš„相关æ"¿ç­–,纳入了绿色信贷激励æ"¿ç­–。ç "究å'现,é'ˆå¯¹ç»¿è‰²ä¿¡è´·çš„贴息、定å'降准、再贷款(调整再贷款利率与质押率)均是有效ä¸"合意的激励æ"¿ç­–,一定强度的æ"¿ç­–,不仅能够提高绿色信贷量、在绿色意义上优化经济的ç»"构,而ä¸"对总产出、总就业不会造成显è'—的负面影å"ï¼Œå¸¦æ¥â€œç»æµŽâ€ä¸Žâ€œçŽ¯å¢ƒâ€åŒèµ¢çš„ç»"果。English Abstract: In the context of "constructing an ecological civilization" in China, "green finance" and "green loan" policies that promote capital resource to support sustainable development have developed rapidly in the recent years. Meanwhile, relevant academic research has started to thrive. However, theories and models for green finance and policy analysis based on them are still not enough. This study attempts to develop a theoretical and quantitative model for analysing China’s incentive policies for green loan, and applies this model to find the potential effects of such policies. This will provide a prototype for the modelling work on green financial policy in the academia and help the government better design such policies in the real world.In China, green financial policy normally means governmental and regulatory measures aiming to make financial services supportive of environment improvement, climate change mitigation and adoption and more efficient resource utilization. Narrowly, it also refers to financial policy tools and inventions that can incentivize green financing activities, such as interest subsidy, central bank relending, government guarantee, lowering risk weight and capital requirement for green loan (i.e. incentive policies for green loan). These policy tools have been proposed or implemented mainly after the release of the Integrated Reform Plan for Promoting Ecological Progress in 2015 and the Guidelines for Establishing the Green Financial System in 2016 by the central government.While the rapid development of green financial policy in practice, relevant academic research lags behind. Previous research on the issue of “green financial policy” are mostly qualitative policy recommendations. Quantitative research on green finance has started in recent years, however, few studies focused on the economic and environmental effects of green financial policy. People can hardly know if this kind of policy is effective and what it will bring to the macro-economy. Given the above background, this research aims to provide a theoretical model suitable for the quantitative analysis on incentive policies for green loan, and to theoretical show their economic and environmental effects. The specific policy tools we study include interest subsidy, directional reduction for reserve ratio requirement, and central bank relending for green loan. To do this, we build a Dynamic Stochastic General Equilibrium (DSGE) model based on the Real Business Cycle (RBC) framework. The model has two major extensions compared with RBC framework: (1) Banking sector conducting green lending is added. Firm sector must use loan as “working capital” to pay for all costs. Bank provide green and traditional loans to different firms. Household sector can deposit their savings to bank. (2) The firm sector is divided into two sub-sectors: green and other firms. The pollution from production process is introduced and the green firm pollutes less than the other. Green firm is financed by green loan, while the other by traditional loan. These two extensions allow us to analyse financing activities and to distinguish green loan from traditional loan. Incentive policies for green loan can then be included after introducing central bank and government sector. Parametric data is calibrated from China.According to this model, we find: (1) All three policies including interest subsidy, directional reduction for reserve ratio requirement and central bank relending, can increase the amount of green loan. Policy strength has a certain order. This shows the direct effect of such policies. (2) Temporary policy changes (incentive) can increase the output and employment of green firm, while decrease the output and employment of the other firm. The total output and total employment will also be slightly affected negatively, and so does pollution emission. The positive impacts of policy are more significant than the negative impact. This shows the indirect effects including benefit and cost of such policy on the entire economy and environment. (3) If the three policies are set as peg-type rules endogenously in the economy, they can also enhance the share of green related variables in the economy. However, only if a certain level of strength is reached, can the peg-type policies bring a green transformation for the economy when facing productivity shock.The conclusion is that interest subsidy, directional reduction for reserve ratio requirement and central bank relending are all effective for incentivizing green loan and have positive effects on the green side of the economy. The policy cost is not high. This implies that the deepening of green financial policy is desirable.