Research articles for the 2020-03-21

Do the Business Cycle and Revenue Diversification Matter for Banks’ Capital Buffer and Credit Risk: Evidence from ASEAN Banks
Ovi, Nafisa Zabeen,Bose, Sudipta,Gunasekarage, Abey,Shams, Syed
We examine the association of the business cycle and revenue diversification with the banks’ capital buffer and credit risk for a sample of banks from the Association of Southeast Asian Nations (ASEAN) region from 1998 to 2018, using 2,847 banking firmâ€"year observations. We find that ASEAN banks react anticyclically in adjusting their capital buffer levels and credit risk. We also find that revenue diversification of these banks help reduce credit risk while achieving capital savings when confronting economic downturns. Our results offer support for the Basel III accord. However, the relations revealed are somewhat moderated by the regulatory quality, competition, and phase of the business cycle encountered by ASEAN banks.

What drives Active Share? Active Stock Selection or Active Stock Weights
Karoui, Aymen,Patel, Saurin
Active Share is a popular measure of active management. However, it is not clear what drives Active Share. To improve our understanding, we decompose Active Share into Active Stock Selection (ASE) and Active Stock Weights (ASW). ASE captures portfolio weights in stocks outside the portfolio benchmark and correlates positively (88%) with Active Share. ASW captures portfolio weight deviations from market capitalization weights and correlates negatively (-55%). Furthermore, we find some evidence that ASE positively predicts performance, while ASW negatively predicts performance. Our results suggest that the benefits of Active Share stem from the selection decision rather than the weighting decision.