Research articles for the 2020-04-16

A Flexible Model for Efficient Employee Participation in UK Companies
Sergakis, Konstantinos,Kokkinis, Andreas
Corporate contractarian literature dismisses employee participation as inefficient on the grounds that, if it were efficient, it would be voluntarily adopted widely. We argue that the scarcity of employee participation in the UK can be attributed to shareholder short-termism and behavioural biases and, therefore, that the question of its efficiency remains open for companies that want to explore this possibility. We thus propose a flexible approach that UK companies can follow to implement employee participation. Our approach takes into account the broader UK institutional framework by creating adaptable and long-term solutions for both listed and large private companies. We argue that the most pragmatic way to encourage efficient employee participation is through the introduction of formal employee advisory panels and, in the longer term, the proliferation of employee share ownership schemes coupled with special rights to appoint a number of directors in tandem with the size of employee share ownership.

A Model of Asset Price Spirals and Aggregate Demand Amplification of a 'COVID-19' Shock
Caballero, Ricardo J.,Simsek, Alp
We provide a model of endogenous asset price spirals and severe aggregate demand contractions following a large supply shock. The key mechanism stems from the drop in the wealth share of the economy's risk-tolerant agents: as a recessionary supply shock hits the economy, their wealth declines and their leverage rises endogenously, causing them to o­ffload some risky assets. When monetary policy is unconstrained, it can offset the decline in risk tolerance with an interest rate cut that boosts the market's Sharpe ratio. However, if the interest rate policy is constrained, new contractionary feedbacks arise: recessionary supply shocks not only feed into reduced risk tolerance but also into further asset price and output drops, which feed the risk-off episode and trigger a downward loop. When pre-shock leverage ratios are high, multiple equilibria are possible, including one where risk-tolerant agents go bankrupt. A large-scale asset purchases (LSAPs) policy can be highly effective in this environment, as it helps to undo the downward asset price spiral. The COVID-19 shock and the large response by the Fed provide a vivid illustration of the environment we seek to capture.

Asymmetric Information, Bank Lending, and Implicit Contracts: The Winner's Curse
von Thadden, Ernst-Ludwig
The purpose of this note is to point out an omission in an important paper by Sharpe (1990) on long-term bank-firm relationships and to provide a correct analysis of the problem. The model studies repeated lending under asymmetric information which leads to winner's-curse type distortions of competition. Contrary to the claims in Sharpe (1990), this game only has an equilibriuim in mixed strategies, which features a partial informational lock-in by firms and random termination of lending relationships.

Capital Market Efficiency and Managerial Discretion over Accounting Choices: Evidence from the Relation between Stock Liquidity and Accrual-based Earnings Management
Cheng, Zhuo (June),Fang, Jing
We reason that stock liquidity, due to its enhancing effect on price efficiency, dampens accrual-based earnings management (AEM) by making it difficult for managers to use AEM to move stock price and by making stock price revealing about the value-destroying consequence of AEM. Consistent with our reasoning, we document three major findings: (a) stock liquidity has a causal dampening effect on AEM; (b) the higher stock liquidity, the weaker the relation between discretionary accruals and mis-valuation and the more informative stock price about future earnings; and (c) the greater the value-destroying consequence of AEM, the stronger the dampening effect of stock liquidity on AEM. Our findings affirm the view that when facing a more efficient stock market managers exert less discretion over accounting choices.

Developing a Platform for Chronic Diseases Awareness
Alqarni, Nada,Alqahtani, Shahad,Alhumaidi, Sara Alhumaidi,Almutairi, Ibtihaj,Alshabanah, Muneerah,Alrajhi, Daniah,Alsmadi, Mutasem,Almarashdeh, Ibrahim
The increasing chronic disease’s epidemic is due to alcohol, smoking, lack of physical activity, obesity and unhealthy diet causing common diseases such as hypertension, osteoporosis, stroke, myocardial infarction renal insufficiency and diabetes. Preventive action against such diseases could be to improve health awareness through the use of health awareness platforms supporting behavior change and self-observation. Policy-makers play a vital role in decreasing the burden and risk of chronic diseases through implementing programs and policies that improve access to healthcare and provide a healthy environment. An official planning framework and national policy are crucial to give chronic diseases proper priority and to arrange resources properly. This work aims to design and develop a platform for chronic disease awareness. The proposed system was developed using the Unified Modeling Language (UML), ASP.NET, HTML and CSS.

Developing a Smart Nursery Application for Monitoring and Babies Care
Alqahtani, Manar,Bashunaym, Reem,Alotaibi, Norah,Alkhaldi, Razan,Alshabanah, Muneerah,Alrajhi, Daniah,Alsmadi, Mutasem,Almarashdeh, Ibrahim
This paper presented a Smart Nursery application for busy parents so that they can ensure the safety and proper care for their babies. This system can show the baby’s motion, position and sound through live web-cam camera which is provided by the proposed smart application so that the parents or another responsible person can monitor the baby while away from him or her. This proposed smart application can provide a convenient and easy way for busy parents to take care of their babies. The proposed system was analyzed, design and developed using the Unified Modeling Language (UML), ASP.NET and HTML.

Developing and Implementing a Web-Based educational platform for Children with Special Needs
Al Hayek, Fatimah,Khelaif, Malikah,Shaikh, Zahra,Alshammari, Hayam,Alshabanah, Muneerah,Alrajhi, Daniah,Alsmadi, Mutasem,Almarashdeh, Ibrahim
Web-Based educational platform is now broadly adopted. These platforms are a real opportunities for education of a better quality for a lot of people. Though, people with disabilities are still meeting many barriers to use these systems. In fact, the main barrier is that most accessible Web-Based educational platforms is not available to people with disabilities and doesn’t consider their special needs. In this paper, we present an accessible web-based educational platform for children with special needs from the design step to the implementation. The motive for choosing this idea was the lack of comprehensive educational platforms for children in particular, which bring together children, parents and schools. The proposed platform will support the educational process in schools as the platform contains simplified explanations of what is taught in some school curricula such as numbers, letters and mathematical operations, and also forms a link between the child and his school where it contains worksheets and extracurricular activities that the teaching staff can benefit from. There is also a section for parents that include educational home games and simple books that enhance children's skills and train them on what has been learned. The proposed system was developed using the Unified Modeling Language (UML), ASP.NET , HTML and CSS.

Developing and Implementing an Online Learning Platform for Children with Autism
Faraj, Aysha,Alzahrani, Sarahl,Almumtin, Reema,Alrajhi, Daniah,Alshyban, Sarah,Alshabanah, Muneerah,Alsmadi, Mutasem,Almarashdeh, Ibrahim
Approximately 50% of all individuals with Autism have difficulties in developing functional language owing to communication deterioration. An online learning platform that provides educational games to help these individuals feel more comfortable and relaxed doing such activities. Although numerous platforms are available for individuals with Autism, they are difficult to use; particularly in terms of user-interface design. In this paper, we present the design and develop online learning platforms, designed as a tool to encourage social interaction in autistic children. The proposed system was analyzed, design and developed using the Unified Modeling Language (UML) and ASP.NET.

Distributionally Robust Optimization under Distorted Expectations
Cai, Jun,Li, Jonathan,Mao, Tiantian
Distributionally robust optimization (DRO) has arose as an important paradigm to address the issue of distributional ambiguity in decision optimization. In its standard form, DRO seeks an optimal solution against the worst-possible expected value evaluated based on a set of candidate distributions. In the case where a decision maker is not risk neutral, the most common scheme applied in DRO to capture one’s risk attitude is employing an expected utility functional. In this paper, we propose to address a decision maker’s risk attitude in DRO by following an alternative scheme known as “dual expected utility”. In this scheme, a distortion function is applied to convert physical probabilities to subjective probabilities so that the resulting expectation, also known as distorted expectation, captures the decision maker’s risk attitude. Unlike an expected utility functional which is linear in probability, in the dual scheme a distorted expectation is generally non-linear in probability. We distinguish DRO based on distorted expectations by terming it "Distributionally Robust Risk Optimization” (DRRO), and show that DRRO can be equally, if not more, tractable to solve than DRO based on utility functionals. Our tractability results hold for any distortion function, and hence our scheme provides more flexibility to capture more realistic forms of risk attitudes. These include, as an important example, the inverse S-shaped distortion functionals that play a prominent role in Cumulative Prospect Theory (CPT), and several other non-convex risk measures developed more recently. Central to our development is the characterization of worst-case distributions based on the notion of convex envelope, which enables us to discover “hidden convexity" in DRRO. We demonstrate through a numerical example that a production manager who overly weights “very good" and “very bad" outcomes may act as if (s)he is risk-averse when taking into account distributional ambiguity. Worst-case distributions are presented that can provide further explanation of such risk-averse behaviour.

Effects of Offering Speed and Liquidity on Pricing
Umar, Tarik,Yimfor, Emmanuel,Zufarov, Rustam
When the SEC allowed small firms to sell preregistered shares using shelf offerings, the firms' offering discounts fell by eight percentage points. However, discounts did not fall for firms conducting public offerings, even though they could now sell shares 60 days faster. Discounts fell only for small firms conducting private placements, whose investors could now sell shares 60 days faster. This improved liquidity increased post-offering trading by 30%, greatly benefiting firms with high information asymmetry, and changed the composition of investors. Overall, our findings suggest that shelf offerings lowered offering discounts by improving investors' liquidity, not by improving offering speed.

Explaining herding and volatility in the cyclical price dynamics of urban housing markets using a large scale agent-based model
Kirill S. Glavatskiy,Mikhail Prokopenko,Adrian Carro,Paul Ormerod,Michael Harre

Urban housing markets, along with markets of other assets, universally exhibit periods of strong price increases followed by sharp corrections. The mechanisms generating such non-linearities are not yet well understood. We develop an agent-based model populated by a large number of heterogeneous households. The agents' behavior is compatible with economic rationality, with the trend-following behavior found to be essential in replicating market dynamics. The model is calibrated using several large and distributed datasets of the Greater Sydney region (demographic, economic and financial) across three specific and diverse periods since 2006. The model is not only capable of explaining price dynamics during these periods, but also reproduces the novel behavior actually observed immediately prior to the market peak in 2017, namely a sharp increase in the variability of prices. This novel behavior is related to a combination of trend-following aptitude of the household agents (rational herding) and their propensity to borrow.

Forecasting Stock Market Recessions in the US: Predictive Modeling using Different Identification Approaches
Haase, Felix,Neuenkirch, Matthias
Stock market recessions are often early warning signals for financial or economic crises. Hence, forecasting bear markets is important for investors, policymakers, and economic agents in general. In our two-step procedure, we first identify stock market regimes in the US using three different techniques (Markov-switching models, dating rules, and a naïve moving average). Second, we predict recessions in the S&P 500 with the help of several modeling approaches, utilizing the information of 92 macro-financial variables. Our results suggest that several variables are suitable for forecasting recessions in stock markets in-sample and out-of-sample. Our early warning models for the US equity market, in particular those using principal components to aggregate the information in the macro-financial variables, provide a statistical improvement over several benchmarks. In addition, these generate economic value by boosting returns, improving the sharp ratio and the omega, and substantially reducing draw-downs.

From code to market: Network of developers and correlated returns of cryptocurrencies
Lorenzo Lucchini,Laura Alessandretti,Bruno Lepri,Angela Gallo,Andrea Baronchelli

"Code is law" is the funding principle of cryptocurrencies. The security, transferability, availability and other properties of a crypto-asset are determined by the code through which it is created. If code is open source, as it happens for most cryptocurrencies, this principle would prevent manipulations and grant transparency to users and traders. However, this approach considers cryptocurrencies as isolated entities thus neglecting possible connections between them. Here, we show that 4% of developers contribute to the code of more than one cryptocurrency and that the market reflects these cross-asset dependencies. In particular, we reveal that the first coding event linking two cryptocurrencies through a common developer leads to the synchronisation of their returns in the following months. Our results identify a clear link between the collaborative development of cryptocurrencies and their market behaviour. More broadly, our work reveals a so-far overlooked systemic dimension for the transparency of code-based ecosystems and we anticipate it will be of interest to researchers, investors and regulators.

Household Finance
Gomes, Francisco,Haliassos, Michael,Ramadorai, Tarun
Household financial decisions are complex, interdependent, and heterogeneous, and central to the functioning of the financial system. We present an overview of the rapidly expanding literature on household finance (with some important exceptions) and suggest directions for future research. We begin with the theory and empirics of asset market participation and asset allocation over the lifecycle. We then discuss household choices in insurance markets, trading behavior, decisions on retirement saving, and financial choices by retirees. We survey research on liabilities, including mortgage choice, refinancing, and default, and household behavior in unsecured credit markets, including credit cards and payday lending. We then connect the household to its social environment, including peer effects, cultural and hereditary factors, intra-household financial decision making, financial literacy, cognition and educational interventions. We also discuss literature on the provision and consumption of financial advice.

Information Inequality and Role of Public Information
Kim, Jin Yeub,Shim, Myungkyu
In this paper, we study the equilibrium and welfare properties for a class of games that have payoff externalities, dispersed information, and information inequality. In the game, agents take actions that are close to the fundamentals, but their actions can be strategic complements or substitutes. We first examine the impacts of more precise public information and of greater information inequality on the equilibrium behavior. We then analyze the welfare effects of public information disclosure and private information inequality. We show that welfare can decrease with increased precision of public information. We also find that welfare increases with greater precision of private information for the already-informationally-richer agents even if this means more information inequality.

Information transfer between stock market sectors: A comparison between the USA and China
Peng Yue,Yaodong Fan,Jonathan A. Batten,Wei-Xing Zhou

Information diffusion within financial markets plays a crucial role in the process of price formation and the propagation of sentiment and risk. We perform a comparative analysis of information transfer between industry sectors of the Chinese and the USA stock markets, using daily sector indices for the period from 2000 to 2017. The information flow from one sector to another is measured by the transfer entropy of the daily returns of the two sector indices. We find that the most active sector in information exchange (i.e., the largest total information inflow and outflow) is the {\textit{non-bank financial}} sector in the Chinese market and the {\textit{technology}} sector in the USA market. This is consistent with the role of the non-bank sector in corporate financing in China and the impact of technological innovation in the USA. In each market, the most active sector is also the largest information sink that has the largest information inflow (i.e., inflow minus outflow). In contrast, we identify that the main information source is the {\textit{bank}} sector in the Chinese market and the {\textit{energy}} sector in the USA market. In the case of China, this is due to the importance of net bank lending as a signal of corporate activity and the role of energy pricing in affecting corporate profitability. There are sectors such as the {\textit{real estate}} sector that could be an information sink in one market but an information source in the other, showing the complex behavior of different markets. Overall, these findings show that stock markets are more synchronized, or ordered, during periods of turmoil than during periods of stability.

Internet Appendix to: Overbidding in Mergers and Acquisitions: An Accounting Perspective
Bartov, Eli,Cheng, C.S. Agnes,Wu, Hong
This Internet Appendix (IA) contains three sections: The first section provides variable definitions (Section IA1), the second section outlines the development and estimation of the overbidding measure, as well as reports summary statistics and estimation results (Section IA2), and the third and final section provides a reference list (Section IA3). The full-text version "Overbidding in Mergers and Acquisitions: An Accounting Perspective" is available at:

Keep It in the Family: How Passive Funds Are Used to Bolster Active Funds’ Performance
Allegrucci, Alberto
The same fund family may sponsor both passive and active funds. Due to the funds’ different fee structures and flow sensitivity to performance, this may create conflicts of interest at the fund family level. Using portfolio firms’ mergers and acquisitions as a laboratory, I show that fund families actively take measures to improve the performance of their active funds by using their passive funds. When the family’s active funds have a large stake in the acquirer, the passive fund owners of the target are less likely to support takeover deals that benefit target shareholders. At the deal level, I do not find evidence that takeover premia are affected by passive funds’ voting. Consistent with family profit motives driving fund performance, I observe differences in the flow to performance sensitivity between active and passive funds. The evidence suggests that fund families may take measures to boost their active funds’ performance at the expense of their passive funds.

Liquidity Coverage Ratio in a Payments Network: Uncovering Contagion Paths
Heuver, Richard,Berndsen, Ron
The Liquidity Coverage Ratio (LCR) requirement of the Basel III framework is aimed at making banks more resilient against liquidity shocks and indicates the extent to which a bank is able to meet its payment obligations over a 30-day stress period. Notwithstanding the fact that it forms an important addition to the available information for regulators, it presents information on the status of a single bank on a monthly reporting basis. In this paper we generate an LCR-like statistic on a daily basis and simulate liquidity failure of each of the systemically important banks, using historical payments data from TARGET2. The aim of the paper is to uncover paths of contagion. The trigger is a bank with a deteriorating LCR and the knock-on effect is modelled as the impact on the LCR of other banks. We generate then the cascade of contagion, which in general consists of multiple paths, trying to answer the question to what extent the financial network further deteriorates. In doing so we provide paths of contagion which give a sense of potential systemic risk present in the network. We find that the majority of damage is caused by a small group of large banks. Furthermore we find groups of banks that are very vulnerable to shocks, regardless of the size or location of the disruption. Our model reveals that the shortfall of liquidity at the stressed bank is a more important driver than the addition of liquidity at the other banks. A version of the contagion network based on a 14-day period reveals a monthly pattern, which is in line with other literature in which window dressing is addressed. The data used in this paper are available to supervisors, central banks and resolution authorities, therefore making it possible to anticipate contagion of failing liquidity coverage within their payment network on a daily basis.

Machine learning for multiple yield curve markets: fast calibration in the Gaussian affine framework
Sandrine Gümbel,Thorsten Schmidt

Calibration is a highly challenging task, in particular in multiple yield curve markets. This paper is a first attempt to study the chances and challenges of the application of machine learning techniques for this. We employ Gaussian process regression, a machine learning methodology having many similarities with extended Kalman filtering - a technique which has been applied many times to interest rate markets and term structure models.

We find very good results for the single curve markets and many challenges for the multi curve markets in a Vasicek framework. The Gaussian process regression is implemented with the Adam optimizer and the non-linear conjugate gradient method, where the latter performs best. We also point towards future research.

Measuring Disclosure Investment Strategy: A Data Envelopment Analysis Approach
Demerjian, Peter R.,Mookerjee, Simmi,Schonberger, Bryce
This paper develops a measure of disclosure investment strategy using data envelopment analysis (DEA) to apply a production formulation to firms’ investments in mandatory and voluntary disclosures. Conceptually, the “disclosure production” of a firm consists of a variety of disclosure choices (as the production inputs) corresponding to a variety of outcomes of disclosure (as the production outputs). In our setting, the primary advantage of DEA is that it allows us to incorporate multiple disclosure inputs in the estimation (e.g., press releases, earnings forecasts), allowing firms to select a portfolio of disclosures that maximizes the aggregate benefits of those disclosures on their information environment. We find that the resulting measures of disclosure investment strategy vary predictably with proxies for both costs and benefits of disclosure and yield new evidence on variation in disclosure investments around changes in proprietary costs and securities class action lawsuits.

National Culture and Financial Literacy: International Evidence
Ahunov, Muzaffar Olimjonovich,Van Hove, Leo
We examine to what extent (aspects of) national culture can explain cross-country variations in financial literacy. Our results, for a sample of 92 countries, show that Hofstede’s dimensions of power distance and individualism explain, respectively, over 40 and 60 per cent â€" which is substantially more than national cognitive scores and standard economic variables. In particular, we find that financial literacy is lower in countries where power distance is high, and that the opposite is true for individualism. Uncertainty avoidance would seem be negatively related with financial literacy, but the evidence is not so strong. For masculinity, indulgence, and long-term orientation we find no significant impact. Overall, our results highlight the need for additional (interdisciplinary) theories that can improve our understanding of the determinants of financial literacy and better guide policies in this area.

Portfolio Diversification and Liquidity Spillover Opportunities Among the Stock Markets of Macedonia, Bulgaria and Croatia
Filipovski, Vladimir,Arsov, Saso
We analyze the potential implications of the regional integration of three stock markets: Macedonian, Croatian and Bulgarian stock exchanges. The first implication is related to the potential for risk diversification which may improve return per unit of risk earned by investors on these markets. In this context, we calculate returns, volatilities and correlation coefficients for the indexes of the three markets. Then, we present the effect of investments in notional portfolios constructed as combinations of three stock market indexes. Such analysis indicates that there is a potential for risk diversification in such portfolio investments. The second implication concerns market liquidity spillovers across the three market. As these are relatively illiquid markets, one may question the potential of market integration to bring increased levels of turnover, i.e. liquidity. The Vector Auto Regression (VAR) analysis has been used to explore the existence of any intertemporal relationships between market liquidity, returns and volatility among the three markets. The VAR analysis indicates that illiquidity of those markets do not influence stock returns and their volatilities. Also, the returns on the Bulgarian stock market seem to have the greatest impact on the other variables so that the investors from the region should be observing the trends on this market very closely.

Practical Applications of 529 College Savings Plans under the TCJA: Evaluating Age-Based Portfolios
Riskin, Ross
In 529 College Savings Plans under the TCJA: Evaluating Age-Based Portfolios, from the Fall 2019 edition of The Journal of Wealth Management, Ross A. Riskin of the American College of Financial Services discusses the effects of the Tax Cuts and Jobs Act of 2017 (TCJA) on 529 college savings plans. The TCJA expanded the types of educational expenses for which 529 plans can be used to include qualified Kâ€"12 tuition expenses. However, investors should be aware that certain investment options within 529 plans may not be optimal when planning for these educational opportunities. For instance, most age-based portfolios in 529 plans assume that the beneficiary will be 18 years old when the disbursement of funds begins. This assumption is reflected in allocations to equity, which may be overallocated for beneficiaries younger than 18 and underallocated for beneficiaries older than 18 when planning for K-12 or post-graduate tuition expenses, respectively. Additionally, states vary in both the tax laws pertaining to 529 plans and the different levels of risk assumed by the portfolios. Riskin suggests that investors may be better off pursuing static portfolios or individual investment options if they plan to use the funds to pay for qualifying non-undergraduate education expenses.

Product Diversification as a Performance Boosting Strategy? Drivers and Impact of Diversification Strategies in the Property-Liability Insurance Industry
Duijm, Patty,Beveren, Ilke Van
We investigate the relationship between product diversification and performance in the Dutch property-liability (P&L) insurance industry for the period 2007-2018. We employ a two-step approach: we first investigate the drivers of diversification and, as a second step, we investigate the impact of diversification on risk and return. Our results suggest that the impact of diversification can be beneficial, as it reduces an insurer’s risk. Diversification is however also associated with lower returns, while it is not significantly related to risk-adjusted returns. Furthermore, the impact of diversification on performance is contingent upon an insurer’s size and its extent of diversification.

Recovering the FOMC Risk Premium
Liu, Hong,Tang, Xiaoxiao,Zhou, Guofu
The Federal Open Market Committee (FOMC) meetings have significant impact on market returns. We propose a methodology to recover the risk premium associated with FOMC meetings from option prices. We also estimate the sizes of upward/downward market price jumps after an imminent FOMC meeting. In our empirical analysis, with observed price data for 67 meetings and with data backed out via machine learning for the remaining 109 meetings from 1996 to 2017, we find that the risk premium varies from 15 to 88 basis points (bps), with an average of 38 bps which is consistent with the average realized returns documented in the literature. The average upward jump size is 103 bps, and the average downward jump size is 87 bps.

Return Predictability in Firms with Complex Ownership Network
Gonzalez, Angelica,Sarkissian, Sergei,Tu, Jun,Zhang, Ran
In this study, using data from 23 developed markets, we examine all four possible cases of stock return predictability in ownership-linked firms (OLFs): parent-subsidiary, subsidiary-parent, subsidiary-subsidiary, and parent-parent. We find that the returns of OLFs predict returns of the focal firm for all four cases. In particular, a simple long/short portfolio strategy for firms sorted by the lagged monthly returns of OLFs yields the Fama and French (2018) value-weighted six-factor alpha of up to 113 bps per month. The underreaction of focal firms to OLF returns is best explained by active internal capital markets â€" a specific mechanism unique to OLFs.

Simple Rules for a Complex Regulatory World: The Case of Financial Regulation
Mufarrige, Christopher,Zywicki, Todd J.
Twenty-five years ago Richard Epstein published Simple Rules for a Complex World, which would go on to become one of Epstein’s most influential works. This essay, prepared for a conference and symposium to celebrate the anniversary of the book, applies the insights of Simple Rules in the context of one of the most complex areas of social and economic regulation, financial regulation.The complexity of modern finance is often thought to require an equally complex regulatory structure to preserve the safety of the financial system and thus Epstein’s approach is inapplicable to this context. We argue that this argument is exactly backwards. Simplicity in the regulatory framework is essential for financial institutions to manage risk and conduct their affairs efficiently and prudently. Complexity, by contrast, begets a variety of destabilizing problems, including the likelihood of regulatory arbitrage and errors by regulators that increase risk. We argue that refashioning financial regulation around Epstein’s concept of simple rules would create a more stable and efficient financial regulatory system.

Statistica descriptivă a seriilor de timp financiare: Aplicaţii, Partea a treia (Descriptive Statistics of the Financial Time Series: Exercises, Part 3)
Stefanescu, Razvan,Dumitriu, Ramona
Romanian Abstract: O histogramă poate fi un instrument util în sesizarea unor proprietăţi ale seriilor de timp financiare. Această lucrare prezintă construirea unei histograme asociate randamentelor logaritmice ale valorilor zilnice ale ratei de schimb dintre leul românesc ÅŸi euro din perioada 17 martie 2017 â€" 17 martie 2020.English Abstract: A histogram could be an useful tool in revealing some properties of the financial time series. This paper presents the making of a histogram associated to logarithmic returns of the Romanian leu â€" euro exchange rate daily values for the period 17th March 2017 â€"16th March 2020.

Statistica descriptivă a seriilor de timp financiare: Aplicaţii, Partea întâi (Descriptive Statistics of the Financial Time Series: Exercises, Part 1)
Stefanescu, Razvan,Dumitriu, Ramona
Romanian Abstract: Unele tehnici ale statisticii descriptive pot servi la cuantificarea trăsăturilor importante ale seriilor de timp financiare. Această lucrare abordează evoluÅ£ia randamentelor logaritmice ale BITCOIN din perioada 1 februarie â€" 16 martie 2020. Rezultatele tehnicilor statistice indică o medie aritmetică negativă ÅŸi o volatilitate semificativă. Seria randamentelor are o o boltire leptokurtică ÅŸi o asimetrie negativă. English Abstract: Some techniques of descriptive statistics could be used for quantifying important features of the financial variables evolution. This paper approaches the evolution of logarithmic returns of BITCOIN for the period February 1st â€" March 16th, 2020. The results indicate a negative arithmetic mean and a significant volatility. The distribution of returns is leptokurtic with a negative skewness.

The Agency Costs of Sellside Deal Protection: An Empirical Analysis of Reverse Termination Fees
Aggarwal, Dhruv
This paper empirically examines what corporate governance, financial and transaction variables lead target companies to negotiate for reverse termination fees (RTFs) in mergers and acquisitions. RTFs, which must be paid by buyers if they walk away from a merger, are used by target companies to reduce transaction uncertainty. We examine 1518 merger agreements for the period from 2010 to 2019, and find that 44.86 percent of these transactions included RTFs. First, we find that larger and more mature target companies with higher market capitalizations and lower cash ratios are more likely to successfully negotiate for RTFs. Second, the presence of a controlling shareholder increases the size of an RTF and ensures it is “efficiently” priced, suggesting that these actors play a monitoring role. Third, targets with dual class stock are less likely to efficiently price RTFs. Finally, deals with private equity acquirers are more likely to feature RTFs, and these RTFs are larger and more efficiently priced. These findings have implications for practitioners involved in crafting deal protection mechanisms, as well as Delaware courts considering how to view RTF provisions in merger litigation.

The COVID-19 Pandemic and Corporate Dividend Policy
Cejnek, Georg,Randl, Otto,Zechner, Josef
Important dimensions of dividend behavior are not well understood. How do dividends behave in extreme states of the world? Why is the risk premium on dividend claims so high? Would dividend bans in crisis states have plausible effects on firms' cost of capital? In this paper we use evidence from the ongoing Corona pandemic to shed light on these questions. We find that, contrary to the folklore that near-future dividends are smoother than earnings or share prices, the opposite is true in disaster states. It appears that firms do not fulfill their role as liquidity intermediaries for their shareholders in precisely those states, in which predictable cash payments would be valued most highly. This is consistent with the apparent puzzle that near-maturity dividend futures have provided investors with “anomalously” high returns in the past years. In light of the recent Corona disaster, these risk premia are consistent with compensation for negative co-skewness and exposure to disaster risk. Our findings imply that policy setters who consider banning dividends in a crisis should take into account the potential effect this is likely to have on firms’ future cost of capital.

The Costs and Benefits of Retirement Policies at U.S. Audit Firms
Burke, Jenna,Hoitash, Rani,Hoitash, Udi,Xiao, Xia
The mandatory retirement age within U.S. audit firms ranges from 55 to 62, which has resulted in both controversy and legal scrutiny. The potential cost of requiring partners to retire at an age that is far younger than in other countries and related professions is the loss of their connections, experience, and expertise. Yet, studies in non-U.S. jurisdictions consistently find a negative association between audit partner age and audit quality, which is explained by partners nearing retirement disengaging from their work. Using hand-collected data on the age of 3,148 U.S. and 432 non-U.S. audit partners that conduct audits of U.S.-listed companies, we explore the costs and benefits of mandatory retirement policies at U.S. audit firms. We find that audit quality does not vary across U.S. partner age, but that non-U.S. partner age is associated with a higher likelihood of misstatements. Across both groups, older partners charge significantly higher fees. These findings suggest that U.S. mandatory retirement policies force out experienced revenue earners that are producing audit quality equivalent to younger partners and superior to similarly aged non-U.S. partners. We conduct additional analysis and find that partner retirements are mechanisms to promote and grow the client portfolio of younger and female audit partners.

Venture Capital Firms Valuation in Bull and Bear Markets: Evidence From Sweden
Isaksson, Anders
This study uses an experimentally designed case study approach to investigate Swedish venture capital firms’ valuation practices in two different economic contexts â€" the economic boom (bull market) of 1999 and the downturn (bear market) of 2002. A key finding in our study is that during economic downturns, venture capital firms employed fewer and less advanced valuation methods â€" relying more on rules of thumb and gut feeling than during boom times. We conclude that investor behavior is considerably affected by current economic conditions and advocate strongly that it be considered in future research on not only venture capital valuation, but also investor behavior in general. This study thus enriches the knowledge of venture capitalists’ valuation practices, in general and how market conditions affect them. Furthermore, the results can also aid researchers in developing.