Research articles for the 2020-06-05

Assessing the Payroll Protection Program: A Framework and Preliminary Results
Barrios, John Manuel,Minnis, Michael,Minnis, William C.,Sijthoff, Joost
We develop a simple model to predict requests for the Payroll Protection Program (PPP) and compare these predictions to the actual allocations. The model suggests the amount of requested funds could total $750 billion, though this is likely a high watermark conditional on several assumptions. The model also generates expectations by industry, state, and firm size, allowing us to assess model performance in the cross-section. The model performs reasonably well. Through the May 1 funding, the state-level cross-sectional model has an R2 of 99.3% and the average absolute prediction error across states is 6.4%. Interestingly, the prediction errors from the first funding round are significantly negatively correlated to the errors in the second funding round, revealing that the allocations were systematically different in the two rounds. Ultimately, the results suggest that the payroll-based model predicts PPP allocations well and that the funds were allocated as designed. One potential inference from these results is that critique about PPP allocations should be focused on program design rather than program execution. This analysis should be useful for subsequent studies assessing the performance of the PPP.

Busy Analysts and Firm Monitoring
Kini, Omesh,Rebello, Michael J.,Tyagi, Ashutosh
Consistent with the view that “busy” analysts face time and effort constraints in monitoring firms, we find that higher busyness lowers firm valuation. The underlying mechanisms include lower operating performance, higher cost of capital, greater earnings management, excessive CEO compensation, and lower institutional ownership. These effects are less pronounced for larger firms and when analysts have greater experience covering the firm/industry. Our inferences are supported by a novel experimental design based on shocks to analyst busyness from broker mergers. These results suggest that analyst monitoring relies not only on the level of analyst coverage, but also on its quality.

Can Managers be Wrong and Still be Right? An Examination of the Future Realization of Current Management Forecast Errors
Kimbrough, Michael D.,Lee, Hanna,Zheng, Yue
We examine whether management forecast errors (MFEs), which are traditionally interpreted as backward-looking indicators of how well forecasts preempted earnings announcements, also operate as forward-looking measures that aid with predicting future earnings. This possibility arises if an MFE represents unrealized revenues or expenses a manager originally anticipated to occur in the forecast period but that ultimately occur in subsequent periods. Consistent with this possibility, we document that optimistic MFEs contain incremental information over current earnings for predicting future earnings realizations. This finding does not extend to pessimistic MFEs, consistent with such errors reflecting expectations management. The predictive information in optimistic MFEs is negatively related to managers’ incentives to intentionally bias the forecast and is positively related to managerial ability. Analysts’ post-earnings announcement forecasts for the subsequent period overestimate the future realization of MFEs but such overestimation is less severe when managers issue timely post-earnings announcement forecast revisions for subsequent periods.

Community Detection in Investor Networks
Le, Viet Hung
We investigate the technical problem of community and clique detection in investor network. We introduce a pruning technique for investor clique enumeration based on specific economic and financial contexts. It can be incorporated into the central clique solver to reduce the computing time and improve the clique-based community detection method. Furthermore, we present several use cases in the study on investor behavior.

Cyber Attacks, Spillovers and Contagion in the Cryptocurrency Markets
Caporale, Guglielmo Maria,Kang, Woo-Young,Spagnolo, Fabio,Spagnolo, Nicola
This paper examines mean and volatility spillovers between three major cryptocurrencies (Bitcoin, Litecoin and Ethereum) and the role played by cyber attacks. Specifically, trivariate GARCH-BEKK models are estimated which include suitably defined dummies corresponding to different types, targets and number per day of cyber attacks. Significant dynamic linkages (interdependence) among the three cryptocurrencies under investigation are found in most cases when cyber attacks are taken into account, Bitcoin appearing to be the dominant one. Further, Wald tests for parameter shifts during episodes of turbulence resulting from cyber attacks provide evidence that the latter affect the transmission mechanism between cryptocurrency returns and volatilities (contagion). More precisely, cyber attacks appear to strengthen cross-market linkages, thereby reducing portfolio diversification opportunities for cryptocurrency investors. Finally, the conditional correlation analysis confirms the previous findings.

Determinants of Indebtedness: Influence of Behavioral and Demographic Factors
Masud, PhD, Md. Abdul Kaium
This study aims to examine the influence of behavioral and demographic factors on indebtedness by constructing a model using specific determinants. The exploratory method is used through the partial least square (SmartPLS) technique, by surveying 320 respondents in Kuala Lumpur, Malaysia. A self‐administered questionnaire was administered to respondents, addressing both demographic and behavioral factors. The results confirmed four of the eight hypotheses stated. Among the determinants, risk perception had a highly significant relationship with both materialism and emotion, while indebtedness had a relationship with emotion and materialism. The findings also indicated that significant differences exist between indebtedness and behavioral factors on the basis of gender, marital status, age, income, and dependence on credit cards and loans. The results may assist various economic players to design better models for credit offerings and address the credit problem in the long term.

Developing an Attitude to Risk Questionnaire for Retail Investors
Brooks, Chris,Hillenbrand, Carola,Money, Kevin
This paper summarises the process undertaken to develop a much-needed rigorous and theoretically based attitude to risk (ATR) questionnaire for retail investors and documents the results following its application in a large survey. The questionnaire is built upon the strong foundations of seminal work on prospect theory and integrates best practice from psychology and psychometric scale development. It provides a measure of ATR that is academically rigorous, transparent and practically relevant at a time when existing measures of ATR are either academically dated or are provided by consultancies who do not openly share the theoretical or psychometric underpinnings of their approaches. Our new questionnaire offers a robust alternative and comprises 15 items to assess financial risk tolerance. As such, it provides information about two aspects important for attitude measurement: the content of risk tolerance (where items are classified in terms of seeking gains (drivers of risk behaviour), avoiding losses (constrainers of risk behaviour) and contextual factors that act as reference points (contextual enablers of risk behaviour) and the structure (where each item reflects primarily a cognitive, behavioural or emotional aspect) of attitude to risk. We show that the new questionnaire has a solid three-factor interpretation in terms of the content aspects outlined above as well being statistically reliable in terms of Cronbach’s alpha and having validity in the eyes of the financial advisor community.

Discounted-Cash-Flow Value Estimates are Optimistic when Assumptions are Not
Bessembinder, Hendrik
Discounted-cash-flow valuations are upward biased even when estimates of market discount rates and cash flow growth rates are unbiased, because both compounding and discounting are convex functions. The upward bias in the estimated value of a long-lived cash flow stream can exceed 25% under plausible assumptions regarding magnitudes of estimation errors, which can equate to upward bias in estimated net present values that exceed 100%. This bias may help to explain the value premium puzzle, observed takeover premia, long run returns after IPOs, and high equity valuations during periods of low real interest rates. A method of correcting value estimates for the bias is proposed.

Do Data Breaches Damage Reputation? Evidence from 43 Companies Between 2002 and 2018
Makridis, Christos
While data breaches have become more common, there is little evidence that companies experiencing them experience a persistent decline in financial performance or security prices. Using new firm-level data between 2002 and 2018, this paper finds that firms experience a 13-22% increase in intangible capital following an average data breach. However, the largest and most salient breaches are associated with a 14-18% decline in intangible capital following a data breach. These effects are concentrated among firms in consumer-facing industries: smaller (larger) data breaches are associated with more positive (negative) effects on intangible capital. These results suggest that current regulatory guidance does not provide an incentive for firms to invest in cyber-security capabilities.

Does Board Gender Diversity Influence Firm Profitability? A Control Function Approach
Dang, Rey,Houanti, L'Hocine,Reddy, Krishna,Simioni, Michel
We investigate the relation between board gender diversity and firm profitability using the control function (CF) approach recently suggested by Wooldridge (2015). The CF method takes account of the problem of endogenous explanatory variables that have potential to bias the results. Using a sample of firms that made up the S&P 500 over the period 2004-2015, we find that the presence of women on corporate boards (measured either by the percentage of female directors on corporate boards or the Blau index of heterogeneity) has a positive and significant (at the 1% level) effect on firm profitability (measured by the return on assets). We compare our results to more traditional approaches (such as pooled OLS or the fixed-effects model). Through this study, we shed light on the effect of women on corporate boards on firm performance, as it is still a controversial issue (Post and Byron, 2015).

Earnings Announcement Timing, Uncertainty, and Volatility Risk Premiums
Adams, Tom,Neururer, Thaddeus
We examine the relationship between firms’ quarterly earnings report timing and uncertainty before quarterly earnings announcements. Some models suggest that firms reporting early in a fiscal quarter generate more uncertainty and risk for investors because their reports generate substantial market-wide information. However, reporting later in the quarter may represent situations of increased operating complexity and internal reporting issues leading to higher investor uncertainty. Using implied volatilities from equity options and the realized returns to straddle positions, we find consistent evidence that uncertainty and volatility risk premiums are higher for firms that report later in the quarter, regardless if firms are reporting annual or interim reports. However, additional tests suggest that the increase in option prices is unexplained by risk factors suggesting that a portion of the returns to straddle selling for late reporters is due to consistent overreaction by investors. These results do not appear to be associated with static firm-level factors and our findings are strongest for high growth firms.

Empirical Evaluation of Weak-Form Efficient Market Hypothesis in Ugandan Securities Exchange
Emenike, Kalu O.,Kirabo, Joseph K. B.
Efficient stock market plays important role in stimulating economic development through providing channel for mobilising domestic savings and facilitating the allocation of financial resources from dormant to more productive activities. This paper evaluates the Ugandan Securities Exchange (USE) for evidence of weak-form efficient market hypothesis in the context of random walk model, using both linear and non-linear models. Preliminary analysis from the USE daily returns, for the 01 September 2011 to 31 December 2016 period, show negative skewness, leptokurtosis, and non-normal distribution. Estimates from the linear models show evidence of weak-form efficiency. Conversely, estimates from non-linear models show evidence against weak-form efficiency of the USE. The study concludes that USE returns may only be predicted using non-linear models and fundamental analysis. In order words, linear models and technical analysis may be clueless for predicting future returns.

Evolution in Pecunia
Amir, Rabah,Evstigneev, Igor V.,Hens, Thorsten,Potapova, Valeriya,Schenk-Hoppé, Klaus Reiner
The paper models evolution in Pecuniaâ€"in the realm of finance. Financial markets are explored as evolving biological systems. Investors pursuing diverse investment strategies compete for the market capital. Some `survive' and some `become extinct.' A central goal is to identify evolutionary stable, i.e. guaranteeing survival, investment strategies. The problem is studied in a framework combining stochastic dynamics and evolutionary game theory. The model proposed employs only objectively observable market data, in contrast with traditional settings relying upon unobservable investors characteristics (utilities and beliefs). The main result is a construction of an evolutionary stable strategy in the model at hand.

Flexible Labour, Income Effects, and Asset Prices
Nath, Rahul
This paper studies how flexible labor decisions affect asset pricing in a Real Business Cycle model. It uses Jaimovich-Rebelo preferences with internal habits in consumption and distinguishes between two income effect channels:(i) the `habit income effect' channel and (ii) the `separability income effect' channel. I find that asset prices are superior when the first channel is strong and the second is weak, this is the case of using GHH preferences with internal habits in consumption.

Flexible Microcredit: Effects on Loan Repayment and Social Pressure
Czura, Kristina,John, Anett,Spantig, Lisa
Flexible repayment schedules allow borrowers to invest in profitable yet risky projects, but practitioners fear they erode repayment morale. We study repayment choices in rigid and flexible loan contracts that allow discretion in repayment timing. To separate strategic repayment choices from repayment capacity given income shocks, we conduct a lab-in-the-field experiment with microcredit borrowers in the Philippines. Our design allows us to observe social pressure, which is considered both central to group lending, and excessive in practice. In our rigid benchmark contract, repayment is much higher than predicted under simple payoff maximization. Flexibility reduces high social pressure, but comes at the cost of reduced loan repayment. We present theoretical and empirical evidence consistent with a strong social norm for repayment, which is weakened by the introduction of flexibility. Our results imply that cooperative behavior determined by social norms may erode if the applicability of these norms is not straightforward.

Fund Management Structure and Conflicts of Interest: Evidence from Business Development Companies
Kallenos, Theodosis L.,Nishiotis, George
Using the universe of Business Development Companies for the period 2006-2017, we provide a comprehensive analysis of the effects of fund management structure on managerial decisions and fund performance. We show that externally managed funds underperform and trade at significantly higher discounts relative to their internally managed counterparts. Furthermore, externally managed funds are 74% (67%) less likely to announce (execute) value enhancing share repurchase programs. We also find a significantly higher positive market reaction to the share repurchase program announcements of externally relative to internally managed funds. Overall, we show that conflicts of interest in external fund management shape managerial decisions and negatively affect fund performance.

Greedy Online Classification of Persistent Market States Using Realized Intraday Volatility Features
Nystrup, Peter,Kolm, Petter N.,Lindstrom, Erik
In many financial applications it is important to classify time series data without any latency while maintaining persistence in the identified states. We propose a greedy online classifier that contemporaneously determines which hidden state a new observation belongs to without the need to parse historical observations and without compromising persistence. Our classifier is based on the idea of clustering temporal features while explicitly penalizing jumps between states by a fixed-cost regularization term that can be calibrated to achieve a desired level of persistence. Through a series of return simulations, we show that in most settings our new classifier remarkably obtains a higher accuracy than the correctly specified maximum likelihood estimator. We illustrate that the new classifier is more robust to misspecification and yields state sequences that are significantly more persistent both in and out of sample. We demonstrate how classification accuracy can be further improved by including features that are based on intraday data. Finally, we apply the new classifier to estimate persistent states of the S&P 500 index.

Green M&A, Business Model Innovation and Sustainability of Heavy Polluters: Evidence from the China’s Environmental Protection Storm'
Li, Bin,Liu, Xin,Liu, Ya,Liu, Miao
Environmental regulation greatly increases the external transformation demands on heavily polluting enterprises. To respond to these demands, the remolding of and innovation in business models can be realized through green mergers and acquisitions (M&As), which have become a strategic choice for enterprises to guarantee sustainable development. This study uses the most heavily polluting enterprises in China from 2008 to 2016 as a sample to empirically test the influence path and practical effect of green M&As on sustainable development. The findings indicate that green M&As can provide legitimacy for heavily polluting enterprises to survive and further develop, significantly improving their sustainable development ability. At the same time, the business model innovation brought by green M&As further strengthens the protection effect. Namely, heavily polluting enterprises can realize business model innovation and improve their sustainable development ability through green M&As. Further examination shows that the larger the scale of a heavily polluting enterprise, the more difficult it is to reshape their business model through green M&As. However, heavily polluting enterprises with high research and development (R&D) investments and state-owned property rights are more likely to realize business model innovation through green M&As. This study verifies the Porter hypothesis of green management in the context of M&As, and also provides theoretical support for the green finance practices of heavily polluting enterprises.

How Valuable is Financial Flexibility When Revenue Stops? Evidence from the COVID-19 Crisis
Fahlenbrach, Rüdiger,Rageth, Kevin,Stulz, René M.
The COVID-19 shock creates a sudden temporary sharp shortfall in revenue for firms. We expect firms with greater financial flexibility to be better able to fund themselves in the presence of a revenue shortfall and to benefit less from the news concerning policy responses to the crisis on March 24. We show that firms with less financial flexibility experience worse stock returns until March 23 and benefit more from the news on March 24. Specifically, we find that firms with high financial flexibility experience a stock price drop lower by 26% or 9.7 percentage points than those with low financial flexibility. Similar results hold for CDS spreads. Had firms not made payouts over the last three years, the stock price drop for a firm with an average payout over assets ratio would have been lower by less than 2 percentage points. If firms in the top quartile of payouts over assets for the last three years did not have payouts over that period, they could, on average, have repaid all their long-term debt and their stock price drop would have been lower by 5.1 percentage points. Existing measures of financial constraints are not helpful in explaining the reaction of firms to the shock.a

Impact of Tax Laws and System on Afghanistan Economy
Sahebe, Arash
Background: Revenue Generation is a very critical aspect of the economic fortunes of any nation. For any country to experience a strong and viable economy, its revenue base must be efficient. And a very important aspect of the revenue base of any nation is its tax system. Hence, the main of this study was to assess the impact of taxes on the economic growth of Afghanistan. Materials & Method: The study employed quarterly data from 2006-2017. The data employed were sourced from the World Development Indicators (WDI) 2019. The Generalized Method of Moments (GMM) and Johansen's Cointegration were used to estimate the Models. Major Findings: It was found that Income taxes, External Debt, and Credit to the private sector significantly impacted economic growth in the study area. Conclusion: The study concludes that for the economic recovery of the country especially after a series of civil unrest, the tax system is very critical.

Inflation Rate and Stock Returns in Nigeria
Adamu, Abdul,Gbande, Cephas
The study examines the effect of inflation on stock returns of the stocks listed on the Nigerian Stock Exchange. Descriptive research design was used in the study and secondary data were collected from CBN statistical bulletin and NSE for the purpose of analysis. The analysis was done using ordinary least square regression and it was found that an inflation rate has a significant positive effect on stock returns on the NSE. This finding suggested that stock market returns may provide an effective hedge against inflation in Nigeria. It is recommended that policies geared at controlling inflation should take into cognizance the role of monetary policies as these will go a long way in further deepening of the stock market.

Inside the Mind of a Stock Market Crash
Giglio, Stefano,Maggiori, Matteo,Stroebel, Johannes,Utkus, Stephen
We analyze how investor expectations about economic growth and stock returns changed during the February-March 2020 stock market crash induced by the COVID-19 pandemic, as well as during the subsequent partial stock market recovery. We surveyed retail investors who are clients of Vanguard at three points in time: (i) on February 11-12, around the all-time stock market high, (ii) on March 11-12, after the stock market had collapsed by over 20%, and (iii) on April 16-17, after the market had rallied 25% from its lowest point. Following the crash, the average investor turned more pessimistic about the short-run performance of both the stock market and the real economy. Investors also perceived higher probabilities of both further extreme stock market declines and large declines in short-run real economic activity. In contrast, investor expectations about long-run (10-year) economic and stock market outcomes remained largely unchanged, and, if anything, improved. Disagreement among investors about economic and stock market outcomes also increased substantially following the stock market crash, with the disagreement persisting through the partial market recovery. Those respondents who were the most optimistic in February saw the largest decline in expectations, and sold the most equity. Those respondents who were the most pessimistic in February largely left their portfolios unchanged during and after the crash.

Joint Dynamics of Investor Networks and Stock Prices
Le, Viet Hung
We introduce various network similarity measures that can capture the topological changes of investor networks over time. We use them to study the joint dynamics of investor networks and stock price time series. We find that the network changes are positively correlated with volatility while negatively correlated with the returns. However, their relationships with absolute changes in stock prices are non-linear and positive. This finding can be helpful to study investor trading behaviours in different market conditions.

Küresel Faktörlerden Uluslararası Hisse Senedi Piyasalarına Volatilite Yayılma Etkileri (Volatility Spillover Effects From Global Factors to International Stock Markets)
Cihangir, Çiğdem Kurt
Turkish abstract: Bu çalışmanın amacı, son 10 yıldır değişmekte olan uluslararası finansal yapının temel dinamiklerinin, hisse senedi piyasalarının volatilitesi üzerindeki etkisini belirlemektir. Bu amaçla emtia fiyatları, yatırımcıların risk iştahı, küresel ticaret hacmi ve ABD'nin getiri eğrisi eğimi küresel faktörler olarak belirlenmiştir. İncelenen borsa endeksleri için volatilite yayılma etkisinin, risk iştahı endeksi (VIX), ABD getiri farkı (T10Y3M) ve petrol volatilite endeksi (OVX) küresel değişkenlerinden kaynaklandığı tespit edilmiştir. Ayrıca bu etkinin gelişmiş piyasalarda daha büyük olduğu belirlenmiştir. Küresel ticaretin borsalar üzerindeki etkisi ise sınırlıdır. Bu sonuçlar portföy yöneticileri ve politika yapıcılar için küresel faktörlerin borsalar üzerindeki etkilerini ve borsa getirisi oynaklığını tahmin etmede oldukça önemlidir. English abstract: The aim of this study is to determine the volatility effect of the fundamental dynamics of the international financial structure, which has been changing for the last 10 years, on the stock markets. For this purpose, global trading volume, US' yield spread, commodity prices and risk appetite of investors variables are determined as the global factors. It is found that the spillover effect for stock markets indexes are caused by Volatility Index (VIX), US' yield spreads, and Oil Volatility Index (OVX). Also, this effect is greater stock markets indexes of developed countries. The impact of global trade on stock exchanges is limited. These results are important for portfolio managers and policy makers in predicting the impact of global factors on stock exchanges and stock market return volatility.

Liquidation Value vis a vis Dissenting Financial Creditors: Aftermath of Maharashtra Seamless and Orchid Pharma
Srinivasan, Varun
The Insolvency Bankruptcy Code, 2016 (“Code”) has gone through a myriad of changes since its inception and introduction. Although it has been held by the Supreme Court in the case of Embassy Property Developments Pvt. Ltd. vs State of Karnataka, that the IBC is a complete Code by itself and in Innoventive Industries Ltd. vs ICICI Bank that the Code is a single Unified Umbrella, covering the entire gamut of law relating to insolvency resolution of corporate persons and others in a time bound manner, there was still a need and necessity to ensure that regular tweaks were effected to make the Code acclimated with the changing dynamics and circumstances. In the above context, the decisions of the Supreme Court in the cases of Maharashtra Seamless Ltd. vs Padmanabhan Venkatesh and State Bank of India vs Accord Life Spec Pvt. Ltd. (Orchid Pharma Case) assumes great significance, in the evolution of the IBC, especially by reiterating the autonomy and wisdom of the CoC, as held in the case of K. Sashidhar vs Indian Overseas Bank, while also establishing that there is no prohibition in approving a resolution plan which is lesser than the liquidation value. The effect of the said decisions will, therefore, have great implications at the stage of distribution of amounts as per the Resolution Plan to the various stakeholders, especially while considering the same along with the amendments made to the Code on August 2019.

Managerial Ability, Financial Performance and Goodwill Impairment: A Moderated Mediation Analysis
Huang, Qiubin,Xiong, Mengyuan,Xiao, Ming
This paper examines whether and how managerial ability affects the likelihood of goodwill impairment of Chinese publicly listed companies over the period 2007-2017. We document a negative relationship between goodwill impairment and managerial ability, and uncover the mediation effect of corporate financial performance. Moreover, we find that the mediation effect is moderated by firms’ earnings smoothing motivation and state ownership. The results suggest that when a company has the motivation to smooth earnings or is owned by the government, higher managerial ability of the company does not necessarily reduce the likelihood of goodwill impairment. The findings have important implications for investors and regulators.

On the Relevance of Strategic and Tactical Asset Allocation for Portfolio Insurance
Kolrep, Martin,Lohre, Harald,Radatz, Erhard,Rother, Carsten
Portfolio insurance can be an appropriate means to preserve a given capital floor, yet the associated risk budgeting parameters need to be tailored to align with the underlying investment strategy. The main determinants are strategic asset allocation as well as the range and accuracy of tactical asset allocation decisions that would help mitigate downside risk. We evaluate the performance of a multi-asset allocation strategy across a vast number of alternative scenarios using block-bootstrap simulations. Based on a simulated tactical asset allocation model, our framework enables us to gauge the impact of assumed forecast accuracy and the tactical asset allocation range on the ultimate portfolio return distribution under a classic dynamic portfolio insurance risk budgeting framework.

Peeking into the Black Box: An Actuarial Case Study for Interpretable Machine Learning
Lorentzen, Christian,Mayer, Michael
This tutorial gives an overview of tools for explaining and interpreting black box machine learning models like boosted trees or deep neural networks. All our methods are illustrated on a publicly available real car insurance data set on claims frequencies.

Proving Prediction Prudence
Tasche, Dirk
We study how to perform tests on samples of pairs of observations and predictions in order to assess whether or not the predictions are prudent. Prudence requires that that the mean of the difference of the observation-prediction pairs can be shown to be significantly negative. For safe conclusions, we suggest testing both unweighted (or equally weighted) and weighted means and explicitly taking into account the randomness of individual pairs. The test methods presented are mainly specified as bootstrap and normal approximation algorithms. The tests are general but can be applied in particular in the area of credit risk, both for regulatory and accounting purposes.

Regulating Money: How Did Shadow Banks Respond to a $1 Trillion Shock
Gissler, Stefan,Macchiavelli, Marco,Narajabad, Borghan
During financial crises, investors demand large amounts of government-backed assets. What constitutes an orderly flight-to-liquidity? Studying how suppliers of government-backed safe assets respond to heightened demand during a crisis is challenging due to a multitude of confounding factors. In contrast, the 2014 money fund reform prompted a flight-to-liquidity in otherwise calm market conditions, with $1 trillion flowing from prime to government funds. Using this regulatory change together with fund-level and security-level data, we show the vital role of a flexible provider of safe assets. The Federal Home Loan Banks (FHLBs) supplied government funds with large quantities of safe assets when the supply of Treasuries was sluggish to respond. Moreover, the flexible mix of FHLBs’ supply of safe assets was crucial for government funds’ risk management. FHLB debt was not only a substitute for Treasuries but also a complement.

Shareholder Protection in Close Corporations and the Curious Case of Japan: The Enigmatic Past and Present of Withdrawal in a Leading Economy
Koh, Alan K.
Oppressed, outvoted, and outgunned, minority shareholders have an obvious solution for their woes: vote with their feet, sell their shares, and leave the company. But this “Wall Street walk” is only available to shareholders in public, listed corporations; shareholders in close corporationsâ€"privately-owned business entities with no market for their sharesâ€"do not have the option of easy exit. Legal solutions which enable the shareholder to voluntarily exit a company with their capital such as the oppression or unfair prejudice remedies in US and Anglo-Commonwealth corporate lawâ€"what this Article classifies as “withdrawal remedies”â€"are therefore vital in close corporations. However, until relatively recently, shareholders in Japan’s close corporations had no access to withdrawal under corporate law, as neither of Japan’s then-dominant close corporation forms offered it. By revealing how shareholder litigants, attorneys, and judges in Japan responded to the absence of withdrawal, this Article shows how Japan’s experience was no outlier among nations, but instead powerfully demonstrates the importance of withdrawal remedies in practice. Later, withdrawal remedies at law for close corporations became available in Japan for the first time with the watershed Kaisha-hō (Companies Act) of 2005, which introduced a new close corporation form, the Gōdō Kaisha (GK). This Article analyzes the challenges facing Japan’s new withdrawal regime and shows how comparative corporate lawâ€"armed with the law and experience of withdrawal in the United States, the United Kingdom, and Germanyâ€"offers valuable insights for the development of withdrawal in the world’s second largest developed economy.

Stock Price Forecasting and Hypothesis Testing Using Neural Networks
Varaku, Kerda
In this work we use Recurrent Neural Networks and Multilayer Perceptrons, to predict NYSE, NASDAQ and AMEX stock prices from historical data. We experiment with different architectures and compare data normalization techniques. Then, we leverage those findings to question the efficient-market hypothesis through a formal statistical test.

The Structure of Financial Returns
Madan, Dilip B.,Wang, King
Financial returns at unit time are modeled as non-Gaussian limit laws. They may reflect random walks or additive processes reflecting some predictability. Mixtures of these two constructions are formulated and estimated on one minute data. It is observed that the random walk fraction is generally below 10%. The results argue against a strict random walk in favor of the presence of a predictable component representing returns as perpetual motion machines responding to past price movements.

The Viability of Establishing Capital Market in Developing Countries: The Case of Ethiopia
Ali, Abdu Seid
The outlook concerning worthiness and significance of establishment of stock market to nations in general, to developing nations in particular, have assorted to a great extent over time. Developing countries are trying towards improving and stepping up financial systems, by way of amplifying their security markets in order to perk up their ability to bring together resources to economy and fruitfully allot them to highly productive segments of the economy. This paper attempts to examine the feasibility of launching a stock market in Ethiopia. Regulatory framework, financial sector development and privatization and private sector development have been covered to analyze practicability of organizing “capital market”. The regulatory framework at hand is not adequate to establish a stock market and despite the boom in privatization, the country’s huge companies still remain under control of the state. Nonetheless, it has been jeopardized by deficiency of financial liberalization and dominance of state banks.

Türk Bankacılık Sektöründe Kamu Sermayeli ve Özel Sermayeli Bankaların Kredi Verme Davranışlarındaki Asimetrinin Belirleyicileri (Determinants of Asymmetry in Lending Behavior of Public-Owned and Privately-Owned Banks in Turkish Banking Sector)
Cihangir, Çiğdem Kurt
Turkish abstract: Bu çalışmada kamu sermayeli (KSB) ve özel sermayeli (ÖSB) bankaların kredi verme davranışlarındaki asimetrinin nedenleri ARDL Sınır Testi ile araştırılmıştır. KSB ve ÖSB’lerin kredi hacimleri ile takipteki krediler ve belirlenen makroekonomik göstergeler arasında kısa ve uzun dönemde ilişki olduğu tespit edilmiştir. Uzun dönemde KSB’lerin kredi hacminde etkili olan tek değişken takipteki kredilerken; ÖSB’lerin kredi hacminde takipteki kredilerle birlikte döviz kuru ve ekonomik güven endeksinin de etkili olduğu belirlenmiştir. Buna göre KSB’lerin aktif karşı-konjontrürel (döngüsel) rol üstlendikleri söylenebilir.English abstract: In this study the causes of asymmetry in lending behaviors of public-owned banks(PuBs) and privately-owned (PrBs) banks are investigated with ARDL Boundary Test. It is find that there is a short and long term relationships between the credit volumes of the public-owned banks and privately-owned banks and the non-performing loans and the identified macroeconomic indicators. In the long term, the only variable that has an impact on the credit volume of publicowned banks is non-performing loans; although, the variables that are effective in the credit volume of the privately-owned banks are non-performing loans, exchange rate and the economic confidence index. Accordingly, it can be said that public-owned banks play an active counter-cyclical role.