Research articles for the 2020-07-07

A Theory of Social Impact Bonds
Tortorice, Daniel L.,Bloom, David E.,Kirby, Paige,Regan, John
Social impact bonds (SIBs) are an innovative financing mechanism for public goods. In a SIB, an investor provides capital to a service provider for a social intervention. The investor receives a return based on the outcome of the intervention relative to a predetermined benchmark. We describe the basic structure of a SIB and provide some descriptive statistics for these financial instruments. We then consider a formal model of SIBs and examine their ability to finance positive net present value projects that traditional debt finance cannot.We find that SIBs expand the set of implementable projects if governments are pessimistic (relative to the private sector) about the probability an intervention would succeed or if the government is particularly averse to paying costs associated with a project that does not generate offsetting benefits. As both these features are present in various public programs, we conclude that SIBs are a real innovation in public finance and should be considered for projects when traditional debt finance has been rejected.

Are you a Zombie? Understanding the Determinants of Distressed and Zombie Companies
De Martiis, Angela,Heil, Thomas,Peter, Franziska J.
The last decades have witnessed a significant increase in the share of zombie companies worldwide, i.e., companies which survive despite their inability to cover debt servicing costs from their current profits. Using extensive global firm-level data sets on publicly listed companies, we apply decision trees, a supervised learning method, to identify the firm-specific determinants of zombie companies across countries and time. This paper fills the gap by investigating the characteristics and behavior of public companies worldwide. We outline similarities and differences across economies and examine the distinct features characterizing distressed, recovered, and healthy firms, by implementing separate classification trees for several business cycles. The results yield novel implications regarding regulatory and governmental settings that foster unproductive companies.

Asset Pricing with Cohort-Based Trading in MBS Markets
Fusari, Nicola,Li, Wei,Liu, Haoyang,Song, Zhaogang
Agency mortgage-backed securities (MBS) with diverse characteristics are traded in parallel with individualized contracts in the specified pool (SP) market and with standardized contracts in the to-be-announced (TBA) market. We find that this unique parallel trading environment substantially affects MBS returns: (1) Greater heterogeneity in MBS values increases the yields of all MBS because it exacerbates the cheapest-to-deliver concerns for TBA buyers and reduces the value of the TBA market as a backup selling venue for SP buyers; (2) high selling pressure amplifies the impact of MBS heterogeneity on MBS yields; (3) greater MBS heterogeneity dampens trading activities on both the SP and TBA markets and increases the ratio between the two. We provide strong evidence that these effects differ from the impacts of prepayment risks.

Bank Due Diligence in the Business Cycle
Cao, Qingqing,Di Pietro, Marco,Kokas, Sotirios,Minetti, Raoul
Fluctuations in banks' due diligence are increasingly viewed as a force driving the buildup and unfolding of crises. In a dynamic general equilibrium model, we show that banksí access to retail and wholesale liquidity and the values of loan portfolios govern banks' incentives and effectiveness in producing information on loans. A calibration to U.S. data reveals that due diligence deteriorates during expansions and intensifies during contractions. This countercyclicality attenuates funding liquidity shocks but can amplify shocks to loan values. Credit policies may dilute stabilizing effects of due diligence. The predictions are consistent with granular loan-level evidence from U.S. banks.

Bankalarda Pay Geri Alımı: Muhasebesi ve Finansal Performans Üzerindeki Etkileri Açısından Mevduat Bankaları Üzerine Bir İnceleme (Share Repurchase in Banks: An Examination upon Deposit Banks in Terms of Accounting and Effects on Financial Performance)
Kartal, Mustafa Tevfik
Turkish Abstract: Türkiye’de yaşanan finansal dalgalanmalarla birlikte halka açık şirketlerin pay fiyatlarında ciddi düşüşler yaşanmıştır. Borsada oluşan fiyatın, finansal sonuçlarını yansıtmadığı gerekçesiyle ve ortakların korunması amacıyla aralarında bankaların da bulunduğu bazı halka açık şirketler pay geri alımı süreci başlattığını duyurmuştur. Bu çalışma, bankaların Türkiye ekonomisi açısından önemi dikkate alınarak, bankaların pay geri alım işlemlerinin muhasebesi ve finansal performans üzerindeki etkilerinin incelenmesi amacıyla hazırlanmıştır. Çalışma sonucunda, pay geri alımının dağıtılabilir kar ve özkaynak tutarlarını azalttığı ve yedek akçelerin geçmiş yıl karından ayrılmasının muhasebe ve raporlama açısından daha doğru olacağı belirlenmiştir. Pay geri alımı, bankalar tarafından dikkatlice kullanılması gereken bir araç olup, oluşturduğu etkiler nedeniyle bankaların pay geri alımı hususunda Bankacılık Düzenleme ve Denetleme Kurumu (BDDK) tarafından ikincil düzenleme yapılması önerilmektedir. English Abstract: With the financial fluctuation seen in Turkey, significant decreases in share prices of publicly traded companies were seen. Due to fact that share price in stock market do not reflect the financial results and in protecting shareholders, some publicly traded companies including banks announced that they initiated a share repurchase process. Taking into consideration importance of banks for Turkey economy, this study is prepared to examine accounting and impacts on financial performance of banks’ share repurchase transactions. As a result of the study, it is determined that distributable profit and shareholders' equity amounts decrease because of share repurchase and allocating retained earnings from previous year profit is more accurate in terms of accounting and reporting. Share repurchase is a tool that should be used carefully by the banks and it is recommended that the Banking Regulation and Supervision Agency (BRSA) make a secondary regulation on share repurchase due to its effects.

Big Data links from Climate to Commodity Production Forecasts and Risk Management
Paulina Concha Larrauri,Upmanu Lall

Frozen concentrated orange juice (FCOJ) is a commodity traded in the International Commodity Exchange. The FCOJ future price volatility is high because the world's orange production is concentrated in a few places, which results in extreme sensitivity to weather and disease. Most of the oranges produced in the United States are from Florida. The United States Department of Agriculture (USDA) issues orange production forecasts on the second week of each month from October to July. The October forecast in particular seems to affect FCOJ price volatility. We assess how a prediction of the directionality and magnitude of the error of the USDA October forecast could affect the decision making process of multiple FCOJ market participants, and if the "production uncertainty" of the forecast could be reduced by incorporating other climate variables. The models developed open up the opportunity to assess the application of the resulting probabilistic forecasts of the USDA production forecast error on the trading decisions of the different FCOJ stakeholders, and to perhaps consider the inclusion of climate predictors in the USDA forecast.

Colorado 2050: The Race to the Top!
Bonaparte, Yosef
We perform 360 review on the state of Colorado to analyze the strengths and weaknesses, and provides recommendations to aid policy makers to enhance the economic growth and development. Across all U.S. states, the overall ranking of Colorado is top 10 and in the economy matrix is top one. Yet, Colorado is lagging in other key matrices, such as Opportunity; Fiscal Stability; Crime & Corrections and Natural Environment. These weaknesses hurt minorities and disadvantage groups, thus we created a new index named as “Minorities ‘I can’t breathe’ index”, that measures how friendly is the state toward minorities and find Colorado to be above average at top 12. Colorado is bottom three (bottom 11) in the nation in education (income) gap by race. The study includes cross-sectional analyses across sectors and cities. Between 2010 and 2019, we find that the construction sector is the fastest growing sector (6.2%), while manufacturing is the slowest (1.8%); Fort Collin is the fastest earnings (3.4%), followed by Denver (3.2%), then Boulder (2.7%) and Colorado Springs (2.5%). Based on the socioeconomic of Colorado, our key recommendations to reach the top are to further investing in education to meet the rapid growth of minorities (the fraction of the Latino communities expected to reach 35% in 2050); our principal is that human capital is the medical to growth. In addition, we recommend a massive infrastructure investment (quadruple the current investment) and zero corporate income tax (recall, Taxes is our main competitor). Should these recommendations implemented, we project with high probabilities that Colorado will reach the top by 2050.

Competing for Stock Market Feedback
Machado, Caio,Pereira, Ana Elisa
We study how firms compete to attract informed trading when financial markets provide information to decision makers. Firms increase managerial risk taking to compete for market information, leading to a rat race in which firms overinvest in a (failed) attempt to increase their own stock informativeness. Efficiency gains of learning from the market may be eliminated: There is always an equilibrium where financial markets provide useful information, but are completely ignored by decision makers. Moreover, in any equilibrium firms react too little to market activity. Our results highlight that critically different outcomes arise when firms interact in integrated financial markets.

Compositional Effects of O-Sii Capital Buffers and the Role of Monetary Policy
Cappelletti, Giuseppe,Reghezza, Alessio,d’Acri, Costanza Rodriguez,Spaggiari, Martina
We investigate the impact of macroprudential capital requirements on bank lending behaviour across economic sectors, focusing on their potentially heterogenous effects and transmission channel. By employing confidential loan-level data for the euro area over 2015-18, we find that the reaction of banks to structural capital surcharges depends on the level of the required capital buffer and the economic sector of the borrowing counterpart. Although tighter buffer requirements correspond to stronger lending contractions, targeted banks curtail their lending towards credit institutions the most, while leaving loan supply to non-financial corporations almost unchanged. We find that this lending is mitigated when banks resort to central bank funding. These results have important policy implications as they provide evidence on the impact of macroprudential policy frameworks and their interaction with unconventional monetary policies.

Concessionary Contracts, Dividend Policy and Equity Depletion: The Accounting for Public Aids in Early Railway Companies
Santos-Cabalgante, Beatriz,Garcia Osma, Beatriz,Romero, Domi
We study dividend payments and earnings management in railway companies in the first decades of the 20th century. We argue that the historical organization of the Spanish railway industry as a complex net of 99-year concessionary contracts created predictable incentives for earnings management and rent extraction. The countdown to concessions reversals pressured the State, as residual owner, to subsidize the industry during the 1920s. The State granted two types of public aids to railway companies: to finance increases in wages, and to modernize railway material and infrastructure. We provide novel evidence on the regulation of these aids, their accounting, and their association with dividend payments. Overall, our evidence suggests that despite efforts from the State to establish maximum levels or earnings to report and of ‘permitted’ dividends, the looming reversal of concessionary contracts gave rise to a principal-principal agency conflict that resulted in maximum dividends and equity depletion.

Cross-Border Trade Credit and Trade Flows During the Global Financial Crisis
Choi, Moon Jung,Hwang, Sangyeon,Im, Hyejoon
English Abstract: Cross-border trade credit is credit extended by exporters and importers and makes up a considerable share of the trade finance instruments used in global trade. We use quarterly data on cross-border trade credit recorded in the International Investment Position at the International Monetary Fund and examine its effects on trade flows during the 2008-09 global financial crisis. Unlike previous studies, we find not only that the effects of trade credit are positive on average, but also that these effects are more pronounced during the crisis. Specifically, we find that the decrease in trade credit explains 8.9%-10.5% of the trade collapse during the crisis. In addition, we find that the effects of trade credit on trade flows are more pronounced during the crisis for countries with a low level of financial development in the pre-crisis period.

Deep Importance Sampling
Benjamin Virrion

We present a generic path-dependent importance sampling algorithm where the Girsanov induced change of probability on the path space is represented by a sequence of neural networks taking the past of the trajectory as an input. At each learning step, the neural networks' parameters are trained so as to reduce the variance of the Monte Carlo estimator induced by this change of measure. This allows for a generic path dependent change of measure which can be used to reduce the variance of any path-dependent financial payoff. We show in our numerical experiments that for payoffs consisting of either a call, an asymmetric combination of calls and puts, a symmetric combination of calls and puts, a multi coupon autocall or a single coupon autocall, we are able to reduce the variance of the Monte Carlo estimators by factors between 2 and 9. The numerical experiments also show that the method is very robust to changes in the parameter values, which means that in practice, the training can be done offline and only updated on a weekly basis.

Dissecting Currency Momentum
Zhang, Shaojun
This paper shows that currency momentum, which cannot be explained by carry and dollar factors, summarizes the autocorrelation of these factors. A no-arbitrage model postulates that predictable global shock volatility can simultaneously generate factor and currency momentum. Empirically, carry and dollar factors are strongly auto-correlated and only earn significantly positive excess returns following positive factor returns. Future factor volatility drives out the autocorrelation. Factor momentum not only outperforms currency momentum but also explains it, whereas idiosyncratic returns do not generate momentum. Currency momentum longs the factors following positive factor returns and shorts the factors following losses.

Diversity on British Boards and Personal Traits That Impact Career Progression From AIM Towards FTSE 100
Mateus, Cesario,B. Mateus, Irina,stojanovic, Alex
This study proposes a new approach to examining executive remuneration and manager characteristics disaggregated by market index peer clusters and analyses personal attributes that differentiate managers across companies of different market caps (proxied my market indices such as FTSE100, FTSE250, FTSE SmallCap and AIM). Our sample is composed of biographical data on 790 executive directors from 125 UK financial firms covering a 2004-2016 time period. The results show that network and education are the most important factors for career progression. On average, FTSE 100 executive directors are three times better connected and two times better educated than FTSE SmallCap and AIM board members. The larger the firm, the more diverse the board with more international (non-British) and female directors (even though male executives mostly dominate). Higher position is associated with greater age, while new executives tend to be younger and better connected. We highlight a change in the new managers’ skill-set after the financial crisis which may presumably be explained by risk aversion. New directors appointed after 2008 are, on average, older and better educated. Even though after the crisis we document that all the boardrooms, except FTSE SmallCap, appear to have become more gender diverse, the female presence in the boards is scarce and the highest number of women was mainly employed during the financial crisis. After 2008, British boards have become less nationality diverse. Thus, for the purpose of maintaining companies’ competitive advantage in increasingly diverse markets, it requires further attention from policy regulators.

Do Executives Have Fixed-Effects on Firm-Level Stock Price Crash and Jump Risk? Evidence From the CEOs and CFOs
Liu, Jiaxin
This paper investigates whether individual CEOs and CFOs have “styles” (i.e. managers’ fixed- effects) when it comes to withholding bad and good corporate news, which is captured using the firm-level future stock price crash and jump risk. Tracking managers that move across firms and employing a manager fixed effect model, we find that both CEOs and CFOs have fixed-effects on firm-level future stock price crash and jump risk, using multiple crash (jump) risk measures adopted from previous studies (for example, Kim et al. 2011a,b). Such effects are subjected to a battery of robustness tests, including using a placebo data. In addition, we document that besides bad news withholding channels suggested in the existing literature (e.g. earnings management, management guidance, and tax avoidance), managers have fixed-effects on “other channels” of news withholding, which is measured parsimoniously using a crash risk residual. We also find that CEOs have stronger fixed-effects than CFOs in affecting firm-level stock price crash and jump risk. Lastly, we find that certain demographic characteristics, including past professional qualifications (CPA license), educational background (MBA and JD degree), past military experience, and family status are associated with the crash and jump risk of the firm.

Do Fintech Lenders Fill the Credit Gap? Evidence from Local Mortgage Demand Shocks
Allen, Linda,Shan, Yu,Shen, Yao
After exogenous shocks caused by natural disasters, the surge in demand for mortgages to rebuild damaged property is satisfied by FinTech lenders more than by traditional and shadow banks. Although both FinTech and traditional bank lenders increase mortgage availability, FinTech lenders are more expansive with the least restrictive credit standards and the lowest interest rates. Traditional banks tighten credit standards by requiring higher incomes and lower DTI and CLTV on approved loans. Despite this, FinTech post-disaster mortgages do not have higher delinquency rates, consistent with FinTech lending algorithms that identify creditworthy (but high FICO) borrowers bypassed by the banking system.

Dynamic Network Risk
Ellington, Michael,Baruník, Jozef
This paper examines the pricing of short-term and long-term dynamic network risk in the cross-section of stock returns. Stocks with high sensitivities to dynamic network risk earn lower returns. We rationalize our finding with economic theory that allows the stochastic discount factor to load on network risk through the precautionary savings channel. A one-standard deviation increase in long-term (short-term) network risk loadings associate with a 7.66% (6.71%) drop in annualized expectedreturns.

Earnings at the Bell and a Level Playing Field
Hu, Danqi,Stephan, Andrew
In this paper, we provide initial evidence on price formation when news is released at the same time as the closing auction. When firms release earnings at 4:00 pm, we find significant regular-hours trading activity in the seconds between 4:00 pm and the market close. We also find that this pre-close trading moves closing prices in the direction of the earnings news, as the continuous limit order book (CLOB) is eventually brought into the closing auction. Because stock exchange rules prevent investors from cancelling/modifying most types of closing-auction-only orders after 4:00 pm, speed traders’ ability to trade in the auction with knowledge of 4:00 pm news creates an unlevel playing field; uninformed orders on the auction book (often used by institutional investors) can be adversely selected by the speed traders’ informed orders submitted through the CLOB. We estimate speed traders can earn up to 1.5% returns if they can trade in the closing auctions first and then offload their positions one minute after the close. In addition, we find that firms with higher institutional ownership are more likely to voluntarily delay their earnings announcements until after the market close once they become aware of this pre-close activity. Our study has implications for current regulators regarding the timing of information releases, trading halts during auctions, and the design of the closing process.

Ensemble Forecasting for Intraday Electricity Prices: Simulating Trajectories
Michał Narajewski,Florian Ziel

Recent studies concerning the point electricity price forecasting have shown evidence that the hourly German Intraday Continuous Market is weak-form efficient. Therefore, we take a novel, advanced approach to the problem. A probabilistic forecasting of the hourly intraday electricity prices is performed by simulating trajectories in every trading window to receive a realistic ensemble to allow for more efficient intraday trading and redispatch. A generalized additive model is fitted to the price differences with the assumption that they follow a zero-inflated distribution, precisely a mixture of the Dirac and the Student's t-distributions. Moreover, the mixing term is estimated using a high-dimensional logistic regression with lasso penalty. We model the expected value and volatility of the series using i.a. autoregressive and no-trade effects or load, wind and solar generation forecasts and accounting for the non-linearities in e.g. time to maturity. Both the in-sample characteristics and forecasting performance are analysed using a rolling window forecasting study. Multiple versions of the model are compared to several benchmark models and evaluated using probabilistic forecasting measures and significance tests. The study aims to forecast the price distribution in the German Intraday Continuous Market in the last 3 hours of trading, but the approach allows for application to other continuous markets, especially in Europe. The results prove superiority of the mixture model over the benchmarks gaining the most from the modelling of the volatility. They also indicate that the introduction of XBID reduced the market volatility.

Estimated Policy Rules for Capital Controls
Pasricha, Gurnain
This paper borrows the tradition of estimating policy reaction functions from monetary policy literature to ask whether capital controls respond to macroprudential or mercantilist motivations. I explore this question using a novel, weekly dataset on capital control actions in 21 emerging economies from 2001 to 2015. I introduce a new proxy for mercantilist motivations: the weighted appreciation of an emerging-market currency against its top five trade competitors. This proxy Granger causes future net initiations of non-tariff barriers in most countries. Emerging markets systematically respond to both mercantilist and macroprudential motivations. Policymakers respond to trade competitiveness concerns by using both instruments-inflow tightening and outflow easing. They use only inflow tightening in response to macroprudential concerns. Policy is acyclical to foreign debt; however, high levels of this debt reduces countercyclicality to mercantilist concerns. Higher exchange rate pass-through to export prices, and having an inflation targeting regime with non-freely floating exchange rates, increase responsiveness to mercantilist concerns.

Expectativas en las Tasas de Interés y Noticias de Política Monetaria de EEUU (Interest Rate Expectations and Monetary Policy News in the US)
Benavides, Guillermo
Spanish Abstract: El episodio conocido como Taper Tantrum está relacionado con una serie de comunicados que la FED dio a conocer entre los meses de abril a junio de 2013, que son considerados el origen de la alta volatilidad en el mercado de capitales en este período. El objetivo de este trabajo es el cuantificar la expectativa del T-note 10 años utilizando Densidades de Riesgo-Neutral con información de opciones negociadas en el Chicago Board Options Exchange (CBOE), con las cuales, se puede extraer la expectativa del mercado sobre el futuro nivel de la referida tasa de interés. Los resultados confirman la presencia de la alta volatilidad en las expectativas de la referida tasa, así como fue documentado en las noticias financieras de la época. La originalidad de este trabajo radica en que es posible cuantificar las expectativas del mercado de deuda con Densidades de Riesgo-Neutral que han sido utilizadas en los mercados de futuros, y realizar un análisis estadístico que permita mostrar la relevancia de los mencionados anuncios de integrantes de la FED, en términos de afectar significativamente las expectativas del futuro nivel de la tasa de interés de EEUU., por parte de los agentes financieros. Se concluye que los tomadores de decisiones cuentan con una forma relevante de afectar las expectativas en los mercados de deuda, a través de los anuncios que se dan a conocer en medios informativos. English Abstract: The event known as Taper Tantrum is related with the high volatility occurred in the US capital markets between April and June of 2013, which apparently was a consequence of a set of FED’s announcements aimed to change the level of the interest rate, which was at relatively low levels since the 2008-2009 Financial Crises. The goal of the present research is to measure the representative financial agent’s expected value of the interest rates (T-Note of 10 years) and its significant variations around the Taper Tantrum. To attain that goal, we estimate interest rate Risk-Neutral Densities extracted from option prices, which have implicit information about financial agent’s expectations. The obtained results point-out that this method, which can implicitly measure expectations in the debt market, was capable to capture the relevant change of the financial agent’s expectations about the future level of long-term US interest rates. We argue that policy makers’ announcements during the Taper Tantrum have a statistically significant effect in capital markets.

FX Intervention to Stabilize or Manipulate the Exchange Rate? Inference from Profitability
Sandri, Damiano
We analyze the profitability of FX swaps used by the central bank of Brazil to shed light on the rationale for FX intervention. We find that swaps are profitable in expectation, suggesting that FX intervention is used to stabilize the exchange rate in the face of temporary excessive movements rather than to manipulate it away from fundamental values. In line with this interpretation, we find that the scale of FX intervention responds to the degree of exchange rate misalignment relative to UIP conditions. We also document that intervention is more aggressive when there is less uncertainty about the medium-term level of the exchange rate and when the exchange rate is overvalued rather than undervalued.

Financial Intermediation and Technology: What's Old, What's New?
Hoffmann, Peter,Laeven, Luc,Ratnovski, Lev
We study the effects of technological change on financial intermediation, distinguishing between innovations in information (data collection and processing) and communication (relationships and distribution). Both follow historic trends towards an increased use of hard information and less in-person interaction, which are accelerating rapidly. We point to more recent innovations, such as the combination of data abundance and artificial intelligence, and the rise of digital platforms. We argue that in particular the rise of new communication channels can lead to the vertical and horizontal disintegration of the traditional bank business model. Specialized providers of financial services can chip away activities that do not rely on access to balance sheets, while platforms can interject themselves between banks and customers. We discuss limitations to these challenges, and the resulting policy implications.

Fourier instantaneous estimators and the Epps effect
Patrick Chang

We compare the Malliavin-Mancino and Cuchiero-Teichmann Fourier instantaneous estimators to investigate the impact of the Epps effect arising from asynchrony in the instantaneous estimates. We demonstrate the instantaneous Epps effect under a simulation setting and provide a simple method to ameliorate the effect. We find that using the previous tick interpolation in the Cuchiero-Teichmann estimator results in unstable estimates when dealing with asynchrony, while the ability to bypass the time domain with the Malliavin-Mancino estimator allows it to produce stable estimates and is therefore better suited for ultra-high frequency finance. An empirical analysis using Trade and Quote data from the Johannesburg Stock Exchange illustrates the instantaneous Epps effect and how the intraday correlation dynamics can vary between days for the same equity pair.

High Risk Premia with Modest Risk Aversion
Osband, Kent
Over the past half-century, standard finance theory has come to identify equity dividends with aggregate consumption and equity investors with average expected utility-maximizing consumers, while treating most growth risks as iid. The combination makes it impossible to reconcile high equity risk premia with modest risk aversion. Reinterpreting equity markets as gambling casinos with unstable risks cuts a Gordian knot. Rational, enrichment-seeking gamblers need a substantial risk premium to cover the uncertainties of future equity prices. When dividends are subject to occasional disasters, modest risk aversion can easily account for risk premia of hundreds of basis points.

How Do Markets React to Tighter Bank Capital Requirements?
Couaillier, Cyril,Henricot, Dorian
We use hikes in the countercyclical capital buffer [CCyB] to measure how tighter bank capital requirements affect their solvency and value, according to market participants. Two features of the CCyB in Europe allow for a unique identification strategy of the effect of such requirements. First, national authorities make quarterly announcements of CCyB rates.Second, these hikes affect all European banks proportionally to their exposure to the country of activation. We show that CCyB hikes translate in lower CDS spreads for affected banks, indicating that markets perceive higher solvency. On the other hand, bank valuations do not react. Markets therefore consider that higher capital requirements translate into more stable banks at no material cost for shareholders. We claim that these effects relate to the capital constraint itself, as opposed to the potential signal conveyed on the state of the financial cycle.

Immigration Fear Induced Populism and Cross-Border Acquisitions
Aldhawyan, Sulaiman,Paudyal, Krishna,Rao, Sandeep,Thapa, Chandra
We examine whether immigration-related fear sentiments (IFS), that escalates populist views, affects the flow of inbound cross-border acquisitions (CBAs). Consistent with the economic conjecture that IFS induced populist policies can create economic uncertainty and dead-weight costs for potential international investors, our results show that the number of inbound CBAs significantly decline following the escalation of IFS. Further, using two discrete exogenous shocks that escalated anti-immigration populism, the results signify a reduced likelihood of receiving acquisition bids and a lengthier deal completion period for the target firms located in major developed economies. The inverse nexus between IFS and inbound CBAs seems to be stronger in labor-intensive industries.

Is the WIFIA Loan Program Successful?
Ryan, John
US EPA’s Water Infrastructure Finance and Innovation Act Loan Program (WIFIA or the Program) was enacted in 2014 and became operational in 2017. The Program has now completed three rounds of loan application solicitations, each of which was fully subscribed with qualified applications. Publicly available information on selected applications is a significant data set on WIFIA results to date.On the surface, the Program appears to have had a successful start. But is it working as intended to improve US water infrastructure? What do WIFIA results indicate about its future trajectory, and whether the initial success is substantive and sustainable? And â€" most immediately â€" should the Program be considered in connection with federal policy responses to the COVID-19 crisis?This opinion paper examines these questions and offers preliminary conclusions on what the WIFIA Loan Program actually appears to be doing, why that is likely to be both useful and sustainable, and its possible role in post-pandemic policy.

Long-Term Stock Returns in Brazil: Volatile Equity Returns for U.S.-Like Investors
Araújo, Eurilton,Brito, Ricardo D.,Sanvicente, Antonio
This paper tells the history of Brazilian stock market returns since the creation of the Ibovespa (the main Brazilian stock market index). From 1968 to 2019, the arithmetic mean real return of the Brazilian stock market is 21.3% per year. The equity premium is 20.1% per year, with a huge annual standard deviation of 67% . Surprisingly, such numbers are compatible with investors’ risk aversions that accommodate the very different U.S. market evidence, exposing that national investors are similar in nature. The equity premium has been higher in Brazil than in the U.S., but the much higher Brazilian volatility discourages heavier investments in stocks.

Longevity Risk and Capital Markets: The 2018-19 Update
Blake, David P.,Cairns, Andrew J. G.
This Special Issue of the Annals of Actuarial Science contains 12 contributions to the academic literature all dealing with longevity risk and capital markets. Draft versions of the papers were presented at Longevity 14: The Fourteenth International Longevity Risk and Capital Markets Solutions Conference that was held in Amsterdam on 20-21 September 2018. It was hosted by the Pensions Institute at Cass Business School and the Netspar Network for Studies on Pensions, Ageing and Retirement.

Measuring the Time-Varying Market Efficiency in the Prewar Japanese Stock Market
Akihiko Noda

This study explores the time-varying structure of market efficiency of the prewar Japanese stock market based on Lo's (2004) adaptive market hypothesis (AMH). In particular, we measure the time-varying degree of market efficiency using new datasets of the stock price index estimated by Hirayama (2017a,b, 2018, 2019a, 2020). The empirical results show that (1) the degree of market efficiency in the prewar Japanese stock market varied with time and that its variations corresponded with major historical events, (2) Lo's (2004) the AMH is supported in the prewar Japanese stock market, (3) the differences in market efficiency between the old and new Tokyo Stock Exchange (TSE) shares and the equity performance index (EQPI) depends on the manner in which the price index is constructed, and (4) the price control policy beginning in the early 1930s suppressed price volatility and improved market efficiency.

Modelling Financial Contagion Using High Frequency Data
Yao, Wenying,Dungey, Mardi H.,Alexeev, Vitali
This paper develops a methodology for detecting and measuring contagion using high frequency data which disentangles continuous and discontinuous price movements. We demonstrate its finite sample properties using Monte-Carlo simulation, focusing on the empirically plausible parameter space. Decisions to extend the role of financial regulation around the world to the supervision of insurers post-GFC has been met with literature which supports both the systemic importance of insurers and contrasting evidence that insurers are rather the ’victims’ of shocks transmitted via banks. We contribute to this debate by considering the time-varying evidence for contagion at both the firm level and the sectorial level impacts. A number of insurance companies exhibits bank-like characteristics. Our evidence for contagion effects from banks to the real economy, with similar impact from the insurers, supports the view that financial regulation on banks does need to be extended to the insurance sector.

On the Evolution of Cryptocurrency Market Efficiency
Akihiko Noda

This study examines whether the efficiency of cryptocurrency markets (Bitcoin and Ethereum) evolve over time based on Lo's (2004) adaptive market hypothesis (AMH). In particular, we measure the degree of market efficiency using a generalized least squares-based time-varying model that does not depend on sample size, unlike previous studies that used conventional methods. The empirical results show that (1) the degree of market efficiency varies with time in the markets, (2) Bitcoin's market efficiency level is higher than that of Ethereum over most periods, and (3) a market with high market liquidity has been evolving. We conclude that the results support the AMH for the most established cryptocurrency market.

On the Origins of Financial Development: Ancestral Population Diversity and Financial Risk-Taking
Delis, Manthos D.,Dioikitopoulos, Evangelos,Ongena, Steven
We show that risk-taking originates in preindustrial ancestral population diversity. We use data on immigrants residing in the United States and show that controlling for all known determinants of portfolio decisions, diversity positively affects stock market participation and asset allocation but not the ownership of bonds or savings accounts. The diversity effect relates to the level of individualism and knowledge in the origin country. Nevertheless, diversity is significant in the presence of more than 100 control variables or when instrumenting diversity with plant variety. Overall, deep-rooted factors unrelated to contemporary social and economic conditions affect risk-taking.

On the harmonic mean representation of the implied volatility
Stefano De Marco

It is well know that, in the short maturity limit, the implied volatility approaches the integral harmonic mean of the local volatility with respect to log-strike, see [Berestycki et al., Asymptotics and calibration of local volatility models, Quantitative Finance, 2, 2002]. This paper is dedicated to a complementary model-free result: an arbitrage-free implied volatility in fact is the harmonic mean of a positive function for any fixed maturity. We investigate the latter function, which is tightly linked to Fukasawa's invertible map $f_{1/2}$ [Fukasawa, The normalizing transformation of the implied volatility smile, Mathematical Finance, 22, 2012], and its relation with the local volatility surface. It turns out that the log-strike transformation $z = f_{1/2}(k)$ defines a new coordinate system in which the short-dated implied volatility approaches the arithmetic (as opposed to harmonic) mean of the local volatility. As an illustration, we consider the case of the SSVI parameterization: in this setting, we obtain an explicit formula for the volatility swap from options on realized variance.

Pandemic-Resistant Corporate Law: How to Help Companies Cope with Existential Threats and Extreme Uncertainty During the Covid-19 Crisis
Enriques, Luca
This essay argues that, to address the Covid-19 crisis, in addition to creating a special temporary insolvency regime, relaxing provisions for companies in the vicinity of insolvency, and enabling companies to hold virtual meetings, policymakers should tweak company law to facilitate equity and debt injections and address the consequences of the extreme uncertainty faced by European firms. After some general reflections upon the type of rules that are needed in these exceptional times, examples of temporary corporate law interventions for the emergency are provided. Specifically, rules to facilitate injections of equity capital and shareholder loans are suggested, together with relaxations of directors’ liability rules and measures to protect firms against hostile takeovers. All of these measures should apply merely by default and only for so long as the emergency lasts. The essay concludes with some thoughts about how to make normal-times corporate law ready for similar emergencies in the future. The goal is both to reduce the risk that the temporary extreme measures enacted for this crisis are made permanent under the pretence that another crisis may hit again and to have quick adaptation mechanisms already in place to respond to such a crisis.

Panel Data Analysis on the Impact of Industry and Macroeconomic Factors on Bank Performance: The Case of Ethiopia
Lelissa, Tesfaye
The study has investigated one of the key research question: how do external factors relate to bank performance? It has set a panel regression model that comprised explanatory variables from the macroeconomic and the banking sector. It has run a regression model based on three dependent performance measures, two of which were related to profit and the rest was a price model. The selected variables have established a relationship with performance in most of the models. The result witnessed the fact that bank performance is determined by factors beyond the management control. These include the macroeconomic situations like economic growth and trade balance. In addition, industry related variables such as the rate of market growth and access to cost saving deposits have impact on performances. Therefore, the study has rejected the hypothesis that external factors (macroeconomic and sector) have no impact on performances.

Performance Evaluation of Select Exchange Traded Funds and its benchmark in India
Anchalia, Harsh Kumar
Mutual funds are investment vehicles which pool money from various individual investors and are managed by professional fund managers. In India there are varieties of mutual funds namely Equity funds, Debt funds, Liquid funds, Balance funds, Exchange Traded Funds (ETFs) etc. This study focuses on four Exchange Traded Funds (ETFs) namely Aditya Birla Sun Life Gold ETF, Axis Gold ETF, HDFC Gold Exchange Traded Fund and SBI-ETF Gold. All these funds have Nifty 50 as their benchmark. To compare the performance of these funds Average returns, Standard deviation, Beta, Sharpe ratio, Treynor ratio, Jensen alpha, Sortino ratio and Information ratio were calculated for five financial years (April 1st 2015 to March 31st 2020). The results suggest that all the schemes have better returns than Nifty 50 and all the schemes have defensive relationship with market.

Portfolio Selection With Exploration of New Investment Opportunities
Sornette, Didier ,Strub, Moris Simon
We introduce a model for portfolio selection with an extendable investment universe where the agent faces a trade-off between exploiting existing and exploring for new investment opportunities. An agent with mean-variance preferences starts with an existing investment universe consisting of a risk-free and a number of risky assets. However, rather than being limited to these assets, the agent has the option to devote a part of his/her wealth for exploring new investment opportunities. If this option is exercised, a new risky asset is discovered and the agent subsequently invests in the extended universe. We show that the problem is well-posed when the Sharpe ratio of the newly discovered asset has reasonably asymptotic elasticity, and determine an equation characterizing the optimal amount devoted to exploration. We determine that incremental exploration does not pay off: one must put a significant amount at risk in order to harvest the potential benefits of exploring for new investment opportunities. We further find that the investment performance as measured by the Sharpe ratio is increasing in the initial wealth of the agent indicating that richer agents can make better use of new investment opportunities.

Rational Roots of Volatile Excess Volatility
Osband, Kent
Simple equity models with constant drift suggest that price volatility should basically match dividend volatility. It doesn’t. Instead, market prices tend to be significantly more volatile than the dividends they discount. Furthermore, volatility isn’t stable; it alternates between calm periods and storms of varying duration and intensity. At first glance, volatile excess volatility appears to be a market defect. GARCH models describe volatile volatility neatly but have no apparent rationale and don’t easily account for average excess volatility. Behaviorist models attribute excess volatility to irrational exuberance but don’t easily account for GARCH behavior.In fact, rational learning induces volatile excess volatility when drift is unstable. High earnings rationally breed optimism about future growth; low earnings rationally breed pessimism. Positive correlation between noisy earnings and noisy growth projections creates excess volatility, roughly in proportion to the variance of beliefs. That variance responds to news roughly in proportion to the skewness of beliefs, which induces GARCH behavior except in highly controlled conditions. The impact is significant in models fit to empirical evidence on GDP disaster risks.

Real-time estimation of the short-run impact of COVID-19 on economic activity using electricity market data
Carlo Fezzi,Valeria Fanghella

The COVID-19 pandemic has caused more than 8 million confirmed cases and 500,000 death to date. In response to this emergency, many countries have introduced a series of social-distancing measures including lockdowns and businesses' temporary shutdowns, in an attempt to curb the spread of the infection. Accordingly, the pandemic has been generating unprecedent disruption on practically every aspect of society. This paper demonstrates that high-frequency electricity market data can be used to estimate the causal, short-run impact of COVID-19 on the economy. In the current uncertain economic conditions, timeliness is essential. Unlike official statistics, which are published with a delay of a few months, with our approach one can monitor virtually every day the impact of the containment policies, the extent of the recession and measure whether the monetary and fiscal stimuli introduced to address the crisis are being effective. We illustrate our methodology on daily data for the Italian day-ahead power market. Not surprisingly, we find that the containment measures caused a significant reduction in economic activities and that the GDP at the end of in May 2020 is still about 11% lower that what it would have been without the outbreak.

Regulator-based risk statistics with scenario analysis
Xiaochuan Deng,Fei Sun

As regulators pay more attentions to losses rather than gains, we are able to derive a new class of risk statistics, named regulator-based risk statistics with scenario analysis in this paper. This new class of risk statistics can be considered as a kind of risk extension of risk statistics introduced by Kou et al. \cite{11}, and also data-based versions of loss-based risk measures introduced by Cont et al. \cite{5} and Sun et al. \cite{12}.

SEC Regulations and Firms
Wu, Xi
This study examines the effect of SEC regulations on firm valuations and corporate policies over the past 50 years. I build a time-varying and industry-specific measure of SEC regulatory restrictions, based on the universe of effective SEC rules and machine-learning relevance of the regulations to each industry. My identification strategy uses a generalized difference-in-differences design, exploiting the staggered nature of large changes in SEC regulatory restrictions across industries. I find that firms increase their demand for compliance employees following increases in regulatory restrictions, suggesting heightened regulatory burdens. At the same time, the affected firms experience increases in valuation and operating performance. The effects are asymmetric, where regulations have stronger impacts than deregulations. The results are consistent with increased regulatory burdens pushing out weaker companies, which increases the market power of other firms. Following increases in SEC restrictions, underperforming firms are more likely to exit the market, leading to more concentrated industries.

Synergies between Monetary and Macroprudential Policies in Thailand
Fukunaga, Ichiro,Saenz, Manrique
A dynamic stochastic general equilibrium (DSGE) model tailored to the Thai economy isused to explore the performance of alternative monetary and macroprudential policy ruleswhen faced with shocks that directly impact the financial cycle. In this context, the modelshows that a monetary policy focused on its traditional inflation and output objectivesaccompanied by a well targeted counter-cyclical macroprudential policy yields bettermacroeconomic outcomes than a lean-against-the-wind monetary policy rule under a widerange of assumptions.

The Cathedral and the Starship: Learning from the Middle Ages for Future Long-Duration Projects
Andreas M. Hein

A popular analogue used in the space domain is that of historical building projects, notably cathedrals that took decades and in some cases centuries to complete. Cathedrals are often taken as archetypes for long-term projects. In this article, I will explore the cathedral from the point of view of project management and systems architecting and draw implications for long-term projects in the space domain, notably developing a starship. I will show that the popular image of a cathedral as a continuous long-term project is in contradiction to the current state of research. More specifically, I will show that for the following propositions: The cathedrals were built based on an initial detailed master plan; Building was a continuous process that adhered to the master plan; Investments were continuously provided for the building process. Although initial plans might have existed, the construction process took often place in multiple campaigns, sometimes separated by decades. Such interruptions made knowledge-preservation very challenging. The reason for the long stretches of inactivity was mostly due to a lack of funding. Hence, the availability of funding coincided with construction activity. These findings paint a much more relevant picture of cathedral building for long-duration projects today: How can a project be completed despite a range of uncertainties regarding loss in skills, shortage in funding, and interruptions? It is concluded that long-term projects such as an interstellar exploration program can take inspiration from cathedrals by developing a modular architecture, allowing for extensibility and flexibility, thinking about value delivery at an early point, and establishing mechanisms and an organization for stable funding.

The Cost of Privacy Failures: Evidence from Bank Depositors’ Reactions to Breaches
Engels, Christian,Francis, Bill,Philip, Dennis
This paper provides novel evidence that consumers react in response to privacy breaches, where personally identifying information and financial data are exposed to unauthorized parties with criminal intentions. Exploring privacy breach incidences of U.S. banks, we reveal that depositors reallocate significant wealth holdings away from breached banks (estimated at around $229 million on average in the four quarters following a privacy breach). Breached banks' deposits decline steadily after privacy breaches and do not return to the pre-breach deposit growth path even after a year. Depositors domiciled geographically closer to the breached bank's headquarters react less starkly. To counteract the depletion in deposits, breached banks sharply increase money market deposit rates just after breach incidences. The results highlight the real cost of privacy breaches for corporations.

The Effect of Managers on Systematic Risk
Schoar, Antoinette,Yeung, Kelvin,Zuo, Luo
Tracking the movement of top managers across firms, we document the importance of manager-specific fixed effects in explaining heterogeneity in firm exposures to systematic risk. These differences in systematic risk are partially explained by managers’ corporate strategies, such as their preferences for internal growth and financial conservatism. Managers’ early-career experiences of starting their first job in a recession also contribute to differential loadings on systematic risk. These effects are more pronounced for smaller firms. Overall, our results suggest that managerial styles have important implications for asset prices.

The Effects of Taxes on Wealth Inequality in Artificial Chemistry Models of Economic Activity
Wolfgang Banzhaf

We consider a number of Artificial Chemistry models for economic activity and what consequences they have for the formation of economic inequality. We are particularly interested in what tax measures are effective in dampening economic inequality. By starting from well-known kinetic exchange models, we examine different scenarios for reducing the tendency of economic activity models to form unequal wealth distribution in equilibrium.

The Home Office in Times of COVID-19 Pandemic and its impact in the Labor Supply
José Nilmar Alves de Oliveira,Jaime Orrillo,Franklin Gamboa

We lightly modify Eriksson's (1996) model to accommodate the home office in a simple model of endogenous growth. By home office we mean any working activity carried out away from the workplace which is assumed to be fixed. Due to the strong mobility restrictions imposed on citizens during the COVID-19 pandemic, we allow the home office to be located at home. At the home office, however, in consequence of the fear and anxiety workers feel because of COVID-19, they become distracted and spend less time working. We show that in the long run, the intertemporal elasticity of substitution of the home-office labor is sufficiently small only if the intertemporal elasticity of substitution of the time spent on distracting activities is small enough also.

The Impact of COVID-19 on Malta and its Economy and Sustainable Strategies
Grima, Simon,Dalli Gonzi, Rebecca,Thalassinos, Eleftherios Ioannis
Research background: The preparedness for outbreaks of pandemics such as the COVID-19 is a major concern for health authorities and leaders as extensive studies in the past have been reported and well documented. However, engaging with the response to an outbreak demands many decisions with enormous implications on a population and its regions. A review of past response mechanisms sheds light on different scenarios to provide an understanding of the challenges that will emerge, depicting trends, changes to GDP, and the impact on the economy and employment. Purpose of the article: With this article, we aim to identify and bring to light the challenges faced by Malta during the pandemic we are currently facing - COVID-19. This will help risk managers and leaders understand the devastating social and economic impact of such disruptions and act proactively to avoid repetition and embarrassment of being unprepared. Moreover, we aim to provide an understanding of the expected cascading economic domino effect, which may result from the workforce unavailability, during a pandemic and the mistakes in the estimation, if any, that could have been avoided.Methods: A desk research study technique was adopted whereby data was collected from existing sources, including government websites, online statistics, published reports, trends, and internal data to the local Maltese markets. Findings and Value-added: The COVID-19 phenomena led to new measures being taken worldwide as professionals, leaders, academics, and businesses took on unprecedented steps to change their business as usual strategies. This in turn brought about various questions and discussions on how islands like Malta controlled their situation.

The Long-Run Persistence of Dividend Policy
Moortgat, Leentje,Annaert, Jan,Deloof, Marc
Dividend policy is not set de novo each year, but dividends are smoothed from one year to another. This smoothing leads to a short-term persistence in dividend policy. In this paper, we investigate the persistence of a dividend policy in the long run by using a unique sample of firms listed on the Brussels Stock Exchange (BSE) since 1824. The imprinting theory argues that firms develop certain persistent characteristics at important moments in their life cycle. Our investigation provides evidence that the initial dividend policy, measured at a firm’s first listing, has an effect on the future dividend policy. This effect persists for many years but decreases over the firm’s life cycle. However, a new stable slowly changing persistent component in dividend policy is formed.

The Option-Implied Asset Volatility Surface
Maglione, Federico
This paper provides a simple way to obtain an option-implied asset volatility surface. The proposed estimation technique allows to estimate the unobservable asset volatility surface in the same fashion of what is done when equity volatility is extracted from options. Given a sample of 66 US firms, the asset volatility is first estimated at the firm level and then aggregated in order to study the properties of the market-wide asset volatility surface. Principal component analysis (PCA) is conducted on the weekly changes of the volatility surface both across the moneyness and the time-to-maturity dimension, as well as on the overall surface. Both across moneyness and maturity, the first three PCs are able to account for most of the variation and can be identified as level, slope/smirk and curvature factors respectively. When analysed in across the whole surface, the first two PCs account for most of the variation and represent a level and a skew factor. Finally, the joint evolution of the smirk and the slope of the surface is model-led as a Vector Auto-regressive model with exogenous variables. Both slope and smirk appear to be jointly auto-correlated and loading of the other market variables display the predicted sign.

The Real Effects of Modern Information Technologies
Goldstein, Itay,Yang, Shijie,Zuo, Luo
Modern information technologies have greatly facilitated timely dissemination of information to a broad base of investors at low costs. To examine their effects on the real economy, we exploit the staggered implementation of the EDGAR system from 1993 to 1996 as a shock to information dissemination technologies. We find that the EDGAR implementation leads to an increase in the level of corporate investment but a decrease in the investment-to-price sensitivity. We provide evidence that improved equity financing and reduced managerial learning from prices are the underlying mechanisms that explain these real effects, respectively. In addition, we show that the EDGAR implementation leads to an improvement in performance in value firms but a decline in performance in high-growth firms where learning from the market is particularly important.

The Subprime Crisis Once Again, Z-Score or Rating: A Study on Banks of the Euro Zone
Taleb, Lotfi,Khouaja, Dalenda
This article focuses on the study of the impact of prudential banking regulations on the risk of bank failures in the Eurozone during the subprime financial crisis. Two indicators of bankruptcy risk measures are used:(i) the Z-score and (ii) the rating. The methodology adopted consists of making estimates using a Logit model including CAMEL variables, regulatory variables, and macroeconomic-level variables. The empirical results found show that, regardless of the approach used to measure the risk of bankruptcy, variables such as the strengthening of equity, the level of liquidity, the restriction and supervision of banking activities are statistically significant. In addition, we find that the Z-score, as a method of assessing the banking risk, shows a certain superiority compared to the rating to better prevent in ex-post the cases of banks in bankruptcy during the subprime crisis.

The VIX is Your FIX: a Flexible Strategy to Timing the Stock Market
Bonaparte, Yosef
We use the VIX and basic trading behavior to time entry and exit from the market. Our strategy captures 89% of the bottom and 91% from the top (you miss only 11% and 9% from the peak point, respectively). We lay our strategy down in six acts. Act I: the daily average return in the stock market is negative when VIX above 23; then sell if VIX in the way up and exceeds this threshold. Act II: the average daily return during the journey of rising VIX above 23 is -0.6%. Act III: the average daily return during the journey of declining from the peak 0.56%. Act IV: exit (enter) when you have back-to-back two downs (up) days with overall 6% or more. Act V: watch the Federal Reserve rates; exit when rates increase (decrease) during expansion (contraction). Act VII: do not trust oil prices as a predictor for future economic growth since the supply side of oil is highly politicized between OPEC and OPEC+. Collectively: when it comes to transition between bear to bull markets or vice versa, the VIX is your FIX.

US Banks' Exposure to Systematic Risk
Anand, Abhinav,Cotter, John
We define and construct the 'systematic risk exposure' (SRE), measured between 0-100, for a large sample of 2287 US banks during the period 19932019. The measure shows a steady increase in banks' exposure to systematic risk; and displays significantly high peaks during episodes of market distress such as the LTCM collapse, the Dotcom bust, the Great Recession and the Eurozone crisis. We also show that the imposition of the Dodd-Frank Act has improved US banks' capitalization levels but has not curtailed their exposure to systematic risk, which has continued to rise unabated. Among characteristics associated with SRE, we nd that bank size is the most significant|both economically and statistically.

Volatility model calibration with neural networks a comparison between direct and indirect methods
Dirk Roeder,Georgi Dimitroff

In a recent paper "Deep Learning Volatility" a fast 2-step deep calibration algorithm for rough volatility models was proposed: in the first step the time consuming mapping from the model parameter to the implied volatilities is learned by a neural network and in the second step standard solver techniques are used to find the best model parameter.

In our paper we compare these results with an alternative direct approach where the the mapping from market implied volatilities to model parameters is approximated by the neural network, without the need for an extra solver step. Using a whitening procedure and a projection of the target parameter to [0,1], in order to be able to use a sigmoid type output function we found that the direct approach outperforms the two-step one for the data sets and methods published in "Deep Learning Volatility".

For our implementation we use the open source tensorflow 2 library. The paper should be understood as a technical comparison of neural network techniques and not as an methodically new Ansatz.

Where Do Equity Risk Premia Come From?
Osband, Kent
Standard finance theory posits that equity risk premia compensate for occasional shortfalls in aggregate consumption. However, these premia seem much higher than typical consumption risks warrant. The best reconciliation to date focuses on insurance against rare disaster risks. However, the required risk aversion still seems implausibly high. Equity dividends are wrongly identified as (leveraged) aggregate consumption. The capital market is deemed uninterested in evidence of budding disasters. or incapable of mid-course adjustment. Furthermore, the implied price behavior often runs counter to real-life experience. Patches are not robust to wobble in utility parameters or uncertainty about the underlying risks.Equity markets are better modeled as casino games with evolving risks, with pricing dominated by rational gamblers seeking long-term enrichment. While their effective risk aversion is modest, the risks of drawdown are high enough to account for a risk premium of several hundred basis points (bps). However. The volatility of volatility poses a major challenge for pricing, as it indicates the equity risk premium will vary over time and thereby influence the volatility it varies with. It is far from clear how to price these endogenous risks.

Who Takes the Ecb's Targeted Funding?
Vergote, Olivier,Sugo, Tomohiro
This paper investigates motives of banks to borrow funds from the ECB through its first two series of targeted longer-term refinancing operations (TLTROs) allotted between September 2014 and March 2017. We quantify that the top-three parameters that determine banks’ take-up decisions are the price of the operation, the amount of eligible collateral of the bank, and the composition of that collateral. In particular, the opportunity for banks to transform their less liquid assets partly into liquid central bank reserves by pledging these assets as collateral with the central bank is a strong motive for take-up and suggests that accepting a broad set of collateral was important for the monetary easing provided by TLTROs. In addition, we find that the conditions attached to TLTRO participation and take-up played an important role in creating broad-based participation across banks of different financial strength and size. -- A Visual Bibliography of Regulatory Visualization
Zhibin Niu,Runlin Li,Junqi Wu,Yaqi Xue,Jiawan Zhang

Information visualization and visual analytics technology has attracted significant attention from the financial regulation community. In this research, we present, a visual survey of regulatory visualization that allows researchers from both the computing and financial communities to review their literature of interest. We have collected and manually tagged more than 80 regulation visualization related publications. To the best of our knowledge, this is the first publication set tailored for regulatory visualization. We have provided a webpage (this http URL) for interactive searches and filtering. Each publication is represented by a thumbnail of the representative system interface or key visualization chart, and users can conduct multi-condition screening explorations and fixed text searches.