# Research articles for the 2020-07-20

A Comparative Analysis of Parsimonious Yield Curve Models with Focus on the Nelson-Siegel, Svensson and Bliss Models
WahlstrÃ¸m, Ranik Raaen,Paraschiv, Florentina,SchÃ¼rle, Michael
SSRN
We empirically compare the Nelson-Siegel, Bliss and Svensson parsimonious yield curve models that are commonly used by central banks for monetary policy decisions and recommend the use of the former. Results shed light on the patterns of confounding effects in the Svensson model. We review estimation challenges and show implications of using different approaches for the initial values on the parameter stability and on the goodness of fit. Nelson-Siegel parameter estimates are more stable and conserve their intrinsic economical interpretation. The implications of excluding Treasury bills, constraining parameters and reducing clusters across time to maturity are also investigated.

A decomposition of general premium principles into risk and deviation
Max Nendel,Frank Riedel,Maren Diane Schmeck
arXiv

In this paper, we provide an axiomatic approach to general premium principles giving rise to a decomposition into risk, as a generalization of the expected value, and deviation, as a generalization of the variance. We show that, for every premium principle, there exists a maximal risk measure capturing all risky components covered by the insurance prices. In a second step, we consider dual representations of convex risk measures consistent with the premium principle. In particular, we show that the convex conjugate of the aforementioned maximal risk measure coincides with the convex conjugate of the premium principle on the set of all finitely additive probability measures. In a last step, we consider insurance prices in the presence of a not neccesarily frictionless market, where insurance claims are traded. In this setup, we discuss premium principles that are consistent with hedging using securization products that are traded in the market.

Absentee and Economic Impact of Low-Level Fine Particulate Matter and Ozone Exposure in K-12 Students
Daniel L. Mendoza,Cheryl S. Pirozzi,Erik T. Crosman,Theodore G. Liou,Yue Zhang,Jessica J. Cleeves,Stephen C. Bannister,William R.L. Anderegg,Robert Paine III
arXiv

High air pollution levels are associated with school absences. However, low level pollution impact on individual school absences are under-studied. We modelled PM2.5 and ozone concentrations at 36 schools from July 2015 to June 2018 using data from a dense, research grade regulatory sensor network. We determined exposures and daily absences at each school. We used generalized estimating equations model to retrospectively estimate rate ratios for association between outdoor pollutant concentrations and school absences. We estimated lost school revenue, productivity, and family economic burden. PM2.5 and ozone concentrations and absence rates vary across the School District. Pollution exposure were associated with as high a rate ratio of 1.02 absences per ug/m$^3$ and 1.01 per ppb increase for PM2.5 and ozone, respectively. Significantly, even PM2.5 and ozone exposure below regulatory standards (<12.1 ug/m$^3$ and <55 ppb) was associated with positive rate ratios of absences: 1.04 per ug/m$^3$ and 1.01 per ppb increase, respectively. Granular local measurements enabled demonstration of air pollution impacts that varied between schools undetectable with averaged pollution levels. Reducing pollution by 50% would save $452,000 per year districtwide. Pollution reduction benefits would be greatest in schools located in socioeconomically disadvantaged areas. Exposures to air pollution, even at low levels, are associated with increased school absences. Heterogeneity in exposure, disproportionately affecting socioeconomically disadvantaged schools, points to the need for fine resolution exposure estimation. The economic cost of absences associated with air pollution is substantial even excluding indirect costs such as hospital visits and medication. These findings may help inform decisions about recess during severe pollution events and regulatory considerations for localized pollution sources. Armageddon and the Stock Market: US, Canadian and Mexican Market Responses to the 1962 Cuban Missile Crisis Burdekin, Richard C. K.,Siklos, Pierre L. SSRN The threat of nuclear annihilation has never been higher than in 1962, when US President Kennedy and Soviet Premier Khruschev engaged in brinkmanship over the placement of Soviet missiles in Cuba during October 16-28. Although the resolution of the crisis was followed by a sustained recovery in the US, Canadian and Mexican stock markets, the stock market impact of the crisis itself, at first glance, seems relatively limited. Notwithstanding the fact that empirical analysis of 1962 US market data reveal a significant break on October 23, 1962, which is the day after President Kennedyâ€™s television address about the Cuban missile crisis, the drop on this day was smaller than prior one day declines seen in the earlier part of the year. When we focus on the 1% left tail of the distribution, that is, just the very largest negative returns, a different story emerges, however. US uncertainty is now seen to have a significant negative impact on returns across each of the US, Canadian and Mexican markets. Moreover, the size of the negative response to the rise in uncertainty is comparable in all three cases notwithstanding the fact the pre-crisis Mexican stock market trajectory had been very different from that seen in the United States and Canada. Asset Pricing with Cohort-Based Trading in MBS Markets Fusari, Nicola,Li, Wei,Liu, Haoyang,Song, Zhaogang SSRN Agency mortgage backed securities (MBSs) 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 MBSs 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. Attention Triggers and Investors' Risk-Taking Arnold, Marc,Pelster, Matthias,Subrahmanyam, Marti G. SSRN This paper investigates how individual attention triggers influence financial risk-taking based on a large sample of trading records from a brokerage service that sends standardized push messages on stocks to retail investors. By exploiting the data in a difference-in-differences (DID) setting, we find that attention triggers increase investors' risk-taking. Our DID coefficient implies that attention trades carry, on average, a 19-percentage point higher leverage compared to non-attention trades. We provide a battery of cross-sectional analyses to identify the groups of investors and stocks for which this effect is stronger. Authoritarian Governments Appear to Manipulate COVID Data Mudit Kapoor,Anup Malani,Shamika Ravi,Arnav Agrawal arXiv Because SARS-Cov-2 (COVID-19) statistics affect economic policies and political outcomes, governments have an incentive to control them. Manipulation may be less likely in democracies, which have checks to ensure transparency. We show that data on disease burden bear indicia of data modification by authoritarian governments relative to democratic governments. First, data on COVID-19 cases and deaths from authoritarian governments show significantly less variation from a 7 day moving average. Because governments have no reason to add noise to data, lower deviation is evidence that data may be massaged. Second, data on COVID-19 deaths from authoritarian governments do not follow Benford's law, which describes the distribution of leading digits of numbers. Deviations from this law are used to test for accounting fraud. Smoothing and adjustments to COVID-19 data may indicate other alterations to these data and a need to account for such alterations when tracking the disease. Board Characteristics, External Governance and the Use of Renewable Energy: International Evidence From Public Firms Zhang, Dayong,Zhang, Zhiwei,Ji, Qiang,Lucey, Brian M.,Liu, Jia SSRN Adoption of renewable energy is one of the most important steps taken to cope with global warming and achieve sustainability. While its supply has seen a global boom, the adoption of renewable energy from the critical demand side faces clear challenges. This paper investigates firmsâ€™ use of renewable energy, paying special attention to factors in internal corporate governance and external governance. Based on 1,027 listed companies in 47 countries or regions, we show statistically significant evidence that both internal and external governance matter for firmsâ€™ adoption of renewable energy. We also find significant interactions between internal and external factors. Specifically, board duality and higher executive share reduce renewable energy adoption, strong external governance increases renewable energy adoption, and firms in common law systems tend to use fewer renewables. Our results are robust to different specifications, which allows us to tell an international demand-side story to complement the narrative on supply. Bond indifference prices and indifference yield curves Matthew Lorig arXiv In a market with stochastic interest rates, we consider an investor who can either (i) invest all if his money in a savings account or (ii) purchase zero-coupon bonds and invest the remainder of his wealth in a savings account. The indifference price of the bond is the price for which the investor could achieve the same expected utility under both scenarios. In an affine term structure setting, under the assumption that an investor has a utility function in either exponential or power form, we show that the indifference price of a zero-coupon bond is the root of an integral expression. As an example, we compute bond indifference prices and the corresponding indifference yield curves in the Vasicek setting and interpret the results. COVIDâˆ'19 and Oil Price Risk Exposure Akhtaruzzaman, Md,Boubaker, Sabri,Chiah, Mardy,Zhong, Angel SSRN This study investigates oil price risk exposure of financial and non-financial industries around the world during the COVIDâ€"19 pandemic. The empirical results show that oil and gas industries exhibit the highest positive exposure to oil price risk, benefiting most when there is an increase in oil price. In contrast, heavy users of oil, such as airlines and defence, suffer most from increases in oil price. The COVIDâ€"19 outbreak appears to moderate the oil price risk exposure of both financial and non-financial industries. The oil price risk exposure of financial and non-financial industries remains robust to alternative asset pricing framework. Capital Structure in Emerging Markets: Evidence from China Nazarova, Varvara,Budchenko, Anastasia SSRN Although corporate capital structure has been intriguing to scientists for a number of years, very little research has been conducted on the topic for companies in emerging markets. The purpose of this paper is to investigate the determinants of capital structure using a sample of 195 non-financial firms from emerging markets in 2012-2016. The inclusion of a specific dataset from Chinese companies lends vital focus to this investigation and provides crucial ballast for the investigative function. The final sample contains data on 57 China companies and 90 other companies of emerging markets. Our article focusses on identifying the determinants of capital structure of Chinese companies in comparison with companies of other BRIC countries (Brazil, Russia, India), and sets out a series of hypotheses concerning capital structure with domestic and international variables. We compare and contrast our data using a series of custom evaluation models based on linear regressions. The results confirm positive impact of tangibility on total debt ratio due to a high share of capital-intensive industries in the sample. It is revealed that growth rates and firm size have positive impacts on financial leverage in Chinese companies as compared to other BRIC countries, and these effects are stronger in capital-intensive industries. We illustrate how a strong negative impact of ROA has increased in recent years, and connect this phenomenon to a considerable decrease in lending rates following a large-scale stimulus program which encouraged Chinese companies to borrow money instead of relying on retained earnings. The presence of the Chinese state in the ownership structure of companies is revealed to be significant for the majority of Chinese companies, especially for the oil and gas and metallurgical sectors. Our conclusions highlight the importance of government policies and special market conditions in explaining the financing behaviour of companies in emerging countries like China. While capital structure choice varies significantly across industries, nevertheless the differences between Chinese and other BRIC companies reflect the differences in the institutional structure of financing mechanisms in countries. This research and evaluation is especially timely considering the increased focus on Chinese commercial exposure on the world stage, a tendency which is bound to increase research interest in the near future across a range of disciplines. As such, our study and our broad range of conclusions will prove invaluable for students, researchers, policymakers, and decision makers in business, commerce, politics and academia at all levels. Cognizance Level of Retail Investors with reference to Mutual Fund Investment â€" An Empirical Study Elhaj, Malik SSRN The accomplishment of a MF (Mutual Fund) be contingent upon the knowledge and self-confidence level of the investors. The pattern of the investment differs with age, education, gender, occupation etc. The current study is conducted with the purpose of assessing the consciousness level of the investors. Every day financial market is flattering more competitive and therefore the supply of varied financial instruments must be in equilibrium to the demand perspectives of the investors. The prime drive of any investment is to urge maximum return with a minimum risk and mutual funds provide the chance for the investors. The research provides an insight into the kinds of risks which exist during an open-end fund scheme. the info was collected from open-end fund investors also as non open-end fund investors of this industry. The research focuses on the connection between investment decision and factors like liquidity, financial awareness, and demography. it had been found low risk funds and liquidity of fund scheme are having impact on the investor's perception for investing within the open-end fund .The study was conducted in Eastern province â€" Saudi Arabia with a sample of 60 respondents those who never invested in Mutual Funds. The study observed low level of awareness about mutual funds among the investors. Compliance With Pension-Related Mandatory Disclosures and Debt Financing Almaghrabi, Khadija,Opong, Kwaku K.,Tsalavoutas, Ioannis SSRN Using hand-collected data on the level of pension-related mandatory disclosures required by International Accounting Standard 19 Employee Benefits, we test whether compliance levels with these disclosures convey information that affects firmsâ€™ access to the public instead of the private debt market, as well as the cost of their new debt issues. We document a higher tendency to access the public debt market for firms with higher levels of pension-related disclosure. Furthermore, we find that firms with higher levels of pension-related disclosure enjoy a lower cost in terms of issuance of public debt, but not a lower cost for private debt issues. Thus, the benefits of disclosure in reducing information risk are only realizable when creditors rely heavily on financial statements in their decision making, due to the limited access to private information. Additional tests reveal that high compliance levels effectively mitigate the negative effect of pension deficits on the cost of public debt. These findings provide novel evidence in the extant literature on the role of mandatory (and, in particular, pension-related) disclosures on firmsâ€™ debt financing. They also have important policy implications. Conditional tail risk expectations for location-scale mixture of elliptical distributions Baishuai Zuo,Chuancun Yin arXiv We present general results on the univariate tail conditional expectation (TCE) and multivariate tail conditional expectation for location-scale mixture of elliptical distributions. Examples include the location-scale mixture of normal distributions, location-scale mixture of Student-$t$distributions, location-scale mixture of Logistic distributions and location-scale mixture of Laplace distributions. We also consider portfolio risk decomposition with TCE for location-scale mixture of elliptical distributions. Convolution Bounds on Quantile Aggregation Jose Blanchet,Henry Lam,Yang Liu,Ruodu Wang arXiv Quantile aggregation with dependence uncertainty has a long history in probability theory with wide applications in problems in finance, risk management, statistics, and operations research. Using a recent result on inf-convolution of Range-Value-at-Risk, which includes Value-at-Risk and Expected Shortfall as special cases, we establish new analytical bounds which we call convolution bounds. These bounds are easy to compute, and we show that they are sharp in many relevant cases. We pay a special attention to the problem of quantile aggregation, and the convolution bounds help us to identify approximations for the extremal dependence structure. The convolution bound enjoys several advantages, including interpretability, tractability and theoretical properties. To the best of our knowledge, there is no other theoretical result on quantile aggregation which is not covered by the convolution bounds, and thus the convolution bounds are genuinely the best one available. The results can be applied to compute bounds on the distribution of the sum of random variables. Some applications to operations research are discussed. Currency risk exposure and the presidential effect in stock returns Ashour, Samar,Rakowski, David A.,Sarkar, Salil K. SSRN We explore how the US presidential effect in stock prices is connected to the US presidential effect in foreign exchange returns to the US dollar. Our results show that the existence of a presidential effect in stock returns depends on how a firmâ€™s stock returns are associated with changes in the value of the US dollar. We document that a complex association exists between presidential effects in stock returns, stock risk premiums, macro-economic variables, and the foreign exchange market. Deep neural network for optimal retirement consumption in defined contribution pension system Wen Chen,Nicolas Langrené arXiv In this paper, we develop a deep neural network approach to solve a lifetime expected mortality-weighted utility-based model for optimal consumption in the decumulation phase of a defined contribution pension system. We formulate this problem as a multi-period finite-horizon stochastic control problem and train a deep neural network policy representing consumption decisions. The optimal consumption policy is determined by personal information about the retiree such as age, wealth, risk aversion and bequest motive, as well as a series of economic and financial variables including inflation rates and asset returns jointly simulated from a proposed seven-factor economic scenario generator calibrated from market data. We use the Australian pension system as an example, with consideration of the government-funded means-tested Age Pension and other practical aspects such as fund management fees. The key findings from our numerical tests are as follows. First, our deep neural network optimal consumption policy, which adapts to changes in market conditions, outperforms deterministic drawdown rules proposed in the literature. Moreover, the out-of-sample outperformance ratios increase as the number of training iterations increases, eventually reaching outperformance on all testing scenarios after less than 10 minutes of training. Second, a sensitivity analysis is performed to reveal how risk aversion and bequest motives change the consumption over a retiree's lifetime under this utility framework. Third, we provide the optimal consumption rate with different starting wealth balances. We observe that optimal consumption rates are not proportional to initial wealth due to the Age Pension payment. Forth, with the same initial wealth balance and utility parameter settings, the optimal consumption level is different between males and females due to gender differences in mortality. Early Repayment of Loans Under EU Law: The Lexitor Judgment Baffi, Enrico,Parisi, Francesco SSRN Recent changes in EU law provide flexibility and protection to consumers, facilitating early repayment of loans, when the consumer is no longer interested in continuing a credit relationship. From an economic point of view, early repayment of loans should be facilitated, because it allows money that is no longer needed to be put to other desirable uses. Under current EU law, as recently interpreted in the Lexitor judgment by the Court of Justice of the European Union, upon early repayment of a loan, consumers can obtain a pro-rated reimbursement of all the up-front and recurring costs of the loan, including origination fees and ancillary service costs. In this brief article, we take a critical look at the current EU approach to this issue, suggesting that, while the legislature made the pragmatic choice in permitting partial reimbursement of up-front costs, this leads to several economic inefficiencies that can ultimately hurt the consumer. Repayment of up-front costs, and of any other sunk cost associated with the creation of the loan, can lead to a suboptimal mix of lending contracts. Some consumers could, in fact, take out a lower interest rate long-term credit, even though they may only need a short-term loan, and this would create a disadvantage for the overall class of consumers. In order to actually protect the economic interest of consumers and carry out the intent of the legislature, we conclude that the up-front costs for non-mandatory ancillary services (such as brokerage fees, etc.) should not be included in the costs that are eligible for reimbursement in the event of early repayment of the loan. By excluding these costs, consumers will not be incentivized to overconsume such services, minimizing the negative externalities imposed on other consumers. Explicit expressions for joint moments of$n$-dimensional elliptical distributions Baishuai Zuo,Chuancun Yin arXiv Inspired by Stein's lemma, we consider the joint moments of$n$-dimensional elliptical distribution. We use two different methods to calculate the expectations$E[X_{1}^{2}f(\mathbf{X})]$for any measurable function$fsatisfying some regular conditions. Applying this result, we obtain recursion formulae for product moments of multivariate Gaussian random variables and multivariate elliptical random variables. Extending â€˜Environment-Risk Weighted Assetsâ€™: EU Taxonomy and Banking Supervision Esposito, Lorenzo,Mastromatteo, Giuseppe,Molocchi, Andrea SSRN Changing the economy to meet the goals posed by the Paris Agreement implies a financial system aligned to this end. This debate also involves a reconsideration of aims and tools of banking regulation although, for now, the discussion is still not very operational. In a previous work we introduced the â€˜environment-risk weighted assetsâ€™ to internalize the pollution risk of the borrower that here we expand empirically to calculate the â€˜external costs footprintâ€™ of Italian corporate lending and to cover virtually every part of banksâ€™ business. Moreover, we analyse whether our proposal is aligned to the European Union taxonomy on environmentally sustainable activities. We show that our framework can help to put on a working track the discussion on banking regulation for sustainable finance. Fiduciary Duties, Corporate Purpose and Stakeholder Interests: What Pre-COVID Sustainability Initiatives Can Teach About a Post-COVID Future Dravis, Bruce SSRN COVID revealed that collective problems that exist at global scale require resources beyond those that can be easily mustered under the current rules for the American economic system. Unless one assumes that current rules governing the economy are adequate to address the need for a durable economy â€" a risky assumption, given that the economy staved off crashes in 2008 and 2020 only through the injection trillions of dollars of government funds â€" it is inevitable that those rules will change. The need for such change is already visible, and the call for such change has already begun. COVID exposed a smallness of imagination in the business and investing world respecting sustainability, an undue and undeserved respect for the ability of markets to address systemic risk: Institutional investors can use diversification to address portfolio risk â€" but not systemic risk like a pandemic. Operating companies can use sustainability strategies to address company-specific risk, which is helpful company by company â€" but not systemic risk. For â€œsustainabilityâ€ to be an effective macro-economic strategy, then the private sector and the public sector will ultimately need to collaborate to rethink at least some of the rules of capitalism. The benefits to individual companies or investors from piecemeal company-by-company efforts can still be undermined by collective risks that exist at global scale. Financial Strategy Considering Sustainable Growth: Evidence From China and Russia Gas Market Companies Steblyanskaya, Alina ,wang, zhen,Ryabova , Elena ,Razmanova, Svetlana ,Rybachuk, Maxim SSRN Over the past ten years have seen ambiguous situation concerning China and Russia gas companies. On the one hand, companiesâ€™ reports show conservative policies and sustainable growth in the coming years, on the other hand, companiesâ€™ financial performance suggest another situation because of insufficient level of financial indexes that reflects the inconsistency of existing sustainable growth approaches. These indicates relevance of the research concerning China and Russia gas market companiesâ€™ financial sustainable growth in conditions of global economy and investment policy implementation. The main purpose of the Research is to analyze China and Russia gas market companiesâ€™ financial growth strategy by means of Geniberg Z â€" matrix as well as enhanced Financial Sustainability Indicators System indexes by identifying which indicators have a greater influence on Sustainable Growth Rate. It is found that ROCE, ROFA, CR, DOL, ROL influence on Russian gas market companiesâ€™ SGR, and ROCE, WACC, ROL, CG Dummy influence on Chinese gas market companies sustainable growth. Follow the Smart Money: Factor Forecasting in China Chen, Qinhua,Chi, Yeguang,Qiao, Xiao SSRN We present novel evidence of factor timing in the Chinese stock market. Actively managed Chinese stock mutual funds have larger exposure on the size factor when it performs well and smaller exposure when it performs poorly. By constructing a proxy for the size preference of active stock funds, we can forecast size factor returns in the subsequent periods. A one-standard deviation increase in the size factor loading of active stock funds is associated with an increase in the size factor return of 1.18% in the next month and 10.8% in the next year. The result is not driven by industry rotation, price impact of mutual funds, or factor momentum. Actively managed stock mutual funds do not appear to time value or momentum factors. Geometric Arbitrage Theory and Market Dynamics Reloaded Simone Farinelli arXiv We have embedded the classical theory of stochastic finance into a differential geometric framework called Geometric Arbitrage Theory and show that it is possible to: --Write arbitrage as curvature of a principal fibre bundle. --Parameterize arbitrage strategies by its holonomy. --Give the Fundamental Theorem of Asset Pricing a differential homotopic characterization. --Characterize Geometric Arbitrage Theory by five principles and show they they are consistent with the classical theory of stochastic finance. --Derive for a closed market the equilibrium solution for market portfolio and dynamics in the cases where: -->Arbitrage is allowed but minimized. -->Arbitrage is not allowed. --Prove that the no-free-lunch-with-vanishing-risk condition implies the zero curvature condition. The converse is in general not true and additionally requires the Novikov condition for the instantaneous Sharpe Ratio Dynamics to be satisfied. Higher Education and Corporate Innovation Kong, Dongmin,Zhang, Bohui,Zhang, Jian SSRN This paper investigates the impact of higher education on corporate innovation. To establish causality, we exploit a policy-induced exogenous shock in the supply of Chinese college-educated labor starting in 2003. Using a difference-in-differences approach, we find that Chinese firms in skilled industries generate better innovation outcomes as measured by patents and citations than those in unskilled industries. This effect is more pronounced among firms headquartered in a province with more science and engineering college graduates, young firms that are more likely to hire young graduates, and firms located near universities. Moreover, higher education expansion increases a firmâ€™s innovative human capital in terms of the number of educated employees and inventors. Finally, we show that technological innovation is a mechanism through which higher education affects productivity growth and, thus, the economy. How Does Firm-level Risk Affect Productivity? Li, Xiang,Su, Dan SSRN This study quantifies and decomposes the impact of increasing firm risk on different production factors. We find that a one standard deviation increase in firm-level risk reduces the total output growth rate of a firm by 1.19 percentage points, of which approximately 77% is from the reduction in total factor productivity growth, 21% is from slower labor growth and only 2% is from slower capital growth. We provide the first evidence of the relationship between firm risk and firm-level total factor productivity, and the transmission mechanisms are reduced human capital investment and a tightened financial constraint. Inflation Differential as a Driver of Cross-Currency Basis Swap Spreads Ibhagui, Oyakhilome SSRN Over the last decade, the foreign exchange derivatives market has witnessed a collapse of covered interest parity (CIP). Not only does this collapse give rise to large deviations from CIP, it has unlocked a stream of exploitable arbitrage opportunities across currencies. In this paper, we introduce two new factors - inflation differential and relative economic performance - as potential drivers of deviations from CIP. Employing data on G10 cross-currency basis swap spreads viz a viz the U.S. dollar, we document a striking new evidence that higher inflation differential and incremental improvement in relative economic performance drive the basis wider, and hence arbitrage profits higher for U.S. dollar investors, in the post crisis period. Our main empirical results in general are robust to an extended number of controls, variations in sampling frequency, and consideration of alternative specifications, but the additional explanatory power is low. Investigating the Role of the Financial Intermediaries on Sustainable Development in Egypt: An Empirical Evidence Atta Arsanious, Essam SSRN This paper focusing on investigating the role of the financial intermediaries on the social development directly and indirectly through the economic development, which is a vital axe of the three main axes of the sustainable development, in Egypt during 12 years from 2006 to 2017. The researcher used multiple linear regression analysis by OLS method. The model tested the impact of the independent variables, on the dependent variables, which are the national income per capita, as a proxy of the poverty level, and the real GDP per capita, as a proxy of the economic development.The research shows that the factors affect poverty significantly in Egypt are real GDP per capita, gross capital formation, banks deposits to GDP. Moreover, real GDP per capita is affected by Commercial bank branches (per 100,000 adults), Market capitalization of listed domestic companies (% of GDP), Monetary, Central Bank, Assets, Domestic Currency (% GDP), Domestic credit to private sector (% of GDP), and Banks Assets to GDP. These results illustrate that the financial intermediaries have both direct effect, and indirect effect on poverty through influencing the real GDP per capita. Is Accounting Enforcement Related to Risk-Taking in the Banking Industry? Dal Maso, Lorenzo,Kanagaretnam, Kiridaran (Giri),Lobo, Gerald J.,Mazzi, Francesco SSRN Using a sample of banks from 36 countries, we document that accounting enforcement is negatively related to bank risk-taking. We also provide evidence that accounting enforcement enhances bank stability during the crisis. In addition, we show that banks assume less risk through more conservative lending decisions and a reduction in complexity in jurisdictions with higher accounting enforcement. Our results show that formal institutions such as accounting enforcement are associated with bank financial decisions and risk-taking behavior. Is Audit Committee Equity Compensation Related to Audit Fees? Liu, Xinming,Lobo, Gerald J.,Yu, Hung-Chao SSRN Section 301 of SOX implicitly assumes that audit committees can independently determine audit fees. Critics of Section 301 have questioned this assumption, in particular, and the efficacy of Section 301, more generally. In response, the SEC issued a concept release in 2015 calling for public disclosure of the process that audit committees follow for determining auditor compensation. Motivated by these calls and the widespread use of stocks and options to compensate firmsâ€™ independent directors, we examine the relation between equity compensation granted to audit committee members and audit fees. Using a sample of 3,685 firm-year observations during 2007-2015, we find a negative relation between audit committee equity compensation and audit fees, consistent with larger equity pay inducing audit committee members to compromise independence by paying lower audit fees. These findings are robust to controlling for endogeneity, firm size, alternative measures of equity compensation, alternative samples, and an alternative treatment of extreme values. We further show that larger equity compensation is associated with lower earnings quality. We also find that the negative effect of equity compensation on audit fees is stronger when city-level audit market competition is high. However, this negative relation disappears when (1) firms face high litigation risk, (2) auditors have stronger bargaining power, (3) the audit committee includes a high proportion of accounting experts, and (4) auditors are industry experts. Our results are relevant to regulators and investors. Liquidity Picking and Fund Performance Jiao, Feng,Sarkissian, Sergei,Schumacher, David SSRN Using global mutual fund and ADR data, we test if funds strategically trade cross-listed firmsâ€™ equity in the most liquid location â€" the United States or the domestic market. Funds that show such liquidity picking behaviour outperform those that do not. This result is robust to various performance tests, driven by superior stock-picking ability of both cross-listed and non-cross-listed stocks, and stronger for high active share funds. Liquidity picking mitigates fundsâ€™ capacity constraints and creates41.7 million in value-added for funds in the top tertile. Our tests provide direct evidence in favour of theories of informed trading in a multi-market setting.

Loan Types and the Bank Lending Channel
Ivashina, Victoria,Laeven, Luc,Moral-Benito, Enrique
SSRN
Using credit-registry data for Spain and Peru, we document that four main types of commercial credit â€"asset-based loans, cash flow loans, trade finance and leasingâ€"are easily identifiable and represent the bulk of corporate credit. We show that credit growth dynamics and bank lending channels vary across these loan types. Moreover, aggregate credit supply shocks previously identified in the literature appear to be driven by individual loan types. The effects of monetary policy and the effects of the financial crisis propagating through banksâ€™ balance sheets are primarily driven by cash flow loans, whereas asset-based credit is mostly insensitive to these types of effects.

Performance Audit in Construction Organisations: Relevant Criteria and Analytical Procedures
Amanzholova, Bibigul ,Karakchieva, Viktoria
SSRN

Perpetual American options with asset-dependent discounting
arXiv

In this paper we consider the following optimal stopping problem $$V^{\omega}_{{\rm A}}(s) = \sup_{\tau\in\mathcal{T}} \mathbb{E}_{s}[e^{-\int_0^\tau \omega(S_w) dw} g(S_\tau)],$$ where the process $S_t$ is a jump-diffusion process, $\mathcal{T}$ is a family of stopping times and $g$ and $\omega$ are fixed payoff function and discounting function, respectively. In a financial market context, if $g(s)=(K-s)^+$ or $g(s)=(s-K)^+$ and $\mathbb{E}$ is the expectation taken with respect to a martingale measure, $V^{\omega}_{{\rm A}}(s)$ describes the price of a perpetual American option with a discount rate depending on the value of the asset process $S_t$. If $\omega$ is a constant, the above problem produces the standard case of pricing perpetual American options. In the first part of this paper we find sufficient conditions for the convexity of the value function $V^{\omega}_{{\rm A}}(s)$. This allows us to determine the stopping region as a certain interval and hence we are able to identify the form of $V^{\omega}_{{\rm A}}(s)$. We also prove a put-call symmetry for American options with asset-dependent discounting. In the case when $S_t$ is a geometric L\'evy process we give exact expressions using the so-called omega scale functions introduced in Li and Palmowski (2018). We prove that the analysed value function satisfies HJB and we give sufficient conditions for the smooth fit property as well. Finally, we analyse few cases in detail performing extensive numerical analysis.

Pricing and hedging American-style options with deep learning
Sebastian Becker,Patrick Cheridito,Arnulf Jentzen
arXiv

In this paper we introduce a deep learning method for pricing and hedging American-style options. It first computes a candidate optimal stopping policy. From there it derives a lower bound for the price. Then it calculates an upper bound, a point estimate and confidence intervals. Finally, it constructs an approximate dynamic hedging strategy. We test the approach on different specifications of a Bermudan max-call option. In all cases it produces highly accurate prices and dynamic hedging strategies with small replication errors.

Prior knowledge distillation based on financial time series
Jie Fang,Jianwu Lin
arXiv

One of the major characteristics of financial time series is that they contain a large amount of non-stationary noise, which is challenging for deep neural networks. People normally use various features to address this problem. However, the performance of these features depends on the choice of hyper-parameters. In this paper, we propose to use neural networks to represent these indicators and train a large network constructed of smaller networks as feature layers to fine-tune the prior knowledge represented by the indicators. During back propagation, prior knowledge is transferred from human logic to machine logic via gradient descent. Prior knowledge is the deep belief of neural network and teaches the network to not be affected by non-stationary noise. Moreover, co-distillation is applied to distill the structure into a much smaller size to reduce redundant features and the risk of overfitting. In addition, the decisions of the smaller networks in terms of gradient descent are more robust and cautious than those of large networks. In numerical experiments, we find that our algorithm is faster and more accurate than traditional methods on real financial datasets. We also conduct experiments to verify and comprehend the method.

Profitability and Executive Board Turnover in Russian Banks
Kudryashova, Aleksandra ,Solntsev, Sergey
SSRN
This paper examines profitability as a factor in the turnover of poorly-performing executives in Russian banks, and how this acts as a mechanism of good corporate governance. It is intended to identify and measure the relative effects of different determinants on executive turnover, and thus highlight the practical sets of circumstances where turnover is most likely. A relatively unique perspective on the study of corporate governance, we intend to demonstrate an aspect of corporate accountability for commercial performance and shed light on high-level manifestations of reactivemanagement practices.In order to construct the most realistic and robust analysis, we will take into account the idiosyncracies of the companies and individuals involved in this process, and also consider the influence of external economic and social developments where appropriate. The empirical data in this research consists of 3251 observations concerning members of the executive boards of the 50 largest Russian banks from 2005 till 2014. Contemporary accounting data and other financialand economic indicators for these companies is weighed alongside personal information about the banks executives.Descriptive statistics and econometric approaches are utilised in order to parse the provided data and construct a comprehensive explanatory model. Our interpretative process includes the application of probit regressions and OLS panel regressions with fixed effects.The results of this evaluation may be summarised as follows. We found out that a decrease in return on equity (ROE) and a decrease in return on assets (ROA) leads to a higher probability of executive turnover. Changes in the EBITDA to total assets ratio did not correlate with executive turnover probability. State-controlled banks showed a higher executive turnover rate. A greater turnover rate during pre-crisis 2006-2007 may have been caused by banksâ€™ demand for newexecutives, in their ambition to attain extensive growth. A higher turnover rate in 2014 could have been inspired by the economic sanctions again Russia, or influenced by a recent policy of the Central Bank of the Russian Federation aiming at a â€œclearanceâ€ of the banking system. Finally, it was demonstrated that personal characteristics of the members of the executive boards did not have a significant influence on executive turnover probability.This study contributes to the limited literature in the area by analysing the determinants of turnover of members of the executive boards of banks depending on the profitability of banks and other characteristics. This is the first study of this kind, based on extensive Russian data which allows for the appraisal of the mechanisms of corporate governance. While a primary limitation of this study is that only large banks were included in the sample, the very presentation of these conclusions carries significant weight in terms of defining methodological parameters for future research. This area is ripe for further investigation. For example, it is immediately apparent that the results may be very different for small or medium-sized banks, let alone other kinds of financial and commercial institutions.

Public-Private Partnerships: Does Russian Practice Follow International Experience?
Markovskaya, Elizaveta,Holodkova, Victoria , Radushinsky, Dmitry
SSRN

Recovering Heterogeneous Beliefs and Preferences from Asset Prices
Ghosh, Anisha ,Korteweg, Arthur G.,Xu, Qing
SSRN
We propose a novel information-theoretic approach to separately identify the risk preferences and beliefs of different types of financial market investors. Investors who allocate most of their wealth in large market capitalization stocks are risk averse and believe that the aggregate stock market return is strongly countercyclical. In contrast, investors in small-growth stocks are substantially less risk averse and believe in procyclical expected stock market returns. Our findings can reconcile the procyclical expected market returns found in investor survey data with the countercyclical expected returns implied by rational expectations models.

Revisiting money and labor for valuing environmental goods and services in developing countries
Habtamu Tilahun Kassahun,Jette Bredahl Jacobsen,Charles F. Nicholson
arXiv

Many Stated Preference studies conducted in developing countries provide a low willingness to pay (WTP) for a wide range of goods and services. However, recent studies in these countries indicate that this may partly be a result of the choice of payment vehicle, not the preference for the good. Thus, low WTP may not indicate a low welfare effect for public projects in developing countries. We argue that in a setting where 1) there is imperfect substitutability between money and other measures of wealth (e.g. labor), and 2) institutions are perceived to be corrupt, including payment vehicles that are currently available to the individual and less pron to corruption may be needed to obtain valid welfare estimates. Otherwise, we risk underestimating the welfare benefit of projects. We demonstrate this through a rural household contingent valuation (CV) survey designed to elicit the value of access to reliable irrigation water in Ethiopia. Of the total average annual WTP for access to reliable irrigation service, cash contribution comprises only 24.41 %. The implication is that socially desirable projects might be rejected based on cost-benefit analysis as a result of welfare gain underestimation due to mismatch of payment vehicles choice in valuation study.

SECure: A Social and Environmental Certificate for AI Systems
Abhishek Gupta,Camylle Lanteigne,Sara Kingsley
arXiv

In a world increasingly dominated by AI applications, an understudied aspect is the carbon and social footprint of these power-hungry algorithms that require copious computation and a trove of data for training and prediction. While profitable in the short-term, these practices are unsustainable and socially extractive from both a data-use and energy-use perspective. This work proposes an ESG-inspired framework combining socio-technical measures to build eco-socially responsible AI systems. The framework has four pillars: compute-efficient machine learning, federated learning, data sovereignty, and a LEEDesque certificate.

Compute-efficient machine learning is the use of compressed network architectures that show marginal decreases in accuracy. Federated learning augments the first pillar's impact through the use of techniques that distribute computational loads across idle capacity on devices. This is paired with the third pillar of data sovereignty to ensure the privacy of user data via techniques like use-based privacy and differential privacy. The final pillar ties all these factors together and certifies products and services in a standardized manner on their environmental and social impacts, allowing consumers to align their purchase with their values.

Scenario Planning - Russia The New Amendment 2020 â€" Putin the Iron Man Reforms Constitution
ul Haq, Bina
SSRN
â€¢ Putin - an indispensable King to Power or the worthy choice until find a fitting successor?â€¢ Who knows if Putin (Ex-KGB) has a hidden prodigy?â€¢ Putin has unrivalled power, charisma, wit, sporty figure, military and defence intelligence, diplomatic tactics and attracts the world.â€¢ World leaders can benefit from these qualities for peace and steadiness.â€¢ Putin is a man of iron; with all political pressures and sanctions, yet Putin delivered better politics and environment to attract foreign business and drive FDI in Russia.â€¢ Five top trade partners increased their import purchases from Russia from 2018 to 2019: United Kingdom, Kazakhstan, United States, Netherlands and China.â€¢ Vladimir Putin could continue to use energy as a â€œnew nuclear weaponâ€, along with further innovations. Markets felt the pressure of Russia and Saudi Arabia oil price war influence game.â€¢ The clarity in Putin's 2020 constitutional amendments may bring stability to Russia and clarity to would in terms of near and future term strategies.

Social capital and resilience make an employee cooperate for coronavirus measures and lower his/her turnover intention
Keisuke Kokubun,Yoshiaki Ino,Kazuyoshi Ishimura
arXiv

An important theme is how to maximize the cooperation of employees when dealing with crisis measures taken by the company. Therefore, to find out what kind of employees have cooperated with the company's measures in the current corona (COVID-19) crisis, and what effect the cooperation has had to these employees/companies to get hints for preparing for the next crisis, the pass analysis was carried out using awareness data obtained from a questionnaire survey conducted on 2,973 employees of Japanese companies in China. The results showed that employees with higher social capital and resilience were more supportive of the company's measures against corona and that employees who were more supportive of corona measures were less likely to leave their jobs. However, regarding fatigue and anxiety about the corona felt by employees, it was shown that it not only works to support cooperation in corona countermeasures but also enhances the turnover intention. This means that just by raising the anxiety of employees, even if a company achieves the short-term goal of having them cooperate with the company's countermeasures against corona, it may not reach the longer-term goal by making them increase their intention to leave. It is important for employees to be aware of the crisis and to fear it properly. But more than that, it should be possible for the company to help employees stay resilient, build good relationships with them, and increase their social capital to make them support crisis measurement of the company most effectively while keeping their turnover intention low.

Social capital may mediate the relationship between social distance and COVID-19 prevalence
Keisuke Kokubun
arXiv

The threat of the new coronavirus (COVID-19) is increasing. Regarding the difference in the infection rate observed in each region, in addition to studies seeking the cause due to differences in the social distance (population density), there is an increasing trend toward studies seeking the cause due to differences in social capital. However, studies have not yet been conducted on whether social capital could influence the infection rate even if it controls the effect of population density. Therefore, in this paper, we analyzed the relationship between infection rate, population density, and social capital using statistical data for each prefecture. Statistical analysis showed that social capital not only correlates with infection rates and population densities but still has a negative correlation with infection rates controlling for the effects of population density. Besides, controlling the relationship between variables by mean age showed that social capital had a greater correlation with infection rate than population density. In other words, social capital mediates the correlation between population density and infection rates. This means that social distance alone is not enough to deter coronavirus infection, and social capital needs to be recharged.

Speed of Adjustment in Dividend Payout Decisions: A Comparative Analysis of Developed and Developing Countries
SSRN
The analysis of dividends payout policy has been a popular subject of research since the middle of the 20th century. Despite a huge number of investigations there is no consensus opinion as to the best practices in the field. Over the years, different hypotheses have been put forward proposing various methodologies. Some working papers underline share repurchase as the best approach towards payout policy. On the other hand, there are some investigations which emphasize the opposite point of view: that dividends are more preferable. Another explanation states that there is no qualifiable difference in types of payout policy. However, the majority of recent working papers argue that the best approach is to combine share repurchases and dividends. Academic investigations into payout policy began with Lintnerâ€™s working paper. This research includes not only financial modeling and results based on regression analysis, but also presents information concerning the preferences of top-management in payout policy decisions. As a result of interviews with top managers, Lintner identified the existence of a target value for dividend payouts. So, managers tried to maintain the share of net income attributed to dividends instead of the value of dividends themselves. Moreover, Lintner found that there is a pertinent speed of adjustment1 in dividend policy. This phenomenon is described by the fact that in case of significant net income changes, firms do not pay all the dividends targeted at a specific level of net income. Companies only adjust the level of dividends in the direction of the changes. Lintner also provided an explanation of this fact. It was noted that companiesâ€™ top management was sure that significant changes in dividends can be negatively appraised by the stock market, especially in case of a fall in the value of dividends. So, managers understate the changes in dividends to better assure that next yearâ€™s profit can cover the new dividends. However, next yearâ€™s net income also incurs some fluctuations, so it it is necessary to make some adjustments to dividends. As a result the process of dividend adjustment becomes permanent. The investigation of Brav et al. [6] also was devoted to the analysis of payout policy, and included interviews with a large number of CFOs. This research confirms the main results of Lintnerâ€™s work, but with some limitations. The study carefully analyzed the existence of any target level in payout decisions. The authors found that only 6% of CFOs do not target dividends at all. However, in contrast to Lintnerâ€™s work the majority of CFOs (approximately 40%) answer that their key target is dividends per share. Only 28% try to target a dividends payout, and 27% of managers target dividends per share growth. This investigation shows that nowadays, targeting dividends per share is a more common practice than targeting payouts. Despite the fact that these results display some differences from Lintnerâ€™s one, they do not reject the hypothesis about existence of dividend smoothing.

Stock Returns and Investor Sentiment: An Empirical Study of the French Stock Market
SSRN
Using computational linguistic techniques, we build an investor sentiment indicator extracted from the content of the electronic French press specialized in Financial and economic news for companies of the CAC40 index. We test the relationship between this indicator and abnormal returns estimated at the opening of the stock market for each security. Using Granger causality tests, we find that the investor sentiment indicator determines abnormal returns and not the opposite. Multiple linear regression results show also that it can predict abnormal returns at the opening of the next day. Finally, we test an investment strategy based on sentiment values and achieve a better performance than the CAC40 Index including transaction costs.

Stress Tests Disclosure: Theory, Practice, and New Perspectives
Goldstein, Itay,Leitner, Yaron
SSRN
We review various costs and benefits of disclosure of stress test results and the models behind the tests and provide unified frameworks to evaluate the tradeoffs. We also review the evolution of practice on the disclosure of stress test results over the years and caution against the link between greater disclosure and weaker tests.

Taking Sides on Return Predictability
McLean, R. David,Pontiff, Jeffrey ,Reilly, Christopher
SSRN
We study how 9 different market participants trade with respect to 130 different stock return anomalies and how each participantâ€™s trades predict returns. Retail investors trade against anomalies, while firmsâ€™ and short sellersâ€™ trades agree with anomalies. Institutional portfolios are weighted against anomalies, although some institutionsâ€™ trades agree with anomalies after the anomaly-measurement date. Retail trades predict returns in the wrong direction, firmsâ€™ and short sellersâ€™ trades predict returns in the intended direction, institutional trades do not robustly predict returns. The return-predictability of trades by retail investors, firms and short sellers can be either mostly or completely explained by anomalies.

Tax Avoidance Determinants: Evidence From Spanish Business Groups
Garmendia-Lazcano, Aitor,Baselga-Pascual, Laura
SSRN
We use static and dynamic panel data model specifications to address the relationship between business groups and tax avoidance, controlling for firm-specific and regional tax avoidance determinants.This paper aims to determine whether Spanish corporate groups and complex group networks have more aggressive tax policy than non-group companies.Our main results show that companies that belong to a corporate group tend to be tax avoidant. Moreover, our results indicate that businesses with complex group structures present lower effective tax rates (ETR). Finally, our findings show that tax-autonomous regions present lower corporate tax rates. Other control variables show expected results.There are different initiatives to unify the fiscal policies of EU and OECD members. Spain is an interesting case study of tax avoidance due to fiscal autonomy of certain regions such as Basque Country and Navarre, providing additional insights into tax avoidance determinants, relevant for regulators and policymakers.Tax avoidance is a controversial topic due to its ethical and social implications. Several authors show that socially responsible firms are less tax aggressive (e.g., Muller and Kolk, 2015; and Lanis and Richardson, 2012a). However, there is also evidence that tax savings benefit stakeholders, such as customers, through lower product prices (Cen et al., 2018).This study is the first to investigate the relationship between business groups and tax avoidance in Spain. We design an algorithm to identify business groups by merging all equity participation links contained in shareholder and subsidiary data of SABI database.

The Economic Impacts of Ethnic In-group Bias: A Case Study Analysis
Afego, Pyemo,Capobianco, Paul,Wang, Mei
SSRN
This paper explores how in-group bias affects the economic decisions of agents in ethnically heterogeneous societies, as well as the economic consequences of these decisions. We study these connections by examining a corporate litigation case in Nigeria and the in-group sentiments expressed on Twitter as the events unfolded. The findings from analyzing user tweets show that affective identity sentiments were used to galvanize ethnic in-group members to support a boycott targeted towards a firm involved in the litigation. Importantly, we find that the boycott campaign had a negative and statistically significant effect on the shareholder wealth of the target firm. These findings suggest that in countries where there are significant ethnic differences and strong disparities, group-based biases can have considerable economic ramifications.

The Influence of Accounting Enforcement on Earnings Quality of Banks: Implications of Bank Regulation and the Global Financial Crisis
Dal Maso, Lorenzo,Kanagaretnam, Kiridaran (Giri),Lobo, Gerald J.,Terzani, Simone
SSRN
We study the effects of country-level accounting enforcement on earnings quality of banks and whether bank regulation substitutes or complements the effect of accounting enforcement on bank earnings quality. We also examine whether the influence of accounting enforcement on bank earnings quality changed after the global financial crisis. Using a sample of listed banks from 40 countries between 2001 and 2014, and abnormal loan loss provisions (ALLP) as our main proxy for earnings quality, we document a consistent and strong association between accounting enforcement and bank earnings quality. More specifically, an increase in accounting enforcement decreases the level of ALLP and decreases the propensity to manage earnings to avoid losses. Furthermore, we provide empirical evidence that bank regulation complements the effect of accounting enforcement on bank earnings quality. Finally, unlike in the pre-crisis period, we find a positive association between accounting enforcement and income-decreasing ALLP in the post-crisis period, which indicates that stronger accounting enforcement is associated with more conservative earnings and higher loan loss reserves. Our results indicate that accounting enforcement reduces opportunistic earnings management.

The Response of Corporate Sustainability to Environmental Disasters: Evidence from Wildfires
Branikas, Ioannis,Buchbinder, Gabriel,Ding, Yugang
SSRN
Environmental disasters are thought to increase the focus on sustainability in the communities where they occur. Extracting data on the severity of wildfires (a frequent type of disaster in the U.S.) and the corporate social responsibility of publicly traded firms, we study this conjecture. We show that severe wildfires in a county increase significantly the environmental responsibility of its companies in the following year, but not other, non-environmental, aspects of sustainability. The impact is not homogeneous across counties: it is not significant in counties where the percentage of climate change believers is low, or the majority of voters are Republicans.

The Separation of Voting and Control: The Role of Contract in Corporate Governance
Rauterberg, Gabriel V.
SSRN
In corporate democracy, the default system is voting, but shareholders are free to contract over their votes. In private companies, shareholders routinely do so, using shareholder agreements â€" contracts amongst the owners of a firm â€" to bargain directly over directorships and other rights of control. Why? Why use a contract to shape control rather than corporate lawâ€™s more familiar instruments â€" the charter and bylaws? This article shows that shareholder agreementsâ€™ distinctive role in corporate governance arises both because of contracts' distinctive procedural attributes, and because corporate law empowers shareholders to personally waive rights by contract that the charter and bylaws cannot remove. Statutory rules that are mandatory for the charter and bylaws do not bind shareholder agreements. The study of shareholder agreements has been stunted by the fact that there is little empirical evidence about them. Private companies need not disclose shareholder agreements, and they are generally thought to play a trivial role in public companies. This is false â€" I show that during the last six years about 15% of companies that go public do so subject to a shareholder agreement. Shareholders use them to transform their rights, such as restricting the sale of shares, waiving aspects of the duty of loyalty, securing veto rights over major corporate actions, and most troublingly, extracting promises from corporations to indefinitely support shareholders' board nominees. In essence, while statutory corporate law makes the election of the board a function of shareholdersâ€™ voting power, shareholder agreements empower investors to make their control rights a function of contract instead, allowing the separation of voting and control. Studying these agreements brings into view a range of new questions of law and policy that have been largely overlooked. This article offers a theoretical, legal, and empirical study of shareholder agreements. Its implications range across a number of foundational debates in corporate law and governance.

The Spillover Effects of Restatement Tone for Industry Investment
Durnev, Art,Mangen, Claudine
SSRN
This study explores the spillover effects of the tone of restatement press releases for the investments of rival firms. Our results show that changes in rivalsâ€™ investments after a restatement are significantly positively associated with the tone of restatement press releases, and that this association weakens over time as the restatements recede into the past. Moreover, we document that the association between changes in rivalsâ€™ investments and restatement tone varies cross-sectionally with how the restatement is framed, and with rivalsâ€™ corporate governance and financing mechanisms. Our study suggests that tone of restatement press releases provides information relevant for rivalsâ€™ investments.

The Volatility of Low Rates
SSRN
Traditional, fixed-income risk models are based on the assumption that bond risk is directly proportional to the interest rate, i.e. that the interest-rate distribution is "log-normal." Two corollaries would then follow. Firstly, nominal interest rates could never be negative. Furthermore, bond volatility vanishes when interest rates approach zero. These conclusions are obviously wrong, if we observe the debt situation in a country such as Germany. Should we then infer that the traditional way to model fixed income is no longer valid? Our study, based on bond-data back tests, covering 40 years that encompass both periods of low rates and of high inflation, demonstrates that the traditional approach still applies. When interest rates are low, the bond risk is proportional to the rate, increased by 1%. As an example, when interest rates shift from 1% to 0%, the bond risk is divided by 2, instead of becoming null. The second conclusion is that the interest rate volatility behaves as if the absolute minimum level for a rate was not zero, but -1%.

The domestic economic impacts of immigration
David Roodman
arXiv

This paper critically reviews the research on the impact of immigration on employment and wages of natives in wealthy countries--where "natives" includes previous immigrants and their descendants. While written for a non-technical audience, the paper engages with technical issues and probes one particularly intense scholarly debate in an appendix. While the available evidence is not definitive, it paints a consistent picture. Industrial economies can generally absorb migrants quickly, in part because capital is mobile and flexible, in part because immigrants are consumers as well as producers. Thus, long-term average impacts are probably zero at worst. And the long-term may come quickly, especially if migration inflows are predictable to investors. Possibly, skilled immigration boosts productivity and wages for many others. Around the averages, there are distributional effects. Among low-income "native" workers, the ones who stand to lose the most are those who most closely resemble new arrivals, in being immigrants themselves, being low-skill, being less assimilated, and, potentially, undocumented. But native workers and earlier immigrants tend to benefit from the arrival of workers different from them, who complement more than compete with them in production. Thus skilled immigration can offset the effects of low-skill immigration on natives and earlier immigrants.

The impacts of alcohol taxes: A replication review
David Roodman
arXiv

This paper reviews the research on the impacts of alcohol taxation outcomes such as heavy drinking and mortality. Where data availability permits, reviewed studies are replicated and reanalyzed. Despite weaknesses in the majority of studies, and despite seeming disagreements among the more credible one--ones based on natural experiments--we can be reasonably confident that taxing alcohol reduces drinking in general and problem drinking in particular. The larger and cleaner the underlying natural experiment, the more apt a study is to detect impacts on drinking. Estimates from the highest-powered study settings, such as in Alaska in 2002 and Finland in 2004, suggest an elasticity of mortality with respect to price of -1 to -3. A 10% price increase in the US would, according to this estimate, save 2,000-6,000 lives and 48,000-130,000 years of life each year.

The impacts of incarceration on crime
David Roodman
arXiv

This paper reviews the research on the impacts of incarceration on crime. Where data availability permits, reviewed studies are replicated and reanalyzed. Among three dozen studies I reviewed, I obtained or reconstructed the data and code for eight. Replication and reanalysis revealed significant methodological concerns in seven and led to major reinterpretations of four. I estimate that, at typical policy margins in the United States today, decarceration has zero net impact on crime outside of prison. That estimate is uncertain, but at least as much evidence suggests that decarceration reduces crime as increases it. The crux of the matter is that tougher sentences hardly deter crime, and that while imprisoning people temporarily stops them from committing crime outside prison walls, it also tends to increase their criminality after release. As a result, "tough-on-crime" initiatives can reduce crime in the short run but cause offsetting harm in the long run. A cost-benefit analysis finds that even under a devil's advocate reading of this evidence, in which incarceration does reduce crime in U.S., it is unlikely to increase aggregate welfare.

Tracking Error Performance â€" an Empirical Study on Efficiency
M, Maheen
SSRN
Active portfolio managers are eager to predict future volatility in the returns of schemes. Returns of each scheme are tracks with the returns of respective bench mark, technically called as tracking error. Ex-ante tracking error plays a crucial role in predicting future performance of the schemes. Ex-post tracking error indicates actual returns difference from the benchmark. The presented study tries to understand the efficiency of data packages (via, Bloomberg and BarraOne) used SBI Mutual Fund, one of the leading fund managers in India by considering ex-ante tracking error and the ex-post tracking error data.

Unequal and Unstable: Income Inequality and Bank Risk
Mitkov, Yuliyan,Schüwer, Ulrich
SSRN
We document that the dispersion of failure risk across banks within a given region in the U.S. is greater in regions that have higher income inequality. We explain this pattern with a model based on risk shifting incentives where banks issue insured deposits and choose the riskiness of their portfolios. In equilibrium: (i) some banks endogenously specialize in safe lending, while others engage in risk shifting and (ii) a competition to risk shift emerges whereby loans to subprime borrowers carry negative NPVs. The dispersion of bank risk generated by this sorting is magnified in more unequal regions with greater subprime credit segments.

We analyze a hand-collected sample of bribery cases from around the world to describe how the payment of bribes affects shareholder value. The net present value of a bribe conditional on getting caught is close to zero for the median firm in our sample. However, controlling for industry, country, and firm characteristics, a $1 increase in the size of the bribe is associated with an ex ante$6-9 increase in the value of the firm, suggesting a correlation between the size of bribes and the size of available benefits. Proxies for information disclosure appear significant in explaining these benefits, with more disclosure associated with lower benefits. However, this result is driven by democratic countries where bribe-paying firms receive smaller benefits relative to the bribes they pay. Information disclosure is not significant in autocratic countries.