Research articles for the 2020-07-21

A Dynamic Network of Arbitrage Characteristics
Li, Shaoran,Linton, Oliver B.
We propose an asset pricing factor model constructed with semi-parametric characteristics-based mispricing and factor loading functions. This model captures common movements of stock excess returns and includes a two-layer network of arbitrage returns interconnected by security-specific characteristics. We approximate the unknown functions by B-splines where the number of B-splines coefficients is diverging. We estimate this model and test the existence of the mispricing function by a power enhanced hypothesis test. The enhanced test solves the low power problem caused by diverging B-spline coefficients. Meanwhile, the strengthened power approaches to one asymptotically. And the dynamic networks are explored through Hierarchical K-Means Clusterings from detected mispricing functions. We apply our methodology to CRSP monthly data for the US stock market with one-year rolling windows during 1967-2017. This empirical study shows the presence of mispricing functions in certain time blocks and a dynamic network structure of arbitrage returns through groups of some characteristics.

A New Beginning of Rights Entitlement Trading Through Exchange: A Case Of Reliance Industries Limited’s Right Issue
Sadhwani, Rajesh
The main purpose of the research paper is to understand and assess the largest ever right issue offered by Reliance Industries Limited in Indian history. Understanding the trading mechanism of the issue is also very important as the right entitlements of the issue will be traded on exchange for the first time in India. The study also focuses on exploring the opportunities arising from trading through exchange for existing and new investors. The paper shows the calculation of present value of the issue as payments are to be made in installment. Investment in Right issue is also compared with investment in existing shares of RIL. The research paper focuses on various strategies for existing and new investors to avail the opportunity given by company. The daily basis closing price for Reliance Industries Limited and Reliance Industries right entitlement are considered for study purpose. Data are collected from trading of right entitlement through National Stock Exchange from 20 May to 29 May, 2020. The paper help understand the different strategies that could have been executed to avail better return than market. The outcome of the study indicates the benefits of investing in rights for existing shareholders. It was also beneficial for new investors. Even after paying some premium the issue was beneficial for them against the current RIL share price. Studying all strategies, paper shows, investors had better opportunities of arbitrage to earn higher returns from RIL-RE.

Analysis of Determinants of the Speed of Adjustment to Target Capital Structure of Companies in Developing Economies
Nivorozhkin, Eugene ,Kireu, Eugeniu
The financial stability of a company, along with its operational effectiveness, depend on whether the company endeavours to optimise its capital structure, and the speed at which it can do so. The purpose of this article is to assess the relative impact of influential factors on the speed of adjustment to the optimal capital structure of companies in emerging markets. The relevant factors in question include corporate determinants, macroeconomic determinants, the specific financial characteristics of BRICS companies, and other pertinent external macroeconomic conditions.To achieve this, we conducted a comparative study of various assessment methodologies and examined their findings. Within the scope of the overall study aims, we considered various models of assessing the speed of adjustment and identified those study methods most frequently used. We identified the determinants of optimal capital structure and the related speeds of adjustment, and suggested hypotheses based on assumed assessment results. We then proceeded to analyse the sustainability of those results and gauge the overall robustness of our approach.The study results reveal that the speed of adjustment to target capital structure in developing economies is significantly higher than in advanced economies. The results indicate that these speeds vary in the range of 31â€"46% for book values of financial leverage and 60â€"79% for its market values. An empirical analysis of these results also showed that companies with a less-than-optimal debt level achieved the optimum level much quicker, and the speed of adjustment thereby depends heavily on the absolute value of the company money flow. Moreover, this is especially true in those companies with an excessive leverage value. Financial instability in the markets, meanwhile, had a positive effect upon the speed of adjustment for Chinese and Brazilian companies, while in the other BRICS countries the change of the speed of adjustment in the period of crisis finds no confirmation.

Arbitrage Concepts Under Trading Restrictions in Discrete-Time Financial Markets
Fontana, Claudio,Runggaldier, Wolfgang J.
In a discrete-time setting, we study arbitrage concepts in the presence of convex trading constraints. We show that solvability of portfolio optimization problems is equivalent to absence of arbitrage of the first kind, a condition weaker than classical absence of arbitrage opportunities. We center our analysis on this characterization of market viability and derive versions of the fundamental theorems of asset pricing based on portfolio optimization arguments. By considering specifically a discrete-time setup, we simplify existing results and proofs that rely on semimartingale theory, thus allowing for a clear understanding of the foundational economic concepts involved. We exemplify these concepts, as well as some unexpected situations, in the context of one-period factor models with arbitrage opportunities under borrowing constraints.

Bank Resolution and Multinational Banks
Cerasi, Vittoria,Montoli, Stefano
This paper studies the impact of different resolution policies on the choice of banks to expand abroad. The regulator can choose to resolve banks through bail-in or bail-out or a combination of the two. The choice of the regulator affects the cost of funding of banks, endogenous in the model. We study the relative profitability of alternative bank corporate structures, either multinational (large and diversified) or domestic (small and nondiversified) for different levels of public support. Our model allows us to identify the potential impact of the resolution policy on the structure of the banking system. Lower levels of public support increase the cost of funding for all banks, in line with recent empirical evidence. We show that a reduction in the level of public support (from bail-out to bail-in) induces banks to expand abroad in search for alternatives to save on their funding costs. Finally, we are able to identify the optimal resolution mix by taking into account the reaction of banks to the policy.

Capital Structure of Innovative Companies in BRICS Countries
Agliardi, Elettra,Krupin, Anton
This article aims to identify the main business and economic determinants of capital structure in a sample of innovative companies from BRICS countries.We achieve this by presenting a comparative analysis of 1,437 high-tech and 1,485 non-innovative companies in the pharmaceuticals, electronics, IT, and telecommunications sectors between 2008 and 2015. We conduct a regression analysis using a significant number of variables, such as profitability, size, proportion of tangible assets, and growth potential. The highlighted parameters are then examined in order to identify the characteristic features displayed in the capital structure of innovative firms.Our results indicate that the following company characteristics are relevant in determining capital structure: information asymmetry costs (those which are associated with the unique activities of innovative companies), high growth potential generated by the availability of network effects, a high innovative applicability, low marginal and transport costs, and a high proportion of intangible assets. Moreover, we found that there is a distinct difference in the capital structure of companies as they vary in levels of innovation. An innovative company’s proportion of intangible assets has a multidirectional effect on the debt amount. The potential for growth is also a significant factor which has a predominantly negative effect on the level of an innovative company’s financial leverage. Levels of borrowing are overall lower for innovative firms.Our major conclusion, drawing from the results above, is that innovative companies in BRICS countries use relatively little debt in the case of high growth potential. This indicates a general need to overcome the information asymmetry challenge in order to increase the growth rates of individual companies.The scientific novelty of this analysis relates most strongly to the broadness of scope of our investigation, the focus on BRICS countries specifically, and the applicability of its conclusions in wider business and economic contexts. The breadth of data from a wide range of companies and sectors (both innovative and non-innovative), and the high number of companies utilized in the study, lend our evaluation an undeniable credibility within its scope, especially where it upholds similar conclusions in related literature of narrower focus. As a corollary to this, it may be conceivably asserted that these results are not merely applicable to individual companies, or even sectors of the economy, but due to their wide field of origin, they can have economy-wide implications on business and financial strategies.

Cash-Forward Arbitrage and Dealer Capital in MBS Markets: COVID-19 and Beyond
Chen, Jiakai,Liu, Haoyang,Sarkar, Asani ,Song, Zhaogang
We examine the economic mechanisms that limited arbitrage between the cash and forward markets of agency MBS, and whether asset purchases of the Federal Reserve (Fed) alleviated price dislocations. We find that the cash-forward basis, or the price difference between the cash and forward markets of agency MBS controlling for differences in fundamentals, widened significantlyâ€"by $0.9 per $100 face value during the height of the COVID-19 crisis. The widening basis was accompanied by a significant increase in selling by customers in the cash market, indicating a “scramble for cash” following the liquidity shock. Dealers provided liquidity by increasing both their long cash and short forward positions significantly, but the basis continued to widen, implying that balance sheet costs constrained dealers’ inventories. We estimate dealers’ average costs of holding inventory for five weeks as about $0.8. We also find that primary dealers affiliated with banks subject to Basel III liquidity regulations increased their positions more than others. The basis narrowed by about $0.7 following the Fed’s MBS purchases in the forward market. We attribute this effect to the faster settlement schedules of the Fed’s purchases, compared to the market convention, which allowed a faster deployment of capital. Overall, our results show that the combined liquidity constraints of investors and dealers led to severe price dislocations, and the Fed, in its role as the “dealer of last resort,” absorbed the liquidity demand that dealers lacked the capacity to meet.

Clearing Financial Networks: Impact on Equilibrium Asset Prices and Seniority of Claims
Amini, Hamed,Minca, Andreea
In financial derivatives networks clearinghouses have been mandated as de facto central nodes: they are buyers to the sellers of financial contracts and resellers to the ultimate buyers. Other services aim at solving various network problems such as reducing cycles. All these services face complex challenges, ranging from the direct effect on the network topology to the indirect effects on asset prices and on the end users.In this tutorial, we offer an introduction into the quantitative modeling of clearing systems. We analyze joint equilibria for the network payments and the asset prices. We raise two main points that have received less attention in the literature. The first point is that an equilibrium price for the asset prices may not be achieved in a general payment network. The second point is that trade-compression and clearinghouses modify the seniority structure in the network, and end users that are not part of multi-lateral clearing arrangements become de facto junior. The comprehensive study of these issues with operations research tools would lead to a promising research agenda.

Climate-Related Scenarios for Financial Stability Assessment: An Application to France
Allen, Thomas,Dées, Stéphane,caicedo, mateo,Chouard, Valérie,Clerc, Laurent,de Gaye, Annabelle,Devulder, Antoine,Diot, Sebastien,Lisack, Noëmie,Pegoraro, Fulvio,Rabate, Marie,Svartzman, Romain,Vernet, Lucas
This paper proposes an analytical framework to quantify the impacts of climate policy and transition narratives on economic and financial variables necessary for financial risk assessment. Focusing on transition risks, the scenarios considered include unexpected increases in carbon prices and productivity shocks to reflect disorderly transition processes.The modelling framework relies on a suite of models, calibrated on the high-level reference scenarios of the Network for Greening the Financial System (NGFS). Relying on this approach, the ACPR has selected a number of quantitative scenarios to be submitted to a group of voluntary banks and insurance companies to conduct the first bottom-up pilot climate-related risk assessment.

Corporate Profitability and the Global Persistence of Corruption
Ferris, Stephen,Hanousek, Jan,Tresl, Jiri
We examine the persistence of corporate corruption for a sample of privately-held firms from 12 Central and Eastern European countries over the period 2001 to 2015. Creating a proxy for corporate corruption based on a firm’s internal inefficiency, we find that corruption enhances a firm’s profitability. A channel analysis further reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. We conclude that corruption persists because of its ability to improve a firm’s return on assets, which we refer to as the Corporate Advantage Hypothesis.

Deep Local Volatility
Marc Chataigner,Stéphane Crépey,Matthew Dixon

Deep learning for option pricing has emerged as a novel methodology for fast computations with applications in calibration and computation of Greeks. However, many of these approaches do not enforce any no-arbitrage conditions, and the subsequent local volatility surface is never considered. In this article, we develop a deep learning approach for interpolation of European vanilla option prices which jointly yields the full surface of local volatilities. We demonstrate the modification of the loss function or the feed forward network architecture to enforce (hard constraints approach) or favor (soft constraints approach) the no-arbitrage conditions and we specify the experimental design parameters that are needed for adequate performance. A novel component is the use of the Dupire formula to enforce bounds on the local volatility associated with option prices, during the network fitting. Our methodology is benchmarked numerically on real datasets of DAX vanilla options.

Does Hamilton’s OLS Regression Provide a “Better Alternative” to the Hodrick-Prescott Filter? A New Zealand Business Cycle Perspective
Hall, Viv B.,Thomson, Peter
Within a New Zealand business cycle context, we assess whether Hamilton’s (H84) OLS regression methodology produces stylised business cycle facts which are materially different from HP1600 measures, and whether using the H84 predictor and other forecast extensions improves the HP filter’s properties at the ends of series.In general, H84 produces exaggerated volatilities and less credible trend movements during key economic periods so there is no material advantage in using H84 de-trending over HP1600. At the ends, the forecast-extended HP filter almost always performs better than the HP filter with no extension which performs slightly better than H84 forecast extension.

Does Joining the S&P 500 Index Hurt Firms?
Bennett, Benjamin,Stulz, René M.,Wang, Zexi
We investigate the impact on firms of joining the S&P 500 index from 1997 to 2017. We find that the positive announcement effect on the stock price of index inclusion has disappeared and the long-run impact of index inclusion has become negative. Inclusion worsens stock price informativeness and some aspects of governance. Compensation, investment, and financial policies change with index inclusion. For instance, payout policies of firms joining the index become more similar to the policies of their index peers. ROA falls following inclusion. There is no evidence of an impact of inclusion on competition.

Dollar Shortages and Central Bank Swap Lines
Eguren Martin, Fernando
We explore the role of ‘dollar shortage’ shocks and central bank swap lines in a two-country New Keynesian model with financial frictions. Domestic banks issue both domestic and foreign currency debt and lend in domestic currency. Foreign currency-specific funding shocks, which are amplified via their effect on the exchange rate given balance sheet mismatches, lead to uncovered interest rate parity deviations, a contraction in lending and have a significant negative effect on macroeconomic variables. We show that central bank swap lines can attenuate these dynamics provided they are large enough.

Efficiency of the financial markets during the COVID-19 crisis: time-varying parameters of fractional stable dynamics
Ayoub Ammy-Driss,Matthieu Garcin

This paper investigates the impact of COVID-19 on financial markets. It focuses on the evolution of the market efficiency, using two efficiency indicators: the Hurst exponent and the memory parameter of a fractional L\'evy-stable motion. The second approach combines, in the same model of dynamic, an alpha-stable distribution and a dependence structure between price returns. We provide a dynamic estimation method for the two efficiency indicators. This method introduces a free parameter, the discount factor, which we select so as to get the best alpha-stable density forecasts for observed price returns. The application to stock indices during the COVID-19 crisis shows a strong loss of efficiency for US indices. On the opposite, Asian and Australian indices seem less affected and the inefficiency of these markets during the COVID-19 crisis is even questionable.

Experience as a Driver of Individual Investor's Product Class Choice
Mukhamadieva, Marina
I use an administrative dataset from a large German discount broker to investigate the influence of individual investors' experience on investment product choices. I find that the probability to trade warrants increases with investor experience (approximated by account tenure, months of active trading or number of purchases). Account tenure has a negative impact on bonds, funds and certificates trading, whereas number of active months and purchases increases the probability to trade in all product classes. However, the impact of these variable on market entry is not the same: the probability to enter bond and fund markets decreases with experience, and increases for other products. When relating investors' product choices with previous account performance, recent highest and lowest returns stimulate warrant trading, whereas in the long term it is only related to lowest return quintile.

Financial Fragility in the COVID-19 Crisis: The Case of Investment Funds in Corporate Bond Markets
Falato, Antonio,Goldstein, Itay,Hortaçsu, Ali
In the decade following the financial crisis of 2008, investment funds in corporate bond markets became prominent market players and generated concerns of financial fragility. The COVID-19 crisis provides an opportunity to inspect their resilience in a major stress event. Using daily microdata, we document major outflows in these funds during this period, far greater than anything they experienced in past events. Large outflows were sustained over several weeks and were widespread across funds. Inspecting the role of sources of fragility, we show that both the illiquidity of fund assets and the vulnerability to fire sales were important factors in explaining outflows in this episode. The exposure to sectors most hurt by the COVID-19 crisis was also important. Two policy announcements by the Federal Reserve about extraordinary direct interventions in corporate-bond markets seem to have played an important role in calming down the panic and reversing the outflows.

Formally Verified Trades in Financial Markets
Suneel Sarswat,Abhishek Kr Singh

We introduce a formal framework for analyzing trades in financial markets. These days, all big exchanges use computer algorithms to match buy and sell requests and these algorithms must abide by certain regulatory guidelines. For example, market regulators enforce that a matching produced by exchanges should be fair, uniform and individual rational. To verify these properties of trades, we first formally define these notions in a theorem prover and then develop many important results about matching demand and supply. Finally, we use this framework to verify properties of two important classes of double sided auction mechanisms. All the definitions and results presented in this paper are completely formalized in the Coq proof assistant without adding any additional axioms to it.

Fundamental Disagreement about Monetary Policy and the Term Structure of Interest Rates
Cao, Shuo,Crump, Richard K.,Eusepi, Stefano,Moench, Emanuel
Using a unique data set of individual professional forecasts, we document disagreement about the future path of monetary policy, particularly at longer horizons. The stark differences in short rate forecasts imply strong disagreement about the risk-return trade-off of longer-term bonds. Longer-horizon short rate disagreement co-moves with term premiums. We estimate an affine term structure model in which investors hold heterogeneous beliefs about the long-run level of rates. Our model fits U.S. Treasury yields and the short rate paths predicted by different groups of professional forecasters very well. About one-third of the variation in term premiums is driven by short rate disagreement.

Go for a Woman if you Feel Risky: Evidence from Gender Diversity in MFIs
Khisamitova, Alsu ,Stepanova, Anastasia,Kokoreva, Maria
This paper contributes to the literature on management and corporate governance in microfinance institutions. The microfinance market is one of the rare markets with a large representation of women in management and governance roles. The objective of our paper is to reveal the effects of women’s presence on the financial and social performance of microfinance institutions.To achieve this, we develop a model that allows for capturing the influence of gender diversity in the microfinance field whilst controlling for risks. We focus on the role of women as loan officers, on boards of directors, and involved in managing the creation of microfinance institutions. Our model utilises two sets of panel data regressions, one for social performance and one for financial performance, and is tested on data from 193 microfinance institutions across Eastern Europe and Central Asia for the financial years 2010 through 2014.The results of our investigation indicate that the activity of female members of management, CEOs, and boards of directors could increase performance indicators for riskier microfinance institutions. This is illustrated particularly in the case of projects with greater stakes in portfolios that are more than 90 days in arrears. We also provide evidence that women on boards tend more towards promoting a strategy utilising large quantities of small loans with greater interest. The social performance of microfinance institutions is crucially determined by the microfinance institutions’ size. For the largest microfinance institutions, questions of social performance lie in the field of boards of directors, while smaller institutions’ social performance is mostly driven by CEOs and staff, with significant evidence of a positive female influence on performance indicators.The novelty of this study is demonstrated the scope of our research. We combine several contemporary issues of peculiar cross-disciplinary interest, and offer succinct and compelling results which will be of immediate applicability in a wide range of academic and professional fields. Our results will be of interest to scholars of gender, social studies, psychology, business, corporate structure, and more. More specifically, we add to the evolving sub-field of study of microfinance institutions, which has the potential to develop rapidly in the near future. This paper represents a cross-section of commercial and business research across a wide territory, with a large sample size, and provides compelling conclusions, which add to these fields of study by both validating existing research, and highlighting new areas for future analysis.

Green hydrogen: optimal supply chains and power sector benefits
Fabian Stockl,Wolf-Peter Schill,Alexander Zerrahn

Green hydrogen can help to decarbonize transportation, but its power sector interactions are not well understood. It may contribute to integrating variable renewable energy sources if production is sufficiently flexible in time. Using an open-source co-optimization model of the power sector and four options for supplying hydrogen at German filling stations, we find a trade-off between energy efficiency and temporal flexibility: for lower shares of renewables and hydrogen, more energy-efficient and less flexible small-scale on-site electrolysis is optimal. For higher shares of renewables and/or hydrogen, more flexible but less energy-efficient large-scale hydrogen supply chains gain importance as they allow disentangling hydrogen production from demand via storage. Liquid hydrogen emerges as particularly beneficial, followed by liquid organic hydrogen carriers and gaseous hydrogen. Large-scale hydrogen supply chains can deliver substantial power sector benefits, mainly through reduced renewable surplus generation. Energy modelers and system planners should consider the distinct flexibility characteristics of hydrogen supply chains in more detail when assessing the role of green hydrogen in future energy transition scenarios.

How Do Financial Analysts Respond to Precision and Tone in Management Revenue Forecast Arguments During Times of Heightened Uncertainty? â€" Some Evidence from Europe
Hursti, Kristian
This paper uses Toulmin’s (2003) Claim-Data-Warrant argumentation scheme to develop a unique measure to examine the relation between the strength of the management revenue forecast argument and two outcomes, 1) ex post forecast accuracy, and 2) the incidence of analyst revisions, during times of heightened uncertainty. Argumentative strength is gauged through two distinct warrants of the textual forecast, i.e. the sign and the precision agreement between the supporting Data and the forecast Claim. Using a sample of full-year revenue forecasts by European firms during crisis years 2008 and 2009, this study shows that management use the precision agreement warrant effectively to alleviate the heightened information asymmetry problem, as the odds that the forecasts which share this characteristic meet their target multiply. In contrast, positive sign agreement is found to depress ex post revenue accuracy under these conditions. Further evidence suggests that analysts respond when revenue forecasts are imprecise and contain news, but refrain from competing with forecast arguments with strong precision agreement warrants. Analyst revisions are also found to be depressed by positive sign agreement in a crisis setting, echoing the results on ex post accuracy, and challenging prior studies which argue for the predictive ability of positive tone. Overall, these findings expand Trueman’s (1986) signaling theory by suggesting that management do not signal their ability to predict performance only by releasing a forecast but also by releasing a forecast argument made up of comparatively precise Data and Claim elements.

Il costo dei fondi comuni in Italia. Evoluzione temporale e confronto internazionale (The Charge of the Mutual Funds in Italy. Time Evolution and International Comparison)
Finiguerra, Gaetano Nicola,Frati, Giovanna,Grasso, Renato
Italian Abstract: Il presente lavoro analizza la struttura e l’evoluzione del costo dei fondi comuni aperti italiani nel periodo 2012-2016. In via preliminare, il lavoro mostra come una quota molto elevata dei costi vada a remunerare l’attività distributiva. In particolare, circa il 70% delle commissioni riconosciute alle società di gestione del risparmio è assorbito dai costi di distribuzione. È verosimile che la nuova disciplina introdotta dalla MiFID2, che reca disposizioni più restrittive in materia di incentivi, possa determinare una revisione degli attuali modelli distributivi e commissionali. Lo studio analizza poi in dettaglio i costi dei fondi, distinguendo fra i costi di gestione (ossia i costi che gravano sul patrimonio del fondo, quali le commissioni di gestione e di performance) e i costi di ingresso e uscita, che invece gravano sul sottoscrittore. L’incidenza dei costi di gestione sul patrimonio dei fondi è rimasta complessivamente stabile attorno all’1,4%, ma il peso sugli utili prodotti dai fondi è cresciuto notevolmente, passando dal 16 al 51%. Nel 2016, per alcune categorie di fondi, i costi di gestione sono risultati superiori all’utile e il rendimento dei fondi è stato quindi negativo (in particolare per i fondi alternativi e per quelli monetari, sebbene questi ultimi rappresentino ormai una categoria residuale). I costi di ingresso sono cresciuti notevolmente, passando dallo 0,7 all’1,5%, mentre i costi di uscita si sono progressivamente ridotti fino a divenire del tutto residuali (0,05%). La maggiore incidenza delle commissioni sui rendimenti dei fondi è da contestualizzarsi alla luce dell’andamento negativo dei mercati azionari che ha caratterizzato buona parte del periodo analizzato e della forte riduzione dei tassi di interesse, fenomeni che hanno determinato anche una modifica nella composizione delle masse gestite. Dal 2012 al 2016, infatti, si è assistito ad una riduzione del peso dei fondi obbligazionari e monetari a vantaggio dei fondi flessibili (che pesano per il 41% del patrimonio gestito a fine 2016), che hanno obiettivi di rendimento più elevati (a fronte del maggior rischio assunto). I fondi flessibili, peraltro, presentano costi di gestione in linea con la media di settore ma commissioni di ingresso molto più elevate, soprattutto quando si tratta di “fondi di fondi” o “fondi a scadenza predefinita”. I prodotti più rischiosi, invece, quali i fondi azionari e alternativi, hanno costi di gestione più elevati ma costi di ingresso molto più contenuti della media (soprattutto gli alternativi). Il lavoro confronta, infine, i costi dei fondi di diritto italiano con quelli dei fondi di diritto estero collocati in Italia utilizzando l’indicatore sintetico di costo presente nel KIID introdotto con la disciplina UCITS (cosiddetto ongoing charges), che, tuttavia, non include le commissioni di performance e le commissioni di ingresso e di uscita. In base a tale indicatore, nel periodo 2014-2016 il costo delle classi retail dei fondi italiani risulta in linea con la media europea.English Abstract: This study analyzes the cost’s structure and evolution across 2012-2016 of Italian open-ended mutual funds. First of all, it is pointed out that a very high percentage of the charges remunerates the distribution activity: around 70% of the fees paid to asset management companies are absorbed by distribution charges. The new MiFID2 rules, envisaging more restrictive provisions on inducements, might lead to a review of the current distribution and fee models. Then the funds costs are analyzed distinguishing between management costs (i.e. charged on fund's assets, such as management and performance fees) and entry and exit costs, which instead are incurred by the investor. The management costs’ incidence on fund assets is steady at around 1.4%, but their weight on profits generated by the funds increased hugely from 16 to 51%. In 2016, as far as some funds’ categories are concerned (i.e. alternative funds and money market funds, although the latter are currently a residual category), the management costs exceeded the profit; the funds return, therefore, turned out to be negative. Entry costs increased significantly, from 0.7% to 1.5%, while exit charges gradually decreased to become completely residual (0.05%). The increasing fees incidence on returns can be explained also by the impact of both negative performance of equity markets and reduction in interest rates in the considered period. A consequence of that market trend is the change in asset under management composition. Indeed, from 2012 to 2016 the bond and money market asset under management decreased, while total and absolute return funds - having higher performance targets (compared to the increased risk taken) - increased up to 41% of assets managed at the end of 2016. As far as total and absolute return funds are concerned, management costs are on sector’s average but entry costs are above average (specifically for "funds of funds" or "target maturity funds"). The riskier products, on the other hand, such as equity and alternative funds, are characterized by higher management costs than the industry average but by lower entry charges. Finally, the study compares the charges of Italian funds with those of foreign funds distributed in Italy using the synthetic charge indicator used in the KIID introduced with the UCITS (so-called “ongoing fees”). The indicator does not include performance fees and entry and exit charges. Based on this indicator, in the period 2014-2016 the charge of the retail classes of Italian funds is aligned with the European average.

Influence of Corporate Taxation on the Financial Leverage of Czech, Polish and Russian Companies
Jindrichovska, Irena,Moskalchuk, Vyacheslav
This article aims to compare and contrast the available empirical evidence concerning the capital structure of Polish, Czech and Russian companies. This is an intriguing research area due to the fact that the Czech and Polish economies began their transition to the market economy contemporaneously with Russia, and so along with other cultural and historical parallels, the data is comparable.We compare data from a selection of large companies from the selected territories and investigate whether effective tax rate is significant determinant of capital structure. The selected sample is comprised of 69 companies (50 from Russia, 9 from Poland, and 10 from Czech Republic), using data over a period of fourteen years. We perform a regression analysis and interpret the results using theoretical knowledge as articulated in the academic literature. The dependent variable in all tested regressions is financial leverage, calculated as the ratio of the sum of short-term and long-term debts to the sum of short-term and long-term assets. Other variables evaluated include interest coverage ratio, the level of company tangibility, and the cost of debt. This set of input values was uploaded from the Bloomberg database.Our results indicate that taxation does have determining effect on the choice of a certain level of leverage. Moreover, the effective tax rate represents the most important factor in determining the model of capital structure utilised by large companies in each country studied. We establish the dependence of capital structure models on the level of corporate tax applied in each country and identify a set of additional determinants which play a significant role.This paper’s novelty may be summarised as representing an advanced understanding of specific aspects of influence of the corporate taxation on the capital structure of companies in Russia and other economies of the former Eastern Bloc. This paper shines a new light on the subject area by extending the duration of the studied data beyond previous research, to fourteen years. As such, in this paper we present a comparitive dynamic which may be mapped on to other similar comparitive studies. Our results will be of interest in professionals and academics who are involved in the fields of taxation, debt and equity in Eastern Europe and Russia. The schema utilised here may be applied in a similar manner to examine the development of similar economies in Eastern Europe and further afield.

Interpretable Machine Learning: Shapley Values (Seminar Slides)
Lopez de Prado, Marcos
Machine learning (ML) algorithms utilize the power of computers to solve tasks that are beyond the grasp of classical statistical methods. However, ML is often perceived as a black-box, hindering its adoption. This seminar demonstrates the use of Shapley values to interpret the outputs of ML models. With the help of interpretability methods, ML is becoming the primary tool of scientific discovery, through induction as well as abduction.

Issues within Indian Economy and Recommendations
Punamiya, Samiksha,Loya, Deepank,Tekwani, Harshad
The purpose of this study is to understand key issues in India’s Economy, prevalent before Covid-19 as well as arising after the Pandemic. It aims to cover four topics in detail namely India’s international trade focussing on declining trend in exports, Farm loan waivers, Unemployment Migrant Workers Crisis and Banking System Crisis. It intends to identify the impact of declining exports on GDP as well as how India is shaping up in respect to changing globalisation. As far as farm loans are concerned, it gives out a picture of asymmetry in reach of agriculture credit as well as impact of farm loan waiver on the government fiscal. Simultaneously it aims to comprehend on Unemployment and problems associated with numerous migrant workers in India post the pandemic. It also throws light on the shadow bank crisis, rising levels of non-performing assets and concerns of co-operative banks. The study also draws conclusions on how the country can adopt better measures with respect to above discussed issues post the COVID-19 pandemic. A detailed statistics in the report illustrates the trend of falling exports, underutilisation of Special Economic Zones, rising farm loan waivers, asymmetry in agriculture credit, rising unemployment. Evidently, a lot can be done to curb these issues moving forward as India being the third largest economy has an immense scope for development. India can resume its high growth trajectory as well as aim for a sustainable growth in the long term by following the measures provided here in the study. In order to achieve the objective and maintain the motivation of the study various articles and research papers have been reviewed and investigated and therefore for the same reason their excerpts have been disclosed herein the report. To sum it up, considering all the information that has been exhibited here in this study, a detailed set of conclusions and recommendations have been also rendered to achieve the objectives of a developing economy.

It’s What You Say and What You Buy: A Holistic Evaluation of the Corporate Credit Facilities
Boyarchenko, Nina,Kovner, Anna,Shachar, Or
We document that the announcement of the corporate credit facilities by the Federal Reserve (PMCCF and SMCCF) had an immediate positive impact on corporate bond market prices and liquidity, with a third of the effect realized on the announcement date. We document immediate pass-through into primary markets, particularly for eligible issuers. Improvements continue after the initial announcement is made as additional information is shared and purchases begin, with the impact of bond purchases larger than the impact of purchases of ETFs. Exploiting cross-sectional evidence, we see that the improvement in corporate credit markets can be attributed both to announcement effects of Federal Reserve interventions on the economy more broadly as well as to the facilities specifically, through differential effects on eligible issues.

Market Microstructure Factors in the Determination of Oil prices
González Pedraz, Carlos,Gonzalez-Perez, Maria T.
On 20 April 2020 the West Texas Intermediate (WTI) oil futures price for May delivery turned negative for the first time in history. Other crude prices also posted very low values and their volatility soared, far more than that on stock markets. This article analyses the differences between the spot and futures markets for crude, demonstrating the key role they played in the source and subsequent correction of this event, which affected above all WTI contracts more than Brent. The article also highlights the increasingly significant presence of oil exchange-traded funds (ETFs) and their growing use as a retail investment instrument.

Media Coverage and Corporate Risk-Taking: International Evidence
Xu, Weidong,Gao, Xin,An, Zhe,Li, Donghui
Employing a large sample of 12,454 firms across 40 countries from 2001 to 2014, we find that firms with high media coverage tend to take risky but value-enhancing investments. We further show that this positive relation is achieved through three plausible channels, namely, the information asymmetry channel, the capital-at-risk channel, and the business strategy channel, and is enhanced in countries with strong shareholder protection and transparent information environments. Our main conclusions remain valid after carefully taking endogeneity issues into account and conducting various robustness tests. This study sheds new light on the real effects of media in mitigating risk-related agency conflicts.

Modelling Fire Sale Contagion Across Banks and Non-banks
Caccioli, Fabio,Ferrara, Gerardo,Ramadiah, Amanah
We study the impact of common asset holdings across different financial sectors on financial stability. In particular, we model indirect contagion via fire sales across UK banks and non-banks. Fire sales are triggered by different responses to a financial shock: banks and non unit-linked insurers are subject to regulatory constraints, while funds and unit-linked insurers are obliged to meet investor redemptions. We use our model to conduct a systemic stress simulation under different initial shock scenarios and institutions’ selling strategies. We find that performing a stress simulation that does not account for common asset holdings across multiple sectors can severely underestimate the fire sale losses in the financial system.

Mortgage Servicing Fees and Servicer Behavior: A Close Examination of the Unexpected Heterogeneity in Servicing Fees
Diop, Moussa,Zheng, Chen
Even though mortgage servicing plays an important role in housing finance, directly affecting millions of homeowners and mortgage-backed security investors, its economics is not well understood, hence making policy formulation and implementation challenging. To fill this gap, we examine the determinants of servicing fees in the non-agency mortgage market and explore how the current compensation structure affects servicer behavior during default remediation. We show that servicer compensation reflects expected mortgage termination risks and depends on whether servicing is outsourced. Furthermore, servicing fees decrease with deal allocation, which suggests economies of scale in servicing, and increase with the intensity of default in servicers' mortgage portfolios. Finally, it appears that issuers' drive to maximize deal returns by auctioning mortgage servicing rights leads to servicing fees determining mortgage modifications and foreclosures, possibly to the detriment of security investors. This is the first study addressing this potentially serious incentive problem in mortgage servicing. The economics of servicing will continue to produce low levels of mortgage renegotiation, despite the Dodd-Frank requirements on servicers.

On the value of non-Markovian Dynkin games with partial and asymmetric information
Tiziano De Angelis,Nikita Merkulov,Jan Palczewski

We prove that zero-sum Dynkin games in continuous time with partial and asymmetric information admit a value in randomised stopping times when the stopping payoffs of the players are general cadlag measurable processes. The main novelties are that we do not assume a Markovian nature of the game nor a particular structure of the information available to the players. This allows us to go beyond the variational methods (based on PDEs) developed in the related literature on Dynkin games in continuous time with partial/asymmetric information. Instead, we focus on a probabilistic and functional analytic approach based on the general theory of stochastic processes and Sion's min-max theorem (M. Sion, Pacific J. Math., 8, 1958, pp. 171-176). Our framework encompasses examples found in the literature on continuous time Dynkin games with asymmetric information and we provide counterexamples to show that our assumptions cannot be further relaxed.

Punished Protesters: Conditions in East Baton Rouge Parish Prison
Armstrong, Andrea C.
This report details the conditions of the East Baton Rouge Parish Prison, the experiences of the arrested protesters following the police killing of Alton Sterling, and the governing legal standards for detention of arrestees, based on more than a dozen interviews conducted on July 11th and 12th of 2016 and June 2017, in conjunction with prison policy manuals, local and national statistics, and independent investigations and studies into East Baton Rouge Parish Prison.

Religiosity and Corruption in Bank Lending
Niu, Geng,Lu, Weijie,Zhou, Yang,Gan, Hongwu
This paper explores the effect of country-level religiosity on corruption in bank lending at the firm level. Using data from the World Business Environment Survey, we find strong and robust evidence that firms in more religious countries perceive a higher level of corruption in bank lending than firms in less religious countries. The economic significance of this effect is comparable to that of other well-known determinants of lending corruption. We further find that the banking market structure affects the relation between religiosity and lending corruption. Our findings are robust to alternative measures of religiosity and lending corruption. Finally, we address endogeneity concerns by using natural disaster exposure as an instrument for religiosity. Our study contributes to a more balanced and comprehensive understanding of the role of religion in finance.

Repo and Reverse Repo Activity of European Banks â€" Market Activity, Accounting and Disclosure
Loew, Edgar,Riegel, Annika Patricia Michelle
Repurchase agreements are money market instruments that are used widely and for various purposes due to their simplicity and flexibility. The European repo market is quite concentrated, as 80% of the transactions is conducted be-tween the top 20 banks and 61.9% of the collaterals used in the European repo market are originated in the Eurozone. Especially, for Europe the repo market is more important than ever, as it reached an all-time high of EUR 7,351 billion in June 2018. Even though the repo market is quite extensive and important, with respect to repos, there has no literature been found, which deals with the disclosure requirements of IFRS 7 in the European banking industry so far.How disproportionate the attention paid to repos is, becomes apparent by examining the financial statement of one German bank. It was noticed, that the information provided on repos was not too extensive, even though repos ac-counted for approximately 39% of the bank’s total assets. The example of Lehman Brothers shows how important it is to formulate appropriate accounting standards that actually reflect the true nature of transactions. The extent of the financial crisis of 2007-2008 may have been reduced, if their troubled situation would have been disclosed honestly in the first place.As the mandatory requirements of IFRS 7 should ensure, that sufficient and decision-useful information to enable users of financial statements to under-stand the risks arising from repos is disclosed, the first step is to review, if the mandatory requirements are fulfilled. 38 IFRS 7 criteria were derived from these mandatory requirements. Besides these mandatory criteria, some supplementary information was gathered. The sample which was examined within this empirical analysis consists of 66 banks from 19 European countries. It will be shown from the 5-year averages that European banks only complied on average with 54%, i.e. only slightly more than half of the mandatory disclosure requirements of IFRS 7, which apply to repos.

Rewarding Competition Compliance â€" Its Societal Value and How Policy Alignment Can Help
Ristaniemi, Michael
The current approach in competition law towards deterrence of anticompetitive conduct is through ex post sanctions, including related enforcement, and is insufficient. There is inherent societal value in better encouraging competition law compliance by firms. Added focus should be placed on creative complementary measures that do so, including rewarding desired conduct using positive incentives. Firms should be seen not only as potential infringers, but also as valuable partners in ensuring competitive markets. Compliance tools used in relation to competition policy focus less on preventive measures than some other areas of regulatory compliance, such as environmental protection, anti-bribery, and corporate sustainability, which provide useful points of learning. Improved self-enforcement by firms could moreover help improve the state of international antitrust by narrowing the enormous disparity between various national competition authorities’ resources and capacity.

Robust Product Markovian Quantization
Rudd, Ralph,McWalter, Thomas,Kienitz, Joerg,Platen, Eckhard
Recursive marginal quantization (RMQ) allows the construction of optimal discrete grids for approximating solutions to stochastic differential equations in d-dimensions. Product Markovian quantization (PMQ) reduces this problem to d one-dimensional quantization problems by recursively constructing product quantizers, as opposed to a truly optimal quantizer. However, the standard Newton-Raphson method used in the PMQ algorithm suffers from numerical instabilities, inhibiting widespread adoption, especially for use in calibration. By directly specifying the random variable to be quantized at each time step, we show that PMQ, and RMQ in one dimension, can be expressed as standard vector quantization. This reformulation allows the application of the accelerated Lloyd's algorithm in an adaptive and robust procedure. Furthermore, in the case of stochastic volatility models, we extend the PMQ algorithm by using higher-order updates for the volatility or variance process. We illustrate the technique for European options, using the Heston model, and more exotic products, using the SABR model.

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

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.

Sustainability Preferences Under Stress: Evidence from Mutual Fund Flows During COVID-19
Döttling, Robin,Kim, Sehoon
We investigate investor ESG preferences during market distress revealed by retail mutual fund flows. Using the COVID-19 pandemic as an unexpected shock to the economy, we show that "high ESG" funds with five-globe Morningstar sustainability ratings - which receive higher than average fund flows during normal times - experience a sharper decline in flows compared to other funds during the crisis. Consequently, high and low ESG fund flows converge as a percentage of assets under management. This effect is significant not only during the market crash weeks between February 22 and March 21, but also during the post-stimulus recovery weeks between March 28 and April 25. The results are not driven by style, time effects, fund size or age, star ratings, past returns, or investors buying the dip during the crash. Based on markedly different responses by institutional fund flows, we argue that our results are consistent with a shift in sustainability preference among retail investors. Our interpretation is corroborated by an inspection of internet search traffic data that shows falling interest in sustainability topics during the pandemic. Highlighting retail ESG fund flows as a potential source of fragility, our findings have important implications for the long-run prospects of ESG investing.

The Historical Impact of Anthropogenic Climate Change on Global Agricultural Productivity
Ariel Ortiz-Bobea,Toby R. Ault,Carlos M. Carrillo,Robert G. Chambers,David B. Lobell

Agricultural research has fostered productivity growth, but the historical influence of anthropogenic climate change on that growth has not been quantified. We develop a robust econometric model of weather effects on global agricultural total factor productivity (TFP) and combine this model with counterfactual climate scenarios to evaluate impacts of past climate trends on TFP. Our baseline model indicates that anthropogenic climate change has reduced global agricultural TFP by about 21% since 1961, a slowdown that is equivalent to losing the last 9 years of productivity growth. The effect is substantially more severe (a reduction of ~30-33%) in warmer regions such as Africa and Latin America and the Caribbean. We also find that global agriculture has grown more vulnerable to ongoing climate change.

The Impact of Alternative Forms of Bank Consolidation on Credit Supply and Financial Stability
Mayordomo, Sergio,Pavanini, Nicola,Tarantino, Emanuele
Between 2009 and 2011, the Spanish banking system underwent a restructuring process based on consolidation of savings banks. The program’s design allows us to study how alternative forms of consolidation affect credit supply and financial stability. Compared to bank business groups, we find that bank mergers’ market power produces a contraction in credit supply, higher interest rates, but also a reduction in non-performing loans. We then estimate a structural model of credit demand and supply. We show that short-run welfare gains from improved financial stability outweigh losses from reduced credit supply, while small long-run cost efficiencies generate large welfare increases.

The Impact of Capital Structure and Dividend Policy on Firm Performance: A Cross Cultural Study
Zahid, Muhammad
This study is basically the impact of corporate finance on the firm performance. Two major pillars of the corporate finance are taken into the consideration for measurement of the corporate finance impact on firm performance. This concluded the results by judging the impact of capital structure and the dividend policy on firm performance. This study is cross sectional and cross cultural. South Asian countries have been taken into consideration as population and sample has been taken from manufacturing and food sectors of PSE, BSE, DSE and CSE. Overall 187 companies of four countries have been examined during the study. Panel data regression model is used to conclude the results. We have selected 6 manufacturing sectors for estimation and conclusion covering a time span of 10 years from 2007-2016. Two ratios of firm financial performance are considered to measure the impacts. Two ratios each for measurement of capital structure and dividend policy have been taken as proxies. Our results have shown highly positive impact of dividend policy on firm performance where capital structure has shown highly but negative impact on firm performance. Future research gap has also given on sector, region and variables classification. Recommendations on the basis of conclusions are also given for investors to invest in dividend paying firms, researchers to more deeply dig dividend policy and governments for new legislation's.

The Impact of Corporate Governance on Earning Quality: Empirical Evidence From Pakistan
Zahid, Muhammad
This study investigates and analysed the very important corporate finance area the impact of corporate governance on earning quality. This study consist of firms from food, agriculture, pharmaceuticals and manufacturing sectors listed on the PSX. The total sample taken for analysis is 107 companies belongs from multiple manufacturing sectors. The data covers a time span of 10 years from 2007 till 2016. This study is based on the secondary data which is collected from PSX and individual company portals. The overall results of the study have shown mixed results as multiple variables of corporate governance have been regressed during the study. Board size, CEO duality, Board composition, Board independence, Frequency of board meetings, Audit Committee size, Audit committee meeting and Audit quality have been taken to measure the impact of corporate governance on two variables of earning quality which are earning persistence and earning predictability. The overall results have shown very positive impact of audit meeting and board composition on earning quality. On the other hand CEO duality and board size have shown very negative impact on earning quality. Future researchers have also room for new research areas. Recommendations in contrast of the conclusions of the research this study recommends that the above mentioned sectors can improve their performance and quality of earnings by applying the timely audit meetings and composing a board which have combination of outside directors. The CEO duality must be eliminated as it can be harmful for earning quality.

The Impacts of Taxation on Capital Structure in BRICS Countries
Chakrabarti, Rajesh,Gruzin, Alexander
Capital structure is an indicator of the value of a firm and is a key performance indicator concerning how efficiently a company operates. Debt and leverage influence a company’s investment risks and influence the rate of return required by investors. Therefore, decisions affecting capital structure choice have crucial long-term effects.The aim of this study is to determine the effects of corporate tax rates on capital structure in public nonfinancial companies based in BRICS countries. The specific object of our analysis is the evaluation of financial leverage as a proportion of debt financing based on the amount of total assets. This analysis is carried out on a sample of BRICS companies over the period from 2010 to 2015.To conduct this research, panel data regression models are employed, including the fixed effects (FE), random effects (RE) and generalised method of moments (GMM) models. Each BRICS country is analysed separately in order to avoid biased estimates due to a host of significant country-specific differences.The results presented herein indicate that effective tax rate is statistically significant, but the effect of taxation varies across countries. For example, effective tax rate is an important capital structure determinant, and it is significant across all countries. However in analytical terms, this investigation reveals that the most suitable regression model for the majority of BRICS countries is the fixed effects method, although for Russia the most appropriate model is the random effects method. To summarise, three separate hypotheses regarding the interplay of taxation and capital structure have.This research crucially serves to demonstrate facets of the complexity of the economic situation in the key economies of BRICS countries. The generally-supported hypothesis implies that the higher the corporate tax rate, the more tax benefits the company receives from using a tax shield. The results of this study indicate that contrary to most existing literature, effective tax rate has a negative relationship with the capital structure in Russia, India and South Africa. Moreover, various existing research studies in the field have been validated, and individual aspects of our results serve to alternatively validate the tradeoff and the pecking order theories. The conclusions presented herein regarding the complexities of the interplay between economic indicators between BRICS countries will be essential information in the commercial and academic spheres and anyone concerned with emerging economies.

The Response of the European Central Bank to the Current Pandemic Crisis: Monetary Policy and Prudential Banking Supervision Decisions
Gortsos, Christos
Immediately after the outbreak of the current pandemic crisis, the EU developed a (rather) consistent strategy, by taking measures in order to deal with health emergency needs, support economic activity and employment, preserve monetary and financial stability and prepare the ground for recovery; these contain a combination of government fiscal stimuli (with extensive resort to the principle of solidarity), emergency liquidity and monetary policy measures and measures relating to financial stability. After briefly reviewing all these measures from a systematic point of view, the present article further analyses the role of the European Central Bank (ECB) during the first phase of this crisis, both in its capacity as a monetary authority within the Eurosystem and in its capacity as prudential banking supervisory authority within the Single Supervisory Mechanism (SSM), with particular emphasis on the treatment of non-performing loans (NPLs). Its specific contribution to financial macro-prudential oversight within European Systemic Risk Board (ESRB) is also highlighted.

The changing structure of financial intermediation in Asia: Benefits and risks
Roulet, Caroline
Over the past two decades, Asian economies have experienced rapid capital market growth and profound changes in the structure of their financial systems. This paper analyses key developments in advanced and emerging Asian economies since the global financial crisis, focusing on market intermediation of sovereign and corporate debt, equity market development, and the growth of alternative finance and structured products. This enables a forward-looking assessment of the extent to which developments in the medium term may contribute to rising risks in the stability of financial intermediation and sustainable long-term growth with a view to informing policy discussions on economic opportunities and associated risks.

The risk spillover from economic policy uncertainties to the European Union Emission Trading Scheme
Jiqiang Wang,Jianfeng Guo,Peng-Fei Dai,Yinpeng Liu,Ying Fan

The European Union Emission Trading Scheme is a carbon emission allowance trading system designed by Europe to achieve emission reduction targets. The amount of carbon emission caused by production activities is closely related to the socio-economic environment. Therefore, from the perspective of economic policy uncertainty, this article constructs the GARCH-MIDAS-EUEPU and GARCH-MIDAS-GEPU models for the impact of European and global economic policy uncertainty on carbon price fluctuations. The results show that both European and global economic policy uncertainty will exacerbate the volatility of carbon price returns, with the latter having a stronger impact. Moreover, the volatility of carbon price returns can be forecasted better with the predictor of global economic policy uncertainty. This research can provide some implications for market managers in grasping market trends and helping participants control the risk of fluctuations in carbon allowances.

The ‘Ex-Dividend Day’ Anomaly Under a Behavioral Dividend Clientele View: Evidence From China
Du, Huancheng,Ni, Xiaoran,Zhang, Jinfan
We propose a behavioral dividend clientele view to explain a unique “ex-dividend day” anomaly on the Chinese stock market. In particular, we find that on the ex-dividend day, the average CAPM-adjusted stock return is significantly below zero and the average trading volume significantly shrinks, which are different from the theoretical predictions and existing findings drawn from other stock markets. Such patterns tend to be driven by small retail investors who are net buyers of dividend paying stocks prior to the ex-dividend day and switch to net sellers of on and after the ex-dividend day. Furthermore, we find “dividend price”, the negative deviations of ex-dividend day stock return from zero, is positively associated with dividend yields and the idiosyncratic risks of the underlying stocks. These findings suggest that investors with strong non-monetary and psychologically driven dividend preferences can result in a unique “ex-dividend day” anomaly.

Weiss and EU Union Banking Law. A Test for the Fundamental Principles of the Treaty
Annunziata, Filippo,Lamandini, Marco,Ramos Muñoz, David
The Weiss affair, which culminated in the BVerfG ruling of 5 May 2020, marks a break-up point in the long-standing dialogue between the BVerfG and the CJEU. The judges in Karlsruhe refused to follow the decision rendered by the CJUE in a preliminary ruling and admonished the German parliament and government to “work towards a proportionality analysis by the ECB” in relation to the so called “Public Sector Purchase Programme”. This paper claims that the arguments employed by the BVerfG in the Weiss judgement are quite similar to those employed in the Gauweiler and Landeskreditbank-Banking Union cases and that the Weiss judgment must therefore by read in conjunction with those precedents. Considering that background, it will be argued that the construction of the principles employed by the BVerfG for the judicial review of the EU acts have not undergone any substantial changes over time. The different outcome in the Weiss judgement rather depends on the fact that, in Weiss, the BVerfG believes that insufficient elements of explanation and justification were provided by the ECB and the CJEU. Therefore, the problem of the Weiss case ends up being a procedural question of statement of reasons. Eventually, it will be pointed out that these judgements show that a common standard for the judicial review of the ECB’s decision exists, although the intensity of the review still varies depending on whether the ECB decision concerns monetary policy or banking supervision and resolution.

Where Do Institutional Investors Seek Shelter when Disaster Strikes? Evidence from COVID-19
Glossner, Simon,Matos, Pedro,Ramelli, Stefano,Wagner, Alexander F.
Institutional investors played a crucial role in the COVID-19 market crash. U.S. stocks with higher institutional ownership -- in particular, those held more by active, short-term, and domestic institutions -- performed worse. An analysis of changes in holdings through the first quarter of 2020 reveals that mutual funds, investment advisors, and pension funds favored stocks with strong financials (low debt and high cash), whereas hedge funds sold stocks indiscriminately. None of these institutional investor groups appear to have actively tilted their portfolios toward firms with better environmental and social performance. Data from a large discount brokerage indicate that retail investors acted as liquidity providers. Overall, the results suggest that when a tail risk realizes, institutional investors express a preference for "hard" measures of firm resilience.