Research articles for the 2020-10-20

A Framework for Crowdfunding Platforms to Match Services between Funders and Fundraisers
Baber, Hasnan
Purpose - A framework is suggested in this paper which will help crowdfunding platforms to match projects according to expectations of funders, leading to successful campaigns and thus increase the profitability of the crowdfunding platform.Research design, data, and methodology â€" The paper is theoretical and conceptual in nature which proposes a model for crowdfunding platforms to match expectations of crowds with project fundraisers.Results - Crowdfunding platforms are going through incremental innovations in order to match customer (funders and fundraisers) expectations. Leading crowdfunding platforms like Kickstart holds benchmark for other players in the market but the secret of success lies in matching quality projects with the appropriate funders. Crowdfunding platforms have to securitize the projects and allow only quality projects but also provide a wide range of options for funders. Thus, to manage this trade-off between quality and quantity of options, a framework is proposed.Conclusions - Crowdfunding platforms have to adopt a model which will help them in providing a perfect match between crowds and fundraisers. Each member of the crowd and every project will be assigned a category and rating based on the past records. Securitization of projects will help to entertain only demanded projects which will reduce the number of failing campaigns.

An Appraisal of Domestic Mergers and Acquisitions in Nigerian Banking Industry: Three-Year Pre and Post-mergers and Acquisition Event
Emegwa, Tochukwu J.
The concept of mergers and acquisitions has been an interesting area of study in the literature of finance (Sharma, 2016). As a confirmatory study following extant literature, this paper examines empirically the impact of mergers and acquisitions (M&As) on the performance of banks involved in M&As in the Nigerian banking industry. With the aid of financial ratios and t-test, the post-merger performance of seven banks listed on the Nigerian Stock Exchange (NSE) that completed an M&A at a time (t0) 2005 was investigated. Selected accounting variables (financial ratios) were introduced to measure operating performance by making comparison of three-year pre, and three-year post-M&A firm performance, while the year of M&A event is omitted from comparisons as in extant studies (Leepsa & Mishra, 2013; Pazarskis et al. 2006). The study found that whereas, Nigerian banks were profitable post-M&A, the wholistic performance was found to be poor.

An Executive Order worth $100 Billion: The Impact of an Immigration Ban’s Announcement on Fortune 500 Firms’ Valuation
Bahar, Dany,Choudhury, Prithwiraj,Glennon, Britta
On June 22, 2020, President Trump issued an Executive Order (EO) that suspended new work visas, barring nearly 200,000 foreign workers and their dependents from entering the United States and preventing American companies from hiring skilled immigrants using H-1B or L1 visas. Exploiting this shock, and using event study methodology analyzing the cumulative average abnormal returns (CAARs) of Fortune 500 companies following this order, we find that the EO statistically and economically significantly caused negative CAARs of up to 0.45%, the equivalent of over 100 billion of US dollars of losses, based on the firms’ valuation before the event. Our results are particularly pronounced for firms that had maintained or increased their reliance on skilled immigrant workers over the prior years.

Are Crises Predictable? A Review of the Early Warning Systems in Currency and Stock Markets
Peiwan Wang,Lu Zong

The study efforts to explore and extend the crisis predictability by synthetically reviewing and comparing a full mixture of early warning models into two constitutions: crisis identifications and predictive models. Given empirical results on Chinese currency and stock markets, three-strata findings are concluded as (i) the SWARCH model conditional on an elastic thresholding methodology can most accurately classify crisis observations and greatly contribute to boosting the predicting precision, (ii) stylized machine learning models are preferred given higher precision in predicting and greater benefit in practicing, (iii) leading factors sign the crisis in a diversified way for different types of markets and varied prediction periods.

Asset Price Forecasting using Recurrent Neural Networks
Hamed Vaheb

This thesis serves three primary purposes, first of which is to forecast two stocks, i.e. Goldman Sachs (GS) and General Electric (GE). In order to forecast stock prices, we used a long short-term memory (LSTM) model in which we inputted the prices of two other stocks that lie in rather close correlation with GS. Other models such as ARIMA were used as benchmark. Empirical results manifest the practical challenges when using LSTM for forecasting stocks. One of the main upheavals was a recurring lag which we called "forecasting lag".

The second purpose is to develop a more general and objective perspective on the task of time series forecasting so that it could be applied to assist in an arbitrary that of forecasting by ANNs. Thus, attempts are made for distinguishing previous works by certain criteria (introduced by a review paper written by Ahmed Tealab) so as to summarise those including effective information. The summarised information is then unified and expressed through a common terminology that can be applied to different steps of a time series forecasting task.

The last but not least purpose of this thesis is to elaborate on a mathematical framework on which ANNs are based. We are going to use the framework introduced in the book "Neural Networks in Mathematical Framework" by Anthony L. Caterini in which the structure of a generic neural network is introduced and the gradient descent algorithm (which incorporates backpropagation) is introduced in terms of their described framework. In the end, we use this framework for a specific architecture, which is recurrent neural networks on which we concentrated and our implementations are based. The book proves its theorems mostly for classification case. Instead, we proved theorems for regression case, which is the case of our problem.

Average Skewness in Global Equity Markets
Atilgan, Yigit,Demirtas, K. Ozgur,Gunaydin, A. Doruk,KIRLI, Imra
This paper examines the predictive power of average skewness, defined as the average of monthly skewness values across stocks, documented by Jondeau et al. (2019, JFE) for US market returns in an international setting. First, after confirming the validity of the US results for the sample period between 1990 and 2016, we find that the intertemporal relation between average skewness and future market returns becomes either insignificant or marginally significant when the sample period is extended. Second, when we repeat the analysis in 22 developed non-US markets, we find that average skewness has no robust predictive power. The inability of average skewness to forecast market returns does not depend on the method used to calculate average skewness or the regression specification.

Avoiding Root-Finding in the Krusell-Smith Algorithm Simulation
Bakota, Ivo
English Abstract: This paper proposes a novel method to compute the simulation part of the Krusell-Smith (1997, 1998) algorithm when the agents can trade in more than one asset (for example, capital and bonds). The Krusell-Smith algorithm is used to solve general equilibrium models with both aggregate and uninsurable idiosyncratic risk and can be used to solve bounded rationality equilibria and to approximate rational expectations equilibria. When applied to solve a model with more than one financial asset, in the simulation, the standard algorithm has to impose equilibria for each additional asset (find the market-clearing price), for each period simulated. This procedure entails root-finding for each period, which is computationally very expensive. I show that it is possible to avoid this root-finding by not imposing the equilibria each period, but instead by simulating the model without market clearing. The method updates the law of motion for asset prices by using Newton-like methods (Broyden‘s method) on the simulated excess demand, instead of imposing equilibrium for each period and running regressions on the clearing prices. Since the method avoids the root-finding for each time period simulated, it leads to a significant reduction in computation time. In the example model, the proposed version of the algorithm leads to a 32% decrease in computational time, even when measured conservatively. This method could be especially useful in computing asset pricing models (for example, models with risky and safe assets) with both aggregate and uninsurable idiosyncratic risk since methods which use linearization in the neighborhood of the aggregate steady state are considered to be less accurate than global solution methods for these particular types of models.German Abstract: Dieses Papier schlägt eine neuartige Methode zur Berechnung des Simulationsteils des Krusell-Smith (1997, 1998) Algorithmus vor, wenn Agenten mit mehr als einem Vermögenswert (z.B. Kapital und Anleihen) handeln können. Der Krusell-Smith-Algorithmus wird zur Lösung allgemeiner Gleichgewichtsmodelle mit sowohl aggregiertem als auch nicht versicherbarem idiosynkratischen Risiko verwendet und kann zur Lösung begrenzter Rationalitätsgleichgewichte und zur Approximation rationaler Erwartungsgleichgewichte verwendet werden. Bei der Anwendung zur Lösung eines Modells mit mehr als einem finanziellen Vermögenswert muss der Standardalgorithmus in der Simulation Gleichgewichte für jeden zusätzlichen Vermögenswert (Ermittlung des Marktausgleichspreises) für jede simulierte Periode auferlegen. Dieses Verfahren erfordert eine rechnerich aufwendige Nullstellenbestimmung für jede Periode. Ich zeige eine Möglichkeit zur Vermeidung der Nullstellenbestimmung auf, indem die Gleichgewichte nicht für jede Periode auferlegt werden, sondern das Modell ohne Markträumung simuliert wird. Die Methode aktualisiert das Bewegungsgesetz für Vermögenspreise, indem sie Newton-ähnliche Methoden (Broyden-Methode) auf die simulierte Überschussnachfrage anwendet, anstatt für jede Periode ein Gleichgewicht aufzuerlegen und Regressionen auf die Markträumungspreise durchzuführen. Da die Methode die Nullstellenbestimmung für jede simulierte Zeitperiode vermeidet, führt sie zu einer erheblichen Reduzierung der Berechnungszeit. Im Beispielmodell führt die vorgeschlagene Version des Algorithmus selbst bei konservativer Messung zu einer Verringerung der Rechenzeit um 32%. Diese Methode könnte besonders nützlich bei der Berechnung von Preisfindungsmodellen für Vermögenswerte (z.B. Modelle mit riskanten und sicheren Vermögenswerten) mit sowohl aggregiertem als auch nicht versicherbarem idiosynkratischen Risiko sein, da Methoden, die eine Linearisierung in der Nachbarschaft des aggregierten stationären Zustands verwenden, als weniger genau angesehen werden als globale Lösungsmethoden für diese speziellen Modelltypen.

Bank Systemic Risk around COVID-19: A Cross-Country Analysis
Duan, Yuejiao,El Ghoul, Sadok,Guedhami, Omrane,Li, Haoran,Li, Xinming
Using 1,497 listed banks in 64 countries during the COVID-19 pandemic, we conduct the first broad-based international study that examines the effect of the pandemic on systemic risk from March through July 2020. Our study reveals positive effects of the growth rate of COVID-19 confirmed cases on systemic risk across countries, with larger banks and banks with higher loan-to-assets ratios contributing more strongly. The results are robust to alternative dependent and independent variables and subsample tests. However, this positive effect is mitigated by formal (e.g., government-owned banks) and informal (e.g., national culture and societal trust) rules.

CEOs’ Prosocial Behavior, Their Careers and Corporate Policies
Feng, Mei,Ge, Weili,Ling, Zhejia,Loh, Wei Ting
This paper examines the associations of Chief Executive Officers’ (CEOs’) prosocial behavior with their career paths and corporate policies. Using individuals’ involvement with charitable organizations as a proxy for prosocial behavior, we find that prosocial individuals are promoted to CEOs faster than non-prosocial individuals. In addition, compared with firms with non-prosocial CEOs, firms with prosocial CEOs tend to have lower executive subordinate turnover, implement more employee-friendly policies, experience higher customer satisfaction, and engage in more socially responsible activities. We also find that firms with prosocial CEOs have higher firm value. These results are corroborated when we compare changes in corporate policies and firm value around different types of CEO turnovers: a prosocial CEO replacing a non-prosocial CEO versus other types of CEO turnovers. Our results thus suggest that prosocial CEOs are more likely to make corporate decisions that benefit a wide range of firm stakeholders.

Capital Income Taxation with Portfolio Choice
Bakota, Ivo
English Abstract: This paper analyzes redistributional and macroeconomic effects of differential taxation of financial assets with a different risk levels. The redistributive effect stems from the fact that various households hold portfolios with a starkly different risk levels. In particular, poor households primarily save in safe assets, while rich households often invest a substantially higher share of their wealth in (risky) equity. At the same time, equity and safe assets are often taxed at different rates in many tax codes. This is primarily because investments in equity (which are relatively riskier) are taxed both as corporate and personal income, unlike debt, which is tax deductible for corporations.This paper firstly builds a simple theoretical two-period model, which shows that the optimal tax wedge between risky and safe assets is increasing in the underlying wealth inequality. Furthermore, I build a quantitative model with a continuum of heterogeneous agents, parsimonious life-cycle, borrowing constraint, aggregate shocks and uninsurable idiosyncratic shocks, in which the government raises revenue by using linear taxes on risky and safe assets. Simulations of quantitative models shows that elimination of differential asset taxation leads to a welfare loss equivalent to a 0.3 % permanent reduction in consumption. I find that the optimal tax wedge between taxes on equity and debt is higher than the one in the U.S. tax code.German Abstract: Dieses Papier analysiert die Umverteilungs- und makroökonomischen Auswirkungen einer differenziellen Besteuerung von Finanzanlagen mit unterschiedlicher Risikobehaftung. Der Umverteilungseffekt ergibt sich daraus, dass sich Haushalte stark in der Risikobehaftung ihrer Portfolios unterscheiden. Insbesondere arme Haushalte wählen sichere Anlageformen für ihre Ersparnisse, während reiche Haushalte oft einen wesentlich höheren Anteil ihres Vermögens in (risikoreiche) Aktien investieren. Gleichzeitig werden Aktien und sichere Vermögenswerte in vielen Steuergesetzen oft zu unterschiedlichen Sätzen besteuert. Dies liegt in erster Linie daran, dass Investitionen in Aktien (die relativ risikoreicher sind) sowohl als Unternehmens- als auch als Privateinkommen besteuert werden, im Gegensatz zu Schulden, die für Unternehmen steuerlich absetzbar sind. In diesem Beitrag wird zunächst ein einfaches theoretisches Zwei-Perioden-Modell vorgestellt, das zeigt, dass der optimale Steuerkeil zwischen risikoreichen und sicheren Vermögenswerten mit der zugrunde liegenden Vermögensungleichheit zunimmt. Darüber hinaus entwickle ich ein quantitatives Modell mit einem Kontinuum heterogener Agenten, sparsamem Lebenszyklus, Kreditaufnahmebeschränkungen, aggregierten Schocks und nicht versicherbaren idiosynkratischen Schocks, in dem der Staat die Einnahmen durch den Einsatz linearer Steuern auf riskante und sichere Vermögenswerte erhöht. Simulationen quantitativer Modelle zeigen, dass die Abschaffung der differenziellen Vermögensbesteuerung zu einem Wohlfahrtsverlust führt, der einem dauerhaften Rückgang des Konsums um 0,3 % entspricht. Der optimale Steuerkeil zwischen Steuern auf Eigen- und Fremdkapital liegt höher als der im US-Steuerrecht.

Cash Holdings and Corporate Investment: Evidence from COVID-19
Tawiah, Bernard,O'Connor Keefe, Michael
Firms hold cash for precautionary reasons. The COVID-19 pandemic plausibly represents an exogenous shock for which firms hold cash. We examine the impact of cash holdings on corporate investment during the COVID-19 pandemic. We find that Capital Expenditure and M&A levels decrease by 37% and 71% respectively during the COVID-19 pandemic. However, the impact of COVID-19 on investment is less for firms with accumulated cash. Firms at the 81st percentile of cash holdings maintain capital expenditure and acquisition at pre-COVID-19 levels. Overall, our evidence shows that the COVID-19 pandemic has had an adverse effect on corporate investment activities, but accumulated cash holdings reduces the impact.

Corporate Balance Sheets and Sovereign Risk Premia
Wu, Steve Pak Yeung
This paper studies sovereign debt pricing in the presence of corporate debt. We find that foreign currency (FC) corporate external debt empirically explains sovereign credit spreads in emerging countries, even after controlling for sovereign debt and global factors. Decomposing sovereign credit spreads into their default premium (default probability) and risk premium components, we find that a 1% increase in FC corporate external debt is associated with a 5 basis point increase in the sovereign risk premium but a small and insignificant change in the sovereign default premium. We incorporate a productive corporate sector and risk-averse foreign lenders into a quantitative sovereign default model. An increase in FC corporate external debt has three effects on tax revenue, and thus sovereign spreads. It increases the mean of tax revenue due to higher investment, increases the variance of tax revenue due to higher exposure to exchange rate risk, and changes the covariance of sovereign defaults and the state of foreign lenders due to the safe currency property of FC. The first two effects counteract each other and help explain the insignificant change in the sovereign default premium, while the third effect results in a higher sovereign risk premium. Corporates do not internalize their effect on sovereign debt pricing, leaving room for policy improvement.

Corporate Governance Reforms under the Abenomics : the Economic Consequences of Two Codes
Miyajima, Hideaki,Saito, Takuji
Corporate governance reform has been one of the central issues in the "third arrow" of the Abe administration's economic revival program. The Japanese Stewardship Code was introduced in 2014, followed by the Corporate Governance Code in 2015. This study quantifies how the reform changed the corporate governance of Japanese firms. First, we examine the changes in institutional ownership, cross-holdings and board structure following the reforms. Then, we study whether changes in ownership structure and board structure affect firm behavior and performance. We find that the introduction of the Stewardship Code is associated with more institutional ownership especially in mid-sized firms. Firms with few outside directors increased the number of outside directors to follow the Corporate Governance Code. However, the increase in institutional ownership and outside directors did not promote risk taking behavior or improve firm performance.

Designing a New Takeover Regime for Japan: Suggestions from the European Takeover Rules
Watanabe, Hiroyuki
This article discusses the possible implications of the European takeover rules on a prospective new takeover regime in Japan. In the first part of the article, the author identifies doubts over and problems with such measures currently in force in Japan, including the legality of rights plans, and the role of the tender offer system as such. In the second part, takeover bid rules in European countries are analyzed: There is generally a strong consensus for the concept of “shareholder decision making”, which has to be distinguished from the idea of “worker protection”. “Moderate mandatory offer rules” are adopted in most European countries, whereas “strict mandatory offer rules” are preferred in some jurisdictions, including the UK. After touching â€" inter alia â€" equity derivatives transactions and the question whether it is difficult and necessary for Japan to have a takeover regulatory organization, the author draws up a future vision for Japan’s takeover rules.The issues discussed in this article are as follows. I. Doubts and Problems Regarding Takeover-Defensive Measures1. Doubts over Takeover-Defensive Measures2. Problems with Takeover-Defensive Measures Currently in Force3. Legality of Rights Plans and the Role of the Tender Offer System4. Increasing Attention to the European-style Takeover RegulationsII. Suggestions from the European Takeover Rules1. Large Gap Between Statutory Rules and Practices2. “Shareholder Decision-making” in Takeovers in Europe3. Distinction Between “Shareholder Decision-making” and“Worker Protection”4. “Balance” and “Cushion” Regarding Takeover Rules5. “Moderate Mandatory Offer Rule” as a Basic Type in Europe6. “Strict Mandatory Offer Rule” in Some Jurisdictions7. Difference Between European Countries and Japan in Termsof the Stance to Set the “Threshold”8. Hidden Ownership Acquired Through the Use of Equity Derivatives9. Position of the Takeover Rules in the System of Law10. Is it True that “It is difficult for Japan, which lacks the traditionof self-regulation like ‘the City,’ to have a takeover regulatoryorganization”?11. Necessity of a Takeover Regulatory Organization that is Capableof Enforcing Prompt and Consultation-based Regulations12. Conclusion: Future Vision for Japan’s Takeover Rules

Do Early Birds Behave Differently from Night Owls in the Stock Market?
Lepone, Grace,Yang, Zhini
This study is the first to apply human beings' preferred diurnal rhythm, that is, morningness or eveningness, to the field of behavioural finance. Employing proprietary stock trading data from a leading retail brokerage house in Australia, we classify retail investors into M-types (‘early birds’) and E-types (‘night owls’) based on the time of their order submission. Demographic differences between the two groups (M-types or E-types) are found to be weak. We provide robust evidence that M-type investors are distinctively different from E-type investors in their proneness to stock market behavioural biases. We find that M-type investors trade more frequently and have a stronger preference for stock market speculation.

Do Local Labor Market Conditions Impact Bank Profitability?
Zanzalari, Danielle
This paper studies the impact of local unemployment shocks on bank profitability. Our work advances on previous studies that only use national or state level data, as we create bank-specific measures of local unemployment in which the bank has exposure. Using these novel measures, we can determine how shocks to unemployment affect each individual bank's profitability. Our results indicate that an increase in the local market unemployment rate decreases bank profitability on average by 2.9%. We further examine what components of bank profitability are most impacted by local labor market conditions and find that net interest income is most impacted.

Exchange Rates and Liquidity Risk
Evans, Martin D.D.
I use Forex trading data to study how risks associated with the lack of liquidity contribute to the dynamics of 17 spot exchange rates through their time-varying contributions to risk premia. I find that liquidity risk matters. All the foreign exchange risk premia compensate investors for exposure to liquidity risk; and, for many currencies, exposure to liquidity risk appears to be more important than exposure to the traditional carry and momentum risk factors. I also find that variations in the price of liquidity risk make economically important contributions to the behavior of individual foreign currency returns: they account for approximately 34 percent, on average, of the variability in currency returns compared to the contribution of approximately 8 percent from the prices of carry and momentum risk.

Financial Results of Russian Banks in January-August 2020
Zubov, Sergey
Russia’s banking sector as a whole happened to be ready for the current crisis partly owing to the central bank’s stabilization policy. Retention of high liquidity level, stepping up the requirements to the quality of banks’ products and services by way of setting the Basel standards permitted to raise the banking system sustainability. In the meantime, in the wake of high volatility of financial markets and uncertainty of the pandemic fallout, Russian credit institutions have been forced to markedly adjust policy of the previous years which resulted in a notable decrease in profitability of the Russian banking system compared to the previous year.

Identifying Crisis-Critical Intellectual Property Challenges during the Covid-19 Pandemic: A scenario analysis and conceptual extrapolation of innovation ecosystem dynamics using a visual mapping approach
Alexander Moerchel,Frank Tietze,Leonidas Aristodemou,Pratheeba Vimalnath

The Covid-19 pandemic exposed firms, organisations and their respective supply chains which are directly involved in the manufacturing of products that are critical to alleviating the effects of the health crisis, collectively referred to as the Crisis-Critical Sector,to unprecedented challenges. Firms from other sectors, such as automotive, luxury and home appliances, have rushed into the Crisis-Critical Sector in order to support the effort to upscale incumbent manufacturing capacities, thereby introducing Intellectual Property (IP)related dynamics and challenges. We apply an innovation ecosystem perspective on the Crisis-Critical Sector and adopt a novel visual mapping approach to identify IP associated challenges and IP specific dynamic developments during and potentially beyond the crisis.In this paper, we add methodologically by devising and testing a visual approach to capturing IP related dynamics in evolving innovation ecosystems and contribute to literature on IP management in the open innovation context by proposing paraground IP as a novel IP type.Finally, we also deduce managerial implications for IP management practitioners at both incumbent firms and new entrants for navigating innovation ecosystems subject to crisis-induced dynamic shifts.

Impact of crop diversification on tribal farmer's income: A case study from Eastern ghats of India
Sadasiba Tripathy,Dr. Sandhyarani Das

In this investigation we analyze impact of diversification of agriculture on farmer's income, a study from primitive tribal groups from eastern ghats of India. We have taken crop diversification index to measure the extent and regression formalism to analyze the impact, of crop diversification. Descriptive statistics is employed to know the average income of the farmers, paired results of crop diversification index. We observed a positive impact on crop diversification in scheduled areas and investigated reasons where it did not work.

Impacts of Financial and Digital Inclusion on Poverty in South Asia and Sub-Saharan Africa
Lyons, Angela,Kass-Hanna, Josephine,Greenlee, Andrew
The United Nations 2030 Agenda for Sustainable Development Goals calls for the elimination of many global challenges related to poverty. The first Sustainable Development Goal â€" the elimination of poverty â€" targets the challenges faced by the more than 700 million people who live on less than $1.90 per day. This study uses data from the 2017 InterMedia Financial Inclusion Insights surveys to examine the relationship between poverty and financial and digital inclusion across seven developing countries in South Asia and Sub-Saharan Africa. We find that increases in various measures of financial and digital inclusion are associated with significant reductions in poverty, including food insecurity. While the results are robust across the measures, some spatial heterogeneities are found for rural and urban populations. The most significant and consistent reductions in poverty are related to ownership and usage of traditional bank accounts. Access to and usage of non-bank financial institutions and mobile money accounts also significantly matters. Robustness checks for endogeneity and selection are conducted. The results provide strong evidence for the continued expansion of both traditional and non-traditional financial services and underscore the importance of digital financial services to support and sustain poverty reduction in developing countries.

Information Value of Property Description: A Machine Learning Approach
Shen, Lily,Ross, Stephen L.
This paper employs machine learning to quantify the value of "soft" information contained in real estate property descriptions. Textual descriptions contain information that traditional hedonic attributes cannot capture. A one standard deviation increase in the uniqueness of a property based on this "soft" information leads to a 15% increase in property sale price in a hedonic price model and a 10% increase in a repeat sales price model. The effects in the hedonic model appear to arise through two channels: the unobserved quality of the housing unit, and the market power of the housing unit relative to competing properties. The effects in the repeat sales model appear to be driven entirely by the market power of the unit. Further, an annual hedonic price index ignoring our measure of unobserved quality overstates real estate prices by between 10% to 23% and mistimes the stabilization of housing prices following the Great Recession. Similar, but smaller effects, are observed for the repeat sales price index.

Institutionalizing Political Influence in Business: Managerial Resistance and Insider Control
Lin, Lauren Yu-Hsin
The United States (US) government and judiciary have long been trying to understand the state-backed or state-influenced actions behind Chinese enterprises that threaten US businesses and economy. In 2015, China launched a new round of state-owned enterprise (SOE) reform, a key measure of which was to enhance the Chinese Communist Party’s (CCP) influence in business and the economy. The so-called “party-building” (dangjian) reform, requiring all SOEs to formally write corporate party organizations into their corporate charters, provides an opportunity to glimpse into the power dynamics between the CCP and the business sector. By presenting the four-year charter amendment data from 2015 through 2018, this paper documents the responses of minority and foreign shareholders and finds evidence of managerial resistance from the SOEs to the amendment.Foreign and minority shareholders expressed their concerns about enhancing the party’s influence by voting against the amendments; however, their power is limited given the state’s dominating shareholding in SOEs. This paper also finds resistance from SOE managers. High-level, nationally important central SOEs are more likely to resist party order. Even after multiple amendment requests from the government, resisting SOEs still adopted fewer party-building provisions than other adopting SOEs. Resisting SOEs are also less profitable and less internationally competitive, suggesting that they might suffer from insider-control problems. This paper thus argues that the writing-in of party-building provisions is not just putting something already in practice into written words, as conventionally believed. The charter amendment illustrated the power struggle between the CCP and SOE managers and was, in fact, a political renegotiation in which the CCP regained its control over SOEs by institutionalizing party organizations in business. However, the charter amendment does not warrant power shifting; it is just the first step. It remains to be seen whether institutionalizing party influence in business makes real changes in business decision-making.

Interactions between Market Practices and Takeover Rules (French Takeover Rules and Practices(1))
Watanabe, Hiroyuki
This is the transcript of an interview with French M&A lawyers regarding French takeover rules and practices, mainly on the issues about interactions between market practices and takeover rules. Maître Segain is a very knowledgeable lawyer with extensive experience in French takeover deals and have been involved with the discussions about recent amendment of French takeover rules. Maître Thomas is a lawyer also knowledgeable in the theory and practice of takeover deals and the co-author of “France” in Mergers & Acquisitions 2011 (ICGL, 2011). The interview was held on February 2011 at the conference room of Herbert Smith LLP, Paris office.The Issues discussed in this interview are as follows. 1. Shareholding structures in French listed companies and their effect on takeover bids.2. Irrevocable undertakings to tender shares to the offer.3. Defensive measures(1)(double voting rights, identifiable bearer securities, change of control clauses, etc.) 4. Defensive measures(2) (the French-style poison pill or “bons Breton”.)5. Acquisition of shares during a takeover bid and issue raised by the use of equity derivatives.6. Function of financial institutions in the process of takeover bids.7. Descriptions in the offer document.8. Difference between France and the UK in the operation of the mandatory offer rule.9. Demands for reforms of French takeover rules.

Knowledge is Power: The Importance of Public Accounting Experience to Mutual Fund Managers’ Monitoring
Chen, Yangyang,Huang, Jun,Li, Ting,Pittman, Jeffrey
We document that firms held by mutual fund managers who worked in public accounting earlier in their careers exhibit higher quality financial reporting. In cross-sectional evidence consistent with expectations, we find that the role that fund manager public accounting experience plays is magnified when: the firm suffers more severe agency problems, firm information asymmetry is worse, the fund has a longer investment horizon, fund managers formerly worked at large accounting firms, and fund managers have social connections with corporate executives. Additional evidence implies that fund managers with public accounting experience are more likely to conduct site visits to their portfolio firms and discuss accounting topics when there. Firms’ earnings management subsides after site visits by these fund managers, particularly when they raise accounting issues during their visits. Overall, our evidence suggests that fund managers with public accounting experience impose stricter external monitoring on their portfolio firms’ financial reporting.

Long-Term Information in the Decision to Provide a Short-Term Forecast
Heinle, Mirko Stanislav,Kim, Chongho,Taylor, Daniel J.,Zhou, Frank
Several recent empirical papers assert that the decision to disclose an earnings forecast shortly before the actual earnings announcement reveals only short-term information and is therefore unlikely to entail proprietary costs. Using a simple dynamic model of voluntary disclosure, we show that the decision to disclose a short-term earnings forecast reveals managers’ private information about long-term future performance. We test the predictions of the model empirically and find that the decision to disclose a short-term earnings forecast predicts earnings three years beyond the forecasted period, and that the predictive ability is incremental to short-term earnings itself. Consistent with the predictions of our model, we find that the predictive ability of the short-term forecast decision for long-term performance is higher when short-term performance is poor; is lower when managers have short horizons; and is lower when proprietary costs of revealing long-term performance is high. Our analysis suggests that â€" despite its short horizon â€" the decision to provide a short-term earnings forecast contains significant information about long-term performance and thus can entail significant proprietary costs.

Multi-Jurisdictional Anti-Corruption Enforcement: Time for a Global Approach
Oded, Sharon
With the rise of globalization, foreign corruption has become a prominent enemy of the world’s economy. Over time, numerous international initiatives―such as the OECD and United Nations conventions against foreign corruption―have enlisted a growing number of sovereign states to join in the global war against that enemy. As a consequence, global enhancement of anti-foreign corruption enforcement often results in duplicative, multi-jurisdictional enforcement, such that multiple enforcement actions are initiated against the same corporation by several authorities, in one or more jurisdictions, in relation to the same misconduct. This phenomenon, which was recently addressed by the US Department of Justice in its Anti-Piling On Policy promulgated in May 2018, lies at the heart of this Article. After identifying the practical implications of the newly-promulgated policy in recent multi-jurisdictional enforcement casesâ€"which have taken the form of (i) multi-jurisdictional cooperation, (ii) crediting, and (iii) sidesteppingâ€"this Article analyzes recent multi-jurisdictional enforcement practices as formalized by the Anti-Piling On Policy, highlights several of their shortcomings, and proposes a set of guiding principles which, if adopted by sovereign states, may enhance the effectiveness of the global fight against foreign corruption.

Non-Statutory Takeover Regulations and Their Changes: The Reality of the UK Takeover Panel (1)
Watanabe, Hiroyuki
This paper attempts to highlight “the reality of the UK Takeover Panel” through the perspective of “Non-statutory takeover regulations and their changes” based on many interviews with UK M&A specialists including the UK Takeover Panel staffs . Ⅰ. Increasing Attention to UK-style takeover regulations Ⅱ. Structure and subject of the Takeover Code (City Code) Ⅲ. Characteristics of the Takeover Regulations by the Takeover Panel Ⅳ. National Legislation Transposing the EU Takeover Directives and the Takeover Panel (Vol.86, No.2) Ⅴ. Misunderstanding and Reality of the UK Takeover Regulations Ⅵ. “Moderate mandatory offer rule” as a basic type and Additional “Strict mandatory offer rule” Ⅶ. Strong “shareholder decision-making principle” and the preconditions thereof Ⅷ. Regulation for the advisers and “internal sanction” Ⅸ. Core of the problem in relation to the establishment of a specialized body for takeover regulations (Vol.86, No.3)

Non-Statutory Takeover Regulations and Their changes:The Reality of the UK Takeover Panel (2)
Watanabe, Hiroyuki
This paper attempts to highlight “the reality of the UK Takeover Panel” through the perspective of “Non-statutory takeover regulations and their changes” based on many interviews with UK M&A specialists including the UK Takeover Panel staffs . Ⅰ. Increasing Attention to UK-style takeover regulations Ⅱ. Structure and subject of the Takeover Code (City Code) Ⅲ. Characteristics of the Takeover Regulations by the Takeover Panel Ⅳ. National Legislation Transposing the EU Takeover Directives and the Takeover Panel (Vol.86, No.2) Ⅴ. Misunderstanding and Reality of the UK Takeover Regulations Ⅵ. “Moderate mandatory offer rule” as a basic type and Additional “Strict mandatory offer rule” Ⅶ. Strong “shareholder decision-making principle” and the preconditions thereof Ⅷ. Regulation for the advisers and “internal sanction” Ⅸ. Core of the problem in relation to the establishment of a specialized body for takeover regulations (Vol.86, No.3)

On the monotonicity of the eigenvector method
László Csató,Dóra Gréta Petróczy

Pairwise comparisons are used in a wide variety of decision situations where the importance of alternatives should be measured on a numerical scale. One popular method to derive the priorities is based on the right eigenvector of a multiplicative pairwise comparison matrix. We consider two monotonicity axioms in this setting. First, increasing an arbitrary entry of a pairwise comparison matrix is not allowed to result in a counter-intuitive rank reversal, that is, the favoured alternative in the corresponding row cannot be ranked lower than any other alternative if this was not the case before the change (rank monotonicity). Second, the same modification should not decrease the normalised weight of the favoured alternative (weight monotonicity). Both properties are satisfied by the geometric mean method but violated by the eigenvector method. The axioms do not uniquely determine the geometric mean. The relationship between the two monotonicity properties and the Saaty inconsistency index are investigated for the eigenvector method via simulations. Even though their violation turns out not to be a usual problem even for heavily inconsistent matrices, all decision-makers should be informed about the possible occurrence of such unexpected consequences of increasing a matrix entry.

Ownership Concentration and Bank Profitability in China
Huang, Qiubin
Ownership concentration is an important mechanism of corporate governance, but its effect on corporate performance is ambiguous. Based on a sample of Chinese listed banks, we find that ownership concentration is positively associated with bank profitability during the 2007-2018 period, and the association is negatively moderated by bank size. An important policy implication is that banks may build a concentrated ownership structure to enhance their profitability.

Pitching Research … What, Why, How?
Faff, Robert W.
The current paper offers some simple tips for budding researchers on how to get the best out of their “Pitching Research” [Faff (2015, 2019)] experience. These tips are built upon three basic perspectives. First, WHAT? Here, the framework is briefly outlined and mapped into a simple “question vs. answer” mindset. Second, WHY? Here, I spell out some simple insights as to why the elements of the framework are included, in the way that they are included and what you miss out (or “risk”) by overlooking any of them. Third, HOW? Here, the framework is portrayed as a dynamic recursive exercise, in which the user should strive for a convergence of coherent thoughts.

Price Discovery in Emerging Market ETFs
Atilgan, Yigit,Demirtas, K. Ozgur,Gunaydin, A. Doruk,OZTEKIN, MUSTAFA
Over the last two decades, exchange traded funds (ETFs) have become a preferred investment vehicle to make directional market bets due to their low costs and high liquidity. Moreover, due to the arbitrage activities of authorized participants, prices of ETFs do not deviate materially from the prices of their underlying securities. As a result, ETFs may play a price discovery role such that systematic information is first reflected in these instruments and then transmitted to their underlying securities. We test this hypothesis by investigating the predictive relation between the returns of emerging market ETFs traded in the US and the returns to the emerging market equity indices that they track. In a sample that covers 18 countries, we find that ETF returns can predict one-day-ahead returns of their underlying indices. This relation is robust after controlling for the non-synchronicity between markets, serial correlation in index returns, and various determinants of aggregate returns. Moreover, the predictive relation is stronger during periods of higher volatility. We also find that an out-of-sample rolling window strategy outperforms investing in the market index several-fold in the majority of the markets.

Pricing in a Competitive Stochastic Insurance Market
Mourdoukoutas, Fotios,Boonen, Tim J.,Koo, Bonsoo,Pantelous, Athanasios A.
This paper studies a one-period stochastic game to determine the optimal premium strategies of non-life insurers in a competitive market. Specifically, the optimal premium strategy is determined by the Nash equilibrium of an n-player game, in which each player is assumed to maximise the expected utility of terminal wealth. The terminal wealth is stochastic, since the number of policies and the size of claims are considered to be random variables. The total loss of each insurer is described by the collective risk model. The expected number of policies is affected by the all premiums in the market and further investigated by two distinct demand functions. Both models have an exponential functional form, that is characterized by market and price sensitivity parameters. The demand in the first model is zero for premiums above a given threshold, whereas the second model does not include such restriction. The pure strategy Nash equilibrium premiums are given as solutions to constrained optimisation problems. For the first model we prove the existence and uniqueness of a pure strategy Nash equilibrium, whereas for the second model we provide a formula when it exists. Two numerical examples are provided to illustrate the applicability of our findings.

Pseudo-Hermiticity and Removing Brownian Motion From Finance
Hicks, William
In this article we apply the methods of quantum mechanics to the study of the financial markets. Specifically, we discuss the Pseudo-Hermiticity of the Hamiltonian operators associated to the typical partial differential equations of Mathematical Finance (such as the Black-Scholes equation) and how this relates to the non-arbitrage condition.We propose that one can use a Schrodinger equation to derive the probabilistic behaviour of the financial market, and discuss the benefits of doing so. This presents an alternative approach to replace the use of standard diffusion processes (for example a Brownian motion or Wiener process).We go on to study the method using the Bohmian approach to quantum mechanics. We consider how to interpret the equations for pseudo-Hermitian systems, and highlight the crucial role played by the quantum potential function.

Risk Exposure and Acquisition of Macroeconomic Information
Roth, Christopher,Settele, Sonja,Wohlfart, Johannes
We conduct an experiment with a representative sample from the US to study households’ demand for macroeconomic information. Respondents who learn of a higher personal exposure to unemployment risk during recessions increase their demand for an expert forecast about the likelihood of a recession. Our findings are consistent with the basic premise of theories of rational inattention that demand for information depends on its expected benefit. Moreover, the fact that perceived risk exposure responds to information highlights frictions in households’ knowledge about the personal relevance of particular pieces of information. Our findings inform the modeling of information frictions in macroeconomics.

Rough Heston: The SINC way
Baschetti, Fabio,Bormetti, Giacomo,Romagnoli, Silvia,Rossi, Pietro
The goal of this paper is to investigate the method outlined by one of us (PR) in Cherubini et al. (2009) to compute option prices. We named it the SINC approach. While the COS method by Fang and Osterlee (2009) leverages the Fourier-cosine expansion of truncated densities, the SINC approach builds on the Shannon Sampling Theorem revisited for functions with bounded support. We provide several important results which were missing in the early derivation: i) a rigorous proof of the converge of the SINC formula to the correct option price when the support growths and the number of Fourier frequencies increases; ii) ready to implement formulas for put, Cash-or-Nothing, and Asset-or-Nothing options; iii) a systematic comparison with the COS formula in several settings; iv) a numerical challenge against alternative Fast Fourier specifications, such as Carr and Madan (1999) and Lewis (2000); v) an extensive pricing exercise under the rough Heston model of Jaisson and Rosenbaum (2015); vi) formulas to evaluate numerically the moments of a truncated density. The advantages of the SINC approach are numerous. When compared to benchmark methodologies, SINC provides the most accurate and fast pricing computation. The method naturally lends itself to price all options in a smile concurrently by means of Fast Fourier techniques, boosting fast calibration. Pricing requires to resort only to odd moments in the Fourier space.

Securitization and Optimal Foreclosure
Kuong, John Chi-Fong,Zeng, Jing
Does securitization distort the foreclosure decisions of non-performing mortgages? In a model of mortgage-backed securitization with an endogenous foreclosure policy, we find that the securitizing bank adopts a tougher foreclosure policy than the first-best, despite resulting in higher loan losses. This is optimal because foreclosure mitigates the adverse selection problem in securitization by making the optimal security, a risky debt, less information-sensitive. We further show that policies that limit mortgage foreclosure would discourage the bank's ex ante screening effort, reducing the quality of securitized mortgages. Our model yields novel testable predictions on the effect of mortgage securitization on foreclosure rates, loan performance, and mortgage servicing.

Statistical Modelling of Downside Risk Spillovers
Ahelegbey, Daniel Felix
We extend the extreme downside hedge methodology to model sensitivity interconnectedness of market returns to the tail risk of other markets under turbulent conditions. We derive the interconnectedness via Bayesian graph structural learning. The empirical application examines the dynamic interconnectedness among 15 major markets, including G10 economies, during turbulent times. We investigate whether downside risk connections among these major markets are merely anecdotal or provide evidence of contagion and the most central market for spillover propagation. The result shows that the COVID-19 induced downside risk connections record the highest density, suggesting stronger evidence of contagion in the coronavirus pandemic than during the financial and eurozone crisis. Central to the spillover propagation is the finding that most of the transmitters and recipients of downside risk are EU markets.

Status Quo Bias and the Decoy Effect: A Comparative Analysis in Choice under Risk
Miguel Costa-Gomes,Georgios Gerasimou

Inertia and context-dependent choice effects are well-studied classes of behavioural phenomena. While much is known about these effects in isolation, little is known about whether one of them "dominates" the other when both can potentially be present. Knowledge of any such dominance is relevant for effective choice architecture and descriptive modelling. We initiate this empirical investigation with a between-subjects lab experiment that featured a single decision over two or three money lotteries. Our experiment was designed to test for dominance between *status quo bias* and the *decoy effect*. We find strong evidence for status quo bias and no evidence for the decoy effect. We also find that status quo bias is powerful enough so that, at the aggregate level, a fraction of subjects switch from being risk-averse to being risk-seeking. Survey evidence suggests that this is due to subjects focusing on the maximum possible amount when the risky lottery is the default and on the probability of winning more than the smallest amount when there is no default lottery. The observed reversal in risk attitudes is explainable by a large class of reference-dependent preferences.

Survey Evidence on Habit Formation: Existence, Specification, and Implication
Zhou, Jiannan
Habit formation is a staple of macroeconomics and finance, but insufficient micro evidence has led to controversies over its existence, specification, and implication. This paper documents new and extensive micro evidence for habit formation, through survey experiments eliciting ten preference parameters informative about habit formation. The evidence suggests that habit forms both internally and externally, depreciates by around two-thirds annually, and has an about equisized welfare impact as peer effect. I also propose and implement four tests of additive and multiplicative habits and find that these ubiquitous preferences are rejected. Evidence-based simulations show that combining habit formation with peer effect could explain the Easterlin paradox.

The Behavior of Corporate Cash Holdings: Evidence from Saudi Arabia.
S. Alkhalaf, Abdulmuhsen
This paper investigates the behavior of corporate cash holdings across countries using publicly traded firms from the United States and Saudi Arabia. It documents that Saudi firms hold less cash than U.S. firms and tries to explain the differences in the behavior of cash holdings. It shows that Saudi firms with governmental ownership hold less cash than Saudi firms without governmental ownership. Consequently, it shows that Saudi firms are different from U.S. firms and ownership structure has a significant impact on the Saudi cash holding decisions.

The Elusive Banker: Using Hurricanes to Uncover (Non-)Activity in Offshore Financial Centers
Miethe, Jakob
This paper studies financial service provision booked through offshore financial centers (OFCs). Based on several novel data sources and recent advances in event study methodology, I exploit the natural experiment of re-occurring hurricanes hitting small islands and compare local reactions to reactions in financial service activity. I find that local conditions, captured by monthly satellite data on nightlight intensity, deteriorate significantly for nine months. However, in OFCs, the international bank sector does not react. Non-OFC islands on the other hand do show strong negative reactions. Similar (non-)reactions are visible in equity prices. Additionally, a link of OFC service provision to activity in London, Tokyo, and New York is visible in leaked data. Finally, a long term relationship between offshore finance and local development is absent, but only on OFCs. These results indicate that international regulation attempts that aim at forcing OCFs to provide information on financial service activity could be targeted better, they show that we mis-allocate financial risk to OFCs, and they cast doubt on offshore finance as a valid development strategy.

The Nature of Financial Regulation and its Rationales
Paech, Philipp
This introductory paper explores the general nature of financial regulation as a set of behavioral rules. Public authorities impose these rules on market participants. The aim is to influence market participants’ behavior in order to achieve certain regulatory goals. The financial crisis has changed our perception of how regulation should be designed in order to achieve these goals. The advent of FinTech challenges our perception again.

The Pricing of New Corporate Debt Issues
Cai, Kelly Nianyun,Hanley , Kathleen Weiss,Huang, Alan Guoming,Zhao, Xiaofei
We use computational linguistics to examine whether a firm's risk factors in prospectus disclosures provide unique information that is useful for pricing the initial public offerings of bonds. Credit ratings incorporate textual information related to the indebtedness of the firm and its ability to repay its debt obligations. We find that the initial yield spread fully incorporates the risk factors embedded in credit ratings but additional risks associated with the financial condition of the firm and the covenants of the offering are useful in pricing. The amount of risk disclosed in the prospectus is also a good indicator of subsequent changes in bond yields. More importantly, we do not find any significant differences in the usefulness of risk factor disclosures in predicting pricing and bond outcomes between private and public firms. Our results suggest that mandated securities disclosure provides salient information to investors in both the private and public markets

The Reality of the UK Takeover Regulations (with 'Notice to Advisers in Contested Bids' by the Takeover Panel)
Watanabe, Hiroyuki
This is a short article on UK takeover regulations and was prepared for the meetings with the specialists on Takeovers in the UK. Further, “Notice to Advisers in Contested Bids” which was added at the end of this note is the notice put up on the wall of the waiting room of the UK Takeover Panel.

The ineffectiveness of coherent risk measures
John Armstrong,Damiano Brigo

We show that coherent risk measures are ineffective in curbing the behaviour of investors with limited liability or excessive tail-risk seeking behaviour if the market admits statistical arbitrage opportunities which we term $\rho$-arbitrage for a risk measure $\rho$. We show how to determine analytically whether such $\rho$-arbitrage portfolios exist in complete markets and in the Markowitz model. We also consider realistic numerical examples of incomplete markets and determine whether expected shortfall constraints are ineffective in these markets. We find that the answer depends heavily upon the probability model selected by the risk manager but that it is certainly possible for expected shortfall constraints to be ineffective in realistic markets. Since value at risk constraints are weaker than expected shortfall constraints, our results can be applied to value at risk. By contrast, we show that reasonable expected utility constraints are effective in any arbitrage-free market.

The use of scaling properties to detect relevant changes in financial time series: a new visual warning tool
Ioannis P. Antoniades,Giuseppe Brandi,L. G. Magafas,T. Di Matteo

The dynamical evolution of multiscaling in financial time series is investigated using time-dependent Generalized Hurst Exponents (GHE), $H_q$, for various values of the parameter $q$. Using $H_q$, we introduce a new visual methodology to algorithmically detect critical changes in the scaling of the underlying complex time-series. The methodology involves the degree of multiscaling at a particular time instance, the multiscaling trend which is calculated by the Change-Point Analysis method, and a rigorous evaluation of the statistical significance of the results. Using this algorithm, we have identified particular patterns in the temporal co-evolution of the different $H_q$ time-series. These GHE patterns, distinguish in a statistically robust way, not only between time periods of uniscaling and multiscaling, but also among different types of multiscaling: symmetric multiscaling (M) and asymmetric multiscaling (A). We apply the visual methodology to time-series comprising of daily close prices of four stock market indices: two major ones (S\&P~500 and NIKKEI) and two peripheral ones (Athens Stock Exchange general Index and Bombay-SENSEX). Results show that multiscaling varies greatly with time: time periods of strong multiscaling behavior and time periods of uniscaling behavior are interchanged while transitions from uniscaling to multiscaling behavior occur before critical market events, such as stock market bubbles. Moreover, particular asymmetric multiscaling patterns appear during critical stock market eras and provide useful information about market conditions. In particular, they can be used as 'fingerprints' of a turbulent market period as well as provide warning signals for an upcoming stock market 'bubble'. The applied visual methodology also appears to distinguish between exogenous and endogenous stock market crises, based on the observed patterns before the actual events.

Thermodynamics of markets
Sergey Rashkovskiy

We consider the thermodynamic approach to the description of economic systems and processes. The first and second laws of thermodynamics as applied to economic systems are derived and analyzed. It is shown that there is a deep analogy between the parameters of thermodynamic and economic systems (markets); in particular, each thermodynamic parameter can be associated with a certain economic parameter or indicator. The economic meaning of such primordially thermodynamic concepts as pressure, volume, internal energy, heat, etc. has been established. The thermostatistics of the market is considered. It is shown that, as in conventional thermostatistics, many market parameters, such as price of goods, quantity of goods, etc., as well as their fluctuations can be calculated formally using the partition function of an economic system.

Tokenization of Unearned Revenue Under the Quantity Rule
Koutsoupakis, Dimitrios
We show some sufficient conditions for centralized cryptocurrencies to compete in tandem with traditional cash. To this end, from the asset side we assign to these new breed of IOU tokens the role of an American perpetual call option that is exercised (redeemed) for units of issuer's/producer's good. From the liability side, tokens play the role of advances backed by originator's collateral akin to trade finance banking products.

Unbiased estimation and backtesting of risk in the context of heavy tails
Marcin Pitera,Thorsten Schmidt

While the estimation of risk is an important question in the daily business of banks and insurances, it is surprising that efficient procedures for this task are not well studied. Indeed, many existing plug-in approaches for the estimation of risk suffer from an unnecessary bias which leads to the underestimation of risk and negatively impacts backtesting results, especially in the small sample environment. In this article, we consider efficient estimation of risk in practical situations and provide means to improve the accuracy of risk estimators and their performance in backtesting. In particular, we propose an algorithm for bias correction and show how to apply it for generalized Pareto distributions. Moreover, we propose new estimators for value-at-risk and expected shortfall, respectively, and illustrate the gain in efficiency when heavy tails exist in the data.