Research articles for the 2021-01-19

Müller, Alexander,Paulick, Jan
Considerable resources have been devoted to gathering data for the measurement of money market activity. However, little is known about the differences between available data and the structural effects of methodological choices. We use the novel dataset MMSR and compare it to data derived from a Furfine-type algorithm and survey data. The deviations in volumes and interest rates are driven by the asymmetric measurement of transactions, in particular affecting individual classes of banks, cross-border loans and specific types of loans. These differences are significant in terms of magnitude and affect overall rates and volumes. Even fundamental questions like the share of cross-border transactions depend on which data is used.

An Exploratory Study into Rewards-Based Crowdfunding
Liu, Sarina,Alsabah, Humoud
We use a dataset of over 200,000 projects, with a total funding of more than $1.2 billion, to investigate the main factors affecting the success rate of projects launched on the rewards-based crowdfunding platform Kickstarter. Our findings suggest that project creators that set a lower target goal size, time their fundraising campaign to avoid a high degree of inner-platform competition, and avoid initiating their funding campaign on holidays or on days leading into a weekend have a higher chance of successfully funding their projects. On average, successfully funded projects often surpass their target goal by small margins. We find that setting a longer duration for the funding campaign does not increase the probability that a project will be successfully funded. As opposed to the belief that crowdfunding serves solely as a signaling device for venture capitalists (VCs), we find that the vast majority of successfully funded projects launched in Kickstarter do not receive funding from VCs. By constructing a web-scraper and collecting real-time data, we observe that the funding rate over the course of successfully funded campaigns takes a U-shape. Using the real-time data collected, we examine crowdfunding webpage setup and find that the probability that a project exceeds its funding goal is positively correlated with the amount of images, videos, and text description.

Bond Indifference Prices
Lorig, Matthew,Zou, Bin
In a market with stochastic interest rates, we consider an investor who can either (i) invest all of his wealth in a money market account or (ii) purchase zero-coupon bonds and invest the remainder of his wealth in the money market account. The indifference price of the zero-coupon bond is the price at which the investor could achieve the same expected utility under both strategies. In an affine term structure setting, we show that the indifference price of the zero-coupon bond is the root of an integral equation, when the investor's utility function is of exponential or power form. As an example, we compute the indifference price and the corresponding indifference yield curve in the Vasicek model and conduct sensitivity analysis to study the impact of various parameters on the yield curve. Furthermore, we discuss the choice of numeraire and its impact on the indifference prices.

Business Development Companies: Venture Capital for Retail Investors
Warburton, A. Joseph
Business development companies (“BDCs”) offer retail investors the allure of becoming venture capitalists, funding emerging enterprises with the help of professional asset managers. BDCs are investment companies that finance businesses traditionally locked out of conventional capital markets. Nearly forty years old, the BDC has remained virtually unexplored by academic researchers.I begin by analyzing the laws that govern BDCs. To protect investors, BDCs are subject to the Investment Company Act of 1940. But to encourage the financing of smaller businesses, Congress excused BDCs from certain provisions of the Act, allowing them to engage more freely in leverage and related-party transactions. BDCs are neither fully regulated by the Act nor fully exempt.Using a novel dataset constructed from hand-collected filings, I then study BDCs empirically. I find more than fifty exchange-traded BDCs are available to the public today. BDCs generally have attractive dividend yields. But they are risky investments with high leverage and volatile returns. BDCs significantly under perform their benchmark indices after I accommodate for the substantial risk that investing in a BDC entails.

CEO Private Firm Experience and Idiosyncratic Risk
Mishra, Dev R.
I find that the idiosyncratic risk of firms increases with the extent of CEO work experience in non-publicly traded firms (CEO private experience). While there is no evidence of higher investment risk-taking by Private CEOs, the proportion of private-firm work experience is negatively associated with a well-known index of corporate social responsibility (CSR) and positively associated with an index of firm-level political risk. The extent of CEO private experience contributes to higher idiosyncratic risk potentially due to poor management of political risk and shrinking investment in the CSR performance of the firm consistent with a lack of reputational risk management. Past private-firm work experience may condition CEOs to sidestep discretionary but strategically important investments in reputational and political risk management, evidently exacerbating idiosyncratic risk.

Charitable Inclination and the Chief Executive Officer’s Pay Package
Mishra, Dev R.
Using chief executive officers’ (CEOs’) lifetime nonemployment experience in prominent charitable organizations to create a proxy for CEO charitable inclination, I find that charitably inclined CEOs receive a significant pay premium. The pay premium sensitivity to CEO charitable inclination is particularly pronounced for male, external, and specialist CEOs who are employed at firms that are undiversified, larger, less debt reliant, poor performing, facing high product-market competition, and that keep nonmanipulative financial statements and demonstrate high inclination to social responsibility in the area of diversity, employee relations, and internal governance. This research contributes to the broader debate on labor market pricing of CEO characteristics.

Co-opetition and Disruption With Public Ownership
Boot, Arnoud W. A.,Vladimirov, Vladimir
Do mandatory disclosure requirements make public firms less disruptive and competitive? Not necessarily. We offer a new perspective showing that mandatory disclosure facilitates "co-opetition" --- a strategy of competing on some dimensions while avoiding competition on others. Co-opetition encourages disruption by elevating profitability and lowering financing costs. The downside of co-opetition is that cannibalizing technologies on which firms cooperate is costlier, which may erode firms' commitment to disruption. This cost mainly affects intermediately-attractive investments and is outweighed by the benefits of co-opetition when rivals also pursue disruption. Our results explain evidence of higher profitability in disruptive public firms following stricter disclosure requirements.

Crowdfunding: Definitions, Foundations and Framework
Miglo, Anton
Crowdfunding is a form of financing or fundraising where a large number of investors pool their small (typically) individual contributions to support a project offered by an entrepreneurial firm. It is sometime credited to be a top 10 innovation of the 21st century. This paper discusses the basics of crowdfunding. It starts with a description of new innovative terminology related to crowdfunding. Examples include such terms as project founders/originators, project sup-porters/backers, crowdfunding platform etc. It then focuses on the foundations and details of the main types of crowdfunding, which includes reward-based crowdfunding, equity-based crowdfunding, debt-based crowdfunding and donation-based crowdfunding. We then discuss some major theories of crowdfunding including asymmetric information-based and moral hazard-based theories. For each theory, its major implications are presented and compared with available evidence. Particular attention is paid to the basics of crowdfunding in the public sector. We discuss government participation in crowdfunding and its role in light of previously discussed theories. The benefits of government participation in crowdfunding projects include increasing trust in projects, improving information and increasing transparency about projects, and reducing project risk.

Dividends and Tax Avoidance as Drivers of Earnings Management: Evidence from Dividend-Paying Private SMEs in Finland
Karjalainen, Jussi,Kasanen, Eero,Kinnunen, Juha,Niskanen, Jyrki
Using a sample covering practically all dividend-paying small and medium-sized private companies in Finland during 2006â€"2010, we document that earnings management in these companies is driven by two concurrent forces: the willingness to pay (tax-exempt) dividends and avoiding unnecessary company income tax. Moreover, we show that the need for income increasing earnings management enabling current dividend distribution is mitigated by the amount of retained earnings from prior years. This article adds to the existing literature by providing empirical evidence for dividend and tax-driven earnings management in private SMEs facing neither political pressures nor capital market incentives for earnings disclosures.

Does Access to Internet Matter for Insurance Uptake? Evidence From India
Biswas, Shreya,Lahiri, Shreya
Using the nationally representative Indian Human Development Survey- 2011-12 data, we find that access to internet is related to better risk management practices of Indian households given by higher insurance uptake. Internet access potentially generates twin benefits of improving awareness related to benefits of insurance products and helps in reducing transaction costs for the insurers. The study highlights the role of access to internet in improving development outcomes in India. Further, we find that access to internet increase the insurance uptake of urban households more than rural households and education remains a critical barrier for leveraging the development benefits of internet access. Finally, we find that access to internet is also positively associated with the extent of insurance purchased by the household, highlighting that digital inclusion in the form of internet access could be an instrument that can partially mitigate the common investment mistakes made by households in India.

Evidence and Behaviour of Support and Resistance Levels in Financial Time Series
Ken Chung,Anthony Bellotti

This paper investigates the phenomenon of support and resistance levels (SR levels) in financial time series, which act as temporary price barriers that reverses price trends. We develop a heuristic discovery algorithm for this purpose, to discover and evaluate SR levels for intraday price series. Our simple approach discovers SR levels which are able to reverse price trends statistically significantly. Asset price entering SR levels with higher number of price bounces before are more likely to bounce on such SR levels again. We also show that the decay aspect of the discovered SR levels as decreasing probability of price bounce over time. We conclude SR levels are features in financial time series are not explained simply by AR(1) processes, stationary or otherwise; and that they contribute to the temporary predictability and stationarity of the investigated price series.

Executive Compensation: The Trend Toward One Size Fits All
Cabezon, Felipe
This paper reports the prevalence of a “one-size-fits-all” trend in the structure of executive compensation plans. The way firms distribute total compensation across different components of pay â€"salary, bonus, stock awards, option awards, non-equity incentives, pensions, and perquisitesâ€" is becoming more similar since 2006. In particular, 25% of the variation across firms disappeared in the last ten years. Using close votes surrounding Say-on-Pay’s implementation, I find that shareholders’ influence on management decisions causes part of this convergence. This finding is robust in both difference-in-difference and RDD estimations. Additional evidence suggests that proxy advisors play a role by pushing towards standardization. The convergence has negative economic consequences. The more similar a firm’s compensation structure becomes to the others, the higher the pay and the lower its sensitivity to the firm performance and the risk taken. Additionally, the firm innovates less â€"invests less in R&D and is less likely to patentâ€" and reduces its market value.

Finance in Transition
Loorbach, Derk,Schoenmaker, Dirk,Schramade, Willem
Finance in Transition discusses the transition from traditional finance to transition finance. The current pattern of unsustainable economic development is supported by the global financial system, whose goal function is to create ever more financial value. Traditional finance is based on the concept of shareholder value.This paper develops new principles for a sustainable financial system. These guiding principles are: 1) from shareholder to integrated value, which combines financial, social and environmental value; 2) stewardship based on a direct link between financiers and companies; and 3) capital allocation based on long-term societal value.

From quadratic Hawkes processes to super-Heston rough volatility models with Zumbach effect
Aditi Dandapani,Paul Jusselin,Mathieu Rosenbaum

Using microscopic price models based on Hawkes processes, it has been shown that under some no-arbitrage condition, the high degree of endogeneity of markets together with the phenomenon of metaorders splitting generate rough Heston-type volatility at the macroscopic scale. One additional important feature of financial dynamics, at the heart of several influential works in econophysics, is the so-called feedback or Zumbach effect. This essentially means that past trends in returns convey significant information on future volatility. A natural way to reproduce this property in microstructure modeling is to use quadratic versions of Hawkes processes. We show that after suitable rescaling, the long term limits of these processes are refined versions of rough Heston models where the volatility coefficient is enhanced compared to the square root characterizing Heston-type dynamics. Furthermore the Zumbach effect remains explicit in these limiting rough volatility models.

From the Black-Karasinski to the Verhulst model to accommodate the unconventional Fed's policy
A. Itkin,A. Lipton,D. Muravey

In this paper, we argue that some of the most popular short-term interest models have to be revisited and modified to reflect current market conditions better. In particular, we propose a modification of the popular Black-Karasinski model, which is widely used by practitioners for modeling interest rates, credit, and commodities. Our adjustment gives rise to the stochastic Verhulst model, which is well-known in the population dynamics and epidemiology as a logistic model. We demonstrate that the Verhulst model's dynamics are well suited to the current economic environment and the Fed's actions. Besides, we derive new integral equations for the zero-coupon bond prices for both the BK and Verhulst models. For the BK model for small maturities up to 2 years, we solve the corresponding integral equation by using the reduced differential transform method. For the Verhulst integral equation, under some mild assumptions, we find the closed-form solution. Numerical examples show that computationally our approach is significantly more efficient than the standard finite difference method.

Gender Differences in Motivated Reasoning
Michael Thaler

Men and women systematically differ in their beliefs about their performance relative to others; in particular, men tend to be more overconfident. This paper provides support for one explanation for gender differences in overconfidence, performance-motivated reasoning, in which people distort how they process new information in ways that make them believe they outperformed others. Using a large online experiment, I find that male subjects distort information processing in ways that favor their performance, while female subjects do not systematically distort information processing in either direction. These statistically-significant gender differences in performance-motivated reasoning mimic gender differences in overconfidence; beliefs of male subjects are systematically overconfident, while beliefs of female subjects are well-calibrated on average. The experiment also includes political questions, and finds that politically-motivated reasoning is similar for both men and women. These results suggest that, while men and women are both susceptible to motivated reasoning in general, men find it particularly attractive to believe that they outperformed others.

Hot Potatoes: Overreaction to Extreme Negative Returns
Caglayan, Mustafa Onur,Reyes-Peña, Robinson
Although it is well established that investors are willing to accept negative premium for lottery-like stocks, it is puzzling that the opposite effect is not observed in stocks experiencing large daily losses. We find that stocks that experience large negative daily returns (MIN) also display large positive daily returns (MAX); therefore the MIN effect is subdued. Once stocks ranked as high-MAX within MIN deciles are removed, we find that MIN positively predicts future stock returns. More importantly, a strategy that buys pure high-MIN stocks and simultaneously shorts pure high-MAX stocks generates superior returns compared to stand-alone MAX and MIN strategies.

How Do Financial Markets React to Long Term Development of Industries?
Versaevel, M.H.M.
We develop quantitative methodologies to classify industries by their development phase and apply this to analyze whether stock markets over- or underreact to industries shifting to another phase of development. We find little evidence for such market inefficiencies. On the contrary, a substantial portion of the (negative) excess returns for growing (declining) industries are earned in the run-up to the phase shift. These results suggest that stock markets reflect the information with regards to industrial development in stock market prices in the run-up to an industry entering a new phase. Consequently, bubbles at the industry level may be more of an exception than a rule and more difficult to identify ex-ante than sometimes thought.

How Financial Markets Create Superstars
Terovitis, Spyros,Vladimirov, Vladimir
This paper shows that manipulative trading by speculators can create value for shareholders by simulating a "buzz" around a firm and turning it into a star. The speculators' profit comes from helping the firm attract stakeholders, such as high-quality employees and business partners, that would have otherwise not worked with it. Thus, price manipulation leads to a misallocation of talent and resources. Similar to speculators, investors in primary markets can benefit from inflating firms' valuations to unicorn status if that helps attract stakeholders. Opportunities for manipulation are asymmetric, as firms can encourage manipulation benefiting them and discourage manipulation harming them by adjusting their corporate governance and transparency.

Incentivization in Decentralized Autonomous Organizations
Braun, Alexander,Häusle, Niklas,Karpischek, Stephan
We propose a mechanism for the incentivization of workers in decentralized autonomous organizations instantiated on the blockchain. Our approach relies on staking, a digital form of collateralization that requires network participants to acquire cryptographic tokens and deposit them in a smart contract or bound wallet. In case of worker malfeasance, the collateral can be reallocated to the customers to compensate them for their losses. We use the nascent decentralized insurance market as a laboratory to apply our model based on real-life data and show that relatively small stakes are sufficient to maximize network throughput, which is equivalent to welfare.

Labor Voice in Corporate Governance: Evidence from Opportunistic Insider Trading
Ng, Lilian ,Pham, Man Duy (Marty),Yu, Jing
This study examines whether labor plays a role in corporate governance by deterring opportunistic insider behavior. Results suggest that firms with organized labor experience statistically significant declines in opportunistic insider trading activity and profitability. We show three economic mechanisms that explain labor’s disciplinary effect on opportunistic insider trading behavior: employee welfare, activist union-affiliated institutional investors, and media and political support. Further analyses suggest that labor’s corporate governance reduces the incidence of illegal insider trading, enhances firm productivity and performance, and lowers insider trades’ return predictability.

Liquidity Co-Movements and Volatility Regimes in Cryptocurrencies
Anciaux, Hubert,Desagre, Christophe,Nicaise, Nicolas,Petitjean, Mikael
We find significant evidence of liquidity commonalities among cryptos, in particular when liquidity is estimated by relying on order-book-based proxies. Both the magnitude and pervasiveness of these co-movements are very similar to those estimated for US stocks 10 and 20 years ago. When we introduce volatility regimes based on the VCRIX volatility index on cryptocurrencies, we identify stronger liquidity co-movements in high volatility regimes across all cryptocurrencies and for all liquidity proxies. The magnitude and pervasiveness of commonalities are weaker in the low volatility regime when liquidity is arguably more idiosyncratic, affecting cryptos differently and leading to more disconnected movements relative to market liquidity. We conclude that the liquidity co-movements are not orthogonal to what was observed in the past for more centralized markets.

Market Forces in Healthcare Insurance: The Impact of Healthcare Reform on Regulated Competition Revisited
Bikker, Jacob Antoon,Bekooij, Jack
This paper investigates the impact of market forces on competitive behaviour and efficiency in healthcare by investigating the Dutch healthcare insurance reform in 2006. This reform replaced the dual system of public and private insurance with a single compulsory health insurance scheme, in which insurance providers compete for customers in a free market. We measure competition directly from either shifts in market shares, or developments in profits. Using formal tests we find that in each approach a structural break occurs after the reform: competition is significantly higher after 2006 than before. Several robustness tests confirm this outcome. Nevertheless, we find that the health insurance sector is still less competitive than the banking, manufacturing and service industries, and even less competitive than life insurance.

Merger Remedies, Incomplete Information, and Commitment
Johansen, Bjørn Olav,Nilssen, Tore
Current EU law states that the competition authorities, in dealing with a merger proposal, cannot commit to specific remedies when rejecting proposals and essentially have to resort to accept or reject remedies proposed to it. We show that giving the authorities the power to propose, and commit to, remedies for a merger that they cannot accept in full will lead to a more efficient merger policy. We do this by setting up a theoretic model where government lacks information about the various markets affected by the merger and has resources to collect information on some but not all of them. The benefit of being able to commit is that government, in some cases, is able to obtain remedies rather than full stop of a merger by collecting information on relatively benign markets and, in some other cases, is able to obtain remedies even without spending resources on collecting information.

Observable Implications of the Conditional CAPM
de Oliveira Souza, Thiago
The derivation of observable implications of the conditional CAPM theory often includes the joint (internally inconsistent) hypothesis that the stock portfolio used in the tests is the theoretical, mean-variance efficient, market portfolio. The present paper generalizes this derivation by avoiding this joint hypothesis. The generalization reveals that the conditional CAPM plausibly explains asset pricing anomalies, such as the unconditional alphas and betas of momentum, value, and size portfolios, while the unconditional CAPM theory is still rejected by portfolios with negative unconditional betas and positive unconditional alphas. Hence, relaxing this joint assumption does not render the CAPM theory untestable.

Optimal Hedging with Margin Constraints and Default Aversion and its Application to Bitcoin Perpetual Futures
Alexander, Carol,Deng, Jun,Zou, Bin
We consider a futures hedging problem subject to a budget constraint that limits the ability of a hedger with default aversion to meet margin requirements. We derive a semi-closed form for an optimal hedging strategy with dual objectives â€" to minimize both the variance of the hedged portfolio and the probability of forced liquidations due to margin calls. An empirical analysis of bitcoin shows that the optimal strategy not only achieves superior hedge effectiveness, but also reduces the probability of forced liquidations to an acceptable level. We also compare how the hedger's default aversion impacts the performance of optimal hedging based on minute-level data across major bitcoin spot and perpetual futures markets.

Political Affinity and Mutual Fund Voting Schizophrenia
Massa, Massimo,Zhang, Lei
We study whether the voting behavior of mutual fund managers is affected by their political affinity with the CEOs of the companies in which they invest. We document that common political affinity induces the fund manager to come to the help of the CEO when such help is required â€" i.e., especially during critical and contentious proposals. Such support is not driven by a “quid pro quo” that provides the asset manager with the possibility of getting better performance â€" either in the form of higher investment value or better information-based trading strategy â€" but due to the desire to aid a politically affine CEO. Given that such help is difficult to justify, the politically motivated asset managers tend to engage in signal jamming by on average not providing any detectable help. This behavior is stronger in the presence of bigger reputational concerns â€" i.e., supporting firms with worse ESG quality of governance. Political affinity, by distorting the voting incentives, reduces firm value.

Post-IPO Geographic Expansion
Cornaggia, Jess,Gustafson, Matthew,Kotter, Jason D.,Pisciotta, Kevin
Transitioning to public ownership affects where firms invest. Post-IPO, we find that firms conduct more geographically diversifying acquisitions on the intensive and extensive margins, relative to both withdrawn IPO filings and seasoned matched peers. The effect is larger for IPO filers that are large relative to their local economy, and smaller for IPOs led by less active underwriters. We find little evidence of geographic expansion after seasoned equity offerings, suggesting that capital raised does not drive the expansion decision. Our results suggest that going public alleviates significant geographic-based information frictions faced by private firms.

Quantifying the Relationship Between Seaborne Trade and Shipping Freight Rates: A Bayesian Vector Autoregressive Approach
Michail, Nektarios,Melas, Konstantinos D.
We employ a Bayesian Vector Autoregressive methodology, to counter the issue of data availability, and explore the relationship between seaborne commodity trade and freight rates. Our results show three important insights: first and foremost, the quantity of seaborne commodity trade has a strong impact on the Baltic Dry Index and the Baltic Dirty Tanker Index, but not on the Baltic Clean Tanker Index, most likely due to the fact that clean tankers can simultaneously operate both in the clean and the dirty sectors. Second, a shock in the price of brent oil has the expected positive response from the Baltic Dry Index, while its relationship with the Baltic Clean Tanker Index and the Baltic Dirty Tanker Index is negative as, in this case, tanker vessels can operate as floating storage units. Third, a relationship between the freight indices appears to hold as a change in one could spill over to the other.

Regulación de genero en los consejos de administración: El papel moderador del entorno institucional. (Gender Regulation in the Boards of Directors: The Moderating Role of the Institutional Framework.)
Martínez-García, Irma,Ansón, Silvia Gómez
Spanish Abstract: Para un panel de empresas pertenecientes al índice bursátil STOXX Europa 600 y para el período 2004-2018, se analiza cómo la regulación en matería de diversidad de género en los consejos de administración influye en la presencia de mujeres en los consejos y en sus comisiones y cómo los factores institucionales, formales e informales, moderan la relación entre regulación y presencia femenina en los consejos. Los resultados muestran que la presencia de mujeres en los consejos de administración y en sus comisiones es mayor en aquellos países que han introducido normativas en materia de diversidad de género en los consejos (recomendaciones en códigos de gobierno corporativo y cuotas), aunque las cuotas sin sanción no parecen influir de forma significativa. Los factores institucionales formales e informales moderan la relación entre la normativa y la presencia femenina en los consejos. La efectividad de la regulación sobre diversidad de género es mayor en países con niveles elevados en las dimensiones culturales relativas a la distancia al poder, el individualismo, la aversión a la incertidumbre y la orientación a corto plazo, pero es menor en los países con elevada calidad de la gobernanza y con mayor presencia de mujeres en órganos de decisión. El estudio evidencia además la existencia de diferencias tanto en la influencia del entorno instutucional como factor moderador de la relación entre la regulación y la presencia de mujeres consejeras, como entre la regulación y la presencia de mujeres en las comisiones.English Abstract: For a panel of companies belonging to the STOXX Europe 600 stock index and for the period 2004-2018, it is analyzed how the regulation of gender diversity in the boards of directors influences the presence of women on the boards and in their committees and how institutional, formal and informal factors moderate the relationship between regulation and female presence on boards. The results show that the presence of women on boards of directors and on their committees is higher in those countries that have introduced regulations on gender diversity on boards (recommendations in corporate governance codes and quotas), although quotas are not sanction does not seem to influence significantly. Formal and informal institutional factors moderate the relationship between regulations and the presence of women on boards. The effectiveness of regulation on gender diversity is higher in countries with high levels of cultural dimensions related to distance from power, individualism, aversion to uncertainty and short-term orientation, but it is lower in countries with high quality of governance and with a greater presence of women in decision-making bodies. The study also shows the existence of differences both in the influence of the institutional environment as a moderating factor in the relationship between regulation and the presence of female directors, and between regulation and the presence of women on committees.

Risk Attitude and Capital Market Participation: Is There a Gender Investment Gap in Germany?
Schmidt, Carolin,Fey, Jan-Christian,Weber, Martin,Lerbs, Oliver
Do women invest differently than men? We contribute to the answer of this question by analysing the Panel on Household Finances (PHF) of the German Bundesbank. This representative panel collects a wide variety of behavioural and financial variables in the area of household finance. We find that participation in risky assets is generally lower among women than among men. Once risk attitude is controlled for, this effect shrinks to only2.6 percent. We find no difference when single women are compared to single men â€" even irrespective of other demographic variables. The raw gap in capital market participation is mainly explained by different risk attitudes and monetary endowments, but women would participate even less in the capital market if they reacted as sensitively to risk aversion as their male counterparts. Lastly, given participation in the market, we find that both genders hold comparable portions of risky assets in their portfolios. Within their risky assets, men invest more in certificates and listed shares whereas women invest more in funds.

Signaling through Carbon Disclosure
Bolton, Patrick,Kacperczyk, Marcin T.
We estimate effects of voluntary and mandatory disclosure of carbon emissions on stock returns, volatility, and turnover. We find that voluntary disclosure of scope 1 emissions by companies results in lower stock returns relative to non-disclosing companies. However, a cost of disclosing emissions is increased divestment by institutional investors. We also find that U.K. mandatory carbon disclosure rules for publicly traded companies resulted in lower stock-level uncertainty. The effect of these mandatory disclosure rules also spilled over into other markets, especially those with close geographic and economic proximity, and companies in the same industry.

Spillover Effects of Sovereign Bond Purchases in the Euro Area
Mudde, Yvo,SamarIna, Anna,Vermeulen, Robert
This paper investigates cross-border spillover effects from the Eurosystem’s Public Sector Purchase Programme (PSPP) on euro area government bond yields. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015 - December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for strong arbitrage within the euro area. These spillover effects are particularly large for long-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher yielding government bonds. In addition, purchases under PSPP had their largest impact on bond yields in 2015.

Tax Deductibility, Market Frictions, and Price Discrimination: Evidence from the Mortgage Market.
Valentin, Maxence
Although not the primary intended beneficiary of the Mortgage Interest Deduction (MID) program, lenders capture a significant fraction of this government subsidy. This paper shows that borrowers who benefit from the MID pay on average 14.9 basis points higher interest rate than similar borrowers who do not benefit from it. This interest-gap represents a present value of $6,600 (or 2.35% of the original loan amount) for the median borrower. Consistent with a model of first-degree price discrimination, the interest-gap increases (1) with borrowers' marginal tax rate, and (2) with the degree of market frictions such as lenders' concentration, search cost, and leverage in bargaining.

Taxes and Firm Investment
Arin, K. Peren,Devereux, Kevin,Mazur, Mieszko
We investigate the firm level investment responses to narrative shocks to average personal and corporate tax rates using a universal micro dataset of publicly traded U.S firms for the post- 1962 period. By allowing for heterogeneous effects over the business cycle and accompanying monetary policy regime, as well as over firm-level characteristics, we show that : (i) corporate tax multipliers are negative overall, but this result is driven by smaller firms who face larger borrowing constraints, especially during high-unemployment periods or when the accompanying monetary policy is contractionary; (ii) while the magnitude and the significance of personal income tax multipliers are smaller on the aggregate, there is some evidence of positive personal tax multipliers in high-unemployment state by large (dividend-paying) firms, which is consistent with the recent literature.

The Dynamics of Shareholder Dispersion and Control in Australia
Varzaly, Jenifer
There is ongoing academic interest in understanding share ownership and control dynamics in publicly listed companies, given the corporate governance and regulatory implications arising therefrom. This article presents a new dataset and analysis of shareholder information, focusing on the largest 50 publicly listed companies in Australia, filling a striking 12 year gap in the existing literature. Specifically, the following issues are addressed: 1. The level of institutional ownership within the largest 20 shareholders in each of the 50 companies; 2. The concentration of that ownership based on the percentage of issued capital owned by the largest three shareholders; 3. The control of that ownership, to determine whether ownership and control diverge; and 4. Where ownership and control diverge, substantial shareholding information is collected and analysed, in order to provide a more complete picture of share ownership patterns in the Australian context. The study findings provide a clear indication of the concentration of share capital in the hands of institutional shareholders in Australia. Yet, in relation to shareholder dispersion, all of the 20 largest publicly listed companies can be classified as widely held (versus 13 in the 1999 La Porta et al study) at the 20% level of control. Additionally, the results have a preliminary bearing on the relevance of common ownership theory within Australia. Regarding the ‘Big Three’ index funds, these institutions comprise 33.33% of the substantial shareholding positions across the ASX 50. Notably, 87.1% of these substantial holdings are in companies within the financial sector. The key implications arising from the findings are that managerial agency costs and the agency costs of institutional investors are of fundamental importance in the Australian context. Based on this understanding, there are two central messages for regulators and policy makers. First, corporate governance regulation must evolve in parallel to changes in share ownership and distribution. Second, there is a need for complementarity between shareholder patterns and regulation which incentivises potential governance actors and mitigates identified agency costs.

The Elephant in the Room: Why Transformative Education Must Address the Problem of Endless Exponential Economic Growth
Chirag Dhara,Vandana Singh

A transformative approach to addressing complex social-environmental problems warrants reexamining our most fundamental assumptions about sustainability and progress, including the entrenched imperative for limitless economic growth. Our global resource footprint has grown in lock-step with GDP since the industrial revolution, spawning the climate and ecological crises. Faith that technology will eventually decouple resource use from GDP growth is pervasive, despite there being practically no empirical evidence of decoupling in any country. We argue that complete long-term decoupling is, in fact, well-nigh impossible for fundamental physical, mathematical, logical, pragmatic and behavioural reasons. We suggest that a crucial first step toward a transformative education is to acknowledge this incompatibility, and provide examples of where and how our arguments may be incorporated in education. More broadly, we propose that foregrounding SDG 12 with a functional definition of sustainability, and educating and upskilling students to this end, must be a necessary minimum goal of any transformative approach to sustainability education. Our aim is to provide a conceptual scaffolding around which learning frameworks may be developed to make room for diverse alternative paths to truly sustainable social-ecological cultures.

The Labor Cost of Pro-Labor Bias in Bankruptcy
Araujo, Aloisio Pessoa de,Ferreira, Rafael,Lagaras, Spyridon,Moraes, Flavio,Ponticelli, Jacopo,Tsoutsoura, Margarita
Judicial decisions in bankruptcy are often influenced by the goal of preserving employment in financially distressed firms. Is such pro-labor bias good for workers? We construct a new court-level measure of pro-labor bias based on judges' deviations from the letter of the law, and exploit the random assignment of cases to courts within judicial districts in the state of Sao Paulo in Brazil to study the effect of pro-labor bias on labor market outcomes. Employees whose firms were assigned to a high pro-labor court experience 4.2 percent lower post-bankruptcy earnings relative to employees whose firms were assigned to a low pro-labor court. This negative effect is persistent in the seven-year period after bankruptcy. We provide evidence consistent with this effect being driven by high pro-labor courts disproportionately favoring firm continuation. While employees of liquidated firms experience a large initial drop in earnings upon bankruptcy and a fast convergence to their pre-bankruptcy level, the earnings of employees of reorganized firms remain significantly below their pre-bankruptcy level. Our results indicate that, on average, pro-labor bias can be detrimental for workers' earnings and employment trajectories after bankruptcy.

The M&A Rumor Productivity Dip
Andres, Christian,Bazhutov, Dmitry,Cumming, Douglas J.,Limbach, Peter
M&A rumors cause anxiety, distraction, and reduced employee morale due to the implicit threat of job loss. Using an international sample of M&A rumors that do not materialize, we show that firm productivity temporarily declines after rumors surface. This productivity dip is more pronounced for target firms and for firms in countries with less employment protection, collective bargaining, and long-term orientation. Stock returns mirror these results, suggesting that rumors destroy shareholder value. The evidence fosters our understanding of the implications of a common phenomenon in financial markets, i.e., rumors, and the dark side of the market for corporate control.

The Macroprudential Toolkit: Effectiveness and Interactions
Millard, Stephen,Rubio, Margarita,Varadi, Alexandra
We use a DSGE model with financial frictions, leverage limits on banks, loan to value (LTV) limits and debtâ€'service ratio (DSR) limits on mortgage borrowing to examine: i) the effects of different macroprudential policies on key macro aggregates; ii) their interaction with each other and with monetary policy; and iii) their effects on the volatility of key macroeconomic variables and on welfare. We find that capital requirements can nullify the effects of financial frictions and reduce the effects of shocks emanating from the financial sector on the real economy. LTV limits, on their own, are not sufficient to constrain household indebtedness in booms, though can be used with capital requirements to keep DSRs under control. Finally, DSR limits lead to a significant decrease in the volatility of lending, consumption and inflation, since they disconnect the housing market from the real economy. Overall, DSR limits are welfare improving relative to any other macroprudential tool.

The Volatility Effect in China
Blitz, David,Hanauer, Matthias X.,van Vliet, Pim
This paper shows that low-risk stocks significantly outperform high-risk stocks in the local China A shares market. The main driver of this low-risk anomaly is volatility, and not beta. A Fama-French style VOL factor is not explained by the Fama-French-Carhart factors, and has the strongest stand-alone performance among all these factors. Our findings are robust across sectors and over time, and consistent with previous empirical evidence for the US and international markets. Moreover, the VOL premium exhibits excellent investability characteristics, as it involves a low turnover and remains strong when applied to only the largest and most liquid stocks. Our results imply that the volatility effect is a highly pervasive phenomenon, and that explanations should be able to account for its presence in highly institutionalized markets, such as the US, but also in the Chinese market where private investors dominate trading.

The fiscal response to revenue shocks
Simon Berset,Martin Huber,Mark Schelker

We study the impact of fiscal revenue shocks on local fiscal policy. We focus on the very volatile revenues from the immovable property gains tax in the canton of Zurich, Switzerland, and analyze fiscal behavior following large and rare positive and negative revenue shocks. We apply causal machine learning strategies and implement the post-double-selection LASSO estimator to identify the causal effect of revenue shocks on public finances. We show that local policymakers overall predominantly smooth fiscal shocks. However, we also find some patterns consistent with fiscal conservatism, where positive shocks are smoothed, while negative ones are mitigated by spending cuts.

The value of power-related options under spectrally negative L\'evy processes
Jean-Philippe Aguilar

We provide analytical tools for pricing power options with exotic features (capped or log payoffs, gap options ...) in the framework of exponential L\'evy models driven by one-sided stable or tempered stable processes. Pricing formulas take the form of fast converging series of powers of the log-forward moneyness and of the time-to-maturity; these series are obtained via a factorized integral representation in the Mellin space evaluated by means of residues in $\mathbb{C}$ or $\mathbb{C}^2$. Comparisons with numerical methods and efficiency tests are also discussed.

Twitter Subjective Well-Being Indicator During COVID-19 Pandemic: A Cross-Country Comparative Study
Tiziana Carpi,Airo Hino,Stefano Maria Iacus,Giuseppe Porro

This study analyzes the impact of the COVID-19 pandemic on the subjective well-being as measured through Twitter data indicators for Japan and Italy. It turns out that, overall, the subjective well-being dropped by 11.7% for Italy and 8.3% for Japan in the first nine months of 2020 compared to the last two months of 2019 and even more compared to the historical mean of the indexes. Through a data science approach we try to identify the possible causes of this drop down by considering several explanatory variables including, climate and air quality data, number of COVID-19 cases and deaths, Facebook Covid and flu symptoms global survey, Google Trends data and coronavirus-related searches, Google mobility data, policy intervention measures, economic variables and their Google Trends proxies, as well as health and stress proxy variables based on big data. We show that a simple static regression model is not able to capture the complexity of well-being and therefore we propose a dynamic elastic net approach to show how different group of factors may impact the well-being in different periods, even over a short time length, and showing further country-specific aspects. Finally, a structural equation modeling analysis tries to address the causal relationships among the COVID-19 factors and subjective well-being showing that, overall, prolonged mobility restrictions,flu and Covid-like symptoms, economic uncertainty, social distancing and news about the pandemic have negative effects on the subjective well-being.

Uncertainty Stifles Innovation and Growth: Evidence From Geopolitical Flare-Ups
Dissanayake, Ruchith,Wu, Yanhui
Using an indicator measure based on war and terror acts that is plausibly uncorrelated with local economic conditions, we document that unanticipated increases in geopolitical uncertainty cause a reduction in R&D expenditure and patenting activity in firms in the U.S. In the cross section, the impact of geopolitical uncertainty on innovation is greater for firms in industries with high innovative competition and financial market frictions. Using industry level data, we show that geopolitical uncertainty lowers long-run economic growth through each of the mechanisms. We show that our results are unlikely to be driven by omitted variable bias or measurement error.

Zero-Debt Policy under Asymmetric Information, Flexibility and Free Cash Flow Considerations
Miglo, Anton
We build a model of debt for firms with investment projects for which flexibility and free cash flow problems are important issues. We focus on the factors that lead the firm to select the zero-debt policy. Our model provides an explanation of the so-called "zero-leverage puzzle" (Strebulaev and Yang (2013)). It also helps to explain why zero-debt firms often pay higher dividends compared to other firms. In addition, the model generates new empirical predictions that have not yet been tested. For example, it predicts that firms with zero-debt policy should be influenced by free cash flow considerations more than by bankruptcy cost considerations. Also the choice of zero-debt policy can be used by high-quality firms to signal their quality. This is in contrast to most traditional signalling literature such as Leland and Pyle (1977), for example, where debt serves as a signal of quality. The model can explain why the probability of selecting the zero-debt policy is positively correlated with profitability and investment size and negatively correlated with the tax rate. It also predicts that firms that are farther away from their target capital structures are less likely to select the zero-debt policy compared to firms that are close to their target levels.