Research articles for the 2021-03-04

A 50-year Retrospect of the Black-Scholes-Merton (BSM) Argument through Three Questions
Wurts, Henry
This paper provides a retrospect of the Black-Scholes-Merton (BSM) argument that is used to derive the common BSM formula. The paper utilizes and builds upon a frame used to provide a retrospect of the Put-Call Parity (PCP) provided in Wurts (2018a). Accordingly, this paper fills a promise that lessons-learned from PCP analysis can be applied to more complex models for financial derivatives, and leads to a subsequent promise that lessons-learned from BSM analysis can also be applied to more-complex financial instruments and their models. The paper utilizes heuristics already developed for PCP analysis (as found in Wurts (2018a, 2018b, and 2019)) and introduces additional heuristics that can be useful in the corporate governance of model validation, including the micro corporate governance of financial instrument valuation models. The paper address three retrospect questions. (1) Should the BSM argument hold? (No.) (2) Has the BSM argument held? (Not necessarily.) (3) What are consequences for presuming the BSM argument has held? (Inconsistent logic, with added details.) The paper also provides an assessment regarding how other scholars have provided a different retrospect on the BSM model in general. And while other scholars have emphasized a naming of the BSM Formula (i.e., the seminal formula for a Call option) and the BSM Equation (i.e., the seminal fundamental partial differential equation for “all” derivatives, that leads to the BSM Formula), it is not clear that scholars have well characterized the BSM Argument. Hence, an introductory description of the BSM Argument is provided herein, in the context of what the BSM model and approach is.

kumar, Pratik
My research analysis will therefore under this comparative study will largely include constitution of Australia and Canada. It is argued that there is a systematic relationship between the formative process by which federal constitutions come into existence.The paper will also put forth the range of contemporary challenges of constitutional interpretation and solution through comparative study.As the fundamentals of the constitution remain unalterable but constitutionalism is dynamic and the most integral part of a nation in being supreme.Constitution rigidity is there as the focus is to give the best of deserved by states in essence of power to be vested but the limitations on those powers should be controlled and restricted and the government too.Hence, the research will put on a question of rigidity of constitutionalism through comparative system a success or a failure?

A New Valuation Measure for the Stock Market
Taran Grove,Michael Reyes,Andrey Sarantsev

We generalize the classic Shiller cyclically adjusted price-earnings ratio used for prediction of future total returns of the American stock market. We split total returns into three components: earnings growth, dividend yield, and valuation change. The first two components are fundamental, the third is speculative. We develop two time series models: one for valuation change, and the other for dividend yield plus valuation change. These models are simple auto-regressions of order 1. The second model shows that long-run real return is equal to earnings growth plus 4-5%. We verify the classic 4% withdrawal rate: A retiree should invest in stocks and withdraw 4% of initial wealth after adjusting for inflation.

A Note on Utility Indifference Pricing with Delayed Information
Peter Bank,Yan Dolinsky

We consider the Bachelier model with information delay where investment decisions can be based only on observations from $H>0$ time units before. Utility indifference prices are studied for vanilla options and we compute their non-trivial scaling limit for vanishing delay when risk aversion is scaled liked $A/H$ for some constant $A$. Using techniques from [7], we develop discrete-time duality for this setting and show how the relaxed form of martingale property introduced by [9] results in the scaling limit taking the form of a volatility control problem with quadratic penalty.

A Robust Economic, as Opposed to Industry Classification Nomenclature for Identification and Study of Corporate Diversification
Obrimah, Oghenovo A.
It is well established that Tobin's q is more a measure of average productivity than marginal productivity. This study arrives at two conditions that, satisfied, transform Tobin's q into a robust qualitative - well ordered - measure for firms' marginal productivity. First, in presence of continuity of efficiency of internal capital markets, model predictions show absence of a diversification discount feasibly tatonnes into emergence of a diversification discount. Efficiency of internal capital markets then is shown to be robustly deducible from performance effects of arrival of a beneficial shock in opportunity set of a division of a diversified firm that is characterized by `soft' information. Second, the formal theory establishes necessity of a new economic nomenclature for identification of diversified firms. In presence of the new economic nomenclature, a firm operating in two different industry segments has, conditional on asymptotic equality of segment marginal productivities, classification as a focused firm.

A comparative study of scoring systems by simulations
László Csató

Scoring rules aggregate individual rankings by assigning some points to each position in each ranking such that the total sum of points provides the overall ranking of the alternatives. They are widely used in sports competitions consisting of multiple contests. We study the tradeoff between two risks in this setting: (1) the threat of early clinch when the title has been clinched before the last contest(s) of the competition take place; (2) the danger of winning the competition without finishing first in any contest. In particular, four historical points scoring systems of the Formula One World Championship are compared with the family of geometric scoring rules that have favourable axiomatic properties. The formers are found to be competitive or even better. The current scheme seems to be a reasonable compromise in optimising the above goals. Our results shed more light on the evolution of the Formula One points scoring systems and contribute to the issue of choosing the set of point values.

Accounting Quality, Investment Efficiency, and the Country-Level Strength of Institutional Enforcement
Anagnostopoulou, Seraina C.
This study examines the extent to which the effect of firm-level accounting quality on corporate investment efficiency differs across jurisdictions with differential strength of institutional and regulatory enforcement. Institutional enforcement is expected to mitigate adverse selection and moral hazard concerns which drive inefficient investment, in the same way as firm-specific financial reporting quality has been shown to do by previous research within the single-country setting. Using a sample of mandatory IFRS adopters from 25 countries, findings first indicate a significantly negative association between accounting quality and both over- and under-investment, which strongly holds regardless of the institutional characteristics of a country. However, this negative association becomes more pronounced when the level of institutional enforcement is weaker and less effective in a country, consistent with firm-specific reporting quality increasing importance as country-level regulatory enforcement worsens. This evidence indicates that when the effectiveness of institutional enforcement in a country does not successfully alleviate information asymmetries, and help facilitate the efficient monitoring of corporate insiders by capital providers, there is greater need for firm-specific accounting quality to perform this function in order to promote efficient investing.

An Agent-Based Modelling Approach to Brain Drain
Furkan Gürsoy,Bertan Badur

The phenomenon of brain drain, that is the emigration of highly skilled people, has many undesirable effects, particularly for developing countries. In this study, an agent-based model is developed to understand the dynamics of such emigration. We hypothesise that skilled people's emigration decisions are based on several factors including the overall economic and social difference between the home and host countries, people's ability and capacity to obtain good jobs and start a life abroad, and the barriers of moving abroad. Furthermore, the social network of individuals also plays a significant role. The model is validated using qualitative and quantitative pattern matching with real-world observations. Sensitivity and uncertainty analyses are performed in addition to several scenario analyses. Linear and random forest response surface models are created to provide quick predictions on the number of emigrants as well as to understand the effect sizes of individual parameters. Overall, the study provides an abstract model where brain drain dynamics can be explored. Findings from the simulation outputs show that future socioeconomic state of the country is more important than the current state, lack of barriers results in a large number of emigrants, and network effects ensue compounding effects on emigration. Upon further development and customisation, future versions can assist in the decision-making of social policymakers regarding brain drain.

An Exceedance Probability of Financial Return and Its Application to the Risk Analysis
Karatetskaya, Efrosinia,Lakshina, Valeria
This paper studies a new specification of the autoregressive binary choice model for estimating the exceedance probability of return and its application to the risk management tasks, especially for Value-at-Risk calculation. The author proposed a new parametrization of the volatility equation, which implies the presence of an additional random term. Such a model could not be estimated using the methods of classical statistics; therefore the Bayesian NUTS algorithm was chosen as an appropriate toolkit. Estimated exceedance probabilities were applied in calculating VaR. As a data set, it was taken the daily return of PAO «Sberbank» shares and the one-minute return of the USD-RUB currency pair. The results of VaR estimation were tested for asymptotic convergence to the true value by Engle and Manganelli’s dynamic quantile test.

Asset Prices and Portfolio Choice with Heterogeneous Risk Aversion and Overlapping Generations
Ehling, Paul,Guo, Junjie,Heyerdahl-Larsen, Christian
We study an overlapping generation model with heterogeneous risk aversion. Our framework accommodates many agent types and substantially differs from an economy where agents live forever. All but one agents’ consumption shares drive the economy; thus, for a given aggregate risk aversion the real rate of interest can take many values instead of a unique one. Summarizing through the consumption share weighted variance of the risk-tolerance the rich dynamics of the model that are not captured by the aggregate risk aversion, we construct level and slope factors that do not require knowledge about agent’s risk aversion to predict excess returns.

COVID-19 Impact on Global Maritime Mobility
Leonardo M. Millefiori,Paolo Braca,Dimitris Zissis,Giannis Spiliopoulos,Stefano Marano,Peter K. Willett,Sandro Carniel

To prevent the outbreak of the Coronavirus disease (COVID-19), many countries around the world went into lockdown and imposed unprecedented containment measures. These restrictions progressively produced changes to social behavior and global mobility patterns, evidently disrupting social and economic activities. Here, using maritime traffic data collected via a global network of AIS receivers, we analyze the effects that the COVID-19 pandemic and containment measures had on the shipping industry, which accounts alone for more than 80% of the world trade. We rely on multiple data-driven maritime mobility indexes to quantitatively assess ship mobility in a given unit of time. The mobility analysis here presented has a worldwide extent and is based on the computation of: CNM of all ships reporting their position and navigational status via AIS, number of active and idle ships, and fleet average speed. To highlight significant changes in shipping routes and operational patterns, we also compute and compare global and local density maps. We compare 2020 mobility levels to those of previous years assuming that an unchanged growth rate would have been achieved, if not for COVID-19. Following the outbreak, we find an unprecedented drop in maritime mobility, across all categories of commercial shipping. With few exceptions, a generally reduced activity is observable from March to June, when the most severe restrictions were in force. We quantify a variation of mobility between -5.62% and -13.77% for container ships, between +2.28% and -3.32% for dry bulk, between -0.22% and -9.27% for wet bulk, and between -19.57% and -42.77% for passenger traffic. This study is unprecedented for the uniqueness and completeness of the employed dataset, which comprises a trillion AIS messages broadcast worldwide by 50000 ships, a figure that closely parallels the documented size of the world merchant fleet.

COVID-19 Stringency Measures, Risk of Openness and Foreign Investment: Some Preliminary Evidence
Giofré, Maela
This paper investigates the relationship between foreign investment and the containment measures, in the aftermath of the COVID-19 spread. We find that the non significant correlation between the average quarterly stringency index and inward foreign investment at the end of the first quarter of 2020 hides a source of heterogeneity across countries. Foreign investors highly rate the implementation of strong containment measures - as measured by government stringency index - in countries with high risk - as measured by the risk of openness index. Conversely, foreign investors are less attracted by assets issued by countries adopting weak stringency measures despite a high risk of openness, or those implementing drastic stringency measures in the presence of a relatively lower risk of openness.

Capital Structure Determinants of Shari’ah-Compliant Firms: Evidence from the MENA Region
Raghibi, Abdessamad,Oubdi, Lahsen
Capital structure choice is vital in corporate financial management due to its effect on both investors' risk and return. Despite the various research that has investigated factors affecting the capital structure of companies, only a few studies have started to examine the capital structure of Shari'ah-compliant companies, especially in the MENA region. Indeed, the screening requirements for which shari'ah-compliant must adhere can affect their capital structure determinants. Hence, under those conditions, this study aims to determine the factors influencing the capital structure of a shari'ah-compliant listed firm in five MENA region countries. The importance of investigating shari’ah-complaint companies’ capital structure emanates from the financial constraints on their debt capital structure. Accordingly, this study utilizes static panel data techniques on a sample consisting of Shari'ah-compliant firms over the period 2010â€"2018. The findings of this study were consistent with several previous studies as well as the theoretical background of capital structure determinants mainly, the trade-off and the pecking order theory. Our results give insight to managers on what determines their capital structure under shari'ah screening methodologies. However, more insight can be drought from the capital structure of shari'ah-compliant firms by extending the research into industry specifics.

Comparing CEO Compensation Effects of Public and Private Acquisitions
Brander, James A.,Egan, Edward J.,Endl, Sophie
We estimate the effect of acquisition performance and acquisition activity on CEO compensation for the full set of CEOs of large public U.S. corporations in the Execucomp database over the period 1992-2016. Most previous work has focused on publicly traded acquisition targets. We focus on the comparison between public and private targets, showing significant differences between the two. One primary finding, based on panel data regressions (both fixed and random effects) is that the performance of private acquisitions, as measured by abnormal announcement returns, has a statistically significant positive effect of plausible economic magnitude on CEO compensation. Public acquisitions exhibit a smaller positive effect that is statistically insignificant. For both, acquisition activity (number of acquisitions) has a statistically significant effect on compensation. Furthermore, compensation is more sensitive to acquisition activity than to performance. Our results suggest that agency considerations are important for both public and private acquisitions but are more important for public acquisitions.

Corporate Cash Holdings in Emerging Markets
Diaw, Alassane
This paper contributes to studies on corporate liquidity management. It explores the determinants of cash holdings of firms in emerging countries using panel data models. The results indicate that highly liquid firms in emerging countries show one or more of the following characteristics. They have larger size, lower capital expenditure, R&D, net working capital, leverage, and intangible assets. In addition, there is an inverse relationship between growth opportunities and cash holdings, suggesting the presence of a moral hazard problem. Moreover, using the system Generalized Method of Moments (GMM) estimator for dynamic panel data shows that the adjustment speed to the cash target level is not fast. The model also shows the impact of the dependent variable past realizations on corporate cash holdings.

Ravid, S. Abraham,Han, Shu
This paper considers discrimination in the market for managerial positions by following the career paths of film directors. Film directors manage multi-million projects and are hired on a project by project basis. We gather data on directors’ film projects from the time they enter the profession. We also study their background prior to the first movie they direct. As shown here and in previous work, the economic success of previous film projects is the main determinant of hiring for a new film, thus our null hypothesis is that controlling for career paths, age gender and race should not matter in landing a new project.However, we find that age matters and although directors start directing on average around age 40, there is evidence of age discrimination even for directors under 50. We also find more subtle evidence for gender bias, particularly in allocating budgets for future projects. We also document that on average, only 12% of an entering cohort of new directors are women and they follow a different path than men in the entertainment industry.It is significant that if there is evidence of discrimination in such an industry where career paths are public knowledge.

Do Foreign Institutional Investors Affect International Contracting? Evidence from Bond Covenants
Brockman, Paul,Drobetz, Wolfgang,El Ghoul, Sadok,Guedhami, Omrane,Zheng, Ying
We examine the impact of foreign institutional investors on the prevalence of restrictive bond covenants using a sample of 959 Yankee bonds from 29 countries over the period 2001â€"2019. We find a significantly negative relation between foreign institutional ownership and debt covenants. This inverse relation is strongest for U.S. institutional ownership of foreign-issued Yankee bonds, and for covenants designed to mitigate such opportunistic behavior as claims dilution and wealth transfers. We also find that the inverse relation between U.S. institutional ownership and restrictive debt covenants is moderated by country- and firm-level variables related to corporate governance and information asymmetry.

Do Fossil Fuel Divestment Commitments and Green Finance Policies Impact Fossil Fuel Investment Brokerage within and between Financial Centres?
Cojoianu, Theodor,Hoepner, Andreas G. F.,Schneider, Fabiola,Urban, Michael,Vu, Anh,Wojcik, Dariusz
Using a global dataset of over 840,000 equity, bond and syndicated loan investment banking deals, we build the fossil fuel investment brokerage profile of financial centres worldwide between 2000 and 2018. We also study whether financial centre fossil fuel divestment commitments and country level green banking policies impact this profile over our study time period. We find that several financial centres shift their fossil fuel investment brokerage profiles substantially, including the asset classes which they are active in, and that divestment commitments and green banking policies fail to restrain fossil fuel investment, in particular the inter-financial centre brokerage of fossil fuel finance.

Dunkle Wolken über dem EU-Afrika Gipfel 2021 angesichts von Brexit und Corona
Kohnert, Dirk
ABSTRACT & ZUSAMMENFASSUNG : Every three years, the AU-EU summit reunites African and EU leaders to outline the future direction of cooperation. The 6th summit had been to reaffirm and renew the partnership between the two blocks already in October 2020, but it was pushed back to the first quarter of 2021 or even later due to COVID-19 crisis. Besides, Brussels had to deal with its own post-Brexit situation and its repercussions on EU-Africa relations, excluding the UK. African states, for their part, wanted to renegotiate the EU-Africa partnership and to balance it with new promising Post-Brexit visions of the British premier Johnson about increased economic ties with the African Angloshere. China and other global players compete with the EU and its member states in the new scramble for African resources. Given that Africa is increasingly courted by other partners it could be inclined to successively limit its relations with the EU and see it as a mere provider of aid and security against Islamic terrorism. This trend was reinforced by the fact that the new EU-Africa strategy still hasn't been approved by EU member states. And a timely replacement of the Cotonou Agreement, which expires in November 2021, is open to question. ______________________________________________________________________________ ZUSAMMENFASSUNG: Alle drei Jahre bringt der AU-EU-Gipfel afrikanische und EU-Staats- und Regierungschefs zusammen, um die künftige Richtung der Zusammenarbeit zu skizzieren. Der 6. Gipfel hatte sich zum Ziel gesetzt, die Partnerschaft zwischen den beiden Blöcken bereits im Oktober 2020 zu bekräftigen und zu erneuern, er wurde jedoch aufgrund der COVID-19-Krise auf das erste Quartal 2021 verschoben. Davon unabhängig musste sich Brüssel erst einmal über seine eigene Situation nach dem Brexit und dessen Auswirkungen auf die Beziehungen zwischen der EU und Afrikaklar werden. Die afrikanischen Staaten ihrerseits wollen die Partnerschaft zwischen der EU und Afrika neu verhandeln und sie mit den vielversprechenden Visionen des britischen Premierministers Boris Johnson über verstärkte wirtschaftliche Beziehungen zur afrikanischen Anglosphäre in Einklang bringen. Zudem konkurrieren China und andere Global Player mit der EU und ihren Mitgliedstaaten im Kampf um afrikanische Ressourcen. Angesichts der Tatsache, dass Afrika zunehmend von anderen Partnern umworben wird, könnte seine Führer dazu neigen, ihre Beziehungen zur EU sukzessive einzuschränken und die EU auf ihre Funktion als Anbieter von Hilfe und Sicherheit gegen den islamischen Terrorismus zu beschränken. Dieser Trend noch dadurch verstärkt, dass eine gemeinsame EU-Afrika-Strategie von den EU-Mitgliedstaaten noch nicht einmal verabschiedet wurde. Selbst de rechtzeitige Ersatz des Cotonou-Abkommens, das im November 2021 ausläuft, ist fraglich.

Event-Based Dynamic Banking Network Exploration for Economic Anomaly Detection
Andry Alamsyah,Dian Puteri Ramadhani,Farida Titik Kristanti

The instability of financial system issues might trigger a bank failure, evoke spillovers, and generate contagion effects which negatively impacted the financial system, ultimately on the economy. This phenomenon is the result of the highly interconnected banking transaction. The banking transactions network is considered as a financial architecture backbone. The strong interconnectedness between banks escalates contagion disruption spreading over the banking network and trigger the entire system collapse. This far, the financial instability is generally detected using macro approach mainly the uncontrolled transaction deficits amount and unpaid foreign debt. This research proposes financial instability detection in another point of view, through the macro view where the banking network structure are explored globally and micro view where focuses on the detailed network patterns called motif. Network triadic motif patterns used as a denomination to detect financial instability. The most related network triadic motif changes related to the instability period are determined as a detector. We explore the banking network behavior under financial instability phenomenon along with the major religious event in Indonesia, Eid al-Fitr. We discover one motif pattern as the financial instability underlying detector. This research helps to support the financial system stability supervision.

Finanzas Corporativas y Decisiones de Inversión (Corporate Finance and Investment Decisions)
Velez-Pareja, Ignacio,Tham, Joseph,Castilla Ávila, Pedro Fabián
Spanish Abstract: Esta es una versión no publicada del libro Finanzas Corporativas y Decisiones de Inversión.Se estudian las razones financieras básicas y su uso como generador de información para el tratamiento detallado de cómo hacer proyecciones de los estados financieros y llegar a construir los flujos de caja necesarios para evaluar un proyecto o valorar una firma (que operacionalmente son lo mismo).Se estudian también las decisiones de inversión en la firma, el valor del dinero en el tiempo, bonos y acciones y análisis financiero como herramientas que facilitan el ejercicio de la proyección de los estados financieros.Construimos el Flujo de Tesorería (FT) para reflejar las entradas y salidas de efectivo y como una forma de enlazar los tres estados financieros que debemos proyectar: el Flujo de Tesorería, el Estado de Resultados y el Balance General. Incluyéndolos y relacionándolos, podemos garantizar que se cumpla la relación básica de la Contabilidad: la partida doble. También se ilustra la forma tradicional (indirecta) de estimar los flujos de caja. Con base en el FT se estiman los flujos de caja de la firma necesarios para su valoración.Se estudia cómo determinar las tasas de descuento para la valoración de flujos y se presenta un capítulo sobre la determinación de la estructura óptima de capital.Para completar la construcción de los flujos de caja, se estudia el cálculo del Valor Terminal.Con los flujos de caja estimados, el valor terminal y la tasa de descuento podemos valorar la firma. Sin embargo, es muy importante reconocer la variabilidad de los insumos o datos de entrada. Esto nos lleva a varios capítulos que incluyen análisis de sensibilidad, riesgo, simulación y opciones reales.Se incluyen los temas de análisis de sensibilidad, simulación y en forma muy introductoria, opciones reales.Finalmente se plantean sugerencias para proyectar una empresa en marcha y aspectos prácticos de la valoración de empresas.Este libro contiene además reflexiones sobre los aspectos prácticos de la valoración.English Abstract: This is an unpublished version of the book Corporate Finance and Investment Decisions. The text studies the basic financial ratios and their use as an information generator for the detailed treatment of how to construct forecasted financial statements to build the cash flows necessary to evaluate a project or value a firm (which operationally is the same). This book studies investment decisions in the firm, the time value of money, bonds and stocks, financial analysis as tools that facilitates the exercise of the projection of financial statements. We build the Cash Budget (CB) that shows cash in and out and is a way to link the three financial statements we need to forecast: the Cash Budget (CB), the Income Statement (IS) and the Balance Sheet (BS). By including and linking them, we can ensure that the accounting basic relationships, the double entry system, are fulfilled. The book also illustrates the traditional (indirect) way of estimating cash flows. Based on the FT, we estimate the required cash flows for valuating a firm. The book examines how to determine discount rates for cashflow valuation and includes a chapter to determine the optimal capital structure. To complete the construction of cash flows, we calculate the Terminal or Continuing Value . With estimated cash flows, terminal value, and discount rates we can estimate the firm value. However, it is especially important to recognize the variability of inputs or input data. For that reason we include several introductory chapters on sensitivity analysis, risk, simulation and real options. Finally, we present suggestions on how to forecast the cashflows of an ongoing firm and practical aspects on business valuation. This book also contains some ideas on the practical aspects of valuation.

Gender Roles and the Gender Expectations Gap
D'Acunto, Francesco,Malmendier, Ulrike,Weber, Michael
Expectations about economic variables vary systematically across genders. In the domain of inflation, women have persistently higher expectations than men. We argue that traditional gender roles are a significant factor in generating this gender expectations gap as they expose women and men to different economic signals in their daily lives. Using unique data on the participation of men and women in household grocery chores, their resulting exposure to price signals, and their inflation expectations, we document a tight link between the gender expectations gap and the distribution of grocery shopping duties. Because grocery prices are highly volatile, and consumersfocus disproportionally on positive price changes, frequent exposure to grocery prices increases perceptions of current inflation and expectations of future inflation. The gender expectations gap is largest in households whose female heads are solely responsible for grocery shopping, whereas no gap arises in households that split grocery chores equally between men and women. Our results indicate that gender differences in inflation expectations arise due to social conditioning rather than through differences in innate abilities, skills, or preferences.

Hedging of Financial Derivative Contracts via Monte Carlo Tree Search
Oleg Szehr

The construction of approximate replication strategies for derivative contracts in incomplete markets is a key problem of financial engineering. Recently Reinforcement Learning algorithms for pricing and hedging under realistic market conditions have attracted significant interest. While financial research mostly focused on variations of $Q$-learning, in Artificial Intelligence Monte Carlo Tree Search is the recognized state-of-the-art method for various planning problems, such as the games of Hex, Chess, Go,... This article introduces Monte Carlo Tree Search as a method to solve the stochastic optimal control problem underlying the pricing and hedging of financial derivatives. As compared to $Q$-learning it combines reinforcement learning with tree search techniques. As a consequence Monte Carlo Tree Search has higher sample efficiency, is less prone to over-fitting to specific market models and generally learns stronger policies faster. In our experiments we find that Monte Carlo Tree Search, being the world-champion in games like Chess and Go, is easily capable of directly maximizing the utility of investor's terminal wealth without an intermediate mathematical theory.

How Does Deleveraging Affect Funding Market Liquidity?
Qiu, Buhui,Tian, Gary Gang,Hai Jian, Zeng
How does deleveraging affect the market liquidity of high-embedded-leverage securities issued by financial institutions and the funding constraints of these institutions? We use the forced deleveraging of structured mutual funds during the 2015 Chinese stock market crash to study the effects of deleveraging. Our regression-discontinuity analysis shows that deleveraging significantly reduces the market liquidity of the deleveraging funds’ equity units. Moreover, our difference-in-differences analysis shows that deleveraging results in large decreases in subsequent fund flows, stock and cash holdings, and performance, with the impact channeled through the deterioration of the market liquidity of the fund’s equity units.

How Does Peer-to-Business Lending Affect Financial Policy of SMEs?
Eca, Afonso,Ferreira, Miguel A.,Prado, Melissa Porras,Rizzo, Antonino Emanuele
We study how alternative sources of financing, Peer to Business (P2B) platforms, affect the financial policy of small and medium-sized enterprises (SMEs). We find that firms obtaining P2B loans are higher quality firms as they are large, more profitable, with higher sales growth, higher bank debt, and lower default rates. We conclude that P2B platforms are serving the same type of firms than traditional banks. While P2B loans do not seem to affect investment policy and performance, it does affect financial policy. Firms use the availability of P2B to reduce long-term bank debt, while they increase short-term bank debt following P2B lending. In addition, SMEs increase the number of lending relationships and reduce their dependence on a single bank, in particular those with less stable funding and lower liquidity. Our findings suggest that FinTech lending complements the debt financing choices of SMEs and allows them to diversify away from traditional banks.

How Much Can Machines Learn Finance From Chinese Text Data?
Fan, Jianqing,Xue, Lirong,Zhou, Yang
Most studies on equity markets using text data focus on English-based specified sentiment dictionaries or topic modeling. However, can we predict the impact of news directly from the text data? How much can we learn from such a direct approach? We present here a new framework for learning text data based on the factor model and sparsity regularization, called FarmPredict, to let machines learn financial returns automatically. Unlike other dictionary-based or topic models that have stringent pre-screening processes, our framework allows the model to extract information more fully from the whole article. We demonstrate our study on the Chinese stock market, as Chinese text has no natural spaces between words and phrases and the Chinese market has a very large proportion of retail investors. These two specific features of our study differ significantly from the previous literature that focuses on English-text and the U.S. market. We validate our method using the literature on the Chinese stock market with several existing approaches. We show that positive sentiments scored by our FarmPredict approach generate on average 83 bps stock daily excess returns, while negative news has an adverse impact of 26 bps on the days of news announcements, where both effects can last for a few days. This asymmetric effect aligns well with the short-sale constraints in the Chinese equity market. As a result, we show that the machine-learned sentiments do provide sizeable predictive power with an annualized return of 116% with a simple investment strategy and the portfolios based on our model significantly outperform other models. This lends further support that our FarmPredict can learn the sentiments embedded in financial news. Our study also demonstrates the far-reaching potential of using machines to learn text data.

kumar, Pratik
Globalisation is a process as old as the civilisation itself but gained attention and prominence in the last two decades .During this passage of decade in the administrativesystem globalisation played a vital role in the historical shift in systematic pattern. As of India being a developing nation went under a major surface change in the administrative system under the purview of globalisation. Globalisation has extended the inward and outward demand for legal services with change in socio-economic conditions.India has been liberalising its legal services sector which creates a positive and a negative impact on judicial service.In the further paper the research will put forth the inclusion of different beaches, technologies, amendments, urge of the land for change under the globalisation.

Illiquidity and the theory of the firm: an exploration of a new perspective
Bank, Matthias
Illiquidity has a negative connotation (Tirole (2011)). We focus on theneglected 'bright' side of illiquidity: glue. We argue that the economicforces leading to or supporting illiquidity are key to the theory of the firm.Accumulated skills of agents are always threatened by competition. Firmsemerge as powerful solutions to these problems, since they may be interpretedas tools to mutually insure economic agents temporarily from competitionby providing a short-term stable but long-term fragile environment built onilliquid resources. In short: firms can be interpreted as illiquid, self-enforcingentities.

Income Risk, Precautionary Saving, and Loss Aversion â€" An Empirical Test
Ibanez, Marcela,Schneider, Sebastian O.
This paper empirically examines the behavioral precautionary saving hypothesis by Koszegi and Rabin (2009) stating that uncertainty about future income triggers saving because of loss aversion. We extend their theoretical analysis to also consider the internal margin, i.e., the strength, of loss aversion, and empirically study the relation between income risk, experimentally elicited loss aversion and precautionary savings. We do so using a sample of 640 individuals from the low-income population of Bogotá, characterized by limited financial education and subject to substantial income risk. In line with the theoretical predictions, we find that an increase in income risk is associated with higher savings for loss-averse individuals, and that this increase in savings grows with the degree of loss aversion. Thus, as suggested by Koszegi and Rabin (2009), but contrarily to common assumptions, our findings establish that loss aversion is not necessarily an obstacle to saving, and thus identify new approaches of increasing saving among individuals with low financial education.

Indian Economy and Nighttime Lights
Jeet Agnihotri,Subhankar Mishra

Forecasting economic growth of India has been traditionally an uncertain exercise. The indicators and factors affecting economic structures and the variables required to model that captures the situation correctly is point of concern. Although the forecast should be specific to the country we are looking at however countries do have interlinkages among them. As the time series can be more volatile and sometimes certain variables are unavailable it is harder to predict for the developing economies as compared to stable and developed nations. However it is very important to have accurate forecasts for economic growth for successful policy formations. One of the hypothesized indicators is the nighttime lights. Here we aim to look for a relationship between GDP and Nighttime lights. Specifically we look at the DMSP and VIIRS dataset. We are finding relationship between various measures of economy.

Interconnectedness of Systemic Risk Management and Design of Financial System
Sancak, Ibrahim E.
English abstract: Systemic risk management has increased in importance, and policymakers have emphasized this issue with the global crisis. Although there are many reports and scientific papers on systemic risk management or financial stability, these papers mostly focus on market actors and their interconnectedness. In this article, I change the concept from market actors to public authorities of a financial system and focus on the efficient design of a system to be able to have better systemic risk management to sustain financial stability. Throughout the article, I work under the following hypothesis: The architecture of the financial system in a country or a region is one of the pillars of the success of systemic risk management and financial stability. As a result, I introduce the idea that instead of having an advisory committee/board/council, each country should have a financial stability “agency”. German abstract: Das systemische Risikomanagement hat an Bedeutung gewonnen, und die Politik hat dieses Thema mit der globalen Krise in den Vordergrund gestellt. Obwohl es viele Berichte und wissenschaftliche Publikationen zum Thema systemisches Risikomanagement oder Finanzstabilität gibt, konzentrieren sich diese Berichte und Publikationen meist auf Marktakteure und deren Verflechtung. In diesem Artikel ändere ich das Konzept von Marktakteuren zu Behörden eines Finanzsystems und konzentriere mich auf die effiziente Gestaltung eines Systems, um ein besseres systemisches Risikomanagement zur Aufrechterhaltung der Finanzstabilität zu ermöglichen. Im gesamten Artikel gehe ich von der folgenden Hypothese aus: Die Architektur des Finanzsystems in einem Land oder einer Region ist eine der Säulen für den Erfolg von systemischem Risikomanagement und Finanzstabilität. Infolgedessen stelle ich die Idee vor, dass jedes Land anstelle eines beratenden Ausschusses/Beirats/Rats eine "Institution" für Finanzstabilität haben sollte. Turkish abstract: Küresel krizle birlikte sistemik risk yönetiminin önemi arttı ve buna bağlı olarak politika yapıcılar bu konuya daha fazla eğilmeye başladılar. Artan önem ve ilgiye bağlı olarak sistemik risk yönetimi veya finansal istikrar üzerine çok sayıda rapor ve bilimsel çalışma üretilmiş olmasına rağmen, bunlar çoğunlukla piyasa aktörleri ile ilgilidir. Bu makale ile, sistemik risk yönetimi ve finansal istikrar konusu, piyasa aktörleri arasındaki ilişki ve etkileşimden farklı olarak, finansal otoriteler ve finansal sistemin tasarımı çerçevesinde ele alınmaktadır. Bu bağlamda şu hipotez ortaya konulmuştur: Bir ülke ya da bölgenin finansal sisteminin mimarisi sistemik risk yönetimi başarısını belirleyen temel unsurlardan biridir. Sonuç olarak, pek çok ülkede küresel krizle birlikte oluşturulan "kurul/konsey/komite" içerikli yapıların yetersiz hatta olumsuz etkileri bulunabilecek unsurlar olduğu ortaya konulmakta ve bunların yerine her ülkede sistemik riski ve finansal istikrarı yönetecek birer "kurum" oluşturulması önerilmektedir.

Internet Appendix for 'Unsecured and Secured Funding'
di Filippo, Mario,Ranaldo, Angelo,Wrampelmeyer, Jan
This supplemental appendix extends the results in Di Filippo, Ranaldo, and Wrampelmeyer (2015) by providing additional background information, analyses, and robustness checks.The paper "Unsecured and Secured Funding" to which these Appendices apply is available at the following URL:

Language and Domain Specificity: A Chinese Financial Sentiment Dictionary
Du, Zijia ,Huang, Alan Guoming,Wermers, Russ,Wu, Wenfeng
We use supervised machine learning to develop a Chinese language financial dictionary of sentiment from 3.1 million financial news articles. Our dictionary maps semantically similar words to a subset of human-expert generated financial sentiment words. In cross-sectional tests, our dictionary outperforms and subsumes previous Chinese translations of Loughran and McDonald’s (2011) financial word dictionary. We also generate a list of politically-related positive words that is unique to China; this list has a weaker association with returns than does the list of otherwise positive words. Our findings demonstrate that dictionary-based sentiment analysis exhibits strong language and domain specificity.

Limitation on Trader Fund Losses under the CARES Act of 2020
Sosner, Nathan,Steblea, Roxana
Hedge funds are characterized by a significant complexity of their tax attributes. In this paper, we explain how hedge fund investors might be affected by a limitation on excess business losses codified in a new IRC Section 461(l), introduced as a part of the TCJA of 2017 and later amended by the CARES Act of 2020. In order to allocate business losses a hedge fund must be a trader fund. We thus discuss what makes a hedge fund a trader fund, whether management and performance fees of a trader fund are deductible as trade or business loss, and whether trader fund losses constitute passive activity losses. After explaining the relationship between hedge fund losses and business losses, we illustrate with simple examples how the new provisions of the CARES Act under Section 461(l) may affect hedge fund investors. We find that compared to TCJA some of these new provisions are beneficial while others are detrimental to investors. On the balance, Section 461(l) remains punitive, uneconomic, and unnecessary.

Looking for New Lenses: How Regulation Should Cope with the Financial Market Infrastructures Evolution
Di Noia, Carmine,Filippa, Luca
Description of the evolution of financial market infrastructures in the last 30 years, focussed on changes in governance (from public or mutual entities to for-profit organisations, often listed), location (from country-based to international), business (from revenues linked to listing and trading to information services and post-trading) and market (from domestic monopoly to global competition). Impact on regulation and supervision: the traditional micro-prudential and investor protection issues are now more and more intertwined with macro-stability and antitrust issues which may lead to some reshape the institutional architecture, especially in the framework of Capital Markets Union in the European Union.

Lucky You: Income Risk, Precautionary Saving, and Loss Aversion – An Empirical Test
Ibanez, Marcela,Schneider, Sebastian O.
This paper empirically examines the behavioral precautionary saving hypothesis by Koszegi and Rabin (2009) stating that uncertainty about future income triggers saving because of loss aversion. We extend their theoretical analysis to also consider the internal margin, i.e., the strength, of loss aversion, and empirically study the relation between income risk, experimentally elicited loss aversion and precautionary savings. We do so using a sample of 640 individuals from the low-income population of Bogotá, characterized by limited financial education and subject to substantial income risk. In line with the theoretical predictions, we find that an increase in income risk is associated with higher savings for loss-averse individuals, and that this increase in savings grows with the degree of loss aversion. Thus, as suggested by Koszegi and Rabin (2009), but contrarily to common assumptions, our findings establish that loss aversion is not necessarily an obstacle to saving, and thus identify new approaches of increasing saving among individuals with low financial education.

Macroprudential Due-Diligence Framework for Shadow Banking Entities
Prorokowski, Lukasz
Addressing the need for greater transparency and control over the shadow banking system, this paper designs a macroprudential tool that serves to ensure greater financial stability through identifying and managing systemic risk posed by the shadow banking investment funds. In particular, the paper investigates potential crisis contagion channels within the shadow banking system by analysing the interconnectedness of the shadow banking investment funds and highlighting the links within the internal structures of the investment funds and securitisation vehicles, as well as external relationships with credit institutions. The paper proposes a due-diligence tool for monitoring and controlling the build-up of systemic risk posed by any shadow banking investment fund. This macroprudential tool serves as an early warning system against the growing systemic vulnerabilities of the shadow banking entities. Finally, the paper advises on efficient ways of sourcing, managing and reporting shadow banking data that ultimately address the issues of limited transparency of the shadow banking system.

Managerial Talk of Trust and Takeover Performance
Ghufran, Bushra
The current study investigates the usage of virtuous language in the management discussion and analysis (MD&A) section of SEC filings (10-K Form) and the prognostic power of such language for takeover performance. The sample under study, obtained from Bloomberg, is comprised of a large number of M&A deals from the United States that took place between January 2000 and October 2016. The empirical results, based on textual analysis, reveal that trust is negatively associated with long-term takeover performance, suggesting that managerial virtuous talk is, in practicality, an indication of lower post-acquisition gains for the acquirers in the long run. Furthermore, takeover returns are found to reflect textual information on trust with a delay, owing to general inattention and inability of investors to process soft cues inherent in textual content and to managers purposefully lulling investors to keep them from paying attention and identifying managerial misconduct. Quite interestingly, the significance of virtuous talk becomes more evident in the post-crisis period due to relatively higher uncertainty linked with evaluating such kind of deals on the basis of hard information alone. Finally, an inflated virtuous talk when coupled with pessimistic tone, the ability of managerial ‘good talk’ to create a trustworthy image and to distract investors reduces and the predictive power of managerial trust talk increases even more. Overall, it is concluded that managerial virtuous talk should not be regarded as a ‘cheap talk’. It is, in fact, very pertinent for predicting future takeover returns in the long run.

Managerial and Financial Barriers to the Net Zero Transition
De Haas, Ralph,Martin, Ralf,Muûls, Mirabelle,Schweiger, Helena
We use data on 11,233 firms across 22 emerging markets to analyse how credit constraints and low-quality firm management inhibit corporate investment in green technologies. For identification, we exploit quasi-exogenous variation in local credit conditions and in exposure to weather shocks. Our results suggest that both financial frictions and managerial constraints slow down firm investment in more energy efficient and less polluting technologies. Complementary analysis of data from the European Pollutant Release and Transfer Register (E-PRTR) corroborates some of this evidence by revealing that in areas where banks deleveraged more after the global financial crisis, industrial facilities reduced their carbon emissions by less. On aggregate this kept local emissions 15% above the level they would have been in the absence of financial frictions.

Marketization vs. Market Chase: Insights from Implicit Government Guarantees
Zhang, Xiaoqian
Local Government Financing Vehicles (LGFVs) and state-owned enterprises (SOEs) provide implicit guarantee during the issuing of bonds, thereby reducing their funding cost. The credit spreads are lower when issued by a LGFV with a higher administrative level. This means that implicit guarantee is also strengthened with government centralization. We also explain the anomaly of municipal corporate bonds (MCBs)’ spreads decrease after a marketization regulation of removing implicit guarantees. This paper provides strong evidence that the market will chase implicit guarantee when default wave comes even under tight government regulations.

News and Intraday Retail Investor Order Flow in Foreign Exchange Markets
Kaourma, Filia,Milidonis, Andreas,Nishiotis, George,Panayides, Marios A.
This paper examines the trading behavior of individual investors using a proprietary intraday dataset of a large pool of retail investor aggregate (minute by minute) long and short positions in EUR/USD for the period July 2014 to April 2016. Standard event study analysis shows no significant adjustment in trading ahead of scheduled macro news announcements and trading contrary to the announcement surprise after the event. A panel regression analysis shows that the contrarian trading behavior is mostly driven by lagged returns rather than fundamental macro news. Further intraday time series analysis shows that the lagged overall news sentiment also significantly affects investor net order flow. Finally, we show that simple cross-over trading strategies that exploit retail investor order flow imbalance are profitable. Overall our results suggest that retail investors in currency markets follow the news and are influenced by news sentiment and past returns, but do not possess the skills to extract fundamental information from public news. Their trading behavior contributes to the slowdown of the price discovery process. Our findings support the differential abilities of market participants to interpret public information as an explanation for the importance of order flow in price formation in currency markets.

Nonlinear Effect of Sentiment on Momentum
Li, Kai
I study a Lucas economy with many trees and a representative agent with market-wide sentiment. As a result of sentiment spillovers, the agent believes that there is momentum in the cross section of asset returns. However, from the point of view of an outside econometrician, the market price of risk relates negatively to sentiment. This, together with the subjective momentum, causes returns on momentum strategies to be a concave function of sentiment, leading to a downside risk of momentum. I find empirical evidence consistent with model predictions.

Observational Learning with Ordered States
Navin Kartik,SangMok Lee,Daniel Rappoport

When does society eventually learn the truth, or underlying state, via sequential observational learning? This paper develops the interplay of preferences satisfying single-crossing differences (SCD) and a new informational condition, directionally unbounded beliefs (DUB). SCD preferences and DUB information are a jointly minimal pair of sufficient conditions for learning. When there are more than two states, DUB is weaker than unbounded beliefs, which characterizes learning for all preferences (Smith and Sorensen, 2000). Unlike unbounded beliefs, DUB is compatible with the monotone likelihood ratio property, and satisfied, for example, by normal information.

On the Stability of Stablecoins
Grobys, Klaus,Junttila, Juha-Pekka,Kolari, James W.,Sapkota, Niranjan
This paper investigates the volatility processes of stablecoins and their potential stochastic interdependencies with Bitcoin volatility. We employ a novel approach to choose the optimal combination for the power law exponent and the minimum value for the volatilities bending the power law. Our results indicate that Bitcoin volatility is well-behaved in a statistical sense with a finite theoretical variance. Surprisingly, the volatilities of stablecoins are statistically unstable and contemporaneously respond to Bitcoin volatility. Also, whereas the volatilities of stablecoins are not Granger-causal for Bitcoin volatility, lagged Bitcoin volatility exhibits Granger-causal effects on the volatilities of stablecoins. We conclude that Bitcoin volatility is a fundamental factor in the valuation of stablecoins.

Option Returns, Risk Premiums, and Demand Pressure in Energy Markets
Jacobs, Kris,Li, Bingxin
We study energy futures option returns for crude oil, natural gas, heating oil, and gasoline. Average call and put returns are negative at short maturities, more so for OTM options, and increase with maturity. Put returns are less negative than call returns, but this is not the case for delta-hedged returns, indicating that the aggregate risk of the underlying energy futures is priced in the raw option returns. Moneyness patterns in raw and delta-hedged returns are similar to patterns for index option returns. Significant differences between the four commodities remain after removing the effect of the underlying futures returns, with natural gas as the main outlier. Variance risk premiums are negative and explain some maturity patterns in returns, but they cannot account for return differences across markets. Energy producers are net short the underlying through their option positions, and speculators net long. The larger the net long position of the speculators, the lower the returns on call options, which suggests that demand from speculators may affect option returns in energy markets.

Pension Funds Development and Its Impact on Economic Growth: The Moderating Effect of the Financial System
Morales, Walter,Ubeda, Fernando,Barbero, Javier
Among reforms undertaken in many developing countries it was assumed that pension funds strengthened the development of the financial system and thus economic growth. However, the study of the existing dynamic relationships between these realities and the empirical evidence remains limited. We propose the modelling and solution to the problems that limit this type of study through different specifications, including specifications that capture interactions and confirm the robustness of the contribution. We find that pension funds mitigate negative effects and that the positive effect of pension funds on growth is conditioned by the level of development of the financial system.

Precision of Public Information Disclosures, Banks' Stability and Welfare
Moreno, Diego,Takalo, Tuomas
We study the optimal precision of public information disclosures about banks assets quality. In our model the precision of information affects banks' cost of raising funding and asset profile riskiness. In an imperfectly competitive banking sector, banks'stability and social surplus are non-monotonic functions of precision: an intermediate precision (or low-to-intermediate precision if banks contract their repayment promises on public information) maximizes stability, and also yields the maximum surplus when the social cost of bank failure c is large. When c is small and the banks' asset risk taking is not too sensitive to changes in the precision, the maximum surplus (and maximum risk) are reached at maximal precision. In a perfectly competitive banking sector in which banks' asset risk taking is not too sensitive to the precision of information, the maximum surplus (and maximum risk) are reached at maximal precision, while maximum stability is reached at minimal precision.

Pricing Perpetual American put options with asset-dependent discounting
Jonas Al-Hadad,Zbigniew Palmowski

The main objective of this paper is to present an algorithm of pricing perpetual American put options with asset-dependent discounting. The value function of such an instrument can be described as \begin{equation*} V^{\omega}_{\text{A}^{\text{Put}}}(s) = \sup_{\tau\in\mathcal{T}} \mathbb{E}_{s}[e^{-\int_0^\tau \omega(S_w) dw} (K-S_\tau)^{+}], \end{equation*} where $\mathcal{T}$ is a family of stopping times, $\omega$ is a discount function and $\mathbb{E}$ is an expectation taken with respect to a martingale measure. Moreover, we assume that the asset price process $S_t$ is a geometric L\'evy process with negative exponential jumps, i.e. $S_t = s e^{\zeta t + \sigma B_t - \sum_{i=1}^{N_t} Y_i}$. The asset-dependent discounting is reflected in the $\omega$ function, so this approach is a generalisation of the classic case when $\omega$ is constant. It turns out that under certain conditions on the $\omega$ function, the value function $V^{\omega}_{\text{A}^{\text{Put}}}(s)$ is convex and can be represented in a closed form; see Al-Hadad and Palmowski (2021). We provide an option pricing algorithm in this scenario and we present exact calculations for the particular choices of $\omega$ such that $V^{\omega}_{\text{A}^{\text{Put}}}(s)$ takes a simplified form.

Prudential Policy with Debt Overhang
Xu, Sichuang
Modern macroeconomy experienced recurrent financial crises followed by protracted periods of debt overhang and slow recovery. This paper proposes a tractable dynamic framework in which debt accumulated during credit booms is sufficiently large that corporate entities cannot attract voluntary new lending during a crisis. We study the efficiency properties and show that firms’ individually optimal investment decisions during credit booms fail to internalize their collective effect in exacerbating economy-wide debt overhang during recessions. Stabilization policies such as debt bailouts make the economy more crisis-prone, whereas market-based monetary stimulus discourages ex ante risk taking. Numerical illustrations suggest that optimally designed prudential policy substantially mitigates the incidence, severity, and protractedness of financial crises.

Risk-Sharing and Contingent Premia in the Presence of Systematic Risk: The Case Study of the UK COVID-19 Economic Losses
Assa, Hirbod,Boonen, Tim J.
Motivated by macroeconomic risks, such as the COVID-19 pandemic, we consider different risk management platforms and study efficient insurance schemes in the presence of systematic events. More precisely, we consider three platforms: the risk-sharing, insurance and market platform. First, we show that under a non-discriminatory insurance assumption, it is optimal for everybody to bear the average final wealth. This gives rise to a new concept of a contingent premium which collects the premia ex-post after the losses are realised. As a result, an efficient solution is generated in the risk-sharing platform where insurance is a mechanism to redistribute the wealth. Second, we show that in an insurance platform, where the insurance is regulated, we see that there is a need for a social insurance scheme to bear the risk of the tail events. Third, in a competitive market we see how a classical solution can raise the risk of insolvency and in a decentralised market the equilibrium cannot be reached if there is adequate sensitivity to the systematic risks. In addition, we have encountered our theory to a case where the losses are calibrated based on the UK furlough scheme during the COVID-19 pandemic and measure the level of insolvency risk and the market failure.

Robust market-adjusted systemic risk measures
Matteo Burzoni,Marco Frittelli,Federico Zorzi

In this note we consider a system of financial institutions and study systemic risk measures in the presence of a financial market and in a robust setting, namely, where no reference probability is assigned. We obtain a dual representation for convex robust systemic risk measures adjusted to the financial market and show its relation to some appropriate no-arbitrage conditions.

Sales Prediction Model Using Classification Decision Tree Approach For Small Medium Enterprise Based on Indonesian E-Commerce Data
Raden Johannes,Andry Alamsyah

The growth of internet users in Indonesia gives an impact on many aspects of daily life, including commerce. Indonesian small-medium enterprises took this advantage of new media to derive their activity by the meaning of online commerce. Until now, there is no known practical implementation of how to predict their sales and revenue using their historical transaction. In this paper, we build a sales prediction model on the Indonesian footwear industry using real-life data crawled on Tokopedia, one of the biggest e-commerce providers in Indonesia. Data mining is a discipline that can be used to gather information by processing the data. By using the method of classification in data mining, this research will describe patterns of the market and predict the potential of the region in the national market commodities. Our approach is based on the classification decision tree. We managed to determine predicted the number of items sold by the viewers, price, and type of shoes.

Scenario To Deal With Transition Risk From an Investment Bank Perspective
Schweizer, Romain
To deal with the so-called transition risk implied by climate change, investment banks are asked to produced scenario. We question this methodology and try to trace back the theoretical foundation of such a recommandation. We conclude by exploring other ways to deal with transition risk, especially through liquidity.

State Ownership and Debt Structure
Boubakri, Narjess,Chen, Ruiyuan (Ryan),El Ghoul, Sadok,Guedhami, Omrane
We provide the first firm-level evidence of the relation between state ownership and debt structure. Using an international sample of newly privatized firms (NPFs) from 76 countries over the 1998â€"2017 period, we find that state ownership is associated with a more diversified debt structure. This evidence is more pronounced for higher levels of state control, and is robust to accounting for endogeneity, using alternative samples, and controlling for other owner types. Additional analysis shows that our main evidence is consistent with the soft budget constraint, political, and social views of state ownership. Our results have several policy implications for financial system stability and the efficient allocation of financial resources in the economy.

Synthesis of Metallic Nanoparticles for Biomedical Applications
B, Sandiyaa
Nanotechnology is one of the most promising technologies applied in all areas of science. Metal nanoparticles that are produced by nanotechnology has gained attention due to their extensive applications in the biomedical and physiochemical fields. Nanoparticles (NPs) cause attraction of researchers because of their unique properties, owing to their small size (1-100 nm), large surface-to-volume ratio and increased reactivity, which are reportedly shown to change the performance of any other material which is in contact with these tiny particles, these particles can be prepared by either physical, chemical or biological approaches but the biological approach is the most emerging because they are eco friendly and less time consuming. In this study, green synthesis of silver nanoparticles was prepared using leaf extracts of Azadirachta indica (neem leaf) and AgNo3. The flavonoids and terpenoids that are present in the extract act as both reducing and capping agent. Silver was of a particular interest for this process due to their evocative physical and chemical properties also silver nanoparticles showed Anti microbial activities. A fixed ratio of the neem plant extract to silver metal ion was prepared and the color change was observed which proved the formation of nanoparticles. The nanoparticles were characterized by UV-Visible spectrophotometer, FTIR, DLS, Zeta analysis, XRD and SEM. The nanoparticles were found to have size from 160-180 nm. The prepared nanoparticles can be widely used in biomedical applications like targeted drug delivery and to treat only the cancer cells rather affecting the healthy cells.

The Asset Pricing Implications of Plausible Deniability
Back, Kerry,Carlin, Bruce,Kazempour, Seyed Mohammad
We derive the effect of plausible deniability on asset risk premia in a dynamic setting with correlated firm values, systematic risk, and risk-averse investors. Firms optimally exercise American disclosure options, which are more valuable due to the possibility that other correlated firms may disclose high values, lifting investors' perceptions of the values of nondisclosing firms. Risk premia rise (and average prices fall) prior to disclosures, because investors make inferences about aggregate risks from failures to disclose, resulting in higher state prices for bad states.

The Impact of COVID-19 on Stock Market Volatility in Pakistan
Ateeb Akhter Shah Syed,Kaneez Fatima

This paper examines the impact of coronavirus (COVID-19) on stock market volatility (SMV) in Pakistan by controlling the effect of exchange rate, interest rate and government/central bank interventions to combat the pandemic. We used the vector autoregressive (VAR) model over a sample period ranging from February 25, 2020 to December 7, 2020. We find that a shock to total daily coronavirus cases in Pakistan lead to a significant increase in SMV. This result is aligned with a vast literature on pandemics and investors uncertainty and remains robust to several robustness checks applied in our analysis.

The Impact of Corporate Social Responsibility on Firms' Exposure to Tail Risk: The Case of Insurers
Sonnenberger, David,Weiss, Gregor N. F.
We propose a novel corporate social responsibility (CSR) index that captures various aspects of an insurer's internal and external CSR activities. We first show that insurers worldwide have significantly increased their CSR activities with the average index value almost doubling between 2006 and 2015. CSR activities are particularly pronounced at large firms, composite insurers, and insurance companies in Europe. We find that insurers' exposure to market risk in previous times significantly drives future CSR engagement. Finally, we provide empirical evidence for a causal and decreasing effect of an insurer's CSR on its tail risk as well as its short- and medium-term exposure to systemic risk.

The Implied Equity Term Structure
Jankauskas, Tomas,Baele, Lieven,Driessen, Joost
We propose a new methodology to estimate the equity term structure, based on the cross-section of stock prices and the implied cost of capital approach. Specifically, instead of focusing on the realized returns of maturity-specific dividend assets, we imply the term structure of expected returns based on the observed market prices and projected firm-level cash flows. Using US data for 1976-2019, we find an unconditionally upward sloping term structure of risk premia with rich cross-sectional patterns. Namely, large and growth firms exhibit an upward sloping term structure, whereas the smallest and value firms mostly have a downward sloping term structure. We also detect that the slope of the term structure changes from negative to positive in the late 1990s for the largest firms, as well as that the slope tends to flatten out or even invert in recessions. Thus, using a direct measure of ex-ante returns, we are able to provide new evidence on the debated properties of the equity term structure.

The Importance of Funding Space-Based Research
Devan Taylor

When it comes to conversations about funding, the questions of whether the United States should be spending its resources on space-based research often rears its head. Opponents of the idea tend to share the opinion that the resources would be better spent helping citizens on the ground. With an estimated homeless population around 562,000 throughout the country, roughly 39.4 million Americans (12.3% of the population) living below the poverty level, and 63.1 million tons of food waste per year, it's hard to argue that the United States does not have its share of problems that need to be addressed. However, a history of space-based research has proven time and time again to bring forth advances in technology and scientific understanding that benefit humans across the globe and provide crucial protection for life on Earth.

The Real Consequences of Macroprudential FX Regulations
Jung, Hyeyoon
I examine the real effects of macroprudential foreign exchange (FX) regulations designed to reduce risk-taking by financial intermediaries. I exploit a natural experiment in South Korea at the bank-level that can be traced through firms. The regulation limits the banks’ ratio of FX derivatives positions to capital. By using cross-bank variation in the tightness of the regulation, I show that the regulation causes a reduction in the supply of FX derivatives. Controlling for hedging demand, I find that exporting firms reduce hedging with constrained banks by 47% relative to unconstrained banks. Further, I show that the reduction in the banks’ supply of hedging instruments results in a substantial decline in firm exports. For a one-standard-deviation increase in a firm’s exposure to the regulation shock transmitted by banks, exports fall by 17.1% for high-hedge firms and rise by 5.7% for low-hedge firms, resulting in a differential effect of 22.8%. Collectively, my results provide causal evidence that regulations aiming to curtail risk-taking behaviors of financial intermediaries can affect the real side of the economy.

The Rise of Institutional Investors in Bond ETFs
Meli, Jeffrey,Gupta, Shobhit,Todorova, Zornitsa
We examine the effect of bond Exchange‐Traded Funds (ETFs) on corporate bond liquidity. Using Propensity Score Matching and Difference‐in‐Differences techniques, we demonstrate that inclusion in ETFs is associated with a 10% reduction in transaction costs for high yield (HY) bonds and 4% reduction for investment grade (IG) bonds. The result holds during periods of market stress and is robust to different liquidity metrics. We find evidence that HY mutual funds use ETFs to manage their liquidity needs, contributing to the steady growth of HY bond ETFs. Increased HY ETF institutional ownership channels trading away from the underlying corporate bonds to the ETF shares and decreases bond aggregate liquidity, although in the cross‐section inclusion in ETFs improves liquidity. IG investors are not substituting ETF trading for bond trading and we conclude that the gains to liquidity accruing to ETF bonds in that market are a net benefit to investors.

The Value Relevance of Corporate Social Responsibility (CSR) Expenditure: Evidence from Regulatory Decisions
Bose, Sudipta,Saha, Amitav,Abeysekera, Indra
We examine the value relevance of the corporate social responsibility (CSR) expenditure of Bangladeshi banks from 2007â€"2014 in response to a regulatory directive on banking firms’ engagement in CSR activities. We find a positive association between CSR expenditure and a firm’s market value. Evidence of an inverse U-shaped curvilinear association between CSR expenditure and market value suggests that the impact of CSR expenditure on a firm’s market value has a certain limit. We also document that unexpected or abnormal components of CSR expenditure comprise value-relevant information. Our study provides empirical evidence to support the value relevance of CSR expenditure as an explanation for why firms should invest in CSR and why they should inform various stakeholders about their CSR activities.

Towards a General Theory of Climate Finance
Papazian, Armen
Introducing a pollution-averse planet alongside a risk-averse mortal investor into the value framework of finance theory and practice - this, I believe, is the central challenge of climate finance, with all its theoretical, mathematical, institutional, technological and data implications. This paper is a summary of the key arguments of my upcoming book addressing the above.

Wall Street Analysts as Investor Relations Officers
Hope, Ole-Kristian,Huang, Zhongwei,Moldovan, Rucsandra
This paper examines the practice of hiring financial analysts as investor relations officers (IRO). We posit that analysts-turned-IROs (AIROs) have a competitive advantage in communicating with investors, thereby lowering the effort expended by the investment community to process corporate disclosures. Using a unique manually-collected dataset on the employment history of IROs (compiled from LinkedIn, Capital IQ,, and appointment press releases), we show that disclosure readability in 8-K and 10-K filings improves and that companies are more likely to host analyst/investor days after hiring former analysts as IROs. Most importantly, we find increases in analyst following, institutional investors, and stock liquidity after hiring a former analyst as IRO. We conclude that both a disclosure and a network channel are at play in the relation between AIROs and increased interest from the investment community. Overall, our findings suggest that firms benefit from hiring Wall Street analysts as IROs.

Was there a COVID-19 harvesting effect in Northern Italy?
Augusto Cerqua,Roberta Di Stefano,Marco Letta,Sara Miccoli

We investigate the possibility of a harvesting effect, i.e. a temporary forward shift in mortality, associated with the COVID-19 pandemic by looking at the excess mortality trends of an area that registered one of the highest death tolls in the world during the first wave, Northern Italy. We do not find any evidence of a sizable COVID-19 harvesting effect, neither in the summer months after the slowdown of the first wave nor at the beginning of the second wave. According to our estimates, only a minor share of the total excess deaths detected in Northern Italian municipalities over the entire period under scrutiny (February - November 2020) can be attributed to an anticipatory role of COVID-19. A slightly higher share is detected for the most severely affected areas (the provinces of Bergamo and Brescia, in particular), but even in these territories, the harvesting effect can only account for less than 20% of excess deaths. Furthermore, the lower mortality rates observed in these areas at the beginning of the second wave may be due to several factors other than a harvesting effect, including behavioral change and some degree of temporary herd immunity. The very limited presence of short-run mortality displacement restates the case for containment policies aimed at minimizing the health impacts of the pandemic.

What Happened to the Rest? A Principled Approach to Clean-Up Costs in Algorithmic Trading
Kolm, Petter N.,Westray, Nicholas
This article proposes a practical and computationally efficient methodology to assign a value for clean-up cost, the opportunity cost associated with the cancelled portion of an order. Unbiased estimation of clean-up costs is an essential component in performing accurate transaction cost analysis in algorithmic trading. We illustrate with an example drawn from practice. The approach is introduced in the context of cleaning up orders in algorithmic trading. However, it is straightforward to modify it for other settings where market data needs to be properly adjusted for realized impact. This new approach will be of interest to academics and practitioners alike.

Why Is a CCP failure very unlikely?
McLaughlin, Dennis,Berndsen, Ron
Central counterparties (CCPs) are designed to be robust enough to withstand generally at least the simultaneous default of their largest two clearing members in extreme but plausible market conditions. This is called a 'cover 2' CCP. However, the extreme-and-implausible case cannot be excluded i.e. where the CCP would exhaust all funded financial resources (i.e. skin-in-the-game and the default fund D) to cover the default losses and would need to resort to unfunded recovery tools. The aim of this paper is to consider the resilience of a CCP for both default losses and non-default losses. For the former case, it is shown under plausible assumptions that the assessment (or cash call) for the surviving members is sufficient to recover a cover 1 CCP provided that the total assessment powers under the CCP Rulebook equals 2D. Given the extreme scenario we also take into account that some surviving clearing members might decide to leave the CCP. Some intuitive results for the cover 2 CCP case are provided as well. For the latter case, it is demonstrated that under plausible assumptions, the likelihood that a non-default loss is larger than the CCP's capital including one year of profits, is equivalent to an AAA risk. These observations together provide substantiation for the very low likelihood of a CCP's failure.

Why is the Vaccination Rate Low in India?
Pramod Kumar Sur

India has had an established universal immunization program since 1985 and immunization services are available for free in healthcare facilities. Despite this, India has one of the lowest vaccination rates globally and contributes to the largest pool of under-vaccinated children in the world. Why is the vaccination rate low in India? This paper explores the importance of historical events in shaping India's current vaccination practices. We examine India's aggressive family planning program implemented during the period of emergency rule in the 1970s, under which millions of individuals were sterilized. We find that greater exposure to the forced sterilization policy has had negative effects on the current vaccination rate. We explore the mechanism and find that institutional delivery and antenatal care are low in states where policy exposure is high. Finally, we examine the consequence of lower vaccination suggesting that child mortality is currently high in states with greater sterilization exposure. Together, the evidence suggests that the forced sterilization policy has had a persistent effect on health-seeking behavior in India.