Research articles for the 2021-03-18

Accountability Asset Recovery: A Leadership & Sustainability Initiative Receivership Is NOT Releasership
Sheldon-London, Monika
For the effective recovery of qualified assets, Receivership is NOT releasership, that is to say the improper disposition of recovered assets. Insolvency practitioner overreach has become macro critical to the stability of the global financial system.Introduction to the Problem, Its Root Causes and Institutional Concern“There are Institutions that are just not there.” Dr. Ngozi Okonjo-Iweala, former Finance Minister of Nigeria. The absence of institutional capacity for Receivership has caused Receivership practice to lie in the gap in the region of an unobservable externality, whereby personal misconduct being practiced has gone unchecked until most recently. “We have seen cases where civil society organizations, (CSOs), were extremely active proposing solutions, giving ideas and where they were listened to; cases where eventually they ended up being sort of captured by organizations that were so devious and insidious and smart about enrolling it into their own purposes.” IMF Managing Director and Chair, Christine Lagarde

Asset Pricing Using Block-Cholesky GARCH and Time-Varying Betas
Grassi, Stefano,Violante, Francesco
Starting from the Cholesky-GARCH model, recently proposed by Darolles, Francq, and Laurent (2018), the paper introduces the Block-Cholesky GARCH (BC-GARCH). This new model adapts in a natural way to the asset pricing framework. After deriving conditions for stationarity, uniform invertibility and beta tracking, we investigate the finite sample properties of a variety of maximum likelihood estimators suited for the BC-GARCH by means of an extensive Monte Carlo experiment. Finally, we illustrate the usefulness of the BC-GARCH in two empirical applications. The first tests for the presence of beta spillovers in a bivariate system in the context of the Fama and French (1993) three factor framework. The second empirical application consists of a large scale exercise exploring the cross-sectional variation of expected returns for 40 industry portfolios.

COVID-19 Impact on Micro, Small, and Medium-Sized Enterprises under the Lockdown: Evidence from a Rapid Survey in the Philippines
Shinozaki, Shigehiro,Rao, Lakshman Nagraj
The novel coronavirus disease, COVID-19, has brought significant change to people’s lives and business activities nationally, regionally, and globally. The Philippines took swift actionâ€"including enhanced community quarantine (ECQ)â€"to contain the pandemic and launched an emergency subsidy program with massive public spending to support disrupted households and businesses. The strict lockdown ran from mid-March to the end of May 2020 in the national capital region and high-risk provinces, causing huge economic losses. Six months after the March lockdown, the Philippine economy has moved to the recovery stage, but micro, small, and medium-sized enterprises (MSMEs) are continuing to confront a sharp drop in demand and revenue. We examine the initial impact on MSMEs of the ECQ and lockdown measures using evidence obtained from a rapid nationwide survey conducted from the end of March to mid-April 2020 and derive policy implications.

Company-Specific Characteristics and Market-Driven Fixed Asset Revaluation in An Emerging Asian Economy
Rahman, Md. Tahidur,Hossain, Syed Zabid
This study aims to explore the company-specific and market factors driving fixed asset revaluation (FAR) in an emerging economy. Our research is based on a sample of 142 companies listed on the Dhaka Stock Exchange (DSE) â€" the main bourse of Bangladesh. The binary logistic regression model was the main instrument used to measure the significance level of variables and test the hypotheses. The study found that market conditions, profitability, nationality, debt-to-asset ratio, fixed assets intensity, and company size could influence FAR decisions significantly. But, the company age and current ratio have failed FAR decisions insignificantly. Since there are suspicions about the creative practice of FAR, users need to be cautious when explaining and utilizing the information communicated via financial statements of companies that revalued their assets. Besides, regulators should strictly enforce the laws to avoid selective disclosures, and companies should fully disclose market-sensitive information so that corporate stakeholders promptly receive FAR-related disclosures. This paper could serve a large assortment of stakeholders interested in knowing the drivers behind and effects of FAR. Inclusion and the explanation of three new factors, corporate nationality, age, and market condition, could be an extension of the existing FAR literature.

Confucian Culture and Accounting Information Quality
Cheng, Bo,Pan, Fei,Xuan, Yang
This paper links accounting information quality to Confucianism, the most prevalent traditional culture in China. We examine the relation between Confucian culture and accounting information quality by public data of the listed companies from 2007 to 2013. Results indicate that Confucian culture can significantly improve reliability of financial reports, as well as transparency of information disclosure, both economically and statistically. Results remain unchanged after we consider endogeneity problem and other robustness checks. This study contributes to the literature not only by enriching the corporate governance theory in which Chinese traditional culture was embedded, but also providing empirical evidence on the role of the informal institution, such as Confucianism in corporate governance.

Did David Win a Battle or the War Against Goliath? Dynamic Return and Volatility Connectedness between the GameStop Stock and the High Short Interest Indices
Aharon, David Y.,Kizys, Renatas,Umar, Zaghum,Zaremba, Adam
Can a short-squeeze incident trigger financial contagion over the entire stock markets? The recent GameStop frenzy provides a unique natural experiment to explore this question. In this study, we examine the static and dynamic return and volatility connectedness among the GameStop stock, the U.S. stock market, and the novel market-wide and sectoral short-interest indices. Contrary to anecdotal evidence, we find that the GameStop stock is not a net transmitter, but rather a net recipient of return and volatility spillovers from other companies shorted in the market. This result agrees with a view that short-interest indices provide price discovery for shorted stocks. Therefore, although David might have won a battle against Goliath, he does not seem to win the war.

Digital Finance and Financial Literacy: An Empirical Investigation of Chinese Households
Yang, Junhong,Wu, Yu,Huang, Bihong
Using the 2015 and 2017 waves of the China Household Finance Survey, we measured financial literacy and study its relationship to households’ demand for digital finance. We found that a majority of households in the People’s Republic of China possess limited financial literacy. The low level of financial sophistication is responsible for the low usage of digital finance among Chinese households. Further, the positive impact of financial literacy on digital finance is more pronounced for wealthy, high-income, and young households, women, and households in urban and coastal areas. Our results are robust to using a variety of specifications and controlling for endogeneity, peer effects, cognition, and voluntary self-exclusion.

Disclosure Prominence and the Quality of Non‐GAAP Earnings
Chen, Jason V.,Gee, Kurt H.,Neilson, Jed J.
The SEC prohibits the presentation of non‐GAAP measures before corresponding GAAP measures; however, a large proportion of non‐GAAP reporters present non‐GAAP EPS before GAAP EPS in their earnings announcements. This noncompliance raises questions about whether firms use prominence to highlight higher or lower quality non‐GAAP information. For firms reporting non‐GAAP EPS between 2003 and 2016, prominent non‐GAAP EPS is associated with higher quality non‐GAAP reporting. Further tests reveal that nonregulatory incentives, rather than regulatory costs, explain this relation. Specifically, prominence is associated with higher quality non‐GAAP reporting in settings where prominence is not regulated, investors ignore prominence when non‐GAAP reporting quality is lower, and the minority of firms using prominence to mislead exhibit characteristics associated with weaker investor monitoring. Overall, we provide evidence that regulatory noncompliance can reflect an intent to inform, and that most firms use prominence to highlight higher quality non‐GAAP information despite prohibitive regulation.

Do PCAOB Inspections Improve the Accuracy of Accounting Estimates?
Stuber, Sarah B.,Hogan, Chris E.
Despite issuing extensive guidance related to the evaluation of accounting estimates, the PCAOB continues to identify deficiencies related to the audit of estimates through their inspections process. We examine whether PCAOB inspections lead to more accurate audited accounting estimates, defined as those that more closely match economic reality, by examining a significant estimate within the banking industry. We find that in contrast with the PCAOB's goal of more accurate and unbiased estimates, allowance for loan losses (ALL) estimates become less accurate and more conservative with higher levels of ALL‐related inspection findings for public company audits. We find no evidence of auditor response to PCAOB inspection findings for private‐company audits, which are not subject to PCAOB inspection. Overall, our findings cast doubt on the efficacy of PCAOB inspections in improving estimate accuracy and suggest that firms are managing inspection risk to the potential detriment of audit quality.

Does Fixed Asset Revaluation Create Avenues for Financial Numbers Game? Evidence from a Developing Country
Rahman, Md. Tahidur,Hossain, Syed Zabid
[enter Abstract Body]The study reveals the extent of changes in selective financial numbers caused by fixed asset revaluation (FAR) and explores whether there was a management motive for playing the financial numbers game through using the FAR model. The data set consists of a sample of 142 listed companies purposively selected from 13 industries. The study found a significant impact of FAR on the net asset value (NAV), fixed asset intensity (FAI), and debt-to-equity ratio (DER). These findings are supported by the political cost and the debt covenant hypotheses. The study also observed a high growth of fixed assets by 9.5% to 14,603.8% resulting from FAR. More revealing is that FAR increased NAV in revaluer companies by an average of 427.20% as compared to 6.86% in non-revaluer companies. Even some companies with negative NAV took resort on FAR to show positive NAV. Besides, revaluer companies managed to reduce their DER by 70.45% as opposed to an increase of 8.45% in non-revaluer companies. Hence, the study concludes that most of the publicly-listed companies are involved in financial numbers game by the use of the FAR model. To build confidence among investors, companies should practice FAR rightly and disclose related information to help reduce information asymmetry.

Economic Preferences and Personality Traits Among Finance Professionals and the General Population
Holmen, Martin,Holzmeister, Felix,Kirchler, Michael,Stefan, Matthias,Wengström, Erik
Since the financial crisis, the behavior and personality traits of finance professionals have come under scrutiny. As comprehensive scientific findings are lacking, we run artefactual field experiments with finance professionals and a random sample of the working population to investigate differences across industry-relevant economic preferences and personality traits. We report that finance professionals are more risk tolerant, more selfish, less trustworthy, and show higher levels of narcissism, psychopathy, and Machiavellianism. However, we find that many of these differences disappear after adjusting for socioeconomic characteristics, indicating that finance professionals are similar to employees in other industries with a comparable socio-economic background.

Financial Service Providers, AI, Satisficing, and the Human Touch In the Market for Financial Nudges and Boosts
Shefrin, Hersh
Advances in artificial intelligence (AI) are reshaping many facets of the decision landscape faced by consumers and investors. These advances have resulted in lower fees and borrowing costs, increased access to financial services, and greater customization. In this paper, I discuss how the need for the human touch impacts the potential for digital technologies to lower the cost of providing mass customization and personalization to the broad market for wealth management. I present the cases of three financial service firms, to illustrate how the failure to account properly for the human touch can result in unsuccessful technologically-based strategies.

Foreign Currency Forecasting: What Can Stock and Bond Markets Tell Us?
Phylaktis, Kate,Yamani, Ehab Abdel-Tawab
We construct out-of-sample (OOS) forecasts using various model specifications of equity and bond returns, and assess their statistical accuracy against the random walk (RW) model. We test their economic value by designing a trading strategy inspired by the return chasing hypothesis, based on the sign of the predicted return from our models. Using a sample of 28 currency markets, our results include (i) our OOS forecasts show that all the slope estimates of our predictive regressions are significant, indicating that the RW is mis-specified; (ii) statistical accuracy criteria suggest that our empirical models outperform the RW; and (iii) our trading strategies, that use stock and bond returns, generate significant Sharpe ratios. These returns, however, are uncorrelated with the traditional risk factors and other popular determinants of currency returns.

From Implicit to Explicit: The Impact of Disclosure Requirements on Hidden Transaction Costs
Cuny, Christine,Even-Tov, Omri,Watts, Edward M.
This paper provides evidence that disclosing corporate bond investors' transaction costs (markups) affects the size of the markups. Until recently, markups were embedded in the reported transaction price and not explicitly disclosed. Without explicit disclosure, investors can estimate their markups using executed transaction prices. However, estimating markups imposes information processing costs on investors, potentially creating information asymmetry between unsophisticated investors and bond‐market professionals. We explore changes in markups after bond‐market professionals were required to explicitly disclose the markup on certain retail trade confirmations. We find that markups decline for trades that are subject to the disclosure requirement relative to those that are not. The findings are pronounced when constraints on investors' information processing capacity limit their ability to be informed about their markups without explicit disclosure.

High Frequency Trading and Market Quality in the Thai Stock Exchange
Chancharat, Surachai,Phuensane, Pongsutti
This research is based on an empirical analysis of the impact of HFT activity on the stock in the SET50 index trading in the Stock Exchange of Thailand (SET), using publicly-available trade-by-trade tick data for the period between January 01, 2016, and June 30, 2018. The HFT data is illustrated to show the pattern of the HFT orders in the SET with a strong relationship between HFT orders and the market quality. Also, the OLS analysis shows that most market quality proxies such as the effective spread, realized spread, and price impact has a negative relationship with the number of HFT orders. This indicates that the level of the effective spread realized spread, and price impact is reduced when the HFT activity increases.

International Diversification and Performance in Family Firm: Exploring Nonlinear Relationships with the Governance Structure in an Emerging Economy
Espinosa Méndez, Christian,Jara-Bertin, Mauricio
In this study we researched the relationship between international diversification and performance in family firms in an emerging economy. Likewise, from the perspective of the governance structure, we investigated non-linear relationships between business group membership, concentration of ownership as well as pyramid ownership with the performance of internationally diversified family firms.Considering a sample of 83 companies that have been listed on the Santiago de Chile Stock Exchange during the period between 2003 and 2013, we find an inverted U relationship between international diversification and performance; a U relationship between international diversification and performance in family firms; an inverted U relationship between the performance of internationalized family firms and affiliation to a business group; a U relationship between the performance of internationalized family firms and concentration of ownership; and a non-linear relationship in the inverted U form between the performance of internationalized family firms and high divergence between control and cash flow rights and U in the case of low divergence.

Leveraged ETF Investing
Tal Miller

It is common knowledge that leverage can increase the potential returns of an investment, at the expense of increased risk. For a passive investor in the stock market, leverage can be achieved using margin debt or leveraged-ETFs. We perform bootstrapped Monte-Carlo simulations of leveraged (and unleveraged) mixed portfolios of stocks and bonds, based on past stock market data, and show that leverage can amplify the potential returns, without significantly increasing the risk for long-term investors.

Macroprudential Policy with Capital Buffers
Schroth, Josef
Financial regulation imposes equity buffers on banks by restricting dividends. This paper studies constrained-efficient dividend policy when banks fund loans with equity and debt. In the model, bank shareholders consider equity costly and a bank’s access to debt depends on its shareholder value. In response to loan losses banks cut dividends, but eventually defer dividends too much. They do not internalize that a commitment to higher dividends (and fewer loans) during recoveries from financial crises would increase shareholder value and access to debt during crises. Constrained-efficient dividends, while restricted during normal times and zero during crises, are higher during recoveries.

Mean-$\rho$ portfolio selection and $\rho$-arbitrage for coherent risk measures
Martin Herdegen,Nazem Khan

We revisit mean-risk portfolio selection in a one-period financial market where risk is quantified by a positively homogeneous risk measure $\rho$. We first show that under mild assumptions, the set of optimal portfolios for a fixed return is nonempty and compact. However, unlike in classical mean-variance portfolio selection, it can happen that no efficient portfolios exist. We call this situation $\rho$-arbitrage, and prove that it cannot be excluded -- unless $\rho$ is as conservative as the worst-case risk measure.

After providing a primal characterisation of $\rho$-arbitrage, we focus our attention on coherent risk measures that admit a dual representation and give a necessary and sufficient dual characterisation of $\rho$-arbitrage. We show that the absence of $\rho$-arbitrage is intimately linked to the interplay between the set of equivalent martingale measures (EMMs) for the discounted risky assets and the set of absolutely continuous measures in the dual representation of $\rho$. A special case of our result shows that the market does not admit $\rho$-arbitrage for Expected Shortfall at level $\alpha$ if and only if there exists an EMM $\mathbb{Q} \approx \mathbb{P}$ such that $\Vert \frac{\text{d}\mathbb{Q}}{\text{d}\mathbb{P}} \Vert_\infty < \frac{1}{\alpha}$.

On Policy Evaluation with Aggregate Time-Series Shocks
Dmitry Arkhangelsky,Vasily Korovkin

We propose a new algorithm for estimating treatment effects in contexts where the exogenous variation comes from aggregate time-series shocks. Our estimator combines data-driven unit-level weights with a time-series model. We use the unit weights to control for unobserved aggregate confounders and use the time-series model to extract the quasi-random variation from the observed shock. We examine our algorithm's performance in a realistic simulation based on Nakamura and Steinsson [2014]. We provide statistical guarantees for our estimator in a practically relevant regime, where both cross-sectional and time-series dimensions are large and show how to use it to conduct robust inference.

On the Relationship between COVID-19 and Brazilian Financial Market
Costa, Antonio,da Silva, Cristiano,Matos, Paulo Rogério
In our first empirical exercise we assess the conditional relationship in the timefrequency domain between the return on Ibovespa and the cases or deaths by COVID-19 in Hubei, countries with record deaths and the world, for the period from January 29 to July 31, 2020. We also perform a parametric test for Granger-causality in quantiles. Second, we study Brazilian sectoral contagions and pass-through. Our findings are useful to infer on when COVID-19 cycles started to impact Ibovespa cycles and to tell the history of the pass-through of this pandemic across the economic sectors in Brazil.

On the Relationship between COVID-19 and G7 Banking Co-Movements
Matos, Paulo Rogério,da Silva, Cristiano,Costa, Antonio
We address G7 banking contagion during the COVID-19 crisis using wavelet-based techniques. We find an increase (20%) of the lowest frequencies banking contagion during the pandemic period based on stronger coherence between all pairs of financial indices. We also find that COVID-19 world cases and deaths are relevant to understand banking cycles co-movements, mainly from February to June. Our findings are confirmed by a correlation contagion test and still hold after controlling for oil prices.

On the Risk-Based Contagion of G7 Banking System and the COVID-19 Pandemic
Matos, Paulo Rogério,Costa, Antonio,da Silva, Cristiano
We revisit the discussion on banking system contagion by proposing a risk-based empirical analysis during the current pandemic period. We use daily returns on G7 banking sector indices from January 01, 2015 to December 31, 2019 (pre-pandemic), and from January 01, 2020 to October 16, 2020 (pandemic). Based on the dissimilarities, the pandemic has intensified banking contagion. Frequency-based Granger causality is useful to tell the history of the pass-through of this health crisis across G7 banking sectors. We highlight the increase in the predictive relevance of Italian banking cycles in during the pandemic. VaR ratio analysis, considering 21 possible pairwise combinations with the G7 financial indices, suggests a stronger contagion between banking systems. The greatest contagion is evident in the Italian and French banking systems, countries severely punished by deaths by COVID-19, while we find less contagion between Japan and Germany, countries least affected by the first wave of COVID-19.

Private Markets, Infrastructure and Venture Capital in the Post-COVID Era: The Pension Perspective
Weeks, David,Firzli, M. Nicolas J.
This second of a series of seven papers co-authored by M. Nicolas J. Firzli and David Weeks looks at the notions of private markets â€" PE, VC, private debt and infrastructure â€" and the "quest for yields" in a low interest rates environment, which where discussed at two recent global conferences organised by the G7 Pensions Summit (G7 P7) and the Singapore Economic Forum (SEF). ESG, impact investing, renewable energy and the notion of green growth are also discussed by the co-authors and other experts, including the Hon. Nick Sherry, fmr. AUS minister of Superannuation & Corporate Law, Nick Silver, chairman, Climate Bonds Initiative (CBI), Michael Dennis, Head, APAC, Alternatives & Cap. Markets, BlackRock, Dr Guan Seng Khoo, Singapore Management University (SMU) and Ingrid Edmund, Columbia Threadneedle Investments (CTI)The notion of financial long-term-ism is considered from the perspective of institutional asset owners, notably in the US, Britain and the European Union (EU), where "pension fund regulation and the structure of the industry [often] puts a premium on liquidity and causes short-termism, at the expense of long-term investment and patient capital.”Australia has seen much interest in privatisation of public functions/assets. This has increased opportunities for private investment in infrastructure. It has, however, raised political discussion about the correct pricing of “monopoly assets”, such as large regional airports and water utilities.The authors also look at some of the recent developments in Canada, China, India and various ASEAN jurisdictions, including Singapore and assess the role played by the city-state in a complex period: "the COVID crisis has accelerated the mutually reinforcing effects of the Age of Empowerment (ESG, Equity and Entrepreneurship/the Venture Capitalist Ethos), the Age of Geoeconomics (intensifying Sino-American coopetition) and Datafied World Economy (Digitalization, Ai, Cybernetics), and Singapore is positioned precisely at the crossroads where these three powerful currents meet.”Some of the financial and geo-economic aspects of the "Post Brexit" era are also analysed. The authors note that HM Government has invited four key maritime powers to join the 47th G7 summit held in Carbis Bay, Cornwall later in the year: Australia, South Korea, India and South Africa, thus "bringing the blue economy to the fore of the global policy agenda".

Retail Order Execution Quality under Zero Commissions
Adams, Samuel,Kasten, Connor
Using rule 605 reports from major market makers that receive retail order flow, we examine the impact of zero-commission trades on order execution quality. We find that the effective spread for marketable orders between 100 and 499 shares marginally decreased following the zero-commission cut. We also find that realized spreads increased and adverse selection decreased for market makers relative to exchanges. Consistent with better alignment of incentives between brokers and market makers, our results suggest that the elimination of commissions for retail investors improved execution quality for orders directed to third-party market makers.

Sectoral Connectedness: New Evidence from US Stock Market during COVID-19 Pandemics
Costa, Antonio,Matos, Paulo Rogério,da Silva, Cristiano
We examine volatility connectedness of 11 sectoral indices in the US using daily data from January 01, 2013 to December 31, 2020. We employ the connectedness measures of Diebold and Yilmaz (2009, 2012, 2014), unveiling changes in the US sectoral connectedness and stylized facts regarding specific sectors occurred during the COVID-19 pandemic. Among several results, we find extraordinary increase in connectedness during COVID-19, from earlier stages of international spread to the end of July 2020; considerable changes in pairwise relationships, especially among the upper two deciles. However, in a total net connectedness perspective, there is little evidence of structural changes.

Statistical Arbitrage Risk Premium by Machine Learning
Raymond C. W. Leung,Yu-Man Tam

How to hedge factor risks without knowing the identities of the factors? We first prove a general theoretical result: even if the exact set of factors cannot be identified, any risky asset can use some portfolio of similar peer assets to hedge against its own factor exposures. A long position of a risky asset and a short position of a "replicate portfolio" of its peers represent that asset's factor residual risk. We coin the expected return of an asset's factor residual risk as its Statistical Arbitrage Risk Premium (SARP). The challenge in empirically estimating SARP is finding the peers for each asset and constructing the replicate portfolios. We use the elastic-net, a machine learning method, to project each stock's past returns onto that of every other stock. The resulting high-dimensional but sparse projection vector serves as investment weights in constructing the stocks' replicate portfolios. We say a stock has high (low) Statistical Arbitrage Risk (SAR) if it has low (high) R-squared with its peers. The key finding is that "unique" stocks have both a higher SARP and higher excess returns than "ubiquitous" stocks: in the cross-section, high SAR stocks have a monthly SARP (monthly excess returns) that is 1.101% (0.710%) greater than low SAR stocks. The average SAR across all stocks is countercyclical. Our results are robust to controlling for various known priced factors and characteristics.

The Empirics of Long-Term Mexican Government Bond Yields
Akram, Tanweer,Uddin, Syed Al-Helal
This paper presents empirical models of Mexican government bond (MGB) yields based on monthly macroeconomic data. The current short-term interest rate has a decisive influence on MGB yields, after controlling for inflation and growth in industrial production. John Maynard Keynes claimed that government bond yields move in lockstep with the short-term interest rate. The models presented in the paper show that Keynes’s claim holds for MGB yields. This has important policy implications for Mexico. The empirical findings of the paper are also relevant for ongoing debates in macroeconomics.

The Nonmarket Insurance like Effect of CSR on Media Sentiment
Nair, Abhilash S.,Kalagnanam, Suresh
The purpose of this study is to test whether CSR engagement provides insurance like effect even after the firm has faced an integrity questioning event. The impact of this integrity based negative event is measured as the media sentiment while reporting the event. Accordingly, we test whether prior CSR engagement prompts media to give the firm the benefit of doubt when it is accused of ‘grand corruption’. The study employs techniques of textual analysis combining various dictionaries and multiple media sources to estimate the sentiment score. Accordingly, we analyse 45,710 media reports, covering firms allegedly involved in ‘grand corruption’. The hypothesis are tested following standard panel data analysis techniques. The study finds no evidence of CSR providing an insurance like effect, particularly in the context of integrity-based negative events. Rather, the results suggest that the media may have viewed the CSR activity of sample firms as a public relations exercise and penalized them for being involved in grand corruption.

The Post-COVID-19 Recovery Bonds
Ruiz Estrada, Mario Arturo
The idea to propose the Post-COVID-19 Recovery Bonds (P-C19-R-Bonds) is to find new financial sources to support the post-COVID-19 socio-economic reconstruction with local funds from any government. This type of bond avoids more external debts and generates macroeconomic financial stability and sustainability in the short and long run. The main objective is to collect financial resources from local citizens such as domestic savings, employer’s providence funds, and domestic firm investments. The Post-COVID-19 Recovery bonds are searching to keep safe the domestic savings and micro-macro financial stability to reduce the damage of COVID-19 and prevent a possible deep economic recession in the short run and an economic depression in the long run.

The Profitability of Microfinance and Income Diversification Strategy in Ghana: Insights for a Post-COVID-19 Industry
Duho, King Carl Tornam,Agomor, Philip Elikplim,Duho, Divine Mensah,Onumah, Joseph M
This study explores the effect of income diversification on the profitability of microfinance institutions (MFIs) in Ghana. The results indicate that the institutions record low profits and they are generally not so much diversified. Income diversification has a negative effect on return on asset and return on equity, suggesting the preference for a focused strategy. Larger firms are found to be more profitable although there is an inverted U-shaped nexus. Investments in fixed assets are beneficial for enhancing performance among the firms while the findings cast doubt on the extent of financial intermediation. This is because cash and investments in government securities are more than 50 percent of assets while loan levels are scant as compared to deposits. The study calls for MFIs to resort to providing more loans as this will enhance their bottom-line and also improve the economy. The insights from the study lend credence to the relevance of data-driven decision making among MFIs.

The initial deposit decision and the occurrence of bank runs
de Jong, Johan
In studies of bank runs the initial deposit decision is typically not taken into account. However, it is unlikely that people will entrust money to a bank that they expect to fail in the near future. The aim of this study is to investigate to what extent this mechanism prevents bank runs. It introduces an experiment in which participants first have to choose if they want to receive their endowments as a deposit in a `risky' bank that pays a high interest or a `safe' bank that pays a lower interest. After this decision they can withdraw the money from their account or leave it in to receive the interest. The availability of different deposit options leads to a very clear theoretical prediction: all choose to deposit in the risky bank with the high interest rate and consequently leave the deposit in the bank. In the experiment the first prediction is not confirmed: almost half of the participants choose to deposit in a safer alternative. However, in contrast to the control treatment in which participants are not offered a choice, only very few of those that choose the risky bank withdraw their deposits later.

United Arab Emirates 2050: The Race to the Top!
Bonaparte, Yosef
We perform 360 review on the United Arab Emirates (UAE) geopolitical and economical status to analyze its strengths and weaknesses. The UAE in 2020 is ranked top 22 around the world, and best ranking category is in ‘movers’ (top 1), while adventure and heritage are worst categories (top 63, both). While the UAE is distinctive, dynamic and unique, the main problems are the political and the constitution systems, social inclusion, government debt and lack of energy diversification. We provide a set of policy recommendations to aid policy makers and the business community to enhance the economic growth and development. Our main political recommendations are to separate the state from religion (Islamic sharia), and Democracy from civil liberties, thus, to rewrite the entire constitution with more bills of rights. Social recommendations are to enhance the role of women and support financial inclusion. The key economic policies to implement are modernizing the monetary system as to make the currency floating, not fixed; and lower the overall government debt, that reached all time high relative to GDP, by introducing a taxation system. Finally, diversify the sources of energy with wind farms and solar panels productions. Should these recommendations implemented, we project with high probabilities that the UAE will reach among the top by 2050.

Using Portfolio Returns to Estimate the Probability of Large Jumps
Cacho-Diaz, Julio
Sudden jumps in the stock market have a significant impact on consumers’ wealth. A market crash, in particular, can devastate lives and destabilize the entire economy. Therefore, it would be desirable if consumers, policy makers, and financial intermediaries could better anticipate such events. Unfortunately, it is difficult to infer market crashes, in part because they occur so infrequently. This paper proposes the use of portfolio returns as an additional tool for gauging the probability of market jumps. Sophisticated investors (such as hedge funds) incorporate the probability of such jumps in their asset allocation. Thus, the returns of optimally performing portfolios include this forward-looking information in a way that market returns do not. Portfolio returns allow the econometrician to infer the probability of jumps faster and more accurately than using market returns alone. Indeed, I find that, using portfolio returns, the asymptotic variance of jump estimators can converge to zero.

Words Speak as Loudly as Actions: Central Bank Communication and the Response of Equity Prices to Macroeconomic Announcements
Gardner, Ben,Scotti, Chiara,Vega, Clara
We study the impact that macroeconomic news has on equity prices. While the literature has already widely documented the effects of macroeconomic announcements on asset prices, as well as their asymmetric impact during good and bad times, we focus on the reaction to news when the description of the state of the economy---as painted by the Federal Open Market Committee (FOMC) statements---deteriorates. We develop a novel FOMC sentiment index using textual analysis techniques, and find that news has a bigger impact on equity prices during bad times as described by our FOMC sentiment index. This finding is consistent with previous literature, which finds that the stock market's reaction depends on the state of the economy, except that the FOMC's description of the state of the economy is the variable that best explains the variation in the response---more so than the state of the economy itself as measured by real-time indices. Our interpretation is that the reaction of equity prices to news depends on the probability of an increase in interest rates, and the FOMC's description of the state of the economy is one of the best predictors of this probability.