Research articles for the 2021-03-23

A Global Version of Samuelson’s Dictum
Xiao, Yaqing,Yan, Hongjun,Zhang, Jinfan
Samuelson’s Dictum refers to the conjecture that there is more informational inefficiency at the aggregate stock market level than at the individual stock level. Our paper recasts it in a global setup: there should be more informational inefficiency at the global level than at the country level. We find that sovereign CDS spreads can predict future stock index returns, GDP, and PMI of their underlying countries. Consistent with the global version of Samuelson’s Dictum, the predictive power for both stock returns and macro variables is almost entirely from the global, rather than country-specific, information from the sovereign CDS market.

Accounting Measures and Economic Measures: An Integrated Theory of Capital Budgeting
Magni, Carlo Alberto
Accounting measures are traditionally matched against economic measures. For example, accounting rates of return (ARR) are usually considered poor surrogates of the “economic rate of return” and the residual income is sometimes criticized as being periodically inconsistent with the net present value (NPV). This paper shows that the opposition accounting/economic is artificial and, taking a capital budgeting perspective, illustrates the strict links between economic measures and accounting measures. In particular, the ARR is shown to be a correct economic yield of a project and the traditional IRR is only a particular case of it. Also, maximization of the simple arithmetic mean of properly modified residual incomes is equivalent to NPV maximization, owing to its periodic consistency in the sense of Egginton (1995). The conciliation of such notions as NPV, IRR, ARR, and residual income stems from (i) the fundamental law of motion of any economic entity, (ii) the notion of Chisini mean, (iii) a modified notion of residual income which takes account of a comprehensive cost of capital.

Analysts' Research Reports: Caveat Emptor
Dugar, Amitabh,Nathan, Siva
In this paper, we investigate the dysfunctional incentives of security analysts and how they affect analysts’ earnings forecasts and investment recommendations. We argue that these incentives motivate analysts to issue overly optimistic earnings forecasts and investment recommendations and that the laxity of regulations governing the disclosure and dissemination of analysts’ research reports makes it difficult for investors (especially individual investors) to gain access to these research reports on a timely basis and correctly interpret their investment implications. We conclude with some precautions that investors can take to protect their best interests and a set of recommendations that regulators should implement to address the lack of transparency in analysts’ research reports.

Anomalies in the China A-share market
Jansen, Maarten,Swinkels, Laurens,Zhou, Weili
This paper sheds light on the similarities and differences with respect to the presence of anomalies in the China A-share market and other markets. To this end, we examine the existence of 32 anomalies in the China A-share market over the period 2000-2019. We find that value, risk, and trading anomalies carry over to China A-shares. Evidence for anomalies in the size, quality, and past return categories is substantially weaker, with the exception of a strong residual momentum and reversal effect. We document that most anomalies cannot be explained by industry composition, and are present among large, mid, and small capitalization stocks. We are the first to examine the existence of residual reversal, return seasonalities, and connected firm momentum for the China A-share market. We find strong out-of-sample evidence for the former two, but not the latter. Specific characteristics of the China A-share market, such as short-sale restrictions, the prevalence of state-owned enterprises, and the effect of stock market reforms, are examined in more detail. These features do not seem to be important drivers of our empirical findings.

Are Indian Large-Cap Equity Funds Well-Diversified?
Raju, Rajan,Baruah, Rajiv
We look at whether Indian large-cap equity schemes are well-diversified using the total number of holdings and number of effective holdings.

Average Rate of Return With Uncertainty
Guerra, Maria Letizia,Magni, Carlo Alberto,Stefanini, Luciano
In this paper we introduce uncertainty in the investment appraisal, managed through a new criterion called Average Internal Rate of Return (AIRR), introduced in Magni (2010). The consistency of the arithmetic of variables represented with intervals or fuzzy numbers makes it possible to apply the extension principle whereby a rigorous analysis of the investment decisions under uncertainty is accomplished.

Book Genre Categorization Using Machine Learning Algorithms (K-Nearest Neighbor, Support Vector Machine and Logistic Regression) using Customized Dataset
Text classification is playing a vital role in current era. Its requirement is increasing day by day because of increase of text data as number of digital users are increasing rapidly. As a result, machine learning algorithms are used to classify certain text data, resulting in better predictions and accuracy. By constructing a data set with proper structure and data, the genre is predicted by the title and abstract of the book. The dataset will consist books which are translated to English from Guajarati or Hindi originate books. In this paper, some weaknesses in text classification techniques are analysed and worked on to improve the accuracy of structured data. The main focus here was to classify a book by genre using machine learning

Cointegration in high frequency data
Simon Clinet,Yoann Potiron

In this paper, we consider a framework adapting the notion of cointegration when two asset prices are generated by a driftless It\^{o}-semimartingale featuring jumps with infinite activity, observed regularly and synchronously at high frequency. We develop a regression based estimation of the cointegrated relations method and show the related consistency and central limit theory when there is cointegration within that framework. We also provide a Dickey-Fuller type residual based test for the null of no cointegration against the alternative of cointegration, along with its limit theory. Under no cointegration, the asymptotic limit is the same as that of the original Dickey-Fuller residual based test, so that critical values can be easily tabulated in the same way. Finite sample indicates adequate size and good power properties in a variety of realistic configurations, outperforming original Dickey-Fuller and Phillips-Perron type residual based tests, whose sizes are distorted by non ergodic time-varying variance and power is altered by price jumps. Two empirical examples consolidate the Monte-Carlo evidence that the adapted tests can be rejected while the original tests are not, and vice versa.

Comparison in the Language of the Social Classes of England (Based on Contemporary Works of Art)
Vlasova, Ekaterina
The report is devoted to the establishment of means of expression of comparison in the speech of characters of the upper, middle and lower classes of modern English society. The article analyzes the contexts of using the comparison introduced by the like modifier in the speech of 23 characters in the works of modern English writers, and for the first time reveals the means of representing comparison in the maxims of representatives of different social classes of modern English society. The study demonstrates that the choice of different language means for expressing comparison is dictated by the characteristics of the social layer to which communicants belong, such as leading values, level of education, income, and the degree of freedom in expressing emotions. It is concluded that the comparison of the speech of upper class representatives is expressed by neutral vocabulary to convey positive emotions and informal vocabulary to demonstrate hyperbolized negative assessment, reflecting a critical and ironic view of events. The comparison in the statements of middle-class representatives is expressed by formal vocabulary, French words, rhymes, political terms, cliches, deformed phraseological units that reflect the desire to imitate the upper classes, and indicate the modesty and self-doubt of communicants. Comparison in the judgments of lower-class Englishmen is conveyed by argotisms that help to express a flash of negative emotions, as well as religious and literary allusions that are used out of place and contain an abundance of logical errors.

Deep Hedging: Learning Risk-Neutral Implied Volatility Dynamics
Hans Buehler,Phillip Murray,Mikko S. Pakkanen,Ben Wood

We present a numerically efficient approach for learning a risk-neutral measure for paths of simulated spot and option prices up to a finite horizon under convex transaction costs and convex trading constraints. This approach can then be used to implement a stochastic implied volatility model in the following two steps: 1. Train a market simulator for option prices, as discussed for example in our recent; 2. Find a risk-neutral density, specifically the minimal entropy martingale measure. The resulting model can be used for risk-neutral pricing, or for Deep Hedging in the case of transaction costs or trading constraints. To motivate the proposed approach, we also show that market dynamics are free from "statistical arbitrage" in the absence of transaction costs if and only if they follow a risk-neutral measure. We additionally provide a more general characterization in the presence of convex transaction costs and trading constraints. These results can be seen as an analogue of the fundamental theorem of asset pricing for statistical arbitrage under trading frictions and are of independent interest.

Determinants on ETF Launching Decisions
Zheng, Xinrui
This paper studies the decision by an asset manager to launch an exchange-traded fund (ETF). Using U.S. data, I find that fund families are concerned with profit maximization when making launching decisions through both revenue generation and cost reduction. ETF launches are more likely to be driven by investor demand, rather than based on past performance. Further, there are significant economies of scale and scope in the ETF industry, allowing larger families to benefit from specialization. Families tend to follow the asset allocation decisions of the three largest ETF providers, unless when it comes to less liquid or highly concentrated objective markets. Finally, a time-to-event analysis shows that ETFs launched by larger and higher-fee families and whose initiation is not driven by excessive flows into the family are more likely to survive for longer.

Disclosure and Liquidity Management: Evidence from Regulation Fair Disclosure
Albring, Susan,Huang, Shawn X.,Pereira, Raynolde,Xu, Xiaolu
We examine the effect of the firm’s information environment on its liquidity policy by exploiting a natural experiment involving Regulation Fair Disclosure (Regulation FD). We find, on average, Regulation FD has a negative impact on firm cash holdings. We also directly evaluate changes in firm disclosure policy and find the negative Regulation FD-cash holdings relation is stronger for firms that increased public disclosure and holds largely for firms that faced lower proprietary costs of public disclosure. Furthermore, we find this negative relation is more pronounced for firms with limited access to the credit market. We capture the medium-term effect of Regulation FD two years before and two years after the implementation. Overall, our results suggest that the change in the amount of information disclosed in response to Regulation FD, an externality effect, affects information asymmetry between firms and outside investors and thus cash holdings.

Do Financial Markets Reward Government Spending Efficiency?
Afonso, António,Jalles, João Tovar,Venâncio, Ana
We link governments’ spending efficiency scores, to sovereign debt assessments made by financial markets´, more specifically by three rating agencies (Standard & Poors, Moody´s and Fitch). Public efficiency scores are computed via data envelopment analysis. Then, we rely notably on ordered response models to estimate the response of sovereign ratings to changes in efficiency scores. Covering 34 OECD countries over the period 2007-2018, we find that increased public spending efficiency is rewarded by financial markets via higher sovereign debt ratings. In addition, higher inflation and government indebtedness lead to sovereign rating downgrades, while higher foreign reserves contribute to rating upgrades.

Does Mixed-Ownership Reform Improve SOEs’ Innovation? Evidence from State Ownership
Zhang, Xiaoqian
This paper investigates the impact of the ongoing mixed-ownership reform on the innovation activities of SOEs in China. We find that the reform improves SOE’s innovation, and the impact is heterogeneous, by exploring in different industries and different regions with the influence of macroeconomic environment. This effect is stronger for SOEs in monopoly industries and eastern developed region. As a new form of state-sector reform, this mixed-ownership reform happens not only in SOEs like previous privatization, but also in a reverse direction. We also find its positive impact of improving the innovation for POEs being mix-reformed. To deal with endogeneity concerns, PSM, DiD and IV estimations are used. We also introduce highway as an instrumental variable, All the results in the 2SLS estimations are robust. Additional tests help isolate the effect of intervention from explanations of macro-economic effects, including house price, private employees, credit and equity finance.

Dynamic Pricing of Restaurant Food Delivery: An Explorative Market Efficiency Study
Svartbäck, Dennis,Ekholm, Anders G.
We use restaurant food delivery sales tick data to investigate how prices reflect demand, allocate resources and impact profitability. We find that real-time demand can be used to accurately predict future demand over a short time frame, and that dynamic prices based on it reduce demand variation. Our evidence suggests that dynamic pricing of restaurant food delivery can decrease resource waste and improve producer profitability.

Dynamic Runs and Circuit Breakers: An Experiment
Magnani, Jacopo,Munro, David
Although now widespread in financial markets, circuit breakers remain controversial among researchers and professional investors. We formalize the popular argument that circuit breakers provide a “cooling-off” period for investors during market runs and we test it in the laboratory. Our experiment reproduces a market where investors fear future liquidity shocks but receive news about the true state over time. Notably, we find that when information quality is poor circuit breakers can have perverse effects on trading behavior. However, when information quality is high, circuit breakers can improve welfare by providing agents with time to learn about the true state, when private incentives to wait for more information are insufficient.

Effektivt stöd för FoU, innovationer och företagande (Efficient Support to R&D, Innovations and Entrepreneurship)
Svensson, Roger
Swedish Abstract: De senaste 20 Ã¥ren har svenska regeringar genomfört mÃ¥nga förändringar när det gäller satsningar pÃ¥ FoU/innovationer och företagande â€" i synnerhet inom det sistnämnda omrÃ¥det. I denna rapport har förändringarna diskuterats med utgÃ¥ngspunkt frÃ¥n den nationalekonomiska forskningslitteraturen. Det visar sig att flera satsningar inte har varit optimala och att mÃ¥nga Ã¥tgärder är dÃ¥ligt utvärderade. Nedan följer en sammanfattning vad som har gjorts och i punktform förslag pÃ¥ vad som behöver göras.English Abstract: In the last 20 years, Swedish governments have implemented many changes in terms of investments in R&D / innovation and entrepreneurship . In this report, the changes are analyzed on the basis of the economic research literature. It turns out that several policy changes have not been optimal and that many programs are poorly evaluated. Below is a summary of what has been done and in point form suggestions of what needs to be done.

Exploring the Effects of Agency Theory on Ownership Structures and Firm Performance
Nidumolu, Radhika
The development of Corporate Governance is a global phenomenon and draws significant attention of both academic and in practice. A growing body of research in this area is obvious and suggests that this new area gains relevance and its development has been affected by the theories of different disciplines. The present study mainly focuses on ‘Agency Theory’ and this theory provides theoretical framework for corporate governance. The basic assumption of this theory is that the agent is likely to be self-centered and optimistic about the chances to maximize his utility. However, defining agency theory as a contractual relationship under which both the parties are trying to maximize their utility. If every individual behaves rationally decision making becomes difficult in the system in order to achieve common goals. The agent will not always act rationally because he must make decisions according to the preferences. Sometimes these preferences can also be turned as constraints to their rational decision making process. The agent will not always act in the best interest of the principal because of bounded rationality. The Agency costs means the costs incurred in scrutinizing and controlling the mangers and try to put off their exploitation2. These costs may be reduced by well planned approach to governance structures. The problems arising out of agent- principal relationship create governance issues and badly impact the firm’s performance. The firms which having weaker governance structures, managers of those firms acted rationally to maximize their personal benefits, because of weak corporate structures. Agency problem is not only a matter of separation of interest but also conflict of interest with in the ownership structures. The Agency problems, ownership structures’ and firms’ performance are inter-related. The ownerships structures have a significant impact on long term value and firms’ performance. Effective governance mechanisms’ can only minimize the agency costs and hold-up problems associated with separation of ownership and control. Corporate governance not only reinforces the managerial responsibility but also boosts the confidence of the managers’; to improve firm’s performance towards maximizing profits rather than pursue their own objects. This paper deals with the principal - agent problem in the stakeholder context. This study also emphasizes that good governance mechanisms can only curtail the agency, moral hazards’ and hold-up problems connected with separation of ownership and control. Generally, ownership structure is considered an important factor in determining the value of the firm. However, the empirical results of this study state the ownership structure is not an only instrument to tackle the agency related problems. But, by reducing agency costs through effective ownership mechanisms will improve firm’s economic performance.

Financial literacy and financial education â€" What do we actually know?
Bucher-Koenen, Tabea,Knebel, Caroline
In an international comparison, Germans have a relatively high level of financial knowledge. However, this does not imply that financial knowledge is universally distributed. The share of respondents, who are able to answer three basic questions about interest rate, inflation, and risk diversification correctly, lies between 53% and 62%. Among women, older individuals, and people with low income or low education, this share is substantially lower. Research has shown that financial knowledge positively affects financial decision-making. Furthermore, financial education programs can enhance financial knowledge and behavior. In Germany, no broad financial literacy strategy exists and, therefore, no targeted evaluations and quality assurance measures for programs are in place. Such a strategy could improve people’s financial decisions as well as the overall financial stability.

Finding the patterns of IRA investment decision among Europeans aged 50+ with formal education and primary residence before the fall of communism. Evidence from SHARE-ERIC (Wave 7)
Homocianu, Daniel,Plopeanu, Aurelian P.
This paper deals with the analysis of determinants of the decision of investing in Individual Retirement Accounts (IRA) among Europeans aged 50 and over, starting from the SHARE-ERIC data set (Wave 7), filtered on dominant residences and full-time education before the fall of the Iron Curtain in Europe. Using more than 33.000 records, it validates the assumption that schooling and living place in former communist countries count for such financial behavior. Further, it brings two particular models with good accuracy of classification starting from the latter criterion. We applied many methods and techniques based on data mining and variable selection tools, probit and binary logistic regression analysis with average marginal effects, automatic cross-validations, mixed-effects modeling with random effects on countries, and prediction nomograms. We found that some influences from the same financial category as the dependent variable, such as having life insurance or ever investing in mutual funds or stocks count the most when dealing with investing in IRA. More, the younger respondents, those with computer skills required by their jobs, and those who have gone through at least a period of high stress were more likely to invest using such an instrument, no matter their residence and education. Besides, more educated people, those who suffered in their past by some form of discrimination, the relaxed, happier, more independent, and more interpersonal confident individuals were more prone to choose to invest this way. Moreover, this paper also confirms some country-level influences related to stock market capitalization to GDP ratio and Worldwide Governance Indicators.

Firing Costs and the Decoupling of Technological Invention and Post-Invention Investments
Keum, Daniel
We document the decoupling of invention and post-invention investment in the US. Decoupling began in the 1970s as states adopted employment protection laws that increased firing costs and played a significant role in jobless growth, the vertical and geographical fragmentation of firm activities, and underinvestment relative to Tobin’s Q. Technological inventions lead to employment growth, but employment protection laws almost fully moderate this positive effect, especially in fast-changing and high-offshore industries and for radical inventions. Firms responded to the increased firing costs by pursuing less-novel inventions, factor substitution toward capital, and offshoring through international acquisitions and JVs with manufacturing partners. Our findings suggest that decoupling serves as a critical context under which these drivers of jobless growth emerged in the 1990s and that firms aggressively manage complementary in upstream-downstream resources by adjusting geographical and vertical boundaries of the firm.

Greenwashing during Uncertain Times
Attig, Najah,Brockman, Paul,Trabelsi, Samir
We use a unique database that includes selective environmental disclosures to examine the impact of economic policy uncertainty on corporate greenwashing in the US. Our results suggest that during periods of heightened EPU firms reduce their greenwashing, as they appear to disclose more information that is important rather than benign with respect to their environmental performance. We further validate this new evidence by showing that, in response to increased political uncertainty around gubernatorial elections, firms engage in more substantive rather than symbolic environmental disclosures. In addition, our cross-sectional analyses show that the relation between EPU and greenwashing varies with the extent of an industry’s political sensitivity, intensity of industry competition, firm age, financial constraints, and information quality. Our novel evidence survives extensive robustness tests. Overall, our study suggests that uncertainty over government policies reduces firms’ incentives to engage in deceptive environmental reporting.

Historical Evolution of Global Inequality in Carbon Emissions and Footprints versus Redistributive Scenarios
Gregor Semieniuk,Victor M. Yakovenko

Ambitious scenarios of carbon emission redistribution for mitigating climate change in line with the Paris Agreement and reaching the sustainable development goal of eradicating poverty have been proposed recently. They imply a strong reduction in carbon footprint inequality by 2030 that effectively halves the Gini coefficient to about 0.25. This paper examines feasibility of these scenarios by analyzing the historical evolution of both weighted international inequality in CO2 emissions attributed territorially and global inequality in carbon footprints attributed to end consumers. For the latter, a new dataset is constructed that is more comprehensive than existing ones. In both cases, we find a decreasing trend in global inequality, partially attributed to the move of China from the lower to the middle part of the distribution, with footprints more unequal than territorial emissions. These results show that realization of the redistributive scenarios would require an unprecedented reduction in global inequality far below historical levels. Moreover, the territorial emissions data, available for more recent years up to 2017, show a saturation of the decreasing Gini coefficient at a level of 0.5. This observation confirms an earlier prediction based on maximal entropy reasoning that the Lorenz curve converges to the exponential distribution. This saturation further undermines feasibility of the redistributive scenarios, which are also hindered by structural tendencies that reinforce carbon footprint inequality under global capitalism. One way out of this conundrum is a fast decarbonization of the global energy supply in order to decrease global carbon emissions without relying crucially on carbon inequality reduction.

Home Bias and Local Outperformance of Limited Partner Investments: Evidence from Private Equity Fund Manager Selection
Morkoetter, Stefan,Schori, Tobias
Based on a sample of 114,098 investments committed by 12,258 limited partners into 20,473 private equity funds, we study an international home bias in fund manager selection in private equity. We find that limited partners overweigh their investments with fund managers domiciled in the same geographical region by 45% on average. The home bias in local fund manager selection holds across investor types, fund characteristics as well as market regions. Investments committed with locally domiciled fund managers are not only being overweighed, but also perform better than investments with fund managers domiciled in foreign market regions. We argue that limited partners benefit from information advantages and better fund access when selecting private equity funds within their home market region.

How Many Online Workers are there in the World? A Data-Driven Assessment
Otto Kässi,Vili Lehdonvirta,Fabian Stephany

An unknown number of people around the world are earning income by working through online labour platforms such as Upwork and Amazon Mechanical Turk. We combine data collected from various sources to build a data-driven assessment of the number of such online workers (also known as online freelancers) globally. Our headline estimate is that there are 163 million freelancer profiles registered on online labour platforms globally. Approximately 19 million of them have obtained work through the platform at least once, and 5 million have completed at least 10 projects or earned at least $1000. These numbers suggest a substantial growth from 2015 in registered worker accounts, but much less growth in amount of work completed by workers. Our results indicate that online freelancing represents a non-trivial segment of labour today, but one that is spread thinly across countries and sectors.

Information Pools and Insider Trading: A Snapshot of America’s Financial Elite
Didisheim, Antoine,Somoza, Luciano
We document abnormal correlations between the performance of hedge funds' managers with an elite socio-economic background. In particular, Columbia, Harvard, University of Pennsylvania, Stanford, and NYU alumni are highly correlated among themselves. We take steps toward linking this phenomenon to a shared information pool with a quasi-natural experiment: the 2009 Galleon Capital insider trading scandal. The difference-in-difference analysis shows a significant reduction in returns of the elite managers following the scandal. Finally, we present evidences suggesting that investors recognize this pool's value, as funds with access to elite information are associated with 55\% higher assets under management at launch.

Kelly Betting with Quantum Payoff: a continuous variable approach
Salvatore Tirone,Maddalena Ghio,Giulia Livieri,Vittorio Giovannetti,Stefano Marmi

The main purpose of this study is to introduce a semi-classical model describing betting scenarios in which, at variance with conventional approaches, the payoff of the gambler is encoded into the internal degrees of freedom of a quantum memory element. In our scheme, we assume that the invested capital is explicitly associated with the quantum analog of the free-energy (i.e. ergotropy functional by Allahverdyan, Balian, and Nieuwenhuizen) of a single mode of the electromagnetic radiation which, depending on the outcome of the betting, experiences attenuation or amplification processes which model losses and winning events. The resulting stochastic evolution of the quantum memory resembles the dynamics of random lasing which we characterize within the theoretical setting of Bosonic Gaussian channels. As in the classical Kelly Criterion for optimal betting, we define the asymptotic doubling rate of the model and identify the optimal gambling strategy for fixed odds and probabilities of winning. The performance of the model are hence studied as a function of the input capital state under the assumption that the latter belongs to the set of Gaussian density matrices (i.e. displaced, squeezed thermal Gibbs states) revealing that the best option for the gambler is to devote all her/his initial resources into coherent state amplitude.

Keynes on Investment Objectives, Philosophy, Policy and Performance Monitoring
Woods, J.E.
Although Keynes did not prepare an explicit investment credo, there is enough material in his writings to produce an integrated account of his Approach to Portfolio Management under the four headings in the title. The starting point is Keynes’ philosophy, the central conception being that the world is characterised by uncertainty, not risk. A natural question, then, is how would individuals behave to save their faces as rational, economic men? Rejecting the conventional answer, Keynes developed an investment policy with Three Principles, all based on his philosophy. Inherent uncertainty had implications for individual and collective behaviour in financial markets and, hence, for asset pricing. Rejecting the notion of market efficiency three decades before it was defined, Keynes devised an operational concept of intrinsic value as the foundation for security selection. His Principles, to which one on income can be added, provide the template for portfolio monitoring, demonstrating that the Fourâ€"Part Schema indicated by the title is logically consistent and selfâ€"contained. By contrast, the Fiveâ€"Stage Process of the Conventional Approach has no place for philosophy, is based on risk not uncertainty and is driven by ex post measurement.

Mental Health and Abortions among Young Women: Time-varying Unobserved Heterogeneity, Health Behaviors, and Risky Decisions
Lena Janys,Bettina Siflinger

In this paper, we provide causal evidence on abortions and risky health behaviors as determinants of mental health development among young women. Using administrative in- and outpatient records from Sweden, we apply a novel grouped fixed-effects estimator proposed by Bonhomme and Manresa (2015) to allow for time-varying unobserved heterogeneity. We show that the positive association obtained from standard estimators shrinks to zero once we control for grouped time-varying unobserved heterogeneity. We estimate the group-specific profiles of unobserved heterogeneity, which reflect differences in unobserved risk to be diagnosed with a mental health condition. We then analyze mental health development and risky health behaviors other than unwanted pregnancies across groups. Our results suggest that these are determined by the same type of unobserved heterogeneity, which we attribute to the same unobserved process of decision-making. We develop and estimate a theoretical model of risky choices and mental health, in which mental health disparity across groups is generated by different degrees of self-control problems. Our findings imply that mental health concerns cannot be used to justify restrictive abortion policies. Moreover, potential self-control problems should be targeted as early as possible to combat future mental health consequences.

On Agency, Asset Management and Regulation
Woods, J.E.
Questions about Government regulation and agency issues are inherent in political economy as both relate to the operation of markets. Government is involved in setting the rules of the game, so to speak, and agency questions necessarily arise in those organisations where ownership is separated from control. It may happen that, in implementing the rules of the game, an agent is able to exploit its position to enhance its status and invert a principalâ€"agent relationship. It may also happen that, in setting the rules of the game, the Government reinforces a number of deleterious trends in the behaviour of market participants. When both possibilities materialise in a particular area, the implications are potentially very serious. We contend that this is precisely what has occurred over the last quarterâ€"century particularly in the management of UK definedâ€"benefit pension scheme assets. Legislation and related regulatory activities have led inexorably to the adoption by all parties of Benchmarking, which induces herding and shortâ€"termism in portfolio management. An associated consequence has been the rise of consultants within the pension scheme nexus from the ex post role of performance measurement to the dominant ex ante role of leading on investment strategy, portfolio structure and style, the selection of portfolio managers and performance monitoring â€" despite the fact that there is no empirical evidence that they can add value in the first three of these latter areas.

Overinvestment and Stock Price Crashes: Evidence from Mergers and Acquisitions
Andreou, Panayiotis C.,Bozos, Konstantinos,Panayi, Evridiki
A sizeable amount of empirical research attributes stock price crashes to agency reasons, predominantly on managerial bad news hoarding behaviour manifested through the financial reporting opacity channel. Admittedly, another prominent agency-based explanation, namely the overinvestment channel, remains largely unexplored. Using a sample of 68,735 firm-year observations―with 8,096 firm-year observations featuring completed M&A deals―of US-listed firms from 1990 to 2018, this study documents a strong positive relationship between past M&As (over)investment activity and future stock price crashes. This positive overinvestment-crash risk relationship is more pronounced when firms face strong product market competition. The relationship appears to be driven by M&A deals that exhibit negative abnormal returns on their announcement. More importantly, this study further demonstrates that stock price crashes triggered by the overinvestment channel have a significant negative impact on the firm’s future operating profitability.

Rodeo or Ascot: which hat to wear at the crypto race?
Konstantin Häusler,Wolfgang Karl Härdle

This paper sheds light on the dynamics of the cryptocurrency (CC) sector. By modeling its dynamics via a stochastic volatility with correlated jumps (SVCJ) model in combination with several rolling windows, it is possible to capture the extreme ups and downs of the CC market and to understand its dynamics. Through this approach, we obtain time series for each parameter of the model. Even though parameter estimates change over time and depend on the window size, several recurring patterns are observable which are robust to changes of the window size and supported by clustering of parameter estimates: during bullish periods, volatility stabilizes at low levels and the size and volatility of jumps in mean decreases. In bearish periods though, volatility increases and takes longer to return to its long-run trend. Furthermore, jumps in mean and jumps in volatility are independent. With the rise of the CC market in 2017, a level shift of the volatility of volatility occurred. All codes are available on

Selfish Shareholders: Corporate Donations During COVID-19
Michele Fioretti,Victor Saint-Jean,Simon C. Smith

During the onset of the COVID-19 pandemic, conflicting incentives caused most stakeholders to dislike corporate social responsibility (CSR) -- measured by firms' charitable donations -- since it would further burden firms' already strained finances. Those stakeholders that did favor donations, large individual investors, did so only to bolster their own images as they are typically synonymous with the donating firms. Image gains do not pass-through to institutional shareholders, who instead preferred to donate themselves rather than having the firms in their portfolios donate. Our results cast doubts on large corporations' willingness to enforce CSR measures for firms in their portfolio.

Smoothed Semicovariance Estimation
Rigamonti, Andrea,Ferrari, Davide,Weissensteiner, Alex,Paterlini, Sandra
Investors might prefer to consider the problem of minimizing the semivariance of a portfolio given a certain benchmark rather than the variance, as in such case only the downside volatility is considered as risk. However, such optimization framework has received limited attention compared to the variance minimization framework as the problem is analytically intractable due to the endogeneity of the semicovariance matrix. To solve this issue, we introduce a smoothed semicovariance estimator (SSV) and a simple re-weighting scheme to compute the optimal portfolio weights. Beside relying on a fast estimation algorithm, the SSV has appealing theoretical properties: by tuning a single parameter, controlling the trade-off between bias and variance, the SSV allows to span the entire set of portfolios from the minimum sample semivariance to the minimum sample variance portfolio. Simulations confirm the theoretical and convergence properties of the SSV estimator, while empirical results on real-world data show its out-of-sample properties in comparison to state-of-art optimal portfolio approaches.

SoK: Automated Market Maker (AMM) based Decentralized Exchanges (DEXs)
Jiahua Xu,Nazariy Vavryk,Krzysztof Paruch,Simon Cousaert

As an integral part of the Decentralized Finance (DeFi) ecosystem, Automated Market Maker (AMM) based Decentralized Exchanges (DEXs) have gained massive traction with the revived interest in blockchain and distributed ledger technology in general. Most prominently, the top six AMMs -- Uniswap, Balancer, Curve, Dodo, Bancor and Sushiswap -- hold in aggregate 15 billion USD worth of crypto-assets as of March 2021. Instead of matching the buy and sell sides, AMMs employ a peer-to-pool method and determine asset price algorithmically through a so-called conservation function. Compared to centralized exchanges, AMMs exhibit the apparent advantage of decentralization, automation and continuous liquidity. Nonetheless, AMMs typically feature drawbacks such as high slippage for traders and divergence loss for liquidity providers. In this work, we establish a general AMM framework describing the economics and formalizing the system's state-space representation. We employ our framework to systematically compare the mechanics of the top AMM protocols, deriving their slippage and divergence loss functions.

Streaming Approach to Quadratic Covariation Estimation Using Financial Ultra-High-Frequency Data
Vladimír Holý,Petra Tomanová

We investigate the computational issues related to the memory size in the estimation of quadratic covariation, taking into account the specifics of financial ultra-high-frequency data. In multivariate price processes, we consider both contamination by the market microstructure noise and the non-synchronicity of the observations. We formulate a multi-scale, flat-top realized kernel, non-flat-top realized kernel, pre-averaging and modulated realized covariance estimators in quadratic form and fix their bandwidth parameter at a constant value. This allows us to operate with limited memory and formulate this estimation as a streaming algorithm. We compare the performance of the estimators with fixed bandwidth parameter in a simulation study. We find that the estimators ensuring positive semidefiniteness require much higher bandwidth than the estimators without this constraint.

The Adoption of Blockchain-based Decentralized Exchanges: A Market Microstructure Analysis of the Automated Market Maker
Agostino Capponi,Ruizhe Jia

We analyze the market microstructure of Automated Market Maker (AMM) with constant product function, the most prominent type of blockchain-based decentralized crypto exchange. We show that, even without information asymmetries, the order execution mechanism of the blockchain-based exchange induces adverse selection problems for liquidity providers if token prices are volatile. AMM is more likely to be adopted for pairs of coins which are stable or of high personal use for investors. For high volatility tokens, there exists a market breakdown such that rational liquidity providers do not deposit their tokens in the first place. The adoption of AMM leads to a surge of transaction fees on the underlying blockchain if token prices are subject to high fluctuations.

The Goldilocks Question in Corporate Governance
Hirst, Scott
The Goldilocks question in corporate governance is whether investors do too much, too little, or just the right amount. But which investors, and too much or too little of what? To date, the question has applied to investor stewardship, by investment managers. But the focus of scholars and policy makers should be elsewhere, on the activity of investors in the aggregate, and on what this Article terms "investor initiation of corporate change." The appropriate Goldilocks question for scholars and policymakers is thus, whether there is too little, too much, or just the right amount of initiation of corporate change, by all investors. The greater clarity of these concepts not only has important implications for the debate regarding investor stewardship, but also permits a refinement of the two central debates in corporate governance over the last thirty years, regarding the appropriate levels of shareholder power and shareholder activism.The Article puts forward a conceptual framework for answering the Goldilocks question. Investor initiation is a substitute for initiation by directors and executives, so the Goldilocks question depends on "managerial completeness"â€"whether directors and executives initiate all (and only) value-increasing corporate changes. The Goldilocks question also depends on investors’ incentives to initiate corporate changes. The Article develops an economic theory of these incentives, which it applies to show the premises on which each of the possible answers to the Goldilocks question depend, as well as the main positions in debates over shareholder power and shareholder activism. Assessing these premises allows for an evaluation of the validity or plausibility of each answer, and of the major positions in the debates regarding shareholder power and shareholder activism.It is possible that the current level of investor initiation is "just right." But if it is not then over-initiation or under-initiation by investors represent important problems for policymakers to address. The Article shows how the solutions to these problems follow closely from the Article’s analytical framework, and how those solutions improve on others that have been proposed.

The Impact of ECB Corporate Sector Purchases on European Green Bonds
Bremus, Franziska,Schuetze, Franziska,Zaklan, Aleksandar
This papers analyzes the effect of the ECB’s Corporate Sector Purchase Programme (CSPP) and the recent Pandemic Emergency Purchase Programme (PEPP) on the yields of eligible green bonds, a new but rapidly growing segment of the corporate bond market. We exploit these policy changes using a difference-in-differences strategy, with ineligible corporate green bonds is- sued in euro, U.S. dollars and Swedish crowns as comparison groups. We find that both programs significantly improve financing conditions for eligible green bonds, thereby increasing the attractiveness of these instruments to issuers and of the euro area as a location of issuance. The effects of the CSPP and PEPP are heterogeneous, both in terms of average impact and persistence of the effects. Yield differences between eligible and ineligible green bonds can last for more than six months. Our analysis informs the debate about new financing options for firms as well as about effects of asset purchase programs on the transition towards a less carbon-intensive economy.

The Informational Consequences of Good and Bad Mergers
Adra, Samer,Barbopoulos, Leonidas G.
M&As have informational consequences beyond their immediate effects on stock prices. We find that acquirers receiving a positive market reaction to their M&A announcements experience an increase in the richness of their information environment, consistent with the theoretical predictions of Dow et al. (2017) [Dow, James, Itay Goldstein, and Alexander Guembel. 2017. “Incentives for Information Production in Markets Where Prices Affect Real Investment.” Journal of the European Economic Association 15 (4): 877â€"909]. Such acquirers attract more informed trading and more analysts in the post-announcement period. Their investments also become more sensitive to the information revealed in their share prices.

The Legacy of the Dean of Management Buy-out and Entrepreneurial Finance Research
Sannajust, Aurelie,Groh, Alexander Peter
This paper reviews 133 of Mike Wright’s contributions to the management buy-out and entrepreneurial finance literature. The outline is chronological and subject-related, revealing the development of Professor Wright’s scholarly work over time and its variety. We begin with the emergence of buy-outs, a discussion of agency costs and corporate governance issues. We then move to internationalisation, boom and bust, the acknowledgement of the arrival of active investors, emerging markets, deal structuring, syndication, new venture finance, financial and economic performance, and recent developments. We document the legacy of an abundant scholar and provide, thanks to his outstanding academic impact, guidance on the evolution of management buy-out and entrepreneurial finance research since its inception.

The New Separation of Ownership and Control: Institutional Investors and ESG
Mahoney, Paul G.,Mahoney, Julia D.
Scholars and policy makers have long debated whether corporations should serve social purposes at the expense of shareholder wealth. The SEC has recently been drawn into the debate as it faces calls to mandate environmental, social, and governance (ESG) disclosures. This Article urges the SEC to proceed with caution. The adoption of ESG disclosure mandates in order to serve environmental or social goals is not well-aligned with the SEC’s stated mission of protecting Main Street investors and maintaining fair, orderly, and efficient markets. Accordingly, the SEC should decline to act absent a showing that ESG disclosures will serve the financial interests of the households for whom institutional investors are fiduciaries and whose retirement and other savings they manage.

The Souk Al-Manakh: The Anatomy of a Pure Price-Chasing Bubble
Veneroso, Frank,Pasquali , Mark
It is widely agreed that the Nasdaq during the dot-com era 20 years ago was a full-fledged stock market bubble. Recently, the US stock market according to many metrics has become significantly more speculative and overvalued than it was at the dot-com peak 20 years ago. In both instances, a very broad subset of stocks became so highly valued that speculation in them had to be untethered from all fundamentals: the essence of what we call a “pure price-chasing bubble.” This paper, drawn from a book in progress, examines the history of stock markets for comparable pure price-chasing bubbles, finding nine or so which have ever reached such a speculative extreme, with an over-the-counter market in Kuwait in the early 1980s called the “Souk al-Manakh” representing the most extreme example. Based on my personal exposure to this Souk al-Manakh almost 40 years ago, I describe this anatomy and thereby make transparent the recurrent dynamicsâ€"on the way up and on the way downâ€"of these greatest asset bubbles in human history. When one applies this framework to the current US stock market, one sees that the stock market in the US today will likely follow the disastrous path of the dot-com market.

The Success of AdaBoost and Its Application in Portfolio Management
Yijian Chuan,Chaoyi Zhao,Zhenrui He,Lan Wu

We develop a novel approach to explain why AdaBoost is a successful classifier. By introducing a measure of the influence of the noise points (ION) in the training data for the binary classification problem, we prove that there is a strong connection between the ION and the test error. We further identify that the ION of AdaBoost decreases as the iteration number or the complexity of the base learners increases. We confirm that it is impossible to obtain a consistent classifier without deep trees as the base learners of AdaBoost in some complicated situations. We apply AdaBoost in portfolio management via empirical studies in the Chinese market, which corroborates our theoretical propositions.

The interaction of forward guidance in a two-country new Keynesian model
Daisuke Ida,Hirokuni Iiboshi

Using the method of Haberis and Lipinska (2020), this paper explores the effect of forward guidance (FG) in a two-country New Keynesian (NK) economy under the zero lower bound (ZLB). We simulate the effect of different lengths of FG or the zero interest rate policy under the circumstance of the global liquidity trap. We show that the size of the intertemporal elasticity of substitution plays an important role in determining the beggar-thy-neighbor effect or the prosper-thy-neighbor effect of home FG policy on the foreign economy. And in the former case, by targeting a minimum welfare loss of the individual country alone but not global welfare loss, two central banks can perform interesting FG bargaining in which they cooperatively adopt the same length of FG or strategically deviate from cooperation.

Understanding Factors that Influence Upskillng
Monica Bhole,Eduardo Laguna-Muggenburg,Michael Meaney

We investigate the motivation and means through which individuals expand their skill-set by analyzing a survey of applicants from the Facebook Jobs product. Individuals who report being influenced by their networks or local economy are over 29% more likely to have a postsecondary degree, but peer effects still exist among those who do not acknowledge such influences. Users with postsecondary degrees are more likely to upskill in general, by continuing coursework or applying to higher-skill jobs, though the latter is more common among users across all education backgrounds. These findings indicate that policies aimed at connecting individuals with different educational backgrounds can encourage upskilling. Policies that encourage users to enroll in coursework may not be as effective among individuals with a high school degree or less. Instead, connecting such individuals to opportunities that value skills acquired outside of a formal education, and allow for on-the-job training, may be more effective.

Value Preservation Increasingly Acknowledged as Primary Purpose and Fiduciary Duty
Lyons, Sean
Stakeholder groups appear to intuitively understand that logically the delivery of sustainable long-term value requires a healthy focus on value creation and on value preservation. Historically organizations have explicitly addressed the value creation imperative at a strategic level through their vision, mission statement, and corporate strategy. The value preservation imperative however while perhaps sometimes implied has rarely been explicitly addressed in the same manner at a strategic level. The difference between explicitly addressing the value creation obligation and implicitly addressing the value preservation obligation is considerable, and its impact has already had a profound effect on corporate culture and resulting corporate behavior. This paper outlines twelve significant developments which have occurred in recent times (2016 â€" 2020) as a growing number of regulators, standard setters, and other governance bodies finally begin to include explicit references to the value preservation imperative. These incremental steps are now directly impacting on corporate boardrooms as the moral obligation to preserve, protect, and defend stakeholder value is increasingly viewed as an important corporate consideration in terms of both company purpose and fiduciary duty.

Valuing Exotic Options and Estimating Model Risk
Jay Cao,Jacky Chen,John Hull,Zissis Poulos

A common approach to valuing exotic options involves choosing a model and then determining its parameters to fit the volatility surface as closely as possible. We refer to this as the model calibration approach (MCA). This paper considers an alternative approach where the points on the volatility surface are features input to a neural network. We refer to this as the volatility feature approach (VFA). We conduct experiments showing that VFA can be expected to outperform MCA for the volatility surfaces encountered in practice. Once the upfront computational time has been invested in developing the neural network, the valuation of exotic options using VFA is very fast. VFA is a useful tool for the estimation of model risk. We illustrate this using S&P 500 data for the 2001 to 2019 period.

Waste Management and Energy Conservation is the Need for the Sustainability of Hotel Industry: An Exploratory Study of the Hotels of Hyderabad
Sharma, Kamal
Over the last two decades, the hotel industry is becoming too large for the business sector and the major producer of the waste. Waste needs to be controlled to combat climate change for sustainable development.For this, management needs complete monitoring in the industry for control and prevent wastage. Waste management is the prevention, creation, awareness, recycling, tackling, handling issues, problem-solving and residual disposition of solid waste. Similarly, technology and machines need to be established in such a way that energy consumption can reduce to a greater extent in the hotel industry with a supportive management team. The aim of writing this paper is to make everyone aware of the industry and save the environment by promoting eco-friendly practices. This research paper focused primarily on the conservation of energy and reducing wastage. It provides the aim and suggestions to some extent on the current situation worldwide in hospitality and creating a platform for discussing the environment compatible practices and offers the best alternatives. For said purpose, we have collected some secondary data from different internet sources and studied waste management procedures and applied technology for energy conservation of a few Hyderabad hotels. It is observed that hotels get many opportunities for reducing and recycling waste and utilising energy for establishing a recycling programme and saving cost without hampering the operation or the comfort of the guest. While creating many opportunities in tourism, the national economy hospitality sector poses a significant aspect that provides a threat to the environment without implementing the measures and prevention methods for saving our earth. The only broad level of discipline including architects, wise planning, service, civil engineers, mechanical engineers, environment and energy specialists, marketing specialists require forming proper planning and design for offering a convincing environment and creating the best opportunities for sustainable business. Training of the hotel management staff can lead to better and effective results of understanding, energy saving, reducing wastage and increasing profitability