Research articles for the 2021-04-22

A Core-Selecting Auction for Portfolio’s Packages
Zarpala, Lamprini,Voliotis, Dimitris
We introduce the "local-global" approach for a divisible portfolio and we perform an equilibrium analysis for two variants of core-selecting auctions. Our main novelty is the extension of the Nearest-VCG pricing rule in a dynamic two-round set-up, which may mitigate bidders' free-riding incentives and further reduce the sellers' costs. The two-round set up admits an information-revelation mechanism that may offset the "winner's curse", and it is in accord with the existing iterative procedure of combinatorial auctions. With portfolio trading becoming an increasingly important part of investment strategies, our mechanism contributes in the increasing interest for portfolio auction protocols.

Adaptive learning for financial markets mixing model-based and model-free RL for volatility targeting
Eric Benhamou,David Saltiel,Serge Tabachnik,Sui Kai Wong,François Chareyron

Model-Free Reinforcement Learning has achieved meaningful results in stable environments but, to this day, it remains problematic in regime changing environments like financial markets. In contrast, model-based RL is able to capture some fundamental and dynamical concepts of the environment but suffer from cognitive bias. In this work, we propose to combine the best of the two techniques by selecting various model-based approaches thanks to Model-Free Deep Reinforcement Learning. Using not only past performance and volatility, we include additional contextual information such as macro and risk appetite signals to account for implicit regime changes. We also adapt traditional RL methods to real-life situations by considering only past data for the training sets. Hence, we cannot use future information in our training data set as implied by K-fold cross validation. Building on traditional statistical methods, we use the traditional "walk-forward analysis", which is defined by successive training and testing based on expanding periods, to assert the robustness of the resulting agent.

Finally, we present the concept of statistical difference's significance based on a two-tailed T-test, to highlight the ways in which our models differ from more traditional ones. Our experimental results show that our approach outperforms traditional financial baseline portfolio models such as the Markowitz model in almost all evaluation metrics commonly used in financial mathematics, namely net performance, Sharpe and Sortino ratios, maximum drawdown, maximum drawdown over volatility.

An Examination of Demographic Differences in Obtaining Investment and Financial Planning Information
Paul Bechly

Financial literacy and financial education are important components of modern life. The importance of financial literacy is increasing for financial consumers because of the weakening of both government and employer-based retirement systems. Unfortunately, empirical research shows that financial consumers are not fully informed and are not able to make proper choices even when appropriate information is available. More research is needed as to how financial consumers obtain investment and financial planning information. A primary data study was conducted to understand the differences between the demographic categories of gender, age, education-level, and income-level with the means of obtaining investment and financial planning information. In this research study, which selected a population from the LinkedIn platform, statistical differences between gender, age, education-level, and income-level were confirmed. These differences helped to confirm prior research in this field of study. Practical opportunities for commercial outreach to specific populations became evident through this type of research. Providers of investment and financial planning information can access their targeted audience more effectively by understanding the demographic profile of the audience, as well as the propensity of the demographic profile of the audience to respond. As this type of research is relatively easy to construct and administer, commercial outreach for providers of investment and financial planning information can be conducted in a cost-efficient and effective manner.

Approximate option pricing formula for Barndorff-Nielsen and Shephard model
Takuji Arai

For the Barndorff-Nielsen and Shephard model, we present approximate expressions of call option prices based on the decomposition formula developed by Arai (2021). Besides, some numerical experiments are also implemented to make sure how effective our approximations are.

Avoiding the Crowd: Traveller Behaviour in Public Transport in the Age of COVID-19
Sanmay Shelat,Oded Cats,Sander van Cranenburgh

Public transport ridership around the world has been hit hard by the COVID-19 pandemic. Travellers are likely to adapt their behaviour to avoid the risk of transmission and these changes may even be sustained after the pandemic. To evaluate travellers' behaviour in public transport networks during these times and assess how they will respond to future changes in the pandemic, we conduct a stated choice experiment with train travellers in the Netherlands. We specifically assess behaviour related to three criteria affecting the risk of COVID-19 transmission: (i) crowding, (ii) exposure duration, and (iii) prevalent infection rate.

Observed choices are analysed using a latent class choice model which reveals two, nearly equally sized traveller segments: 'COVID Conscious' and 'Infection Indifferent'. The former has a significantly higher valuation of crowding, accepting, on average 8.75 minutes extra waiting time to reduce one person on-board. Moreover, they demonstrate a strong desire to sit without anybody in their neighbouring seat and are quite sensitive to changes in the prevalent infection rate. By contrast, Infection Indifferent travellers' value of crowding (1.04 waiting time minutes/person) is only slightly higher than pre-pandemic estimates and they are relatively unaffected by infection rates. We find that older and female travellers are more likely to be COVD Conscious while those reporting to use the trains more frequently during the pandemic tend to be Infection Indifferent. Further analysis also reveals differences between the two segments in attitudes towards the pandemic and self-reported rule-following behaviour. The behavioural insights from this study will not only contribute to better demand forecasting for service planning but will also inform public transport policy decisions aimed at curbing the shift to private modes.

Bond market structure and volatility
Durongkadej, Isarin,Piccotti, Louis R.
We examine price volatility in corporate bond markets using the 24-hour variance ratio methodology. We find that the open-to-open return volatility is on average higher than the close-to close return volatility. This implies that the market mechanism at open affects the price volatility of the bond markets. We find that, in the early 2000s, the return volatility at open is more than 50 percent larger than at the close. In recent years, however, the volatility of open-to-open returns has decreased by almost half, which implies an improving opening procedure for the bond markets.

Capital Inflows and Property Prices: Ethnicity, Education, and Spillovers
Chang, Yuk Ying (Candie),Dasgupta, Sudipto
China has experienced significant capital flight over the last two decades. Despite anecdotal evidence that some of this capital has been invested in foreign residential markets, not much is known from academic research about its destination and impact. We examine the effects of capital inflows from China on residential property prices and the real economy in the U.S. and global metropolitan areas. We show that inflows had significant effects on residential property markets and employment in regions that (a) have strong ethnic ties to China and (b) are destinations of Chinese students. We document spillover effects to other regions.

Cash CVA -- Credit Valuation Adjustment in the Cash Form
Lou, Wujiang
Credit default swaps (CDS) are unfunded, or the synthetic form of credit exposure, while bonds are fully funded, thus the cash form. Borrowing this industry jargon, credit valuation adjustment (CVA) would be seen synthetic, because it is defined as the present value of buying a default protection on counterparty exposure through CDS. This article presents the cash form of counterparty risk, Cash CVA. It links directly to counterparties’ senior unsecured bond curves, thus no longer requiring recovery rate and CDS curve inputs. Replacing CVA with cash CVA is necessitated, because single name CDS is no longer liquid following massive dealer-bank exit from CDS trading business post the Financial Crisis of 2007-2008, while bond liquidity has significantly improved due to advances in corporate bond electronic trading.

Central Bank Information Shocks, Value Gains, and Value Crashes
Adra, Samer,Menassa, Elie
Monetary policy shocks that convey new macroeconomic information are significant predictors of both the absolute and risk-adjusted returns from value investing. Positive Fed information shocks lead to higher subsequent value returns. Crashes in the returns of value investing are most likely to occur in the aftermath of negative Fed information shocks. The effect of Fed information shocks on value returns and crashes is to a large extent driven by these shocks’ impact on informed trading. Moreover, we show that, in terms of influencing the performance of value strategies, information shocks by the Fed are more impactful than conventional monetary shocks.

Combining Flexible Asset Allocation, Sustainable Withdrawals, and Deferred Annuities to provide an Adaptive Lifelong Investing Solution
Chen, Anran,Haberman, Steven,Thomas, Steve
In this paper, we integrate investment decisions in the post-retirement decumulation period with that of the deferred annuity purchase to provide a lifetime decumulation solution. Based on Monte Carlo simulation and historical experience, we use the Perfect Withdrawal Rate (PWR) as a tool to make recommendations on withdrawal rates and asset allocations for different levels of risk preferences. We have a few potentially important findings. First, we illustrate how cheap it is to use a deferred annuity (especially with a deferred period of more than 15 years) as a solution to deal with longevity risk and maintain control of retirement wealth with the investor. Second, we find that if an individual wants to maximise median PWR, he/she should allocate almost 100% in stocks regardless of the length of chosen decumulation period. If an individual wants to maximise minimum PWR, he/she should allocate around 40% - 60% in stocks; therefore, a substantial stocks component should be maintained even if the individual is very risk averse. This then links to our final conclusion on a re-defined Glidepath: if an individual can accept a lower than 50% risk of failure, he/she should move from stocks to bonds as he/she becomes older; however a certain percentage in stocks should be maintained through the decumulation phase.

Competition and the Reputational Costs of Litigation
von Meyerinck, Felix,Pursiainen, Vesa,Schmid, Markus
We study the role of competition in customers’ reactions to litigation against firms, using anonymized mobile phone location data. A class action lawsuit filing results in a 4% aver-age reduction in customer visits to target firms’ outlets in the following months. The e˙ect strongly depends on competition. Outlets facing more competition experience significantly larger negative e˙ects. Closer competition matters more, both in terms of geographic and in-dustry proximity. Announcement returns and quarterly accounting revenues around lawsuit filings also strongly depend on competition. Our results suggest that competition is an impor-tant component in customers’ ability to discipline firms for misbehavior.

Consumption and Portfolio Selection with Recursive Utility, Stochastic Income, and Liquidity Constraints
Choi, Kyoung Jin,Kwak, Minsuk,Lim, Byung Hwa
This paper studies a continuous-time optimal consumption and portfolio selection problem when an economic agent with recursive utility has stochastic income and liquidity constraints. To tackle this problem, we introduce a transform of the Hamilton-Jacobi-Bellman equation into a free boundary value ODE (ordinary differential equation). This transform is designed to simplify the procedure required for performing a duality method. Then, we characterize the optimal policies by deriving an integral equation with a fixed interval from the free boundary ODE. The integral equation is used to prove the verification theorem and to generate a stable numerical scheme. It is notable that the optimal portfolio depends on the elasticity of intertemporal substitution (EIS) due to liquidity constraints even if the investment opportunity is constant. Furthermore, we perform various analyses to investigate the impact of the borrowing constraints on the optimal policies and the marginal propensity to consume.

Diversification Potential in Real Estate Portfolios
Candelon, Bertrand,Fuerst, Franz,Hasse, Jean-Baptiste
In this paper, we study the international and sectoral diversification potential in realestate portfolios. Building on a unique dataset of direct real estate markets covering 16 OECDcountries over the 1999-2018 period, we introduce a statistical test to compare country-leveland sector-level diversification potential. This new diversification test provides investors andanalysts with a valuable tool as it delivers both estimates and robust significance levels. Theempirical findings for real estate investments broadly reveal that international diversificationdominates sectoral diversification.

Does Options Trading Reduce the Demand for Conditional Accounting Conservatism?
Delshadi, Mahmoud,Hammami, Ahmad,Magnan, Michel
We examine if options trading via organized markets reduces the demand for conditional conservatism by alleviating information asymmetry and by mitigating the shareholders-manager conflict. We build upon and extend prior evidence that options trading enhances stock market informational efficiency. Focusing on a large sample of firms from 1997 to 2019, we show that options trading is associated with less conditional conservatism in financial reporting. Moreover, firms reduce their level of conditional conservatism after being listed on the options market. Options trading’s impact on conditional conservatism is greater among small firms, firms with low asset tangibility, and firms with long investment cycles. We find that options trading has little or no effect when economic policy uncertainty is high. We observe that the presence of financial analysts strengthens the negative association between options trading and conditional conservatism. We also document that options trading prominently influences conditional conservatism when investor sentiment is high.

Does Transportation Infrastructure Affect Information in Financial Markets?
Chen, Kejing,Chi, J. Daniel,Guo, Wenqi
The rapid and massive buildout of high-speed rail (HSR) in China is an exogenous transportation-infrastructure shock to firms along HSR lines. After being connected to HSR, a firm experiences increased analyst coverage, institutional ownership, and media attention. The firm’s disclosure quality also improves, as evidenced by decreased earnings management and increased managerial forecast. Consequently, the firm’s stock moves less synchronously with the market. The overall evidence suggests that improved transportation infrastructure facilitates the discovery and dissemination of firm-specific information. A severe HSR accident caused by a lightning strike allows us to observe the counterfactuals and further confirm causality.

Dynamics of Correlation and Volatility in New Age Technology (Industry 4.0) Sectoral Indices and Traditional Sectoral Indices in US and India
Shah, Anand,Bahri, Anu
We investigated the time-varying correlation and volatility behaviour of the New Age Technology (Industry 4.0) sectors and, traditional sectors in US (NASDAQ sectoral indices) and India (Nifty sectoral indices) using ADCC/DCC â€" GARCH models. The impact of Global Financial Crisis due to sub-prime mortgages and Global Lockdown Crisis due to COVID -19 pandemic on volatility and correlation was also assessed.All the sectoral indices exhibited asymmetric volatility behaviour. Among the indices in the NASDAQ sectoral group, only NASDAQ Computer index did not show significant increase in volatility over both the crises. Autonomous Vehicles, Clean Technology, Cybersecurity, 3D Printing, Smart Buildings and Virtual Reality indices did not show a significant increase in volatility during Global Lockdown Crisis. While all the traditional sectoral indices except NASDAQ Bank showed asymmetric behaviour in correlation, Industry 4.0 indices such as Robotics, 3D printing, Clean Energy and Virtual Reality did not. In India, only Nifty IT and Nifty FMCG indices did not exhibit significant increase in volatility during the Global Lockdown Crisis. Correlation generally increased for all the sectoral indices during the crises.

Famine and Young Leader Boomâ€"China’s 1962-63 Phenomenon
Zhang, Jinfan,Liu, Pengcheng
This paper analyzes the background information of business and political leaders born around China’s 1959-1961 famine, including the CEOs and board chairman of China’s public firms and the mayors and CPC secretaries of cities. We find that the likelihood of becoming business (political) leaders for people born in 1962 and 1963 jumps to 2-3 times as high as those born before the famine. The upsurge gradually declines for the following birth cohorts. This phenomenon exists not only at the country level, but also across the provinces. In a difference-in-differences test, we find evidence indicating that the 1962-63 phenomenon is caused by the close to 40 percent birth loss during the 1959-1961 famine. Our findings not only shed light on the unexpected long-run social impact of the famine, but also lend support to the prevalence of meritocracy in both business and politics in China.

Finanzas Internacionales. Ocho Temas y Ejemplos en La Gestión del Riesgo de Tipo de Cambio (Texto Resumido para un Curso Semestral)
Riadi, Fredy M.
This text introduces eight essential topics present in courses of International Finance. It follows the usual sequence used in the textbooks utilized in under and post graduate courses and it is based on the almost twenty years author experience teaching this course. An explanation about the criteria used to select the present topics is that courses in International Economic and Corporate Finance are assumed as a prerequisite. For this reason, the topics like measurement of the international economic flows, exchange rate determination, financing and project evaluation theories have not been included, despite that during the class sessions they are presented in an introductory way. The eight topics are developed assuming as given their underlying theories, theories that occupy an important part of traditional books; thus, the concepts and tools are presented the most near possible to the class sessions, assigning additional lectures and cases to the students.

Founder Teams: Campaign Success and Venture Failure
Coakley, Jerry,Lazos, Aristogenis,Liñares-Zegarra, José Manuel
This paper examines whether solo founders are more likely to succeed in an initial equitycrowdfunding (ECF) campaign and are subsequently less likely to fail than founder teamsfor a large sample of initial ECF campaigns conducted on the three largest UK platforms:Crowdcube, Seedrs and SyndicateRoom. The results show that solo founders have a lowerprobability of conducting successful initial ECF offerings than founder teams, and arealso more likely to fail thereafter. The implication that founder teams enjoy more successis due to the fact that the quality of their human capital may likely attract professionalinvestors who can act as a certification effect. Likewise, the monitoring role of professionalinvestors helps to minimize moral hazard concerns and thus lowers the likelihoodof failure for ECF founder teams. The results also establish that founder team humancapital characteristics are significant determinants of initial ECF campaign outcomesand venture failure.

Identification of Peer Effects with Miss-specified Peer Groups: Missing Data and Group Uncertainty
Christiern Rose

We consider identification of peer effects under peer group miss-specification. Our model of group miss-specification allows for missing data and peer group uncertainty. Missing data can take the form of some individuals being completely absent from the data, and the researcher need not have any information on these individuals and may not even know that they are missing. We show that peer effects are nevertheless identifiable if these individuals are missing completely at random, and propose a GMM estimator which jointly estimates the sampling probability and peer effects. In practice this means that the researcher need only have access to an individual/household level sample with group identifiers. The researcher may also be uncertain as to what is the relevant peer group for the outcome under study. We show that peer effects are nevertheless identifiable provided that the candidate peer groups are nested within one another (e.g. classroom, grade, school) and propose a non-linear least squares estimator. We conduct a Monte-Carlo experiment to demonstrate our identification results and the performance of the proposed estimators in a setting tailored to real data (the Dartmouth room-mate data).

Inter-Cohort Risk Sharing with Long-Term Guarantees: Evidence from German Participating Contracts
Hombert, Johan,Möhlmann, Axel,Weiß, Matthias
Long-term minimum return guarantees sold by European life insurers increasingly become binding as interest rates decline. While participating contracts embedding these guarantees are designed to share market risk across investor cohorts when guarantees are not binding, we study how binding guarantees distort inter-cohort risk sharing. Using regulatory data on participating contracts in Germany, we find that binding guarantees reduced inter-cohort transfer by 10 basis points per year in the period 2000â€"2018. This is modest compared to the average transfer, which is in the range of 40â€"150 basis points. However, the effect is concentrated in the recent period of ultra-low interest rates and may grow larger if interest rates remain persistently low.

International capital markets during the COVID-19 crisis
Álvarez Román, Laura,Fuertes, Alberto,Molina, Luis,Muñoz de la Peña, Emilio
This article analyses the main trends in securities issuance activity on international markets in 2020, a year in which capital markets were very buoyant despite the COVID-19 crisis. In 2020, record figures were posted for issues on fixed-income markets globally, driven by the measures adopted by governments and central banks to smooth financing and foment market liquidity. In terms of sectors, issuance by the public sector and non-financial corporations increased, while there were declines in the banking sector. By region, increases in issuance volumes were across the board, with notably greater dynamism in the United States and the United Kingdom. Finally, as regards time horizon, there was a strong increase in the second quarter of the year, with record figures posted. This may have been due to the fact that many issuers attempted to bring forward their issues in that quarter given the enormous uncertainty over the course of the pandemic and future financing conditions. Equity market issues were also notably buoyant, with figures not recorded since 2009.

Leverage constraints or preference for lottery: What explains the low-risk effect in India?
Joshipura, Mayank
The study empirically investigates two theories that claim to explain the low-risk effect in Indian equity markets using a universe of stocks listed on the National Stock Exchange of India (NSE) from January 2000 to September 2018. Leverage constraints and preference for the lottery are two major competing theories that explain the presence and persistence of the low-risk effect. While the leverage constraints theory argues that systematic risk drives low-risk anomaly and therefore risk should be measured using the beta, lottery demand theory claims that irrational investor’s preference towards stocks with lottery-like payoffs is responsible for the persistence of the low-risk effect, and risk should be measured by idiosyncratic volatility. However, given that most of the risk measures are highly correlated, it is not easy to precisely measure a specific theory’s contribution to explaining the low-risk effect. The study constructs the Betting against correlation (BAC) factor to measure the contribution of leverage constraints to the low-risk effect. It further constructs the SMAX factor to untangle the contribution of lottery preference theory. The results show that leverage constraints theory predominantly explains the low-risk effect in Indian markets. This study contributes significantly to the body of literature, as this is the first such study on the Indian market, one of the major emerging markets, especially when the debate on theories explaining the low-risk effect is yet to settle.

Macroeconomic Effects of the Commodity Price Shocks on the Post-Soviet Resource-Rich Economies
Niftiyev, Ibrahim
Post-soviet countries still experience economic challenges following the painful transition process and the global financial crisis. Especially, resource-rich countries experience it in a higher magnitude because of the distinguished role of the mineral revenue in the macroeconomic stability. Recent price shocks in the international commodity markets proved this point as a reflection on the macroeconomic performance of the post-soviet resource-rich countries. This paper aims to compare country statistics of Azerbaijan, Kazakhstan, Russia, and Turkmenistan to draw general conclusions about the recent effects of 2014-2015 sharp commodity price downturns. To do so, graph analysis and correlation analysis have been applied. The findings reflect a strong and significant correlation between the selected variables of interest, such as GDP, GDP per capita, terms of trade, government spending, etc. and oil prices.

Modern Monetary Theory (MMT) と主流派の齟齬と一致ã‚'解剖する(An Analysis of Difference and Coincidence between MMT and Mainstream Economics)
Mochizuki, Shin
Japanese abstract: 日本語要約:本稿では、MMT派と(いわゆる)主流派のé–"におã'る経済論議上の齟齬と一致について、大きく3つのカテゴリー(財æ"¿å•é¡Œã€é‡'融システムとé‡'融æ"¿ç­–論、及び財æ"¿æ"¿ç­–論)に分ã'て論じた。財æ"¿å•é¡Œã«é–¢ã—ては、通貨発行権と変動相場制ã‚'有する国での受動的な財æ"¿ä¸å±¥è¡Œã®ä¸åœ¨ã«ã¤ã„てMMT派・主流派が相äº'に一致し得るã"とã‚'確認した。その上で、「再定義された財æ"¿ç ´ç¶»ã€ã«ã¤ã„て双方の主張ã‚'吟å'³ã—、各々批判ã‚'加え、さらに止揚的な解として長期停滞モデルが有ç"¨ãªã®ã§ã¯ãªã„かという示å"†ã‚'行なった。財æ"¿ã€Œé»'字」問題、及びæ"¿åºœéƒ¨é–€èµ¤å­—とæ°'é–"部門赤字の非対称性についても、MMT派・主流派の両面から検討した。é‡'融システム・é‡'融æ"¿ç­–論については、信ç"¨å‰µé€ ç†è§£ã€åŠã³å†…ç"Ÿçš„貨幣供給理論の点での両者の乖離ã‚'指æ'˜ã—つつ、主流派側による整合論について、主にæ"¿ç­–é‡'利と総需要のé–"の関係の不確実性と不安定性の面から批判ã‚'加えた。そうした批判は、MMT派からだã'でなく、最è¿'の主流派内部の議論からも成り立つã"とã‚'確認した。財æ"¿æ"¿ç­–論については、まずクラウディング・アウトとマンデル・フレミング効果について論じ、MMT派的なé‡'融財æ"¿ç†è§£ã‚'モデルに組み込む方å'性としてIS-MPã‚'検討するã"とで、いずれの効果も自明ではない(成立しないã"とがありうる)というã"とã‚'論じた。リカード=バローの中立問題、FTPL、æ"¿åºœå‚µå‹™ã®å°†æ¥ä¸–代負担問題については、いずれも財æ"¿ã®æŒç¶šå¯èƒ½æ€§ã®çŠ¶æ³ã«ã¤ã„ての前提によって議論が左右されるã"とã‚'確認した。最後に、財æ"¿ã®ç¡¬ç›´åŒ–については、ミンスキーの系譜ã‚'引くMMT のカンザスシティ・アプローチにおã'る懸念と主流派の経済学/財æ"¿å­¦ã®æ‡¸å¿µãŒå"調的であるã"とã‚'指æ'˜ã—た。English Abstract: This paper discusses the difference and coincidence in economic debates between MMT and (so-called) mainstream economics in three major categories: fiscal collapse, financial system & monetary policy, and fiscal policy. Regarding fiscal collapse, I confirmed that MMT and mainstream economists can mutually agree on the absence of passive fiscal default in currency-issuing government and floating exchange rate systems. The paper then examines both sides' arguments for a "redefined fiscal collapse," criticizes each side's arguments, and suggests that the secular stagnation model may be useful as an integrated solution. The issue of "fiscal surplus" and the asymmetry between government and private sector deficits are also examined from both MMT and mainstream perspectives. With regard to the financial system & monetary policy, I pointed out the divergence between MMT and mainstream economics in terms of the understanding of money creation and the theory of endogenous money supply, and criticized the mainstream's "consistent" view of the fiscal policy. The paper then examines both sides' arguments for a "redefined fiscal collapse," criticizes each side's arguments, and suggests that the long-term stagnation model may be useful as an integrated solution. The issue of "fiscal surplus" and the asymmetry between government and private sector deficits are also examined from both MMT and mainstream perspectives. With regard to the financial system and monetary policy, I pointed out the divergence between MMT and mainstream economics in terms of the understanding of money creation and the theory of endogenous money supply. And I criticized the mainstream's "consistent" view between money multiplier and endogenous money mainly from the perspective of the uncertainty and instability of the relationship between the policy rate and aggregate demand. I confirmed that such criticism is not only from the MMT, but also from the recent internal debate within mainstream economics. Regarding fiscal policy argument, I first discussed crowding out and the Mandel-Fleming effect, and then argued that both effects are non-trivial (and may not hold) by examining IS-MP as a direction to incorporate the MMT's understanding of monetary and fiscal policy into the model. Regarding the Ricardo-Barro equivalence theorem, the FTPL, and the issue of the burden of government debt on future generations, I confirmed that the debates depend on assumptions about the state of fiscal sustainability. Finally, regarding fiscal rigidity, I pointed out that the concerns in the Kansas City Approach of MMT, which is of Minsky's lineage, and those of mainstream economics/public finance studies are coordinated.

Monetary Policy and the Corporate Bond Market: How Important is the Fed Information Effect?
Smolyansky, Michael,Suarez, Gustavo
Does expansionary monetary policy drive up prices of risky assets? Or, do investors interpret monetary policy easing as a signal that economic fundamentals are weaker than they previously believed, prompting riskier asset prices to fall? We test these competing hypotheses within the U.S. corporate bond market and find evidence strongly in favor of the second explanationâ€"known as the "Fed information effect". Following an unanticipated monetary policy tightening (easing), returns on corporate bonds with higher credit risk outperform (underperform). We conclude that monetary policy surprises are predominantly interpreted by market participants as signaling information about the state of the economy.

On the stability of the martingale optimal transport problem: A set-valued map approach
Ariel Neufeld,Julian Sester

Continuity of the value of the martingale optimal transport problem on the real line w.r.t. its marginals was recently established in Backhoff-Veraguas and Pammer [2] and Wiesel [21]. We present a new perspective of this result using the theory of set-valued maps. In particular, using results from Beiglb\"ock, Jourdain, Margheriti, and Pammer [5], we show that the set of martingale measures with fixed marginals is continuous, i.e., lower- and upper hemicontinuous, w.r.t. its marginals. Moreover, we establish compactness of the set of optimizers as well as upper hemicontinuity of the optimizers w.r.t. the marginals.

PEAD.txt: Post-Earnings-Announcement Drift Using Text
Meursault, Vitaly,Liang, Pierre Jinghong,Routledge, Bryan,Scanlon, Madeline
We construct a new numerical measure of earnings announcement surprises, standardized unexpected earnings call text (SUE.txt), that does not explicitly incorporate the reported earnings value. SUE.txt generates a text-based post-earnings-announcement drift (PEAD.txt) larger than the classic PEAD and can be used to create a profitable trading strategy. The magnitude of PEAD.txt is considerable even in recent years when the classic PEAD is close to zero. Leveraging the prediction model underlying SUE.txt, we propose new tools to study the news content of text: paragraph-level SUE.txt and paragraph classification scheme based on the business curriculum. With these tools, we document many asymmetries in the distribution of news across content types, demonstrating that earnings calls contain a wide range of news about firms and their environment.

Price, Volatility and the Second-Order Economic Theory
Victor Olkhov

We introduce the price probability measure {\eta}(p;t) that defines the mean price p(1;t), mean square price p(2;t), price volatility {\sigma}p2(t)and all price n-th statistical moments p(n;t) as ratio of sums of n-th degree values C(n;t) and volumes U(n;t) of market trades aggregated during certain time interval {\Delta}. The definition of the mean price p(1;t) coincides with definition of the volume weighted average price (VWAP) introduced at least 30 years ago. We show that price volatility {\sigma}p2(t) forecasting requires modeling evolution of the sums of second-degree values C(2;t) and volumes U(2;t). We call this model as second-order economic theory. We use numerical continuous risk ratings as ground for risk assessment of economic agents and distribute agents by risk ratings as coordinates. We introduce continuous economic media approximation of squares of values and volumes of agents trades and their flows aggregated during time interval {\Delta}. We take into account expectations that govern agents trades and introduce aggregated expectations alike to aggregated trades. We derive equations for continuous economic media approximation on the second-degree trades. In the linear approximation we derive mean square price p(2;t) and volatility {\sigma}p2(t) disturbances as functions of the first and second-degree trades disturbances. Description of each next n-th price statistical moment p(n;t) with respect to the unit price measure {\eta}(p;t) depends on sums of n-th degree values C(n;t) and volumes U(n;t) of market trades and hence requires development of the corresponding n-th order economic theory.

Property in People and the Complexities of Capitalism (SHEAR)
Brewer, Holly
My years of research on the emergence of slavery in the British Empire not only supports the argument that all markets are regulated, but shows that the character of that regulation can lead to an extraordinary form of capitalism, a form that strikes at the heart of the idea of free markets. This paper explores the dilemma of slavery in the seventeenth century British Empire focusing on questions of its legality and the implications of that legality for finance. Without the ability to maintain that a person could be property, attempted claims at ownership or sale were often legally dubious, difficult to maintain and impossible to finance. England’s Royal African Companyâ€"run by the king’s own brother, James, Duke of York, went bankrupt as a consequence in 1667. The paper shows how England’s high court stepped in to legitimate the legal process of treating people as property, and explains its impact on finance and trade in enslaved people across the empire. It then connects those court decisions to the military force necessary to uphold them, and argues that there is no such thing as a “free market” in forced labor, and that all markets have to be regulated and the rules of exchange enforced. While slavery is perhaps the most crucial example of how such regulation works, this case study from the era of its emergence illuminates how modern assumptions about free markets seriously underestimate the ways in which different regulation combined with the instruments of political power can create radically different kinds of society.Of course slavery was part of capitalismâ€"and an important partâ€"in nineteenth century America. But slavery did not define capitalism. Nor was slavery only capitalism; as an examination of its origins reveals, it was in many ways part of an older ideal of hierarchical society that contemporaries called feudalism and that had very particular legal expression. In this paper I explore the origins of slavery in England’s 17th century empire to argue that “property in people” was a concept that to flourish needed a very particular legal basis, one that built on feudal law but then took a dramatic turn towards fictionalizing people as property. Once such a basis was created, it created almost a new form of money and credit. Without such a legal definition, slavery was profoundly unstable.

Retail Investor Attention and Insider Trading
Mansi, Sattar,Peng, Lin,Qi, Jianping,Shi, Han
We document a strong link between retail investor attention and opportunistic insider trading. An increase (decrease) in retail attention on a stock is associated with significantly more insider selling (buying). Compared to other types of insider trades, trades that are associated with investor attention generate substantially higher returns. Attention-related insider sales are also associated with a lower risk of SEC investigation and tend to increase following news releases regarding SEC enforcement actions. The results are stronger for lottery stocks, for nonindependent insider directors, and for firms that exhibit weaker governance and poorer social responsibility.

Size Discount and Size Penalty: Trading Costs in Bond Markets
Pinter, Gabor,Wang, Chaojun,Zou, Junyuan
We show that larger trades incur lower trading costs in government bond markets (“size discount”), but costs increase in trade size after controlling for clients’ identities (“size penalty”). The size discount is driven by the cross-client variation of larger traders obtaining better prices, consistent with theories of trading with imperfect competition. The size penalty, driven by within-client variation, is larger for corporate bonds and during major macroeconomic surprises as well as during COVID-19. These differences are larger among more sophisticated clients, consistent with theories of asymmetric information. We propose a trading model with bilateral bargaining and adverse selection to rationalize the co-existence of the size penalty and discount.

Split Personalities? Behavioral Effects of Temperature on Financial Decision-making
Gavresi, Despina,Litina, Anastasia,Makridis, Christos
How do environmental factors affect financial decision-making? Using plausibly exogenous variation in exposure to fluctuations in temperature over a sample of individuals between 2004 and 2018 across 28 European countries and Israel, we estimate the causal effect of a marginal change in temperature on financial investments and its interaction with individual personality characteristics. We find that a 10\% increase in temperature is associated with a 0.1 percentage point (pp) rise in the probability that an optimist invests in bonds, a 0.12 pp decline in the probability for stocks, and a 0.11 pp rise in mutual funds. However, among pessimists, we find null effects. We find similar results when we focus on the intensive margin of investment as well. Our results are identified of within-person variation after controlling for all shocks that are common within a country and year, thereby purging variation in time-varying country policies and macroeconomic conditions. These results are unique to optimists versus pessimists, rather than general happiness or interest. Furthermore, the variation in optimism is largely driven by attitudes about risk, rather than attitudes about trust. Our results are consistent with behavioral finance models where expectations moderate the transmission of shocks onto financial decision-making.

Stock price manipulation, short-sale constraints, and breadth-return relationship
Cao, Zhiqi,Lv, Dayong,Sun, Zhenzhen
We examine the breadth-return relationship and the effect of stock price manipulation on it. Using data from the Chinese stock market, we first empirically find a significantly negative breadth-return relationship. Moreover, we conduct a long-short trading strategy based on the breadth change, and show that the magnitude of long-short hedged portfolio based on easily-manipulated stocks is at least 46% more than that based on difficultly-manipulated stocks, suggesting that the negative breadth-return relationship is more pronounced for stocks that are easier to be manipulated. Different from the popularity view of Choi, Jin, and Yan (2013), our results support the “manipulation view” that manipulation behaviors of large investors drive the negative breadth-return relationship. Furthermore, the negative breadth-return relationship is alleviated after relaxing short-sale constraints, indicating that the short-sale mechanism can help reduce stock price manipulation. This paper sheds new light on the role of ownership breadth.

Strategic response to merger control: Evidence around national and supranational thresholds
Weichselbaumer, Michael
Size thresholds exist for overall, national merger review and for assignment to national versus supranational responsibility. I analyse competition effects close to these review thresholds. Firms could strategically pursue competition-reducing mergers before they come under any regulatory oversight. The results, though, point out another type of strategic behaviour by firms: 3-4 years after merger finalisation, 20 percent fewer procurement auctions receive more than one bid after mergers reviewed by national authorities, both in comparison to non-reviewed and to supranationally reviewed cases. Finding lower competition with a 3-4 year lag could be a result of the end of the forecast horizon of the competition authority. An interpretation applying to the positive competition effect for the supranationally regulated cases is that supranational regulation is helpful to avoid political interference.

The COVID-19 Shock and Consumer Credit: Evidence from Credit Card Data
Horvath, Akos,Kay, Benjamin S.,Wix, Carlo
We use credit card data from the Federal Reserve Board's FR Y-14M reports to study the impact of the COVID-19 shock on the use and availability of consumer credit across borrower types from March through August 2020. We document an initial sharp decrease in credit card transactions and outstanding balances in March and April. While spending starts to recover by May, especially for risky borrowers, balances remain depressed overall. We find a strong negative impact of local pandemic severity on credit use, which becomes smaller over time, consistent with pandemic fatigue. Restrictive public health interventions also negatively affect credit use, but the pandemic itself is the main driver. We further document a large reduction in credit card originations, especially to risky borrowers. Consistent with a tightening of credit supply and a flight-to-safety response of banks, we find an increase in interest rates of newly issued credit cards to less creditworthy borrowers.

The Marketing of Initial Public Offerings
Gustafson, Matthew,Henry, Joseph J.,Kim, Emily,Pisciotta, Kevin
Using a novel measure of marketing during initial public offering (IPO) roadshows, we find that marketing positively predicts underpricing, price revisions, and post-IPO liquidity, but has little effect on fees. We further show that IPO roadshow duration and marketing intensity have decreased dramatically over the last fifteen years, leading up to and continuing through the COVID-19 period. Additional tests suggest these trends are related to technological development and the rise in passive ownership. Our findings are relevant to issuers’ choice between traditional bookbuilt IPOs and other capital raising alternatives (e.g., reverse mergers with special purpose acquisition companies (SPACs)).

The effects of bundling strategy on bank interest margins: Theoretical and empirical evidence
Gerek, Caner
This study theoretically categorizes fee and commission income as inseparable and complement,and incorporates them into the Ho and Saunders (1981) bank model in the presence of bundlingstrategy, as a popular banking strategy. By also assuming different information levels of customers,the study finds a negative relationship between interest income and these two non-interest incomecomponents. These negative relationships are tested by analyzing the determinants of banks' netinterest margin for 14 European countries. The results confirm that the theoretical findings hold.

The impact of payday lending on crimes
Shen, Chen
Police departments located in states allowing payday lending report 14.34% more property crimes than the police departments located in states not allowing payday lending. I also find that the police departments located in counties bordering with states allowing payday lending report more property crimes. Those results are driven by the financial pressure induced by payday loans. Furthermore, the impact of payday lending concentrates in areas with a higher proportion of the minority population.