Research articles for the 2021-04-23

A Case Study in Sequence Risk: A 20-year retrospective on the impact of the 2000-2002 and 2007-2009 bear markets on retirement nest egg sustainability.
De Jong, Jack,Robinson, John
The first decade of the 2000s saw two prolonged bear markets both of which produced declines of over 50% in value in the S&P 500 Index from peak to trough. In total, the 10-year period from March 1999 through February 2009 saw the stock market lose more than 30 percent of its value. This period represented the worst decade for the U.S. stock market since the Great Depression. For consumers who had the misfortune of retiring in 1999, this “lost decade” embodied the definition of sequence of returns risk. Researchers at the time could only speculate as to the impact such sharply negative returns might have on the long-term sustainability of retiree spending portfolios. With a full twenty years of monthly return data now in the books, this paper offers a case study on the impact of sequence risk. Specifically, we quantify how retiree portfolios may be fairing today and compare the relative success or failure of commonly promoted glidepath and allocation spending strategies. We conclude that the lost decade is indeed a nightmarish case study in sequence risk and that much of the conventional planning wisdom, including the vaunted “4% Rule,” failed investors during this period. Our analysis has important implications on how financial advisors and their clients should approach portfolio sustainability in the current historic low yield investment environment.

An Empirical Study of the Effect of Corruption Scandals on the Volatility of Stock Returns on the Nairobi Securities Exchange
Mngolia, Ian
Corruption is a vice that affects most if not all societies. With the ever increasing complexities of financial markets, corruption could potentially have severely adverse effects on the markets. This study examined the effect of announcement of corruption scandals on stock return volatility on the Nairobi Securities Exchange. The corruption scandals chosen were; the Eurobond Scandal, Charterhouse Bank Scandal, SafaricomGate scandal, National Youth Service scandal and AngloLeasing Scandal. It was hypothesised that announcements of corruption scandals would lead to an increase in stock return volatility. The approach used was that of a multivariate GARCH, incorporating dummy variables representing the announcement of the corruption scandals, to estimate the effect of the corruption scandals on stock return volatility and the time period was from January 2000 to December 2017. Monthly data was used and the N.S.E. 20 share index was used as a proxy for the market. This study concluded that unveiling of corruption scandals leads to a decrease in stock return volatility.

Can Market Regimes Really be Timed with Historical Volatility?
McGee, Richard
Recent research findings suggest long-term investor utility benefits through scaling expected returns by recent realized volatility. We test for utility gains to volatility timing using a utility regime-based methodology to classify investor-specific market investment regimes based solely on recent realized volatility levels. Under this framework we find limited informational content in using recent realized volatility to forecast utility regimes for the market index. To reconcile our findings we replicate work by Moreira and Muir (2017) and find that their reported Sharpe ratio gains through volatility-managing the US market factor do not appear to be statistically significant. We find that their scheme under-performs buy and hold in terms of Sharpe ratio over 30 of the 70 twenty year sub-periods in our sample (58 out of 70 for an un-leveraged investor). Furthermore, the historical out-performance of volatility management for the market index is highly sensitive to the timing of re-balancing within a month, suggesting that the strategy may not be robust to the precise timing of key market events relative to volatility changes. Strategy adopters should be aware that this timing is not guaranteed to line up favorably over future investment periods.

Capital Flows-at-Risk: Push, Pull and the Role of Policy
Eguren Martin, Fernando,O'Neill, Cian,Sokol, Andrej,von dem Berge, Lukas
We characterise the probability distributions of various categories of gross capital flows conditional on information contained in financial asset prices in a panel of emerging market economies, with a focus on ‘tail’ events. Our framework, based on the quantile regression methodology, allows for a separate role of push- and pull-type factors, and because it is based on high-frequency data, can quantify the likelihood of different outturns before official capital flows data are released. We find that both push and pull factors have heterogeneous effects across the distributions of gross capital flows, which are most marked in the left tails. We also explore the role of various policies, and find that macroprudential and capital flows management measures are stabilising, leading to lower chances of either large portfolio inflows or out flows.

Changing the Audit Committee Chair: An Analysis of Potential Effects on Audit Quality and Audit Fees
Hillebrandt, Svenja,Ratzinger-Sakel, Nicole V.S.
This paper empirically examines the association between changes of the audit committee (AC) chair on audit quality and audit fees. Using a sample of 655 firm-year observations related to German CDAX companies, our results suggest that changes of the AC chair are negatively associated with audit quality. This finding indicates that firm-specific knowledge and task-related experience have an impact on audit quality. Furthermore, AC chair changes are positively associated with audit fees. More precisely, audit fees are approximately 7.79 percent higher following a change of the AC chair. However, our analyses show that our findings depend on the accounting experience of the former AC chair. Thus, if the former AC chair has no accounting experience, the negative effect of AC chair changes on audit quality turns insignificant, which indicates that former AC chair’s firm-specific knowledge and task-related experience only improve the effectiveness of the AC when the former AC chair has simultaneously accounting expertise. This result highlights the importance of accounting expertise for AC chair´s monitoring effectiveness. Similarly, if the former AC chair has accounting experience, the effect on audit fees turns insignificant. We, therefore, conclude that new AC chairs are aware of the supervisory shortcomings of former AC chairs without accounting expertise, and, thus, demand in this case a greater degree of audit procedures from the external auditor resulting in higher audit fees. However, it appears that the extension of audit procedures cannot compensate for the monitoring shortcomings associated with the change of the AC chair and, thus, for the decrease of audit quality.

Consumption with Earnings, Liquidity, and Market Based Models
Snigaroff, Robert,Wroblewski, David
Financial intermediary economic growth theory with its empirical findings, along with stock-level factors; both ideally relate to a consumption asset pricing model. Changing liquidity and earnings combined with the market proxy wealth growth, allowing a recursive consumption model with a low risk aversion coefficient, a risk-free rate close to historical, a high equity premium, and a reasonable elasticity of intertemporal substitution. The empirical consumption model does well against major asset pricing puzzles. Tested over 118 years it is not rejected while a forward-looking consumption model using the market alone as a wealth proxy fails. Changing liquidity and earnings forecast consumption and their ‘crashes’ precede consumption declines. This consistency across approaches adds credence to common risk factors as important risks to investors.

Criminals, bankruptcy, and cost of debt
Jønsson, Kasper Regenburg,Seitz, Morten Nicklas Bigler
We examine whether criminal records of CEOs and rank-and-file employees are associated with firms’ likelihood of bankruptcy and whether lenders adjust their required cost of debt accordingly. We use a nationwide sample of private firms and criminal registers covering all firm employees. We find that the likelihood of bankruptcy is positively associated with the CEO’s criminal record and the proportion of employees with criminal records. We find some, though less robust, evidence that lenders price a firm’s loan higher when its CEO has a criminal record and when more of its employees have criminal records. The results suggest that the characteristics of firm employees represent a risk that, to some extent, is priced by lenders.

Cryptocurrencies as Pension Fund Components: Smart Move or Drinking the Kool-Aid
Soland, Marco,Schueffel, Patrick
This study investigates whether cryptocurrencies can be considered a viable addition to pension funds. Using the regulatory setting of Switzerland, it is assessed whether crypto components added to a standard pension fund portfolio has positive effects on the fund’s risk and return figures. The empirical data supports the notion that cryptocurrency components may well increase the yield of a pension fund portfolio, yet this enhancement of yield comes at slightly higher risk levels. This increase in risk can be mitigated by adding an actively managed crypto component to the portfolio rather than a passive investment product. The article contributes to the ongoing debate in the area of financials innovations on the purpose and solidity of cryptocurrencies as an asset class.

Distressed Acquisitions: Evidence from European Emerging Markets
Iwasaki, Ichiro,Kočenda, Evžen,Shida, Yoshisada
We analyze factors behind 23,213 distressed acquisitions in European emerging markets from 2007â€"2019. Besides the impact of financial ratios, legal form, ownership structure, firm size, and age, we emphasize the role of institutions and channels of their propagation. We show that the quality and enforcement of insolvency laws are linked with the lower probability of distressed acquisitions, followed by corruption control and progress in banking reforms. The impact of institutions is larger in less-advanced countries as compared to economically stronger ones. The effect of institutions increased after the financial crisis but declined as the economic situation improved.

Earnings and Liquidity Factors
Snigaroff, Robert,Wroblewski, David
A model with factors for earnings, liquidity, their respective growth, and the market can offer a consumption rationale with low pricing error. It also subsumes one-year momentum and momentum net of reversal, the factor commonly known as ‘momentum.’ These earnings and liquidity factors are all significant and combine for a model without factor redundancy. Motivated by investors’ ability to establish positions, we construct portfolios based on volume, and reconcile liquidity into reduced form characteristics-based factor models that compliment firm-based factors.

Economic Support during the COVID Crisis. Quantitative Easing and Lending Support Schemes in the UK
Fatouh, Mahmoud,Giansante, Simone,Ongena, Steven
We investigate how the interaction of the Brexit and COVID waves of the Bank of England’s quantitative easing with the leverage ratio capital requirements or government COVID lending support schemes affected bank business lending. We find that the former QE programme was particularly successful in increasing lending to nonfinancial businesses, except for QE-banks subject to the UK leverage ratio, suggesting that the latter ratio incentivized QE-banks to lend to business anyway. The government schemes helped expand lending especially to SMEs post QE COVID, indicating that complementing QE with other credit easing programmes can improve its impact on lending to the real economy. During COVID-stress, changes to the UK leverage ratio supported better market-making in securities markets, and additional QE liquidity boosted stronger repo market intermediation.

Firm-Level Political Uncertainty and Mergers and Acquisitions
Chen, Xin,Shi, Haina,Zhou, Gaoguang,Zhu, Xindong Kevin
While several studies have examined how economy-wide political uncertainty affects firms’ economic activities, little is known about the economic consequences of firm-level political uncertainty. This study sheds light on this issue by examining whether and how acquirers’ political risk affects the outcomes of their mergers and acquisitions (M&A) based on a sample of U.S. firms. We show that firm-level political risk lowers acquirers’ M&A activities and this could be explained by acquirers’ financial constraints and the costs of delaying the M&A investment. Consistent with the notion that firms conduct M&A to hedge their risks, our results show that high political risk firms are more likely to conduct vertical M&A and to acquire target firms with lower risks. Our additional analyses show that such deals take more time to complete, are more likely to include termination fees, exhibit higher bid premiums, and are more likely to be paid by shares. Finally, we find that investors react negatively to M&A deals initiated by high political risk firms and these deals have poor long-term stock market performance, suggesting the adverse implications of political risk for M&A deals.

Forgone Investment: Civil Conflict and Agricultural Credit in Colombia
Submitter, Universidad de los Andes Dept. of Econ.
Do agricultural producers forgo otherwise profitable investments due to civil conflict? Answering this question is crucial to our understanding of the costs of violence, but requires the ability to measure farmers’ willingness to invest and access to exogenous variation in conflict intensity. We exploit a unique administrative dataset from Colombia’s largest agricultural bank and the 2016 demobilization agreement between the Colombian government and insurgent group FARC to overcome these challenges. A difference-in-difference analysis yields three main findings: First, credit to small producers increases after the agreement in municipalities with high FARC exposure (17% over sample mean). Higher loan applications drive this increase, with no change in supply-side variables. Second, a simple theoretical framework combined with rich information on characteristics of loan applicants and projects (including credit scores and loan outcomes) suggests that changes in project returns, but not in risk, underlie the increase in credit demand. Third, conflict is not the binding constraint on investment in areas with low access to markets. Higher investment, unchanged default rates and additional evidence of increased nighttime luminosity after the end of conflict imply an overall positive economic impact

Fundamental Arbitrage under the Microscope: Evidence from Detailed Hedge Fund Transaction Data
von Beschwitz, Bastian,Lunghi, Sandro,Schmidt, Daniel
We exploit detailed transaction and position data for a sample of long-short equity hedge funds to study the trading activity of fundamental investors. We find that hedge funds exhibit skill in opening positions, but that they close their positions too early, thereby forgoing about a third of the trades' potential profitability. We explain this behavior with the limits of arbitrage: hedge funds close positions early in order to reallocate their capital to more profitable investments and/or to accommodate tightened financial constraints. Consistent with this view, we document that hedge funds leave more money on the table after opening new positions, negative returns, or increases in funding constraints and volatility.

Gender and Social Networks on Bank Boards
Owen, Ann L.,Temesvary, Judit,Wei, Andrew
We examine the effect of the social networks of bank directors on board gender diversity and compensation using a unique, newly compiled dataset over the 1999-2018 period. We find that within-board social networks are extensive, but there are significant differences in the size and gender composition of social networks of male vs female bank directors. We also find that samegender networks play an important role in determining the gender composition of bank boards. Finally, we show that those connected to male directors receive higher compensation, but we find no evidence that connections to female directors are influential in determining pay and bonuses.

Global Stablecoins: Monetary Policy Implementation Considerations from the U.S. Perspective
Malloy, Matthew,Lowe, David
This note explores the potential effects of the widespread adoption of a global stablecoin (GSC) on key aggregate financial sector balance sheets in the United States. To do this, we map out cash flows of GSC transactions among financial sector entities using a stylized set of 't-accounts'. By analyzing these individual transactions, we infer aggregate and compositional effects on U.S. commercial banking sector and Federal Reserve balance sheets. Through this lens, we also consider how these balance sheet changes could affect monetary policy implementation, the demand for central bank reserves, and the market for U.S. dollar safe assets.

Google v. Oracle and the Grateful (API) Dead: What a Long Strange Trip Its Been
Menell, Peter S.
The battle over intellectual property protection for computer software has raged for more than four decades. The most significant issue has been whether copyright protection constrains the ability of competitors and innovators to develop interoperable products. This commentary discusses the Supreme Court’s decision in Google v. Oracle, which goes a long way toward establishing that the functional specifications of computer software can be reimplemented without violating copyright law.

Hiding Filthy Lucre in Plain Sight: Theory and Identification of Business-Based Money Laundering
Maskus, Keith E.,Peri, Alessandro,Rubinchik, Anna
Proceeds from illicit activities percolate into the legal economy through several channels. We exploit international regulations targeting money laundering via the financial sector to identify the flows of “dirty money” into legitimate establishments: business-based money laundering (BBML). Our variant of the monopolistic competition model embeds a drug cartel that channels illicit proceeds into an offshore financial investment and into BBML. Tighter regulations in one channel increase the flow in the other. We use a research design that links U.S. county business activity to the evolution of anti-money-laundering regulations in Caribbean jurisdictions to provide the first empirical evidence of the phenomenon.

Institutional Change in the Banking Union: the case of the Single Supervisory Mechanism
Schammo, Pierre
This article is about institutional change in the Banking Union. It has two related aims. The first is to engage with the law of the Single Supervisory Mechanism (SSM)â€"the first pillar of the Banking Unionâ€"and in this context to discuss tensions that have lately emerged between the case law of the Court of Justice of the European Union (CJEU) and that of the German Federal Constitutional Court. The second, but main, aim of this article is to put the law of the SSM as it was enacted in the SSM Regulation, and as it was interpreted by the CJEU and by the German court, in a broader perspective of institutional change. For this purpose, this article adopts an interdisciplinary approach that seeks insights on institutional change in the political science literature. In particular, the article seeks to shed light on the role played by courts. In short, it argues that whilst the SSM is a story of change following an exogenous shock (ie the sovereign debt crisis), it is also an account of change and contestation between courts made possible by the ambiguities and incompleteness of the SSM rules. It will show that the evolution of the SSM is by no means frictionless and that it is only by tracing change from the point of the enactment of the law to its interpretation by the courts that one gains a real appreciation of the dynamics and salience of change within the SSM.

Leveraged Property Cycles
Jaccard, Ivan
This paper studies the effects of imperfect risk-sharing between lenders and borrowers on commercial property prices and leverage. The key friction is that agents use different discount rates to evaluate future flows. Eliminating this pecuniary externality generates large reductions in the volatility of real estate prices and credit. Therefore, policies that enhance risk-sharing between lenders and borrowers reduce the magnitude of boom-bust cycles in real estate prices. We also introduce health shocks to study the effect of the COVID-19 crisis on the commercial property market.

Liability-Driven Investment for Pension Funds: Stochastic Optimization with Real Assets
Jang, Chul,Clare, Andrew,Owadally, Iqbal
Using a multi-stage stochastic programming method, we suggest an optimal liability-driven investment (LDI) strategy for a closed defined-benefit pension fund including real assets. The objective is to minimize or stabilize contributions, funding ratio, buyout cost, and expected shortfall. Over a 10-year planning horizon, the optimal LDI strategy with a key-rate duration-matching bond portfolio outperforms one with a duration-convexity matching bond portfolio or an aggregate bond index-tracking portfolio in terms of the objective measures. When real assets are introduced, the optimal LDI strategy includes significant investment in infrastructure and real estate, illiquidity notwithstanding. Nevertheless, delays in sales of real assets induced by illiquidity can increase downside risk.

Mitigating Information Frictions in Trade: Evidence from Export Credit Guarantees
Lodefalk, Magnus Ingvar,Tangz Sofia Tano, Aili,Agarwal, Natasha,Wang, Zheng
Information frictions make non-simultaneous exchange risky, particularly across borders. Therefore, many countries insure cross-border exchange. We investigate the effects on firm trade, jobs, value added and productivity, using uniquely detailed, comprehensive and longitudinal transaction-level Swedish data on insurance and granular data on exporters and foreign buyers. For identification, we employ matching and differencein- difference and fuzzy regression discontinuity estimators and exploit a quasi-natural experiment. We find strikingly heterogeneous effects across firm size and response variables. The strongest positive effects are for small traders and new users. Overall, the evidence suggests a causal link from export insurance to firm performance.

Optimizing Credit Gaps for Predicting Financial Crises: Modelling Choices and Tradeoffs
Beltran, Daniel O.,Jahan-Parvar, Mohammad R.,Paine, Fiona A.
Credit gaps are good predictors for financial crises, and banking regulators recommend using them to inform countercyclical capital buffers for banks. Researchers typically create credit gap measures using trend-cycle decomposition methods, which require many modelling choices, such as the method used, and the smoothness of the underlying trend. Other choices hinge on the tradeoffs implicit in how gaps are used as early warning indicators (EWIs) for predicting crises, such as the preference over false positives and false negatives. We evaluate how the performance of credit-gap-based EWIs for predicting crises is influenced by these modelling choices. For the most common trend-cycle decomposition methods used to recover credit gaps, we find that optimally smoothing the trend enhances out-of-sample prediction. We also show that out-of sample performance improves further when we consider a preference for robustness of the credit gap estimates to the arrival of new information, which is important as any EWI should work in real-time. We offer several practical implications.

Pre-Opening Price Indications and Market Quality
Chung, Kee H.,Chuwonganant, Chairat,Kim, Youngsoo
This paper explores the role of pre-opening price signals in price discovery and liquidity by analyzing the effect of Rule 48 on stock opening delay and various measures of liquidity. NYSE Rule 48 suspends the responsibility of designated market makers for disseminating pre-opening price indications in the event of extreme market-wide volatility. We show that Rule 48 speeds up the opening of stocks at the expense of lower liquidity. Specifically, the absence of pre-opening price indications results in decreases in various measures of liquidity during the first 30-minutes of the trading day that are statistically and economically significant. We interpret this finding as evidence that liquidity suppliers are less willing to provide liquidity in the absence of a reference point or benchmark regarding the value of a stock.

Startup (Dis)similarity and Types of Early-stage Financing
Moon, S. Katie,Suh, Paula
Using the data from Crunchbase, the leading platform for detailed information on early-stage firms, we document evidence of geographic dispersion and industry declustering of new startups over time. We show that this trend is associated with investment incentives of local angel investors. Specifically, angel investors are more likely to provide early-stage fundings to a firm dissimilar to its geographic peers. We find that this result is attributable to the different diversification preferences of angel investors. Angel investors make geographically concentrated investments with industry diversification, while venture capital investors make industry-concentrated investments with relatively greater geographic diversification.

Testing for Uip: Nonlinearities, Monetary Announcements and Interest Rate Expectations
Anderl, Christina,Caporale, Guglielmo Maria
This paper re-examines the UIP relation by estimating first a benchmark linear Cointegrated VAR including the nominal exchange rate and the interest rate differential as well as central bank announcements, and then a Cointegrated Smooth Transition VAR (CVSTAR) model incorporating nonlinearities and also taking into account the role of interest rate expectations. The analysis is conducted for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeters (the US, the Euro-Area and Switzerland) using daily data from January 2000 to December 2020. We find that the nonlinear framework is more appropriate to capture the adjustment towards the UIP equilibrium, since the estimated speed of adjustment is substantially faster and the short-run dynamic linkages are stronger. Further, interest rate expectations play an important role: a fast adjustment only occurs when the market expects the interest rate to increase in the near future, namely central banks are perceived as more credible when sticking to their goal of keeping inflation at a low and stable rate. Also, central bank announcements have a more sizeable short-run effect in the nonlinear model. Finally, UIP holds better in inflation targeting countries, where monetary authorities appear to achieve a higher degree of credibility.

The Cost of Insuring Against Underperformance in ESG Screened Index Funds
Jørgensen, Peter Løchte,Plovst, Mathias Danielsen
Investor interest in responsible investment products including sustainable and ESG screened index funds has exploded in recent years. This paper analyzes and quantifies the risk that a sustainable index fund will underperform its classical unscreened counterpart. It is shown that insurance against this underperformance risk can be thought of in terms of an option to exchange one asset for another, and it is argued that an estimate of the fair annual insurance premium to cover this risk can be obtained by a simple formula. To evaluate this formula only a single parameter - the relative index volatility - needs to be estimated from market data. In the paper's empirical part data from BlackRock's iShares universe is used to show that insurance against underperformance of the most common ESG screened funds relative to their traditional unscreened counterparts should cost what corresponds to sacrificing in advance between about 0.5% and 3% of the annual return. The insurance premium increases with the level of sustainability of the primary underlying fund.

The Economics and Finance of Customer-Supplier Relationships
Cen, Ling,Dasgupta, Sudipto
The interrelationships between upstream supplier firms and downstream customer firmsâ€"popularly referred to as “supply-chain” relationshipsâ€"constitute one of the most important linkages in the economy. Many facets of these linkages are explored. Suppliers not only provide production inputs for their customers, but increasingly, are engaging in R&D and innovation activity on their own that are beneficial to the customers. Yet, the high degree of relationship-specificity that such activities involve, and the difficulty of writing complete contracts, expose suppliers to potential hold-up problems. Mechanisms that mitigate opportunism are outlined, with implications for the origins of such relationships, firm boundary, and organizational structure. Smaller supplier firms benefit from relationships with large customer firms in many ways, such as knowledge sharing, operational efficiency, insulation from competition, and reputation in capital markets. However, customer bargaining power, undiversified customer base, and innovation strategy also expose suppliers to disruption risk. Relationship-specificity of investment, customer bargaining power, and customer concentration associated with a less-diversified customer base, have important consequences for financing decisions of suppliers and customers, such as capital structure choice and the provision and role of trade credit. Changes in the risk of disruption (e.g., bankruptcy filings, takeover activity, and credit market shocks) have spillover effects along the supply chain. The correlation of economic fundamentals of suppliers and customers and the co-attention that they receive from market participants translate to return predictability (with implications for trading strategies), information diffusion along the supply chain, and stock-price informativeness of supply-chain partners.

The Fed's Discount Window in
Ennis, Huberto M.,Klee, Elizabeth
We study new transaction-level data of discount window borrowing in the U.S. between 2010 and 2017, merged with quarterly data on bank financial conditions (balance sheet and revenue). The objective is to improve our understanding of the reasons for why banks use the discount window during periods outside financial crises. We also provide a model of the decision of banks to borrow at the window, which is helpful for interpreting the data. We find that decisions to gain access and to borrow at the discount window are meaningfully correlated with some relevant banks' characteristics and the composition of banks' balance sheets. Banks choose simultaneously to obtain access to the discount window and hold more cash-like liquidity as a proportion of assets. Yet, conditional on access, larger and less liquid banks tend to borrow more from the discount window. In general, our findings suggest that banks could, in principle, adapt their operations to modulate, and possibly reduce, their use of the discount window in "normal" times.

UIP: A Partial Reconciliation from Event Studies
Ceballos, Luis,Albagli, Elias,Claro, Sebastián,Romero, Damián
We develop a model where foreign investors in domestic markets react partially to deviations from a UIP condition for long-term bonds. The model predicts that the sign between yield differentials and exchange rate movements is conditional on the source of shocks. Using event studies for identification, we test the model in a sample of 24 developed and emerging economies, finding a UIP-consistent correlation for monetary shocks, but the opposite around episodes of large market uncertainty. The model predicts that exchange rate stabilization policies, prevalent among emerging countries, weaken both correlations, which we confirm in the data.

What Explains Low Old-Age Income? Evidence from the Health and Retirement Study
Mitchell, Olivia S.,Clark, Robert L.,Lusardi, Annamaria
We examine respondents in the Health and Retirement Study (HRS) to observe how their financial situations unfolded as they aged. We focus on low income older adults and follow them over time to identify the factors associated with having low income at baseline and thereafter. We find that (a) real income remained relatively stable as individuals approach and enter retirement, and progress through their retirement years, and (b) labor force participation declined and thus earnings became less important with age, while Social Security and retirement savings rose as a proportion of annual income.

What's the Difficulty? Understanding and Incentivizing Bitcoin's Difficulty Adjustment Mechanism
Podhorsky, Andrea
This paper develops a model of the bitcoin market that views the bitcoin as a tradeable commodity whose supply is managed by the Bitcoin protocol. Miners utilize equipment and electricity to solve complex computational problems and the first miner to solve a problem is rewarded with bitcoins. The protocol adjusts the difficulty of the problem to regulate the supply of bitcoins over time. The model demonstrates that an increase (decrease) in the difficulty works in effect like a government's placing an ad valorem tax (subsidy) on the price of a commodity. The rents that would have arisen from limiting supply, however, are wasted as electricity costs that benefit neither a government nor the miners. Ironically, while the bitcoin is esteemed for its nongovernmental design, its system of supply management is far less efficient than if a government were to regulate the quantity of bitcoins by imposing a tax on its price. I show that an actual tax on the price of the bitcoin can incentivize the protocol to minimize the electricity costs it induces and I characterize the cost-minimizing tax. Using data from March 2014 to January 2019, I estimate that the difficulty adjustment mechanism resulted in net social welfare losses of 351.6 million USD and an average initial tax of 119.5% would have minimized the electricity costs during this time period.

Women directors and E&S performance: Evidence from board gender quotas
Ginglinger, Edith,Raskopf, Caroline
Using the natural experiment created by France's 2011 board gender-quota law, we find that the presence of women on boards increases firms’ environmental and social (E&S) performance. Our results are robust to controlling for several directors’ observable characteristics and proxies for values such as benevolence, universalism, and nonconformism. Since the passage of the law, firms are more likely to create an E&S committee. However, E&S committees are not the only channel through which the inclusion of women on boards drives E&S performance. After the quota law, women are increasingly serving as members and chairs of major committees. Our findings suggest that female directors have unique qualities, experiences, and preferences, which, in combination with their enhanced authority, enable them to steer firms toward more E&S oriented policies.