Research articles for the 2021-05-11

A Culture of Greed: The Effect of Aggregate Greed on Bubble Formation in Experimental Asset Markets
Hoyer, Karlijn,Zeisberger, Stefan,Zeelenberg, Marcel,Breugelmans, Seger
We investigate the relation between the motive of greed and several indicators in experimental asset markets. We measure individual greed of experimental participants and sort them into markets of high and low aggregate greed. Evidence goes in the direction of investors showing more trading activity in greedier markets. Regarding asset prices, we find markets with greedier traders exhibited smaller bubbles than markets with less greedy traders. Overall, our findings suggest that that greed might not have contributed negatively to the dynamic of the financial crisis, since bubbles are less likely and less severe in markets populated by greedy traders.

A Quantum Mechanical Financial Time Series Model
Hirano, Kaname
This paper introduces a time series model derived from the reverse engineering of the Schrodinger equation. The model is a wave packet model which has a stochastic drift as a superposition of trigonometric functions. The model can be thought of as a financial time series model that includes a model of a real-world measure that allows the opportunity to profit from market timing strategies and a model of an efficient market hypothesis that does not allow it.

A Study on Interdependency of Indian Stock Market with Other Emerging Markets
Thomas, Asha E.,Kumar, M. C. Dileep
Abstract: The Indian Stock market has witnessed a major transformation and structural change from the 10 to 15 years as a result of the ongoing economic and financial sec tor reforms initiated by the government of India since 1991.Among these measures, lifting of barriers and opening up the doors for foreign investors have promoted integration of Indian markets with other foreign markets, especially other emerging countries. For an international investor who is willing to make portfolio investments in other financial markets would be interested to know if he can achieve desired results by going for such diversification. Integration is the process by which segmented markets become open and unified so that participants enjoy unimpeded access to international trade and finance (Nalini Prava, 2005 ). Integration of financial markets will encourage flow of funds from markets having lesser returns to the one which offers higher returns. It can be assumed that financing and investing decisions by investors across the globe are greatly influenced by the perceived degree of market integration. This research paper is carried with the objective of analyzing whether Indian equity market is integrated with that of the rest of the world , especially among different Asian markets. Researcher had tested interdependency of Nifty Index movements with Shanghai Composite Index, Hangseng Index and Nikkei Index from 2006-2010 using simple correlation technique.

Al invertir en mercados emergentes, evalúe los riesgos de liquidez (When Trading in Emerging Markets, Assess Liquidity Risks)
Al Janabi, Mazin A. M.
Spanish Abstract: Calcular el riesgo de los activos líquidos puede ser útil para cualquier inversor que posea una cartera de inversión, pero también para las instituciones financieras, ya que las crisis de liquidez han estado detrás de muchas de las quiebras de entidades. Por ello, cada vez más las entidades financieras están usando las técnicas de L-VaR para medir los distintos riesgos de sus operaciones de inversión. Concretamente, éstas recurren a modelos internos de evaluación de riesgos hechas a la medida, para responder a las características propias de cada entidad.English Abstract: Calculating liquid asset risk can be useful for any investor with a trade portfolio, as well as for financial institutions, as liquidity crises have been the force behind many bankruptcies. That is why more and more financial entities are using L-VaR techniques to measure the different trade risks. Specifically, they turn to custom-made internal risk-assessment models to respond to the traits of each institution.

Auctioning Annuities
Gaurab Aryal,Eduardo Fajnzylber,Maria F. Gabrielli,Manuel Willington

We propose and estimate a model of demand and supply of annuities to study a privatized market for annuities. To this end, we use rich data from Chile, where annuities are sold via a two-stage process: first-price auctions followed by bargaining. Firms have private information about their costs, and retirees have heterogeneous preferences for bequest and firms' risk rating. We find that retirees with low savings value firms' risk ratings more than others, and approximately 40% do not value bequests. Counterfactuals suggest that using simpler English auctions increases pensions but mainly for those in the top four savings deciles.

Bank Market Power and Interest Rate Setting: Do Consolidated Banking Data Matter?
Nicolas, Théo
The literature on the effects of bank market power on access to credit has produced many results that are sometimes contradictory. Yet, this paper draws attention to a problematic aspect of traditional measures of bank market power, which are generally based on unconsolidated data and ignore the national market power of groups. This results in an underestimation that I propose to correct. Using a panel of more than 55,000 French firms covering the period 2006â€"2017, I consider a set of both unconsolidated and consolidated measures of bank market power, including two structural measures (Herfindahlâ€"Hirschmann index and CR5), and one non-structural indicator (Lerner index). My results strongly support the market power hypothesis which emphasises the virtues of competition on interest rate setting. While unconsolidated measures of bank market power do not affect the cost of credit, I find that consolidated measures increase the interest rate charged. This effect is stronger for small and opaque firms and is concentrated on long-term loans. These findings highlight the need to take into account bank capital linkages to assess the real effect of bank market power.

Banking on Experience
Degryse, Hans,Kokas, Sotirios,Minetti, Raoul
We study the impact of different dimensions of banks' experience on the extent of banks' moral hazard in loan markets. Using rich U.S. corporate loan-level data, we find that banks' prior experience with borrowers and co-lenders reinforces their monitoring incentives. Banks' sectoral experience, in contrast, appears to dilute monitoring incentives, calling for a larger lead share in the lending syndicate. In cross-sectional tests, we unpack experience into different dimensions and study to what extent the various components of lenders' experience improve credit market outcomes. The key to our identification strategy is that we exploit variation in experience for the same bank at a given point in time across firms, sectors and other banks. In addition, bank mergers are used as an instrument to identify exogenous shocks to the stock of bank's experience.

CIP Deviations, the Dollar, and Frictions in International Capital Markets
Du, Wenxin,Schreger, Jesse
The covered interest rate parity (CIP) condition is a fundamental arbitrage relationship in international finance. In this chapter, we review its breakdown during the Global Financial Crisis and its continued failure in the subsequent decade. We review how to measure CIP deviations, discuss the drivers of CIP deviations, and the implications of CIP deviations for global financial markets.

Can Central Bank Communication Help to Stabilise Inflation Expectations?
Jung, Alexander,Kühl, Patrick
This paper examines whether central bank communication stabilises euro area inflation expectations through the information and news channel. A novelty of the study is its use of data from Google Analytics on ECB website traffic as proxy for visitors’ attention to its communication. We conduct several econometric tests with daily data to measure the impact of ECB communication on the information demand of the public and ultimately on inflation expectations. Overall, this study shows that website attention, as captured by search volumes of visitors, influences euro area inflation expectations. We find that increased website attention contributes to narrowing the gap between market-based forecasts and (the mean of) longer-term professional inflation expectations. Our findings add to the theoretical evidence on the existence of an information and news channel.

Can an Agency Role-Reversal Lead to an Organizational Collapse?; A Study Proposal
Yossi Haimberg

The Principal-Agent Theory model is widely used to explain governance role where there is a separation of ownership and control, as it defines clear boundaries between governance and executives. However, examination of recent corporate failure reveals the concerning contribution of the Board of Directors to such failures and calls into question governance effectiveness in the presence of a powerful and charismatic CEO. This study proposes a framework for analyzing the relationship between the Board of Directors and the CEO, and how certain relationships affect the power structure and behavior of the Board, which leads to a role reversal in the Principal-Agent Theory, as the Board assumes the role of the CEO's agent. This study's results may help create a red flag for a board and leader's behavior that may result in governance failure.

Capital, Aggregate Risk, Insurance Prices and Regulation
Subramanian, Ajay,Wang, Jinjing
We develop a general equilibrium model of competitive insurance and equity capital markets to show how aggregate asset and insurance liability risks affect insurance prices and regulation. In the unique equilibrium of the benchmark unregulated economy, insurers raise external capital solely by selling insurance and no outside equity. We derive the Pareto efficient allocation and implement it via multiple regulatory policies that combine risk-based capital requirements, asset risk constraints, reinsurance and bailouts. An efficient regulatory policy with a lower capital requirement must be accompanied by a more stringent asset risk constraint, and one with a capital requirement that is more sensitive to insurer assets should be less sensitive to insurer liabilities. When the aggregate asset and liability risks are below respective thresholds, insurees are fully insured in the optimally regulated economy, and the set of efficient regulatory policies does not vary with aggregate risk. Outside this region, however, insurees must bear aggregate risk with capital and asset risk constraints becoming tighter as either the aggregate asset or liability risk increases. The aggregate asset and liability risks could have opposing effects on the insurance price and insurer size in the regulated economy. Our results highlight the importance of tailoring regulatory policies to aggregate risk levels, and disentangling the impacts of aggregate asset and liability risks in analyses of how regulation influences insurance prices and insurer capitalization.

Clustering Dynamics and Persistence for Financial Multivariate Panel Data
Custodio João, Igor,Lucas, Andre,Schaumburg, Julia
We introduce a new method for dynamic clustering of panel data with dynamics for cluster location and shape, cluster composition, and for the number of clusters. Whereas current techniques typically result in (economically) too many switches, our method results in economically more meaningful dynamic clustering patterns. It does so by extending standard cross-sectional clustering techniques using shrinkage towards previous cluster means. In this way, the different cross-sections in the panel are tied together, substantially reducing short-lived switches of units between clusters (flickering) and the birth and death of incidental, economically less meaningful clusters. In a Monte Carlo simulation, we study how to set the penalty parameter in a data-driven way. A systemic risk surveillance example for business model classification in the global insurance industry illustrates how the new method works empirically.

Collaborations and Sustainability In Medicinal and Aromatic Plants Industry: Examining The Business Communication Amongst Stakeholders In MAPs Industry
Aliu, Armando,Aliu, Dorian
The aim of this study is to examine collaborative actions and sustainability in the medicinal and aromatic plants (MAPs) industry. A lot of attention was given to the MAPs industry actors and foreign direct investments. Undoubtedly, the development trend of MAPs industry is tightly associated with the supply sources of farmers and gatherers. Overproduction of MAPs products including organic and cultivated products is very much damaging the biodiversity, food industry and environment. The overlapping of common mission, vision and objectives of industrial partners and stakeholders are quite crucial to overcome industrial, environmental and quality issues. The market share of MAPs products has become harshly competitive. Governmental bodies also have some sectoral plans for cultivation of products and intervention to the whole sector. ‘Business â€" academia â€" society’ relationships were argued in order to highlight to what extent scientific investigations and research projects in the MAPs industry can be effective for structuring network database of the whole farmers and gatherers' information, taking the MAPs industry under the control of State's mechanism (e.g. Ministry of Agriculture) through public sector â€" private sector â€" civil society collaborations (i.e. agricultural hybridity). Direct contacts and strong ties of corporations with Ministry of Agriculture may influence more flexibly to draw a direction of the herbs and spices industry in general and MAPs products trading in particular. Local stakeholders’ engagement and agricultural hybridity are likely to strengthen local villagers and gatherers for combating poverty, ensuring more prosperity, cleaner environment and sustainable development, as well as providing mutual benefits and reciprocal strategic interests in frame of universal business ethics. Moreover, setting up long-range partnerships and cooperation with foreign partners as stakeholders and interest groups of the aggregate production and marketing process affect the sustainability of MAPs industry, significantly. From the corporations’ perspective, the main objectives of foreign corporations are as follows: i) bringing the MAPs products in traceability whereby these can be sourced directly from farmers and gatherers through local partners; ii) identifying suppliers who have the necessary cleaning lines with the capability to meet the raw material specifications; iii) in the long run working with local suppliers for establishing grinding facilities to provide the finished products.In this study, case study research and semi-structured interviews were followed in the context of paradigmatic research methodology. The authors assured that the replies of the corporations’ representatives were kept confidential. Likewise, the corporations’ affiliations were coded in order to undertake the investigation with ethical beliefs and moral conducts.

Conditional Systemic Risk Measures
Alessandro Doldi,Marco Frittelli

We investigate to which extent the relevant features of (static) Systemic Risk Measures can be extended to a conditional setting. After providing a general dual representation result, we analyze in greater detail Conditional Shortfall Systemic Risk Measures. In the particular case of exponential preferences, we provide explicit formulas that also allow us to show a time consistency property. Finally, we provide an interpretation of the allocations associated to Conditional Shortfall Systemic Risk Measures as suitably defined equilibria. Conceptually, the generalization from static to conditional Systemic Risk Measures can be achieved in a natural way, even though the proofs become more technical than in the unconditional framework.

Corporate Valuation: Analyzing the Theoretical Valuations of Stylized Corporates
Madan, Dilip B.,Wang, King
Corporations are viewed as perpetual derivatives securities with cash flows defined by deterministic functions of state variables. In time homogeneous and Markovian contexts the valuation of corporate is given by a deterministic function of the state variables. The resulting value function solves an integro-differential equation with a boundary condition of zero at infinity. Solutions are illustrated in dimensions one, two and ten. It is observed that for positive and bounded cash flow functions the value functions cannot be linear. The attitude of a corporate to risk depends on the nonlinearity. In higher dimensions the corporate will typically be a risk taker in some directions and simultaneously a risk avoider in other directions. The valuation theory also leads to new asset pricing equations inferring asset variations from risk neutral covariations. The shift from mean returns and covariances is necessitated by the focus on instantaneous risk exposures represented by measures replacing probabilities.

Corporate Venture Capital, Disclosure, and Financial Reporting
Hamm, Sophia,Jung, Michael J.,Park, Min
Corporate venture capital (CVC) is one of the most important avenues for corporate innovation today, yet there can be unintended consequences related to anticompetitive practices. Recent scrutiny from regulators and policymakers underscores their growing desire for more information about firms’ CVC investment activities, even of those previously believed to be too small to matter. Using a comprehensive sample of 115 publicly-listed U.S. parent firms that owned 133 CVC firms, we document that for almost half of the firm-years in our sample, parent firms do not disclose any information about their CVC program. Among the parent firms that do disclose their CVC activities, we find that they disclose less when they make investments in industries outside of their core industry. Firms with a CVC program, relative to similar firms without a CVC program, tend to make more future acquisitions and report less future goodwill asset write-downs. This study documents the current state of affairs with respect to the amount of publicly available CVC information for a large sample of firms, an important starting point for regulators and policymakers to conduct an informed debate about whether disclosure requirements should be expanded.

Do Non-Banks Need Access to the Lender of Last Resort? Evidence from Mutual Fund Runs
Breckenfelder, Johannes,Grimm, Niklas,Hoerova, Marie
When a liquidity crisis hits non-bank financial intermediaries, which central bank interventions help? We show that mutual funds faced unprecedented investor outflows as the COVID-19 shock hit and assess the effectiveness of central bank asset purchases and additional liquidity provision to banks in alleviating the crisis. We use detailed fund-level data and proprietary data on bank take-ups in liquidity-providing operations and bank-fund repo transactions. Analyzing asset purchases, we find that funds with higher shares of assets eligible for central bank purchases in their portfolio before the COVID-19 crisis saw their performance improve by 3.7% and outflows decrease by 66% relative to otherwise similar funds. Analyzing repo activity, we do not find that additional central bank liquidity provision to banks in March 2020 led to more lending to funds trading with their relationship banks. Rather, banks increased the maturity of their lending to funds in the weeks that followed the announcement and the implementation of additional asset purchases. Our results suggest that central bank asset purchases were effective in stopping fire-sale dynamics and staving off runs on non-bank financial intermediaries, even though funds did not have direct access to the lender of last resort.

Do Stock Market Fear and Economic Policy Uncertainty Co-Move with COVID-19 Fear? Evidence from the US and UK
Rubbaniy, Ghulame,Khalid, Ali Awais,Tessema, Abiot
Using the daily data covering both the first and second wave of COVID-19 pandemic over the period from March 3, 2020, to February 12, 2021, this study documents a strong positive comovement between implied volatility indices and two proxies of the COVID-19 fear. However, in all the cases, the infectious disease equity market volatility index (IDEMVI), the COVID-19 proxy that is more representative of the stock market, exhibits a stronger positive comovement with volatility indices than the COVID-19 health-based fear index. We also find that the UK's implied volatility index weakly co-moves with the COVID-19 health-based fear index compared to the US. Our results show that EPU indices of both the US and UK exhibit a weak or no correlation with the COVID-19 health-based fear index. However, we find a significant positive co-movement between EPU indices and IDEMVI over the short-horizon and most of the sampling period with the leading effect of IDEMVI.

Does Economic Policy Uncertainty Reduce Financial Inclusion?
Ozili, Peterson K
This paper examines whether economic policy uncertainty (EPU) reduces the level of financial inclusion. I predict that high EPU should have a negative effect on the level of financial inclusion. I argue that high EPU will discourage financial institutions from providing basic financial services to low end customers and unbanked adults, and this will lead to a decrease in the level of financial inclusion. Using a sample of 22 countries, I find that EPU does not have a significant impact on financial inclusion. None of the nine indicators of financial inclusion have a significant direct relationship with EPU. Also, I find some evidence that the combined effect of high EPU and high nonperforming loans reduces financial inclusion, particularly through bank branch contraction and a reduction in the use of electronic payments. Meanwhile, the use of formal accounts and credit cards increases in times of high credit supply and high EPU.

Dynamics of Secured and Unsecured Debt over the Business Cycle
Luk, Paul,Zheng, Tianxiao
This paper studies corporate debt structure over the business cycle and its implications for aggregate macroeconomic dynamics. We develop a tractable macro-finance model featuring debt heterogeneity with both secured and unsecured debt. Unlike secured debt, unsecured debt gives the lenders no access to the borrowers’ assets in the event of default, and borrowers keep their assets at the cost of losing future access to the unsecured debt market. The difference in the nature of debt contracts leads to different risk taking behavior in the two debt markets. Our model generates strongly procyclical unsecured debt and weakly procyclical secured debt, in line with the stylized facts in US data. Moreover, we show that the inclusion of heterogeneous debt structures creates additional amplification effects relative to Bernanke, Gertler and Gilchrist (1999).

Economic analysis of tidal stream turbine arrays: a review
Zoe Goss,Daniel Coles,Matthew Piggott

This tidal stream energy industry has to date been comprised of small demonstrator projects made up of one to a four turbines. However, there are currently plans to expand to commercially sized projects with tens of turbines or more. As the industry moves to large-scale arrays for the first time, there has been a push to develop tools to optimise the array design and help bring down the costs. This review investigates different methods of modelling the economic performance of tidal-stream arrays, for use within these optimisation tools. The different cost reduction pathways are discussed from costs falling as the global installed capacity increases, due to greater experience, improved power curves through larger-diameter higher-rated turbines, to economic efficiencies that can be found by moving to large-scale arrays. A literature review is conducted to establish the most appropriate input values for use in economic models. This includes finding a best case, worst case and typical values for costs and other related parameters. The information collated in this review can provide a useful steering for the many optimisation tools that have been developed, especially when cost information is commercially sensitive and a realistic parameter range is difficult to obtain.

Effect Of Gender, Age And Income On Investors'Risk Perception In Investment Decision : A Survey Study
Bairagi, Palash
The present research focuses on the behavioural aspect of investment, which tells that the investment decision varies with the uncertainty of the situation and the perception of the individual at different risk level. The risks are categorised by different class of people of sex differences, age differences and different income groups. These individual groups directly or indirectly associated with the perception of individual risk level in decision making. Based on this the present study tries to investigate the effect of gender, age and income differences on investors' risk perception in investment decision in the Indian context. Delhi-NCR region is the primary location of the study for data collection with the help of a questionnaire method. The finding of the study says that there is no significant difference in investors' risk perception among the different independent groups

Empirical Evidence on Indian Stock Market Efficiency During Global Financial Crisis
Thomas, Asha E.,Kumar, M. C. Dileep
Market Efficiency has been the objective of many researches across the globe since the last few decades. While some studies conclude that the stock markets are efficient, others cast doubt on this conclusion. In an efficient capital market stock prices incorporate all relevant information when that information is readily available and widely disseminated, which implies that there is no systematic way to exploit trading opportunities and acquire excess profits. Thus the crux of Efficient Market hypothesis is that, stock prices follow random walk which holds that stock price changes are independent of one another. Market efficiency is described in three forms: Weak form, Semi-strong form and Strong form. This paper is an attempt to provide some empirical evidence on market efficiency of Indian stock market in the context of recent global financial crisis. Paper takes care of Weak Form Efficiency of Indian Stock Market during recession.

Empirical Evidences on the Interconnectedness between Sampling and Asset Returns’ Distributions
Orlando, Giuseppe,Bufalo, Michele
The aim of this work was to test how returns are distributed across multiple asset classes, markets and sampling frequency. We examine returns of swaps, equity and bond indices as well as the rescaling by their volatilities over different horizons (since inception to Q2-2020). Contrarily to some literature, we find that the realized distributions of logarithmic returns, scaled or not by the standard deviations, are skewed and that they may be better fitted by t-skew distributions. Our finding holds true across asset classes, maturity and developed and developing markets. This may explain why models based on dynamic conditional score (DCS) have superior performance when the underlying distribution belongs to the t-skew family. Finally, we show how sampling and distribution of returns are strictly connected. This is of great importance as, for example, extrapolating yearly scenarios from daily performances may prove not to be correct.

Entropy of Economic Energy: the Eternal Escape
Butriy, Olena
The entropy could be understood as an increase of disorder in the system with time, while an order can be created by adding the energy to the isolated or quasi-isolated system.From the perspective of entropy, the economic or world governance has its optimal mode when a big system consists of multiple sufficiently small subsystems, with controlled 'energy' exchange between those subsystems.The small subsystems allow for establishing an order in separate subsystems, which order would be impossible otherwise to achieve in the whole big system due to the lack of energy investment necessary for such order in the big system.The controlled 'energy' exchange between small subsystems allows receiving the necessary energy for organising separate small subsystems.Each small [economic or governance] subsystem requires a different energy for its organisation, which organisation happens also in different moments in time for different subsystems. Therefore, a controlled 'energy' exchange between small subsystems provides for the optimal distribution of energy for organisation between subsystems.Under the energy, I understand here human resources, natural resources, economic resources, financial resources, informational resources, and other resources which could be used for increasing the order, organisation and positive development of the society.

Exploring the Antecedents of Consumer Confidence through Semantic Network Analysis of Online News
A. Fronzetti Colladon,F. Grippa,B. Guardabascio,F. Ravazzolo

This article studies the impact of online news on social and economic consumer perceptions through the application of semantic network analysis. Using almost 1.3 million online articles on Italian media covering a period of four years, we assessed the incremental predictive power of economic-related keywords on the Consumer Confidence Index. We transformed news into networks of co-occurring words and calculated the semantic importance of specific keywords, to see if words appearing in the articles could anticipate consumers' judgements about the economic situation. Results show that economic-related keywords have a stronger predictive power if we consider the current households and national situation, while their predictive power is less significant with regards to expectations about the future. Our indicator of semantic importance offers a complementary approach to estimate consumer confidence, lessening the limitations of traditional survey-based methods.

Fear Sells: Determinants of Fund-Raising Success in the cross-section of Initial Coin Offerings
Sapkota, Niranjan,Grobys, Klaus
This paper explores cross-sectionally the determinants of ICO success as measured by the amount of raised funding. Our study is the first that retrieves an intensive hand-collected data library covering the entire population of all 5,033 ICOs launched in the 2014 â€" 2019 period. Another important novel aspect is that we address the question whether psychological and financial sentiment cached in whitepapers have an impact on the success of ICOs. We employ natural language procession tools and various sentiment dictionaries to assess the sentiment in whitepapers and our results suggest that ICO investors are largely guided by their emotions when making investment decisions. Additionally, to get a better understanding of the data, we implement Artificial Neural Networks. The present study supports this evidence, as we find that higher assessed riskiness of ICO projects does not lower the predicted amount of raised funding. Unlike documented in earlier literature, an unforeseen finding is the weak association between quality signals and readability of ICO whitepapers and ICO success.

Forecasting Market Crashes via Machine Learning: Evidence from European Stock Markets
Dichtl, Hubert,Drobetz, Wolfgang,Otto, Tizian
This paper uses a comprehensive set of variables from the five largest Eurozone countries to compare the performance of simple univariate and machine learning-based multivariate models in predicting stock market crashes. The statistical predictive performance of a support vector machine-based stock market crash prediction model is significantly different from zero and among the best-performing univariate benchmarks, while still being truly out-of-sample. The ability to forecast subsequent stock market crashes out-of-sample translates into value-added to investors under realistic trading assumptions (net of transaction costs). Incorporating nonlinear and interactive effects is both imperative and foundation for the predictive performance of support vector machines. This adds an economic component to the advantageousness of machine learning-based multivariate crash prediction models over their univariate counterparts. It helps identify and explain the complex relationships in the underlying economic conditions (key economic drivers) that precede substantial stock market downturns.

Foreign Exchange Risk in Public Firms
Dernaoui, Zaki,Verdelhan, Adrien
If a firm invoices a transaction in a foreign currency, a delay of payment between the transaction date and the settlement date exposes the firm to exchange rate risk. In their income statements, firms report such exchange rate gains and losses, signaling their exposure to currency risk. Using these publicly available accounting data, this paper revisits the exchange rate disconnect puzzle at the firm level. We focus on two countries, Japan and the United States, that exhibit a similar trade openness but two very different shares of foreign currency invoicing. We find that an appreciation of the yen significantly decreases the net income and investment of Japanese firms, but an appreciation of the dollar has no significant effect on the U.S. sample. Exchange rate risk appears linked to the value of Japanese firms: the higher the exposure to exchange rate risk according to their income statements, the higher the loadings of their equity returns on exchange rate returns.

Grey Rhinos and Deep Risk: How Climate Change Will Impact Financial
Sarpong, Prince
Discussions on the impact of climate change within the financial services sector have mainly focused on institutional investors. Talks of climate change is all but ignored in financial planning. Financial planning, however, has a profound impact on society and can play a major role in climate change mitigation. Climate change poses an overarching challenge to financial planning and how individuals plan for their long-term goals. The financial services sector which provides the financial instruments for financial planning faces Deep Uncertainty, which threatens the stability of the sector. The environmental impact of climate change poses an additional risk on health outcomes for individuals. This chapter presents a review of disparate literature to position the risk of climate change as Deep Risk which has significant implications for financial planning. The chapter outlines how financial planners can prepare themselves, and their clients, for climate risks while contributing to climate change mitigation as well.

Hedged Mutual Funds and Competition for Arbitrage Opportunities
Eksi, Asli
Hedged mutual funds, mutual funds employing hedge fund strategies, grew tremendously after the 2007-2009 financial crisis. This paper examines the performance of these funds with a focus on the post-2009 period. Even though hedge mutual funds were able to generate positive alphas before the crisis, I find that their abnormal performance vanishes in the post-2009 period as more funds compete to offer similar arbitrage strategies. Performance of existing hedged mutual funds decreases with new fund inceptions in a style as well as with the overlap of their holdings with new funds. Furthermore, performance of hedge funds also deteriorates with a similar trend, suggesting that their strategies are crowded by mutual funds and hence become less profitable. Despite the lack of performance, I show that investors direct more flows to hedged mutual funds when investor sentiment is low, suggesting that they use these funds as a hedge against downside risk.

Informed Options Trading Prior to Insider Trades
Hao, Grace Qing,Li, Keming
We find abnormal volatility spreads in the options market immediately before corporate insider stock trades, suggesting informed options trading prior to insider trades. The informed options trading is more pronounced for large insider trades, firms in more corrupt areas, and insider purchases in firms with high information asymmetry. Furthermore, the abnormal volatility spreads are positively associated with the post-trade abnormal returns. In the aftermath of the Securities and Exchange Commission’s squawk box cases, informed options trading before insider trades mostly disappeared except for a group of insider stock sales related to insider derivatives transactions such as employee stock options exercises.

Investment Funds, Monetary Policy, and the Global Financial Cycle
Kaufmann, Christoph
This paper studies the role of international investment funds in the transmission of global financial conditions to the euro area using structural Bayesian vector auto regressions. While cross-border banking sector capital flows receded significantly in the aftermath of the global financial crisis, portfolio flows of investors actively searching for yield on financial markets world-wide gained importance during the post-crisis “second phase of global liquidity” (Shin, 2013). The analysis presented in this paper shows that a loosening of US monetary policy leads to higher investment fund inflows to equities and debt globally. Focussing on the euro area, these inflows do not only imply elevated asset prices, but also coincide with increased debt and equity issuance. The findings demonstrate the growing importance of non-bank financial intermediation over the last decade and have important policy implications for monetary and financial stability.

Is Hard and Soft Information Substitutable? Evidence from Lockdown
Bai, Jennie,Massa, Massimo
We study the degree of information substitutability in the financial market. Exploiting the cross-sectional and time-series variations of the pandemic-triggered lockdowns that have hampered people's physical interactions hence the ability to collect, process, and transmit soft information, we investigate how the difficulty/inability to use soft information has prompted a switch to hard information, and its implication on fund performance. We show that lockdown reduces fund investment in proximate stocks and generate a portfolio rebalancing towards distant stocks. The rebalancing has negative implications on fund performance by reducing fund raw (excess) return of an additional 0.76% (0.29%) per month during lockdown, suggesting that soft and hard information is not easily substitutable. We show that soft information originates mainly with geographic proximity and human interactions, mostly in cafe, restaurants, bars, and fitness centers. This suggests that the virtual world based on Zoom/Skype/Team has direct negative implications on the ability of collecting soft information and therefore affects strategies relying on them such as proximity investment.

It takes two to dance: Institutional dynamics and climate-related financial policies
Baer, Moritz,Campiglio, Emanuele,Deyris, Jérôme
This article studies how institutional dynamics might affect the implementation of climate- related financial policies. First, we propose a three-dimensional framework to distinguish: i) motives for policy implementation (prudential or promotional); ii) policy instruments (informational, incentive or coercive); and iii) implementing authorities (political or delegated). Second, we use this framework to show how sustainable financial interventions in certain jurisdictions - most notably, Europe - rely solely on informational policies to achieve both promotional and prudential objectives. Policymakers in other jurisdictions - e.g., China - also implement incentive or coercive financial policies to achieve promotional objectives. Third, we identify two main institutional explanations for this European ‘promotional gap’: i) limited control of political authorities on financial dynamics; and ii) strong powers and independence of delegated authorities. This governance configuration leads to an institutional deadlock in which only measures fitting with both political and delegated authorities’ objectives can be implemented. Finally, we discuss the scenarios that might originate from the current institutional setting. We identify three possible evolutionary paths: i) a drift towards a green financial technocracy; ii) a re-politicization of delegated authorities; iii) a move towards fiscal-monetary coordination.

Legitimacy of Global Economic Governance and Effectiveness of the World Trade Organization: An Empirical Investigation of 36 OECD and EU Member States
Aliu, Armando,Melemen, Mehmet,Aliu, Dorian,Özkan, Ömer
The aim of this research is to examine the legitimacy of global economic governance and clarify to what extent the convergence of interests among state actors and non-state actors enhances the effectiveness of the World Trade Organization (WTO). The strengthened legitimacy of global economic governance and optimal effectiveness of the actions, operations and efforts of non-state actors ensure cooperation, sustainable development and economic stability. Within the context of state and non-state interactions, the striking role of transnational networks provides that the dispute settlement mechanism (DSM) can be handled in the pre-consultations and pre-mediations stages more appropriately. The research questions can be listed as follows: 1) Has global economic governance a significant influence on the DSM which comprises the consensus-building platforms and structured-dialogue encouragement in pre-consultations and pre-mediations stages of DSM that is dealt by the WTO? 2) Have the incline of multilateral trade system and trade collaborations a significant impact on the legitimacy of global economic governance and effectiveness of the WTO? 3) Do the WTO law and global economic governance have consistency and conformity with the rules and regulations of other international organizations; such as, the International Labor Organization, World Bank and so forth? In general, the research is in a tight manner bound on the criteria and factors of the Comparative Political Data Set 1990-2013 (36 OECD and EU Member States) which was prepared by Klaus Armingeon. Paradigmatically, positivism was applied as a scientific research method and SPSS 22 Software was used for comparative technical analyses.

Long-run expected stock returns
Geertsema, Paul,Lu, Helen
We predict individual stock returns over horizons from 1 month to 10 years using machine learning. Cumulative stock returns are significantly predictable in the cross-section over all horizons. One-month ahead predicted returns explain only a quarter of the variation in 10-year predicted returns, suggesting that predicted returns at different horizons follow distinct dynamics. Predictors related to turnover and volatility are influential at all horizons. Momentum, cash flow and size related predictors are mostly important at shorter horizons, while dividend yield, value and long-term reversal related predictors are more important at longer horizons

Momentum as an Investment Strategy in the Indian Stock Market-An Evaluative Study
Thomas, Asha E.,Kumar, M. C. Dileep
The Indian Stock market has witnessed a major transformation and structural change from the 10 to 15 years as a result of the ongoing economic and financial sector reforms initiated by the government of India since 1991.Among these measures, lifting of barriers and opening up the doors for foreign investors have promoted integration of Indian markets with other foreign markets, especially other emerging countries. The Efficient Market Hypothesis (EMH) (Fama, 1970) suggests that prices are theoretically unpredictable and therefore there is no extra profit existing in the market. However in the real world situation EMH is strongly challenged by many financial anomalies. Many studies conducted by academicians and practitioners have recognized that average stock returns are related to past performance and the stock returns are predictable based on past returns. Momentum strategy believes that stocks which have performed well in past will be doing so, also in the future. It buys stocks with good historical performance and sells stocks which have done worse. The aim of this study is to evaluate Momentum as an Investment Strategy, its profitability in Indian stock market and reasons explaining their existence in the current market trends.

On earnings and cash flows as predictors of future cash flows
Ball, Ray,Nikolaev , Valeri V.
Do accruals-based earnings provide better information about future operating cash flows than do operating cash flows themselves, as predicted by the Financial Accounting Standards Board's conceptual framework (FASB, 1978}? While this is a foundational issue in accounting, because it addresses the information added by accrual accounting methods, testing it remains unsettled. We show that when comparing the predictive abilities of operating cash flows with equivalent variables calculated on an accruals basis, earnings outperform operating cash flows. The result becomes more pronounced when allowance is made for cross-sectional differences in the relation between firms' earnings and future cash flows. In fact, even ``bottom line" earnings then have similar explanatory power as operating cash flows.

On the Role of Incentives in Evolutionary Approaches to Organizational Design
Stephan Leitner

This paper introduces a model of a stylized organization that is comprised of several departments that autonomously allocate tasks. To do so, the departments either take short-sighted decisions that immediately maximize their utility or take long-sighted decisions that aim at minimizing the interdependencies between tasks. The organization guides the departments' behavior by either an individualistic, a balanced, or an altruistic linear incentive scheme. Even if tasks are perfectly decomposable, altruistic incentive schemes are preferred over individualistic incentive schemes since they substantially increase the organization's performance. Interestingly, if altruistic incentive schemes are effective, short-sighted decisions appear favorable since they do not only increase performance in the short run but also result in significantly higher performances in the long run.

Performance Assessment of Banks Using CAMELS Framework
Benny, Dr. Vipin
In this paper an attempt has been made to evaluate the performance of scheduled private sector banks headquartered in Thrissur, Kerala. All the banks are fundamentally strong, one bank is relatively superior in respect capital adequacy, asset quality, whereas the others are relatively strong with regards to management efficiency and earrings quality. Capital adequacy was analyzed with the help of capital adequacy ratio, debt-equity ratio, advances to assets ratio, and government securities to total investment ratio. The asset quality was examined with the components of non-performing assets. The management efficiency was evaluated with the parameters like total advances to total deposit ratio, profit per employee, business per employee, return on net worth, branch productivity and branch profitability. The earnings quality was assessed with net interest margin, percentage of growth in net profit, non-interest income to total income and interest income to total income. Liquidity aspects deal with liquid assets to deposits, and securities to assets. The systems and control were evaluated with reference to qualitative factors. This is an academic exercise to understand the relevance of CAMELS in assessing performance of banks.

Risk Perception of Women Investors in Kerala â€" A Study Conducted in Hedge Equities Ltd.
Thomas, Asha E.
Deciding what amount of risk one can take while remaining comfortable with the investments is very important. Risk is the chance that an investment's actual return will be different than expected. This research is unique in that it investigates the changing risk perception of women investors. Such a study in Indian context is very limited. Researcher identified the gap of absence of such studies conducted in 'Kerala' context. Further the study has also taken care of demographic variables while analyzing the results. Present study is expected to assist various market participants while dealing with women investors. The results of the study suggests that women investors in Kerala are more risk averse (more cautious about risk) and they prefer investing in avenues with very less or minimal risk exposure. Lack of financial knowledge about the new investment avenues available was a serious problem faced by women respondents. Majority of them were still dependent on the conventional investment options like bank deposits, pension funds and to some extend in mutual funds.

Risk Reporting in Financial Crises: A Tale of Two Countries
Lajili, Kaouthar,Dobler, Michael,Zeghal, Daniel,Bryan, Mitchell J.
Purpose â€" This paper aims to investigate the attributes and information content of risk reporting in two different institutional and regulatory, namely, Canadian and German, settings during the period surrounding the financial crisis of 2008. Design/methodology/approach â€" For a matched sample of manufacturing firms in the period 2006â€"2010, this study conducts a detailed content analysis of annual reports to assess and compare the volume and patterns of risk disclosures. Panel regressions are used to explore how risk disclosures related to corporate risk proxies and performance indicators. Findings â€" Over the sample period, Canadian and German firms increase the volume but largely maintain the patterns of risk disclosures. Risk disclosures relate to corporate risk proxies but are not incrementally informative to assess firm performance. Originality/value â€" The paper contributes to research on risk reporting by providing detailed cross-country evidence for a period particularly shaped by significant risk. The findings have implications for the regulation and usefulness of risk reporting.

Role of supply chain management In the era of globalization.
Shaukat, Dr. Iqbal
The role of supply chainManagement is very important in this era ofModernization.

Seasoned equity crowdfunded offerings
Coakley, Jerry,Lazos, Aristogenis,Liñares-Zegarra, José Manuel
This paper conjectures that, just as SEO (seasoned equity offering) firms are likely to face fewer information asymmetry problems relative to IPO firms, the same applies to SECO relative to initial ECF (equity crowdfunding) campaign firms. This is mainly due to new information at a SECO - such as pre-money valuation gains â€" that reduces adverse selection problems. Using a sample of 709 UK ECF firms conducting a first SECO campaign over the 2011â€"2018 period, the probit results suggest that annualised valuation gains between the initial and SECO campaigns increases the probability of having a successful first SECO campaign but the equity offered lowers this probability. First SECO success is also related to different platform shareholder structures. The results show that the nominee model and coinvestment model dominate the direct model in terms of the probability of conducting a successful first SECO campaign. This is likely linked to reduced adverse selection and moral hazard problems stemming from no separation between ownership and control and enhanced due diligence and monitoring capabilities.

TOQ Effects on the Romanian Foreign Exchange Market
Dumitriu, Ramona,Stefanescu, Razvan
Many calendar anomalies were identified not only on the capital markets but also on the foreign exchange markets. This paper explores the Turn-of-the-quarter (TOQ) Effect presence on the Romanian Foreign Exchange Market. We employ daily values of the official exchange rates of the Romanian national currency against euro and US dollar for two periods: January 2007 - December 2014 and January 2015 - April 2021. The results of the investigation revealed significant changes that occurred in TOQ Effects from the first to the second period.

The Effect of Inflation in the Indian Banking Sector
Benny, Dr. Vipin
The liquidity crunch in the Indian banking sector made the loans expensive for retail borrowers as well as for corporate houses effecting the industrial production. Amid tight liquidity situation, almost all banks, public as well as private increased their lending rates during the second quarter to retain more liquidity with them. In order to attract more money from the market, banks raised their deposit rates, making deposits more attractive for the customers. The growth and inflation debate will continue for time being as it seems more a supply side problem rather than a demand side. The commodity price in world market is at its new peak and crude oil is heading north making it more troublesome for the policy makers to re-plan on inflation front. Meanwhile, liquid starved banking sector will have to bear the burden and with no option left pass that burden again on to the consumer.

The Extended Holiday Effects on Bucharest Stock Exchange during Coronavirus Pandemic
Stefanescu, Razvan,Dumitriu, Ramona
In the recent times, the Coronavirus Pandemic substantially influenced the financial markets. Such influence includes the transformations experienced by some calendar anomalies. This paper investigates the Extended Holiday Effects presence on the returns of three indexes from the Bucharest Stock Exchange for the period February 3, 2020 â€" May 7, 2021. The results indicate that, comparing to a pre-pandemic period, significant changes occurred for both pre and post-Holiday Effects.

The Impact of Macroprudential Policies on Capital Flows in Cesee
Eller, Markus,Hauzenberger, Niko,Huber, Florian,Schuberth, Helene,Vashold, Lukas
In line with the recent policy discussion on the use of macroprudential measures to respond to cross-border risks arising from capital flows, this paper tries to quantify to what extent macroprudential policies (MPPs) have been able to stabilize capital flows in Central, Eastern and Southeastern Europe (CESEE) â€" a region that experienced a substantial boom-bust cycle in capital flows amid the global financial crisis and where policymakers had been quite active in adopting MPPs already before that crisis. To study the dynamic responses of capital flows to MPP shocks, we propose a novel regime-switching factor-augmented vector autoregressive (FAVAR) model. It allows to capture potential structural breaks in the policy regime and to control â€" besides domestic macroeconomic quantities â€" for the impact of global factors such as the global financial cycle. Feeding into this model a novel intensity-adjusted macroprudential policy index, we find that tighter MPPs may be effective in containing domestic private sector credit growth and the volumes of gross capital inflows in a majority of the countries analyzed. However, they do not seem to generally shield CESEE countries from capital flow volatility.

The Performance of Indian Stock Market: An Analytical Study on IT Sector from an Investor's Perspective
Thomas, Asha E.
Demand from emerging countries is expected to show strong growth going forward. IT sector has made significant contributions to India's economic growth in terms of GDP increase, foreign exchange earnings as well as employment generation. Its contribution to GDP has increased almost tenfold in the last decade, from 2009-10. The sector has helped India transform from a rural and agriculture-based economy to a knowledge based economy. Besides this, the lives of people have been positively influenced by direct or indirect contribution of IT sector to various parameters such as employment' standard of living' per capita income etc. While investing, one must always invest in a company that operates in a sector with bright long term prospects. Further, the company's future prospects should also be seen. Moreover one should invest in these companies at the right price i.e. when the market offers an attractive discount. The present study analysis the prospects of investment in IT sector. The study uses the financial performance results of top four companies in the sector for a period of five Years.

The Rising Interest Rate Impact on Bank Asset Quality
Benny, Dr. Vipin
The banks have sought to counter the mounting pressure on spreads by raising their PLRs. The rise in interest rates has resulted in a slowdown in credit growth in the banking sector. This is also likely to put pressure on the banking sectors earning profile and Net Profitability Margin (NPM). The rising interest rate scenario also has the potential to create significant pressure on the asset quality of banks.

The Salience of Entrepreneurship: Evidence from Online Business
Huang, Yi,Lin, Chen,Liu, Sibo,Manso, Gustavo
We study the psychological biases underlying people's decision of becoming an entrepreneur in the context of online business. Using the entire universe of entrepreneurs on the world's largest online shopping platform, we find that people are more likely to become online entrepreneurs when observing the emergence of successful stores located in close neighborhoods. We rely on the store rating system and detailed geographical information for identification. The rating upgrade of an online store led to a significant increase in the number of new stores in the 0.5km radius of the neighborhood across rural areas of China. The effect increases with the level of upgrades, decreases with distance and, is robust to a wide range of rigorous model specifications. The entrants motivated by observing these upgraded stores underperform relative to others in terms of lower sales and a higher probability of exit, suggesting the entry decision is suboptimal. Overall, the results are most consistent with salience theories of choice and cannot be explained by regional development or rational learning.

Turn-of-the-Month Effect, FX Influence, and Efficient Market Hypothesis: New Perspectives from the Johannesburg Stock Exchange
Vasileiou, Evangelos
This paper examines the Turn of the Month (TOM) effect in the highly capitalized emerging South African stock market which presents this calendar not only in the stock market, but in the USDZAR FX market also. These characteristics enable us to gain new perspectives on the study of the TOM effect. Specifically, we show that the inefficiencies in FX market (against a hard currency) influence not only the domestic stock market’s performance but also its Calendar Anomalies (CA). Additionally, we present some practical strategies based on the TOM effect which can prove beneficial for investors and outperform the stock market.

Winterization of Texan power system infrastructure is profitable but risky
Katharina Gruber,Tobias Gauster,Peter Regner,Gregor Laaha,Johannes Schmidt

We deliver the first analysis of the 2021 cold spell in Texas which combines temperature dependent load estimates with temperature dependent estimates of power plant outages to understand the frequency of loss of load events, using a 71 year long time series of climate data. The expected revenue from full winterization is 11.74bn$ over a 30 years investment period. We find that large-scale winterization, in particular of gas infrastructure and gas power plants, would be profitable, as related costs for winterization are substantially lower. At the same moment, the associated investment risks are high due to the low-frequency of events - the 2021 event was the largest and we observe only 8 other similar ones for the simulated 71 years. As risks to investors are considerable, regulatory measures may be necessary to enforce winterization.