Research articles for the 2021-06-07

3D Tensor-based Deep Learning Models for Predicting Option Price
Muyang Ge,Shen Zhou,Shijun Luo,Boping Tian

Option pricing is a significant problem for option risk management and trading. In this article, we utilize a framework to present financial data from different sources. The data is processed and represented in a form of 2D tensors in three channels. Furthermore, we propose two deep learning models that can deal with 3D tensor data. Experiments performed on the Chinese market option dataset prove the practicability of the proposed strategies over commonly used ways, including B-S model and vector-based LSTM.

Adverse Selection in Capital Markets with Heterogeneous Risk Preferences and Beliefs
Rivera, Thomas J
We study the ability of a manager, who seeks outside financing for a new project, to disclose private information about the project's risk. We assume the manager and the outside investor that offers the best financing terms may have heterogeneous and privately known risk preferences (equivalently beliefs regarding the risk return relationship). In this case, all costly signaling possibilities break down and no information can be credibly disclosed regarding the project's risk, no matter how precise. This general result does not rely on participation constraints nor budget balance concerns meaning no amount of outside taxes or subsidies can resolve it. Further, we show that full disclosure of private information is impossible even if risk preferences are public information. In contrast, when the manager and outside investor have homogeneous risk preferences (equivalently beliefs), then full disclosure of risk is achievable, highlighting important robustness concerns in contracting problems that assume homogeneous agents.

Analysis of Bond Portfolios in an ALM Context
Verbiest, Eddy H.
A system is implemented that simulates a bond portfolio over the long-term of liabilities. It pays all liabilities and extracts continuously a fixed percentage of remaining liabilities to stakeholders while maintaining a strategic asset allocation. This fixed percentage is proposed as return measure in an ALM-context with risk derived from its distribution. Tabled inputs completed with simple coherent inductive models for interest rate changes and spread changes allow to map return and risk as function of market probability in a deterministic white-box approach. Aim is to provide insight in the dependency of return potential and risk drivers on the bond allocation, on assumptions and on market conditions in order to improve allocations, understand risk, specify risk-appetite, facilitate capital management and budgeting. Examples are based on an actual €10billion insurer portfolio. Current market conditions favor short bond duration, reducing government bonds and mixing in some high yield bonds. Duration matching now decreases return potential and increases risk so that Solvency 2 regulation is counterproductive from a quantitative risk perspective. Bond portfolios are less risky in an ALM-context than in an assets-context due to the mitigation of loss by a balance of opposing forces when bonds are reinvested. Their downside is resilient to increasing correlation. This system is the kernel of a system for all assets but first focus is exclusively on bonds for their weight in current allocations and their pricing characteristics.

Benchmarking of Pay Components in CEO Compensation Design
Grinstein, Yaniv,Lauterbach, Beni,Yosef, Revital
Eighty-nine percent of S&P500 companies report benchmarking CEO pay components. Analyzing a panel of CEO compensation data entailing 1,251 S&P 1500 firms during 2007-2013, we find that: 1) total compensation benchmarking less effectively explains CEO compensation than does component-of-pay benchmarking; 2) the strength of compensation components’ adjustment to their benchmarks appears similar across the various components; the only exception is the salary that adjusts less pronouncedly to its benchmark, and 3) benchmarking is used not only regarding the level of compensation components but also regarding the weight of each component in total compensation. We discuss possible motivations for pay component benchmarking.

Can Financial Markets Predict Banking Distress?: Evidence from India
Herwadkar, Snehal,Pratap, Bhanu
In this paper, we test whether the efficient market hypothesis works in the context of Indian banking sector. In particular, using a panel dataset of 39 publicly listed banks in India for 2009â€"2017, we test whether equity markets provide any lead information about stress in the banking system before quarterly data becomes available to the supervisors. We find that markets are able to price-in the banking stress concurrently but not much in advance. As the supervisory data are available with a lag, there is some merit in incorporating market-based information to track banking distress. Use of a machine learning technique to reaffirm the results is a novelty of this paper. Interestingly, our findings suggest that markets are relatively less efficient in the case of public sector banks vis-à-vis private sector banks.

Capital and Labor Income Pareto Exponents across Time and Space
Tjeerd de Vries,Alexis Akira Toda

We estimate capital and labor income Pareto exponents across 475 country-year observations that span 52 countries over half a century (1967-2018). We document two stylized facts: (i) capital income is more unequally distributed than labor income in the tail; namely, the capital exponent (1-3, median 1.46) is smaller than labor (2-5, median 3.35), and (ii) capital and labor exponents are nearly uncorrelated. To explain these findings, we build an incomplete market model with job ladders and capital income risk that gives rise to a capital income Pareto exponent smaller than but nearly unrelated to the labor exponent. Our results suggest the importance of distinguishing income and wealth inequality.

Combinatorial Algorithms for Matching Markets via Nash Bargaining: One-Sided, Two-Sided and Non-Bipartite
Ioannis Panageas,Thorben Tröbst,Vijay V. Vazirani

This paper is an attempt to deal with the recent realization (Vazirani, Yannakakis 2021) that the Hylland-Zeckhauser mechanism, which has remained a classic in economics for one-sided matching markets, is likely to be highly intractable. HZ uses the power of a pricing mechanism, which has endowed it with nice game-theoretic properties.

Hosseini and Vazirani (2021) define a rich collection of Nash-bargaining-based models for one-sided and two-sided matching markets, in both Fisher and Arrow-Debreu settings, together with implementations using available solvers, and very encouraging experimental results. This naturally raises the question of finding efficient combinatorial algorithms for these models.

In this paper, we give efficient combinatorial algorithms based on the techniques of multiplicative weights update (MWU) and conditional gradient descent (CGD) for several one-sided and two-sided models defined in HV 2021. Additionally, we define for the first time a Nash-bargaining-based model for non-bipartite matching markets and solve it using CGD. Furthermore, in every case, we study not only the Fisher but also the Arrow-Debreu version; the latter is also called the exchange version. We give natural applications for each model studied. These models inherit the game-theoretic and computational properties of Nash bargaining.

We also establish a deep connection between HZ and the Nash-bargaining-based models, thereby confirming that the alternative to HZ proposed in HV 2021 is a principled one.

Determinants and the Impact of COVID-19 Pandemic Crisis in the Continuity of Cooperative Health Plan Operators Through Liquidity
Lima, Ederaldo,Beiruth, Aziz,Martinez, Antonio Lopo
This research investigates Brazil's cooperative health plan operators (CHPOs) from the perspective of continuity in terms of liquidity ratios. The principle of continuity presupposes the going concern basis of the entity where liquidity is a critical issue. A detailed study of CHPO's financial accounting statements was made from a quarterly database from 2018 to 2020 to investigate this phenomenon. Two broad research questions were investigated. The first focuses on identifying the impact of ROA, debt ratios, and the surplus in the liquidity ratios, a crucial aspect to evaluate the going concern basis of CHPOs. The second avenue of research studies the effect of the Covid-19 pandemic crisis on liquidity and debt to equity ratios from CHPOs. Methodologically, a fixed-effects panel and a difference-in-differences model were used to measure the determinants of liquidity ratios and impacts of COVID-19 on CHPOs, respectively. The results pointed out a positive effect of ROA, debt-to-equity ratio, and surplus of CHPOs' liquidity, reinforcing their crucial role in the continuity of these health operators. Additionally, the impact of COVID-19's findings remarks on the significant positive effect of the sanitary crisis on the finances of the CHPOs.

Dynamic Portfolio Cuts: A Spectral Approach to Graph-Theoretic Diversification
Alvaro Arroyo,Bruno Scalzo,Ljubisa Stankovic,Danilo P. Mandic

Stock market returns are typically analyzed using standard regression, yet they reside on irregular domains which is a natural scenario for graph signal processing. To this end, we consider a market graph as an intuitive way to represent the relationships between financial assets. Traditional methods for estimating asset-return covariance operate under the assumption of statistical time-invariance, and are thus unable to appropriately infer the underlying true structure of the market graph. This work introduces a class of graph spectral estimators which cater for the nonstationarity inherent to asset price movements, and serve as a basis to represent the time-varying interactions between assets through a dynamic spectral market graph. Such an account of the time-varying nature of the asset-return covariance allows us to introduce the notion of dynamic spectral portfolio cuts, whereby the graph is partitioned into time-evolving clusters, allowing for online and robust asset allocation. The advantages of the proposed framework over traditional methods are demonstrated through numerical case studies using real-world price data.

ESG Performance and COVID-19 Pandemic: An Empirical Analysis of European Listed Firms
Hoang, Thi-Hong-Van,Segbotangni, Elysé A.,Lahiani, Amine
This paper aims to investigate the linkage between ESG performance and the impact of the COVID-19 pandemic on the stock performance of listed firms in Europe. We base on the Eurostoxx 600 index to select firms with available MSCI ESG Rating data and Sustainalytics ESG Ranking data, collected from the Bloomberg terminal. The final sample of 344 firms is then divided into two sub-samples with high and low ESG performance. We then conduct two analyses which are stock performance comparison and panel data regressions to analyze the impact of various factors in 2019 and 2020. Empirical results show that firms with high ESG performance have a lower volatility than those with low ESG performance in both periods. However, there is no evidence that the stock performance is higher for firms with high ESG performance. On the other hand, the different results obtained with panel data regressions when using the MSCI ESG Rating and Sustainalytics ESG Risk Rating implies that it is important to carefully investigate the methodology defined by each ESG rating agency. Furthermore, we find a signicant impact of COVID-19 factors on stock performance such as the number of cases, deaths, lockdown, and quantitative easing announcements. The sector and country effects are significant during the COVID-19 pandemic.

Economic Policy Uncertainty and Bank Stability
Danisman, Gamze Ozturk,Tarazi, Amine
We examine the influence of economic policy uncertainty on bank stability post-2007-2008 global financial crisis. We rely on the economic policy uncertainty (EPU) index introduced by Baker et al. (2016). We use 176,477 quarterly observations for US commercial banks over the period from 2011Q1 to 2020Q3 and find consistent and robust evidence that bank stability decreases as the level of economic policy uncertainty increases. We specifically control for demand-side effects which indicates that the decrease in bank stability not only originates from borrowers’ and customers’ conditions but also from a change in bank behavior. A deeper investigation shows that the negative impact of policy uncertainty on bank stability is stronger for larger banks, and weaker for highly capitalized banks as well as for more liquid banks. Our findings have important implications particularly for the COVID-19 policy implementations.

Estimating the number of entities with vacancies using administrative and online data
Maciej Beręsewicz,Herman Cherniaiev,Robert Pater

In this article we describe a study aimed at estimating job vacancy statistics, in particular the number of entities with at least one vacancy. To achieve this goal, we propose an alternative approach to the methodology exploiting survey data, which is based solely on data from administrative registers and online sources and relies on dual system estimation (DSE).

As these sources do not cover the whole reference population and the number of units appearing in all datasets is small, we have developed a DSE approach for negatively dependent sources based on a recent work by Chatterjee and Bhuyan (2020). To achieve the main goal we conducted a thorough data cleaning procedure in order to remove out-of-scope units, identify entities from the target population, and link them by identifiers to minimize linkage errors. We verified the effectiveness and sensitivity of the proposed estimator in simulation studies.

From a practical point of view, our results show that the current vacancy survey in Poland underestimates the number of entities with at least one vacancy by about 10-15%. The main reasons for this discrepancy are non-sampling errors due to non-response and under-reporting, which is identified by comparing survey data with administrative data.

Exact and Asymptotic Analysis of General Multivariate Hawkes Processes and Induced Population Processes
Raviar Karim,Roger J. A. Laeven,Michel Mandjes

This paper considers population processes in which general, not necessarily Markovian, multivariate Hawkes processes dictate the stochastic arrivals. We establish results to determine the corresponding time-dependent joint probability distribution, allowing for general intensity decay functions, general intensity jumps, and general sojourn times. We obtain an exact, full characterization of the time-dependent joint transform of the multivariate population process and its underlying intensity process in terms of a fixed-point representation and corresponding convergence results. We also derive the asymptotic tail behavior of the population process and its underlying intensity process in the setting of heavy-tailed intensity jumps. By exploiting the results we establish, arbitrary joint spatial-temporal moments and other distributional properties can now be readily evaluated using standard transform differentiation and inversion techniques, and we illustrate this in a few examples.

Harmonising Insolvency Law in the EU: New Thoughts on Old Ideas in the Wake of the COVID-19 Pandemic
Ghio, Emilie,Gant, Jennifer L. L. ,Boon, Gert-Jan,Emke, David Christoph,Langkjaer, Line,Vaccari, Eugenio
The COVID-19 crisis, which hit the world with full force in 2020, represents one of the greatest health and economic crises in recent history. The pandemic paralysed the world economy, forcing many countries around the globe to take emergency measures. Countries’ emergency responses to the crisis uncovered a tension between the continuous phenomenon of global economic interdependence and the tendency for nation-state governance during the crisis. Although this dichotomy was quite acute in the European Union (EU) at the onset of the pandemic â€" reflected overall by Member States’ preferences for national solutions over common multilateral solutions â€" governments eventually converged towards similar responses to the spread of the virus. These responses to the crisis included partial or total isolation of populations, travel bans, and the temporary closure of non-essential businesses. This so-called phenomenon of ‘copycat coronavirus policies’ was the result of regulatory emulation, which occurred spontaneously, with limited direct impetus from the EU. Our paper investigates whether insolvency and restructuring laws, policies, and measures followed a similar pattern. The study focuses on six selected European countries: Denmark, France, Germany, Italy, the Netherlands and the United Kingdom (UK). From a methodological perspective, our contribution relies on a case study approach. Building on the findings of this case study, our paper, then, draws more general conclusions on the process of harmonisation across the EU.

How to handle negative interest rates in a CIR framework
Marco Di Francesco,Kevin Kamm

In this paper, we propose a new model to address the problem of negative interest rates that preserves the analytical tractability of the original Cox-Ingersoll-Ross (CIR) model without introducing a shift to the market interest rates, because it is defined as the difference of two independent CIR processes. The strength of our model lies within the fact that it is very simple and can be calibrated to the market zero yield curve using an analytical formula. We run several numerical experiments at two different dates, once with a partially sub-zero interest rate and once with a fully negative interest rate. In both cases, we obtain good results in the sense that the model reproduces the market term structures very well. We then simulate the model using the Euler-Maruyama scheme and examine the mean, variance and distribution of the model. The latter agrees with the skewness and fat tail seen in the original CIR model. In addition, we compare the model's zero coupon prices with market prices at different future points in time. Finally, we test the market consistency of the model by evaluating swaptions with different tenors and maturities.

International M&A Laws, the Market for Corporate Control and Risk-taking
Koirala, Santosh,Rao, Sandeep,Farag, Hisham,Marshall, Andrew P.
In this study, we examine the effect of the market for corporate control (MCC) on firm risk-taking exploiting the staggered enactment of country-level merger and acquisition (M&A) laws of thirty-four countries as a plausibly exogenous source of variation in MCC. Consistent with the theoretical argument of temporal traps, our empirical study shows that MCC brings unintended consequences by discouraging value-relevant corporate risk-taking. Further examination of the heterogeneous effect of enabling institutions, our investigation reveals that country-level investor protection and transparency environment positively moderates the effect of MCC. Our study highlights the complementary role played by institutions to translate the effect of MCC towards discouraging value-destroying investment conservatism.

Investment in Hard Times: Unintended Effects of Mandatory Dividend Policy in State-Owned Business Group
Kong, Dongmin,Liu, Lihua
This study examines capital allocation efficiency in the business group when parent firms experience adverse shocks of financial conditions. We exploit a quasi-experiment in China, the mandatory dividend of a state-owned business group in 2007, to conduct difference-in-differences estimation, and find that: (1) When parent central state-owned enterprises are mandatorily required to pay dividend to the governments (parent CSOEs), their group-affiliated listed central state-owned enterprises (listed CSOEs) substantially improve investment efficiency. (2) A plausible mechanism is that adverse cash shocks of parent CSOEs could facilitate the resource reallocation through related party transactions within a business group motivated by the listed CSOEs’ investment opportunity instead of the parent CSOEs’ tunneling behavior. (3) Our findings are more pronounced for firms with better external and internal governance. Overall, we provide the empirical evaluation of the economic consequences of mandatory dividend policy in terms of a firm’s investment efficiency within a state-owned business group.

JCOERE Judicial Cooperation Supporting Economic Recovery in Europe Report 1: Identifying Substantive Rules in Preventive Restructuring Frameworks Including the Preventive Restructuring Directive which May Be Incompatible with Judicial Cooperation Obligations
Lynch Fannon, Irene,Gant, Jennifer L. L. ,Finnerty, Aoife
The JCOERE Project, funded by the European Commission’s DG Justice Programme (2014-2020), addresses two aspects of the EU’s strategy to respond to the problems of cross-border insolvency within the increasingly integrated internal market. The Commission’s strategy is described in the Recommendation setting out A New Approach to Business Failure. The first aspect concerns the implementation of co-operation obligations that have been imposed on all EU domestic courts and judiciary under the EIR Recast. The second concerns the introduction through the Preventive Restructuring Directive (PRD) of a preventive restructuring framework in the domestic insolvency laws of all Member States. This first JCOERE Report examines these initial substantive and procedural aspects arising from the preventive restructuring frameworks. This, together with JCOERE Report 2, will contribute to answering the overall project research question, which asks:Based on existing experience with restructuring (e.g. Ireland), if obstacles to court co-operation will arise from substantive rules, which are particular to preventive restructuring.If some of these obstacles will be exacerbated in the preventive restructuring context, given that they pertain to existing procedural rules.JCOERE project Report 1 (reflecting the goals of Workpackage 2 of the Project) will accordingly concentrate on the nature of substantive and procedural aspects that may arise in complex preventive restructuring or rescue regimes as envisaged by the PRD. The Report also focuses on identifying substantive doctrinal and procedural restructuring rules relevant to court-to-court, and to court-to-practitioner co-operation obligations described in the EIR Recast Regulation 2015/848. The Report includes an analysis of pre-existing systems, such as the Irish Examinership process, the French sauvegarde, and the Spanish and Austrian reorganisation and restructuring procedures. In addition, the approaches of other jurisdictions included in the Project Consortium, namely Italy and Romania, will be discussed. In view of the anecdotal evidence of its influence on the drafting of the PRD, and given its popularity of a restructuring destination, the UK is also considered as a benchmarking exercise.The comparative analysis was extended to other jurisdictions, for example the Netherlands, because of its timely and pre-emptive response to the PRD, and Germany, Poland and Denmark.The JCOERE Project was conducted by a team at the University College Cork in collaboration with teams at the University of Florence, Titu Maiorescu University in Romania, and INSOL Europe. The content of this document represents the views of the author only and is his/her sole responsibility. The European Commission does not accept any responsibility for use that may be made of the information it contains.

London’s Global Reach and the Half a Trillion Dollars Equity Prize
Lyons, Gerard
As the world’s leading international financial centre, London faces fascinating opportunities and significant challenges in coming years as a result of Brexit, increased international competition from other global financial centres, and the changing face of finance itself. The City should continue to take a proactive approach to maintain its position as the world’s number one financial centre. It is also vital London retains the listings it already has. One potentially vulnerable area is those major companies that have a dual listing â€" on London and on another exchange. There are seven of them: Unilever, Rio Tinto, BHP, Reed Elsevier, Carnival, Mondi and Investec with all but Investec in the FTSE 100. One way to safeguard this would be for the UK Listings Authority (UKLA) to be flexible in how it interprets its rules and in the messages it sends. In an environment of intense global competition, we explain that it would be to the benefit of London if the UKLA and FTSE Russell deploy appropriate levels of discretion to ensure flexibility and continued access to the UK markets and indices for key international companies. It is important London highlights its attractions, and this has to include being flexible on rules, such as listings. If the UK is to play a leading role in the global equity market village, it needs to continue to build on its approach of being an international index as this is the nexus for a wider wealth creating eco-system that a post Brexit UK should be seeking.

On the "mementum" of Meme Stocks
Michele Costola,Matteo Iacopini,Carlo R.M.A. Santagiustina

The meme stock phenomenon is yet to be explored. In this note, we provide evidence that these stocks display common stylized facts on the dynamics of price, trading volume, and social media activity. Using a regime-switching cointegration model, we identify the meme stock "mementum" which exhibits a different characterization with respect to other stocks with high volumes of activity (persistent and not) on social media. Understanding these properties helps the investors and market authorities in their decision.

On the Stratification of Product Portfolios
Vikram Govindan,Wei Xie

Stratifying commercial product portfolios into multiple classes of decreasing priority, ABCD analysis, is a common supply chain tool. Key planning parameters that drive strategic and execution priorities are tied to the resulting segmentation. These priorities in turn drive supply chain performance. For large product assortments, manual segmentation is infeasible so an automated algorithm is needed. We therefore advocate that careful attention be paid to the design of such an ABCD algorithm and present three key features that can be incorporated into such a calculation to improve its quality and commercial utility.

Online Trading Models in the Forex Market Considering Transaction Costs
Koya Ishikawa,Kazuhide Nakata

In recent years, a wide range of investment models have been created using artificial intelligence. Automatic trading by artificial intelligence can expand the range of trading methods, such as by conferring the ability to operate 24 hours a day and the ability to trade with high frequency. Automatic trading can also be expected to trade with more information than is available to humans if it can sufficiently consider past data. In this paper, we propose an investment agent based on a deep reinforcement learning model, which is an artificial intelligence model. The model considers the transaction costs involved in actual trading and creates a framework for trading over a long period of time so that it can make a large profit on a single trade. In doing so, it can maximize the profit while keeping transaction costs low. In addition, in consideration of actual operations, we use online learning so that the system can continue to learn by constantly updating the latest online data instead of learning with static data. This makes it possible to trade in non-stationary financial markets by always incorporating current market trend information.

Optimal Taxation of Assets
Nicolaus Tideman,Thomas Mecherikunnel

The optimal taxation of assets requires attention to two concerns: 1) the elasticity of the supply of assets and 2) the impact of taxing assets on distributional objectives. The most efficient way to attend to these two concerns is to tax assets of different types separately, rather than having one tax on all assets. When assets are created by specialized effort rather than by saving, as with innovations, discoveries of mineral deposits and development of unregulated natural monopolies, it is interesting to consider a regime in which the government awards a prize for the creation of the asset and then collects the remaining value of the asset in taxes. Analytically, the prize is like a wage after taxes. In this perspective, prizes are awarded based on a variation on optimal taxation theory, while assets of different types are taxed in divergent ways, depending on their characteristics. Some categories of assets are abolished.

Optimal ratcheting of dividends in insurance
Hansjoerg Albrecher,Pablo Azcue,Nora Muler

We address a long-standing open problem in risk theory, namely the optimal strategy to pay out dividends from an insurance surplus process, if the dividend rate can never be decreased. The optimality criterion here is to maximize the expected value of the aggregate discounted dividend payments up to the time of ruin. In the framework of the classical Cram\'{e}r-Lundberg risk model, we solve the corresponding two-dimensional optimal control problem and show that the value function is the unique viscosity solution of the corresponding Hamilton-Jacobi-Bellman equation. We also show that the value function can be approximated arbitrarily closely by ratcheting strategies with only a finite number of possible dividend rates and identify the free boundary and the optimal strategies in several concrete examples. These implementations illustrate that the restriction of ratcheting does not lead to a large efficiency loss when compared to the classical un-constrained optimal dividend strategy.

Ordering and Inequalities for Mixtures on Risk Aggregation
Yuyu Chen,Peng Liu,Yang Liu,Ruodu Wang

Aggregation sets, which represent model uncertainty due to unknown dependence, are an important object in the study of robust risk aggregation. In this paper, we investigate ordering relations between two aggregation sets for which the sets of marginals are related by two simple operations: distribution mixtures and quantile mixtures. Intuitively, these operations ``homogenize" marginal distributions by making them similar. As a general conclusion from our results, more ``homogeneous" marginals lead to a larger aggregation set, and thus more severe model uncertainty, although the situation for quantile mixtures is much more complicated than that for distribution mixtures. We proceed to study inequalities on the worst-case values of risk measures in risk aggregation, which represent conservative calculation of regulatory capital. Among other results, we obtain an order relation on VaR under quantile mixture for marginal distributions with monotone densities. Numerical results are presented to visualize the theoretical results and further inspire some conjectures. Finally, we provide applications on portfolio diversification under dependence uncertainty and merging p-values in multiple hypothesis testing, and discuss the connection of our results to joint mixability.

Prevention Is Better Than Cure: Experimental Evidence From Milk Fever Incidence in Dairy Animals of Haryana, India
A. G. Adeeth Cariappa,B. S. Chandel,Gopal Sankhala,Veena Mani,Sendhil R,Anil Kumar Dixit,B. S. Meena

Calcium deficiency in high yielding bovines during calving causes milk fever which leads to economic losses of around INR 1000 crores (USD 137 million) per annum in Haryana, India. With increasing milk production, the risk of milk fever is continuously rising. In the context, we aim to address the most fundamental research question: What is the effect of a preventive health product (anionic mineral mixture (AMM)) on milk fever incidence, milk productivity and farmers income? In an effort to contribute to the scanty economic literature on effect of preventive measures on nutritional deficiency disorders in dairy animals, specifically, on AMM effects in India, this study uses a randomized controlled design to estimate internally valid estimates. Using data from 200 dairy farms, results indicate that milk fever incidence decreases from 21 per cent at baseline to 2 per cent in treated animals at follow-up. Further, AMM leads to a 12 per cent and 38 per cent increase in milk yield and farmers net income, respectively. Profits earned due to the prevention of milk fever [INR 16000 (USD 218.7)] overweighs the losses from milk fever [INR 4000 (USD 54.7)]; thus, prevention using AMM is better than cure.

Shorting Activity and Stock Return Predictability: Evidence From a Mandatory Disclosure Shock
Griffin, Paul A.,Hong, Hyun A.,Kalcheva, Ivalina,Kim, Jeong-Bon
We study the effect of a mandatory improvement in public disclosure due to the adoption of International Financial Reporting Standards (IFRS) on the stock return predictability of shorting activity. To assess the impact of the disclosure shock, we measure monthly changes in the demand for and supply of stocks for shorting and whether those changes predict negative returns in the following month. We provide international evidence that the ability of increases in shorting demand and supply to predict negative returns declines after the shock. The predictive ability of shorting in the month before a negative earnings surprise and news of a firm’s questionable M&A transaction also declines after the shock. These findings imply that the shock of the mandatory accounting change crowds out some of short-sellers’ value-relevant information in the equity lending market. Thus, while the democratization of information from a structured accounting change may make sophisticated investors worse off by reducing their ability to predict future returns, this change may also benefit all investors through timely stock price discovery.

Signatured Deep Fictitious Play for Mean Field Games with Common Noise
Ming Min,Ruimeng Hu

Existing deep learning methods for solving mean-field games (MFGs) with common noise fix the sampling common noise paths and then solve the corresponding MFGs. This leads to a nested-loop structure with millions of simulations of common noise paths in order to produce accurate solutions, which results in prohibitive computational cost and limits the applications to a large extent. In this paper, based on the rough path theory, we propose a novel single-loop algorithm, named signatured deep fictitious play, by which we can work with the unfixed common noise setup to avoid the nested-loop structure and reduce the computational complexity significantly. The proposed algorithm can accurately capture the effect of common uncertainty changes on mean-field equilibria without further training of neural networks, as previously needed in the existing machine learning algorithms. The efficiency is supported by three applications, including linear-quadratic MFGs, mean-field portfolio game, and mean-field game of optimal consumption and investment. Overall, we provide a new point of view from the rough path theory to solve MFGs with common noise with significantly improved efficiency and an extensive range of applications. In addition, we report the first deep learning work to deal with extended MFGs (a mean-field interaction via both the states and controls) with common noise.

Socially Useless? The Crucial Contribution of Finance to Economic Life
Booth, Philip,Zuluaga, Diego
Animosity towards the business of finance is ancient and persistent. As finance creates intangible value, its contribution is invisible to many observers, but the proposed remedy â€" increased statutory regulation â€" may heighten, rather than mitigate the exposure of taxpayers and households to recessions and speculative bubbles. Financial firms serve many useful functions, which individuals and households could scarcely undertake on their own: maturity transformation, matching lenders and borrowers at low cost, facilitating the transfer of risk and consumption across time and between people, monitoring, and diversification of investments. Banks reduce the transaction costs of financial activity, enabling people to spend their time more productively. Gross value added (GVA) by the UK financial sector amounted to £124 billion in 2016. Of this, 50% is exported. Contrary to the claims of critics, the sales and trading activity, alleged to be self-serving, accounts at most for 10% to 13% of financial services business in Britain. It is often argued that private-sector finance is short-term oriented. Whilst there is evidence that shareholders may be heavily discounting distant profits, the reasons for this could be policy uncertainty, and not irrationality. Moreover, the valuations of tech firms â€" whose positive cash flows lie far in the future â€" and low yields on corporate bonds suggest that investors are patient by historical standards. Much financial regulation assumes that providers ‘dupe’ consumers. But regulatory intervention is grossly miscalculated. The Financial Conduct Authority’s recent interest cap on payday loans shrank the market by between three and five times more than the regulator expected. Markets are not perfect, but regulation is often a poor substitute. The much-cited literature linking financial growth and adverse economic outcomes is simply too crude to warrant drawing clear policy conclusions. Studies linking financialisation with inequality are similarly ambiguous: the top ten countries for their share of finance in GDP are a mixture of high-, medium- and low-inequality countries. Complex financial instruments and speculation, both unpopular in the wake of the 2008 crash, are not harmful on their own. In fact, they transfer risks to those who can best bear it, whilst giving greater income certainty to vulnerable people. Until and unless the value of finance is properly understood, public policy will fail to harness its benefits and may well endanger public welfare.

Speech Communication of British Teenagers: Understatement or Overstatement?
Vlasova, Ekaterina
The author examines the speech communication of British teenagers which involves the implementation of understatement and overstatement. Understatement softens negative emotions and promotes the manifestation of a critical attitude towards yourself and overstatement is aimed at rapprochement and maintaining friendly relations.

The Allocation of Talent and Financial Development, 1897 to 1936
Lin, Chen,Ma, Chicheng,Sun, Yuchen,Xu, Yuchen
We examine how the supply of talent affected financial development, based on a historical experiment that abruptly changed the allocation of talent in early 20th- century China. A millennium-long meritocratic institution, the imperial civil examination system had firmly linked Chinese intellectual and educational ambitions to government service. The abolition of this system in 1905, however, released the learned elites from the scholar-official system and they looked to modern industries for new opportunities of wealth and status. By analyzing the data of 281 prefectures between 1897 and 1936, we find that regions where there were more candidates for the civil examination produced more bankers and students of finance after 1905; this translated to a greater development of modern banks. From the aspect of the early development of modern finance, our findings coincide with Murphy, Shleifer and Vishny’s (1991) view on the growth implications of the allocation of talent to innovative industries.

The Evolution of Banks: From Traditional Business Models to the New Realities of Financial Ecosystem
Panova, Galina
The chapter presents current issues of the banks’ business models innovative transformations. The topic is relevant for banks first of all from the economic science point of view, since until now the conceptual apparatus of not only the types of bank business models but also the definition of bank business models and their ecosystems remain controversial. However, in practice the applying of new strategic solutions is needed to solve the triune task: to ensure profitability of business while maintaining liquidity and minimizing risks.The chapter presents controversial issues of theoretical understanding and practical application of bank business models; shows how the traditional financial markets are changing when innovative business models of modern banks are being introduced.

The Intellectual Property Protection System of the Foreign Investment Law: Basic Structure, Motivation and Game Logic
Luo Ying

The intellectual property protection system constructed by China's Foreign Investment Law has opened a new phase of rule of law protection of intellectual property rights for foreign-invested enterprises, which is an important institutional support indispensable for optimizing the business environment under the rule of law.The development of the regime was influenced by the major concerns of investors' home countries, the "innovation-driven development" strategy, and the trend towards a high level of stringent protection of international intellectual property and investment rules.In addition, there is a latent game of interests between multiple subjects, which can be analyzed by constructing two standard formal game models according to legal game theory.The first game model aims to compare and analyze the gains and losses of China and India's IPR protection system for foreign-invested enterprises to attract foreign investment.The second game model is designed to analyze the benefits of China and foreign investors under their respective possible behaviors before and after the inclusion of IPR protection provisions in the Foreign Investment Law, with the optimal solution being a "moderately cautious" strategy for foreign investors and a "strict enforcement" strategy for China.

The Limits and Logic of the EU Harmonisation Process in the Wake of COVID-19
Ghio, Emilie,Gant, Jennifer L. L. ,Boon, Gert-Jan,Emke, David Christoph,Vaccari, Eugenio,Langkjaer, Line
Harmonisation of insolvency laws has been at the top of the EU institutions’ agenda for the last decade. This frenzy precipitated in the aftermath of the Global Financial Crisis. European institutions have been prolific in creating a comprehensive EU-wide framework.

The Rohingyas of Rakhine State: Social Evolution and History in the Light of Ethnic Nationalism
Sarwar J. Minar,Abdul Halim

Recent event of ousting Rohingyas from Rakhine State by the Tatmadaw provoked worldwide public-and-academic interest in history and social evolution of the Rohingyas, and this is to what the article is devoted. As the existing literature presents a debate over Who are the Rohingyas?, and How legitimate is their claim over Rakhine State?, the paper reinvestigates the issues using a qualitative research method. Compiling a detailed history, the paper finds that Rohingya community developed through historically complicated processes marked by invasions and counter-invasions. The paper argues many people entered Bengal from Arakan before British brought people into Rakhine state. The Rohingyas believe Rakhine State is their ancestral homeland and they developed a sense of Ethnic Nationalism. Their right over Rakhine State is as significant as other groups. The paper concludes that the UN must pursue solution to the crisis and the government should accept the Rohingyas as it did the land or territory.

Time-dependent relations between gaps and returns in a Bitcoin order book
Roberto Mota Navarro,Paulino Monroy Castillero,Francois Leyvraz

Several studies have shown that large changes in the returns of an asset are associated with the sized of the gaps present in the order book In general, these associations have been studied without explicitly considering the dynamics of either gaps or returns. Here we present a study of these relationships. Our results suggest that the causal relationship between gaps and returns is limited to instantaneous causation.

What Do We Know About the Second Moment of Financial Markets?
Grobys, Klaus
Recent research shows that the vast majority of scientific studies published in leading finance journals fails scientific replication (Hou, Xue, and Zhang, 2020; Harvey, Liu, and Zhu; 2016). This study argues that p-hacking, publication pressure and the selection bias from leading finance journals are perhaps not the underlying root cause for this issue. We show that standard methodologies often used in finance research are inevitably sample-specific due to the very nature of financial markets. While the consensus of earlier research postulates a rejection of the time-honored Levy hypothesis, our results strongly indicate that the variance of variance does not exist in any of the financial key markets we consider. An unexpected finding of this study is that the variance process governing the U.S. dollar foreign exchange rate market is generating more extreme events than the Bitcoin market. Our results cast doubts on the validity of methodologies currently used in finance research.

Рейтинговые оценки устойчивых финансов (Sustainable Finance Ratings)
Danilov, Yury,Pivovarov, Danil,Davydov, Igor
Russian abstract: Ð' статье затронута одна из наиболее проблемных сфер внедрения концепции устойчивых финансов в практику функционирования финансовых рынков и институтов. Кратко описаны наиболее известные международные рейтинги ESG. Обобщены выводы ряда работ относительно причин несовершенства ESG-рейтингов, в том числе значительного разброса рейтинговых оценок одной корпорации от разных рейтинговых агентств. Описана текущая ситуация в области становления рейтинговых оценок и индексов устойчивого развития в России, в которой в гипертрофированном виде проявляются те же недостатки, которые характерны для международных рейтингов. Статья подготовлена по основе научно-исследовательских работ, выполненных в РАНХиÐ"С при Президенте Российской Федерации в рамках государственного задания.English abstract: The article touches upon one of the most problematic areas of introducing the concept of sustainable finance into the practice of functioning of financial markets and institutions. The most famous international ESG ratings are briefly described. The conclusions of a number of works on the reasons for the imperfection of ESG ratings, including a significant range of ratings of the corporation from different rating agencies, are summarized. The current situation in the field of the formation of rating assessments and indices of sustainable development in Russia is described, in which the same shortcomings that are characteristic of international ratings are manifested in an exaggerated form.

Хозяйственное обозрение (январь-апрель 2021 г.) (Survey of Current Business (January-April 2021))
Aukutsionek, Sergey,Yegorov, Andrey S.,Bachirova, Inessa,Serzhantova, Tatyana V.
Russian abstract: Ð' январе 2021 г. диффузный индекс цен на выпускаемую продукцию прибавил 20 п.п. и достиг 69%, а аналогичный индекс на приобретаемую продукцию увеличился на 10 пунктов, поднявшись до 90%. Ð"ля обоих показателей это максимальные значения за последние шесть лет. Из-за длительных новогодних каникул многие показатели января традиционно оказались существенно ниже декабрьских. Например, обращают на себя внимание диффузные индексы выпуска (-35 пунктов), портфеля заказов (-13), закупок оборудования (-12), но при этом их значения оказались лучше январских показателей 2019â€"2020 гг. Растущий второй месяц подряд диффузный индекс трехмесячных прогнозов закупок оборудования впервые за всю истории наблюдений с 1993 г. достиг 51%.English abstract: In January 2021, the diffusion index of prices for manufactured products added 20 percentage points and reached 69%, and the similar index for purchased products added 10 points, rising to 90%. For both indicators, these are the maximum values for the last 6 years. Due to the long New Year holidays, many indicators of January are traditionally significantly lower than of December. For example, we can mention the diffusion indices of output (-35 points), order-book level (-13) and equipment purchases (-12), but their values were better than the January indicators of 2019â€"2020. Growing for the second month in a row, the diffusion index of three-month expectations for equipment purchases reached 51% for the first time since we started to collect data for it in 1993.