Finance and Financial Management Commons^™

How Commonality Persists? (Through Investors' Sentiment And Attention), Chyng Wen Tee, Raja Velu, Zhaoque Zhou

Research Collection Lee Kong Chian School Of Business

Studies on commonality generally attribute the variation in asset returns to the variation in order flows. In this research study, we show that order flows do not predict asset returns, rather their relationship have been static over time. Thus we model both returns and the order flows as endogenous variables, and use investors' sentiment and attention as exogenous factors via a reduced-rank regression. We provide empirical evidence to demonstrate that cross-sectional commonality in attention (sentiment) is linearly (nonlinearly) associated with both returns and order flows at the intraday level, while the sentiment and attention measures themselvesexhibit a nonlinear mutual relationship, …

The Economics Of Financial Scams: Evidence From Initial Coin Offerings, Kenny Phua, Bo Sang, Chi Shen Wei, Gloria Yang Yu

Research Collection Lee Kong Chian School Of Business

We examine the economics of financial scams by analyzing the market for initial coin offerings (ICOs). Using data snapshots of 5,873 ICOs, we find that irregularities in ICO characteristics across listing websites predict higher scam risk and are likely intentional. These patterns are consistent with a model where malicious issuers maximize profits by using irregularities to screen for naïve investors. Almost half of the ICOs in our sample may be scams, amounting to more than U.S. $6 billion in losses. Our results draw attention to the frequent use of screening mechanisms in financial scams.

Leviathan Inc. And Corporate Environmental Engagement, Po-Hsuan Hsu, Hao Liang, Pedro Matos

Research Collection Lee Kong Chian School Of Business

In a 2010 special report, The Economist magazine termed the resurgence of state-owned, publicly listed enterprises “Leviathan Inc.” and criticized the poor governance and low efficiency of these firms. We compile a new comprehensive data set of state ownership of publicly listed firms in 44 countries over the period of 2004–2017 and show that state-owned enterprises are more responsive to environmental issues. The effect is more pronounced in economies lacking energy security and strong environmental regulation, and among firms with more local operations and higher domestic government ownership. We find a similar effect on corporate social engagement but not on …

The Value Of Official Website Information In The Credit Risk Evaluation Of Smes, Cuiqing Jiang, Chang Yin, Qian Tang, Zhao Wang

Research Collection School Of Computing and Information Systems

The official websites of small and medium-sized enterprises (SMEs) not only reflect the willingness of an enterprise to disclose information voluntarily, but also can provide information related to the enterprises’ historical operations and performance. This research investigates the value of official website information in the credit risk evaluation of SMEs. To study the effect of different kinds of website information on credit risk evaluation, we propose a framework to mine effective features from two kinds of information disclosed on the official website of a SME—design-based information and content-based information—in predicting its credit risk. We select the SMEs in the software …

Is Anti-Herding Always A Smart Choice? Evidence From Mutual Funds, John Byong-Tek Lee, Jun Ma, Dimitris Margaritis, Wanyi Yang

Sim Kee Boon Institute for Financial Economics

Recent empirical studies document a negative relation between herding behaviour and the skill of mutual fund managers. We explore this relationship further by focusing on fund managers' contrarian buy and sell behaviour against the market. Our study reveals an asymmetry in the performance of mutual funds with contrarian buy behaviour and contrarian sell behaviour. The contrarian-buy behaviour reflects skill by positively predicting the cross-section of next period's mutual fund returns, while the contrarian-sell behaviour reflects a lack of skill associated with a negative prediction. These findings are robust to various risk-adjusted performance measures. Contrarian-buy funds outperform momentum-buy funds by 3% …

An Idealist’S Approach For Smart Contract Correctness, Duy Tai Nguyen, Hong Long Pham, Jun Sun, Quang Loc Le

Research Collection School Of Computing and Information Systems

In this work, we experiment an idealistic approach for smart contract correctness verification and enforcement, based on the assumption that developers are either desired or required to provide a correctness specification due to the importance of smart contracts and the fact that they are immutable after deployment. We design a static verification system with a specification language which supports fully compositional verification (with the help of function specifications, contract invariants, loop invariants and call invariants). Our approach has been implemented in a tool named iContract which automatically proves the correctness of a smart contract statically or checks the unverified part …

The Impact Of Equity Incentive Executive Compensation On Corporate Performance, Bing Ruan

Dissertations and Theses Collection (Open Access)

The management rights and ownership of modern enterprises are often separated. Enterprise owners, i.e. shareholders, pursue the maximization of enterprise profits, while enterprise managers pursue the maximization of their own interests. This leads to conflicts between the two parties in the process of pursuing the maximization of their respective interests. To address the inconsistency of interests in principal-agent relationships, effective corporate governance mechanisms are needed. The equity incentive system is one of the important means for modern enterprises to implement effective human capital management. Its purpose is to bind the personal interests of management with the interests of the enterprise, …

Mitigating Industry Contagion Effects From Financial Reporting Fraud: A Competitive Dynamics Perspective Of Non-Errant Rival Firms Exploiting Product-Market Opportunities, Eugene Kang, Nongnapat Thosuwanchot, David Gomulya

Research Collection Lee Kong Chian School Of Business

Existing studies show that financial reporting frauds by errant firms cause declines in stock market valuations for non-errant rival firms (i.e. industry contagion effects). We posit that contagion effects may be mitigated by investors’ expectations of non-errant rivals exploiting product-market opportunities at the expense of errant firms. We apply the competitive dynamics literature to argue that non-errant rivals experience lower contagion effects when they have more available slack to engage in competitive actions. This effect is expected to strengthen when rival firms have previously deployed more resources for research and development and advertising investments or have higher prior market share …

Tail Risk Hedging: The Search For Cheap Options, Poh Ling Neo, Chyng Wen Tee

Research Collection Lee Kong Chian School Of Business

The authors find that a simple heuristic of sorting liquid equity options by dollar price to construct a portfolio of cheap put options leads to a surprisingly robust hedge for tail risk – the superior performance holds even when compared against more advanced empirical strategies. Further investigation reveals the asymmetry in market correlation under different market conditions as the mechanism of this robust hedging performance. The cheap options selected by the heuristic comprises of stocks with diverse firm characteristics. The correlation spike accompanying tail risk events leads to the majority of these put options moving into-the-money (ITM), thus compensating the …

Time To Regulate Influencers Who Tell You Where To Put Your Money, Patricia Lui

Research Collection Lee Kong Chian School Of Business

Financial scandals elsewhere have shown that ‘finfluencers’ do not always act in good faith and can mislead their followers.

Money Changers Have Their Own Fintech Disruption To Grapple With, Aurobindo Ghosh

Research Collection Lee Kong Chian School Of Business

In a commentary, SMU Assistant Professor of Finance (Education) and Director of the Citi Foundation-SMU Financial Literacy Programme for Young Adults Aurobindo Ghosh discussed the outlook for money changers in a world of multi-currency apps. He however noted money changers still have a role to play, and shared his views on how money changers can respond to technological disruption.

Estimating And Applying Autoregression Models Via Their Eigensystem Representation, Leo Krippner

Sim Kee Boon Institute for Financial Economics

This article introduces the eigensystem autoregression (EAR) framework, which allows an AR model to be specified, estimated, and applied directly in terms of its eigenvalues and eigenvectors. An EAR estimation can therefore impose various constraints on AR dynamics that would not be possible within standard linear estimation. Examples are restricting eigenvalue magnitudes to control the rate of mean reversion, additionally imposing that eigenvalues be real and positive to avoid pronounced oscillatory behavior, and eliminating the possibility of explosive episodes in a time-varying AR. The EAR framework also produces closed-form AR forecasts and associated variances, and forecasts and data may be …

Consumers’ Reaction To Corporate Esg Performance: Evidence From Store Visits, Frank Weikai Li, Frank Weikai Li, Roni Michaely

Research Collection Lee Kong Chian School Of Business

Using micro-level data on consumer shopping behavior, this paper investigates end-consumers’ attitudes toward firms’ ESG behavior, and as importantly, the ability of consumers to affect firms’ policy concerning sustainability issues. We find that consumers care about firms’ approach toward ESG, and consumers’ behavior can impact firms’ attitudes. Using ESG incidents as a proxy, we find that the reduction in store visits is more pronounced for ESG-conscious consumers, such as those living in democratic counties, and counties with a higher fraction of educated and younger residents. Online shopping interest data yields similar results. Using abnormally hot temperature as a shock to …

Editorial: Digital Finance And Sustainability: Impacts, Challenges, And Policy Priorities, John Beirne, David G. Fernandez

Research Collection Lee Kong Chian School Of Business

Digitalization helps to transform economies through supporting inclusive growth and enhancing economy-wide productivity, with the important role of digital finance being a key component of this [1]. This can also underpin progress on reaching targets set for achieving the Sustainable Development Goals (SDGs). More recently, initiatives on sustainable digital finance and green fintech have been at the core of a new strand of research on the nexus between digital finance and environmental sustainability (e.g., [2]). In addition, the promotion of a sound and efficient digital payment system, both nationally and globally, is an important mechanism for reducing inequality (e.g., [3]. …

Digital Wealth Management And Consumption: Micro Evidence From Individual Investments, Qian Gong, Mingyuan Ban, Yunjun Yu, Luying Wang, Yan Yuan

Research Collection Lee Kong Chian School Of Business

With the rapid advancement of digital finance in China, accessing wealth management services through digital platforms has become considerably convenient. However, the potential impact of digital platform investments on residents' consumption remains a relatively unexplored question. This study addresses this gap by leveraging a unique dataset obtained from one of China's largest fintech companies, encompassing individual-level data on consumption and investment. Our findings indicate that engaging in digital platform investments can indeed stimulate residents' consumption. Importantly, participation in digital platform investment has an inclusive effect, with a more pronounced marginal impact on consumption among low-income residents and in-dividuals residing in …

Does The Consolidated Feed Matter?, Shihao Yu

Research Collection Lee Kong Chian School Of Business

In this paper we examine the role of the consolidated feeds in the current U.S. equities market by studying exogenous events which affect their speed and availability respectively. We find that faster consolidated feeds have an adverse, albeit mild, impact on market liquidity, possibly as a result of more non-high-frequency algorithmic trading activities from informed institutional traders. Moreover, when the consolidated feeds become corrupted or unavailable due to technical glitches, market liquidity significantly worsens. Our findings suggest that the consolidated feeds remain a crucial component of today’s market data infrastructure.

Does The Federal Reserve Obtain Competitive And Appropriate Prices In Monetary Policy Implementation?, Yu An, Zhaogang Song

Research Collection Lee Kong Chian School Of Business

Many of the Federal Reserve’s (the Fed’s) monetary policy operations involve trading with primary dealers. We find that, for agency MBS, dealers charge 2.5 cents (per $100 face value) higher selling to the Fed than to non-Fed customers. Controlling for the same dealer, same security, and same trading time, this discriminatory pricing likely arises from dealers’ market power rather than inventory costs. Further, matching trade size reduces the price differential by more than half, implying that dealers’ market power greatly relates to the Fed’s purchases in large amounts, whereas the Fed’s limited breadth of counterparty choice also plays some role.

Toolkit For The Evaluation Of Crypto Tax Risks (Outline), Vincent Ooi

Research Collection Yong Pung How School Of Law

This Toolkit seeks to provide a practical, structured framework for the identification and assessment of crypto tax risks that can be used by tax administrations. It has three main parts. Firstly, an introduction to the Toolkit and how it should be used. Secondly, a series of questionnaires to complete. Thirdly, a commentary to provide additional context and details on each part of the Toolkit and its application. As tax administrations go through the questionnaires, they can rely on the Commentary to complement their existing knowledge and expertise to accurately identify the crypto tax risks facing their domestic tax systems.

The Information In Asset Fire Sales, Sheng Huang, Matthew C. Ringgenberg, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

Asset prices remain depressed for years following mutual fund fire sales, but little is known about the causes of these price drops. We show that asymmetric information generates price pressure during fire sales. We separate trades into expected trades, which assume fund managers scale down their portfolio, and discretionary trades. We find that discretionary trades contain fundamental information, whereas expected trades do not. Moreover, other traders cannot distinguish between discretionary and expected trades. Our findings help explain the magnitude and persistence of fire sale discounts: fund managers choose which assets to sell, and information asymmetries make it difficult for arbitrageurs …

The Cost Of Cheap Talk: How Campaign Promises And Default Contributions Affect Donation-Based Crowd Funding Success, Tianci Leon Qiu

Dissertations and Theses Collection (Open Access)

Non-profit organisations (NPOs) find it increasingly harder to engage donors and raise funds from the public. Post-pandemic: the emphasis on tactics to raise funds online through donation-based crowdfunding (DCF) platforms has surged in importance for both NPO survival and continued beneficiary aid. However, unlike equity-based crowdfunding platforms where campaign organisers are obligated to provide investors with tangible returns based on funding milestones, NPOs on DCF platforms do not have to adhere to any funding milestones or are beholden to any tangible obligations towards donors. Consequently, NPOs are greatly incentivised to deploy cheap talk – non-binding, unverifiable messages and claims to …

Do Hacker Groups Pose A Risk To Organizations? Study On Financial Institutions Targeted By Hacktivists, Mikko Samuli Niemelae

Dissertations and Theses Collection (Open Access)

Publication date: 5 September 2023

In the digital era, technological progress has been shadowed by an escalation in cybersecurity threats, notably impacting the financial sector. This research critically examines the influence of hacktivist campaigns—particularly those led by groups like Anonymous—on the cyber exposure of financial services firms listed on the NYSE. Employing Synthetic Controls and analyzing 22 treated firms, the study found that such campaigns significantly enhance the target institutions' deep and dark web exposure, with an average increase of 65% per annum in the subsequent two years from the campaign initiation. Crucially, smaller firms display a heightened susceptibility to …

What Drives The Value Of Financial Analysts’ Advice? The Role Of Earnings And Growth Forecasts, Ohad Kadan, Leonardo Madureira, Rong Wang, Tzachi Zach

Research Collection Lee Kong Chian School Of Business

We offer a parsimonious index at the individual analyst level to measure the extent to which an analyst relies on earnings and long-term growth forecasts in producing her advice. Using this index, we evaluate the contribution of earnings and growth forecasts to the investment value of analysts’ stock recommendations. We find that the fraction of analysts’ advice attributed to forecasts varies considerably across analysts and sectors. The investment value of recommendations is higher for analysts who rely less on their forecasts and more on other sources of information when forming investment advice. Investors recognize the superiority of recommendations from analysts …

From Hype To Reality: A Critical Analysis Of Blockchain-Based Regenerative Finance, Simon J.D. Schillebeeckx, Marco Schletz

Research Collection Lee Kong Chian School Of Business

The authors dive deep into the field of ReFi, a concept that enhances financial practices through decentralization and focuses on environmental and societal systems. The authors highlight several key problems of the space and point out that genuinely disruptive ReFi models are still in their infancy. The good news is that ReFi’s potentials are manifold and exciting. In the not-too-distant future, we might see financial applications backed by blockchain that can enhance data credibility, exchangeability, and transparency to redefine how corporations create and apportion environmental value.

Is Carbon Risk Priced In The Cross-Section Of Corporate Bond Returns?, Tinghua Duan, Frank Weikai Li, Quan Wen

Research Collection Lee Kong Chian School Of Business

This paper examines the pricing of a firm's carbon risk, measured by its carbon emissions intensity, in the cross-section of corporate bond returns. Contrary to the "carbon risk premium" hypothesis, we find bonds of firms with higher carbon emissions intensity earn significantly lower returns. This effect cannot be explained by a comprehensive list of bond characteristics and exposure to known risk factors. Investigating sources of the low carbon premium, we find the underperformance of bonds issued by carbon-intensive firms cannot be fully explained by divestment from institutional investors. Instead, our evidence is most consistent with investor underreaction to carbon risk, …

Does Abstract Thinking Facilitate Information Processing? Evidence From Financial Analysts, Frank Weikai Li, Rong Wang, Yang Yu, Gloria Yang Yu

Research Collection Lee Kong Chian School Of Business

We study whether abstract thinking – an essential cognitive trait established by psychological and neuroscientific studies – facilitates analysts’ information processing. Exploiting analysts’ questions during earnings calls, we construct an Abstract Thinking Index (ATI) that measures their tendency to involve abstract words, logical reasoning, broader topics, and future outlooks. We find that abstract thinking improves analysts’ forecast accuracy and recommendation informativeness. Consistent with abstract thinking featuring identifying central characteristics and comprehending intangible things, ATI has stronger effects for firms with fundamentals co-moving more with peers and less tangible information. Additional analyses suggest that ATI captures analysts’ cognitive traits rather than …

Shrinking Factor Dimension: A Reduced-Rank Approach, Ai He, Dashan Huang, Jiaen Li, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

We propose a reduced-rank approach (RRA) to reduce a large number of factors to a few parsimonious ones. In contrast to PCA and PLS, the RRA factors are designed to explain the cross section of stock returns, not to maximize factor variations or factor covariances with returns. Out of 70 factor proxies, we find that five RRA factors outperform the Fama-French (2015) five factors for pricing target portfolios, but performs similarly for pricing individual stocks. Our results suggest that existing factor proxies do not provide enough new information at the stock level beyond the Fama-French (2015) five factors.

Option Market Maker Hedging And Stock Market Liquidity, James O′Donovan, Gloria Yang Yu, Jinyuan Zhang

Research Collection Lee Kong Chian School Of Business

This paper demonstrates that option market maker hedging impacts the liquidity of underlying stocks. Options contracts have zero net supply, and option market makers engage in delta hedging to manage the risk of their net imbalances, unlike option end-users. Consequently, when option market makers hold a net short (long) position, their dynamic hedging demands liquidity from (or supplies liquidity to) the underlying stock, leading to market destabilization (or stabilization). Leveraging proprietary option exchange data that categorizes option trading by trader type, we document this effect and show that it is stronger for stocks where liquidity supply is expected to be …

E-Dsge Model With Endogenous Capital Utilization Rate, Ying Tung Chan, Maria Teresa Punzi

Sim Kee Boon Institute for Financial Economics

Environmental policy research has increased due to stricter policies aligned with climate goals. However, to achieve the goal of net-zero emissions, the adoption of even stronger policies and increased carbon taxes is necessary, with transition risk becoming a major concern for companies. Even though governments worldwide have been employing a range of methods such as carbon tax, cap-and-trade, and intensity targets to mitigate the impact of climate change, a pivotal debate around determining the optimal policy that reduces emissions without harming the economy continues. Our paper delves into the environmental policy assessment emphasizing the role of endogenous capital utilization rates, …

Bayesian Optimization With Switching Cost: Regret Analysis And Lookahead Variants, Peng Liu, Haowei Wang, Wei Qiyu

Research Collection Lee Kong Chian School Of Business

Bayesian Optimization (BO) has recently received increasing attention due to its efficiency in optimizing expensive-to-evaluate functions. For some practical problems, it is essential to consider the path-dependent switching cost between consecutive sampling locations given a total traveling budget. For example, when using a drone to locate cracks in a building wall or search for lost survivors in the wild, the search path needs to be efficiently planned given the limited battery power of the drone. Tackling such problems requires a careful cost-benefit analysis of candidate locations and balancing exploration and exploitation. In this work, we formulate such a problem as …

Competition And Innovation In The Financial Sector: Evidence From The Rise Of Fintech Start-Ups, Doina Caragea, Theodor Florian Cojoianu, Mihai Dobri, Andreas Hoepner, Oana Peia, Davide Romelli

Research Collection College of Integrative Studies

This paper provides new evidence on the effects of entry on incumbents’ incentives to innovate by examining the rise of FinTech innovations over the period 2000-2016. We employ machine learning algorithms to classify a large sample of patent applications into five types of FinTech innovations. We then show that greater competition from innovators outside the financial sector increases the probability that incumbent financial firms will innovate. Our identification strategy exploits the variation over time in the share of FinTech patent applications by non-financial start-ups relative to incumbent financial firms, as a proxy for competitive pressures from outside the financial industry. …