Finance and Financial Management Commons^™

The Information Content Of Sudden Insider Silence, Claire Yurong Hong, Frank Weikai Li

Research Collection Lee Kong Chian School Of Business

We present evidence of investors underreacting to the absence of events in financialmarkets. Routine-based insiders strategically choose to be silent when they possessprivate information not yet reflected in stock prices. Consistent with our hypothesis,insider silence following routine sell (buy) predict positive (negative) future return aswell as fundamentals. The return predictability of insider silence is stronger amongfirms with poor information environment and facing higher arbitrage costs, and alarge fraction of abnormal returns concentrates on future earnings announcements. Along-short strategy that exploits insiders’ strategic silence behavior generates abnormalreturns of 6% to 10% annually

Forecasting In Blockchain-Based Local Energy Markets, Michael Kostmann, Wolfgang Karl Hardle

Sim Kee Boon Institute for Financial Economics

Increasingly volatile and distributed energy production challenges traditional mechanisms to manage grid loads and price energy. Local energy markets (LEMs) may be a response to those challenges as they can balance energy production and consumption locally and may lower energy costs for consumers. Blockchain-based LEMs provide a decentralized market to local energy consumer and prosumers. They implement a market mechanism in the form of a smart contract without the need for a central authority coordinating the market. Recently proposed blockchain-based LEMs use auction designs to match future demand and supply. Thus, such blockchain-based LEMs rely on accurate short-term forecasts of …

Role Of Financial, Human And Social Capital In Survival Of Start-Ups, Tiong Kiat Wong

Dissertations and Theses Collection (Open Access)

In new business ventures, growth in itself is often not the main intention in the beginning, but rather a mean to ensure survivability first, follow by sustainability and secure profitability. Not all small businesses survived over time and are always confronted with the liability of newness and contending externalities such as fierce competition and internal limitations like resources to survive. Only about half of newly founded start-ups survived after 5 years.

The presence or absence of resources and the critical role it plays on the effect of venture’s survival, provides substantive advancement in understanding of organisational theory and management practice …

Momentum And Reversal: The Role Of Short Selling, Zhaobo Zhu, Xinrui Duan, Licheng Sun, Jun Tu

Research Collection Lee Kong Chian School Of Business

This paper investigates the relation between short selling and momentum. We document that a consistent momentum strategy that buys lightly shorted winners and sells heavily shorted losers exhibits strong short-term momentum and no long-term reversal. In contrast, an inconsistent momentum strategy that buys heavily shorted winners and sells lightly shorted losers experiences weak short-term momentum and persistent long-term reversal. Our results are robust after controlling for firm characteristics, proxy for short-sale constraints, and investor sentiment, as well as an exogenous shock (the Taxpayer Relief Act of 1997). These findings present a new challenge to existing theories of momentum that rely …

Tail Risk Concerns Everywhere, George P. Gao, Xiaomeng Lu, Zhaogang Song

Research Collection Lee Kong Chian School Of Business

We show that the beta with respect to an index of global ex ante tail risk concerns (��ℝ����), which we construct using out-of-the-money options on multiple global assets, negatively drives cross-sectional return variations across asset classes, including international equity indices, foreign currencies, and government bond futures. The pricing power of ��ℝ���� becomes stronger when more asset-class-level tail risk concerns are incorporated in the index construction. ��ℝ���� also dominates asset-class-level tail risk concerns in pricing assets within each asset class. These evidences imply that the pricing effect of tail risk concerns works predominantly as a global channel. The ��ℝ���� pricing effect …

Security Token Offerings: The Next Big Thing?, Singapore Management University

Perspectives@SMU

CUHK expert shares insights on whether Security Token Offerings will be the next trend in cryptocurrency community

Biclustering Via Mixtures Of Regression Models, Raja Velu, Zhaoque Zhou, Chyng Wen Tee

Research Collection Lee Kong Chian School Of Business

Biclustering of observations and the variables is of interest in many scientific disciplines. In a single set of data matrix it is handled through the singular value decomposition. Here we deal with two sets of variables: response and predictor sets. We model the joint relationship via regression models and then apply SVD on the coefficient matrix. The sparseness condition is introduced via Group Lasso. The approach discussed here is quite general and is illustrated with an example from Finance.

Institutional Management And Institutional Trading, Jingi Ha

Dissertations and Theses Collection (Open Access)

This dissertation consists of three papers in mutual fund governance or market microstructure that analyze the causal effect of board independence on mutual fund performance or the trading behavior of institutional trading and informed trading.

Chapter I studies how board independence affects fund performance, in relation to investment experience of independent directors. Using the SEC amendment in 2001 as an exogenous shock, I find that board independence does not improve or damage fund performance on average. When a fund board has independent directors with investment experience, however, it boosts fund performance. I also find that a fund manager is less …

Marginal Cost Of Risk-Based Capital And Risk-Taking, Tao Chen, Jing Rong Goh, Shinichi Kamiya, Pingyi Lou

Research Collection School Of Economics

We explore the impact of capital adequacy requirements on financial institutions' risk-taking behavior from a novel perspective. Specifically, we show that an important feature of the risk-based capital (RBC) system a built-in diversification benefit in aggregating risk categories induces moral hazard. We find that insurers that face lower marginal RBC costs of fixed-income (FI) investment tend to purchase riskier Fl securities. This relationship holds even when lower marginal RBC costs result from increased risk in other risk categories, which is an unintended consequence of the RBC's square root rule. Using Hurricanes Katrina and Sandy as exogenous shocks to the RBC …

Are Bond Ratings Informative? Evidence From Regulatory Regime Changes, Louis H. Ederington, Jeremy C. Goh, Yen Teik Lee, Lisa Zongfei Yang

Research Collection Lee Kong Chian School Of Business

The Dodd–Frank Act (Section 939B) enacted in 2010 repealed the exemption of credit rating agencies (CRAs) from Regulation Fair Disclosure. Testing whether CRAs continue to provide new information to the market after the repeal, the authors find that the significant prerepeal stock price responses to rating changes disappear after the regime change. Bond price reactions, however, remain significant. These results are even more significant at the investment–speculative boundary. Evidence suggests that CRAs served as a conduit for transmitting private information before the repeal and that the continued bond price reactions are likely due to regulations favoring higher-rated bonds.

Industry Return Predictability: A Machine Learning Approach, David E. Rapach, Jack K. Strauss, Jun Tu, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

In this article, the authors use machine learning tools to analyze industry return predictability based on the information in lagged industry returns. Controlling for post-selection inference and multiple testing, they find significant in-sample evidence of industry return predictability. Lagged returns for the financial sector and commodity- and material-producing industries exhibit widespread predictive ability, consistent with the gradual diffusion of information across economically linked industries. Out-of-sample industry return forecasts that incorporate the information in lagged industry returns are economically valuable: Controlling for systematic risk using leading multifactor models from the literature, an industry-rotation portfolio that goes long (short) industries with the …

Collusion Attacks And Fair Time-Locked Deposits For Fast-Payment Transactions In Bitcoin, Xingjie Yu, Shiwen Michael Thang, Yingjiu Li, Robert H. Deng

Research Collection School Of Computing and Information Systems

In Bitcoin network, the distributed storage of multiple copies of the block chain opens up possibilities for doublespending, i.e., a payer issues two separate transactions to two different payees transferring the same coins. While Bitcoin has inherent security mechanism to prevent double-spending attacks, it requires a certain amount of time to detect the doublespending attacks after the transaction has been initiated. Therefore, it is impractical to protect the payees from suffering in double-spending attacks in fast payment scenarios where the time between the exchange of currency and goods or services is shorten to few seconds. Although we cannot prevent double-spending …

Analyst Career Concerns, Effort Allocation, And Firms Information Environment, Jarrad Harford, Feng Jiang, Rong Wang, Fei Xie

Research Collection Lee Kong Chian School Of Business

Analysts strategically allocate more effort to portfolio firms that are relatively more important to their careers. Thus, the other firms the analysts cover indirectly affect a firm’s information environment. Controlling for analyst and firm characteristics, we find that an analyst makes more accurate, frequent, and informative earnings forecasts and recommendations for firms ranked higher within her portfolio based on proxies for importance to institutions. A firm’s relative rank widely varies across analysts, but its information environment improves when a larger proportion of analysts consider it to be relatively important. Analysts experience more favorable career outcomes when strategically allocating their efforts.

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

Research Collection Lee Kong Chian School Of Business

Duplicate record, see https://ink.library.smu.edu.sg/lkcsb_research/5894/. Asset prices remain depressed for several years following mutual fund fire sales. We show that price pressure from fire sales is partly due to asymmetric information which leads to an adverse selection problem for arbitrageurs. After a flow shock, fund managers do not scale down their portfolio, rather, they choose to sell a subset of low-quality stocks that subsequently underperform. In other words, fund managers have selling skill. Our findings suggest an explanation for the tendency of asset prices to remain depressed following fire sales: information asymmetries make it difficult for arbitrageurs to disentangle pure …

Small Data, Small Steps: Lessons From Assessing The Investment Studio, Jiaxin Low

Research Collection Library

Singapore Management University’s (SMU) Li Ka Shing Library was renovated in 2014. During the renovation, the Investment Studio was created within the library to house high-end financial databases such as Bloomberg and Thomson Reuters (now Refinitiv). Usage of the space was assessed using quantitative and qualitative data, comparing the first academic terms across two academic years, 2017 and 2018. The data provided evidence to support anecdotal evidence and library staff’s knowledge and observation. The assessment resulted recommendations for further action. It also provided opportunity to engage with users and stakeholders of this unique space.

Essays On Anomalies In Asset Pricing, Xinrui Duan

Dissertations and Theses Collection (Open Access)

In Chapter 1, we examine whether various anomalies can be driven by two common behavioral forces, namely, "subjective" sentiment (representing investors' subjective biased beliefs) and "objective" limited attention (representing investors' objective cognitive constraints). While sentiment explains well many anomalies that are more speculative on the short-leg, it fails to explain anomalies that are equally speculative on the long and short-leg, including momentum and post-earnings announcement drift. Market-wide attention shifts, proxied by number of news averaged across stocks, significantly attenuates underreaction-driven anomalies, beyond the effect of sentiment. Our findings suggest that increase in market-wide attention can temporarily reduce the cost of …

Surecash: Promoting Financial Inclusion In Bangladesh, Aurobindo Ghosh, Lipika Bhattacharya

Asian Management Insights

The street scene of honking cycle rickshaws, jaywalking pedestrians and precariously tilting buses in crowded Dhaka was an easy distraction. It was December 2017 when Matteo Chiampo, an advisor to the Consultative Group to Assist the Poor (CGAP),1 was writing an advisory report on the future growth strategy for SureCash, a mobile financial services (MFS) company in Bangladesh. Brainstorming for questions, and not answers, was something he had not tried before. Nevertheless, Chiampo tried to focus on the questions he had on his mind—questions that he believed would give novel and transformative insights on the way forward.

Three Essays On Information Diffusion And Market Friction, Li Guo

Dissertations and Theses Collection (Open Access)

How markets impound information into asset prices is one of the most important concerns of financial economics. Due to behavioural bias and transaction friction, information could be mispriced in the real world, thus driving market anomalies and return predictability of behavioural factors. My dissertation contributes to the literature by investigating how information can be quantified, acquired, disseminated and priced in the financial market with the existence of market frictions.

In Chapter 2, we propose an efficient method based on machine learning and textual analysis to quantify cross industry news and shed light on how news travels across different industries. The …

Essays In Asset Pricing, Wanshan Song

Dissertations and Theses Collection (Open Access)

My dissertation centers on two areas related to market microstructure. First, the role of retail traders, or the information they have, for financial markets. I use retail short selling as an example to narrow down the topic and study their trading patterns and trading strategies. Second, the role of passive indexers such as index funds or ETFs, for financial markets. I am trying to analyze the channels through which the nominally uninformed traders have influences on the return and market quality of the underlying stocks.

In Chapter 2, I study retail short sellers. It is interesting to paint retail short …

Informed Options Trading Prior To Bankruptcy Filings, Li Ge, Jianfeng Hu, Mark Humphery-Jenner, Tse-Chun Lin

Research Collection Lee Kong Chian School Of Business

Prior evidence on pre-bankruptcy-filing informed trade is mixed. The inconclusive findings might result from the sole focus on stock trading. We reassess the presence of pre-filing informed and insider trades by examining the information content of options trading before bankruptcy announcements. We find that bankruptcy filing returns are not significantly related to pre-filing insider stock trading. However, filing returns are significantly negatively related to pre-filing insider and informed options trading. The informational content of options trading reduces with options illiquidity and the amount of information impounded into pre-filing stock prices.

The Impact Of Fintech Innovations And Financial Standards On Bank Performance: Evidence From Selected Commercial Banks In Asean, Kiyono Hasaka

Dissertations and Theses Collection (Open Access)

In the rapidly evolving financial
technology (fintech) landscape, there has been an increase in the number of the
industry research papers and articles on fintech adoption and innovations. However,
there are relatively few empirical studies that provide a quantitative analysis
of the effects of fintech and financial standards on bank performance using
financial indicators. This dissertation attempts to fill this research gap by
identifying and analysing the impact of commercial banks’ adoption of mobile
banking technologies on bank financial performance in five countries that adopted
financial standards in the Association of Southeast Asian Nations (ASEAN). Using
the longitudinal panel data …

Robust Measures Of Earnings Surprises, Chin-Han Chiang, Wei Dai, Jianqing Fan, Harrison Hong, Jun Tu

Research Collection Lee Kong Chian School Of Business

Event studies of market efficiency measure an earnings surprise with the consensuserror (CE), defined as earnings minus the average of professional forecasts. Even if asubset of forecasts can be biased, the ideal but difficult to estimate parameter-dependentalternative to CE is a nonlinear filter of individual errors that adjusts for bias. We showthat CE is a poor parameter-free approximation for this ideal measure. The fractionof misses on the same side (FOM), by discarding the magnitude of misses, offers a farbetterapproximation. FOM performs particularly well against CE in predicting thereturns of US stocks, where bias is potentially large, than that of international …

Stock Market Responses To Unethical Behavior In Organizations: An Organizational Context Model, Bradford E. Baker, Rellie Derfler-Rozin, Marko Pitesa, Micheal D. Johnson

Research Collection Lee Kong Chian School Of Business

We develop and test a model that extends the understanding of how people react to news of organizational unethical behavior and how such reactions impact stock performance. We do so by taking into account the interplay between the features of specific unethical acts and the features of the organizational context within which unethical acts occur. We propose a two-stage model in which the first stage predicts that unethical acts that benefit the organization are judged less harshly than are unethical acts that benefit the actor, when the organization is seen as pursuing a moral goal (e.g., producing inexpensive medicine rather …

Implementing Natural Capital Credit Risk Assessment In Agricultural Lending, Francisco Ascui, Theodor Florian Cojoianu

Research Collection College of Integrative Studies

Agriculture has critical impacts and dependencies on natural capital, and agricultural lenders are therefore exposed to natural capital credit risk through their loans to farmers. Currently, however, lenders lack any detailed guidance for assessing natural capital credit risk in agriculture and are challenged by the fact that the relevant material risks vary considerably by agricultural sector and geography. This paper develops a natural capital credit risk assessment framework based on a bottom-up review of the material risks associated with natural capital impacts and dependencies for Australian beef production. It demonstrates that implementing natural capital credit risk assessment is feasible in …

Order Flow Volatility And Equity Costs Of Capital, Tarun Chordia, Jianfeng Hu, Avanidhar Subrahmanyam, Qing Tong

Research Collection Lee Kong Chian School Of Business

We propose that the volatility of order flow is a proxy for costs of information asymmetry, as order flow volatility varies positively with parameters that also influence adverse selection costs of trading. Empirically, order flow volatility is significantly higher prior to earnings or merger announcements when information asymmetry is likely to be elevated. Levels of and shocks to order flow volatility are positively and significantly correlated with existing illiquidity proxies, and strongly predict stock returns in the cross section. The impact of order imbalance volatility shocks on stock prices is reflected within one month in large, visible stocks, but takes …

Reputation Concerns Under At-Will Employment, Jian Sun, Dong Wei

Research Collection Lee Kong Chian School Of Business

We study a continuous-time model of long-run employment relationship with fixed wage and at-will firing; that is, termination of the relationship is non-contractible. Depending on his type, the worker either always works hard, or can freely choose his effort level. The firm does not know the worker’s type and the monitoring is imperfect. We show that, in the unique Markov equilibrium, as the worker’s reputation worsens, his job becomes less secure and the strategic worker works harder. We further demonstrate that the relationship between average productivity and job insecurity is U shaped, which is consistent with typical findings in the …

How Sector Volatility Spills Into Related Markets, Singapore Management University

Perspectives@SMU

Research reveals the linkages that let a meltdown go global

Driving Sustainable And Responsible Investment, Singapore Management University

Perspectives@SMU

Appealing to the moral imperative is futile. Sustainable investment funds should work on target’s self-interest

Dynamic Credit Default Swap Curves In A Network Topology, Xiu Xu, Cathy Yi-Hsuan Chen, Wolfgang Karl Härdle

Sim Kee Boon Institute for Financial Economics

Systemically important banks are connected and their default probabilities have dynamic dependencies. An extraction of default factors from cross-sectional credit default swap (CDS) curves allows us to analyze the shape and the dynamics of default probabilities. In extending the Dynamic Nelson Siegel (DNS) model to an across firm multivariate setting, and employing the generalized variance decomposition of Diebold and Yilmaz [On the network topology of variance decompositions: Measuring the connectedness of financial firms. J. Econom., 2014, 182(1), 119–134], we are able to establish a DNS network topology. Its geometry yields a platform to analyze the interconnectedness of long-, middle- and …

Financial Market Implications Of Marketing Actions And The Disclosure Of Marketing Information, Sungkyun Moon

Dissertations and Theses Collection (Open Access)

This dissertation contributes to marketing literature by examining the effects of marketing actions and the disclosure of marketing information through the financial market perspective that has high managerial relevance and policy implications. Specifically, the first essay provides the first empirical examination of the effects of the disclosure of advertising spending on investors’ and analysts’ uncertainty. It is responsive to calls by Marketing Science Institute and Marketing Accountability Standard Board to examine the consequences of disclosure of marketing metrics. The second essay examines the effect of advertising spending on firm value and explores firm and market level contingency effects. By doing …