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Articles 31 - 60 of 700
Full-Text Articles in Finance and Financial Management
Something In The Air: Does Air Pollution Affect Fund Managers’ Carbon Divestment?, Thanh Huynh, Frank Weikai Li, Ying Xia
Something In The Air: Does Air Pollution Affect Fund Managers’ Carbon Divestment?, Thanh Huynh, Frank Weikai Li, Ying Xia
Research Collection Lee Kong Chian School Of Business
We examine whether fund managers overestimate carbon risk when they are exposed to local air pollution. We find that air pollution causes managers to underweight stocks of high-emission firms. The effects are stronger for less salient scopes of carbon emissions, among managers located in pro-environmental states, and among those likely to be surprised by air pollution—consistent with the idea that managers revise their beliefs about climate-transition risk following their exposure to air pollution. Carbon-intensive stocks sold by managers who are exposed to air pollution subsequently outperform stocks that they buy, suggesting that such underweighting is costly to fund investors.
Universal Return And Factor Timing, Poh Ling Neo, Chyng Wen Tee, Jeroen Kerkhof
Universal Return And Factor Timing, Poh Ling Neo, Chyng Wen Tee, Jeroen Kerkhof
Research Collection Lee Kong Chian School Of Business
The authors highlight the shortcomings of commonly used performance graphs in assessing and comparing investment returns. This paper's main conceptual contribution is the introduction of Universal Return (UR) - a visual method to evaluate and rank investment strategies that challenges the traditional focus on raw performance statistics. The authors argue that the ranking of investment performance when viewed from a pool of investors over different entry time is more important than its overall absolute returns, as it better aligns investment analysis with the needs of investors, who are primarily concerned with identifying currently successful strategies or managers rather than dwelling …
An Empirical Test Of Auction Efficiency: Evidence From Mbs Auctions Of The Federal Reserve, Pietro Bonadi, Ali Hortacsu, Zhaogang Song
An Empirical Test Of Auction Efficiency: Evidence From Mbs Auctions Of The Federal Reserve, Pietro Bonadi, Ali Hortacsu, Zhaogang Song
Research Collection Lee Kong Chian School Of Business
PurposeWe estimate the marginal cost curve of each dealer in each auction, based on structural models of the multiunit discriminatory-price auction.Design/methodology/approachAuction theory has ambiguous implications regarding the relative performance of three formats of multiunit auctions: uniform-price, discriminatory-price and Vickrey auctions. We evaluate the performance of these three auction formats using bid-level data of the Federal Reserve’s purchase auctions of agency MBS from June 2014 through November 2014.FindingsOur results suggest that neither uniform-price nor Vickrey auctions outperform discriminatory-price auctions in terms of the total expenditure. However, Vickrey auctions outperform discriminatory-price auctions in terms of efficiency, with the efficiency gain around 0.74% …
Do Women Receive Worse Financial Advice?, Utpal Bhattacharya, Amit Kumar, Sujata Visaria, Jing Zhao
Do Women Receive Worse Financial Advice?, Utpal Bhattacharya, Amit Kumar, Sujata Visaria, Jing Zhao
Research Collection Lee Kong Chian School Of Business
We arranged for trained undercover men and women to pose as potential clients and visit all 65 local financial advisory firms in Hong Kong. At financial planning firms, but not at securities firms, women were more likely than men to receive advice to buy only individual or only local securities. Female clients who signaled high confidence, high risk tolerance, or a domestic outlook were especially likely to receive this suboptimal advice. Our theoretical model explains these patterns as a result of statis-tical discrimination interacting with advisors’ incentives. Taste-based discrimination is unlikely to explain the results.
Physical Frictions And Digital Banking Adoption, Hyun Soo Choi, Roger Loh
Physical Frictions And Digital Banking Adoption, Hyun Soo Choi, Roger Loh
Research Collection Lee Kong Chian School Of Business
The behavioral literature suggests that minor frictions can elicit desirable behavior without obvious coercion. Using closures of ATMs in a densely populated city as an instrument for small frictions to physical banking access, we find that customers affected by ATM closures increase their usage of the bank's digital platform. Other spillover effects of this adoption of financial technology include increases in point-of-sale (POS) transactions, electronic funds transfers, automatic bill payments and savings, and a reduction in cash usage. Our results show that minor frictions can help overcome the status-quo bias and facilitate significant behavior change.
The Downstream Impact Of Upstream Tariffs: Evidence From Investment Decisions In Supply Chains, Thorsten Martin, Clemens A. Otto
The Downstream Impact Of Upstream Tariffs: Evidence From Investment Decisions In Supply Chains, Thorsten Martin, Clemens A. Otto
Research Collection Lee Kong Chian School Of Business
We study how US manufacturing firms' investment responds to tariff reductions in supplier industries. Our estimates, based on tariff reductions following multinational trade agreements, suggest that a hypothetical 10% reduction of all upstream tariffs would increase downstream investment by 4% to 6%. This estimate is not explained by decreasing uncertainty and stems from tariff reductions for homogeneous and low-R\&D inputs, consistent with the investment response resulting from cost reductions rather than superior foreign technology embodied in imported inputs. Evidence from an instrumental variable estimation using the sudden increase in Chinese import penetration suggests that import competition also increases downstream investment.
Geographic Links And Predictable Returns, Zuben Jin, Frank Weikai Li
Geographic Links And Predictable Returns, Zuben Jin, Frank Weikai Li
Research Collection Lee Kong Chian School Of Business
Using establishment-level data of U.S. public firms, we construct a novel measure of geographic linkage between firms. We show that the returns of geography-linked firms have strong predictive power for focal firm returns and fundamentals. This effect is distinct from other cross-firm return predictability and is not easily attributable to risk-based explanations. It is more pronounced for focal firms that receive lower investor attention, are more costly to arbitrage, and during high sentiment periods. The cross-firm information spillovers and return predictability are also stronger for geographic peers with economic linkages and with positive information. Our results are broadly consistent with …
Price Discovery On Decentralized Exchanges, Agostino Capponi, Ruizhe Jia, Shihao Yu
Price Discovery On Decentralized Exchanges, Agostino Capponi, Ruizhe Jia, Shihao Yu
Research Collection Lee Kong Chian School Of Business
Decentralized exchanges (DEXs) allow traders to express their willingness to pay for quick execution through a public priority fee bidding mechanism. This influences the trading strategy of informed traders and creates a distinct price discovery process on DEXs compared to centralized exchanges. We present empirical evidence that high-fee DEX trades contain more private information. Informed traders bid high fees not only to avoid execution risk from blockchain congestion, but also to compete for execution priority. Using a dataset of Ethereum mempool orders, we demonstrate that informed traders employ a ``jump bidding'' strategy, placing high initial bids to deter potential competitors.
Cds Channels Of Influence On Discretionary Accruals, Hao Cheng, Kian Guan Lim
Cds Channels Of Influence On Discretionary Accruals, Hao Cheng, Kian Guan Lim
Research Collection Lee Kong Chian School Of Business
Existing studies indicated that firm debt holders can use the credit default swap (CDS) market to hedge their credit risk, and thus they would reduce their monitoring of the firms, leading to largely distressed firms shirking and increasing positive abnormal earnings accruals. Besides providing insurance, however, the CDS spreads also perform price discovery of credit risk information sought by trade creditors and potential lenders who are not protected. High absolute abnormal discretionary accruals or bad earnings quality, especially negative abnormal accruals, would lead adverse CDS price signals that are very costly to the firm. This compels the firm under nondistressed …
Green Bond Premiums In The Asia-Pacific And European Markets, Parath Wongaree, Chiyachantana N. Chiraphol, Kuan Yong David Ding, Wasin Siwasarit
Green Bond Premiums In The Asia-Pacific And European Markets, Parath Wongaree, Chiyachantana N. Chiraphol, Kuan Yong David Ding, Wasin Siwasarit
Research Collection Lee Kong Chian School Of Business
We examine green bond premiums in the primary and secondary bond markets in the Asia-Pacific and Europe. In both regions, green bond yields are significantly lower than those of conventional bonds in the primary market, indicating that a green bond premium exists. Asia-Pacific investors in the secondary market are more willing to accept lower yields than European ones. We find that green bonds have a lower risk than conventional bonds. Investment grade issuers, financial sector issuers, and local currency green bonds are associated with lower yields due to their stronger reputation, higher credit ratings, and absence of foreign exchange risk.
Who Profits From Trading Options?, Jianfeng Hu, Antonia Kirilova, Gilbert Seongkyu Park, Doojin Ryu
Who Profits From Trading Options?, Jianfeng Hu, Antonia Kirilova, Gilbert Seongkyu Park, Doojin Ryu
Research Collection Lee Kong Chian School Of Business
We use account-level transaction data to examine trading styles and profitability in a leading derivatives market. Approximately 66% of active retail investors predominantly hold simple, one-sided positions in only one class of options, whereas institutional investors are more likely to use complex strategies. Hypothesizing that the complexity of trading styles reflects investors' skills, we examine the effect of options trading styles on investment performance. We find that retail investors using simple strategies lose to the rest of the market. For both retail and institutional investors, selling volatility is the most successful strategy. We conclude that these style effects are persistent …
Lessons From The Demise Of The Brent Crude Oil Futures Contract On The Singapore Exchange, Kuan Yong David Ding, Wui Boon Lim
Lessons From The Demise Of The Brent Crude Oil Futures Contract On The Singapore Exchange, Kuan Yong David Ding, Wui Boon Lim
Research Collection Lee Kong Chian School Of Business
This paper highlights the lessons drawn from the demise of the Brent Crude Oil futures contract that was traded on the Singapore Stock Exchange (SGX). We analyze the market microstructure of the contract prior to its failure—specifically, the number of trades, trading volume, open interest, bid–ask spread, and volatility. We find a steady decline in the mean volume, open interest, and number of trades as the contracts near their demise. The bid–ask spread of the contract also widens. Investigations of the mutual offset feature of the Brent Crude Oil futures contract between SGX and the International Commodity Exchange (ICE) provides …
Nonstandard Errors, Albert J. Menkvelt, Anna Dreber, Et Al., Shihao Yu, Bart Zhou Yueshen, Emiliano Sebastian Pagnotta
Nonstandard Errors, Albert J. Menkvelt, Anna Dreber, Et Al., Shihao Yu, Bart Zhou Yueshen, Emiliano Sebastian Pagnotta
Research Collection Lee Kong Chian School Of Business
In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: Non-standard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for better reproducible or higher rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants.
The Effect Of Carbon Pricing On Firm Performance: Worldwide Evidence, Tinghua Duan, Frank Weikai Li, Hong Zhang
The Effect Of Carbon Pricing On Firm Performance: Worldwide Evidence, Tinghua Duan, Frank Weikai Li, Hong Zhang
Research Collection Lee Kong Chian School Of Business
Economists recommend combating climate change with carbon pricing; however, a major block to pricing emissions is concerns about economic costs. This paper examines the impacts of carbon pricing initiatives on the operating performance and market value of publicly listed firms around the world. Using the staggered enactment of carbon pricing initiatives across jurisdictions and a triple difference approach, we find a significant reduction in the profitability and value of carbon-intensive firms relative to low-emission firms after the enactment of carbon pricing policies. The reduction in firm profits is driven by both a decrease in sales growth and an increase in …
Nonstandard Errors, Albert J. Menkeld, Shihao Yu, Et Al.
Nonstandard Errors, Albert J. Menkeld, Shihao Yu, Et Al.
Research Collection Lee Kong Chian School Of Business
Duplicate record, see https://ink.library.smu.edu.sg/lkcsb_research/7633/. In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty - nonstandard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for more reproducible or higher rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by …
Why Did Retail Liquidity Programs Fail?, Thomas Ernst, Chester Spatt, Jian Sun
Why Did Retail Liquidity Programs Fail?, Thomas Ernst, Chester Spatt, Jian Sun
Research Collection Lee Kong Chian School Of Business
Five U.S. exchanges have Retail Liquidity Programs, which operate a limit order book only accessible to market orders from retail traders. In theory, this allows competition for segmented retail order flow. In practice, volumes executed in RLPs have been very low, and obtain prices inferior to those offered by off-exchange wholesalers. We trace this failure to three distinct issues: (1) cream-skimming by wholesalers, so that ``retail'' trades in RLPs carry high adverse selection risk, (2) an inability by RLPs to display quotes without pre-trade transparency of available prices, and (3) a lack of trade-through protection, with wholesalers executing trades at …
Efficiency And Sustainability Of Bond Market: Evidence From Aftermarket Trading Of Us Corporate Bond Offerings, Lisa (Zongfei) Yang, Choo Yong, Jeremy Goh
Efficiency And Sustainability Of Bond Market: Evidence From Aftermarket Trading Of Us Corporate Bond Offerings, Lisa (Zongfei) Yang, Choo Yong, Jeremy Goh
Research Collection Lee Kong Chian School Of Business
We find that for bond offerings that are non-self-marketed, there is a significantly larger proportion of institutional-sized sell trades than buy. In stark contrast, for self-marketed offerings by underwriters, immediate post-offer trading is characterized by a larger proportion of institutional-sized buy trades than sell. We also find evidence suggesting that retail investors, who are initially shut out of the offering deals, buy bonds in the secondary market at a higher price. Our evidence suggests that certain institutional investors receiving allocations of non-self-marketed offerings flip them for a quick profit. The systematic disparity in aftermarket trading immediately following self-marketed versus non-self-marketed …
Siphoned Apart: A Portfolio Perspective On Order Flow Segmentation, Markus Baldauf, Joshua Mollner, Bart Zhou Yueshen
Siphoned Apart: A Portfolio Perspective On Order Flow Segmentation, Markus Baldauf, Joshua Mollner, Bart Zhou Yueshen
Research Collection Lee Kong Chian School Of Business
We study liquidity supply in fragmented markets. Market makers intermediate heterogeneous order flows, trading off spread revenue against inventory costs. Applying our model to payment for order flow (PFOF), we demonstrate that portfolio-based considerations of inventory management incentivize market makers to segment retail orders by siphoning them off-exchange. Banning order flow segmentation reduces total welfare, can make trading more costly for all investors, and can resolve a prisoner's dilemma among market makers. These results differentiate our inventory-based model from the existing information-based theories of PFOF.
Do Underwriters Short-Change Corporations Issuing Bonds?, Jeremy C. Goh, Lisa (Zongfei) Yang
Do Underwriters Short-Change Corporations Issuing Bonds?, Jeremy C. Goh, Lisa (Zongfei) Yang
Research Collection Lee Kong Chian School Of Business
We confirm prior evidence that bonds on average are offered at prices below their immediate post-offer secondary market prices. However, in cases where banks lead–manage their own bond offerings the underpricing is significantly less as compared with other non-self-marketed offerings. These findings are robust across various matched samples and selection models. Our results suggest that the bond offering process is characterized by substantive agency conflicts between shareholders of corporations (issuers) and underwriters.
Diverse Hedge Funds, Yan Lu, Narayan Y. Naik, Melvyn Teo
Diverse Hedge Funds, Yan Lu, Narayan Y. Naik, Melvyn Teo
Research Collection Lee Kong Chian School Of Business
Hedge fund teams with heterogeneous educational backgrounds, academic specializations, work experiences, genders, and races, outperform homogeneous teams after adjusting for risk and fund characteristics. An event study of manager team transitions, instrumental variable regressions, and an analysis of managers who simultaneously operate solo- and team-managed funds address endogeneity concerns. Diverse teams deliver superior returns by arbitraging more stock anomalies, avoiding behavioral biases, and minimizing downside risks. Moreover, diversity allows hedge funds to circumvent capacity constraints and generate persistent performance. Our results suggest that diversity adds value in asset management. Authors have furnished an Internet Appendix, which is available on the …
What Difference Do The New Factor Models Make In Portfolio Allocation?, Frank J. Fabozzi, Dashan Huang, Fuwei Jiang, Jiexun Wang
What Difference Do The New Factor Models Make In Portfolio Allocation?, Frank J. Fabozzi, Dashan Huang, Fuwei Jiang, Jiexun Wang
Research Collection Lee Kong Chian School Of Business
This paper compares the Hou-Xue-Zhang four-factor model with the Fama-French five-factor model from an investing perspective both in- and out-of-sample. Without margin requirements and model uncertainty, the Hou-Xue-Zhang model outperforms the Fama-French model. However, the outperformance could become negligible if an investor is subject to margin requirements and model uncertainty. The Hou-Xue-Zhang model shows similar power as the Fama-French model in describing the covariance matrix of asset returns. Overall, the two models do not make a difference for investing in a realistic setting.
Legal Risk And Insider Trading, Marcin Kacperczyk, Emiliano Sebastian Pagnotta
Legal Risk And Insider Trading, Marcin Kacperczyk, Emiliano Sebastian Pagnotta
Research Collection Lee Kong Chian School Of Business
Do illegal insiders internalize legal risk? We address this question with hand-collected data from 530 SEC (the U.S. Securities and Exchange Commission) investigations. Using two plausibly exogenous shocks to expected penalties, we show that insiders trade less aggressively and earlier and concentrate on tips of greater value when facing a higher risk. The results match the predictions of a model where an insider internalizes the impact of trades on prices and the likelihood of prosecution and anticipates penalties in proportion to trade profits. Our findings lend support to the effectiveness of U.S. regulations' deterrence and the long-standing hypothesis that insider …
Climate Change Concerns And Mortgage Lending, Tinghua Duan, Frank Weikai Li
Climate Change Concerns And Mortgage Lending, Tinghua Duan, Frank Weikai Li
Research Collection Lee Kong Chian School Of Business
We examine whether beliefs about climate change affect loan officers’ mortgage lending decisions. We show that abnormally high local temperature leads to elevated attention to and belief in climate change in a region. Loan officers approve fewer mortgage applications and originate lower amounts of loans in abnormally warm weather. This effect is stronger among counties heavily exposed to the risk of sea-level rise, during periods of heightened public attention to climate change, and for loans originated by small lenders. Additional tests suggest that the negative relation between temperature and approval rate is not fully explained by changes in local economic …
Shadow Bank, Risk-Taking, And Real Estate Financing: Evidence From The Online Loan Market, Xiaoying Deng, Chong Liu, Eng Seow Ong
Shadow Bank, Risk-Taking, And Real Estate Financing: Evidence From The Online Loan Market, Xiaoying Deng, Chong Liu, Eng Seow Ong
Research Collection Lee Kong Chian School Of Business
This paper examines whether and how individual risk-taking behavior affects real estate financing through shadow banks. Using the loan data from an online platform in China, we show that riskier households tend to employ online loans to meet the increasing down-payment in their home purchase. Individual investors are likely to fund riskier real estate loans with higher expected returns. Real estate loans experience higher ex-post default rates than other types of loans. The effect is more pronounced during the period of credit constraints.
Market For Manipulable Information, Hui Chen, Jian Sun
Market For Manipulable Information, Hui Chen, Jian Sun
Research Collection Lee Kong Chian School Of Business
We study how investors, firms, and information sellers interact in a market with manipulable information. To better predict the firm characteristics they care about, investors can buy a score from a monopolistic information seller, which aggregates signals that are subject to firm manipulation. The average degree of signal manipulability has no effect on the equilibrium, while the uncertainty about manipulability becomes a new source of noise. Its contribution depends on firms' incentive to manipulate the signals, which in turn depends on the equilibrium price sensitivity to the score. The optimal design of the score weighs signal precision against the endogenous …
Derivatives And Market (Il)Liquidity, Shiyang Huang, Bart Zhou Yueshen, Cheng Zhang
Derivatives And Market (Il)Liquidity, Shiyang Huang, Bart Zhou Yueshen, Cheng Zhang
Research Collection Lee Kong Chian School Of Business
We study how derivatives (with nonlinear payoffs) affect the underlying assets liquidity. In a rational expectations equilibrium, informed investors expect low conditional volatility and sell derivatives to the others. These derivative trades affect different investors utility differently, possibly amplifying liquidity risk. As investors delta hedge their derivative positions, price impact in the underlying drops, suggesting improved liquidity, because informed trading is diluted. In contrast, effects on price reversal are ambiguous, depending on investors relative delta hedging sensitivity, i.e., the gamma of the derivatives. The model cautions of potential disconnections between illiquidity measures and liquidity risk premium due to derivatives trading.
The Economics Of Financial Scams: Evidence From Initial Coin Offerings, Kenny Phua, Bo Sang, Chi Shen Wei, Gloria Yang Yu
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
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 …
Partisanship In Loan Pricing, Ramona Dagostino, Janet Gao, Pengfei Ma
Partisanship In Loan Pricing, Ramona Dagostino, Janet Gao, Pengfei Ma
Research Collection Lee Kong Chian School Of Business
Does partisanship influence the way investors price financial assets? Using voter registration data of bankers originating large corporate loans, we show that bankers whose party differs from that of the U.S. President charge 7% higher loan spreads than other bankers. This effect holds regardless of borrowers’ partisanship, and becomes stronger for politically active bankers and when partisan media exhibit greater disagreement. Bankers do not match disproportionately with co-partisan borrowers but they lead syndicates more frequently with co-partisan bankers. Our results are not driven by bank or borrower fundamentals, but suggest that investor optimism, driven by political alignment, shapes asset prices.
Are Bond Returns Predictable With Real-Time Macro Data?, Dashan Huang, Fuwei Jiang, Kunpeng Li, Guoshi Tong, Guofu Zhou
Are Bond Returns Predictable With Real-Time Macro Data?, Dashan Huang, Fuwei Jiang, Kunpeng Li, Guoshi Tong, Guofu Zhou
Research Collection Lee Kong Chian School Of Business
We investigate the predictability of bond returns using real-time macro variables and consider the possibility of a nonlinear predictive relationship and the presence of weak factors. To address these issues, we propose a scaled sufficient forecasting (sSUFF) method and analyze its asymptotic properties. Using both the existing and the new method, we find empirically that real-time macro variables have significant forecasting power both in-sample and out-of-sample. Moreover, they generate sizable economic values, and their predictability is not spanned by the yield curve. We also observe that the forecasted bond returns are countercyclical, and the magnitude of predictability is stronger during …