Finance and Financial Management Commons^™

International Asset Pricing With Strategic Business Groups, Massimo Massa, Hong Zhang, Hong Zhang

Research Collection Lee Kong Chian School Of Business

Firms in global markets often belong to business groups. We argue that this feature can have a profound influence on international asset pricing. In bad times, business groups may strategically reallocate risk across affiliated firms to protect core “central firms.” This strategic behavior induces co-movement among central firms, creating a new intertemporal risk factor. Based on a novel data set of worldwide ownership for 2002–2012, we find that central firms are better protected in bad times and that they earn relatively lower expected returns. Moreover, a centrality factor augments traditional models in explaining the cross section of international stock returns.

Ceo Power, Subordinate Executives' Confidence And Ability, And Corporate Decisions, Md Raihan Uddin Chowdhury

Open Access Theses & Dissertations

The dissertation consists of two essays. The first essay investigates the relationship between CEO power and investment efficiency. I find that powerful CEOs reduce investment efficiency, and this investment inefficiency is mainly driven by overinvestment. The negative effect of CEO power on investment efficiency is more pronounced when information asymmetry, agency problems, and product market competition are strong. This negative effect is mitigated when operation complexity is high and when internal and external governance is strong. However, if the majority of the independent directors are co-opted, the positive impact of internal governance diminishes. I further find that inefficiency and overinvestment …

Customer Concentration And Corporate Carbon Emissions, Saiying Deng, Tinghua Duan, Frank Weikai Li, Xiaoling Pu

Research Collection Lee Kong Chian School Of Business

This paper examines whether economic links with major corporate customers curb corporate carbon emissions. We show that supplier firms with a concentrated customer base have significantly lower carbon emissions. The baseline results are robust to alternative measures of carbon emissions and customer concentration, and various approaches that mitigate endogeneity concerns due to omitted variables and reverse causality. Moreover, the curbing effect of customer concentration on supplier carbon emissions is more pronounced in firms facing lower customer switching costs, with less (more) supplier (customer) bargaining power, fewer redeployable assets, operating in more carbon-intensive industries, and after the Paris Agreement of 2015. …

Do Analysts’ Eps Forecasts Obey Benford’S Law? An Empirical Analysis, Clarence Goh

Research Collection School Of Accountancy

Benford’s law gives the expected frequencies of digits in tabulated data. In this study, I investigate the extent to which a sample of analysts’ earnings per share (EPS) forecasts obey Benford’s law. I conduct Benford’s law’s second digit and last-two digits tests on a sample of analyst EPS forecasts of S&P 500 firms from 1998 to 2018. Overall, I find that analysts’ EPS forecasts obey Benford’s law’s second digit test but do not obey the last-two digits test. These findings suggest that while analysts do not engage in number invention, they do engage in rounding when making EPS forecasts.

Three Chapters On Investments And Financial Institutions, Cao Fang

Graduate Theses and Dissertations

Only the stock selection (“alpha”) decisions of fund managers who trade on firm-specific information should have predictive return content. Faced with the same information, skilled fund managers make similar stock selection decisions. In Chapter one, we introduce a new measure - stock investment quality - which uses fund quality to weight asymmetries in private information reflected in deviations of fund from peer group ownership on stocks in a style segment. We show stocks ranked high on investment quality generate significantly higher excess returns that persist through the ensuing year. The positive investment quality–future return relationship is robust to alternative fund …

Essays On Performance Evaluation Of Portfolio Managers Of Mutual And Hedge Funds, Yuekun Liu

Graduate Theses and Dissertations

This dissertation consists of three essays focusing on the performance evaluation of portfolio managers of mutual and hedge funds. The first essay shows the performance of corporate bond mutual funds tends to be estimated using models with limited empirical validation. I test several models and find considerable variation in quality. That variation leads to meaningful differences with respect to the stylized facts of corporate bond fund performance. Using my preferred BENCH4 model—a novel model based on funds’ common benchmarks—I find average underperformance, substantial relative performance persistence, a small number of funds with positive alphas unattributable to luck, and positive alphas …

Information Acquisition And Expected Returns: Evidence From Edgar Search Traffic, Frank Weikai Li, Chengzhu Sun

Research Collection Lee Kong Chian School Of Business

This paper examines expected return information embedded in investors' information acquisition activity. Using a novel dataset containing investors' access of company filings through SEC's EDGAR system, we reverse engineer their expectations over future payoffs and show that the abnormal number of IPs searching for firms' financial statements strongly predict future returns. The return predictability stems from investors allocating more effort to firms with improving fundamentals and following exogeneous shock to underpricing. A long-short portfolio based on our measure of information acquisition activity generate monthly abnormal return of 80 basis points and does not reverse over the long-run.. In addition, the …

The Cryptocurrency Participation Puzzle, Ran Duchin, David H. Solomon, Jun Tu, Xi Wang

Research Collection Lee Kong Chian School Of Business

We show that ongoing zero portfolio weights in cryptocurrency are surprisingly difficult to generate in a standard Bayesian portfolio theory framework. With ten years of prior data, equity market investors would need very pessimistic priors on mean returns to justify never having bought cryptocurrency: -10.6% per month for Bitcoin, and -19.6% per month for a diversified portfolio of cryptocurrencies. Moreover, most priors that involve never purchasing cryptocurrency imply that investors should short cryptocurrency. Optimal absolute weights are generally small but non-trivial (1-5%), frequently positive, and fairly smooth despite returns being volatile. Under a wide range of priors, the certainty equivalent …

Does The Financial Experience Of Sec Regional Directors Impact Sec Investigations Into Reporting Entities?, James Justin Blann

Graduate Theses and Dissertations

The SEC’s Division of Enforcement is frequently criticized for its lack of oversight effectiveness, and certain vocal critics attribute this to a lack of financial experience within the SEC. Using hand-collected data on SEC regional directors, I find that the majority of these SEC officials lack financial experience. I then examine whether the financial experience of SEC regional directors impacts SEC investigations into reporting entities. Consistent with financial experience equipping directors to better process complex financial transactions and reports, I find that directors with financial experience open public company investigations 29 percent more often and conduct these investigations 34 percent …

Exploring The Assetisation And Financialisation Of Non-Fungible Tokens: Opportunities And Regulatory Implications, Iris H. Y. Chiu, J.G. Allen

Research Collection Yong Pung How School Of Law

This article explores the emerging phenomenon of use cases for Non-fungible Tokens (NFTs) in novel forms of crypto-finance, a stage we call “NFT financialisation”, that can be developed from stages of consumption and commoditisation of NFTs, which are increasingly observed. Despite the emerging contests regarding property rights conferred by NFTs, the needs for commoditisation and financialisation in NFT markets would likely shape the delineation and framing of such rights in order for users to exploit the asset potential of NFTs. We argue that an institutional response is timely and beneficial for NFT financialisation. Financial regulatory governance can provide the institutions …

Inflation Expectations Can Be A Self-Fulfilling Prophecy, Aurobindo Ghosh, Khyati Chauhan, Muskan Bagrodia

Research Collection Lee Kong Chian School Of Business

In a commentary, SMU Assistant Professor of Finance (Education) Aurobindo Ghosh, SMU postgraduate student and Research Assistant for the SInDEx Project Muskan Bagrodia and International Monetary Fund Economic Research Assistant Khyati Chauhan weighed in on why inflation expectations matter as much as economic data. They discussed how inflation expectations can be a self-fulfilling prophecy, and shared the key takeaways of the quarterly DBS-Sim Kee Boon Institute’s Singapore Index of Inflation Expectations (DBS-SKBI SInDEx) survey. They concluded that effective communication on inflation control measures, in addition to credible policy decisions, will help consumers feel assured and refrain from basing purchasing decisions …

Do Alpha Males Deliver Alpha? Facial Width-To-Height Ratio And Hedge Funds, Yan Lu, Melvyn Teo

Research Collection Lee Kong Chian School Of Business

An abundance of evidence relates facial width-to-height ratio (fWHR) to masculine behaviors in males. We show that hedge funds operated by high-fWHR managers underperform those operated by low-fWHR managers, bear greater downside risk, are more susceptible to fire sales, and fail more often. High-fWHR managers compensate for their underperformance by marketing their funds more aggressively, thereby garnering higher flows and fee revenues. By exploiting major personal events that shape testosterone, namely marriage and fatherhood, we trace the biological mechanism underlying the relation between fWHR and investment performance to circulating testosterone. Our findings are robust and extend to equity mutual funds.

The Effects Of Consumer Loan Application Formats And Advertised Terms On Consumer Borrowing Decisions, Alicia M. Johnson

Graduate Theses and Dissertations

Consumers continue to demonstrate a willingness to accrue more debt. They are also more accepting of increased repayment risk via the acceptance of longer loan terms. Extant research on consumer borrowing consists primarily of experiments designed to assess consumer choices and understand how consumers evaluate loan attributes in relation to one another within consumer borrowing contexts (Kamleitner, Hoelzl, and Kirchler 2012; Ranyard et al., 2006). Thus, prior research examines consumer responses to loan information rather than the generation of loan parameters at the time of financing. With important implications for consumers, marketers of financial products, academic researchers, and federal regulators, …

Neural-Progressive Hedging: Enforcing Constraints In Reinforcement Learning With Stochastic Programming, Supriyo Ghosh, Laura Wynter, Shiau Hong Lim, Duc Thien Nguyen

Research Collection School Of Computing and Information Systems

We propose a framework, called neural-progressive hedging (NP), that leverages stochastic programming during the online phase of executing a reinforcement learning (RL) policy. The goal is to ensure feasibility with respect to constraints and risk-based objectives such as conditional value-at-risk (CVaR) during the execution of the policy, using probabilistic models of the state transitions to guide policy adjustments. The framework is particularly amenable to the class of sequential resource allocation problems since feasibility with respect to typical resource constraints cannot be enforced in a scalable manner. The NP framework provides an alternative that adds modest overhead during the online phase. …

Who Is More Likely To Be Delinquent In Their Mortgage Payments Among Homeowners? The Role Of Financial Literacy, Ellie Donne Hansen

All Graduate Theses and Dissertations, Spring 1920 to Summer 2023

Homeownership is a way for families to build wealth and marks status attainment. Despite the many benefits of homeownership, homeowners who are delinquent on their mortgages lose the effective means of wealth accumulation and may trigger the beginning of the foreclosure process. There is evidence that homeowners with appropriate levels of financial literacy have a lower likelihood of mortgage delinquency.

Using data from the 2018 National Financial Capability Study (NFCS), the main purpose of this study was to examine what factors are associated with mortgage delinquency among homeowners. This study also examined to what extent financial literacy plays a role …

The Existence Of Indonesian Islamic Market Stocks During The Covid-19 Pandemic, Febryna Rizka Pratiwi, Nur Fatwa Dr.

Journal of Strategic and Global Studies

When the first Covid-19 case entered Indonesia, Jakarta Composite Index (JCI) underwent a very deep correction until it reached its lowest point in the last decade, from the level of 6,300 to the level of 3,975 as of March 24, 2020. But, an interesting fact in the following months the JCI consistently rose, and even managed to break back above the 6000 level in the period from the end of 2020 to the beginning of 2021. Indonesia has again won the nomination for the category 'The Best Islamic Capital Market 2020' from the Global Islamic Finance Awards (GIFA). The growth …

Indonesian Capital Market Reaction To Jakarta’S Large Scale Social Restrictions, Nur Wahyu Catur Wicaksono, Y. Anni Aryani, Doddy Setiawan

The Indonesian Capital Market Review

This study aims to analyze the Indonesian capital market reaction to the Large-Scale Social Restrictions (PSBB) policy in Jakarta in 2020. The findings from this study can be used as a policy evaluation and as a reference to assess similar future policies to be implemented in Jakarta. Four event periods were used based on the number of times this policy was implemented in 2020. Using the event study approach and single index model method, this study used 568 companies listed on the IDX which are then divided into nine sectors. The results of this study showed that the Indonesian capital …

The Influence Of Corporate Social Responsibility Disclosures On Investment Efficiency In The Asian Emerging Markets, Nguyen Vinh Khuong, Fibi Rizki Herdianti, Le Huu Tuan Anh

The Indonesian Capital Market Review

The aim of the research was to determine the efficiency of investing in companies that report on their corporate social responsibility (CSR) in developing markets. Companies that won the Asia Sustainability Reporting Awards 2020 were chosen for the study. We evaluate the correlation utilizing data from 36 firms from year observations of 2018 to 2020, using modified OLS estimation and regression analysis with modified panel data for heteroskedasticity and/or autocorrelation. In the emerging market, the sample period under examination is quite recent. Research findings show that CSR reporting has a significant negative effect on the company’s investment efficiency (IE) and …

Covid-19 For Crowdfunding: Catalyst Or Deterrent? Evidence From Russia, Evgeny Torkanovskiy, Alexander Voinov

The Indonesian Capital Market Review

This paper explores the impact of the COVID-19 pandemic on crowdfunding by analyzing a 2-year sample of 7,024 rewards-based crowdfunding campaigns on the two major Russian platforms. The study employs a digital methods approach to demand and supply and multiple regression analysis. The findings show that COVID-19 and the associated lockdown had no immediate and straightforward effect on the crowdfunding sector, neither on backers nor on campaigns’ initiators. Thus, the crowdfunding sector unlike some other investment classes remains resilient to the global pandemic. Beyond that, empirical analysis revealed the undescribed phenomenon of sponsors’ readiness to finance projects being highly seasonal …

Analyzing The Relationship Between Return And Trading Volume In Relation To Cross-Sectional Absolute Deviation (Csad) In Order To Detect Herding Behavior In Indonesia Emerging Stock Market, Helma Malini, Annisa Dipa Sakliana

The Indonesian Capital Market Review

Investor herding behavior is a primary source of speculative bubbles since it implies that investors make identical trading decisions, which can lead to stock prices deviating from their underlying worth. The goal of this study is to detect herding behavior in the Indonesian stock market between 2016 and 2021. The relationship between return and trading volume, known as Cross Sectional Absolute Deviation, is used to assess herding behavior (CSAD). Time-series regression and quantile regression analysis will be employed as data analytic techniques in this study to investigate herding behavior under various market scenarios. Herding behavior is evident in the Indonesian …

Bank Ownership And Decline In Loan Growth Due To The Pandemic, Ruthana Bitia, Zuliani Dalimunthe

The Indonesian Capital Market Review

This study aims to analyze the effect of bank ownership structure on loan growth before and during the pandemic. Specifically, we developed four models to capture different loan types provided in the Indonesian banking system; working capital, investment, consumer, and total loan growth. This study used 150 observations of commercial banks for 2019 (before the pandemic) and 2020 (during the pandemic). We conducted the regression method to test hypotheses. The main finding of this study was that foreign banks’ consumer credit growth significantly lower than domestic banks. Similar findings occurred for other types of loans, and this conclusion has controlled …

How Much Of ‘Home Field Advantage’ Comes From The Fans? A Natural Experiment From The Covid-19 Pandemic, Kevin Krieger, Justin L. Davis

UNLV Gaming Research & Review Journal

Home field advantage has been a commonly discussed and researched topic in sports. How much of this advantage is due to the home team’s supporters’ physical attendance at the game where they might encourage their team, intimidate the opponent, and influence game officials? We utilize the unique natural experiment of the COVID-19 pandemic and consider the case of American professional (NFL) and collegiate (NCAA) football to examine this question. We measure how typical spreads, relative to home teams, changed in the 2020 season compared to their historical levels, and we determine that roughly half of what football fans and analysts …

Lessons Learned: Zeti Akhtar Aziz, Maryann Haggerty

Journal of Financial Crises

Zeti Akhtar Aziz, a Malaysian economist, was governor of Bank Negara Malaysia, her nation’s central bank, from 2000 to 2016; prior to that, she was acting governor and deputy governor. Dr. Zeti was a key leader in Malaysia’s response to the Asian financial crisis of 1997¬-98, as well as the financial sector restructuring that followed. This “Lessons Learned” summary is based on a 2022 interview with Dr. Zeti. At the time of the interview, she was co-chair of the board of governors of the Asia School of Business in Kuala Lumpur, which is a partnership between Bank Negara and the …

Lessons Learned: Mark Van Der Weide, Matthew A. Lieber

Journal of Financial Crises

With more than two decades of continuing service at the Federal Reserve Board, Mark Van Der Weide brings a unique insider perspective on central bank policymaking before, during, and after the Global Financial Crisis (GFC), including the Fed’s response to the COVID-19 pandemic in 2020. From 1998 to 2009, Van Der Weide served in the Fed’s legal division. De-tailed to the Treasury Department in 2009, he helped draft the Dodd-Frank Wall Street Re-form and Consumer Protection Act of 2010. Back at the Fed in 2010, Van Der Weide served for eight years in the Division of Supervision and Regulation, where …

Lessons Learned: David Wilcox, Mercedes Cardona

Journal of Financial Crises

David Wilcox was the deputy director of the Division of Research and Statistics of the Federal Reserve Board of Governors during the Global Financial Crisis of 2007-¬09. He assisted in developing the Federal Reserve policy response that ultimately stabilized the economy by providing insight into the economic and financial outlook to the Federal Open Market Committee (FOMC) prior to each of its policy-setting meetings. Wilcox became director of the division in 2011 and served in that role through 2018, acting as the division’s chief economist, manager, and the senior adviser to three Fed chairs. After leaving the Fed, he joined …

Lessons Learned: Brooksley Born, Maryann Haggerty

Journal of Financial Crises

Brooksley Born, a lawyer with decades of experience in derivatives law, served as chair of the Commodity Futures Trading Commission (CFTC) from 1996 to 1999. At the CFTC, she advocated for federal regulation of the over-the-counter derivatives (OTC) market, but legislation failed to pass. The OTC derivatives market had a central role in the Global Financial Crisis of 2007-09. Born, who returned to private practice after her CFTC term, served as a commissioner on the US Financial Crisis Inquiry Commission, which investigated the causes of the crisis and issued its report in January 2011. This “Lessons Learned” is based on …

Lessons Learned: Michael Silva, Mercedes Cardona

Journal of Financial Crises

Michael Silva was chief of staff to then-President of the Federal Reserve Bank of New York (FRBNY) Timothy Geithner from 2006 to 2009, including the early stages of the Global Financial Crisis (GFC). As such, Silva was critical in the coordination of personnel and information during the GFC, specifically during the period when the FRBNY was addressing liquidity stresses in the bank sector, including the bailout of Bear Stearns, the failure of Lehman Brothers, and the rescue of American International Group. When Geithner became President Barack Obama’s Treasury Secretary in 2009, Silva became chief of staff to his successor at …

United States: Main Street Lending Program, Steven Kelly

Journal of Financial Crises

In March 2020, as the COVID-19 pandemic caused slowdowns and disruptions to economic activity, businesses faced disruptions to their revenues and experienced increased demand for credit. Yet, as the pandemic worsened the economic outlook, banks tightened credit. Starting on March 17, the Federal Reserve rolled out several emergency programs aimed at capital markets. Most of these programs tended to benefit relatively large companies. On March 23, the Fed said it would introduce a program targeting small and mid-sized companies. On April 9, 2020, the Federal Reserve announced its first design iteration of the novel Main Street Lending Program (MSLP). The …

Lessons Learned: Scott G. Alvarez, Esq., Part 2, Steven Kelly

Journal of Financial Crises

Scott G. Alvarez was general counsel of the Federal Reserve Board during the Global Financial Crisis (GFC). He met with the Yale Program on Financial Stability (YPFS) to discuss a litany of legal aspects related to the Fed’s interventions under its emergency liquidity provision authority under Section 13(3) of the Federal Reserve Act. We summarize some highlights from our interview with Mr. Alvarez. The transcript of this interview, conducted in April 2022, and one from an earlier Lessons Learned interview, in December 2018

United States: Paycheck Protection Program Liquidity Facility, Steven Kelly

Journal of Financial Crises

In the early days of the COVID-19 pandemic, the US Congress passed and funded the Paycheck Protection Program (PPP) to help small businesses facing business disruptions keep workers on their payrolls and meet other expenses. The PPP, signed into law on March 27, 2020, provided a mechanism for authorized lenders to extend concessionary, forgivable loans guaranteed by the Small Business Administration (SBA). Lenders ultimately extended approximately $800 billion in PPP loans. The SBA distributed the funds when the loan either defaulted or met the law's terms for SBA forgiveness. To buttress lenders' ability to fund PPP loans, the Federal Reserve …