Finance and Financial Management Commons^™

Friends Or Foes? Target Selection Decisions Of Sovereign Wealth Funds And Their Consequences, Jason Kotter, Ugur Lel

Faculty Publications

This paper examines investment strategies of sovereign wealth funds (SWFs), their effect on target firm valuation, and how both of these are related to SWF transparency. We find that SWFs prefer large and poorly performing firms facing financial difficulties. Their investments have a positive effect on target firms’ stock prices around the announcement date but no substantial effect on firm performance and governance in the long run. We also find that transparent SWFs are more likely to invest in financially constrained firms and have a greater impact on target firm value than opaque SWFs. Overall, SWFs are similar to passive …

Style-Related Comovement: Fundamentals Or Labels?, Brian H. Boyer

Faculty Publications

I find that economically meaningless index labels cause stock returns to covary in excess of fundamentals. S&P/Barra follow a simple mechanical procedure to define their Value and Growth indices. In doing so, they reclassify some stocks from Value to Growth even after their book-to-market ratios have risen, and vice versa. Such stocks begin to covary more with the index they join and less with the index they leave. Backdated constituent data from Barra reveal no such label-related shifts in comovement during the 10 years prior to the actual introduction of the indices in 1992.

Earnings Management And The Effect On Long-Run Performance For Firms With Seasoned Equity Offerings, Danielle Enderson

Honors Program Theses

Managers of publicly traded firms use various methods to signal to the market their beliefs about their company's current performance and future prospects. These methods include, among others, the declaration of dividends to common stockholders, a firm's repurchase of its shares in the market, or the issuance of seasoned equity. Each of these actions can be used to send a specific signal to the market based on management's beliefs regarding the firm's financial outlook.

This study focuses on a firm's issuance of seasoned equity. Seasoned equity offerings, or SEOs, are the issuance of additional shares of stock by a firm …

The Implied Volatility Of Etf And Index Options., Stoyu Ivanov, Jeff Whitworth, Yi Zhang

Faculty Publications

We examine the option-implied volatility of the three most liquid ETFs (Diamonds, Spiders, and Cubes) and their respective tracking indices (Dow 30, S&P 500, and NASDAQ 100). We find that volatility smiles for ETF options are more pronounced than for index options, primarily because deep-in-the money ETF options have considerably higher implied volatility than deep-in-the-money index options. The observed difference in implied volatility is not due to a difference between the realized return distributions of the underlying ETFs and indices. Differences in implied volatility for ETF and index options also do not appear to be explained by discrepancies in net …

Cross-Sectional Analysis Of Index And Commodity Markets Price Discovery., Stoyu Ivanov

Faculty Publications

This study examines the determinants of relative price discovery between the futures and cash prices in 30 index and commodity markets based on the Gonzalo and Granger (1995) permanent-transitory decomposition methodology. Twenty-eight indexes and commodities have proportional futures market information shares greater than 60%. Two commodities are the only exception: Feeders Cattle and Wheat-Minneapolis have price discovery occurring predominantly in the cash markets with information shares of their futures contracts of 33% and 40%, respectively. The research documents a significant cross-sectional variability of the information shares across the 30 indexes and commodities and finds that the information shares of the …

Credit Default Swaps Regulation And The Use Of Collateralized Mortgage Obligations In U.S. Financial Institutions, Jon Patraic Neill

Walden Dissertations and Doctoral Studies

The fast and easy global movement of capital throughout the financial system, from lenders to borrowers and through intermediaries and financial market participants, has been recognized as a source of instability associated with illiquidity and financial crises. The purpose of this research was to better understand how regulation either enables or constrains capital movement. The theoretical framework comprised 2 contrasting public policymaking models, Arrow's rational-comprehensive model and Kingdon's garbage can model, which were used to derive opposing hypotheses. The research question addressed the nature of the relationship between Credit Default Swaps (CDSs) regulations and the flow of capital into Collateralized …

Relative Pricing Of Publicly Traded U.S. Electric Utility Companies, Nicholas Stephen Jewczyn

Walden Dissertations and Doctoral Studies

In the financial turmoil of 2008, U.S. firms reported debt-ratios that differed from the debt-ratios calculated from balance sheets. The problem is that investors bought common stock expecting initial investment return and lost money when companies delisted. The purpose of this quantitative study was to determine sample securities pricing with the application of synthetic assets and debt accrued. Addressed in the research questions was whether those securities were (a) underpriced compared with return-on-assets (ROA), (b) overpriced compared with ROA, (c) a debt-ratio higher than 60% and also overpriced, (d) underpriced with a synthetic asset added, or (e) related by relative …

Institutional Investors And Corporate Financial Policies, Ricky William Scott

USF Tampa Graduate Theses and Dissertations

Institutional investors influence corporate payout and research and development (R&D) investment policies. Higher payouts are encouraged by institutional investors, especially in firms with high free cash flow and poor investment opportunities. They also positively influence stock repurchases, particularly in firms with high information asymmetry. The substitution of stock repurchases for dividends as a percentage of total payout is encouraged by institutional investors. Institutional owners persuade firm management to increase research and development (R&D) investment overall and specifically in firms with higher stock liquidity, higher information asymmetry, lower free cash flow, and better investment opportunities. Institutional investors decrease agency costs in …

Delayed-Bang Approach Towards More Sustainable Critical Infrastructure Risk Management, C. Ariel Pinto, Michael K. Mcshane, Abhishek S. Pathak

Finance Faculty Publications

This article describes the Delayed Bang Approach for determining the value of risk management alternatives in critical infrastructure security. The discussion includes (1) the need for sustainable risk management (2) the importance of time valuation in evaluating competing loss prevention and loss reduction alternatives, (3) the convergence of deterministic engineering economics, survivability analysis, and probabilistic analysis, and (4) hypothetical examples of the Delayed-Bang Approach and significance towards more sustainable risk management.

Using Implementation Intentions Prompts To Enhance Influenza Vaccination Rates, Katherine L. Milkman, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

We evaluate the results of a field experiment designed to measure the effect of prompts to form implementation intentions on realized behavioral outcomes. The outcome of interest is influenza vaccination receipt at free on-site clinics offered by a large firm to its employees. All employees eligible for study participation received reminder mailings that listed the times and locations of the relevant vaccination clinics. Mailings to employees randomly assigned to the treatment conditions additionally included a prompt to write down either (1) the date the employee planned to be vaccinated or (2) the date and time the employee planned to be …

Etf Volatility Around The New York Stock Exchange Close., Stoyu Ivanov

Faculty Publications

In this study we extend the work of Chang, Jain and Locke (1995) who study the Standard and Poor’s 500 (S&P 500) Index futures contract volatility around NYSE close by examining three ETFs, the Spider, the Diamonds and the Cubes price volatilities after market close. Similar to the S&P 500 Index futures contract ETFs continue trading until 16:15, which is 15 minutes after their underlying indexes are reported. This is the first study to the best of our knowledge to examine the volatility of ETFs around the NYSE close. We document that similar to the findings of Chang, Jain and …

Lessons From The Financial Crisis: Report Of The Asian Financial Regulatory Committee, Jeremy Choo Yong Goh, Sri Adiningsih, Maria S. Gochoco-Bautista

Research Collection Lee Kong Chian School Of Business

No abstract provided.

Understanding Investor Sentiment: The Case Of Soccer, Gennaro Bernile, Evgeny Lyandres

Research Collection Lee Kong Chian School Of Business

We examine the extent to which the stock market's inefficient responses to resolutions of uncertainty depend on investors’ biased ex ante beliefs regarding the probability distribution of future event outcomes or their ex post irrational reactions to these outcomes. We use a sample of publicly traded European soccer clubs and analyze their returns around important matches. Using a novel proxy for investors’ expectations based on contracts traded on betting exchanges (prediction markets), we find that within our sample, investor sentiment is attributable, in part, to a systematic bias in investors’ ex ante expectations. Investors are overly optimistic about their teams’ …

Markowitz Meets Talmud: A Combination Of Sophisticated And Naive Diversification Strategies, Jun Tu, Guofu Zhou

Research Collection Lee Kong Chian School Of Business

The modern portfolio theory pioneered by Markowitz (1952) is widely used in practice and extensively taught to MBAs. However, the estimated Markowitz portfolio rule and most of its extensions not only underperform the naive 1/N rule (that invests equally across N assets) in simulations, but also lose money on a risk-adjusted basis in many real data sets. In this paper, we propose an optimal combination of the naive 1/N rule with one of the four sophisticated strategies—the Markowitz rule, the Jorion (1986) rule, the MacKinlay and Pástor (2000) rule, and the Kan and Zhou (2007) rule—as a way to improve …

Risk Management Trends: Currency Trading Using The Fractal Market Hypothesis, Jonathan Blackledge, Kieran Murphy

Articles

We report on a research and development programme in financial modelling and economic security undertaken in the Information and Communications Security Research Group (ICSRG, 2011) which has led to the launch of a new company - Currency Traders Ireland Limited - funded by Enterprise Ireland. Currency Traders Ireland Limited (CTI, 2011) has a fifty year exclusive license to develop a new set of indicators for analysing currency exchange rates (Forex trading). We consider the background to the approach taken and present examples of the results obtained to date. In this ‘Introduction’, we provide a background to and brief overview of …

How Does Simplifi Ed Disclosure Affect Individuals’ Mutual Fund Choices?, John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian

Faculty Publications

Some regulators believe that the average investor has a hard time reading the statutory prospectuses mutual funds distribute. In the words of the Securities and Exchange Commission (SEC), “Prospectuses are often long . . . Too frequently, the language of prospectuses is complex and legalistic, and the presentation formats make little use of graphic design techniques that would contribute to readability.”1 Partly as a result, two- thirds of investors do not read the prospectus before purchasing mutual fund shares (Investment Company Institute 2006).

The Myth Of Endless Accumulation: A Feminist Inquiry Into Globalization, Growth, And Social Change, Martha Freymann Miser

Antioch University Dissertations & Theses

This theoretical dissertation examines the concept of growth and its core assumption—that the continual accumulation of wealth is both socially wise and ecologically sustainable. The study challenges and offers alternatives to the myth of endless accumulation, suggesting new directions for leadership and social change. The central question posed in this inquiry: Can we craft a more ethical form of capitalism? To answer this question, the study examines conventional and critical globalization studies; feminist scholarship on standpoint, political economy, and power; and the Enlightenment notions of progress and modernism, drawing on a number of works, including Aristotle on the three intelligences, …

Leadership Development In Financial Institutions In South Dakota: A Slow Growth State, Stan Wayne Vinson

Antioch University Dissertations & Theses

This dissertation asks the question, “What are the challenges of developing a leadership program in community banks in South Dakota, a slow growth environment?” The research looks at the intersection of leadership development, transformational leadership, and context—against a backdrop of community banking, corporate social responsibility, and demographic trends in South Dakota. The objective of the study is to provide theoretical and practical understanding of leadership development activities in South Dakota community banks. Using quantitative methods, seven hypotheses were created and tested using insights gained from reviewed literature and informational interviews that framed the study. The hypotheses were built looking to …

The Impact Of Transaction Duration, Volume And Direction On Price Dynamics And Volatility, Anthony S. Tay, Christopher Ting, Yiu Kuen Tse, Mitchell Warachka

Research Collection School Of Economics

We explore the role of trade volume, trade direction, and the duration between trades in explaining price dynamics and volatility using an Asymmetric Autoregressive Conditional Duration model applied to intraday transactions data. Our results suggest that volume, direction and duration are important determinants of price dynamics, while duration is also an important determinant of volatility. However, the impact of volume and direction on volatility is marginal after controlling for duration, and the impact of volume on volatility appears to be confined to periods of infrequent trading.

When Constraints Bind, Karl B. Diether, Ingrid M. Werner

Faculty Publications

We create proxies for constrained supply of lendable shares by combining unique data on loan fees, stock lending activity, and failures to deliver to examine how contrarian short-sale strategies are affected by constraints. Constraints affect roughly one-third of the cross- section of stocks and result in a significant reduction in the contrarian response of short sellers to past returns. When short sellers’ contrarian strategies are constrained, the market is significantly less efficient. Furthermore, the previously documented relation between short selling activity and future returns breaks down for the most constrained stocks.

Portfolio Rebalancing In General Equilibrium, Miles S. Kimball, Matthew D. Shapiro, Tyler Shumway, Jing Zhang

Faculty Publications

Standard portfolio advice is that agents should hold a constant share of risky assets. All agents cannot, however, follow this advice because supply and demand of risky assets must be equal. To study equilibrium rebalancing, the paper develops an overlapping generations model in which agents differ both in age and risk tolerance. Equilibrium rebalancing is driven by a leverage effect that affects levered and unlevered agents in opposite directions, an aggregate risk tolerance effect which depends on the distribution of wealth, and an intertemporal hedging effect. Optimal equilibrium portfolio rebalancing departs significantly from the standard advice.

Consumer Financial Protection, John Y. Campbell, Howell E. Jackson, Brigitte C. Madrian, Peter Tufano

Faculty Publications

Over the past 65 years, fi nancial innovation has presented U.S. households with an ever-widening set of fifi nancial options from an expanding set of fifi rms and accompanied by a sometimes dizzying amount of information. At the same time, consumer fifi nance has increasingly become a “do-it-yourself ” activity (Ryan, Trumbull, and Tufano, 2010). Households are expected to make decisions about pension plan contributions and payouts, to choose from a wide array of credit instruments to fund everything from home purchase to short-term cash needs, and more generally to assume a greater level of responsibility for their fifi nancial …

International Financial Reporting Standards: A Cautionary Note For Emerging Economies, Khursheed Omer, Darshan Wadhwa

Business Review

Long before the present economic crisis unfolded, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) had been working to achieve harmonization in accounting and financial reporting standards across the globe. Now that the world economic community has become more integrated, cross border flow of capital has gained unprecedented momentum and steps are underway to achieve this goal as early as possible. Initial efforts to harmonize local accounting principles and practices with those followed in developed economies were generally aimed at facilitating foreign multinationals operating in other countries. The desired goal of harmonization now ought to …

Foreign Direct Investment And Manufacturing Export In Nigeria, Nasiru Musa Yauri

Business Review

The potential impact of Foreign Direct Investment (FDI) on recipient and investing economies is of considerable policy interest (Pain and Wakelin, 1997). Important to the theory of foreign investment in Nigeria is the question whether foreign investors coming to Nigeria are market-seeking or export-driven. This finding is relevant to economic managers in the design and implementation of appropriate macroeconomic policies to attract FDI. It is also relevant to investigate whether FDI contributes to the overall capacity of developing economies to export. This study investigates the contribution of FDI to manufacturing export in Nigeria. Using firm level data collected from 232 …

Internal Debt And Private Investment: Evidence From Pakistan, Muhammad Ramzan Sheikh, Muhammad Zahir Faridi, Shoukat Malik

Business Review

In most of the developing countries financial sectors are characterized by limited availability of loanable funds. Public sector borrowing leads to crowding out of the private sector as well as high interest rates and inflation. In Pakistan, government has relied more on borrowing from the domestic sources as well. The study explores the impacts of internal debt on private investment in Pakistan applying the OLS technique for the period of 1972 to 2009. The study indicates that the stock of internal debt and debt servicing affects the private investment negatively in Pakistan. This implies that internal debt and internal debt …

A Profile Analysis Of The Customers Of Islamic Banking In Khyber Pakhtunkhwa, Syed Umar Farooq

Business Review

Interviews conducted with the subscribers of Islamic banks in Khyber Pakhtunkhwa revealed their key characteristics and patterns. The study sample comprised 100 subscribers of Al-Meezan Bank and Bank of Khyber in N.W.F.P. A comprehensive profile analysis and a series of chi-square tests were conducted to elaborate the main attributes of the customers of Islamic banking system: the majority of Islamic bank customers are well educated; approximately 80 percent are between 25-50 years of age; more than 50 percent of the surveyed customers have maintained their current banking relationship with Islamic banks for more than one year; customers’ awareness and usage …

Three Essays On Tax Salience: Market Salience And Political Salience, David Gamage, Darien Shanske

Articles by Maurer Faculty

This Article analyzes the literatures on how individuals understand taxation (i.e., tax salience). We evaluate how taxpayers respond to different presentations of tax prices both in their roles as market participants and as voters. We aim to combat naïve notions about tax salience that currently exert a pernicious influence on tax lawmaking. In particular, we argue that it is normatively desirable for governments to reduce tax salience with respect to market decision making, and that there is nothing objectionable about governments reducing tax salience with respect to political decision making.

Analyst Following, Capital Market Pressure, And Real Activity Manipulation, Melanie Maureen Rose

Theses and Dissertations in Business Administration

I investigate the impact of analyst following on real activity manipulation. Because analysts follow firms and serve as information intermediaries, analyst following should reduce earnings management through real activity manipulation. However, given the negative ramifications of missing analysts' earnings forecasts, the fact that analysts are watching and issuing forecasts might actually create capital market pressures as managers try to ensure that they do not miss earnings targets. Because managers can engage in earnings management through real activities manipulation and accrual manipulation, I control for accrual manipulation in examining the relationship between analyst following and real activity manipulation. I find that …

The Effect Of The Introduction Of A Clearinghouse On Trading Costs: The New York Stock Exchange In The 1890s, Sara Reed

CMC Senior Theses

As one of the oldest and most innovative financial institutions, a clearinghouse efficiently clears and settles payments for equity transactions as well as other securities. However, this paper will only be concerned with common and preferred equity securities. The purpose of a clearinghouse is to reduce counterparty risk. It acts as an intermediary between two parties, so that the risk of one party failing to honor its contractual obligation is diminished. It reduces settlement risk through netting, the process of eliminating offsetting transactions, thus decreasing the amount of cash flow. I examine the impact of the New York Stock Exchange …

Quantifying The Variance Risk Premium In Vix Options, Reed M. Hogan

CMC Senior Theses

This thesis uses synthetically created variance swaps on VIX futures to quantify the variance risk premium in VIX options. The results of this methodology suggest that the average premium is -3.26%, meaning that the realized variance on VIX futures is on average less than the variance implied by the swap rate. This premium does not vary with time or the level of the swap rate as much as premiums in other asset classes. A negative risk premium should mean that VIX option strategies that are net credit should be profitable. This thesis tests two simple net credit strategies with puts …