Social and Behavioral Sciences Commons^™

Identifying Bubbles In Latin American Equity Markets: Phillips-Perron-Based Tests And Linkages, Diego Escobari, Sergio Garcia, Cristhian Mellado

Economics and Finance Faculty Publications and Presentations

The identification of periods of price exuberance in equity markets is of great interest to policy makers and financial investors. In this paper, we identify financial bubble periods within the major equity markets in Latin America. We use the recently developed recursive Augmented Dickey-Fuller methods and propose similar recursive procedures based on Phillips-Perron. We find that conditional on bubbles in the S&P 500, there are strong links between bubble episodes across equity markets in Latin America. In addition, the financial bubble periods in Latin America begin earlier and last longer than bubble periods in the United States during the 2008 …

Female Executives And Corporate Cash Holdings, Binay K. Adhikari

Economics and Finance Faculty Publications and Presentations

I find that firms led by female top executives hold more cash, partly due to precautionary motives. To overcome endogeneity concerns, I employ several econometric techniques, including an instrumental variable analysis based on a historical event that resulted in a plausibly exogenous variation in the female workforce participation. Overall, my results are consistent with the view that greater risk-aversion leads female executives to hold more cash.

Student Loans And Their Effect On Parental Views Of Education Financing, Terrance K. Martin Jr., Jose Nunez, Lua Augustin

Economics and Finance Faculty Publications and Presentations

Using the 2012 wave National Longitudinal Survey of Youth 1979, this study examines the effect that parents' student debt have on their decision to use tax advantage education vehicles to save for their children's college. We also examine parental decisions on obtaining student loans on behalf of their children. The results show that parents who report having student loans are 61% less likely than those that report no student loan debt to use tax-advantaged education saving vehicles. However, we find no difference in the effect of having student loans on the decision to obtain debt to fund their children's college …

The Impact Of Oil Shocks On The Housing Market: Evidence From Canada And U.S., Robert N. Killins, Peter V. Egly, Diego Escobari

Economics and Finance Faculty Publications and Presentations

The recent volatility in oil energy markets invites us to re-assess the impact of oil prices changes on the macroeconomic environment. The Great Recession of 2007–2009 led to closer monitoring of global housing markets by regulators and market participants. Employing a structural vector autoregressive model, we find that the reaction of housing markets to oil price shocks varies significantly depending on whether the change in oil prices is prompted by demand or supply shocks in the oil market and on country oil trading status (i.e. net importer or net exporter). Our results are robust to the inclusion of different macroeconomic …

Airport, Airline And Departure Time Choice And Substitution Patterns: An Empirical Analysis, Diego Escobari

Economics and Finance Faculty Publications and Presentations

This paper uses the random-coefficients logit methodology that controls for potential endogeneity of prices and allows for general substitution patterns to estimate various demand systems. The estimation takes advantage of an original ticket-level revealed preference data set on travels from the New York City area to Toronto that contains prices and characteristics of not only flight choices but also of all non-booked alternative flights. Consistent with having higher valuations, our results show that travelers buying closer to departure have a higher utility of flying. Moreover, consumers’ heterogeneity decreases as the flight date nears. At the carrier level, we identify which …

Endogeneity In Panel Stochastic Frontier Models: An Application To The Japanese Cotton Spinning Industry, Mustafa U. Karakaplan, Levent Kutlu

Economics and Finance Faculty Publications and Presentations

We present a panel stochastic frontier model that handles the endogeneity problem. This model can treat the endogeneity of both frontier and inefficiency variables. We apply our method to examine the technical efficiency of Japanese cotton spinning industry. Our results indicate that market concentration is endogenous, and when its endogeneity is properly handled, it has a larger negative impact on the technical efficiency of cotton spinning plants. We find that the exogenous model substantially overestimates efficiency in concentrated markets.

Effects Of Bush Tax Cut And Obama Tax Increase On Corporate Payout Policy And Stock Returns, Andre Vianna

Economics and Finance Faculty Publications and Presentations

Abstract This article analyzes the effects of the American Taxpayer Relief Act of 2012 (Obama Tax Increase) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (Bush Tax Cut) on corporate payout decision and stock returns. Logit and fixed-effect panel data analyses are conducted on all firms listed in NYSE, Amex and NASDAQ in the announcement windows of two, three and four quarters before and after the tax reforms. The results show that the implementation of these tax reforms more persistently affects dividend payments than stock repurchases. It also has a boosting effect on stock returns in the …

Do Fomc Actions Speak Loudly? Evidence From Corporate Bond Credit Spreads, Siamak Javadi, Ali Nejadmalayeri, Tim Krehbiel

Economics and Finance Faculty Publications and Presentations

We find that Federal Open Market Committee (FOMC) actions (especially rate cuts) narrowed corporate credit spreads during the pre-crisis period of 2002-2007. During the 2008 crisis period, we find that both conventional cuts and quantitative easing decreased spreads. But FOMC inactions caused significant widening of spreads. The effects are especially large for speculative-grade and short-maturity bonds. Overall, the policy uncertainty during the crisis and macroeconomic theories during the pre-crisis period help to explain why FOMC announcements impacted credit spreads. The Fed’s actions targeted at promoting growth and/or providing systemic liquidity were especially noted by the corporate bond market. Keywords:

Stock Returns And Interest Rates Around The World: A Panel Data Approach, Tibebe A. Assefa, Omar A. Esqueda, Andre V. Mollick

Economics and Finance Faculty Publications and Presentations

We examine quarterly stock returns of 21 developed and 19 developing economies from 1999 to 2013. Over this period, mean quarterly stock returns of 1.188% in developed economies contrast to 4.220% in developing economies. Economic growth has been substantially lower and interest rates have fallen (risen) in developed (developing) economies. Using dynamic panels, we find statistically significant negative effects of interest rates on stock returns in the developed countries, consistent with the expected cash flow hypothesis. In the developing markets, however, the world market portfolio is the sole determinant of stock returns. The contrasting effect of interest rates change on …

Supplementary Studies In Rio Grande Valley History, Milo Kearney, Anthony K. Knopp, Antonio Zavaleta, Thomas Daniel Knight

UTRGV & TSC Regional History Series

Corrupted, a poem / Tom Emrick -- Primal Matamoros : ancient refuge among the Estuaries of the Rio Bravo / Craig H. Roell -- U.S.-Mexico relations during the establishment of the American Consulate in Matamoros : 1826-1842 / Melisa C. Galvan -- Captain King’s Cotton : the Civil War blockade-running adventures of Richard King and Mifflin Kenedy / Walter E. Wilson -- The sad saga of John V. Singer / Norman Rozeff -- Ulster and the Texas-Mexico Border : John McAllen and his family / Thomas Daniel Knight -- Joseph Kleiber and his letter press book / Anthony K. Knopp …

The Impact Of Exports To China On Latin American Growth, Andre C. Vianna

Economics and Finance Faculty Publications and Presentations

This article analyzes the relationship between GDP growth in seven major Latin American countries and China’s demand for their exports. GLS panel estimation using annual data for the period 1994-2013 shows that the relationship was both statistically and economically significant. Control variables found to be significant in positively affecting GDP growth include the investment-to-output ratio, the exchange rate, and the terms of trade, and, in negatively affecting it, population growth and the unemployment rate. Consistent with recent literature, foreign direct investment was found not to be significant. A sharp drop in exports to China for many of the countries in …

Drivers Behind The Monitoring Effectiveness Of Global Institutional Investors: Evidence From Earnings Management, Incheol Kim, Steve Miller, Hong Wan, Bin Wang

Economics and Finance Faculty Publications and Presentations

This paper studies the drivers behind the monitoring effectiveness of institutional investors in curbing earnings management in an international setting. We identify three distinct drivers and propose two competing hypotheses: the hometown advantage hypothesis predicts that because of proximity to monitoring information, domestic institutions have a comparative advantage over foreign institutions in deterring earnings management, whereas the global investor hypothesis predicts that foreign institutions have a comparative advantage because of their proclivity toward activism and ability to deploy superior monitoring technologies. Consistent with the hometown advantage hypothesis, in aggregate, domestic, but not foreign, institutional ownership is associated with less earnings …

Are Us-Dollar-Hedged-Etf Investors Aggressive On Exchange Rates? A Panel Var Approach, Corey A. Shank, Andre C. Vianna

Economics and Finance Faculty Publications and Presentations

Exchange traded funds (ETFs) are a multi-trillion dollar market that epitomizes financialization due to its recent growth. This study examines the behavior of U.S. listed currency hedged ETF investors towards changes in the underlying benchmark and foreign exchange rate from July 2011 to November 2015 using a panel VAR approach. We find that investors are able to anticipate changes in future exchange rates and invest in currency hedged ETFs prior to changes. Granger-causality tests confirm that these investors proactively trade before large real exchange rate movements. These results suggest that the use of financial instruments such as ETFs to hedge …

Does Globalization Affect Top Income Inequality?, Rene Cabral, Rocio Garcia-Diaz, Andre V. Mollick

Economics and Finance Faculty Publications and Presentations

We reexamine in this paper the role of globalization on top income shares (five classes from top 0.1% to top 10% of the income distribution) for a sample of 15 economies over the period 1970–2004. We investigate financial globalization measures that complement trade openness. Our system GMM (SGMM) estimations allow for a robust treatment of the endogeneity between income concentration and GDP per capita (as well as with taxation or government size). We find two interesting new results. First, the financial integration measure based on portfolio equity and FDI stocks (GEQ) turns out to have a large impact on top …

Institutional Ownership Stability And Real Earnings Management, Hamid Sakaki, Dave Jackson, Surendranath Jory

Economics and Finance Faculty Publications and Presentations

We examine the relationship between institutional ownership stability and real earnings management. Our findings indicate that firms held by more stable institutional owners experience lower real activities manipulation by limiting overproduction. We further examine how the stability in the shareholdings of pressure-sensitive and insensitive institutional investors affect target firms’ use of real earnings management, respectively. Unlike pressure-sensitive institutional investors, the stability in the share ownership of pressure-insensitive institutional investors (i.e., investment advisors, pension funds and endowments) mitigates target firms’ use of real earnings management. Overall, our results are consistent with the view that institutional investors presence acts as a monitor …

Long-Run Equilibrium Shift And Short-Run Dynamics Of U.S. Home Price Tiers During The Housing Bubble, Damian S. Damianov, Diego Escobari

Economics and Finance Faculty Publications and Presentations

We use vector error correction models to examine the interdependence between the high and the low price tiers during the latest housing market boom and bust. For 118 of the 364 US statistical areas analyzed, the tiered price indexes are bound by a long-run relationship. In general, low tier homes appreciated more than high tier homes in the past two decades. In contrast to previous periods of high volatility, however, low tier homes appreciated more during the boom and lost more value during the bust of the market. We find a shift in the long-run equilibrium during the bubble —the …

Reducing Asymmetric Information In Venture Capital Backed Ipos, Diego Escobari, Alejandro Serrano

Economics and Finance Faculty Publications and Presentations

Purpose

The purpose of this paper is to model asymmetric information and study the profitability of venture capital (VC) backed initial public offerings (IPOs). The mixtures approach endogenously separates IPOs into differentiated groups based on their returns’ determinants. The authors also analyze the factors that affect the probability that IPOs belong to a specific group.

Design/methodology/approach

The authors propose a new method to model asymmetric information between investors and firms in VC backed IPOs. The approach allows the authors to identify differentiated companies under incomplete information. The authors use a sample of 2,404 US firms from 1980 through 2012 to …

Lep Language Disability, Immigration Reform, And English-Language Acquisition, Alberto Dávila, Marie T. Mora

Economics and Finance Faculty Publications and Presentations

Policy might partly shape the English-language acquisition of Hispanics migrating to the U.S. mainland, particularly policies related to limited-English-language disability benefits and immigration reform. Using data from the American Community Survey, we find that island-born Puerto Ricans on the U.S. mainland, as U.S. citizens, may have lower incentives to learn English than Hispanic immigrants because of their higher participation in LEP disability programs. However, among Mexican immigrants, recent immigration reform aimed at interior enforcement might have increased incentives for Mexican immigrants to learn English to reduce their probability of detection, if speaking English proxies for undocumented status.

Us Airport Ownership, Efficiency, And Heterogeneity, Levent Kutlu, Patrick Mccarthy

Economics and Finance Faculty Publications and Presentations

All US commercial airports are in the public sector yet not all have the same ownership type. For medium and large hub US airports we use stochastic frontier analysis to analyze the efficiency differences for alternative airport ownership types. We find that while form of ownership may matter for cost efficiency, in general its effect is relatively small. Yet type of public sector ownership does have cost efficiency implications in certain environments. Further, when heterogeneity is not controlled, the results change substantially so that type of ownership matters much more which demonstrates the importance of controlling for cross section heterogeneity.

Date Stamping Bubbles In Real Estate Investment Trusts, Diego Escobari, Mohammad Jafarinejad

Economics and Finance Faculty Publications and Presentations

We test for the existence of single and multiple bubble periods in four Real Estate Investment Trust (REIT) indices using the Supremum Augmented Dickey-Fuller (SADF) and the Generalized SADF. These methods allow us to estimate the beginning and the end of bubble periods. Our results provide statistically significant evidence of speculative bubbles in the REIT index and its three components: Equity, Mortgage and Hybrid REITs. These results may be valuable for real estate financial managers and for investors in REITs.

Violence In Mexico And Its Effects On Labor Productivity, Rene Cabral, Andre V. Mollick, Eduardo Saucedo

Economics and Finance Faculty Publications and Presentations

This paper examines the evolution of Mexico’s labor productivity (GDP per worker) across its 32 sub-national entities from 2003 to 2013, during a period of rising drug-related crimes. Using quarterly data and economic controls, fixed effects models suggest the effects of crime are small and differ depending on whether such crimes are prosecuted by state/local or federal authorities. However, results from System Generalized Methods of Moments regressions generate stronger responses for (endogenous) wages and labor productivity. First, crime has negative effects on Mexican labor productivity across states during the “war on drugs” period. Second, increases in expenditures on public security …

Extra Studies In Rio Grande Valley History, Milo Kearney, Anthony K. Knopp, Antonio Zavaleta, Thomas Daniel Knight

UTRGV & TSC Regional History Series

Vaqueros del Valle, a poem / Manuel Medrano -- Matamoros and the Tejanos of Victoria and Goliad in the Texas Revolution: conflicting loyalties and ‘Assiduous Collaborators’ / Craig H. Roell -- Antonio Canales Rosillo / James Mills -- The origins of Salome Balli McAllen / Thomas Daniel Knight -- Sally Skull: the legend / Sondra Shands -- The Kawahata Family comes to the Valley / Randall Sakai – The Battle of Reynosa / Jesus Ramos -- Los días siguientes a la toma de Matamoros por los Constitucionalistas / Andres Cuellar -- H-E-B: an American and Valley success story / Norman …

The Impact Of Government Intervention On The Stabilization Of Domestic Financial Markets And On U.S. Banks’ Asset Composition, Peter V. Egly, Diego Escobari, David W. Johnk

Economics and Finance Faculty Publications and Presentations

The 2007–2009 financial crisis that evolved from various factors including the housing boom, aggressive lending activity, financial innovation, and increased access to money and capital markets prompted unprecedented U.S. government intervention in the financial sector. We examine changes in banks’ balance sheet composition associated with U.S. government intervention during the crisis. We find that the initial round of quantitative easing positively impacts bank liquidity across all bank samples. Our results show a positive impact of repurchase agreement market rates on bank liquidity for small and medium banks. We conclude that banks have become more liquid in the post-crisis period, especially …

The Liquidity Crisis, Investor Sentiment, And Reit Returns And Volatility, Daniel Huerta, Peter V. Egly, Diego Escobari

Economics and Finance Faculty Publications and Presentations

The real estate investment trust (REIT) industry experienced a liquidity crisis resulting from reduced access to credit commitments as banks were restoring their balance sheets during the 2007–2009 financial crisis. Employing generalized autoregressive conditional heteroscedasticity (GARCH) models, we examine the impact of the liquidity crisis and investor sentiment on REIT returns and volatility over the December 2001 to February 2013 period. We find that the liquidity crisis negatively impacts REIT returns and helps explain increases in volatility; this finding is robust to multiple specifications. We show that investor sentiment is a significant factor in the REIT return-generating process with institutional …

Do U.S. Firms Fly Higher When Bypassing The U.S. Capital Markets? An Investigation Of The Short-Term Performance Of Foreign Ipos, Robert N. Killins, Peter V. Egly

Economics and Finance Faculty Publications and Presentations

This paper investigates the performance of U.S. firms that partake in a foreign IPO – bypassing their domestic exchanges and raising their equity in a foreign market. The globalization of equity markets along with the increased regulations to financial markets in the U.S. has potentially led to the U.S. losing its title as the premier listing market. Using a sample of 77 U.S. based firms that totally bypassed the U.S. equity markets in their capital(equity) raising activities we are able to investigate the performance of this unique sample of firms. This investigation contributes to the literature by finding that U.S. …

Cross-Listing Performance And Insider Ownership: The Experience Of U.S. Investors, Omar A. Esqueda, Dave Jackson

Economics and Finance Faculty Publications and Presentations

Insider-owned firms pursue U.S. cross-listings following periods of extraordinary performance. However, the long-run post-cross-listing abnormal returns become negative only for insider-controlled cross-listings. We find that the Sarbanes–Oxley Act (SOX) has mitigated the market-timing attempts as negative abnormal returns are limited to the pre-SOX period, supporting a cross-listing bonding benefit after U.S. securities regulation was enhanced. In addition, investors anticipate future operating performance as stock returns incorporate forthcoming operating outcomes one and two years ahead. Whereas capital-raising cross-listings show better operating performance than non-capital-raising, the returns of capital-raising firms are more sensitive to the potential agency problems created by insider-ownership.

The Economics Of Counterfeiting, Elena Quercioli, Lones Smith

Economics and Finance Faculty Publications and Presentations

We develop a strategic theory of counterfeiting as a multi-market large game. Bad guys choose whether to counterfeit, and what quality to produce. Opposing them is a continuum of good guys who select a costly verification effort. In equilibrium, counterfeiters produce better quality at higher notes, but verifiers try sufficiently harder that verification still improves. We develop a graphical framework for deducing comparative statics. Passed and counterfeiting rates vanish for low and high notes. Our predictions are consistent with time series and cross-sectional patterns in a unique data set assembled largely from the Secret Service

Yet More Studies In Rio Grande Valley History, Milo Kearney, Anthony K. Knopp, Antonio Zavaleta, Thomas Daniel Knight

UTRGV & TSC Regional History Series

Frontera, a poem / Elvira Ardalani -- Strasbourg, Alsace, and Brownsville, Texas : ideal sister cities / Milo Kearney -- La concepción de la identidad fronteriza en Jovita Gonzalez y Adela Sloss de Vento / Laura Garza -- Cuando se fundo Matamoros? / Andres F. Cuellar -- The formation and early development of the Llano Grande / Maria Vallejo -- Doño Rosa Maria Hinojosa de Balli and her family : a lower Rio Grande Valley family in an Atlantic perspective / Thomas Daniel Knight -- Clarksville : a forgotten community on the Rio Grande / Jim Mills -- The last …

The Impact Of Securitization And Bank Liquidity Shocks On Bank Lending: Evidence From The U.S., Peter V. Egly, Dave Jackson, David W. Johnk

Economics and Finance Faculty Publications and Presentations

The securitization expansion preceding the 2007-2009 financial crisis introduced alternative liquidity sources and increased bank lending capacity. During the securitization expansion there was a rise and subsequent collapse of the subprime mortgage market. We investigate the impact of securitization and the subprime mortgage collapse on bank lending during the crisis. The results suggest that securitization, for the large and money-center bank, is a cost effective liquidity source since traditional bank funding costs play a diminished role in the supply of bank lending. We find that for the small and medium bank samples increases in REPO rates fostered lending during the …

Expectations And The Dynamic Feedback Between Foreign Direct Investment And Economic Growth, Diego Escobari, Diego E. Vacaflores

Economics and Finance Faculty Publications and Presentations

This paper seeks to analyze the dynamic feedback between Foreign Direct Investment (FDI) and economic growth – larger FDI promotes higher GDP, while higher GDP can be achieved with higher levels of FDI. We use panels and a sample of 19 Latin American countries to estimate a dynamic FDI and a dynamic GDP equation that jointly characterize the evolution of both variables. We find that the dynamics of GDP and FDI are mostly driven by the expectations. Shocks of GDP or FDI were found to play no role affecting the dynamics.