Social and Behavioral Sciences Commons^™

Learning From Manipulable Signals, Mehmet Ekmekci, Leandrro Gorno, Lucas Maestri, Jian Sun, Dong Wei

Research Collection Lee Kong Chian School Of Business

We study a dynamic stopping game between a principal and an agent. The agent is privately informed about his type. The principal learns about the agent’s type from a noisy performance measure, which can be manipulated by the agent via a costly and hidden action. We fully characterize the unique Markov equilibrium of this game. We find that terminations/ market crashes are often preceded by a spike in (expected) performance. Our model also predicts that, due to endogenous signal manipulation, too much transparency can inhibit learning. As the players get arbitrarily patient, the principal elicits no useful information from the …

The Alphabet Soup In Reporting And Measuring Esg, Hao Liang, Kam Chee Chan

Research Collection Lee Kong Chian School Of Business

Harmonising frameworks with the Impact-Weighted Accounts Framework.

Financial Wellness Of Singaporean Youth, Aurobindo Ghosh, Smu Office Of Research

Research@SMU Infographics

Financial wellness is an important aspect of an individual’s overall wellness. Individuals with sufficient financial wellness can make better informed economic decisions and judgements. Financial wellness includes four broad categories: Earning, Saving, Risk Appetite, and Financial Technology (FinTech) and Digitalisation. SMU Assistant Professor of Finance (Education) Aurobindo Ghosh conducted a benchmarking survey to assess the state of financial wellness of Singaporean youth.

A Study On The Impact Of Technological Innovation Attributes On Listing Success Rate And Post-Listing Performance, Yijun Xu

Dissertations and Theses Collection (Open Access)

"Key and core technology" enterprises form the backbone of great powers. China’s STAR Market (technological innovation board) is committed to implementing strategies that will lead to technological innovation-driven sustainable development and strengthen the country by building a secure and independent industrial chain that can support the development of cutting-edge technology. From the outset, the STAR Market put forward clear requirements for "key and core technology" enterprises. The technological innovation attributes of the enterprises listed on the STAR Market are the most essential core characteristics, but a question arises as to how best to evaluate their technological innovation attributes. Are these …

A Study On The Mechanisms Of Shareholders’ Equity Adjustment In Bankruptcy Reorganization Of Listed Companies, Yongliang Zhang

Dissertations and Theses Collection (Open Access)

In recent years, amid cyclical macroeconomic fluctuations, national economic slowdown, economic restructuring, and over-expansion of some enterprises, a number of listed companies have faced serious debt and operational challenges, many of which are worthy of keeping afloat. From June 1, 2007 when the Enterprise Bankruptcy Law of the People’s Republic of China came into effect, up to the end of 2021, a total of 93 listed companies in China have gone through bankruptcy reorganization, one of the major means to save the listed companies in distress.

The bankruptcy reorganization of listed companies, by its nature, is a process of game …

Political Connections, Informational Asymmetry, And The Efficient Resolution Of Financial Distress, Madhav S. Aney, Sanjay Banerji

Research Collection School Of Economics

We show that securities issued by a distressed firm, often through exchange offers, providethe most efficient resolution of financial restructuring. Information asymmetry between thefirm-bank coalition and small bondholders gives rise to other forms of distress resolutionsuch as refinancing, public workout, and the inefficiency of liquidation. We find that politicallobbying by the firm-bank amplifies these inefficiencies and inhibits the development of privatemarket for distressed securities. Cross-country evidence is consistent with this and indicatesthat improved creditor rights, and information facilitating credit bureaus interact in reducingthe likelihood of inefficient distress resolution.

Bayesian Methods In Economics And Finance: Editor's Introduction, Jun Yu

Research Collection School Of Economics

Modern days, Bayesian methods have gained prominence in theoretical work and applications in economics and finance due to the rapid development of computational technologies and their ability to learn. The special issue intends to examine central aspects in Bayesian analysis and applications, including prior choices, model selection with massive data and latent variables, hypothesis testing, Bayesian learning. In total, this special issue contains ten papers, all subject to the Journal of Econometrics (JOE)’s normal refereeing process. Most of these papers came from a conference held at the ESSEC Singapore campus on 10 December 2018.

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. …

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 …

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 …

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.

What, Why And How Financial Development Matters: Evidence Of Asean-5, Asia-5 And Oecd-7 Economies, Swee Liang Tan

Research Collection School Of Economics

This paper analyzed the association between bank and capital markets financial development with income per capita in three regions; ASEAN-5 economies (Singapore, Malaysia, Thailand, Philippines, Indonesia), Asia-5 (Japan, China, Hong Kong SAR, South Korea, and India), and OECD-7 (Australia, Canada, Denmark, Norway, Sweden, UK, and US) from 2000 to 2017 using panel data regressions. A key lesson ASEAN-5 can learn from Asia-5 and OECD-7 experience is that bank size does matter despite digital disruptions to their banking system; yet large financial structure that favors banks is negatively associated with Asia-5, and importantly, efficient banking system (not bank size alone) is …

Why Do U.S. Firms Invest Less Over Time?, Fangjian Fu, Sheng Huang, Rong Wang

Research Collection Lee Kong Chian School Of Business

Capital expenditures of U.S. public firms, relative to total assets, decrease by more than half from 1980 to 2020. The decline is pervasive across industries and firms of different characteristics and cannot be explained by the usual determinants of investment and many other seemingly plausible reasons. The decline is consistent with the transformation in production technology — firms rely more on intangible capital and less on fixed assets in production. Industry-level analyses yield supporting evidence. We observe similar declining trend in capital expenditure in other developed countries but not in most emerging markets.

Oil Price Shocks And Stock Market Anomalies, Zhaobo Zhu, Licheng Sun, Jun Tu, Qiang Ji

Research Collection Lee Kong Chian School Of Business

This paper provides a novel perspective to the nexus of oil prices and stock markets by examining the impact of oil price shocks on stock market anomalies. After decomposing oil price shocks into three types , we find that aggregate demand shocks have the strongest influence on stock market anomalies. In contrast, oil supply shocks and oil-specific demand shocks have little impact. Similar results are also found in the industry analysis. Interestingly, the link between aggregate demand shocks and anomalies is the strongest among firms with either small size or high idiosyncratic risks. The documented effects are robust after controlling …

What, Why And How Financial Development Matters: Evidence Of Asean-5, Asia-5 And Oecd-7 Economies, Swee Liang Tan

Research Collection School Of Economics

This paper analyzed the association between bank and capital markets financial development with income per capita in three regions; ASEAN-5 economies (Singapore, Malaysia, Thailand, Philippines, Indonesia), Asia-5 (Japan, China, Hong Kong SAR, South Korea and India) and OECD-7 (Australia, Canada, Denmark, Norway, Sweden, UK and US) from 2000 to 2017 using panel data regressions. A ley lesson ASEAN-5 can learn from Asia-5 and OECD-7 experience is that bank size does matter despite digital disruptions to their banking system; yet large financial structure that favors banks is negatively associated with Asia-5, and importantly, efficient banking system (not bank size alone) is …

Eradicating Malaria: Innovation Diffusion In The Face Of Grand Challenges, Han Jiang, Hao Liang, Dongning Yang

Research Collection Lee Kong Chian School Of Business

What is the role of organizational innovation—beyond technological innovation—in an era of grand challenges concerning health, poverty, and economic development around the world? How is organizational innovation developed and diffused to influence resource allocation in the field? We conduct a qualitative case study by analyzing a Chinese pharmaceutical firm’s efforts to combat malaria in Africa over 10 years. Through documentation and extensive interviews, we study the role of innovation diffusion and resource allocation to address grand challenges in emerging markets with significant institutional voids. Our conceptual model delineates the different stages of innovation diffusion to show how organizations can draw …

Bayesian And Machine Learning Methods With Applications In Asset Pricing, Yaohan Chen

Dissertations and Theses Collection (Open Access)

The dissertation consists of three essays on asset pricing by constructing new data set and developing new methodologies. In the first chapter, we conduct empirical studies on the volatility-managed portfolios in the Chinese stock market. Using data from the Chinese stock market, we have found that the main empirical findings in Moreira and Muir (2017) break down. Based on the empirical findings, we exploit a comprehensive set of $99$ equity strategies in the Chinese stock market to analyze the value of managed portfolios. Based on these $99$ equity trading strategies, we find that there exists no systematic gain from scaling …

Internal Capital Markets And Predictability In Complex Ownership Firms, Ran Chang, Angelica Gonzalez, Sergei Sarkissian, Jun Tu

Research Collection Lee Kong Chian School Of Business

Using global cross-firm ownership data, we find that both stock returns and cash-flow news of ownership-linked firms predict focal firm's returns for all types of ownership structures: subsidiary-parent, parent-subsidiary, subsidiary-subsidiary, and parent-parent. This effect, observed only after the establishment of cross-firm ownership, is not subsumed by focal firm or industry momentum, or alternative inter-firm relations, including customer-supplier links and shared analyst coverage. Our findings are explained by mispricing due to internal capital markets - a mechanism unique to complex ownership firms. Higher internal capital market activity among ownership-linked firms also induces larger investments and lower external financing of the focal …

Inflation And Ukraine War Make It Challenging For Our Beloved Value Stores To Survive, Aurobindo Ghosh, Taimur Baig

Research Collection Lee Kong Chian School Of Business

In a joint commentary, SMU Assistant Professor of Finance (Education) and Principal Investigator of DBS-SKBI Singapore Index of Inflation Expectations Project Aurobindo Ghosh and Chief Economist and Managing Director at DBS Bank Dr Taimur Baig discussed how global inflationary pressures and rising commodity prices due to war in Ukraine and sanctions against Russia are culminating into a perfect storm and making it challenging for value stores to survive. They also gave advice on what value stores can do to survive this perfect storm.

A Black-Scholes User's Guide To The Bachelier Model, Jaehyuk Choi, Minsuk Kwak, Chyng Wen Tee, Yumeng Wang

Research Collection Lee Kong Chian School Of Business

To cope with the negative oil futures price caused by the COVID-19 recession, global commodity futures exchanges switched the option model from Black-Scholes to Bachelier in April 2020. This study reviews the literature on Bachelier's pioneering option pricing model and summarizes the practical results on volatility conversion, risk management, stochastic volatility, and barrier options pricing to facilitate the model transition. In particular, using the displaced Black-Scholes model as a model family with the Black-Scholes and Bachelier models as special cases, we not only connect the two models but also present a continuous spectrum of model choices.

Information Acquisition And Market Friction, Bo Sang

Dissertations and Theses Collection (Open Access)

My dissertation consists of three papers related to information diversity, acquisition, and asymmetry. One part of the dissertation explores the implications of interactions among different market participants and subsequent price efficiency in the stock market. The empirical findings indicate the information diversity between individuals and institutional investors, as well as an important channel for retail investors to obtain useful information – through insider filings. The remaining part investigates the information asymmetry between issuers and naive investors in the cryptocurrency market. In Chapter 2, I aggregate trading signals from hedge funds and retail investors, in order to examine their information diversity …

Why Commonality Persists?, Chyng Wen Tee, Raja Velu, Zhaoque Zhou

Research Collection Lee Kong Chian School Of Business

We show that order flows do not exhibit predictive power on asset returns, and their relationships have been static over time. We use a reduced-rank regression formulation to model both returns and the order flows as endogenous variables, and use investors' sentiment and attention as exogenous factors. We provide empiricalevidence to demonstrate that cross-sectional commonality in attention (sentiment) is linearly (nonlinearly) associated with both returns and order flows at the intraday level, while the sentiment and attentionmeasures themselves exhibit a nonlinear mutual relationship, thus revealing the multi-dimensional aspect of the commonality relationship.

Essays On Information Diffusion And Stock Market Efficiency & Analyst Style, Zuben Jin

Dissertations and Theses Collection (Open Access)

The dissertation consists of three chapters on information diffusion and stock market efficiency and analyst style. The first chapter examines the asset pricing implications of investors’ inattention to non-obvious firm relatedness hidden in earnings calls. This chapter documents that the overlap in attention allocation over various business aspects serves as a time-sensitive proxy for firm relatedness. By employing the unsupervised topic modelling methodology, I characterize the attention allocation of earnings conference call participants (executives, investors and analysts) over topics discussed. I construct a novel cross-firm topic similarity measure that captures difficultto-observe and time-varying firm relatedness compared with existing peer-firm classification …

Do Underwriters Short-Change Corporations Issuing Bonds?, Choo Yong, Jeremy Goh, Lisa 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 to 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.

Investor Sentiment And Paradigm Shifts In Equity Premium Forecasting, Liya Chu, Kai Li, Tony Xue-Zhong He, Jun Tu

Research Collection Lee Kong Chian School Of Business

This study investigates the impact of investor sentiment on excess equity return forecasting. A high (low) investor sentiment may weaken the connection between fundamental economic (behavioral-based non-fundamental) predictors and market returns. We find that although fundamental variables can be strong predictors when sentiment is low, they tend to lose their predictive power when investor sentiment is high. Non-fundamental predictors perform well during high-sentiment periods while their predictive ability deteriorates when investor sentiment is low. These paradigm shifts in equity return forecasting provide a key to understanding and resolving the lack of predictive power for both fundamental and non-fundamental variables debated …

How Do Firms Respond To Reduced Private Equity Buyout Activity?, Yi-Hsin Lo

Research Collection Lee Kong Chian School Of Business

This paper presents new evidence on the economic role of private equity buyouts by exploiting the staggered adoption of the constructive fraud provision by U.S. state courts. The law unintentionally shifts the credit default risk borne by existing unsecured creditors of the buyout target to the selling shareholders and lenders in the form of ex-post litigation risk, thereby discouraging buyout activity. Using a difference-in-differences framework, I find that firms raise less capital, reduce payouts and investments, and form alliances with employees. Firms also avoid positive NPV projects that carry too much risk. These findings are consistent with managers enjoying a …

Financial Intermediaries And Contagion In Market Efficiency: The Case Of Etfs, Claire Yurong Hong, Frank Weikai Li, Avanidhar Subrahmanyam

Research Collection Lee Kong Chian School Of Business

Capital constraints of financial intermediaries can affect liquidity provision. We investigate whether these constraints spillover and consequently cause contagion in the degree of market efficiency across assets managed by a common intermediary. Specifically, we provide evidence of strong comovement in pricing gaps between ETFs and their constituents for ETFs served by the same lead market maker (LMM). The effects are stronger for ETFs that are more illiquid and volatile, when the underlying constituents of the ETFs are more costly to arbitrage, and for LMMs with more constrained capital. Using extreme disruptions in debt markets during COVID-19 as an experiment, we …

Bank, Stock Market Efficiency And Economic Growth: Panel Data Evidence From Asean-5, Asia-5 And Oecd-7 Countries, Swee Liang Tan

Research Collection School Of Economics

This paper estimates bank and stock market efficiency associations with real per capita GDP growth by examining panel-data across three different regions using Beck-Katz Panel-Corrected Standard Errors (PCSE) regression. It allows heteroskedastic and/or contemporaneously correlated disturbances across panels, with to specify a common first-order autocorrelation within the panel. The results suggest efficiency effects on growth is not unambiguous. The results suggest a threshold beyond which increase in bank overhead cost hurts economic growth, for developing countries. Likewise, there is a threshold beyond which increase in stock market turnover ratio hurts economic growth, for developed countries. One policy implication of the …

Sandwiched Between A Rock And A Hard Place?, Thomas Lam, David Fernandez

Sim Kee Boon Institute for Financial Economics

The policy gap between US and China is likely to be widening further, potentially raising and unevenly distributing the risks of negative spillovers for Asia and the rest of the world.

Investing In Low-Trust Countries: On The Role Of Social Trust In The Global Mutual Fund Industry, Massimo Massa, Chengwei Wang, Hong Zhang, Jian Zhang

Research Collection Lee Kong Chian School Of Business

We hypothesize that social trust, in mitigating contracting incompleteness, may have an important effect on the activeness and effectiveness of delegated portfolio management. Using a complete sample of worldwide open-end mutual funds, we find that trust is positively associated with the activeness of funds and that trust-related active share delivers superior performance (e.g., approximately 2% per year for cross-border investments). Moreover, "trust in the market" and "trust in managers" play important yet different roles for different types of cross-border delegated portfolio management. Our results suggest that trust acts as a fundamental building block for delegated portfolio management.