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Full-Text Articles in Social and Behavioral Sciences

Cross-Exchange Crypto Risk: A High-Frequency Dynamic Network Perspective, Yifu Wang, Wanbo Lu, Min-Bin Liu, Rui Ren, Wolfgang Karl Hardle Jul 2024

Cross-Exchange Crypto Risk: A High-Frequency Dynamic Network Perspective, Yifu Wang, Wanbo Lu, Min-Bin Liu, Rui Ren, Wolfgang Karl Hardle

Sim Kee Boon Institute for Financial Economics

Cross-exchange crypto trading presents inherent risks, particularly for centralized exchanges. Investors observe exacerbating crypto volatility and counterparty risk and would like to quantify these elements of crypto trades. The multiple exchanges require a multivariate view on the structures of risk spillover across exchanges. Here, a Multivariate Heterogeneous AutoRegression (MHAR) model is designed and analyzed, accommodating the stylized facts of crypto markets, including 24/7 trading and the long-memory effect on return variations. The proposed MHAR approach clearly reveals the intensity of interconnectedness among exchanges during extreme events, e.g., the Bitcoin market. Additionally, one observes extremely volatile eigenvector centralities of Futures Exchange …


Bubbly Booms And Welfare, Feng Dong, Yang Jiao, Haoning Sun Jul 2024

Bubbly Booms And Welfare, Feng Dong, Yang Jiao, Haoning Sun

Research Collection School Of Economics

We show the competing effects of a housing bubble on the real economy by developing a multi-sector dynamic model with housing production. On the one hand, firms can sell or collateralize their housing, so a housing bubble helps firms obtain credit to finance their investment and expand production. On the other hand, a boom in the housing sector crowds out labor in the non-housing sector. We show that housing booms can reduce social welfare both in the steady state and in the transitional dynamics only when the production externalities in the non-housing sector are sufficiently large. We quantitatively evaluate our …


Green Transition And Financial Stability: The Role Of Green Monetary And Macroprudential Policies And Vouchers, Ying Tung Chan, Maria Teresa Punzi, Hong Zhao Apr 2024

Green Transition And Financial Stability: The Role Of Green Monetary And Macroprudential Policies And Vouchers, Ying Tung Chan, Maria Teresa Punzi, Hong Zhao

Sim Kee Boon Institute for Financial Economics

This paper analyzes a mix of alternative policies in supporting the green transition and the phase-out of fossil fuels, without compromising financial stability. An environmental dynamic stochastic general equilibrium (E-DSGE) model with two sectors (green and brown) and endogenous default is developed to assess potential climate-induced financial stability threats that can be mainly generated through physical and transition risks mechanism. Those risks are evaluated through a compound capital depreciation shock and a carbon tax shock. The paper offers several findings. First of all, a too stringent carbon tax would increase the medium-term default rate in both sectors, harming financial stability …


Local Institutional Investors And Corporate Monitoring: Evidence From Cross-Listed Korean Stocks In The Us Market, Changhwan Choi, Chune Young Chung, Jun Myung Song Jan 2024

Local Institutional Investors And Corporate Monitoring: Evidence From Cross-Listed Korean Stocks In The Us Market, Changhwan Choi, Chune Young Chung, Jun Myung Song

Sim Kee Boon Institute for Financial Economics

Using Korean firms that are cross-listed in the US market, this paper investigates whether there are standalone effects of geographic and market proximity of institutional investors on monitoring performance. We find that Korean institutional ownership is negatively associated with earnings management while the US institutional ownership has no impact on earnings management. This suggests that there is the geographic proximity advantage over the market proximity advantage in the emerging markets. Furthermore, we also show that the impact of geographic proximity is stronger for firms with high informational opacity


Geographic Links And Predictable Returns, Zuben Jin, Frank Weikai Li Jan 2024

Geographic Links And Predictable Returns, Zuben Jin, Frank Weikai Li

Research Collection Lee Kong Chian School Of Business

Using establishment-level data of U.S. public firms, we construct a novel measure of geographic linkage between firms. We show that the returns of geography-linked firms have strong predictive power for focal firm returns and fundamentals. This effect is distinct from other cross-firm return predictability and is not easily attributable to risk-based explanations. It is more pronounced for focal firms that receive lower investor attention, are more costly to arbitrage, and during high sentiment periods. The cross-firm information spillovers and return predictability are also stronger for geographic peers with economic linkages and with positive information. Our results are broadly consistent with …


Robust Testing For Explosive Behavior With Strongly Dependent Errors, Yui Lim Lui, Peter C. B. Phillips, Jun Yu Jan 2024

Robust Testing For Explosive Behavior With Strongly Dependent Errors, Yui Lim Lui, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

A heteroskedasticity-autocorrelation robust (HAR) test statistic is proposed to test for the presence of explosive roots in financial or real asset prices when the equation errors are strongly dependent. Limit theory for the test statistic is developed and extended to heteroskedastic models. The new test has stable size properties unlike conventional test statistics that typically lead to size distortion and inconsistency in the presence of strongly dependent equation errors. The new procedure can be used to consistently time-stamp the origination and termination of an explosive episode under similar conditions of long memory errors. Simulations are conducted to assess the finite …


Market For Manipulable Information, Hui Chen, Jian Sun Jan 2024

Market For Manipulable Information, Hui Chen, Jian Sun

Research Collection Lee Kong Chian School Of Business

We study how investors, firms, and information sellers interact in a market with manipulable information. To better predict the firm characteristics they care about, investors can buy a score from a monopolistic information seller, which aggregates signals that are subject to firm manipulation. The average degree of signal manipulability has no effect on the equilibrium, while the uncertainty about manipulability becomes a new source of noise. Its contribution depends on firms' incentive to manipulate the signals, which in turn depends on the equilibrium price sensitivity to the score. The optimal design of the score weighs signal precision against the endogenous …


Optimal Nonparametric Range-Based Volatility Estimation, Tim Bollerslev, Jia Li, Qiyuan Li Jan 2024

Optimal Nonparametric Range-Based Volatility Estimation, Tim Bollerslev, Jia Li, Qiyuan Li

Research Collection School Of Economics

We present a general framework for optimal nonparametric spot volatility estimation based on intraday range data, comprised of the first, highest, lowest, and last price over a given time-interval. We rely on a decision-theoretic approach together with a coupling-type argument to directly tailor the form of the nonparametric estimator to the specific volatility measure of interest and relevant loss function. The resulting new optimal estimators offer substantial efficiency gains compared to existing commonly used range-based procedures.


Legal Risk And Insider Trading, Marcin Kacperczyk, Emiliano Sebastian Pagnotta Dec 2023

Legal Risk And Insider Trading, Marcin Kacperczyk, Emiliano Sebastian Pagnotta

Research Collection Lee Kong Chian School Of Business

Do illegal insiders internalize legal risk? We address this question with hand-collected data from 530 SEC (the U.S. Securities and Exchange Commission) investigations. Using two plausibly exogenous shocks to expected penalties, we show that insiders trade less aggressively and earlier and concentrate on tips of greater value when facing a higher risk. The results match the predictions of a model where an insider internalizes the impact of trades on prices and the likelihood of prosecution and anticipates penalties in proportion to trade profits. Our findings lend support to the effectiveness of U.S. regulations' deterrence and the long-standing hypothesis that insider …


In Search Of Cryptocurrency Failure, Donglian Ma, Jun Tu, Zhaobo Zhu Dec 2023

In Search Of Cryptocurrency Failure, Donglian Ma, Jun Tu, Zhaobo Zhu

Research Collection Lee Kong Chian School Of Business

This paper explores the determinants of cryptocurrency failure and the pricing of crypto failure risk. We document different significant market- and characteristic-based predictors for coin and token failures. The introduction of Bitcoin futures and the outbreak of COVID19 affect the importance of many predictors. Investors require extra return for bearing high failure risk of crypto assets. The return difference across high and low failure risk crypto assets is not explained by the market, size and momentum factors in the cryptocurrency market. Finally, investors benefit from diversifying into high failure risk crypto assets that is little correlated with the stock market.


How Commonality Persists? (Through Investors' Sentiment And Attention), Chyng Wen Tee, Raja Velu, Zhaoque Zhou Dec 2023

How Commonality Persists? (Through Investors' Sentiment And Attention), Chyng Wen Tee, Raja Velu, Zhaoque Zhou

Research Collection Lee Kong Chian School Of Business

Studies on commonality generally attribute the variation in asset returns to the variation in order flows. In this research study, we show that order flows do not predict asset returns, rather their relationship have been static over time. Thus we model both returns and the order flows as endogenous variables, and use investors' sentiment and attention as exogenous factors via a reduced-rank regression. We provide empirical evidence 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 attention measures themselvesexhibit a nonlinear mutual relationship, …


Information Loss In Volatility Measurement With Flat Price Trading, Peter C. B. Phillips, Jun Yu Nov 2023

Information Loss In Volatility Measurement With Flat Price Trading, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

A model of financial asset price determination is proposed that incorporates flat trading features into an efficient price process. The model involves the superposition of a Brownian semimartingale process for the effcient price and a Bernoulli process that determines the extent of price trading. The approach is related to sticky price modeling and the Calvo pricing mechanism in macroeconomic dynamics. A limit theory for the conventional realized volatility (RV) measure of integrated volatility is developed. The results show that RV is still consistent but has an inflated asymptotic variance that depends on the probability of flat trading. Estimated quarticity is …


Do Government Subsidies Promote Green R&D Efficiency? Empirical Evidence From China, Huimin Wu Oct 2023

Do Government Subsidies Promote Green R&D Efficiency? Empirical Evidence From China, Huimin Wu

Dissertations and Theses Collection (Open Access)

How to evaluate the effects of government policy on encouraging innovations? Existing studies strongly argue to reduce subsidies compared to indirect policy tools, such as tax rebate. However, direct government grants are popular and keep gaining momentum in China. Such a discrepancy between academic research and common practice is interesting and calls for further investigations. In the meantime, is there any difference for this issue if considering green attributes? In this article, we use data from Chinese A-share listed companies to study the effect of government subsidies on R&D activities, with a special focus on comparing green and non-green inventions. …


Cross-Border Technology Investments In Recession, Juliana Yu Sun, Huanhuan Zheng Oct 2023

Cross-Border Technology Investments In Recession, Juliana Yu Sun, Huanhuan Zheng

Research Collection School Of Economics

Utilizing industry-level foreign direct investment (FDI) from 72 source markets to 122 destination markets between 2003 to 2018, we evaluate how cross-border technology investments respond to economic recessions. We find that FDI embedded with intensive research and development (R&D) drops when the destination market is in a recession and the source market is in a normal state and recovers to the pre-recession levels when both destination and source markets are in recession. However, there is little evidence that recessions affect cross-border investments in other aspects of technology measured by the penetration of robots, intellectual property products and information and communications …


Housing Fever In Australia 2020-23: Insights From An Econometric Thermometer, Shuping Shi, Peter C. B. Phillips Sep 2023

Housing Fever In Australia 2020-23: Insights From An Econometric Thermometer, Shuping Shi, Peter C. B. Phillips

Research Collection School Of Economics

Australian housing markets experienced widespread and, in some cases, extraordinary growth in prices between 2020 and 2023. Using recently developed methodology that accounts for fundamental economic drivers, we assess the existence and degree of speculative behaviour, as well as the timing of exuberance and downturns in these markets. Our findings indicate that speculative behaviour was indeed present in six of the eight capital cities at some time over the period studied. The sequence of events in this nation-wide housing bubble began in the Brisbane market and concluded in Melbourne, Canberra, and Hobart following the interest rate rise implemented by the …


How To Understand China's Approach To Central Bank Digital Currency?, Heng Wang Sep 2023

How To Understand China's Approach To Central Bank Digital Currency?, Heng Wang

Research Collection Yong Pung How School Of Law

China's central bank digital currency (CBDC), digital yuan or e-CNY, is likely to profoundly affect the international financial system. China's CBDC is fast evolving. Understanding the influencing factors of China's CBDC will likely be crucial to explore its future direction. Major influencing factors include (i) China's perception and conception of regulation and technology, (ii) complementarity between China's preferences and CBDC development, (iii) domestic and international legitimacy, and (iv) institutional development. This paper argues that these influencing factors contribute to China's likely approach of selectively reshaping the international financial system. Given the potential wide-ranging implications of the introduction of CBDC globally, …


Does Abstract Thinking Facilitate Information Processing? Evidence From Financial Analysts, Frank Weikai Li, Rong Wang, Yang Yu, Gloria Yang Yu Sep 2023

Does Abstract Thinking Facilitate Information Processing? Evidence From Financial Analysts, Frank Weikai Li, Rong Wang, Yang Yu, Gloria Yang Yu

Research Collection Lee Kong Chian School Of Business

We study whether abstract thinking – an essential cognitive trait established by psychological and neuroscientific studies – facilitates analysts’ information processing. Exploiting analysts’ questions during earnings calls, we construct an Abstract Thinking Index (ATI) that measures their tendency to involve abstract words, logical reasoning, broader topics, and future outlooks. We find that abstract thinking improves analysts’ forecast accuracy and recommendation informativeness. Consistent with abstract thinking featuring identifying central characteristics and comprehending intangible things, ATI has stronger effects for firms with fundamentals co-moving more with peers and less tangible information. Additional analyses suggest that ATI captures analysts’ cognitive traits rather than …


What Drives The Value Of Financial Analysts’ Advice? The Role Of Earnings And Growth Forecasts, Ohad Kadan, Leonardo Madureira, Rong Wang, Tzachi Zach Sep 2023

What Drives The Value Of Financial Analysts’ Advice? The Role Of Earnings And Growth Forecasts, Ohad Kadan, Leonardo Madureira, Rong Wang, Tzachi Zach

Research Collection Lee Kong Chian School Of Business

We offer a parsimonious index at the individual analyst level to measure the extent to which an analyst relies on earnings and long-term growth forecasts in producing her advice. Using this index, we evaluate the contribution of earnings and growth forecasts to the investment value of analysts’ stock recommendations. We find that the fraction of analysts’ advice attributed to forecasts varies considerably across analysts and sectors. The investment value of recommendations is higher for analysts who rely less on their forecasts and more on other sources of information when forming investment advice. Investors recognize the superiority of recommendations from analysts …


The Cost Of Cheap Talk: How Campaign Promises And Default Contributions Affect Donation-Based Crowd Funding Success., Tianci Leon Qiu Sep 2023

The Cost Of Cheap Talk: How Campaign Promises And Default Contributions Affect Donation-Based Crowd Funding Success., Tianci Leon Qiu

Dissertations and Theses Collection (Open Access)

Non-profit organisations (NPOs) find it increasingly harder to engage donors and raise funds from the public. Post-pandemic: the emphasis on tactics to raise funds online through donation-based crowdfunding (DCF) platforms has surged in importance for both NPO survival and continued beneficiary aid. However, unlike equity-based crowdfunding platforms where campaign organisers are obligated to provide investors with tangible returns based on funding milestones, NPOs on DCF platforms do not have to adhere to any funding milestones or are beholden to any tangible obligations towards donors. Consequently, NPOs are greatly incentivised to deploy cheap talk – non-binding, unverifiable messages and claims to …


Seeking Better Sharpe Ratio Via Bayesian Optimization, Peng Liu Jul 2023

Seeking Better Sharpe Ratio Via Bayesian Optimization, Peng Liu

Research Collection Lee Kong Chian School Of Business

Developing an excellent quantitative trading strategy to obtain a high Sharpe ratio requires optimizing several parameters at the same time. Example parameters include the window length of a moving average sequence, the choice of trading instruments, and the thresholds used to generate trading signals. Simultaneously optimizing all these parameters to seek a high Sharpe ratio is a daunting and time-consuming task, partly because of the unknown mechanism determining the Sharpe ratio. This article proposes using Bayesian optimization to systematically search for the optimal parameter configuration that leads to a high Sharpe ratio. The author shows that the proposed intelligent search …


Disagreement In Market Index Options, Guilherme Salome, George Tauchen, Jia Li Jun 2023

Disagreement In Market Index Options, Guilherme Salome, George Tauchen, Jia Li

Research Collection School Of Economics

We generate new evidence on disagreement among traders in the S&P 500 options market from high-frequency intraday price and volume data. Inference on disagreement is based on a model where investors observe public information but agree to disagree on its interpretation; disagreement among investors is captured by the volume–volatility elasticity. For options, there are two natural variables related to disagreement: moneyness and tenor, which we relate to disagreement about the distribution of the market index at different quantiles and times. The estimated volume–volatility elasticity equals unity for options near the money and close to expiration, which is consistent with the …


An Empirical Research On The Financial Distress Risk In The Garden And Construction Industry, Jianlin Guan Jun 2023

An Empirical Research On The Financial Distress Risk In The Garden And Construction Industry, Jianlin Guan

Dissertations and Theses Collection (Open Access)

In recent years, the garden and construction industry has faced significant financial distressdue to the downward pressure on the macro economy. This financial distress not onlyposesrisks to the financial stability and management of enterprises but also has far-reachingimpactson society.

This paper utilizes various analytical methods such as case analysis, empirical analysis, andevent analysis to derive the following conclusions:(1)The participation of garden constructionindustry enterprises in public-private partnership (PPP) projects leads to increased financial distress.(2)The higher the debt ratio of the local government where listed gardenandconstruction enterprises are located, the greater the financial distress theyexperience.(3)Enterprises in the garden and construction industry, whose …


Cbdc: Context, Challenges, And Conditions For A Successful Adoption, Charlie Nhuc Hiang Lay May 2023

Cbdc: Context, Challenges, And Conditions For A Successful Adoption, Charlie Nhuc Hiang Lay

Dissertations and Theses Collection (Open Access)

Central bank digital currencies (CBDC) are the digital version of physical notes and coins. They are the latest milestone in the evolution of money over the centuries due to technological advancements. This digitalisation of physical money primarily serves as a medium of exchange that has a central bank anchor. There are two versions of CBDC, wholesale and retail. This thesis focuses on retail CBDC, which targets the general public and small daily transactions. It discusses the issues and the plausible implementation of a retail CBDC. A CBDC will preserve monetary sovereignty, foster financial stability, and counter private network effects, i.e., …


Consumer Reaction To The Use Of Artificial Intelligence Chatbot On Distribution Of General Insurance In Singapore, Lai Hing Tan May 2023

Consumer Reaction To The Use Of Artificial Intelligence Chatbot On Distribution Of General Insurance In Singapore, Lai Hing Tan

Dissertations and Theses Collection (Open Access)

As technology rapidly permeates all aspects of our lives, it is not unusual to question and even challenge the rationale on why certain industries are slower to adapt to the new digital age. Insurance is a business that is under scrutiny given its traditional ways of selling and legacy challenges. Why is technology investment in insurance companies lagging others? One emerging technological disruption is artificial intelligence (AI). It is the science of designing and building intelligent systems that can complete tasks traditionally performed by humans. AI is expected to fundamentally transform today’s marketplace, for businesses and consumers alike. However, because …


Liquidity Constraints, Consumption, And Debt Repayment: Evidence From Macroprudential Policy In Turkey, Sumit Agarwal, Muris Hadzic, Changcheng Song, Yildirim Yildiray Apr 2023

Liquidity Constraints, Consumption, And Debt Repayment: Evidence From Macroprudential Policy In Turkey, Sumit Agarwal, Muris Hadzic, Changcheng Song, Yildirim Yildiray

Research Collection Lee Kong Chian School Of Business

Using account-level credit card data from a large Turkish bank, we study the impact of a unique credit card policy that increases minimum payment on consumption and debt repayment. We show that the policy reduces credit card spending and debt, boosts existing debt repayment, and reduces credit card delinquency. The credit card debt of affected consumers falls on average by 50% two years into the policy’s implementation. An increase in minimum payment has a stronger effect than does a decrease of a similar magnitude. We build a benchmark life cycle model with soft liquidity constraint to explain the reduction in …


Hedging Cryptos With Bitcoin Futures, Francis Liu, Natalie Packham, Meng-Jou Lu, Wolfgang Karl Haerdle Mar 2023

Hedging Cryptos With Bitcoin Futures, Francis Liu, Natalie Packham, Meng-Jou Lu, Wolfgang Karl Haerdle

Sim Kee Boon Institute for Financial Economics

The introduction of derivatives on Bitcoin enables investors to hedge risk exposures in cryptocurrencies. Because of volatility swings and jumps in cryptocurrency prices, the traditional variance-based approach to obtain hedge ratios may not be suitable for hedgers. In this work, we consider two extensions of the traditional approach: first, different dependence structures are modelled by different copulae, such as the Gaussian, Student-t, Normal Inverse Gaussian and Archimedean copulae; second, different risk measures, such as value-at-risk, expected shortfall and spectral risk measures are employed to find the optimal hedge ratio. Extensive out-of-sample tests using the data from the time …


Exchange-Traded Funds And Real Investment, Constantinos Antoniou, Frank Weikai Li, Xuewen Liu, Avanidhar Subrahmanyam, Chengzhu Sun Mar 2023

Exchange-Traded Funds And Real Investment, Constantinos Antoniou, Frank Weikai Li, Xuewen Liu, Avanidhar Subrahmanyam, Chengzhu Sun

Research Collection Lee Kong Chian School Of Business

We investigate the link between exchange-traded funds and real investment. Cross-sectionally, higher ETF ownership is associated with an increased sensitivity of real investment to Tobin's q and a heightened ability of stock returns to forecast future earnings. Inclusion of stocks in industry ETFs enhances investment-q sensitivity and implies greater incorporation of earnings information into prices prior to public releases. Greater nonmarket ETF ownership leads to increased (reduced) reliance of real investment on own (peers') stock prices. Overall, the evidence is consistent with ETFs positively affecting real investment efficiency via greater flows of information.


Assessing The Odds Of A Us Recession, Thomas Lam, David Fernandez Feb 2023

Assessing The Odds Of A Us Recession, Thomas Lam, David Fernandez

Sim Kee Boon Institute for Financial Economics

In this commentary, SMU Sim Kee Boon Institute for Financial Economics (SKBI) Principal Researcher Thomas Lam and SKBI Director SMU Professor of Finance (Practice) Dave Fernandez offer their perspectives on the current multifaceted and highly charged US recession debate. While America is currently not in a downturn, the near-term odds of one have edged up, according to models based on key monthly and weekly indicators.


The Financialization Of Cryptocurrencies, Lei Huang, Tse-Chun Lin, Fangzhou Lu, Jian Sun Feb 2023

The Financialization Of Cryptocurrencies, Lei Huang, Tse-Chun Lin, Fangzhou Lu, Jian Sun

Research Collection Lee Kong Chian School Of Business

We show that change in Grayscale Bitcoin Trust premium is the single most significant predictor of Bitcoin daily return. This sentiment measure is similar to the closed-end fund discount measure as in Baker and Wurgler (2006), but more likely to reflect the excess demand from traditional investors than from blockchain specialists. Although there is a substantial variation in Bitcoin price quotes worldwide, this Grayscale premium and discount predict Bitcoin daily return for the most liquid Bitcoin exchanges. Using K-means clustering and LDA analysis, we find that this predictability is especially significant when there is a large variation in bullish and …


Impact Of Geographical Diversification And Limited Attention On Private Equity Fund Returns, Victor Ong Feb 2023

Impact Of Geographical Diversification And Limited Attention On Private Equity Fund Returns, Victor Ong

Research Collection Lee Kong Chian School Of Business

This article analyzes the effect of geographical diversification on global private equity (PE) fund returns. We find that there is a negative correlation between geographical diversification and PE fund returns. To establish the causality between geographical diversification and PE fund returns, we employ an instrumental variable analysis where the instrument used is the stock market capitalization of the host country where the PE fund is based. Our results apply to Net IRR, TVPI and DPI as dependent variables used to proxy for PE fund returns in the main regression model. A one standard deviation increase in geographical diversification results in …