Finance Commons^™

Vat Treatment Of Financial Institutions, Ismail Baydur, Fatih Yilmaz

Research Collection School Of Economics

This paper studies the effects of exempt treatment of financial services under a VATsystem. We develop a general equilibrium model with elastic labor supply, endogenous entry, anda banking sector. The banking sector provides loan services to producers and payment servicesto consumers. Our model display three key distortions under exempt treatment: (i) self-supplybias in the banking sector, (ii) consumption distortions, (iii) input distortions and tax cascading.Then, we calibrate our model to match the salient features of the tax system EU countries. Atax neutral policy regime switch from exempt treatment to full-taxation in loan services improveswelfare about 4%. Shutting down the entry …

The Yuan Goes Global, Singapore Management University

Research@SMU: Connecting the Dots

Professor Chow Hwee Kwan studies how Asian countries manage their currencies, and the impact of these policies on their economies.

See the paper: Is the Renminbi East Asia’s dominant reference currency? A reconsideration

Do Disaster Experience And Knowledge Affect Insurance Take-Up Decisions?”, Jing Cai, Changcheng Song

Research Collection Lee Kong Chian School Of Business

This study examines the effect of experience and knowledge on weather insurance adoption. First, we conduct insurance games with farmers, and find that the treatment improves real insurance take-up by 46%. The effect is not driven by changes in risk attitudes and perceived probability of disasters, or by learning of insurance benefits, but is driven by the experience acquired in the game. Second, we find that providing information about the payout probability has a strong positive effect on insurance take-up. Finally, when subjects receive both treatments, the probability information has a greater impact on take-up than does the disaster experience.

Are Shorts Equally Informed? A Global Perspective, Ekkehart Boehmer, Zsuzsa R. Huszar, Yanchu Wang, Xiaoyan Wang

Research Collection Lee Kong Chian School Of Business

Short selling predicts future stock returns globally. We use 11 short-sale measures to examine the informativeness of short sales in 38 countries for the July 2006 to December 2014 period. We find that different short-sale measures display different return predictability. The days-to-cover ratio and loan supply measures have the most robust predictive power in the global capital market. We also document significant cross-country differences in the predictive power of the short selling measures and find that return predictability is stronger in countries with mild forms of short-sale restrictions, better market quality, and more developed markets.

Short Selling Meets Hedge Fund 13f: An Anatomy Of Informed Demand, Yawen Jiao, Massimo Massa, Hong Zhang

Research Collection Lee Kong Chian School Of Business

The existing literature treats the short side (i.e., short selling) and the long side of hedge fund trading (i.e., fund holdings) independently. The two sides, however, complement each other: opposite changes in the two are likely to be driven by information, whereas simultaneous increases (decreases) of the two may be motivated by hedging (unwinding) considerations. We use this intuition to identify informed demand and document that it exhibits highly significant predictive power over returns (approximately 10% per year). We also find that informed demand forecasts future firm fundamentals, suggesting that hedge funds play an important role in information discovery. (C) …

All In The Family: Economies Of Scale In Retail And Institutional Investment Management, Darwin Choi, Xi Li, Tong Yao, Zhe Zhang

Research Collection Lee Kong Chian School Of Business

This paper examines the (dis)economies of scale related to the joint management of retail mutual funds and institutional funds (i.e., investment portfolios catering to institutional clients). Similar to well-known observations for mutual funds, the performance of institutional funds is negatively related to fund size but positively related to fund family size, suggesting diseconomies of scale at individual fund level and economies of scale at fund family level. More importantly, there is spillover of the family size effect -- the performance of mutual funds (institutional funds) is positively related to the total institutional assets (mutual fund assets) managed by the same …

The Effect Of Monetary Policy On Bank Wholesale Funding, Hyunsoo Choi, Hyun Soo Choi

Research Collection Lee Kong Chian School Of Business

We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the retail deposit supply due to, for example, a decrease in bank reserves or in money demand, banks try to substitute the deposit outflows with more wholesale funding in order to mitigate the policy impact on their lending. Banks have varying degrees of accessibility to wholesale funding sources because of financial frictions, and those banks that are large or that have a greater reliance on wholesale funding increase their wholesale funding more. As a result, monetary tightening increases both the reliance on and …

The Effect Of Monetary Policy On Bank Wholesale Funding, Hyunsoo Choi, Hyun Soo Choi

Research Collection Lee Kong Chian School Of Business

We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the retail deposit supply due to, for example, a decrease in bank reserves or in money demand, banks try to substitute the deposit outflows with more wholesale funding in order to mitigate the policy impact on their lending. Banks have varying degrees of accessibility to wholesale funding sources because of financial frictions, and those banks that are large or that have a greater reliance on wholesale funding increase their wholesale funding more. As a result, monetary tightening increases both the reliance on and …

Smarter Banking: Blockchain Technology In The Indian Banking System, Suparna Dhar, Indranil Bose

Asian Management Insights

Indian banks are currently experiencing poor performance when it comes to debt risk. Burdened with high non-performing loans (NPL), they are putting at risk the funds of investors as well as India’s industrial and economic growth. In addition, the loan management process itself is riddled with inefficiencies. To overcome them, we propose to use blockchain technology.

Days To Cover And Stock Returns, Harrison G. Hong, Frank Weikai Li, Sophie X. Ni, Jose A. Scheinkman, Philip Yan

Research Collection Lee Kong Chian School Of Business

A crowded trade emerges when speculators' positions are large relative to the asset's liquidity, making exit difficult. We study this problem of recent regulatory concern by focusing on short-selling. We show that days to cover (DTC), the ratio of short interest to trading volume, measures the costliness of exiting crowded trades. Crowding is an important concern as short-sellers avoid illiquid stocks, which we establish using an instrumental-variables strategy involving staggered stock market decimalization reforms. Arbitrageurs require a premium to enter into such trades as a strategy shorting high DTC stocks and buying low DTC stocks generates a 1.2% monthly return. …

Tackling Technology Disruption In The Financial Sector: Are The Current Singapore Government Incentives And Labour Force Preparations Adequate?, Swee Liang Tan

Research Collection School Of Economics

No abstract provided.

Textual Analysis And Machine Leaning: Crack Unstructured Data In Finance And Accounting, Li Guo, Feng Shi, Jun Tu

Research Collection Lee Kong Chian School Of Business

In finance and accounting, relative to quantitative methods traditionally used, textual analysis becomes popular recently despite of its substantially less precise manner. In an overview of the literature, we describe various methods used in textual analysis, especially machine learning. By comparing their classification performance, we find that neural network outperforms many other machine learning techniques in classifying news category. Moreover, we highlight that there are many challenges left for future development of textual analysis, such as identifying multiple objects within one single document.

Modeling Speculative Bubbles With Diverse Investor Expectations, Peter C. B. Phillips

Research Collection School Of Economics

We construct a model of asset market exuberance, collapse and recovery using subjective investor-based rational expectations about the impact of fundamentals on the market price. Investors are assumed to have heterogeneous market sentiments, allowing them to be exuberant, cautious, or fundamentalist via boundary conditions that describe their respective views of the market impact of the same economic fundamentals. Equilibrium solution paths of the model take varying forms, depending on the parameter settings that reflect the importance of each type of market participant. This rational expectations model of asset pricing is shown to be consistent with a simple explosive continuous time …

Lumpy Investment, Lumpy Inventories, Ruediger Bachmann, Lin Ma

Research Collection School Of Economics

The link between the microenvironment (frictions and heterogeneity) and the macroeconomic dynamics of general equilibrium macromodels is influenced by exactly how general equilibrium closes the model. We make this observation concrete using the recent literature on how nonconvex capital adjustment costs influence aggregate investment dynamics. We introduce inventories into a two-sector lumpy investment model and find that nonconvex capital adjustment costs dampen and propagate investment impulse responses, more so than without inventories. With two means of transferring consumption into the future, fixed capital and inventories, the tight link between aggregate saving and fixed capital investment is broken.

Arts-Based Learning: Art, Economy And Financial Magic At The Stockholm School Of Economics, Marie Lousie-Fend

2016 ABLD-EBSLG-APBSLG Joint Conference & Meeting

No abstract provided.

Benchmarking And Currency Risk, Massimo Massa, Yanbo Wang, Hong Zhang

Research Collection Lee Kong Chian School Of Business

We show that the currency risk embedded in the benchmarks of international mutual funds negatively affects fund performance. More specifically, a high benchmark-implied currency risk induces funds to invest in markets with less volatile currencies, leading to a higher degree of currency concentration in portfolio holdings. This currency concentration, however, departs from the optimal equity allocation strategy across countries and reduces fund performance. We document that funds resorting to high currency concentrations underperform funds with low currency concentrations by as much as 1%-2% per year.

Subsidies And Countervailing Duties, Gea M. Lee

Research Collection School Of Economics

This survey pays attention to a recent development of the literature that analyzes two important regulatory features found in the Agreement on Subsidies and Countervailing Measures (the SCM agreement): the restrictive treatment of domestic subsidies and the general prohibition of export subsidies. The WTO's restriction on domestic subsidies is challenged by the existing terms-of-trade theory that offers an efficiency foundation for the market-access focus of the GATT rules. On the other hand, against the backdrop of the SCM agreement and preferential trade agreements (PTAs), a recent literature attempts to provide a rationale for the WTO to restrict the use of …

Constrained Inefficiency And Optimal Taxation With Uninsurable Risks, Piero Gottardi, Atsushi Kajii, Tomoyuki Nakajima

Research Collection School Of Economics

When individuals' labor and capital income are subject to uninsurable idiosyncratic risks, should capital and labor be taxed, and if so how? In a two-period general equilibrium model with production, we derive a decomposition formula of the welfare effects of these taxes into insurance and distribution effects. This allows us to determine how the sign of the optimal taxes on capital and labor depend on the nature of the shocks and the degree of heterogeneity among consumers' income, as well as on the way in which the tax revenue is used to provide lump-sum transfers to consumers. When shocks affect …

Ipo Performance And Trading Around Lock-Up Expiration, Yuchen Wang

Dissertations and Theses Collection (Open Access)

During the lock-up period, company insiders are prohibited from selling their shares for a set period immediately after initial public offerings (IPOs), usually 180 days. This strict prohibition limits the borrowing of securities by short sellers within this period. Therefore, upon reaching the lock-up expiry date, the short-sale constraint may be loosened and new investors may rush into the stock market, which affects asset price and stock return. This thesis focuses on the IPOs’ performance during the lock-up period and the reasons for the unusual performance. The first section commences by questioning the role of the short seller and its …

A Tale Of Two Option Markets: Pricing Kernels And Volatility Risk, Zhaogang Song, Dacheng Xiu

Research Collection Lee Kong Chian School Of Business

Using both S&P 500 option and recently introduced VIX option prices, we study pricing kernels and their dependence on multiple volatility factors. We first propose nonparametric estimates of marginal pricing kernels, conditional on the VIX and the slope of the variance swap term structure. Our estimates highlight the state-dependence nature of the pricing kernels. In particular, conditioning on volatility factors, the pricing kernel of market returns exhibit a downward sloping shape up to the extreme end of the right tail. Moreover, the volatility pricing kernel features a striking U-shape, implying that investors have high marginal utility in both high and …

Trade Integration, Income Divergence, And Global Imbalances, Haiping Zhang

Research Collection School Of Economics

We embed financial frictions and sector-specific minimum investment requirements (MIR) in a two-factor, two-sector, overlapping-generation model and showthat whether trade integration leads to convergence of the income levels among member states depends on their level of financial development. It helps reconcilethe mixed empirical evidence on trade integration and income dynamics in differentgroups of countries from the institutional perspective. In the recent decades, trade globalization has allowed developed countries to specialize towards the high-MIR, high-return production stages and tasks through international fragmentation of production and global sourcing. In our model, the “sectors” can be interpreted broadly as production stages and tasks. …

Optimal Taxation And Debt With Uninsurable Risks To Human Capital Accumulation, Piero Gottardi, Atsushi Kajii, Tomoyuki Nakajima

Research Collection School Of Economics

We consider an economy where individuals face uninsurable risks to their human capital accumulation and analyze the optimal level of linear taxes on capital and labor income together with the optimal path of government debt. We show that in the presence of such risks, it is beneficial to tax both labor and capital and to issue public debt. We also assess the quantitative importance of these findings, and show that the benefits of government debt and capital taxes both increase with the magnitude of idiosyncratic risks and the degree of relative risk aversion.

Competition Of The Informed: Does The Presence Of Short Sellers Affect Insider Selling?, Massimo Massa, Wenlan Qian, Weibiao Xu, Hong Zhang

Research Collection Lee Kong Chian School Of Business

We study how the presence of short sellers affects the incentives of the insiders to trade on negative information. We show it induces insiders to sell more (shares from their existing stakes) and trade faster to preempt the potential competition from short sellers. An experiment and instrumental variable analysis confirm this causal relationship. The effects are stronger for "opportunistic" (i.e., more informed) insider trades and when short sellers' attention is high. Return predictability of insider sales only occurs in stocks with high short-selling potential, suggesting that short sellers indirectly enhance the speed of information dissemination by accelerating trading by insiders. …

Remittances Without Borders, Tan Swee Liang, S. N. Venkataramanan, Anil Kishora

Research Collection School Of Economics

A Pan-Asian Mobile Remittance Platform might just be the next big disruption in global remittances. One out of every 28 people lives in a country that they were not born in. As migrants, they are estimated by The World Bank to send home US$636 billion in 2017, with three-quarters remitted to developing countries. These remittances form a significant percentage of the Gross Domestic Product (GDP) of many of these developing countries. Given their magnitude and contribution to national economies, even a small reduction in remittance cost adds billions to these local economies. Mobile-to-mobile cross border remittances have recently shown that …

Wealth Inequality And Financial Development: Revisiting The Symmetry Breaking Mechanism, Haiping Zhang

Research Collection School Of Economics

No abstract provided.

Signaling In Online Credit Markets, Kei Kawai, Ken Onishi, Kosuke Uetake

Research Collection School Of Economics

We study how signaling affects equilibrium outcomes and welfare in markets with adverse selection. Using data from an online credit market, we estimate a model of borrowers and lenders where low reserve interest rates can signal low default risk. Comparing a market with and without signaling relative to the benchmark case with no asymmetric information, we find that adverse selection destroys as much as 16% of total surplus, up to 95% of which can be restored with signaling. We also find the credit supply curves to be backward-bending for some markets, consistent with the prediction of Stiglitz and Weiss (1981).

Is There A Future For The Euro?, Augustine H. H. Tan

Research Collection School Of Economics

A Greek exit could spell the euro zone's disintegration. The Greek referendum last Sunday resoundingly backed its embattled government over its tortuous negotiations with the Troika of the European Central Bank (ECB), the European Union (EU) and the International Monetary Fund (IMF). Greece is now back at the negotiating table, which may ease the terms of loan repayment and lighten the reforms demanded or it may lead to a Grexit.

Greece Caught In Death Spiral, Augustine H. H. Tan

Research Collection School Of Economics

The country is trapped between twin evils akin to the sea monsters Scylla and Charybdis that threatened Odysseus' voyage.

Greece Caught In Death Spiral, Augustine H. H. Tan

Research Collection School Of Economics

The country is trapped between twin evils akin to the sea monsters Scylla and Charybdis that threatened Odysseus' voyage.

Role For Singapore In Mobile Phone Remittances, Tan Swee Liang, Singanallore Narayanan Venkataramanan, Anil Kishora

Research Collection School Of Economics

As sending money home this way takes off, the country can provide a Pan-Asian platform