Journal of Financial Research

- Publisher:
- Wiley
- Publication date:
- 2021-02-01
- ISBN:
- 0270-2592
Issue Number
Latest documents
- Managerial characteristics and performance of eurozone mutual funds
We investigate the relation between observable managerial characteristics (i.e., gender, age, tenure, professional qualifications, and advanced education) and performance in diversified equity mutual funds domiciled in the eurozone. We find that differences in the fund alphas are statistically significant only in groups based on age, tenure, and professional qualifications (i.e., chartered financial analyst [CFA]). We also find a significant positive relation for age and CFA certification with a fund's risk‐adjusted performance and a significant negative relation for tenure. However, we find no significant effect for gender and advanced education (i.e., master of business administration [MBA]). The differences in risk taking are significantly related only with age and tenure; the former has a negative and the latter a positive relation with risk taking.
- Board gender diversity and acquisition choices
We investigate the influence of gender diversity on the acquisition choices of bidding firms and find that firms with greater gender diversity are more likely to acquire nonlisted targets, use cash as the method of payment, and purchase firms in similar industries. Results show that these preferences are significantly influenced by female directors' financial expertise, target industry experience, mergers and acquisitions (M&A) experience, academic and professional qualifications, and networks. The percentage of female directors on boards is positively correlated with the market response to the announcement of acquisition choices preferred by female directors. Furthermore, bidders improve efficiency and accumulate long‐term value gains through the contributions made by their female directors to these acquisition choices.
- CEO prior uncertainty and pay–performance sensitivity
A CEO's pay–performance sensitivity (PPS) is higher in the first year of their tenure than in the following years. I explain this finding with reference to chief executive officer (CEO) prior uncertainty: Because of information asymmetry and/or uncertainty about the quality of the match between a CEO and a firm, first‐year compensation is often arranged to depend largely on performance. Consistent with this explanation, CEOs with higher prior uncertainty exhibit higher first‐year PPS. Also, PPS is higher for outsider CEOs than insider CEOs. Among outsider CEOs, first‐year PPS is lower for former executives of large public firms. An insider CEO's service time in a firm before becoming the CEO reduces first‐year PPS.
- Ambiguity and risk factors in bank stocks
The determinants of banks' cost of equity are not well understood. We depart from prior work assuming rational expectations and instead explore the impact of Knightian uncertainty or ambiguity on bank stocks. We test a large set of asset pricing models and find that investors' lack of confidence in both the drift and correlation structure driving bank stock returns affects banks' cost of capital. We also investigate the economic relation among ambiguity, market liquidity, and banks' capital shortfall, which reveals the transmission channels through which ambiguity may increase the probability of a systemic crisis. Our findings have implications for macroprudential policy.
- Financial analysts' bundling across firms: Target prices and stock recommendations
A rising trend is that analysts bundle earnings forecasts for multiple firms on the same day, and such forecast bundling is associated with low‐quality forecasts. We explore target price bundling and recommendation bundling. Factors driving bundling revisions of an output for multiple firms vary across three outputs: forecasts, target prices, and recommendations. Target price (recommendation) revisions bundled for firms are less informative than stand‐alone revisions. Although consistency in the direction of revisions between different outputs is typically associated with higher perceived quality, consistent revisions between outputs are not associated with higher informativeness of revisions bundled for multiple firms.
- Issue Information
- The effect of liquidity and arbitrage on the price efficiency of Chinese ETFs
We study the potential factors that determine the large and persistent price deviations in Chinese equity exchange‐traded funds (ETFs). Our results suggest that ETF liquidity and arbitrage activity are positively correlated with ETF price efficiency, and the relation is more pronounced with higher institutional ownership. We also evaluate the effect of two exogenous shocks in the Chinese market. Using a policy change that added market makers to ETFs on the Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE), we find that market makers improve price efficiency and that the impact is stronger for ETFs with lower liquidity. We also exploit a change in trading rules on the SZSE and show that the relaxation of arbitrage restrictions improves price efficiency. Altogether, these findings provide evidence that lack of liquidity, due to the unique market structure and regulations of the Chinese market, contributes to price inefficiency of Chinese ETFs.
- Different momentum effects across countries: An explanation based on investors' behavior
We establish a model in which speculators use feedback trading characteristics to infer the behavior of irrational investors and induce them to trade. We also discuss the stability and time series of asset prices. Our results show that: (1) speculators have speculation and arbitrage demands and make “noise” to induce irrational investors to trade, (2) the time series of asset prices show stable momentum and a reversal effect when fundamental traders dominate the market, and (3) momentums are unstable and perform poorly under extreme circumstances. Our article offers a unique approach to understanding the micro mechanism of different momentum effects in various markets and suggests a plausible theoretical framework to illustrate such differences.
- Cyclicality of liquidity creation: Nonlinear evidence from US bank holding companies
Using a panel smooth transition regression framework on a new proxy of the business cycle (BC) index and quarterly data of US bank holding companies from 1993Q1 to 2020Q1, our results provide empirical support for the theory that the BC has a nonlinear effect on liquidity creation. We find a positive and highly significant nonlinear effect of the BC on liquidity creation, which not only supports the pro‐cyclicality of liquidity creation but also improves the liquidity creation estimation compared to previous studies. The results are robust to different proxies of the BC and model specifications. We also document that US bank holding companies create liquidity more during the expansion phase (normal times) than during the recession phase (crisis times) of the BC, suggesting an asymmetrical effect of BC changes on liquidity creation. Our findings have important implications for financial market participants by suggesting that banks should keep alternative sources of funding on hand during the BC recession phase. Insights from our study also provide policy implications for central banks and prudent supervisors to consider when incentivizing banks, for instance, by lowering regulatory requirements, adjusting the policy rate, or implementing any other quantitative easing policy during the BC recession phase to keep the financial system efficient.
- Treasury return predictability and investor sentiment
We document that the Treasury market investor sentiment (TSENT) of institutional investors is a powerful predictor of bond risk premia. Specifically, TSENT positively predicts Treasury bond excess returns in and out of sample. The forecasting gains of TSENT are incremental to those in conventional bond return predictors: Fama–Bliss forward spreads, Cochrane–Piazzesi forward rate factor, and Ludvigson–Ng macro factor, as well as equity market sentiment proxies such as the investor sentiment index and the partial least squares sentiment index. Asset allocation analysis indicates the forecasting power of TSENT is economically valuable to investors. Finally, we show that the time‐series bond risk premia predictability associated with TSENT relates to its predictive power for macroeconomic performance, such as payroll employment, unemployment rate, and industrial production.
Featured documents
- LEARNING BANKS' EXPOSURE TO SYSTEMATIC RISK: EVIDENCE FROM THE FINANCIAL CRISIS OF 2008
Using a two‐state Markov regime‐switching intertemporal capital asset pricing model, we find that the exposure to systematic risk of bank stocks varies with size and the state of the economy. Across large banks, those with higher net interest margins and lower capital ratios are the most exposed to ...
- Portfolio returns and consumption growth covariation in the frequency domain, real economic activity, and expected returns
The slope of the portfolio return and consumption growth cospectrum contains predictive information about future real economic activity, future recession probabilities, the risk aversion coefficient, and future expected returns. Commonly used economic variables do not subsume the predictive power...
- Financial analysts' bundling across firms: Target prices and stock recommendations
A rising trend is that analysts bundle earnings forecasts for multiple firms on the same day, and such forecast bundling is associated with low‐quality forecasts. We explore target price bundling and recommendation bundling. Factors driving bundling revisions of an output for multiple firms vary...
- Capacity overhang and corporate disinvestment decisions
We use a stochastic frontier model to estimate a firm's capacity overhang. We find that excess capacity is positively related to a drop in new capital expenditures, an accumulation of depleted long‐term assets, and outright sales of investment assets. However, the sale of long‐term assets (property,...
- Preopening price indications and market quality: Evidence from NYSE Rule 48
In this article, we explore the role of preopening price signals in price discovery and liquidity. NYSE Rule 48 suspends the responsibility of designated market makers for disseminating preopening price indications in the event of extreme marketwide volatility. Rule 48 speeds up the opening of...
- Dividends and share repurchases during the COVID‐19 economic crisis
In this article, we examine dividends and share repurchases of S&P 1500 firms during the COVID‐19 crisis characterized by the stock market crash and a relatively quick stock price recovery propelled by technology stocks. We find that the great majority of firms either maintain or increase the level ...
- Liquidity shocks and intraday price reaction
Using a global sample of high‐frequency data, I investigate how liquidity shocks affect intraday price movements. I find a negative association between liquidity shocks and price impact. This finding remains robust after considering the exogeneity of liquidity shocks, using alternative windows to...
- The effect of the Money Market Mutual Fund Liquidity Facility (MMLF) on corporate short‐term borrowing costs
In this article, I study the effect of the Money Market Fund Liquidity Facility (MMLF) on corporate short‐term borrowing costs. Although MMLF loans accept a broader range of collateral acquired from money market funds (MMFs) than Asset‐Backed Commercial Paper Money Market Mutual Fund Liquidity...
- The real effects of earnout contracts in M&As
Earnouts address merger valuation risk by deferring payment of a large part of deal consideration and making it contingent on targets’ future performance. We find acquirers of unlisted targets using earnouts gain more (less) than those making full up‐front payments in cash (stock). Larger and older ...
- Performance and diversification benefits of IPO‐focused mutual funds
We investigate whether mutual funds that invest in initial public offerings (IPOs) outperform the Renaissance IPO Index, IPOX® 100 U.S. Index, and other comparable equity funds that do not invest in IPOs. We also explore whether investors gain diversification benefits by investing in IPO‐focused...