Earnings Management and Investor Protection: An International Comparison

Testing Trade-Off and Pecking Order Predictions about Dividends and Debt

Mutual Fund Performance: An Empirical Decomposition into Stock-Picking Talent, Style, Transactions Costs, and Expenses

Firms and social responsibility: A review of ESG and CSR research in corporate finance

An Empirical Analysis of the Dynamic Relation between Investment-Grade Bonds and Credit Default Swaps

We investigate how firms react to their peers’ commitment to corporate social responsibility (CSR), using a regression discontinuity design that relies on the passing or failing of CSR proposals by a small margin of votes during shareholder meetings We find the passage of a close-call CSR proposal is followed by the adoption of similar CSR practices by peer firms, especially those with similar products and followed by more financial analysts Stock returns around the voting dates are lower for peers with higher financial constraints in a competing relationship, but higher for peers in an alliance partnership with the voting firm

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2634100_code549950.pdf?abstractid=2634100&mirid=1&type=2

Peer Effects of Corporate Social Responsibility

We investigate how firms react to their product-market peers’ commitment to and adoption of corporate social responsibility (CSR) using a regression discontinuity design approach. Relying on the pa...

https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=6339&context=lkcsb_research

This paper documents a robust new finding that delta-hedged equity option return decreases monotonically with an increase in the idiosyncratic volatility of the underlying stock. This result can not be explained by standard risk factors. It is distinct from existing anomalies in the stock market or volatility-related option mispricing. It is consistent with market imperfections and constrained financial intermediaries. Dealers charge a higher premium for options on high idiosyncratic volatility stocks due to their higher arbitrage costs. Controlling for limits to arbitrage proxies reduces the strength of the negative relation between delta-hedged option return and idiosyncratic volatility by about 40%.

Cross-Section of Option Returns and Idiosyncratic Stock Volatility

Cross section of option returns and idiosyncratic stock volatility

We test a new cross-sectional relation between expected stock return and idiosyncratic risk implied by the theory of costly arbitrage. If arbitrageurs find it more difficult to correct the mispricing of stocks with high idiosyncratic risk, there should be a positive (negative) relation between expected return and idiosyncratic risk for undervalued (overvalued) stocks. We combine several well-known anomalies to measure stock mispricing and proxy stock idiosyncratic risk using an exponential GARCH model for stock returns. We confirm that average stock returns monotonically increase (decrease) with idiosyncratic risk for undervalued (overvalued) stocks. Overall, our results support the importance of idiosyncratic risk as an arbitrage cost.

Jie Cao

Papers

Peer Effects of Corporate Social Responsibility

Peer Effects of Corporate Social Responsibility

Cross-Section of Option Returns and Idiosyncratic Stock Volatility

Cross section of option returns and idiosyncratic stock volatility

Idiosyncratic Risk, Costly Arbitrage, and the Cross-Section of Stock Returns