Showing papers in "Journal of Financial Economics in 2016"

TL;DR: In this paper, the authors propose a new method of testing asset pricing models that relies on using quantities rather than prices or returns, and derive a simple test statistic that allows them to infer, from a set of candidate models, the model that is closest to the true risk model.

TL;DR: The authors found that well-governed firms that suffer less from agency concerns (less cash abundance, positive pay-for-performance, small control wedge, strong minority protection) engage more in CSR.

TL;DR: In this paper, the authors examine whether and by which mechanisms passive investors influence firms' governance, exploiting variation in ownership by passive mutual funds associated with stock assignments to the Russell 1000 and 2000 indexes.

TL;DR: In this paper, the authors assess the yield impact of asset purchases within the European Central Bank's (ECB) Securities Markets Programme (SMP) in five euro area sovereign bond markets from 2010-11.

TL;DR: The authors studied how changes in 19 different measures of systemic risk skew the distribution of subsequent shocks to industrial production and other macroeconomic variables in the US and Europe over several decades and proposed dimension reduction estimators for constructing systemic risk indexes from the cross section of measures and demonstrate their success in predicting future macroeconomic shocks out of sample.

TL;DR: In this paper, the authors show that short interest is arguably the strongest known predictor of aggregate stock returns and that short sellers are informed traders who are able to anticipate future aggregate cash flows and associated market returns.

TL;DR: In this paper, the authors examine managers' incentive to play it safe and find that after managers are insulated by the adoption of an antitakeover law, they take value-destroying actions that reduce their firms' stock volatility and risk of distress.

TL;DR: In this paper, a measure of corporate corruption culture, capturing a firm's general attitude toward opportunistic behavior, was constructed using cultural background information on key company insiders, and found evidence that it operates both as a selection mechanism and by having direct influence on individual behavior.

TL;DR: The authors developed a new identification strategy to evaluate the impact of geographic expansion of a bank holding company (BHC) across US metropolitan statistical areas (MSAs) on BHC risk.

TL;DR: In this paper, the authors disentangle the effects of reorganization and liquidation in bankruptcy on bank financing and firm investment, and highlight the importance of identifying the distinct effects of liquidation and reorganization, as these procedures differently address the tension between the continuation of viable businesses and the preservation of repayment incentives.

TL;DR: In this paper, the authors employ a regression discontinuity design to identify the real effects of share repurchases on other firm outcomes, and show that repurchasing is associated with reductions in employment and investment, and a decrease in cash holdings.

TL;DR: This paper found that personal connections to top executive branch officials can matter greatly even in a country with strong overall institutions, at least during a time of acute financial crisis and heightened policy discretion.

TL;DR: In this article, a large random sample of outstanding U.S. mortgages in December of 2010 was used to estimate that approximately 20% of households for whom refinancing would be optimal and who appeared unconstrained to do so, had not taken advantage of the lower rates.

TL;DR: This paper studied the liquidity properties of private equity cash flows using data from 837 buyout and venture capital funds from 1984 to 2010 and found that funds with a relatively high propensity to call capital in bad times perform better in both absolute and relative terms.

TL;DR: This paper found that exposure to the common factor in idiosyncratic volatility (CIV) in stock returns is indeed priced in the cross-section of U.S. stocks and that stocks that tend to appreciate when CIV rises earn relatively low average returns and thus appear to be valuable hedges.

TL;DR: In this article, a standard real options model predicts a strong positive interaction effect between research and development (R&D) investment and product market competition, and empirically evidence largely supports the model's predictions.

TL;DR: The authors used a dynamic capital structure model to estimate firm-specific expected default costs and quantify the selection bias, and found that the sample of observed defaults significantly understates the average firm's true expected cost of default due to a sample selection bias.

TL;DR: In this paper, the authors show that cash-based operating profitability (a measure that excludes accruals) outperforms measures of profitability that include accrual, and that an investor can increase a strategy's Sharpe ratio more by adding just a Cash-Based Operating Profitability Factor (CBOF) to the investment opportunity set than by adding both an accruality factor and a profitability factor.

TL;DR: The authors examined the relation between indexing and active management in the mutual fund industry worldwide and found that active managers are more active and charge lower fees when they face more competitive pressure from low-cost explicitly indexed funds.

TL;DR: This paper found that overconfident chief executive officers were more likely to weaken lending standards and increase leverage than other banks in advance of a crisis, making them more vulnerable to the shock of the crisis.

TL;DR: The authors proposed a simple methodology to evaluate a large number of potential explanations for the negative relation between idiosyncratic volatility and subsequent stock returns, and found that many existing explanations explain less than 10% of the puzzle.

TL;DR: Using US Department of Justice data on local political corruption, this article found that firms in more corrupt areas hold less cash and have greater leverage than firms in less corrupt areas, and that the association between corruption and leverage is largest among firms that operate primarily around their headquarters.

TL;DR: In this article, the authors test the relation between ambiguity aversion and five household portfolio choice puzzles: nonparticipation in equities, low allocations to equity, home bias, own-company stock ownership, and portfolio under-diversification.

TL;DR: This article examined institutional demand prior to well-known stock return anomalies and found that institutions have a strong tendency to buy stocks classified as overvalued (short leg of anomaly), and that these stocks have particularly negative ex post abnormal returns.

TL;DR: The authors survey 79 private equity investors with combined assets under management of more than $750 billion about their practices in firm valuation, capital structure, governance, and value creation, and explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

TL;DR: In this article, the authors derive a welfare-based measure of price informativeness, i.e., the predicted variation of future cash flows from current market prices, and find that the increase is concentrated among firms with greater institutional ownership and share turnover, firms with options trading, and growth firms.

TL;DR: In this paper, the authors investigate how personal characteristics affect people's desire to collaborate and whether this attraction enhances or detracts from performance in venture capital and find that venture capitalists who share the same ethnic, educational, or career background are more likely to collaborate with each other.

TL;DR: This article found that mispricing associated with the 11 long/short anomalies underlying the composite ranking measure appears to be at least as prevalent in developed markets as in emerging markets, among others from tests for biased expectations based on the behavior of anomaly spreads surrounding earnings announcements as well as from within-country variation in development.

TL;DR: In this paper, the authors examine the extent to which institutional investors herd in the U.S. corporate bond market and the price impact of their herding behavior and find that the level of institutional herding in corporate bonds is substantially higher than what is documented for equities, and that sell herding is much stronger and more persistent than buy herding.

TL;DR: In this paper, the U.S. Securities and Exchange Commission (SEC) Regulation FD is used as an exogenous shock to information dissemination, and the authors find evidence consistent with dedicated institutions having an information advantage.