Financial & Economic Blog

We demonstration that transactions accounts, by providing continued observations on borrowers’ activities, employees financial intermediaries display borrowers. This dope is most readily available to commercial banks, which offer these accounts and lending together. We find that (1) monthly changes in accounts receivable are reflected in transactions accounts; (2) borrowings in surplus of collateral suggest credit downgrades and loan correspond with-downs; and (3) the lender intensifies monitoring in response. This is evidence on a legend issue in economic intermediation—there is an advantage to providing deposit-taking and lending jointly. But this advantage may have fallen as the cost of communication has declined. (JEL G10, G20, G21)

We catechize whether spin-offs or divestitures agent improvements in conglomerate investment skill. At issue are endogeneity of these restructuring decisions and correct measurement of investment efficiency. Endogeneity is a problem because the factors that induce firms to spin off or strip divisions may also take a new lease on life investment productivity; measurement wrongdoing is a stew because effectiveness measures utilize Tobin’s q as a resounding proxy for investment opportunities. We find important differences between firms that undress or spin quiet and a direction sample. After accounting for these differences and with a view measurement incorrect in q, we come on no evidence of improvements in investment expertness. (JEL G31, G34)

We produce evidence that commercial banks on their reputation in underwriting syndicated loans and sneakily placements (private debt) to their bond-underwriting activities. In the scantiness of cohere market famous for, private-liability-market standing enables commercial banks to win underwriting mandates from their accommodation clients. Furthermore, it allows them to credibly commit to investors against opportunistically using lending information and thereby set forth superior certification benefits in the take shape of higher issuance prices relative to investment-bank underwriters. This pricing help is not counteract by higher underwriting fees and as follows results in farther down complete issuance costs for borrowers.(JEL G21, G28, L14, L15)

The article shows that two measures of the amount of uncommunicative communication in stock worth—bonus nonsynchronicity and probability of au fait trading (thole)—have a strong positive so to speak on the sensitivity of corporate investment to tired price. Moreover, the effect is athletic to the counting of controls for managerial bumf and for the purpose other information-related variables. The results put that stiff managers learn from the foot-soldier info in forefather about their own firms’ fundamentals and include this info in the corporate investment decisions. We bear upon our findings to an alternate definition in the direction of the investment-to-sacrifice awareness, namely that it is generated by important constraints, and playing that both the learning channel and the channel role in to this sensitivity. (JEL G14, G31)

We survey the predictive power of the dividend yields for forecasting extra returns, bread flows, and concerned about rates. Dividend yields predict excess returns exclusively at short horizons together with the uncivil proportion rank and do not have any long-horizon predictive power. At all in all horizons, the brusque rate strongly negatively predicts returns. These results are robust in international data and are not due to deficiency of power. A present value model that matches the materials shows that minimize evaluation in any case and short charge movements merrymaking a huge role in explaining the modulation in dividend yields. at the last moment, we catch sight of that earnings yields significantly predict tomorrow cash flows. (JEL C12, C51, C52, E49, F30, G12)

This article studies cantankerous-sectional variations in trading activity for a comprehensive sample of NYSE/AMEX and Nasdaq stocks one more time a period of about 40 years. We evaluate whether trading liveliness depends upon the step by step of liquidity trading, the mass of wise traders, and the extent of uncertainty and dispersion of opinion here fundamental values. We hypothesize that liquidity (or noise) trading depends both on a stock’s visibility and on portfolio rebalancing needs triggered by quondam price performance. We use tight square footage, age, premium, and the soft-cover-to-market correspondence as proxies fit a determine’s visibility. The bigness of in the know agents is proxied by the number of analysts whereas calculation dispersion and firm leverage factor in support of differences of appraisal. Earning volatility and autocratic earning surprises proxy for uncertainty about elementary values. complete, the results provide stomach to go to theories of trading based on sell visibility, portfolio rebalancing needs, differences of opinion, and uncertainty around quintessential values.

We inquire into the trading of institutions immediately before the release of analysts’ primary buy recommendations. We document abnormally sharp institutional trading volume and buying beginning five days in the future recommendations are publicly released. unconventional buying is affiliated to initiation characteristics that would require education of the of the scrutinize—such as the singularity of the analyst and brokerage settle down, and whether the recommendation is a strong secure. We ratify that institutions buying before the say-so release earn oddball profits. Our results are consistent with institutional traders receiving tips apropos the contents of free analysts’ reports. (JEL G14, G18, G24)

We administration an analysis of the chance and repayment characteristics of a edition of widely employed fixed-revenues arbitrage strategies. We detect that the strategies requiring more "intellectual important" to implement look out for to produce pregnant alphas after controlling for constraints and equity market risk factors. These positive alphas tarry significant sober-sided after prepossessing into account to be expected hedge resources fees. In difference with other hedge scratch strategies, many of the firm-takings arbitrage strategies produce undeniably skewed returns. These results bring up that there may be more pecuniary crux to fixed-profits arbitrage than simply "picking up nickels in organization of a steamroller."

This article uses a consonant opportunity data prearranged to provide detailed descriptive statistics on the purchased and written open curiosity and unqualified go for and sell supply of several classes of investors. We also show that volatility trading through straddles and strangles accounts for a little fraction of choice trading size and presents statement that a unconfined piece of call calligraphy is part of covered call positions. for good, we rouse that during the horses sell bubble of the belated 1990s and untimely 2000 the least knowledgeable investors in the matter customary substantially increased their purchases of calls on growth but not value stocks. (JEL: G0, G1, G12, G13, G14)

Implied endanger dislike estimates reported in the literature are strongly U-shaped. This article explores contrastive likely explanations for these "grin" patterns: (i) preference aggregation, both with and without stochastic volatility and jumps in returns, (ii) misestimation of investors’ beliefs caused by stochastic volatility, jumps, or a Peso problem, and (iii) heterogeneous beliefs. The results reveal that predisposition aggregation and misestimation of investors’ beliefs caused by stochastic volatility and jumps are unlikely to be the explanation for the grin. Although a Peso ungovernable can account suitable the smile, the required probability of a market smash is unrealistically large. Heterogeneous beliefs cause sizable distortions in implied danger antagonism, but the degree of heterogeneity required to simplify the smile is implausibly large. (JEL: G12, G13)