Research


Analyst Forecast Data Feeds Are Not What They Used to Be

February 14, 2018
Working Paper

Since 2001, the number of one-quarter-ahead financial items forecasted by analysts and disseminated via FactSet and I/B/E/S data feeds has risen from 5 to 170+. We show that the income statement, cash flow statement, balance sheet, ratio/other, and KPI forecast surprises related to this dissemination are strongly associated with increases in the information content of earnings announcements. More

Do Investors Actually Value Sustainability? New Evidence from Investor Reactions to the Dow Jones Sustainability Index (DJSI)

February 01, 2018
Article

Research exploring investor reactions to sustainability has substantial empirical limitations, which we address with a large-scale longitudinal financial event study of the first global sustainability index, DJSI World. We examine investor reactions to firms from 27 countries over 17 years that are added, deleted, or continue on the index. More

Status in a Strange Land? Context­ Dependent Value of Status in Cross ­Border Venture Capital

January 25, 2018
Article

While recent literature has depicted status as an intangible asset that is firm-specific and mobile, we have a limited understanding of whether status confers advantage in a way similar to other intangible assets. This study examines the macro-structural contingencies that influence the marginal value of firm status as firms expand to new markets. More

Why has Idiosyncratic Risk been Historically Low in Recent Years?

January 23, 2018
Working Paper

Since 1965, average idiosyncratic risk (IR) has never been lower than in recent years. In contrast to the high IR in the late 1990s that has drawn considerable attention in the literature, average market-model IR is 44% lower in 2013-2017 than in 1996-2000. Macroeconomic variables help explain why IR is lower, but using only macroeconomic variables leads to large prediction errors compared to using only firm-level variables. As a result of the dramatic change in the number and composition of listed firms since the late 1990s, listed firms are larger and older. Larger and older firms have lower idiosyncratic risk. Models that use firm char-acteristics to predict firm-level idiosyncratic risk estimated over 1963-2012 can largely or completely ex-plain why IR is low over 2013-2017. The same changes that bring about historically low IR lead to unusu-ally high market-model R-squareds. More

Insurers as Asset Managers and Systemic Risk

January 08, 2018
Working Paper

Asset fire sales arguably play a critical role in the propagation of systemic risk. We propose a new mechanism whereby financial institutions' business models engender correlated asset portfolios, increasing vulnerability to fire-sales. We use as our laboratory the U.S. life insurance industry, which has experienced a major transformation with the significant expansion of variable annuity (VA) investment products with guarantees, against which insurers have to post reserves and regulatory capital. We develop a theoretical model in which an insurer hedges its guarantee exposure, and, as a result, is incentivized to invest in illiquid assets. More

Mergers and Acquisitions, Technological Change and Inequality

January 07, 2018
Working Paper

This paper documents important shifts in occupational composition following merger and acquisition (M&A) activity as well as increases in median wages and wage inequality. We propose M&As act as a catalyst for skill-biased and routine-biased technological change. We argue that due to an increase in scale, improved efficiency or lower financial constraints, M&As facilitate technology adoption and automation, disproportionately increasing the productivity of high-skill workers and enabling the displacement of occupations involved in routine-tasks, typically mid-income occupations. More

The Option to Quit: The Effect of Stock Options on Turnover

January 01, 2018
Article

We show that in the years following a large broad-based employee stock option (BBSO) grant, employee turnover falls at the granting firm. We find evidence consistent with a causal relation by exploiting unexpected changes in the value of unvested options. A large fraction of the reduction in turnover appears to be temporary with turnover increasing in the third year following the year of the adoption of the BBSO plan. The increase three years post-grant is equal in magnitude to the cumulative decrease in turnover over the three prior years, suggesting that long-vesting BBSO plans delay, instead of prevent, turnover. More

Economic and Financial Integration in Europe

January 01, 2018
Article

We use industry valuation differentials across European countries to study the impact of membership in the European Union as well as the Eurozone on economic and financial integration. In integrated markets, discount rates and expected growth opportunities should be similar within one industry, irrespective of the country, implying narrowing valuation differentials as countries become more integrated. Our analysis of the 1990 to 2007 period shows that membership in the EU significantly lowers discount rate and expected earnings growth differentials across countries. In contrast, the adoption of the Euro is not associated with increased integration. More

Taper Tantrums: QE, Its Aftermath and Emerging Market Capital Flows

January 01, 2018
Working Paper

This paper provides a novel perspective on the impact of U.S. unconventional monetary policy (UMP) on emerging market capital flows and asset prices. Using high-frequency Treasury futures data to identify U.S. monetary policy shocks, we find, through the lens of an affine term structure model, that these shocks represent revisions to both the expected path of short-term interest rates and required risk compensation. The risk compensation component is especially important during the UMP periods. More

Informed Trading Volume and Asset Prices: The Role for Aggressive Investors

January 01, 2018
Working Paper

We examine the trading behavior of particularly aggressive investors, those who contribute the most to daily trading volume, and provide new evidence that is consistent with the presence of informational advantages. Using a unique Chinese data set of the most active daily market participants for each stock, we demonstrate that aggressive investor buying (selling) predicts large positive (negative) abnormal returns, both unconditionally and, in particular, around key, value-relevant announcements. An advantage of our data is that we can also directly identify several plausible channels through which such an informational advantage could arise. More