We examine how hometown, school, and workplace ties between financial analysts and mutual fund managers affect their business decisions. We show that a fund manager is more likely to hold stocks covered by analysts with whom she is socially connected, and that she also makes higher profits from these holdings. Such social tie-related holding returns are higher among more opaque firms. In return, a fund manager tends to cast her star analyst votes in favor of her connected analysts, and her fund company is more likely to allocate trading commissions to her connected analysts' brokerages. Additional tests indicate that analysts more actively acquire information (through conducting corporate site visits) and issue more optimistically biased recommendations for stocks held by fund managers with whom they are connected. Overall, our results illustrate the pronounced influence of social networks on the behaviors of analysts and fund managers. JEL Classifications: G10; G23; M40. Data Availability: Data are available from the public sources cited in the text.

We develop a state‐of‐the‐art fraud prediction model using a machine learning approach. We demonstrate the value of combining domain knowledge and machine learning methods in model building. We select our model input based on existing accounting theories, but we differ from prior accounting research by using raw accounting numbers rather than financial ratios. We employ one of the most powerful machine learning methods, ensemble learning, rather than the commonly used method of logistic regression. To assess the performance of fraud prediction models, we introduce a new performance evaluation metric commonly used in ranking problems that is more appropriate for the fraud prediction task. Starting with an identical set of theory‐motivated raw accounting numbers, we show that our new fraud prediction model outperforms two benchmark models by a large margin: the Dechow et al. logistic regression model based on financial ratios, and the Cecchini et al. support‐vector‐machine model with a financial kernel that maps raw accounting numbers into a broader set of ratios.

This study examines whether international tourism affects financial market investments. Using over two decades of data for more than 30 countries, we find that recreational travel between countries is associated with higher levels of foreign equity investments and reduced home bias. This evidence of tourism-induced foreign investment is consistent with the familiarity hypothesis and is unlikely to reflect superior information. We alleviate potential endogeneity concerns using several econometric techniques, including instrumental variables, quasi-natural experiments, and multiple placebo tests. Collectively, these results suggest that tourism has positive externalities in financial markets.

Financial distress is a prevalent issue among the youth. An influential stream of literature has argued that religion wields significant influence over human life. Using a representative sample of U.S. young people, we explore whether religiosity matters for financial distress. To deal with endogeneity issue, we exploit arguably exogeneous within-school variation in adolescents’ peers. By instrumenting an adolescent's own religiosity with the religiosity of their school peer group, we find that higher levels of religiosity causally and significantly reduce the likelihood of financial distress at young adulthood. Our results withstand a variety of robustness checks. To shed light on the mechanisms, we explore the impact of religiosity on an individual's sociability and various psychological attributes. We find that more religious individuals hold higher levels of self-control, a crucial attribute that aids in averting financial distress. Our study contributes to the literature by providing rigorous causal evidence that identifies religiosity as a meaningful predictor of reduced financial distress among young adults.

This study examines intraday momentum in the unexplored VIX futures market and verifies its existence through various empirical tests. The intraday momentum of VIX futures appears to be robust across contracts with different expirations, intraday returns with different time intervals, different trading sessions, and multiple sub-periods. We propose that the hedging demand of VIX option market makers may contribute to the intraday momentum. Our empirical evidence shows that intraday momentum persists only when the net gamma exposure of VIX options is negative and the effect weakens when European investors are away from the market, supporting our proposed explanation. Strikingly, we also find that trading strategies based on intraday momentum can generate an average annualized return of up to nearly 18%.

Siblings are important sources of support. Male siblings, in particular, are valuable extended family resources in patriarchal societies such as China. This paper examines the effects of the number of brothers on household stock market participation in China. We find that having more brothers increases both the probability of stock market participation and the portfolio share in stocks. This positive effect is more pronounced for individuals who face high income risk, suffer from poor health, lack private insurance, and reside in areas with low financial development and high gender discrimination. In addition, the brother effect persists in recent periods. This evidence highlights the importance of informal risk-sharing networks in household investment decisions. Our results imply that demographic changes such as fertility decline might have unnoticed but sizable impacts on household portfolio choice, especially in countries with strong family ties.

A country’s economic growth exhibits a significant response to sovereign rating changes: a one-notch upgrade (downgrade) causes an increase (decline) of about 0.6% (0.3%) in re-rated countries’ five-year average annual growth rates. The results hold after accounting for other determinants of economic growth and potential endogeneity problems, and are robust to the use of quarterly data. Changes in country rating affect economic growth via the interest-rate and capital-flow channels: narrower sovereign bond yield spreads and increased capital inflows are associated with upgrades, which stimulate re-rated countries’ economic performance, and the converse holds for downgrades.

Detecting contagion during financial crises requires the demarcation of crisis periods. We develop a method for endogenously dating both the start and finish of crises, along with measuring contagion effects. Identification is achieved by coupling smooth transition functions with structural GARCH. In an application to US equity, bond and REIT returns for 2001–2010, we identify four phases; a pre-crisis period to July 2007, two phases of crisis up to and following October 2008, and a post-crisis phase from mid-May 2009. We detect significant contagion during the crisis and find evidence that the post-crisis period has not returned to pre-crisis relations.

Sovereign credit rating changes have an influence on real private investment of re-rated countries. We find significant increases in private investment growth following upgrades in sovereign ratings. These increases, however, are transitory. We also find significant, temporary declines in private investment growth following sovereign rating downgrades. The results hold after accounting for re-rated countries’ growth opportunities, endogeneity, and other factors that could affect private investment. The irreversible nature of investment may be the explanation for the temporary changes in the growth rates of physical capital investment associated with revisions in sovereign credit ratings.

We ask how export demand shocks associated with the Asian financial crisis affected Chinese exporters. We construct firm-specific exchange rate shocks based on the precrisis destinations of firms' exports. Because the shocks were unanticipated and large, they are a plausible instrument for identifying the impact of exporting on firm productivity and other outcomes. We find that firms whose export destinations experience greater currency depreciation have slower export growth and that export growth leads to increases in firm productivity and other firm performance measures. Consistent with “learning-by-exporting,” the productivity impact of export growth is greater when firms export to more developed countries.