ABSTRACT We develop a measure of how information events impact investors' expectations of risk. The measure is broadly applicable and simple to implement. We derive it from an option‐pricing model, where investors anticipate an announcement that simultaneously conveys information on the announcer's expected future cash flows and risk profile. We empirically implement the measure using firms' earnings announcements, showing that it closely aligns with our model's predictions and offers strong forecasting power for firms' risk profiles, costs of capital, and future investments. We further highlight pitfalls of using simple changes in option‐implied volatilities to study information gleaned from earnings announcements. Finally, we apply our measure to study disclosure regulation, the efficacy of text‐based proxies, and market‐wide events, which we use to illustrate our measure's uses, and illuminate its potential limitations.

We study the impact of the tournament-like competition in the mutual fund industry by examining the Active Share choices of funds. Funds with relatively poor performance by the end of the third quarter in a calendar year tend to increase their Active Share during the last quarter. The increase in the trailing funds’ Active Share is accompanied by an increase in the funds’ downside risk exposure. The evidence suggests that the strategic shifts in Active Share we document are not information/skill motivated.

Liquidity shocks transmitted through interbank connections contributed to bank distress during the Great Depression. New data on interbank connections reveal that banks were vulnerable to closures of their correspondents and their respondents. Further, banks were less responsive to network liquidity risk in their management of cash and capital buffers after the Federal Reserve was established, suggesting that banks expected the Fed to reduce that risk. The Fed's presence weakened incentives for the most systemically important banks to maintain capital and cash buffers against liquidity risk, and thereby likely contributed to the banking system's vulnerability to contagion during the Depression.

The China Accounting and Finance Review (CAFR) was jointly established in 1999 by the Hong Kong Polytechnic University and Tsinghua University. Over the past 22 years, CAFR has published original papers in accounting and finance with a focus on China-related research. In this article, we review the journal’s publishing patterns and the impactful articles it has published, with the aim of better understanding past research on China-related issues and recent publication patterns and trends as well as developing new insight that may inspire future submissions. We divide past CAFR articles by topic into six groups: (i) information disclosure; (ii) auditing; (iii) corporate governance; (iv) market efficiency; (v) corporate finance; and (vi) miscellaneous. We use these categories as the basis of our review for articles published before 2020. We also summarize articles by their regional setting, research methodology, and authors’ university affiliation. We then highlight the contributions of a few impactful CAFR articles that are actively cited in both the Chinese and English literature. We complement the literature review by going over China’s financial stability research in JFS. We also compare CAFR with other major accounting and finance journals in the Asia-Pacific region. CAFR stands out by welcoming research using a diversity of regional settings and research topics. Finally, we discuss the new editorial strategies that began in 2020. Under the new editorial policy, CAFR now publishes more non-China and more cross-disciplinary studies than it used to. We review several recent publications to demonstrate the change. Going forward, we intend to call for the publication of more high-quality papers in accounting and finance that are not restricted to a region, area, or methodology providing new insights into accounting and finance.

We analyze the impact of Ford Motor Company’s compensation practices on the Detroit-area labor market from 1918 to 1947. Previous studies imply that Ford paid race-independent wages, but its Black workers were sorted into undesirable departments. We extend these results using propensity score reweighting of census data and Ford’s records and confirm that Ford paid equal wages. We then develop a search model with discriminatory and equal wage firms to assess the impact of Ford’s policy on the larger labor market. Calibrated simulations suggest that Ford may have reduced the wage gap in southeastern Michigan by as much as 50%.

This article reviews the history of race laws in the United States as distinct from the rule of law, an idea found in the writing and speeches of Sadie Tanner Mossell Alexander, the first African American PhD in economics (1921). We review the race laws of slavery, lynching, Negro Jobs, and the making of the Black ghetto. We highlight the life and writings of Alexander and other early African American economists as an example of the cost of racial exclusion in the economics profession and how it has impeded the production of useful knowledge about the workings of the US economy. (JEL J15, K38, N31, N32, N41, N42)

Using a comprehensive dataset from German banks, we document the usage of sovereign credit default swaps (CDS) during the European sovereign debt crisis of 2008–2013. Banks used the sovereign CDS market to extend, rather than hedge, their long exposures to sovereign risk during this period. Lower loan exposure to sovereign risk is associated with greater protection selling in CDS, the effect being weaker when sovereign risk is high. Bank and country risk variables are mostly not associated with protection selling. The findings are driven by the actions of a few non-dealer banks which sold CDS protection aggressively at the onset of the crisis, but started covering their positions at its height while simultaneously shifting their assets towards sovereign bonds and loans. Our findings underscore the importance of accounting for derivatives exposure in building a complete picture and understanding fully the economic drivers of the bank-sovereign nexus of risk.