We utilize the default by Argentina in 2001 and the Global Financial Crisis in 2008, as natural experiments, to monitor the complex interactions between sovereign bonds when subjected to endogenous and exogenous shocks. By forming pairs of Latin American sovereign bonds, bundled into similar maturity class, the analysis highlights the complex nature of risk shifting, and the temporal nature of the volatility transmission and sharing mechanisms in the lead up to, and after, a crisis period. The results show that shorter maturity groups and longer maturity groups behave in fundamentally different ways in terms of volatility transmission, while one or two leading countries act as regional benchmarks. The dynamics are consistent with temporal but segmented investor preferences, with the arrival of crisis contributing to a breakdown in the previous relationships. In addition, there is additional economic benefit from utilizing knowledge of the volatility structure underlying the historic transmission channels to improve the portfolio outcomes of market participants.

Inside traders are well-documented to leverage private idiosyncratic information for personal gain in centralized exchanges such as stock markets. Evidence is rare, however, for decentralized and fragmented over-the-counter markets with microstructure properties that make them particularly vulnerable to stealth trading. The 2015 criminal conviction of Hill and Kamay for foreign exchange insider trading is the first in over-the-counter markets. We analyze their actions to show the complex, strategic decision-making of insiders even in opaque markets where they run a low risk of detection and prosecution: they trade when the market is most sensitive to local information, carefully choose and time their trades to minimize the risk of confounding information disclosures that may affect their profits, as well as act during high noise trading to mask their trades. Our results are consistent with evidence on insider trading in stock markets. We highlight the limitations of regulatory control in over-the-counter markets where technology-based surveillance methods are ineffective, while reinforcing the importance of whistleblowers in detecting and preventing insider trading.

We study share repurchase announcements for nine European countries between 2000 and 2017. In contrast to previous studies, we address the role of market uncertainty as a market-based determinant of positive average abnormal announcement returns, while including governance, liquidity risk and firm related control variables. Economic policy uncertainty and financial uncertainty, individually as well as jointly, positively affect abnormal returns. We suggest that this relation is due to a stronger signaling effect under increased uncertainty, as both information asymmetry and underpricing tend to increase. Also, a potential hedge against adverse market movements is more valuable. Optimal timing of repurchase announcements should therefore consider market uncertainty conditions.

Abstract What drives the compensation demanded by investors in risky bonds? Longstaff and Schwartz (1995) predict that one key factor is the time-varying negative correlation between interest rates and the yield spreads on corporate bonds. However, the effects of callability and taxes also need to be considered in empirical analyses. Canadian bonds have no tax effects, yet, after controlling for callability, the correlation between riskless interest rates and corporate bond spreads remains negligible. Our results provide support for reduced-form models that explicitly define a default hazard process and untie the relation between the firm’s asset value and default probability.

• We investigate illegal insider trading in China’s stock market. • Cross-provincial variation in legal quality affects insider-trading profitability and risk. • Stronger legal environments raise regulatory risk and enhance pricing efficiency. • Results show evidence consistent with deterrence in the form of fewer low-return trades. • Lower information efficiency enhances the positive impact of legal quality on insider-trading profitability. This study examines how provincial legal environments shape the profitability of illegal insider trading in China. Using 521 adjudicated insider-trading cases from 2006 to 2018, we hand-collect detailed information from court judgments and CSRC sanction documents to reconstruct holding-period returns and illicit gains. We combine these data with established provincial indices of legal development and firm-level measures of ex ante litigation risk to test whether legal risk is priced in illegal insider trades. We find that stronger provincial legal environments are associated with significantly higher per-trade profitability among illegal trades that insiders execute after accounting for enforcement risk. This pattern is consistent with a risk-compensation mechanism rather than a failure of enforcement, as stricter legal environments deter low-return trades and leave only trades with sufficiently high expected gains. Firm-level litigation exposure further strengthens this effect. The results remain robust to sample-selection corrections, alternative return measures and a range of heterogeneity tests. Overall, our findings show how institutional variation in enforcement shapes insider incentives and the risk–return trade-off of illegal trading.

Internationalization enables multinational corporations (MNCs) to diversify their sources and types of debt, as well as earnings, although doing so can negatively impact firm risk and the agency costs of debt. Utilizing a primary sample of United States (US) based MNCs compared with domestic corporations (DCs), we find that MNCs are indeed riskier than DCs when considering systematic risk. Further, recognizing the heterogeneity of long-term debt, we find these MNCs consistently maintain a higher convertible debt ratio compared to DCs. We argue this is to mitigate the agency costs related to the asset substitution problem.

We examine the influence of both organizational and geographical religiosity, as important ethical parameters moderating a bank’s decision to securitize their assets. The study employs a unique database of banks located within countries marked by high (low) religious adherence. Our results provide evidence that different measures of religiosity affect a bank’s decision to securitize their assets: Banks located in countries with high religious adherence are less likely to engage with securitization compared to banks in countries with lower religiosity, while Islamic banks have a higher likelihood of embarking on a highly monitored model of asset securitization in contrast to conventional banks. When examining the motives underlying a bank’s decision to securitize assets, there is strong evidence that Islamic banks securitize their assets to improve their portfolio diversification, financial performance, and regulatory compliance. This study highlights the importance of considering informal ethical mechanisms, such as religiosity, at both the country and firm levels, when studying bank risk-taking and trading decisions, especially in countries with dual banking systems.

Convertible bonds are an important segment of the corporate bond market although their pricing is compromised by the presence of complex option features and difficulty in measuring the risk factors needed as inputs to standard valuation models. Using a unique sample of pure U.S. convertible bonds, devoid of other optionality, we show that underpricing is affected mainly by the degree of underlying asset volatility and liquidity. Convertible bonds with a greater debt component (more credit sensitive), longer time to maturity and lower quality credit ratings are also found to be more underpriced. The global financial crisis (GFC) is an episode with high-underlying asset volatility and one subject to short-selling constraints. During this period there was deep convertible bond discounting, which highlights the importance of market conditions and the temporal, rather than systematic, nature of the pricing errors.

This study examines the impact of foreign controlling shareholder trust on firm market risk using two measures of total and idiosyncratic risk. An extensive global sample of 12,496 firm-year observations from 43 countries is employed. The results show that firms controlled by foreign trusting shareholders display lower levels of risk in both market measures. Trust appears more important for firms based in countries with a less favourable institutional environment, whereby it varies with the investment horizon of foreign controlling shareholders. The results are robust after controlling for cultural measures, endogeneity, selection bias and alternate model specifications.