We examine whether investors are able to fully anticipate the pricing implications of cash flow hedges in the banking industry. We show that mark-to-market adjustments on cash flow hedges are inversely related to future cash flows and that investors underestimate the extent of this inverse relation. Our evidence supports the notion that incomplete information on value relevant parameters makes it difficult for investors to accurately predict the effects of current cash flow hedge adjustments on future cash flows. Our results are also consistent with the evidence that investors have limited attention such that information, particularly information that is difficult to discern, is not fully reflected in stock prices. Thus, the additional disclosures mandated by regulatory agencies in the banking industry are not sufficient to overcome the challenges associated with incomplete information and investors’ limited attention.

This study assesses whether the widely documented momentum profits can be attributed to time-varying risk as described by a GJR-GARCH(1,1)-M model. We reveal that momentum profits are a compensation for time-varying unsystematic risks, which are common to the winner and loser stocks but affect the former more than the latter. In addition, we find that, perhaps because losers have a higher propensity than winners to disclose bad news, negative return shocks increase their volatility more than they increase those of the winners. The volatility of the losers is also found to respond to news more slowly, but eventually to a greater extent, than that of the winners.

Our study examines how the adoption of the inevitable disclosure doctrine (IDD) across US state courts affects the relationship between leverage and CEO compensation. We find that the IDD adoption significantly attenuates the typically positive association between leverage and CEO pay. This effect is more pronounced for CEOs with higher ex-ante mobility, greater career concerns, weaker organizational influence, and higher firm-specific skills. Rejecting the IDD, on the other hand, amplifies the positive relationship between leverage and CEO pay. Our findings underscore the influence of labor market dynamics on CEO compensation.

We introduce a novel weighted least squares approach to estimate daily realized covariation and microstructure noise variance using high-frequency data. We provide an asymptotic theory and conduct a comprehensive Monte Carlo simulation to demonstrate the desirable statistical properties of the new estimator, compared with existing estimators in the literature. Using high-frequency data of 27 DJIA constituting stocks over a period from 2014 to 2020, we confirm that the new estimator performs well in comparison with existing estimators. We also show that the noise variance extracted based on our method can be used to improve volatility forecasting and asset allocation performance.

This study investigates the sources of bank productivity growth in China over the period 2002–2009. In order to perform this research, we propose an advanced index – input slack-based productivity index (ISP) – a model that disaggregates total factor productivity growth into each input productivity change. Funds, capital, and employees are chosen as the inputs, whereas loans and other earning assets are outputs in this study. Our results show that technological gains transcend the efficiency regressions and result in total factor productivity growth. More specifically, technical progress in capital productivity reveals the dominant force behind the total factor technical change and productivity improvement. In addition, this paper uses these disaggregation terms to find out the competitive advantages and disadvantages of input usages for each Chinese bank. These findings indicate that the ISP index provides more insights than traditional total factor productivity indices.

In recent years, firms have increasingly come under scrutiny from environmental, social, and governance (ESG) rating agencies which systematically assess and publicize ESG-related information to diverse stakeholders. This study aims to investigate whether firms exhibit a heightened incentive to avoid ESG-related regulatory violations once they come under the coverage of ESG rating agencies. Analyzing data spanning from 2000 to 2018 and considering the coverage provided by four prominent ESG rating agencies to U.S. firms, we leverage the staggered initiation and intensity of this coverage. Our findings reveal a negative correlation between ESG violations and the commencement and extent of coverage by ESG rating agencies. This relationship is particularly pronounced for firms characterized by lower levels of corporate monitoring as indicated by fewer analysts providing coverage, limited media attention, weaker ESG commitments, and less disparate ESG ratings. Taken together, our study sheds light on the monitoring role of ESG rating agencies, illustrating their significance in incentivizing managers to mitigate ESG violations.

This paper investigates whether investors can earn higher profits by holding cryptocurrencies with higher downside risk. Both portfolio-level analyses and cryptocurrency-level cross-sectional regressions suggest a positive cross-sectional relation between downside risk and future returns in the cryptocurrency market. In addition to the risk-return tradeoff theory, the limits-to-arbitrage theory also has some explanatory power for these results. Moreover, we examine the source of downside risk premium, the existence of upside risk premium, as well as the intertemporal relation between downside risk and future returns. Collectively, our findings highlight the important role of downside risk in determining cryptocurrency prices.