This study examines the information content of stock option-implied volatility. We measure the arrival intensities and magnitudes of scheduled and unscheduled news as well as fundamental and non-fundamental news. Most of these news measures exhibit strong and positive associations with contemporaneous stock return volatility, and many of them can be predicted by implied volatility. Approximately one third of the predictive power of implied volatility on future realized volatility can be attributed to its ability to predict these news measures, with the majority of the predictive power arising from its capacity to predict the arrival intensities of both scheduled and unscheduled news. The predictive power is higher for fundamental news than for non-fundamental news.

We provide novel insight into how hedge funds value sell-side analysts’ work product using analysts who are selected to Alpha magazine's All-star analyst research team. Alpha’s rankings are constructed using a methodology identical to its sister publication, Institutional Investor, except that only ballots from hedge funds are tallied. When compared to other institutional investors, hedge funds prefer analysts that provide more frequent earnings forecast and recommendation revisions. Consistent with hedge funds placing a greater value on negative private information, hedge funds favor analysts that provide less optimistic recommendations, issue more recommendation downgrades, and provide lower price targets. We also find that hedge funds exhibit a preference for analysts who systematically change their recommendations in the same direction as prior-quarter hedge fund portfolio activity. This activity is most consistent with analysts using their recommendations to curry favor with hedge fund managers.

This study shows how professional ties assist directors in gaining future board positions when their reputation is tainted by accounting fraud. We demonstrate that the influence of professional ties is more prominent for directors who are more heavily impacted by fraud. This effect is also stronger when directors share professional ties with key board members in the appointing firms. Additional tests show that appointments of these directors are associated with more favorable market reactions compared to appointments of other tainted directors. We also find that firms’ financial reporting quality improves after appointing professionally connected tainted directors.

This study examines how movements in a firm’s exposure to foreign exchange (forex) rates affect the properties of analysts’ earnings forecasts. Our results suggest that analysts’ forecast errors and dispersion increase with an increase in forex exposure within firms. These findings are robust to a wide range of robustness tests, including a quasi-experimental setting based on the sudden unpegging of the U.S. Dollar against the Chinese Yuan. Additional tests reveal that analysts spend more effort forecasting when firms experience an increase in forex exposure. Consistent with an increase in uncertainty of firm outcomes representing the primary channel through which forex exposure affects analysts’ forecasts, we find that the effect of forex exposure is heightened in the presence of greater volatility in the U.S. Dollar. However, we also find that more readable annual reports and higher media coverage can help improve the quality of analysts’ forecast properties for firms with increasing forex exposure. We also present evidence of some benefits analysts can realize from coverage of high forex exposure firms through generating greater stock trading and securing positions in more prestigious brokerage firms.

We develop a novel method to decompose a straddle into two assets: a volatility risk asset and a jump risk asset. Using the price ratio of the jump risk asset to the straddle, we create a forward-looking measure (S-jump) that captures the stock price jump risk anticipated by the option market. We show that S-jump substantially increases before earnings announcements and strongly predicts the size and the probability of earnings-induced stock price jumps. We also find that S-jump amplifies the earnings response coefficient. Our jump risk asset captures the run-up and run-down return patterns observed for straddles around earnings announcements.

In this paper, the relation between the signs of recent returns (an up-down pattern) and the net trading of individual investors is studied. Using our comprehensive dataset from the Taiwan Stock Exchange, we find that following positive days, individual investors sell more stocks than they buy — a negative buy-sell imbalance — while following negative days, this imbalance is positive. The signs of more recent returns have stronger impacts on imbalance. The subsequent performance of this trading behavior is poor, indicating that individual investors in Taiwan make suboptimal decisions, and they are unlikely to make information-based trades. Thus, the liquidity provision explanation in the literature is not applicable to our sample.

We find that managers receive more risk-taking incentives in their compensation packages once their firms are referenced by credit default swap (CDS) trading, particularly when institutional ownership is high and when firms are in financial distress. These findings provide suggestive evidence that boards offer pay packages that encourage greater risk taking to take advantage of the reduced creditor monitoring after CDS introduction. Further, we show that the onset of CDS trading attenuates the effect of vega on leverage, consistent with the threat of exacting creditors restraining managerial risk appetite.

Using the geographic location data of 218,554 commercial bank branches in China, we find that an increasing number of bank branches in the vicinity of enterprises, namely bank competition, leads to higher corporate employment, particularly for non-SOEs and SOEs with less government influence. Channel analyses reveal that better access to banking facilitates information extraction and eases credit constraints for surrounding firms, which thus increases labor investment. In addition, fintech development moderates the positive effect of bank competition on corporate employment. An exogenous policy shock as well as two instrumental variables, are used to correct for endogeneity and our results remain consistent. The findings are also robust to alternative samples, proxies, and different fixed effects. Further analyses show that bank competition improves firms’ labor investment efficiency and upgrades their employment structures. Lastly, increased employment improves the firm performance of non-SOEs.