Abstract We investigate intraday return dynamics in currency markets around FOMC announcements. Using comprehensive high-frequency exchange rate data, we reveal that post-FOMC announcement returns are significantly low, cancelling out approximately 65% of positive pre-FOMC announcement drifts. These post-announcement reversals mainly result from uncertainty resolution and are mostly realized between 12 and 24 hours after FOMC announcements. This return behavior is significantly related to the negative jump volatilities driven by FOMC announcements. Our findings suggest that our signed jump volatility measures capture informational shocks and uncertainty resolutions and tend to be high under illiquid market conditions. (JEL G14, G15)

Abstract Speculative language in corporate disclosures can convey valuable information about firms’ fundamentals. We evaluate this idea by developing a measure for speculative statements based on sentences marked with the “weasel tag” on Wikipedia. In the 16-week test period after filing, greater use of speculative statements in 10-Ks predicts higher and nonreverting abnormal returns, more insider and informed buying, and higher news sentiment. These findings imply that managers’ usage of speculative language in 10-Ks reflects voluntary disclosure of their private information about the positive prospects of events when market implications of the events are uncertain and thus have room for (re)interpretation. (JEL D82, G14, G12)

Abstract This article examines whether agency conflicts introduced by securitization affect servicers’ asset liquidation decisions. We find securitized loans are 25.4–28.5 percent less likely to be liquidated via short sales than portfolio loans. Securitized loan servicers’ bias against short sales does not represent an agency conflict if short sale and real estate owned (REO) liquidations are equally efficient. However, we find REOs have significantly lower average liquidation prices, higher average liquidation expenses, and longer average liquidation times than short sales. Although short sales benefit investors, securitized loan servicers have a financial incentive to pursue REOs.

We demonstrate that a persistent pattern exists in the evolution of the MTB ratio from 1999 to 2023, wherein firms with high (low) MTB ratios tend to maintain those levels over time. The persistence of the MTB ratio is independent of industry effects and cannot be well explained by accounting performance. Intangible investment plays a crucial role in determining the MTB ratio, and its persistence is primarily maintained through continued internal intangible investment rather than external mergers and acquisitions. Moreover, although U.S. firms have increased their investment in intangible assets over the past 25 years, the gap between high- and low-MTB firms in intangible investment has widened. Our results suggest that the basis of stock value has shifted from tangible to intangible investments over time.

Using financial account data linking small businesses to their owner households, we examine how business owners’ consumption responded to changes in business revenues during the COVID-19 crisis. In the first two months following the National Emergency, business revenues declined by 40 percent, largely driven by national factors rather than local infection rates or policies. However, the pass-through of revenue losses to owner consumption was limited: each dollar of revenue loss resulted in only a 1.6-cent decline in consumption. This muted pass-through persisted through 2021, even after the introduction of COVID-19 vaccines. Our findings suggest that federal subsidies and pandemic-induced reductions in spending opportunities explain the limited impact.

We challenge the existing relationship lending literature on how banks manage their relationships with corporate borrowers during crises. We test theories of intertemporal smoothing during the closure period of the COVID-19 crisis when borrowers are in great need of relationship benefits. We find that relationship borrowers receive worse rather than more favorable loan contract terms than others during this period. These and other results provide novel evidence on the functioning of relationship lending during a pandemic and contrast existing evidence gleaned from banking and financial crises.

Abstract Professional skepticism is an essential element of a healthy audit. In this study, we present a framework in which the two elements of professional skepticism—skeptical judgment and skeptical action—differ in that skeptical judgment involves paying attention to audit risks, whereas skeptical action often involves overcoming personal risks. This distinction suggests that the optimal conditions for skeptical judgment may differ from the optimal conditions for converting that judgment to skeptical action. Specifically, interventions that promote vigilance will facilitate judgment because they make potential accounting issues salient, but such a focus will also draw attention to potential adverse consequences of taking action. To test this proposition, we conduct two studies in which we align skeptical judgment and skeptical action with two pairs of distinct and contrasting mindsets to operationalize differential vigilance. Our results suggest a duality in skepticism which has important implications for researchers and practitioners designing interventions to improve audit quality.

This study examines the impact of European Central Bank (ECB) monetary policy surprises on economic uncertainty and investor risk aversion. We identify four factors using a high-frequency event-study approach. These factors measure surprises regarding the current setting of policy rates (Target), the bank’s future policy path (Forward Guidance), and quantitative easing (QE). The fourth factor reflects unexpected news about future macroeconomic conditions. Our main finding is that quantitative tightening surprises, proxied by positive QE surprises, increase economic uncertainty and investor risk aversion. Additionally, we document the significant response of key macroeconomic variables to these surprises.