We examine the economic determinants of short-sale supply, and its consequences for future stock returns. Lendable supply increases with expected borrowing costs and decreases with financial statement constructs that indicate overvaluation. Although rising loan fees help ease supply constraints, we find shares are still least available when they are most attractive to short sellers. Using a number of firm characteristics, we derive useful instruments for real-time loan supply and demand conditions in the lending market. Further, we show that (1) when lendable supply is binding (non-binding), short-sale supply (demand) is the main predictor of future stock returns, (2) abnormal returns to the short-side of nine well-known market anomalies are attributable solely to “special” stocks, and (3) loan fees significantly reduce the profitability of the short side and several of these anomalies cease to be profitable. Overall our evidence highlights the central role played by the supply of lendable shares in equity price formation and returns prediction.

Central Bank supervision is one of the pillars of capital regulation. Based on a unique database built using supervision data from the Central Bank of Brazil, we evaluate the effectiveness of the Central Bank's supervision over banks given the Central Bank's proprietary credit rating and signaling requests for higher capital buffers. We also examine the main determinants of capital buffer management in addition to supervision. We find evidence that (i) Brazilian Central Bank supervision imposes excess capital buffer needs on banks, especially small and midsize banks; (ii) market discipline may play no role in driving capital ratios; and (iii) the business cycle has a negative influence on bank capital cushions, suggesting pro-cyclical capital management. We conclude that supervision plays a major role in markets where market discipline is weak and for smaller banks which act on pro-cyclical way.

We study how firms engaged in both R&D and fixed investment manage liquidity and adjust real investment during the recent financial crisis. Among firms with positive R&D expenditures, cuts to fixed investment in the crisis are typically far more severe than cuts to R&D. These firms allocate cash reserves to buffer R&D but do not use cash to protect fixed investment. Some firms appear to go so far as to allow the stock of fixed assets to fall to stabilize R&D. The use of cash holdings and fixed assets to protect R&D is particularly strong among firms most likely to face financing frictions at the start of the crisis. We only find evidence that firms use cash to buffer fixed investment when we expand the sample to include firms with no R&D spending to compete for funds. Our study provides direct evidence on the real effects of liquidity management, highlights a key benefit of precautionary cash reserves, and illustrates the adjustments firms make to navigate a financial crisis.

Using hand-collected data on analyst locations, we study how geographic proximity affects analyst coverage decisions for U.S. firms that went public during 1996–2009, along with the impact of local coverage on firm visibility. Analysts are 80% more likely to cover local firms than non-local ones, and nearby non-underwriter analysts initiate coverage one to three weeks earlier than distant ones. Proximity matters most for smaller, less visible firms, for firms with less complex operations and for lower status analysts. Less visible firms may use local analyst coverage as a stepping-stone to increase visibility with other analysts and institutional investors.

This paper empirically tests the association between genetically determined resistance to infectious disease and cross-country health differences. A country-level measure of genetic diversity for the system of genes associated with the recognition and disposal of foreign pathogens is constructed. Genetic diversity within this system has been shown to reduce the virulence and prevalence of infectious diseases and is hypothesized to have been naturally selected from historical exposure to infectious pathogens. Base estimation shows a statistically strong, robust, and positive relationship between this constructed measure and country-level health outcomes in times prior to, but not after, the international epidemiological transition.

In this study, we test for the possible contagion effects of the 10-year Greek government bond yield. We first employ the well-documented adjusted correlation coefficient of Forbes and Rigobon (2002) and then we estimate an exponential generalized autoregressive conditional heteroskedasticity model extended for volatility spillovers. Finally, we propose an extension of the corrected Dynamic Conditional Correlation (cDCC) model, which allows for structural breaks in the correlation dynamics. The suggested cDCC specification provides a natural testing framework for the correlation contagion hypothesis. Compared with other similar approaches, the proposed structural break cDCC approach allows for consistent inferences. The results do not confirm any contagious effects stemming from the 10-year Greek sovereign bond.

Prior work finds that managers beneficially time their purchases, but not sales, prior to forecasts. Focusing on if (as opposed to when) a forecast is given, we link insider selling to silence in advance of earnings disappointments. This raises the question of whether the absence of incriminating trading drives reductions in litigation risk potentially attributed to warnings. We find that the absence of a warning combined with the presence of selling exacerbates the consequences associated with the individual behaviors. Yet, selling prior to a warning typically does not offset all of the warning׳s benefit. In so doing, we supply the first robust evidence of a litigation benefit associated with warning.