This study investigates the role of credit rating agencies in international financial markets. With an index of speculative market pressure it is analyzed whether sovereign ratings changes have an impact on the financial stability in emerging market economies. The event study analysis indicates that sovereign rating changes have substantial influence on the size and volatility of emerging markets lending. The empirical results are significantly stronger in the case of government's downgrades and negative imminent rating actions than in the case of agencies’ positive rating adjustments. Sovereign rating changes anticipated by market participants have a smaller impact on financial markets in emerging economies.

This paper shows the importance of correcting for sample selection when investing in illiquid assets that trade endogenously. Using a sample of 32,928 paintings that sold repeatedly between 1960 and 2013, we find an asymmetric V-shaped relation between sale probabilities and returns. Adjusting for the resulting selection bias reduces average annual index returns from 8.7% to 6.3%, lowers Sharpe ratios from 0.27 to 0.11, and materially impacts portfolio allocations. Investing in a broad portfolio of paintings is not attractive, but targeting specific styles or top-selling artists may add value. The methodology naturally extends to other asset classes.

We estimate the risk and expected return of private equity using market prices of publicly traded funds of funds holding unlisted private equity funds and of publicly traded private equity funds participating directly in private equity transactions. We find that the market expects unlisted private equity funds to earn abnormal returns between –0.5% and 2% per year. In addition, private equity has a market beta close to one and a positive beta on the SMB factor. These listed funds exhibit greater systematic risk than an index based on the self-reported net asset value of unlisted private equity funds.

Institutional investors expect infrastructure to deliver long-term stable returns but gain exposure to infrastructure predominantly through finite-horizon closed private funds. The cash flows delivered by infrastructure funds display similar volatility and cyclicality as other private equity investments, and their performance similarly depends on quick deal exits. Despite weak risk-adjusted performance and failure to match the supposed characteristics of infrastructure assets, closed funds have received more commitments over time, particularly from public investors. Public institutional investors perform worse than private institutional investors. ESG preferences and regulations explain 25%–40% of their increased allocation to infrastructure and 30% of their underperformance.

Multiple blockholder structures are a widespread phenomenon in the U.S. The theoretical literature, however, provides conflicting predictions on whether a single large blockholder or a set of dispersed smaller blockholders is better for firm value. Using U.S. data, we find a negative correlation between Tobin's Q and blockholder dispersion. The findings are robust to a wide variety of model specifications and controls and differ from results for other geographic regions such as Europe and Asia.

We estimate the risk and expected return of private equity using market prices of publicly traded funds of funds holding unlisted private equity funds and of publicly traded private equity funds participating directly in private equity transactions. We find that the market expects unlisted private equity funds to earn abnormal returns between −0.5% and 2% per year. In addition, private equity has a market beta close to one and a positive beta on the SMB factor. These listed funds exhibit greater systematic risk than an index based on the self-reported net asset value of unlisted private equity funds.

This paper examines whether the 2011 European short sale ban on financial stocks proved to be successful or had a negative impact on financial markets. We explicitly take an options market perspective and focus on market participants’ changes in beliefs and expectations. During the ban, short positions in banned stocks decreased, whereas they increased for non-banned stocks. Our results indicate that the ban increased implied jump risk levels, thereby negatively impacting the banned financial stocks. However, we also observe that after the announcement of the ban, financial contagion risk actually dropped for banned stocks. Instead of a substitution effect between regular short selling and synthetic shorting through single stock puts, we observe a migration out of single stock puts into the EuroStoxx 50 index options market. We conclude that this type of migration diversified selling pressure initially concentrated in financial stocks across a larger share of the stock market, thereby reducing systemic risks and enhancing overall financial stability.

__Abstract__ This paper shows the importance of correcting for sample selection when investing in illiquid assets with endogenous trading. Using a large sample of 20,538 paintings that were sold repeatedly at auction between 1972 and 2010, we find that paintings with higher price appreciation are more likely to trade. This strongly biases estimates of returns. The selection-corrected average annual index return is 7 percent, down from 11 percent for traditional uncorrected repeat-sales regressions, and Sharpe Ratios drop from 0.4 to 0.1. From a pure financial perspective, passive index investing in paintings is not a viable investment strategy, once selection bias is accounted for. Our results have important implications for other illiquid asset classes that trade endogenously.

We directly test the reliability and relevance of investee fair values reported by listed private equity funds (LPEs). In our setting, disaggregated fair value measurements are observable for funds’ investees; and investee accounting fundamentals are also publicly disclosed. We find that LPE fair value measurements reflect equity book value and net income in a manner consistent with stock market pricing of listed companies. However, LPE fair value measurements appear to distinguish between Level 1 and Level 3 inputs – they reflect investee net income to a lesser extent for Level 3 inputs. Further evidence based on the stock market pricing of LPE funds indicates that the discretion exercised by LPE fund managers when determining investee valuations is perceived as reliable.

We provide evidence that culture is a source of pricing bias. In a sample of 1.9 million auction transactions in 49 countries, paintings by female artists sell at an unconditional discount of 42.1%. The gender discount increases with measures of country-level gender inequality—even in artist fixed effects regressions. Our results are robust to accounting for potential gender differences in art characteristics and their liquidity. Evidence from two experiments supports the argument that women’s art may sell for less because it is made by women. However, the gender discount reduces over time as gender equality increases.