Possible explanations are provided for two basic results in Kräussl's paper. First, rating effect may be stronger in emerging markets because they are less transparent. Transparency is interpreted in the context of Knightian uncertainty and institutional quality. Emerging markets have lower institutional quality ratings and present greater uncertainty than mature markets, therefore, they are more susceptible to rating agencies’ evaluations. Some empirical evidence on the correlations between institutional quality rankings and portfolio investment is presented. Second, sovereign credit downgrades generate a stronger market reaction than upgrades because decision makers value losses more than gains, as posited by cumulative prospect theory.

Previous work by Aggarwal and Samwick [Aggarwal, R., Samwick, A., 1999. The other side of the tradeoff: the impact of risk on executive compensation. Journal of Political Economy 107 pp. 65–105] has documented the importance of controlling for the variance of firm stock returns when estimating pay–performance sensitivities. They find that pay–performance sensitivities are an order of magnitude greater for small vs. large variance firms. Using a comparable sample of CEOs, I provide evidence that when properly controlling for firm size, the negative effect of variance in stock returns on estimated pay–performance sensitivities is greatly diminished. In particular, when using dollar returns as the measure of firm performance, it is imperative to properly control for firm size.

Predictability of future returns using ex ante information (e.g., analyst forecasts) violates market efficiency. We show that predictability can be due to non-random data deletion, especially in skewed distributions of long-horizon security returns. Passive deletion arises because some firms do not survive the post-event long horizon. Active deletion arises when extreme observations are truncated by the researcher. Simulations demonstrate that data deletion induces a negative relation between future returns and ex ante information variables. Analysis of actual data suggests a 30–50% bias in the estimated relations. We recommend specific robustness checks when testing return predictability using ex ante information.

Abstract This paper provides an in depth analysis of an investor's reluctance to realize losses and his propensity to realize gains – a behavior known as the disposition effect. Together, sophistication (static differences across investors) and trading experience (evolving behavior of a single investor) eliminate the reluctance to realize losses. However, an asymmetry exists as sophistication and trading experience reduce the propensity to realize gains by 37% (but fail to eliminate this part of the behavior.) Our research design allows us to follow an individual's behavior from the start of his investing life/career. This ability makes it possible to track the evolution of the disposition effect as it is reduced and/or disappears.Our results are robust to alternative explanations including feedback trading, calendar effects, and frequency of observation.

We investigate the impact that bankers on the board have upon a firm's debt ratio, debt to total capital, 1 year subsequent to their appointment. We find that the presence of lending bankers on a firm's board negatively affects the debt ratio, while the impact of non-lending bankers varies with the firm's probability of financial distress. The results suggest that non-lending bankers provide expertise and certification for distressed firms while exercising a monitoring role for non-distressed firms. In contrast, the results suggest that lenders on the board exercise a monitoring role independent of the firm's financial distress. When combined with established findings in the literature, we conclude that there may be two ways to avoid conflict between a board-appointed banker's fiduciary responsibility and the interests of her bank. When the potential for conflict is high, lenders may forgo board positions, while non-lending bankers may merely alter their role on the board.