A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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Results 9 resources
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This paper revisits the staggered board debate focusing on the long-term association of firm value with changes in board structure. We find no evidence that staggered board changes are negatively related to firm value. However, we find a positive relation for firms engaged in innovation and where stakeholder relationships matter more. This suggests that staggered boards promote value creation for some firms by committing the firm to undertaking long-term projects and bonding it to the relationship-specific investments of its stakeholders. Our results are robust to matching procedures and an exogenous change in Massachusetts corporate law that mandated staggered boards.
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Using distinct features of corporate bond exchange-traded funds (ETFs), I find that financial innovation has a significant and long-term positive valuation impact on the systemically important underlying securities. A one standard deviation increase in ETF ownership reduces high-yield and investment-grade bond spreads by 20.3 and 9.2 basis points, respectively, implying an average monthly price increase of 1.03% and 0.75%. Two novel quasi-natural experiments exploit exogenous changes in ETF eligibility to confirm the effect. Examining theoretical explanations for the effect, I find that ETFs decrease liquidity trader participation, increase institutional ownership, and insignificantly or negatively impact the liquidity of individual bonds.
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This paper investigates how dealers’ trading relations shape their trading behavior in the corporate bond market. Dealers charge lower spreads to dealers with whom they have the strongest ties and more so during periods of market turmoil. Systemically important dealers exploit their connections at the expense of peripheral dealers as well as clients, charging higher markups than to other core dealers. Also, intermediation chains lengthened by 20% following the collapse of a flagship dealer in 2008 and even more for institutions strongly connected to this dealer. Finally, dealers drastically reduced their inventory during the crisis.
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This paper explores flow patterns in corporate bond mutual funds. We show that corporate bond funds exhibit a concave flow-to-performance relationship: their outflows are sensitive to bad performance more than their inflows are sensitive to good performance. Moreover, corporate bond funds tend to have greater sensitivity of outflows to bad performance when they have more illiquid assets and when the overall market illiquidity is high. These results point to the possibility of fragility in the fast-growing corporate bond market. The illiquidity of corporate bonds may generate a first-mover advantage among investors in corporate bond funds, amplifying their response to bad performance.
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We advocate the use of excess returns rather than yields or log prices in analysing the risk neutral dynamics of the term structure. We show that under standard assumptions, excess returns are affine in the risk neutral innovations in the factors. This framework has several important advantages. First, it allows for an easy estimation of models that are more flexible than the AR(1). Indeed, we estimate models with more general dynamics, like ARFIMA(p, d, q), almost as easily as AR(1). Second, within our framework the dimension of the unrestricted model is the same for the AR(1) as it is for the richer models, and does not expand in line with the state vector as it does in a yield or log price framework. This makes it appropriate to test all of these risk neutral dynamic specifications against the same OLS unrestricted alternative. Our results for the US Treasury bond market show that the unrestricted model is preferred to the AR(1) by the Bayesian Information Criterion, but the opposite conclusion is reached for more flexible models. A final advantage of the excess returns framework is that the pricing errors are much lower than for the equivalent log price system.
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We find that shocks to the equity capital ratio of financial intermediaries—Primary Dealer counterparties of the New York Federal Reserve—possess significant explanatory power for cross-sectional variation in expected returns. This is true not only for commonly studied equity and government bond market portfolios, but also for other more sophisticated asset classes such as corporate and sovereign bonds, derivatives, commodities, and currencies. Our intermediary capital risk factor is strongly procyclical, implying countercyclical intermediary leverage. The price of risk for intermediary capital shocks is consistently positive and of similar magnitude when estimated separately for individual asset classes, suggesting that financial intermediaries are marginal investors in many markets and hence key to understanding asset prices.
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This paper addresses regulatory concerns that large shareholders of credit rating agencies can influence the rating process. Unlike Standard & Poor's, which is a privately held division of McGraw-Hill, Moody's is a public company listed on the NYSE. From 2001 to 2010, Moody's has two shareholders, Berkshire Hathaway and Davis Selected Advisors, which collectively own about 23.5% of Moody's. Moody's ratings on bonds issued by important investee firms of these two stable large shareholders are more favorable relative to S&P, as well as Fitch, ratings. We exploit Moody's initial public offering in 2000 to address endogeneity and to mitigate concerns that the results are driven by issuer characteristics or by the greater informativeness of Moody's ratings. S&P's parent, McGraw-Hill, has a large shareholder for much less time, and some weak evidence exists that S&P ratings are relatively more favorable toward the owners of McGraw-Hill. These findings are consistent with regulatory concerns about the ownership and governance of rating agencies, especially those that are publicly listed.
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We summarize and extend the new literature on the term structure of equity. Short-term equity claims, or dividend strips, have higher average returns and Sharpe ratios than the aggregate stock market. The returns on short-term dividend claims are risky as measured by volatility, but safe as measured by market beta. These facts are hard to reconcile with traditional macro-finance models and we provide an overview of new models that can reproduce some of these facts. We relate our evidence on dividend strips to facts about other asset classes such as nominal and corporate bonds, volatility, and housing. We discuss the broader economic implications of our findings by linking the term structure of returns to real economic decisions such as hiring and investment. We conclude with an outline of empirical and theoretical extensions that we consider interesting avenues for future research.
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I show that investor confidence (size of ambiguity) about future consumption growth is driven by past consumption growth and inflation. The impact of inflation on confidence has moved considerably over time and switched on average from negative to positive in 1997. Motivated by this evidence, I develop and estimate a model in which the confidence process has discrete regime shifts, and I find that the time-varying impact of inflation on confidence enables the model to match bond risks over different subperiods. The model can also account for stock and bond return predictability, and correlation between price-dividend ratios and inflation, among other features of the data.