Pub Date : 2025-02-08DOI: 10.1016/j.frl.2025.106890
Benjamin M. Tabak, Ives Cezar Fulber, Matheus B. Froner
Global concern about energy, food security and climate change is on the rise. We investigate the spillover effects amidst carbon, energy and agrifood markets. Applying the novel decomposed connectedness approach we find that the impact of the contemporaneous spillover in the total connectedness is significant, while the lagged effects contribute substantially when looking at the net spillover. Corn appears as the main net transmitter and carbon is mostly a net receiver. The Russian–Ukraine war affected the markets, given Ukraine’s role in food production and the impact of the conflict on Europe’s access to natural gas, increasing coal use.
{"title":"The nexus between carbon, energy and agrifood—A contemporaneous and lagged spillover analysis","authors":"Benjamin M. Tabak, Ives Cezar Fulber, Matheus B. Froner","doi":"10.1016/j.frl.2025.106890","DOIUrl":"10.1016/j.frl.2025.106890","url":null,"abstract":"<div><div>Global concern about energy, food security and climate change is on the rise. We investigate the spillover effects amidst carbon, energy and agrifood markets. Applying the novel <span><math><msup><mrow><mi>R</mi></mrow><mrow><mn>2</mn></mrow></msup></math></span> decomposed connectedness approach we find that the impact of the contemporaneous spillover in the total connectedness is significant, while the lagged effects contribute substantially when looking at the net spillover. Corn appears as the main net transmitter and carbon is mostly a net receiver. The Russian–Ukraine war affected the markets, given Ukraine’s role in food production and the impact of the conflict on Europe’s access to natural gas, increasing coal use.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106890"},"PeriodicalIF":7.4,"publicationDate":"2025-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143394434","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-07DOI: 10.1016/j.frl.2025.106910
Weijian Du, Mengjie Li
In the “what to say–how to say it–what to do” context, this study uses the sample data of Chinese listed companies to investigate the relationship between digital attitude and digital technology innovation. This study shows that the importance given to digitalization and the optimism listed companies toward digitalization increase digital patent applications through the R&D investment, financing constraints and scale expansion. Additionally, digital word frequency promotes the digital innovation of other firms, whereas digital tone promotes only the digital technology innovation of other firms in the same industry. This study helps open the “black box” of companies’ digital actions.
{"title":"Corporations’ digital attitude and digital technology innovation: Are the heart and mouth in agreement or not?","authors":"Weijian Du, Mengjie Li","doi":"10.1016/j.frl.2025.106910","DOIUrl":"10.1016/j.frl.2025.106910","url":null,"abstract":"<div><div>In the “what to say–how to say it–what to do” context, this study uses the sample data of Chinese listed companies to investigate the relationship between digital attitude and digital technology innovation. This study shows that the importance given to digitalization and the optimism listed companies toward digitalization increase digital patent applications through the R&D investment, financing constraints and scale expansion. Additionally, digital word frequency promotes the digital innovation of other firms, whereas digital tone promotes only the digital technology innovation of other firms in the same industry. This study helps open the “black box” of companies’ digital actions.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106910"},"PeriodicalIF":7.4,"publicationDate":"2025-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143373032","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-07DOI: 10.1016/j.frl.2025.106880
Alexey Ivashchenko
I study the link between corporate bond trading activity and expected bond return. I show that many individual corporate bonds experience booms and busts of trading activity. Such (in)frequently traded bonds have higher expected returns following periods of active trading, alongside greater return volatility. Of two actively traded bonds, one with a history of trading activity dry-ups carries the expected return premium of 10-20 bps per month, controlling for bond credit risk and illiquidity characteristics. Therefore, it is not just the current state of illiquidity that impacts expected return but also the bond’s recent history of illiquidity fluctuations. I connect liquidity dry-ups with changes in bond institutional ownership, implying that the expected return and risk also depend on who owns the bonds.
{"title":"(In)Frequently traded corporate bonds and pricing implications of liquidity dry-ups","authors":"Alexey Ivashchenko","doi":"10.1016/j.frl.2025.106880","DOIUrl":"10.1016/j.frl.2025.106880","url":null,"abstract":"<div><div>I study the link between corporate bond trading activity and expected bond return. I show that many individual corporate bonds experience booms and busts of trading activity. Such (in)frequently traded bonds have higher expected returns following periods of active trading, alongside greater return volatility. Of two actively traded bonds, one with a history of trading activity dry-ups carries the expected return premium of 10-20 bps per month, controlling for bond credit risk and illiquidity characteristics. Therefore, it is not just the current state of illiquidity that impacts expected return but also the bond’s recent history of illiquidity fluctuations. I connect liquidity dry-ups with changes in bond institutional ownership, implying that the expected return and risk also depend on who owns the bonds.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106880"},"PeriodicalIF":7.4,"publicationDate":"2025-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143373035","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-07DOI: 10.1016/j.frl.2025.106911
Weisong Qiu
Extensive documentation indicates that holding highly concentrated portfolios can lead to significant losses in financial welfare. Using data from the 2017 to 2019 China Household Finance Survey, this study examines the impact of mobile payment adoption on household portfolio diversification. Using a two-way fixed effects model, we identify a positive correlation between mobile payment usage and the diversification of household portfolios. This relationship withstands various robustness tests, encompassing analyses for endogeneity, selection bias, and alternative proxies for key variables. Mechanism analysis indicates that mobile payments function via financial information and risk preference. Heterogeneity analysis suggests that the positive impact of mobile payments is particularly pronounced for households with lower educational attainment, those facing health risks, and residents of rural areas.
{"title":"Does mobile payment adoption increase household portfolio diversification? Evidence from China","authors":"Weisong Qiu","doi":"10.1016/j.frl.2025.106911","DOIUrl":"10.1016/j.frl.2025.106911","url":null,"abstract":"<div><div>Extensive documentation indicates that holding highly concentrated portfolios can lead to significant losses in financial welfare. Using data from the 2017 to 2019 China Household Finance Survey, this study examines the impact of mobile payment adoption on household portfolio diversification. Using a two-way fixed effects model, we identify a positive correlation between mobile payment usage and the diversification of household portfolios. This relationship withstands various robustness tests, encompassing analyses for endogeneity, selection bias, and alternative proxies for key variables. Mechanism analysis indicates that mobile payments function via financial information and risk preference. Heterogeneity analysis suggests that the positive impact of mobile payments is particularly pronounced for households with lower educational attainment, those facing health risks, and residents of rural areas.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106911"},"PeriodicalIF":7.4,"publicationDate":"2025-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143350241","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-07DOI: 10.1016/j.frl.2025.106881
Arpit Kumar Parija
Prior research finds that bank credit growth predicts lower bank equity returns in subsequent years. Stocks of banks with high credit growth are initially overvalued. Eventually, these banks underperform. Shareholders realize their mistakes and lower share price, thus generating lower returns. We argue that such correction of mispricing happens to a lesser extent for large banks and show that for large banks, the decline in equity return following an increase in credit growth is minimal. This finding is consistent with government guarantees that protect shareholders of large banks, but not small banks.
{"title":"Does credit growth predict lower returns for large banks?","authors":"Arpit Kumar Parija","doi":"10.1016/j.frl.2025.106881","DOIUrl":"10.1016/j.frl.2025.106881","url":null,"abstract":"<div><div>Prior research finds that bank credit growth predicts lower bank equity returns in subsequent years. Stocks of banks with high credit growth are initially overvalued. Eventually, these banks underperform. Shareholders realize their mistakes and lower share price, thus generating lower returns. We argue that such correction of mispricing happens to a lesser extent for large banks and show that for large banks, the decline in equity return following an increase in credit growth is minimal. This finding is consistent with government guarantees that protect shareholders of large banks, but not small banks.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106881"},"PeriodicalIF":7.4,"publicationDate":"2025-02-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143386920","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-06DOI: 10.1016/j.frl.2025.106874
Runqing Wan , Bingxin Ann Xing
We propose a novel and simple “switching” approach to improve out-of-sample evidence of return predictability: when the return forecast from a predictive model is negative, we switch to use the return’s historical average as our forecast. When applied to predict Treasury bond returns, this approach can produce stronger evidence of statistical predictability and higher real-time economic gains than the original forecasts. We also show that our approach outperforms the “truncation” approach which replaces negative forecasts with a zero value. Our findings lend support to the hypothesis that predictive evidence exists only in short-lived periods.
{"title":"Can switching between predictive models and the historical average improve bond return predictability?","authors":"Runqing Wan , Bingxin Ann Xing","doi":"10.1016/j.frl.2025.106874","DOIUrl":"10.1016/j.frl.2025.106874","url":null,"abstract":"<div><div>We propose a novel and simple “switching” approach to improve out-of-sample evidence of return predictability: when the return forecast from a predictive model is negative, we switch to use the return’s historical average as our forecast. When applied to predict Treasury bond returns, this approach can produce stronger evidence of statistical predictability and higher real-time economic gains than the original forecasts. We also show that our approach outperforms the “truncation” approach which replaces negative forecasts with a zero value. Our findings lend support to the hypothesis that predictive evidence exists only in short-lived periods.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106874"},"PeriodicalIF":7.4,"publicationDate":"2025-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143376832","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-06DOI: 10.1016/j.frl.2025.106909
Jingjing Guo , Zhihong Huang , Baicheng Zhou
This paper uses the Five-Year Plan (FYP) to conduct a quasi-natural experiment and examines the impact of China's industrial policies on corporate mergers and acquisitions (M&As). The results show that firms supported by industrial policies are likelier to initiate M&As and do so more frequently. Large firms and state-owned enterprises are primarily responsible for these M&As. Additionally, firms that benefit from government subsidies and low-interest loans have greater capacity to initiate M&As. While industrial policy does not significantly influence M&A performance in the short term, it can have a negative effect in the long term. These findings contribute to a nuanced understanding of the government's role in corporate strategy.
{"title":"How does industrial policy affect corporate M&A Activities?","authors":"Jingjing Guo , Zhihong Huang , Baicheng Zhou","doi":"10.1016/j.frl.2025.106909","DOIUrl":"10.1016/j.frl.2025.106909","url":null,"abstract":"<div><div>This paper uses the Five-Year Plan (FYP) to conduct a quasi-natural experiment and examines the impact of China's industrial policies on corporate mergers and acquisitions (M&As). The results show that firms supported by industrial policies are likelier to initiate M&As and do so more frequently. Large firms and state-owned enterprises are primarily responsible for these M&As. Additionally, firms that benefit from government subsidies and low-interest loans have greater capacity to initiate M&As. While industrial policy does not significantly influence M&A performance in the short term, it can have a negative effect in the long term. These findings contribute to a nuanced understanding of the government's role in corporate strategy.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106909"},"PeriodicalIF":7.4,"publicationDate":"2025-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143378510","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-06DOI: 10.1016/j.frl.2025.106894
Mohammad Hassan Shakil, Arne Johan Pollestad, Khine Kyaw
We examine the relationship between environmental, social and governance (ESG) controversies and systematic risk among non-financial firms in the STOXX Europe 600 index from 2016 to 2022. We apply random forest regression to predict firm-level systematic risk and employ explainable AI techniques to assess the role of ESG controversies. The results show a negative relationship between ESG controversies and systematic risk, with higher controversies predicting increased systematic risk. Traditional regression models, such as pooled ordinary least squares and year- and industry-fixed effects, show a similar relationship. However, our model exhibits an average prediction error of 0.25 for 2022, representing a 30 percent reduction in the prediction error compared to the benchmark. Systematic risk increases significantly for firms embroiled in ESG controversies for the first time (“first timers”) and those with frequent issues (“regulars”). Sector-wise, systematic risk is most pronounced in the machinery sector and least in the real estate sector.
{"title":"Environmental, social and governance controversies and systematic risk: A machine learning approach","authors":"Mohammad Hassan Shakil, Arne Johan Pollestad, Khine Kyaw","doi":"10.1016/j.frl.2025.106894","DOIUrl":"10.1016/j.frl.2025.106894","url":null,"abstract":"<div><div>We examine the relationship between environmental, social and governance (ESG) controversies and systematic risk among non-financial firms in the STOXX Europe 600 index from 2016 to 2022. We apply random forest regression to predict firm-level systematic risk and employ explainable AI techniques to assess the role of ESG controversies. The results show a negative relationship between ESG controversies and systematic risk, with higher controversies predicting increased systematic risk. Traditional regression models, such as pooled ordinary least squares and year- and industry-fixed effects, show a similar relationship. However, our model exhibits an average prediction error of 0.25 for 2022, representing a 30 percent reduction in the prediction error compared to the benchmark. Systematic risk increases significantly for firms embroiled in ESG controversies for the first time (“first timers”) and those with frequent issues (“regulars”). Sector-wise, systematic risk is most pronounced in the machinery sector and least in the real estate sector.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106894"},"PeriodicalIF":7.4,"publicationDate":"2025-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143376828","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-06DOI: 10.1016/j.frl.2025.106888
M. Ángeles Carnero , Ángel León , Trino-Manuel Ñíguez
This paper introduces new upper bounds for tail risk measures, such as value-at-risk and expected shortfall, based on Bhattacharyya (1987) inequality. These enhanced bounds for losses consider higher-order moments like skewness and kurtosis, which sets them apart from the conventional one-sided Vysochanskii and Petunin (1980) and Cantelli (1928) inequalities. While the simplicity and reliance on estimating only the first two moments can make the latter bounds attractive, the practicality and effectiveness of the new bounds position them as a compelling alternative for risk measurement. We empirically analyze S&P 100 index stocks to illustrate our findings. Our results suggest tighter Basel multipliers and reduced minimum capital requirements.
{"title":"New bounds for tail risk measures","authors":"M. Ángeles Carnero , Ángel León , Trino-Manuel Ñíguez","doi":"10.1016/j.frl.2025.106888","DOIUrl":"10.1016/j.frl.2025.106888","url":null,"abstract":"<div><div>This paper introduces new upper bounds for tail risk measures, such as value-at-risk and expected shortfall, based on <span><span>Bhattacharyya (1987)</span></span> inequality. These enhanced bounds for losses consider higher-order moments like skewness and kurtosis, which sets them apart from the conventional one-sided <span><span>Vysochanskii and Petunin (1980)</span></span> and <span><span>Cantelli (1928)</span></span> inequalities. While the simplicity and reliance on estimating only the first two moments can make the latter bounds attractive, the practicality and effectiveness of the new bounds position them as a compelling alternative for risk measurement. We empirically analyze S&P 100 index stocks to illustrate our findings. Our results suggest tighter Basel multipliers and reduced minimum capital requirements.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106888"},"PeriodicalIF":7.4,"publicationDate":"2025-02-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143403685","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-02-05DOI: 10.1016/j.frl.2025.106877
Vassilios G. Papavassiliou
This paper is the first to investigate the relationship between euro area sovereign bond yields and geopolitical risks. The sample period extends from January 2016 to October 2024 and includes all major recent geopolitical events. Using standard linear regression models, the results indicate that geopolitical risks are strongly positively associated with sovereign bond yields, even after controlling for economic factors that determine bond yields. This finding is consistent with the view that markets anticipate an extra risk premium to compensate bond holders for increased geopolitical risks.
{"title":"On the relationship between geopolitical risks and euro area sovereign bond yields","authors":"Vassilios G. Papavassiliou","doi":"10.1016/j.frl.2025.106877","DOIUrl":"10.1016/j.frl.2025.106877","url":null,"abstract":"<div><div>This paper is the first to investigate the relationship between euro area sovereign bond yields and geopolitical risks. The sample period extends from January 2016 to October 2024 and includes all major recent geopolitical events. Using standard linear regression models, the results indicate that geopolitical risks are strongly positively associated with sovereign bond yields, even after controlling for economic factors that determine bond yields. This finding is consistent with the view that markets anticipate an extra risk premium to compensate bond holders for increased geopolitical risks.</div></div>","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"75 ","pages":"Article 106877"},"PeriodicalIF":7.4,"publicationDate":"2025-02-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143394433","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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