Pub Date : 2024-12-26DOI: 10.1016/j.frl.2024.106691
Vikram Singh, Sonali Jain, Shveta Singh
This paper precisely splits green bonds into ‘externally labelled’ (externally verified for greenness) and ‘internally labelled’ (unverified) instead of ‘self-reported’ and ‘non-self-reported’; and compares at-issuance yields between externally and internally labelled green bonds. We estimate yield differentials through mean difference and linear regression on post-matching samples. The verified green bonds register lower yields than the unverified ones. This implies lower risk in verified green bonds, culminating in interest cost savings to issuers. The cost advantage sustains in alternate samples but vanishes in adverse business scenarios. This paper calls for early regulation of the external labelling market before the cost advantage evaporates.
{"title":"Identification and pricing of labelled green bonds","authors":"Vikram Singh, Sonali Jain, Shveta Singh","doi":"10.1016/j.frl.2024.106691","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106691","url":null,"abstract":"This paper precisely splits green bonds into ‘externally labelled’ (externally verified for greenness) and ‘internally labelled’ (unverified) instead of ‘self-reported’ and ‘non-self-reported’; and compares at-issuance yields between externally and internally labelled green bonds. We estimate yield differentials through mean difference and linear regression on post-matching samples. The verified green bonds register lower yields than the unverified ones. This implies lower risk in verified green bonds, culminating in interest cost savings to issuers. The cost advantage sustains in alternate samples but vanishes in adverse business scenarios. This paper calls for early regulation of the external labelling market before the cost advantage evaporates.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"29 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142911671","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 : 2024-12-26DOI: 10.1016/j.frl.2024.106690
Tonmoy Choudhury
Geopolitical risk has become the single biggest concern of modern-day investors. Disruptions in the business can destabilize portfolio values, as seen in most geopolitical crises. This paper employs an extended five-factor model to examine whether investors in US industries can anticipate these upcoming shifts in geopolitical risk to safeguard themselves better. Findings indicate that the financial sector investors are most associated with expected geopolitical risks. The basic materials and energy sectors are also vulnerable, while consumer goods and services are impacted by upcoming geopolitical threats but not acts. These insights are crucial for portfolio diversification and industry resilience.
{"title":"US sectors and geopolitical risk: The investor's perspective","authors":"Tonmoy Choudhury","doi":"10.1016/j.frl.2024.106690","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106690","url":null,"abstract":"Geopolitical risk has become the single biggest concern of modern-day investors. Disruptions in the business can destabilize portfolio values, as seen in most geopolitical crises. This paper employs an extended five-factor model to examine whether investors in US industries can anticipate these upcoming shifts in geopolitical risk to safeguard themselves better. Findings indicate that the financial sector investors are most associated with expected geopolitical risks. The basic materials and energy sectors are also vulnerable, while consumer goods and services are impacted by upcoming geopolitical threats but not acts. These insights are crucial for portfolio diversification and industry resilience.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"68 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142911667","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 : 2024-12-25DOI: 10.1016/j.frl.2024.106688
Ahmed W. Alam, Ashupta Farjana, Reza Houston, Benito Sanchez
Using the state-level economic policy uncertainty (SEPU) indices of Baker, Davis, and Levy (2022), we present novel evidence on some determinants and implications of corporate cash holdings under SEPU. We show that firms hold more cash in times of high SEPU, and this behavior persists after controlling for national economic policy uncertainty, financial crises, and presidential and gubernatorial elections. Cross-sectional analysis indicates that although the outcome is less severe for firms with high leverage and dividend payout, it is more pronounced for financially constrained and high-growth firms. We do not find evidence suggesting that politically connected firms hold more cash. Finally, we validate that firms holding more cash during high SEPU demonstrate significantly lower market value in the following year. Taken together, our findings corroborate the agency theory of corporate cash holdings amidst economic uncertainty.
{"title":"Cautious or calculated? State-level policy uncertainty and corporate cash holdings","authors":"Ahmed W. Alam, Ashupta Farjana, Reza Houston, Benito Sanchez","doi":"10.1016/j.frl.2024.106688","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106688","url":null,"abstract":"Using the state-level economic policy uncertainty (SEPU) indices of Baker, Davis, and Levy (2022), we present novel evidence on some determinants and implications of corporate cash holdings under SEPU. We show that firms hold more cash in times of high SEPU, and this behavior persists after controlling for national economic policy uncertainty, financial crises, and presidential and gubernatorial elections. Cross-sectional analysis indicates that although the outcome is less severe for firms with high leverage and dividend payout, it is more pronounced for financially constrained and high-growth firms. We do not find evidence suggesting that politically connected firms hold more cash. Finally, we validate that firms holding more cash during high SEPU demonstrate significantly lower market value in the following year. Taken together, our findings corroborate the agency theory of corporate cash holdings amidst economic uncertainty.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"32 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142911668","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 : 2024-12-25DOI: 10.1016/j.frl.2024.106682
Rouzbeh Razavi, Nasr G. Elbahnasawy
A significant portion of the global adult population, particularly in developing markets, lacks access to formal credit due to the absence of traditional credit histories. This presents a major challenge for financial institutions, FinTech companies, and policymakers aiming to promote financial inclusion. While conventional credit scoring models are built on established financial data, the growing penetration of mobile phones offers an alternative means to assess credit risk. Unlike prior research focused on Call Detail Records (CDRs)—data generated by telecommunication providers capturing users' call and message activities, such as duration, frequency, and timing—this study investigates the predictive power of a broader spectrum of mobile usage data, including non-CDR attributes like social media engagement and web browsing habits, in assessing credit risk. Using a broad range of machine learning algorithms on actual mobile usage data from over 1,500 demographically diverse individuals over a two-week period, we find that while these mobile usage attributes alone cannot fully replace FICO scores in regression models (R²=0.30), they significantly enhance the accuracy of classification models, especially when combined with CDR data (Accuracy=0.89). These findings have important implications for credit markets in emerging economies, pathways for financial institutions and FinTech companies to engage with unbanked populations and support the growth of alternative credit assessment tools.
{"title":"Unlocking credit access: Using non-CDR mobile data to enhance credit scoring for financial inclusion","authors":"Rouzbeh Razavi, Nasr G. Elbahnasawy","doi":"10.1016/j.frl.2024.106682","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106682","url":null,"abstract":"A significant portion of the global adult population, particularly in developing markets, lacks access to formal credit due to the absence of traditional credit histories. This presents a major challenge for financial institutions, FinTech companies, and policymakers aiming to promote financial inclusion. While conventional credit scoring models are built on established financial data, the growing penetration of mobile phones offers an alternative means to assess credit risk. Unlike prior research focused on Call Detail Records (CDRs)—data generated by telecommunication providers capturing users' call and message activities, such as duration, frequency, and timing—this study investigates the predictive power of a broader spectrum of mobile usage data, including non-CDR attributes like social media engagement and web browsing habits, in assessing credit risk. Using a broad range of machine learning algorithms on actual mobile usage data from over 1,500 demographically diverse individuals over a two-week period, we find that while these mobile usage attributes alone cannot fully replace FICO scores in regression models (R²=0.30), they significantly enhance the accuracy of classification models, especially when combined with CDR data (Accuracy=0.89). These findings have important implications for credit markets in emerging economies, pathways for financial institutions and FinTech companies to engage with unbanked populations and support the growth of alternative credit assessment tools.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"14 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142911676","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 : 2024-12-25DOI: 10.1016/j.frl.2024.106687
Eli El-Al, Koresh Galil, Ilanit Gavious
Capital market and accounting regulations stipulate that firms’ market prices should be preferred over expert valuations as the latter are more susceptible to subjective assertions or judgments by the management and/or appraiser. As a result of this regulatory requirement, companies' subsidiaries that are (not) publicly traded are generally included in their financial reports according to market (expert) value. However, we show that (1) for private firms, expert valuations are systematically upward biased, whereas, for public firms, they are not; (2) private firms' expert valuations are non-informative, whereas, for public firms, they are not only informative but more so than the market values; and (3) market participants consider the public companies' expert valuations reliable and useful. It appears that market participants are able to see through the inherent possibility of an intentional or unintentional bias in firm valuations that rely on future projections and still find valuations valuable. Our results should be of interest to regulators, investors, managers, financial analysts, and various other capital market participants. Acknowledging regulatory limitations can benefit market participants even in the presence of imperfect regulations.
{"title":"Trustworthiness of firm valuations: Bias and market perception in compliance with capital market regulations","authors":"Eli El-Al, Koresh Galil, Ilanit Gavious","doi":"10.1016/j.frl.2024.106687","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106687","url":null,"abstract":"Capital market and accounting regulations stipulate that firms’ market prices should be preferred over expert valuations as the latter are more susceptible to subjective assertions or judgments by the management and/or appraiser. As a result of this regulatory requirement, companies' subsidiaries that are (not) publicly traded are generally included in their financial reports according to market (expert) value. However, we show that (1) for private firms, expert valuations are systematically upward biased, whereas, for public firms, they are not; (2) private firms' expert valuations are non-informative, whereas, for public firms, they are not only informative but more so than the market values; and (3) market participants consider the public companies' expert valuations reliable and useful. It appears that market participants are able to see through the inherent possibility of an intentional or unintentional bias in firm valuations that rely on future projections and still find valuations valuable. Our results should be of interest to regulators, investors, managers, financial analysts, and various other capital market participants. Acknowledging regulatory limitations can benefit market participants even in the presence of imperfect regulations.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"33 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142911672","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 : 2024-12-24DOI: 10.1016/j.frl.2024.106662
David Neto
This note explores the impact of a country’s geopolitical risk (GPR) level on tail dependence between its stock market and that of the United States. To this end, we employ the tail dependence regression methodology proposed by Zhang et al. (2013). Our findings suggest that as a country’s geopolitical risk increases, its dependence on significant downturns in the US stock market decreases.
{"title":"Wall Street sneezes and global finance catches a cold: How does geopolitical risk contribute? A tale of tail","authors":"David Neto","doi":"10.1016/j.frl.2024.106662","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106662","url":null,"abstract":"This note explores the impact of a country’s geopolitical risk (GPR) level on tail dependence between its stock market and that of the United States. To this end, we employ the tail dependence regression methodology proposed by Zhang et al. (2013). Our findings suggest that as a country’s geopolitical risk increases, its dependence on significant downturns in the US stock market decreases.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"27 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142911618","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}
This paper addresses optimal portfolio liquidation using Mean Field Games (MFGs) and presents a solution method to tackle high-dimensional challenges. We develop a deep learning approach that employs two sub-networks to approximate solutions to the relevant partial differential equations. Our method adheres to the requirements of differential operators and satisfies both initial and terminal conditions through simultaneous training. A key advantage of our approach is its mesh-free nature, which mitigates the curse of dimensionality encountered in traditional numerical methods. We validate the effectiveness of our approach through numerical experiments on multi-dimensional portfolio liquidation models.
{"title":"Deep learning solution to mean field game of optimal liquidation","authors":"Shuhua Zhang, Shenghua Qian, Xinyu Wang, Yilin Cheng","doi":"10.1016/j.frl.2024.106663","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106663","url":null,"abstract":"This paper addresses optimal portfolio liquidation using Mean Field Games (MFGs) and presents a solution method to tackle high-dimensional challenges. We develop a deep learning approach that employs two sub-networks to approximate solutions to the relevant partial differential equations. Our method adheres to the requirements of differential operators and satisfies both initial and terminal conditions through simultaneous training. A key advantage of our approach is its mesh-free nature, which mitigates the curse of dimensionality encountered in traditional numerical methods. We validate the effectiveness of our approach through numerical experiments on multi-dimensional portfolio liquidation models.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"6 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142911678","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 : 2024-12-24DOI: 10.1016/j.frl.2024.106669
Kazuhiro Takino
This study examines market participants’ preference for netting when settling derivatives contracts by using social welfare, defined as the sum of all participants’ utilities. Equilibrium models are constructed for derivatives and margins with/without netting via participants’ utility maximization problems. The utilities and social welfare in equilibrium are then numerically computed. The numerical results demonstrate that netting reduces the required margin amount. However, when the posting margin’s funding cost equals the return on margin received, market participants exhibit no netting preference. By contrast, when the funding cost exceeds the return, all market participants prefer netting.
{"title":"Participants’ preferences for settlement netting of derivatives contracts","authors":"Kazuhiro Takino","doi":"10.1016/j.frl.2024.106669","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106669","url":null,"abstract":"This study examines market participants’ preference for netting when settling derivatives contracts by using social welfare, defined as the sum of all participants’ utilities. Equilibrium models are constructed for derivatives and margins with/without netting via participants’ utility maximization problems. The utilities and social welfare in equilibrium are then numerically computed. The numerical results demonstrate that netting reduces the required margin amount. However, when the posting margin’s funding cost equals the return on margin received, market participants exhibit no netting preference. By contrast, when the funding cost exceeds the return, all market participants prefer netting.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"26 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142911673","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 : 2024-12-22DOI: 10.1016/j.frl.2024.106680
Nader Naifar
The Ethereum Merge on September 15, 2022, was a significant milestone for the blockchain and cryptocurrency space. This paper investigates the impact of the Ethereum transition to Proof-of-Stake on the interconnectedness among renewable energy investments, Fourth Industrial Revolution (4IR) assets, and tokens. The findings indicate a decrease in the connectedness among tokens post-merge, reflecting a divergence in their market behavior and a shift in the underlying drivers influencing their price dynamics. Moreover, the transition strengthened the integration between tokens and 4IR assets. Additionally, the interdependencies between tokens and renewable energy investments, such as biofuels and fuel cells, increased significantly, implying an improved perception of Ethereum as a more sustainable platform.
{"title":"Redefining market interdependencies: The ethereum merge's effect on 4IR assets, renewable energy, and tokens","authors":"Nader Naifar","doi":"10.1016/j.frl.2024.106680","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106680","url":null,"abstract":"The Ethereum Merge on September 15, 2022, was a significant milestone for the blockchain and cryptocurrency space. This paper investigates the impact of the Ethereum transition to Proof-of-Stake on the interconnectedness among renewable energy investments, Fourth Industrial Revolution (4IR) assets, and tokens. The findings indicate a decrease in the connectedness among tokens post-merge, reflecting a divergence in their market behavior and a shift in the underlying drivers influencing their price dynamics. Moreover, the transition strengthened the integration between tokens and 4IR assets. Additionally, the interdependencies between tokens and renewable energy investments, such as biofuels and fuel cells, increased significantly, implying an improved perception of Ethereum as a more sustainable platform.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"149 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142884055","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 : 2024-12-21DOI: 10.1016/j.frl.2024.106677
Muhammad Shahzad Ijaz, Brian M. Lucey, Alishba Rahman, Mushtaq Hussain Khan
The transition to sustainable energy has become crucial for effective climate action, with clean energy sources becoming increasingly prominent in investment portfolios. In this context, this study investigates the connectedness between uranium stocks, uranium future, and fossil fuel markets. The analysis reveals that the uranium assets act as receivers of return spillovers, while fossil fuels act as shock transmitters. Our portfolio analysis indicates that incorporating uranium stocks into traditional fossil fuel portfolios can enhance diversification gains. These insights are valuable for policymakers and portfolio managers, aiding in portfolio optimization, risk management, and market stability.
{"title":"Unraveling nuclear connections in energy market dynamics","authors":"Muhammad Shahzad Ijaz, Brian M. Lucey, Alishba Rahman, Mushtaq Hussain Khan","doi":"10.1016/j.frl.2024.106677","DOIUrl":"https://doi.org/10.1016/j.frl.2024.106677","url":null,"abstract":"The transition to sustainable energy has become crucial for effective climate action, with clean energy sources becoming increasingly prominent in investment portfolios. In this context, this study investigates the connectedness between uranium stocks, uranium future, and fossil fuel markets. The analysis reveals that the uranium assets act as receivers of return spillovers, while fossil fuels act as shock transmitters. Our portfolio analysis indicates that incorporating uranium stocks into traditional fossil fuel portfolios can enhance diversification gains. These insights are valuable for policymakers and portfolio managers, aiding in portfolio optimization, risk management, and market stability.","PeriodicalId":12167,"journal":{"name":"Finance Research Letters","volume":"7 1","pages":""},"PeriodicalIF":10.4,"publicationDate":"2024-12-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142936160","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}
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