Previous studies show that firms with low inventory growth outperform firms with high inventory growth in the cross-section of publicly traded firms. In addition, inventory investment is volatile and procyclical, and inventory-to-sales is persistent and countercyclical. We embed an inventory holding motive into the investment-based asset pricing framework by modeling inventory as a factor of production with convex and nonconvex adjustment costs. The augmented model simultaneously matches the large inventory growth spread in the data, as well as the time-series properties of the firm level capital investment, inventory investment, and inventory-to-sales. Our conditional single-factor model also implies that traditional unconditional factor models such as the CAPM should fail to explain the inventory growth spread, although not with the same large pricing errors observed in the data.
{"title":"The Inventory Growth Spread","authors":"F. Belo, Xiaoji Lin","doi":"10.2139/ssrn.1526726","DOIUrl":"https://doi.org/10.2139/ssrn.1526726","url":null,"abstract":"Previous studies show that firms with low inventory growth outperform firms with high inventory growth in the cross-section of publicly traded firms. In addition, inventory investment is volatile and procyclical, and inventory-to-sales is persistent and countercyclical. We embed an inventory holding motive into the investment-based asset pricing framework by modeling inventory as a factor of production with convex and nonconvex adjustment costs. The augmented model simultaneously matches the large inventory growth spread in the data, as well as the time-series properties of the firm level capital investment, inventory investment, and inventory-to-sales. Our conditional single-factor model also implies that traditional unconditional factor models such as the CAPM should fail to explain the inventory growth spread, although not with the same large pricing errors observed in the data.","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-11-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121804974","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Craig B. Merrill, Taylor D. Nadauld, René M. Stulz, S. Sherlund
Much attention has been paid to the large decreases in value of non-agency residential mortgage-backed securities (RMBS) during the financial crisis. Many observers have argued that the fall in prices was partly driven by decreased liquidity and fire sales. We investigate whether capital requirements and accounting rules at financial institutions contributed to the selling of RMBS at fire sale prices. For financial institutions subject to credit-sensitive capital requirements, capital requirements increase as an asset's credit becomes impaired. When accounting rules require such an asset's value to be marked-to-market and the fair value loss to be recognized in earnings, a capital-constrained firm can improve its capital position by selling the credit-impaired asset even if it has to accept a liquidity discount to do so. Using a sample of 5,014 repeat transactions of non-agency RMBS by insurance companies from 2006 to 2009, we show that insurance companies that became more capital-constrained because of operating losses (uncorrelated with RMBS credit quality) and also recognized fair value losses sold comparable RMBS at much lower prices than other insurance companies during the crisis.
{"title":"Did Capital Requirements and Fair Value Accounting Spark Fire Sales in Distressed Mortgage-Backed Securities?","authors":"Craig B. Merrill, Taylor D. Nadauld, René M. Stulz, S. Sherlund","doi":"10.2139/ssrn.2115537","DOIUrl":"https://doi.org/10.2139/ssrn.2115537","url":null,"abstract":"Much attention has been paid to the large decreases in value of non-agency residential mortgage-backed securities (RMBS) during the financial crisis. Many observers have argued that the fall in prices was partly driven by decreased liquidity and fire sales. We investigate whether capital requirements and accounting rules at financial institutions contributed to the selling of RMBS at fire sale prices. For financial institutions subject to credit-sensitive capital requirements, capital requirements increase as an asset's credit becomes impaired. When accounting rules require such an asset's value to be marked-to-market and the fair value loss to be recognized in earnings, a capital-constrained firm can improve its capital position by selling the credit-impaired asset even if it has to accept a liquidity discount to do so. Using a sample of 5,014 repeat transactions of non-agency RMBS by insurance companies from 2006 to 2009, we show that insurance companies that became more capital-constrained because of operating losses (uncorrelated with RMBS credit quality) and also recognized fair value losses sold comparable RMBS at much lower prices than other insurance companies during the crisis.","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115804226","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2009-12-01DOI: 10.5465/AMJ.2009.47084828
Christopher Marquis, Zhi Huang
(Runner-up, Academy of Management's Best Published Paper in Organization and Management Theory in 2009).
(2009年管理学会组织与管理理论最佳论文亚军)。
{"title":"The Contingent Nature of Public Policy and the Growth of US Commercial Banking","authors":"Christopher Marquis, Zhi Huang","doi":"10.5465/AMJ.2009.47084828","DOIUrl":"https://doi.org/10.5465/AMJ.2009.47084828","url":null,"abstract":"(Runner-up, Academy of Management's Best Published Paper in Organization and Management Theory in 2009).","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127649788","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the effects of the SEC mandated temporary suspension of short-sale price-tests for a set of Pilot securities. While short-selling activity increased both for NYSE and NASDAQ-listed Pilot stocks, returns and volatility at the daily level are unaffected. NYSE-listed Pilot stocks experience more symmetric trading patterns and a slight increase in spreads and intraday volatility after the suspension while there is a smaller effect on market quality for NASDAQ listed Pilot stocks. The results suggest that the effect of the price-tests on market quality can largely be attributed to the distortions in order flow created by the price-tests in the first place. Therefore, we believe that the price-tests can safely be permanently suspended.
{"title":"It's Sho Time! Short-Sale Price-Tests and Market Quality","authors":"Karl B. Diether, Kuan-Hui Lee, Ingrid M. Werner","doi":"10.2139/ssrn.910614","DOIUrl":"https://doi.org/10.2139/ssrn.910614","url":null,"abstract":"We examine the effects of the SEC mandated temporary suspension of short-sale price-tests for a set of Pilot securities. While short-selling activity increased both for NYSE and NASDAQ-listed Pilot stocks, returns and volatility at the daily level are unaffected. NYSE-listed Pilot stocks experience more symmetric trading patterns and a slight increase in spreads and intraday volatility after the suspension while there is a smaller effect on market quality for NASDAQ listed Pilot stocks. The results suggest that the effect of the price-tests on market quality can largely be attributed to the distortions in order flow created by the price-tests in the first place. Therefore, we believe that the price-tests can safely be permanently suspended.","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116686819","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Motivated by the recent debate on return R2 as an information-efficiency measure, this paper proposes and examines a new hypothesis that R2 is related to investors’ biases in processing information. We provide a model to show that R2 decreases with the degree of the marginal investor’s overreaction to firm-specific information. This theoretical result motivates an empirical hypothesis that stocks with lower R2 should exhibit more pronounced overreaction-driven price momentum. Empirically, we confirm that such a negative relationship between R2 and price momentum exists, and find this relationship robust to controls for risk as well as several alternative mechanisms, such as slow information diffusion, information uncertainty, fundamental R2 and illiquidity. Furthermore, we also document stronger long-run price reversals for stocks with lower R2. Taken together, our results suggest that return R2 could be related to price inefficiency.
{"title":"R2 and Price Inefficiency","authors":"Kewei Hou, Wei Xiong, Lin Peng","doi":"10.2139/ssrn.954559","DOIUrl":"https://doi.org/10.2139/ssrn.954559","url":null,"abstract":"Motivated by the recent debate on return R2 as an information-efficiency measure, this paper proposes and examines a new hypothesis that R2 is related to investors’ biases in processing information. We provide a model to show that R2 decreases with the degree of the marginal investor’s overreaction to firm-specific information. This theoretical result motivates an empirical hypothesis that stocks with lower R2 should exhibit more pronounced overreaction-driven price momentum. Empirically, we confirm that such a negative relationship between R2 and price momentum exists, and find this relationship robust to controls for risk as well as several alternative mechanisms, such as slow information diffusion, information uncertainty, fundamental R2 and illiquidity. Furthermore, we also document stronger long-run price reversals for stocks with lower R2. Taken together, our results suggest that return R2 could be related to price inefficiency.","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-11-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114380297","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study introduces a new estimation-based bootstrap simulation procedure to test whether different returns-generating models can explain the profitability of momentum strategies first documented in Jegadeesh and Titman (1993). We incorporate simple random walk and multifactor models and allow for autocorrelation, cross-correlation, conditional heteroscedasticity and predictability through conditioning information variables. We also evaluate alternative sampling procedures for the bootstrap simulations. None of the models, however, are able to generate simulated profits as large as the actual profits. We do find, however, that accounting for time-varying expected returns with market-wide and macroeconomic instrumental variables can explain 75 to 80 percent of the profits.
{"title":"Momentum Strategies: Some Bootstrap Tests","authors":"G. Karolyi, Bong-Chan Kho","doi":"10.2139/ssrn.392999","DOIUrl":"https://doi.org/10.2139/ssrn.392999","url":null,"abstract":"This study introduces a new estimation-based bootstrap simulation procedure to test whether different returns-generating models can explain the profitability of momentum strategies first documented in Jegadeesh and Titman (1993). We incorporate simple random walk and multifactor models and allow for autocorrelation, cross-correlation, conditional heteroscedasticity and predictability through conditioning information variables. We also evaluate alternative sampling procedures for the bootstrap simulations. None of the models, however, are able to generate simulated profits as large as the actual profits. We do find, however, that accounting for time-varying expected returns with market-wide and macroeconomic instrumental variables can explain 75 to 80 percent of the profits.","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126228056","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Stocks may be delisted from Nasdaq for violating one of the market's maintained listing requirements. These include non-core requirements such as a minimum bid price; core requirements such as a minimum market capitalization; and governance requirements such as SEC disclosure. In addition, firms are delisted when they file for bankruptcy. We examine 1,098 firms that were delisted from the Nasdaq NNM and Small Cap markets in 1999-2002, and were subsequently traded in the OTC Bulletin Board and/or the Pink Sheets. For our sample firms, share volume declines by two-thirds, quoted spreads more than double from 12.1 to 33.9 percent, and effective spreads triple from 3.3 to 9.9 percent when they are delisted from Nasdaq. Almost fifty percent of Nasdaq regulatory delistings during this period are violations of non-core requirements. The decline in market quality is significant even for firms that violate non-core criteria such as the minimum bid price. In light of our results, we argue that Nasdaq should consider revising some of its listing criteria. This would lower trading costs for thousands of investors in need of liquidity without compromising the market's integrity.
{"title":"From Pink Slips to Pink Sheets: Market Quality Around Delisting from NASDAQ","authors":"Venkatesh Panchapagesan, Ingrid M. Werner","doi":"10.2139/SSRN.565325","DOIUrl":"https://doi.org/10.2139/SSRN.565325","url":null,"abstract":"Stocks may be delisted from Nasdaq for violating one of the market's maintained listing requirements. These include non-core requirements such as a minimum bid price; core requirements such as a minimum market capitalization; and governance requirements such as SEC disclosure. In addition, firms are delisted when they file for bankruptcy. We examine 1,098 firms that were delisted from the Nasdaq NNM and Small Cap markets in 1999-2002, and were subsequently traded in the OTC Bulletin Board and/or the Pink Sheets. For our sample firms, share volume declines by two-thirds, quoted spreads more than double from 12.1 to 33.9 percent, and effective spreads triple from 3.3 to 9.9 percent when they are delisted from Nasdaq. Almost fifty percent of Nasdaq regulatory delistings during this period are violations of non-core requirements. The decline in market quality is significant even for firms that violate non-core criteria such as the minimum bid price. In light of our results, we argue that Nasdaq should consider revising some of its listing criteria. This would lower trading costs for thousands of investors in need of liquidity without compromising the market's integrity.","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2004-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115355727","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article surveys the various definitions and taxonomies of international financial contagion in the academic literature and popular press and relates it to the existing evidence on co-movements in international asset prices, on the growth and volatility of international capital flows and on the relationship between flows and asset prices. The central argument of the article is that the empirical evidence is not as obviously consistent with the existence of market contagion as many researchers, the press, or market regulators believe. Policy implications of this alternative viewpoint are presented. Copyright 2003 by Blackwell Publishers Ltd.
{"title":"Does International Financial Contagion Really Exist?","authors":"G. Karolyi","doi":"10.2139/ssrn.407320","DOIUrl":"https://doi.org/10.2139/ssrn.407320","url":null,"abstract":"This article surveys the various definitions and taxonomies of international financial contagion in the academic literature and popular press and relates it to the existing evidence on co-movements in international asset prices, on the growth and volatility of international capital flows and on the relationship between flows and asset prices. The central argument of the article is that the empirical evidence is not as obviously consistent with the existence of market contagion as many researchers, the press, or market regulators believe. Policy implications of this alternative viewpoint are presented. Copyright 2003 by Blackwell Publishers Ltd.","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"90 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2003-06-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127490815","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study examines the pricing of high-LTV debt to determine whether state-specific default laws have an impact on the availability and cost of that debt. We develop a simple theoretical model that provides predictions concerning borrower and lender choice of mortgage terms under differing assumptions regarding state default regulations. We examine whether lenders rationally price loans to higher risk borrowers and whether borrowers in states that limit lender ability to seek default remedies pay higher credit costs. Our results indicate that lenders rationally price loans to higher risk borrowers for the most part; however, when we focus on smaller and smaller FICO scores buckets, the results indicate that the mean actual loan rates are higher than those predicted by our model. The results also indicate that state-specific default laws do have an impact on the price of credit. The results also show that there is a greater degree of error in the pricing of high LTV loans to low FICO borrowers than to high FICO borrowers.
{"title":"High Ltv Loans and Credit Risk","authors":"B. Ambrose, A. Sanders","doi":"10.2139/ssrn.355180","DOIUrl":"https://doi.org/10.2139/ssrn.355180","url":null,"abstract":"This study examines the pricing of high-LTV debt to determine whether state-specific default laws have an impact on the availability and cost of that debt. We develop a simple theoretical model that provides predictions concerning borrower and lender choice of mortgage terms under differing assumptions regarding state default regulations. We examine whether lenders rationally price loans to higher risk borrowers and whether borrowers in states that limit lender ability to seek default remedies pay higher credit costs. Our results indicate that lenders rationally price loans to higher risk borrowers for the most part; however, when we focus on smaller and smaller FICO scores buckets, the results indicate that the mean actual loan rates are higher than those predicted by our model. The results also indicate that state-specific default laws do have an impact on the price of credit. The results also show that there is a greater degree of error in the pricing of high LTV loans to low FICO borrowers than to high FICO borrowers.","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"155 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2002-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126926988","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines investment and financing policy in "fully revealing" equilibria--equilibria in which information asymmetries are resolved. Since all securities are priced correctly in a fully revealing equilibrium, it seems plausible that such equilibria would be free of the well known Myers-Majluf (1984) problem of inefficient investment. I show to the contrary that, for a large class of problems, whenever there is an equilibrium with efficient investment, there are also infinitely many equilibria in which almost all firms invest inefficiently. These inefficient outcomes survive the standard signaling-game equilibrium refinements. There are also examples that have fully revealing equilibria with inefficient investment but none with efficient investment. These findings contradict the claim of Constantinides and Grundy (1989) that firms invest the socially optimal amount in any fully revealing equilibrium.
{"title":"Fully Revealing Equilibria with Suboptimal Investment","authors":"John C. Persons","doi":"10.2139/ssrn.49442","DOIUrl":"https://doi.org/10.2139/ssrn.49442","url":null,"abstract":"This paper examines investment and financing policy in \"fully revealing\" equilibria--equilibria in which information asymmetries are resolved. Since all securities are priced correctly in a fully revealing equilibrium, it seems plausible that such equilibria would be free of the well known Myers-Majluf (1984) problem of inefficient investment. I show to the contrary that, for a large class of problems, whenever there is an equilibrium with efficient investment, there are also infinitely many equilibria in which almost all firms invest inefficiently. These inefficient outcomes survive the standard signaling-game equilibrium refinements. There are also examples that have fully revealing equilibria with inefficient investment but none with efficient investment. These findings contradict the claim of Constantinides and Grundy (1989) that firms invest the socially optimal amount in any fully revealing equilibrium.","PeriodicalId":142706,"journal":{"name":"Fisher: Dice Center for Financial Economics/Finance (Topic)","volume":"523 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2000-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125497187","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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