Discretionary disclosure refers to differences in the depth of disclosed items that managers can exercise in disclosing information because there are no specific requirements of the disclosure extent. This paper investigates discretionary disclosure levels in interim financial reports by Vietnamese listed companies and identifies the influencing factors. Discretionary disclosure is measured by employing the researcher-based index and the determinant factors are examined by estimating a regression model. The results indicate that discretionary disclosure levels in interim financial reports in Vietnam are relatively low, and positively associated with board independence, and solvency, but negatively associated with state ownership. Accordingly, the study provides some suggestions to improve discretionary disclosure in interim financial reports in Vietnam and enhance the transparency of financial information on the stock exchanges.
{"title":"Discretionary Disclosure in Interim Financial Reports of Listed Companies in Vietnam","authors":"Nguyen Huu Cuong, Quynh Duong","doi":"10.2139/ssrn.3523597","DOIUrl":"https://doi.org/10.2139/ssrn.3523597","url":null,"abstract":"Discretionary disclosure refers to differences in the depth of disclosed items that managers can exercise in disclosing information because there are no specific requirements of the disclosure extent. This paper investigates discretionary disclosure levels in interim financial reports by Vietnamese listed companies and identifies the influencing factors. Discretionary disclosure is measured by employing the researcher-based index and the determinant factors are examined by estimating a regression model. The results indicate that discretionary disclosure levels in interim financial reports in Vietnam are relatively low, and positively associated with board independence, and solvency, but negatively associated with state ownership. Accordingly, the study provides some suggestions to improve discretionary disclosure in interim financial reports in Vietnam and enhance the transparency of financial information on the stock exchanges.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"299 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123321885","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}
Tax avoidance and evasion are major problems in Pakistan. The study attempts to provide information to investors and regulatory authorities of Pakistan about tax avoidance and its consequences. Book Effective Tax Rate (BETR) and Cash Effective Tax Rate (CETR) are used to measure tax avoidance. The unbalanced panel data of 189 non-financial firms are used for empirical analysis. The results of panel regression models show that managers manipulate the profitability signal via tax avoidance. Managers use tax avoidance to beat earnings targets, however, no evidence found to practice tax avoidance to just meet the profitability margin. In line with the behavioral finance view, the quick response of the stock market is positive to tax avoidance because investors focus on profitability without detail screening of cash flows. However, tax avoider firms are likely to have lower future profitability and future stock returns than other benchmark firms.
{"title":"Tax Avoidance and Earning Management in Pakistan","authors":"Suresh Kumar Oad Rajput, Jahanzeb Marwat","doi":"10.2139/ssrn.3491107","DOIUrl":"https://doi.org/10.2139/ssrn.3491107","url":null,"abstract":"Tax avoidance and evasion are major problems in Pakistan. The study attempts to provide information to investors and regulatory authorities of Pakistan about tax avoidance and its consequences. Book Effective Tax Rate (BETR) and Cash Effective Tax Rate (CETR) are used to measure tax avoidance. The unbalanced panel data of 189 non-financial firms are used for empirical analysis. The results of panel regression models show that managers manipulate the profitability signal via tax avoidance. Managers use tax avoidance to beat earnings targets, however, no evidence found to practice tax avoidance to just meet the profitability margin. In line with the behavioral finance view, the quick response of the stock market is positive to tax avoidance because investors focus on profitability without detail screening of cash flows. However, tax avoider firms are likely to have lower future profitability and future stock returns than other benchmark firms.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115514109","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}
Understanding operational risk is fundamental to its effective management. This paper sets out ten laws that govern the behavior of operational risk relating to the occurrence and detection/duration of events; the rapidity with which firms suffer losses; the lags in crystallization of losses; and internal and external drivers of concentration. The paper also considers the transference and conservation of risk; risk homeostasis (ie, control expenditure will respond to increased risk to return firms to within appetite); and the proactive taking of operational risk by firms in order to obtain fee and commission income. These laws are underpinned by event, causal and impact taxonomies. Each of the laws is illustrated through the analysis of loss and financial data for thirty-one current and former global systemically important banks, before and after the global financial crisis. Finally, the paper briefly considers the impacts of these laws on how firms should undertake stress testing and risk and controls self-assessments, and select predictive key risk indicators, and also the extent to which these laws make predictions as to the outcomes of three emerging threats.
{"title":"Ten Laws of Operational Risk","authors":"Michael Grimwade","doi":"10.21314/jop.2020.244","DOIUrl":"https://doi.org/10.21314/jop.2020.244","url":null,"abstract":"Understanding operational risk is fundamental to its effective management. This paper sets out ten laws that govern the behavior of operational risk relating to the occurrence and detection/duration of events; the rapidity with which firms suffer losses; the lags in crystallization of losses; and internal and external drivers of concentration. The paper also considers the transference and conservation of risk; risk homeostasis (ie, control expenditure will respond to increased risk to return firms to within appetite); and the proactive taking of operational risk by firms in order to obtain fee and commission income. These laws are underpinned by event, causal and impact taxonomies. Each of the laws is illustrated through the analysis of loss and financial data for thirty-one current and former global systemically important banks, before and after the global financial crisis. Finally, the paper briefly considers the impacts of these laws on how firms should undertake stress testing and risk and controls self-assessments, and select predictive key risk indicators, and also the extent to which these laws make predictions as to the outcomes of three emerging threats.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"67 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122532130","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}
There is considerable variation across firms and disclosure settings in the level of advance preparation for disclosures. Further, disclosures that involve less preparation are more spontaneous and can affect market outcomes. Despite this, little is known about how spontaneity affects disclosure characteristics. Using an experiment and a survey, we investigate how managers’ explanations for performance differ when issued more spontaneously. Our experiment varies cognitive load and task performance in a 2x2 between-participants design, and asks participants to report the reasons for their performance on an abstract task. We find that participants provide more internal reasons for performance when they respond more spontaneously following both good and poor performance. A follow-up survey of IROs documents reasons for different amounts of disclosure preparation, as well as potential consequences. Our results shed light on why managers invest in different levels of disclosure preparation, and provide evidence on how disclosure spontaneity affects disclosure characteristics.
{"title":"Disclosure Spontaneity and Managers’ Explanations for Performance","authors":"Michael T. Durney, Kristina Rennekamp","doi":"10.2139/ssrn.3469813","DOIUrl":"https://doi.org/10.2139/ssrn.3469813","url":null,"abstract":"There is considerable variation across firms and disclosure settings in the level of advance preparation for disclosures. Further, disclosures that involve less preparation are more spontaneous and can affect market outcomes. Despite this, little is known about how spontaneity affects disclosure characteristics. Using an experiment and a survey, we investigate how managers’ explanations for performance differ when issued more spontaneously. Our experiment varies cognitive load and task performance in a 2x2 between-participants design, and asks participants to report the reasons for their performance on an abstract task. We find that participants provide more internal reasons for performance when they respond more spontaneously following both good and poor performance. A follow-up survey of IROs documents reasons for different amounts of disclosure preparation, as well as potential consequences. Our results shed light on why managers invest in different levels of disclosure preparation, and provide evidence on how disclosure spontaneity affects disclosure characteristics.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"83 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115688431","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}
Apart from a few comparative surveys focusing on the largest companies, there are no content analyses of the codes of conduct of German companies. Due to country-specific differences in the legal, economic, and cultural environment, results of content analyses can hardly be transferred from one country to another. Refining existing coding schemes to include upcoming topics, like privacy consideration, but also code enforcement and implementation, we analyze the content, patterns, and anteceding background factors. Our findings indicate that while codes are very common nowadays, there are substantial differences in the degree to which codes address specific topics and functions. We find a single underlying dimension: the intensity of regulation. Codes are most elaborate in terms of what actors are supposed to do, while issues like guidance and enforcement are dealt with in less detail. Endorsement of the code by the top management is also quite low. As for background factors like sector and stock market segment, we find that regulatory intensity differs in line with stock market segment, which is not a proxy for company size but rather for the presence of companies in the public and regarding the code’s role, e.g., the preservation of a company’s image. Our study contributes to the literature by examining codes’ content of the largest German listed companies, which allows for both, international level comparisons and comparisons over time. In addition, we modified and disclosed a frequently used coding scheme that can be used for future research. Finally, we contribute to the business practice by generating a basis for benchmarking their code and giving recommendations for reconsidering their content and design.
{"title":"Codes of Conduct of German Public-Listed Companies: Content, Enforcement, and Implementation","authors":"Thomas Stöber, Peter Kotzian","doi":"10.2139/ssrn.3455206","DOIUrl":"https://doi.org/10.2139/ssrn.3455206","url":null,"abstract":"Apart from a few comparative surveys focusing on the largest companies, there are no content analyses of the codes of conduct of German companies. Due to country-specific differences in the legal, economic, and cultural environment, results of content analyses can hardly be transferred from one country to another. Refining existing coding schemes to include upcoming topics, like privacy consideration, but also code enforcement and implementation, we analyze the content, patterns, and anteceding background factors. Our findings indicate that while codes are very common nowadays, there are substantial differences in the degree to which codes address specific topics and functions. We find a single underlying dimension: the intensity of regulation. Codes are most elaborate in terms of what actors are supposed to do, while issues like guidance and enforcement are dealt with in less detail. Endorsement of the code by the top management is also quite low. As for background factors like sector and stock market segment, we find that regulatory intensity differs in line with stock market segment, which is not a proxy for company size but rather for the presence of companies in the public and regarding the code’s role, e.g., the preservation of a company’s image. Our study contributes to the literature by examining codes’ content of the largest German listed companies, which allows for both, international level comparisons and comparisons over time. In addition, we modified and disclosed a frequently used coding scheme that can be used for future research. Finally, we contribute to the business practice by generating a basis for benchmarking their code and giving recommendations for reconsidering their content and design.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-09-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116811973","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 investigate the impact of reporting regulation on corporate innovation activity. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing a greater share of firms to publicly disclose their financial statements reduces firms’ innovative activities. At the same time, it increases firms’ reliance on patenting to protect their innovations, to the extent they continue innovating. Our evidence is consistent with mandated reporting having significant real effects by imposing proprietary costs on innovative firms, which in turn diminishes their incentives to engage in innovative activities. Importantly, we examine aggregate effects at the industry level, net of spillovers. Thus, our results imply that positive information spillovers (e.g., to competitors, suppliers, and customers) within industries are not large enough to compensate the negative direct effect on the prevalence of innovative activity. The spillovers instead appear to concentrate innovation among a few large firms in a given industry. In sum, financial reporting regulation has important distributional and aggregate effects on corporate innovation.
{"title":"Reporting Regulation and Corporate Innovation","authors":"Matthias Breuer, C. Leuz, Steven Vanhaverbeke","doi":"10.2139/ssrn.3449813","DOIUrl":"https://doi.org/10.2139/ssrn.3449813","url":null,"abstract":"We investigate the impact of reporting regulation on corporate innovation activity. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing a greater share of firms to publicly disclose their financial statements reduces firms’ innovative activities. At the same time, it increases firms’ reliance on patenting to protect their innovations, to the extent they continue innovating. Our evidence is consistent with mandated reporting having significant real effects by imposing proprietary costs on innovative firms, which in turn diminishes their incentives to engage in innovative activities. Importantly, we examine aggregate effects at the industry level, net of spillovers. Thus, our results imply that positive information spillovers (e.g., to competitors, suppliers, and customers) within industries are not large enough to compensate the negative direct effect on the prevalence of innovative activity. The spillovers instead appear to concentrate innovation among a few large firms in a given industry. In sum, financial reporting regulation has important distributional and aggregate effects on corporate innovation.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117290144","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}
The Treasury lock is a common pre-hedging derivative strategy the Street offers to their corporate clients. The paper provides a justification of the common practice of booking a short position in the Treasury lock as a forward contract on the underlying benchmark and a short position in the Then-Current Treasury lock as a forward contract on underlying benchmark rolled over the life of the contract.
{"title":"Hedging the Treasury Lock","authors":"M. Pucci","doi":"10.2139/ssrn.3386521","DOIUrl":"https://doi.org/10.2139/ssrn.3386521","url":null,"abstract":"The Treasury lock is a common pre-hedging derivative strategy the Street offers to their corporate clients. The paper provides a justification of the common practice of booking a short position in the Treasury lock as a forward contract on the underlying benchmark and a short position in the Then-Current Treasury lock as a forward contract on underlying benchmark rolled over the life of the contract.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129668996","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 present a neural network (NN) approach to fit and predict implied volatility surfaces (IVSs). Atypically to standard NN applications, financial industry practitioners use such models equally to replicate market prices and to value other financial instruments. In other words, low training losses are as important as generalization capabilities. Importantly, IVS models need to generate realistic arbitrage-free option prices, meaning that no portfolio can lead to risk-free profits. We propose an approach guaranteeing the absence of arbitrage opportunities by penalizing the loss using soft constraints. Furthermore, our method can be combined with standard IVS models in quantitative finance, thus providing a NN-based correction when such models fail at replicating observed market prices. This lets practitioners use our approach as a plug-in on top of classical methods. Empirical results show that this approach is particularly useful when only sparse or erroneous data are available. We also quantify the uncertainty of the model predictions in regions with few or no observations. We further explore how deeper NNs improve over shallower ones, as well as other properties of the network architecture. We benchmark our method against standard IVS models. By evaluating our method on both training sets, and testing sets, namely, we highlight both their capacity to reproduce observed prices and predict new ones.
{"title":"Deep Smoothing of the Implied Volatility Surface","authors":"Damien Ackerer, Natasa Tagasovska, Thibault Vatter","doi":"10.2139/ssrn.3402942","DOIUrl":"https://doi.org/10.2139/ssrn.3402942","url":null,"abstract":"We present a neural network (NN) approach to fit and predict implied volatility surfaces (IVSs). Atypically to standard NN applications, financial industry practitioners use such models equally to replicate market prices and to value other financial instruments. In other words, low training losses are as important as generalization capabilities. Importantly, IVS models need to generate realistic arbitrage-free option prices, meaning that no portfolio can lead to risk-free profits. We propose an approach guaranteeing the absence of arbitrage opportunities by penalizing the loss using soft constraints. Furthermore, our method can be combined with standard IVS models in quantitative finance, thus providing a NN-based correction when such models fail at replicating observed market prices. This lets practitioners use our approach as a plug-in on top of classical methods. Empirical results show that this approach is particularly useful when only sparse or erroneous data are available. We also quantify the uncertainty of the model predictions in regions with few or no observations. We further explore how deeper NNs improve over shallower ones, as well as other properties of the network architecture. We benchmark our method against standard IVS models. By evaluating our method on both training sets, and testing sets, namely, we highlight both their capacity to reproduce observed prices and predict new ones.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"26 29","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120844613","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}
According to accounting and auditing standards, external auditors and management must both independently monitor goodwill balance for any impairment. Therefore, goodwill impairment may contain valuable incremental information about the CEO’s ability which the board can utilize for CEO retention decisions. Consistent with this expectation, we find goodwill impairments lead to a large jump in subsequent CEO turnover. The turnover-impairment relationship varies with CEO power, auditor quality, accounting performance, and CEO-age and the information in goodwill impairment is incremental to the announcement period stock returns. Our analyses suggest that boards utilize the negative information in goodwill impairment in one of two ways. In the more severe cases, the incumbent CEO is dismissed; in other cases, their equity compensation is reduced which suggests that retention and pay act as alternative disciplining mechanisms. Our study highlights how the intersection of financial reporting and auditing can generate valuable information in disciplining CEOs.
{"title":"Role of Financial Reporting and Auditing in Disciplining CEOs: Evidence from Goodwill Impairments","authors":"A. Ghosh, Armen Hovakimian, Huajing Hu","doi":"10.2139/ssrn.3401538","DOIUrl":"https://doi.org/10.2139/ssrn.3401538","url":null,"abstract":"According to accounting and auditing standards, external auditors and management must both independently monitor goodwill balance for any impairment. Therefore, goodwill impairment may contain valuable incremental information about the CEO’s ability which the board can utilize for CEO retention decisions. Consistent with this expectation, we find goodwill impairments lead to a large jump in subsequent CEO turnover. The turnover-impairment relationship varies with CEO power, auditor quality, accounting performance, and CEO-age and the information in goodwill impairment is incremental to the announcement period stock returns. Our analyses suggest that boards utilize the negative information in goodwill impairment in one of two ways. In the more severe cases, the incumbent CEO is dismissed; in other cases, their equity compensation is reduced which suggests that retention and pay act as alternative disciplining mechanisms. Our study highlights how the intersection of financial reporting and auditing can generate valuable information in disciplining CEOs.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129987466","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 use non-public data regarding all trader-level futures positions, reported to the U.S. grain and oilseed derivatives market regulator (the CFTC), in order to describe the nature of market participants, the maturity structure of their holdings, and the aggregate position patterns for nine different categories of traders that we separate based on their main lines of business. We provide novel evidence about the overall extent of calendar spreading and about the contribution of commercial traders to total spreading activity. Our sample’s 3,854 traders account for 86 to 93 percent of the total futures open interest at the end of an average day in 2015–2018. Well over 90 percent of their positions have maturities of less than a year. Among our nine trader categories, just three (hedge funds and commercial dealers/merchants, plus commodity index traders on the long side) account for about four fifths of all reported trader positions. In fact, fewer than 200 “permanent” large traders (overwhelmingly from these three categories) make up the bulk of the daily open interest in the four largest agricultural futures markets. In the aggregate, the positions of commercial dealers and hedge funds (including commodity pool operators, commodity trading advisors, managed money traders, and associated persons) are highly negatively correlated. This correlation is strikingly strong for short positions: as a result, the sum total of commercial dealers’ and hedge funds’ respective shares of the short open interest fluctuates relatively little over time. We show, for the first time, that calendar spreads account for more than a third of all large trader positions; that much of the intra-year variation in the total futures open interest can be tied to changes in the extent of calendar spreading; that about half of all spread positions involve contracts expiring in 4 to 12 months (either spreading with shorter-dated contracts, or involving only maturities of 4 to 12 months); and that commercial traders who are not swap dealers (dealers and merchants, mostly) make up from a quarter to two fifths of all calendar spread positions. Again, commercial dealers’ and hedge funds’ shares of the spread open interest are negatively correlated. None of these patterns can be inferred from public data, as the CFTC’s Commitments of Traders Reports (COT) do not break out spreads for “traditional” commercial traders in general and commercial dealers and merchants in particular.
{"title":"Who Holds Positions in Agricultural Futures Markets","authors":"Michel A. Robe, John S. Roberts","doi":"10.2139/ssrn.3438627","DOIUrl":"https://doi.org/10.2139/ssrn.3438627","url":null,"abstract":"We use non-public data regarding all trader-level futures positions, reported to the U.S. grain and oilseed derivatives market regulator (the CFTC), in order to describe the nature of market participants, the maturity structure of their holdings, and the aggregate position patterns for nine different categories of traders that we separate based on their main lines of business. We provide novel evidence about the overall extent of calendar spreading and about the contribution of commercial traders to total spreading activity. \u0000 \u0000Our sample’s 3,854 traders account for 86 to 93 percent of the total futures open interest at the end of an average day in 2015–2018. Well over 90 percent of their positions have maturities of less than a year. Among our nine trader categories, just three (hedge funds and commercial dealers/merchants, plus commodity index traders on the long side) account for about four fifths of all reported trader positions. In fact, fewer than 200 “permanent” large traders (overwhelmingly from these three categories) make up the bulk of the daily open interest in the four largest agricultural futures markets. \u0000 \u0000In the aggregate, the positions of commercial dealers and hedge funds (including commodity pool operators, commodity trading advisors, managed money traders, and associated persons) are highly negatively correlated. This correlation is strikingly strong for short positions: as a result, the sum total of commercial dealers’ and hedge funds’ respective shares of the short open interest fluctuates relatively little over time. \u0000 \u0000We show, for the first time, that calendar spreads account for more than a third of all large trader positions; that much of the intra-year variation in the total futures open interest can be tied to changes in the extent of calendar spreading; that about half of all spread positions involve contracts expiring in 4 to 12 months (either spreading with shorter-dated contracts, or involving only maturities of 4 to 12 months); and that commercial traders who are not swap dealers (dealers and merchants, mostly) make up from a quarter to two fifths of all calendar spread positions. Again, commercial dealers’ and hedge funds’ shares of the spread open interest are negatively correlated. None of these patterns can be inferred from public data, as the CFTC’s Commitments of Traders Reports (COT) do not break out spreads for “traditional” commercial traders in general and commercial dealers and merchants in particular.","PeriodicalId":181062,"journal":{"name":"Corporate Governance: Disclosure","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127171564","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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