This paper develops a novel measure of systemic risk that combines mapping technology and regression methods. Self-organizing maps (SOM) and lasso logistic regressions are employed to estimate default probabilities for individual U.S. commercial banks from 2001 to 2017. Subsequently, these probabilities are aggregated into a size-weighted measure of systemic risk dubbed SYSTEM. Empirical results show that, due primarily to large banks, volatility in systemic risk increased in 2005 followed by a very large spike from late 2006 to 2008 related to the financial crisis. Comparative tests to the popular systemic risk measure SRISK reveal that SYSTEM: (1) provided earlier warning signals of the impending 2008−2009 crisis; and (2) indicated relatively lower systemic risk after 2012. Further tests show that SYSTEM and SRISK are useful in predicting industry-wide nonperforming loans and numbers of bank failures. We conclude that micro- and macro-prudential measures of bank condition are useful in assessing and predicting systemic risk.
{"title":"Measuring Systemic Risk in the U.S. Banking System","authors":"J. Kolari, F. López-Iturriaga, I. Sanz","doi":"10.2139/ssrn.3240743","DOIUrl":"https://doi.org/10.2139/ssrn.3240743","url":null,"abstract":"This paper develops a novel measure of systemic risk that combines mapping technology and regression methods. Self-organizing maps (SOM) and lasso logistic regressions are employed to estimate default probabilities for individual U.S. commercial banks from 2001 to 2017. Subsequently, these probabilities are aggregated into a size-weighted measure of systemic risk dubbed SYSTEM. Empirical results show that, due primarily to large banks, volatility in systemic risk increased in 2005 followed by a very large spike from late 2006 to 2008 related to the financial crisis. Comparative tests to the popular systemic risk measure SRISK reveal that SYSTEM: (1) provided earlier warning signals of the impending 2008−2009 crisis; and (2) indicated relatively lower systemic risk after 2012. Further tests show that SYSTEM and SRISK are useful in predicting industry-wide nonperforming loans and numbers of bank failures. We conclude that micro- and macro-prudential measures of bank condition are useful in assessing and predicting systemic risk.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128558113","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 document that the structure of syndicates affects loan renegotiations. Lead banks with large retained shares have positive effects on renegotiations. In contrast, more diverse syndicates deter renegotiations, but only for credit lines. The former result can be explained with coordination theories. The puzzling effect of syndicate diversity in term loan renegotiations derives from the growth of collateralized loan obligations (CLOs) in the syndicated loan market and the coordination between these vehicles and lead banks. CLOs that have a relationship with the lead bank of the renegotiated loan are strong supporters of amount-increase renegotiations, arguably because this gives them access to attractive investments. Related CLOs fund not only their portion of the loan increase, but also the portion that was supposed to be funded by the lead bank. Our findings highlight the previously unrecognized role of the growing presence of non-bank lenders in corporate lending.
{"title":"Nonbank Investors and Loan Renegotiations","authors":"Teodora Paligorova, João A. C. Santos","doi":"10.2139/ssrn.2892068","DOIUrl":"https://doi.org/10.2139/ssrn.2892068","url":null,"abstract":"We document that the structure of syndicates affects loan renegotiations. Lead banks with large retained shares have positive effects on renegotiations. In contrast, more diverse syndicates deter renegotiations, but only for credit lines. The former result can be explained with coordination theories. The puzzling effect of syndicate diversity in term loan renegotiations derives from the growth of collateralized loan obligations (CLOs) in the syndicated loan market and the coordination between these vehicles and lead banks. CLOs that have a relationship with the lead bank of the renegotiated loan are strong supporters of amount-increase renegotiations, arguably because this gives them access to attractive investments. Related CLOs fund not only their portion of the loan increase, but also the portion that was supposed to be funded by the lead bank. Our findings highlight the previously unrecognized role of the growing presence of non-bank lenders in corporate lending.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129181368","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 perform a comprehensive analysis on the relation between a firm’s life cycle and its financial reporting quality. Using abnormal accruals, abnormal revenues, restatements, and others, we provide evidence that there is considerable variation in financial reporting quality across the life cycle. We observe an inverted U-shaped pattern of financial reporting quality, i.e., absolute values of abnormal accruals and abnormal revenues are higher (lower) during the introduction, growth, shakeout, and decline (mature) stages. This pattern is driven by poor matching of current expenses with current revenues during the introduction and decline stages. Further, the likelihood of a restatement is higher in the introduction, shakeout, and decline stages, whereas the likelihood of an enforcement action is higher for growth firms relative to mature firms. Finally, the likelihood of a weakness in internal controls and the level of audit fees are higher for firms in the introduction and growth stages.
{"title":"Does Financial Reporting Quality Vary Across Firm Life Cycle?","authors":"Gopal V. Krishnan, E. Myllymäki, Neerav Nagar","doi":"10.2139/ssrn.3233512","DOIUrl":"https://doi.org/10.2139/ssrn.3233512","url":null,"abstract":"We perform a comprehensive analysis on the relation between a firm’s life cycle and its financial reporting quality. Using abnormal accruals, abnormal revenues, restatements, and others, we provide evidence that there is considerable variation in financial reporting quality across the life cycle. We observe an inverted U-shaped pattern of financial reporting quality, i.e., absolute values of abnormal accruals and abnormal revenues are higher (lower) during the introduction, growth, shakeout, and decline (mature) stages. This pattern is driven by poor matching of current expenses with current revenues during the introduction and decline stages. Further, the likelihood of a restatement is higher in the introduction, shakeout, and decline stages, whereas the likelihood of an enforcement action is higher for growth firms relative to mature firms. Finally, the likelihood of a weakness in internal controls and the level of audit fees are higher for firms in the introduction and growth stages.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117270229","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}
One of the most contentious and long-standing debates in corporate governance is whether company founders and other insiders should be permitted to use multi-class stock structures with unequal votes to control their companies while seeking capital through a public listing. Stymied by the permissive attitudes of legislatures and regulators, institutional investors opposed to multi-class arrangements recently turned to a new potential source of regulation: benchmark equity index providers. At the behest of institutional investors, the three largest index providers recently changed the eligibility requirements for their benchmark equity indexes to exclude, limit or underweight companies with multi-class stock structures. Investors expected the prospect of exclusion from such indexes to discourage founders and directors from adopting dual-class stock structures in connection with their initial public offerings. While there is a voluminous financial literature on the effects of index inclusion and exclusion on stock prices, and legal scholars have recently explored the corporate governance implications of the exponential growth of passive index investing, focusing primarily on the incentives of index fund asset managers, neither the financial nor the legal literature have considered the corporate governance role and influence of the parties who write the rules for index investing: the index providers. We begin to fill this gap in the literature by assessing the efficacy of index providers as corporate governance arbiters through the rubric of their dual-class index exclusion decisions. We start with the premise that the index exclusion sanction will not discourage dual-class listings unless it is sufficiently costly to outweigh the perceived benefits of founder control through a multi-class stock structure. We expect the index exclusion sanction will not be sufficiently costly for several reasons. First, it is difficult, if not impossible, to implement a sanction through the public capital markets. Second, the index inclusion effect on which the anticipated sanction is premised has effectively disappeared in recent years and may never have been a long-term source of lower capital costs. Third, despite the explosive growth of index investing in recent years, funds following stock indexes still hold a relatively modest percentage of the market capitalization of U.S. equities – around 12% according to BlackRock. Finally, the proliferation of index investing opportunities has weakened the market-moving influence of any one benchmark index. To test the efficacy of the sanction, we conduct an event study of the S&P announcement that dual-class companies would henceforth be excluded from the S&P 1500 Composite Index and its components – the S&P 500, S&P 400 mid-cap and S&P 600 small-cap indices. Because S&P grandfathered dual-class companies currently in the index, we are able to compare movements in the stock prices of dual-class companies currently in the
{"title":"Dual-Class Index Exclusion","authors":"A. Winden, A. Baker","doi":"10.2139/SSRN.3201578","DOIUrl":"https://doi.org/10.2139/SSRN.3201578","url":null,"abstract":"One of the most contentious and long-standing debates in corporate governance is whether company founders and other insiders should be permitted to use multi-class stock structures with unequal votes to control their companies while seeking capital through a public listing. Stymied by the permissive attitudes of legislatures and regulators, institutional investors opposed to multi-class arrangements recently turned to a new potential source of regulation: benchmark equity index providers. At the behest of institutional investors, the three largest index providers recently changed the eligibility requirements for their benchmark equity indexes to exclude, limit or underweight companies with multi-class stock structures. Investors expected the prospect of exclusion from such indexes to discourage founders and directors from adopting dual-class stock structures in connection with their initial public offerings. While there is a voluminous financial literature on the effects of index inclusion and exclusion on stock prices, and legal scholars have recently explored the corporate governance implications of the exponential growth of passive index investing, focusing primarily on the incentives of index fund asset managers, neither the financial nor the legal literature have considered the corporate governance role and influence of the parties who write the rules for index investing: the index providers. We begin to fill this gap in the literature by assessing the efficacy of index providers as corporate governance arbiters through the rubric of their dual-class index exclusion decisions. We start with the premise that the index exclusion sanction will not discourage dual-class listings unless it is sufficiently costly to outweigh the perceived benefits of founder control through a multi-class stock structure. We expect the index exclusion sanction will not be sufficiently costly for several reasons. First, it is difficult, if not impossible, to implement a sanction through the public capital markets. Second, the index inclusion effect on which the anticipated sanction is premised has effectively disappeared in recent years and may never have been a long-term source of lower capital costs. Third, despite the explosive growth of index investing in recent years, funds following stock indexes still hold a relatively modest percentage of the market capitalization of U.S. equities – around 12% according to BlackRock. Finally, the proliferation of index investing opportunities has weakened the market-moving influence of any one benchmark index. To test the efficacy of the sanction, we conduct an event study of the S&P announcement that dual-class companies would henceforth be excluded from the S&P 1500 Composite Index and its components – the S&P 500, S&P 400 mid-cap and S&P 600 small-cap indices. Because S&P grandfathered dual-class companies currently in the index, we are able to compare movements in the stock prices of dual-class companies currently in the","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"112 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132800170","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}
Make-whole call provisions are ubiquitous. While common perception is that the calls are rarely exercised, we demonstrate that bonds with make-whole call provisions are more than twice as likely to be retired early as equivalent non-callable bonds. Detailed analysis of these retirement events reveal four motivating rationales: 1) to refund the debt at what are perceived to be low current interest rates, 2) to eliminate restrictive covenants, 3) as a result of a merger or acquisition, often by a private equity group, and 4) as a mechanism for paying out excess cash, often generated by prior divestitures. Further analysis demonstrates that, despite paying a premium to retire the debt early, the firms actually save several million dollars on average relative to what the present value of their interest costs would have been if they waited a year to retire. Given the prevalence of restructuring driven early retirement, we conclude by analyzing whether firms with a large percentage of make-whole callable debt are more likely to be engaged in M&A transactions. Make-whole heavy firms are more likely to be M&A acquirers, but not more likely to be M&A targets.
{"title":"The Life Cycle of Make-Whole Call Provisions","authors":"Eric Powers, Scott Brown","doi":"10.2139/ssrn.2139497","DOIUrl":"https://doi.org/10.2139/ssrn.2139497","url":null,"abstract":"Make-whole call provisions are ubiquitous. While common perception is that the calls are rarely exercised, we demonstrate that bonds with make-whole call provisions are more than twice as likely to be retired early as equivalent non-callable bonds. Detailed analysis of these retirement events reveal four motivating rationales: 1) to refund the debt at what are perceived to be low current interest rates, 2) to eliminate restrictive covenants, 3) as a result of a merger or acquisition, often by a private equity group, and 4) as a mechanism for paying out excess cash, often generated by prior divestitures. Further analysis demonstrates that, despite paying a premium to retire the debt early, the firms actually save several million dollars on average relative to what the present value of their interest costs would have been if they waited a year to retire. Given the prevalence of restructuring driven early retirement, we conclude by analyzing whether firms with a large percentage of make-whole callable debt are more likely to be engaged in M&A transactions. Make-whole heavy firms are more likely to be M&A acquirers, but not more likely to be M&A targets.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"101 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122240055","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}
Using employment history of over 17,000 directors of non-financial firms, we find that boards with directors who have executive experience in a commercial bank compensate CEOs with higher inside debt. This result is consistent with arguments that professional experience shapes decision-making. The experience effect dominates the potential conflict of interest effect. In line with the experience argument, the result holds for both current and past bank executives and for directors from both banks which are and banks which are not the firm’s creditors. These results are robust to several specifications addressing potential endogeneity. The increase in inside debt associated with banker-directors moves the CEO’s incentives closer to the optimum in which agency costs of outside debt are minimized to benefit shareholders. In line with the monitoring role of bankers, we also find that the link between inside debt and banker-directors is stronger in firms with weaker corporate governance standards.
{"title":"Banker-Directors and CEO Inside Debt","authors":"Piotr Korczak, T. Nguyen, Mariano Scapin","doi":"10.2139/ssrn.3102462","DOIUrl":"https://doi.org/10.2139/ssrn.3102462","url":null,"abstract":"Using employment history of over 17,000 directors of non-financial firms, we find that boards with directors who have executive experience in a commercial bank compensate CEOs with higher inside debt. This result is consistent with arguments that professional experience shapes decision-making. The experience effect dominates the potential conflict of interest effect. In line with the experience argument, the result holds for both current and past bank executives and for directors from both banks which are and banks which are not the firm’s creditors. These results are robust to several specifications addressing potential endogeneity. The increase in inside debt associated with banker-directors moves the CEO’s incentives closer to the optimum in which agency costs of outside debt are minimized to benefit shareholders. In line with the monitoring role of bankers, we also find that the link between inside debt and banker-directors is stronger in firms with weaker corporate governance standards.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"51 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-04-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126818428","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}
Using a sample of Real Estate Investment Trusts (REITs), we show that institutional investors exploit location-based information asymmetries by overweighting firms headquartered locally and, more importantly, those with greater economic interests in the investor’s home MSA. Moreover, this asset allocation strategy is associated with superior portfolio performance. In a difference-in-difference-in-difference analysis of investor headquarters relocations, we find that investors tend to increase their ownership of REITs that have property holdings in the market to which the investor relocates. Overall, our findings highlight the importance of understanding the relation between information advantages and the geography of firm’s operations, as well as the implications on ownership patterns and portfolio construction.
{"title":"The Geography of Real Property Information and Investment: Firm Location, Asset Location, and Institutional Ownership","authors":"David C. Ling, Chongyu Wang, Tingyu Zhou","doi":"10.2139/ssrn.3154082","DOIUrl":"https://doi.org/10.2139/ssrn.3154082","url":null,"abstract":"Using a sample of Real Estate Investment Trusts (REITs), we show that institutional investors exploit location-based information asymmetries by overweighting firms headquartered locally and, more importantly, those with greater economic interests in the investor’s home MSA. Moreover, this asset allocation strategy is associated with superior portfolio performance. In a difference-in-difference-in-difference analysis of investor headquarters relocations, we find that investors tend to increase their ownership of REITs that have property holdings in the market to which the investor relocates. Overall, our findings highlight the importance of understanding the relation between information advantages and the geography of firm’s operations, as well as the implications on ownership patterns and portfolio construction.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"6 4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126142627","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}
Renzhu Zhang, G. S. Bhabra, Hsin-I Chou, Eric K. M. Tan
In this study, we examine the effect of succession-induced gaps in CEO characteristics on subsequent firm performance. We show that a gap index constructed using differences in CEO attributes between the predecessor and the successor leads to deteriorating subsequent firm performance when the succession event itself is characterized as disruptive. However, under non-forced succession and when pre-succession performance has been good, a change in characteristics contributes positively to enhancing subsequent firm performance. Further analysis of the channels suggests that radically different CEOs are more likely to bring with them a higher proportion of co-opted directors, make downsizing and business divesting decisions, and lead firms characterized by higher levels of post- succession strategic instability when there is a mandate for change. Overall, our findings demonstrate that tapping successors who bring in a new set of attributes that are markedly different from those of their predecessors are not always value-enhancing. This is especially the case under forced succession and when the pre-succession firm performance is poor.
{"title":"CEO Succession Gap and Firm Performance","authors":"Renzhu Zhang, G. S. Bhabra, Hsin-I Chou, Eric K. M. Tan","doi":"10.2139/ssrn.3456866","DOIUrl":"https://doi.org/10.2139/ssrn.3456866","url":null,"abstract":"In this study, we examine the effect of succession-induced gaps in CEO characteristics on subsequent firm performance. We show that a gap index constructed using differences in CEO attributes between the predecessor and the successor leads to deteriorating subsequent firm performance when the succession event itself is characterized as disruptive. However, under non-forced succession and when pre-succession performance has been good, a change in characteristics contributes positively to enhancing subsequent firm performance. Further analysis of the channels suggests that radically different CEOs are more likely to bring with them a higher proportion of co-opted directors, make downsizing and business divesting decisions, and lead firms characterized by higher levels of post- succession strategic instability when there is a mandate for change. Overall, our findings demonstrate that tapping successors who bring in a new set of attributes that are markedly different from those of their predecessors are not always value-enhancing. This is especially the case under forced succession and when the pre-succession firm performance is poor.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"298 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131937665","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}
Unsecured firm credit moves procyclically in the United States and tends to lead gross domestic product, while secured firm credit is acyclical. Shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. This article surveys a tractable dynamic general equilibrium model in which constraints on unsecured firm credit preclude an efficient capital allocation among heterogeneous firms. Unsecured credit rests on the value that borrowers attach to a good credit reputation, which is a forward-looking variable. Self-fulfilling beliefs over future credit conditions naturally generate endogenously persistent business cycle dynamics. A dynamic complementarity between current and future borrowing limits permits uncorrelated belief shocks to unsecured debt to trigger persistent aggregate fluctuations in both secured and unsecured debt, factor productivity, and output. The author shows that these sunspot shocks are quantitatively important, accounting for around half of output volatility.
{"title":"Credit Cycles and Business Cycles","authors":"Costas Azariadis","doi":"10.20955/r.2018.45-71","DOIUrl":"https://doi.org/10.20955/r.2018.45-71","url":null,"abstract":"Unsecured firm credit moves procyclically in the United States and tends to lead gross domestic product, while secured firm credit is acyclical. Shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. This article surveys a tractable dynamic general equilibrium model in which constraints on unsecured firm credit preclude an efficient capital allocation among heterogeneous firms. Unsecured credit rests on the value that borrowers attach to a good credit reputation, which is a forward-looking variable. Self-fulfilling beliefs over future credit conditions naturally generate endogenously persistent business cycle dynamics. A dynamic complementarity between current and future borrowing limits permits uncorrelated belief shocks to unsecured debt to trigger persistent aggregate fluctuations in both secured and unsecured debt, factor productivity, and output. The author shows that these sunspot shocks are quantitatively important, accounting for around half of output volatility.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122809805","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}
By inverting the optimal portfolios of mutual fund managers in a fairly general setting, which allows us to partial out the effect of risk aversion and hedging demands, we provide an estimate of perceived expected excess returns and show that they are significantly affected by experienced returns. The effect of past returns is non-monotone: we provide reduced-form and structural evidence of managers displaying recency and primacy bias. Finally, we estimate an average coefficient of relative risk aversion close to unity.
{"title":"Revealed Expectations and Learning Biases: Evidence from the Mutual Fund Industry","authors":"Francesco Nicolai, Simona Risteska","doi":"10.2139/ssrn.3301279","DOIUrl":"https://doi.org/10.2139/ssrn.3301279","url":null,"abstract":"By inverting the optimal portfolios of mutual fund managers in a fairly general setting, which allows us to partial out the effect of risk aversion and hedging demands, we provide an estimate of perceived expected excess returns and show that they are significantly affected by experienced returns. The effect of past returns is non-monotone: we provide reduced-form and structural evidence of managers displaying recency and primacy bias. Finally, we estimate an average coefficient of relative risk aversion close to unity.","PeriodicalId":375725,"journal":{"name":"SPGMI: Capital IQ Data (Topic)","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128037358","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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