Pub Date : 2020-11-08DOI: 10.1142/s2010139221500087
Ryan Taliaferro
Between October 28, 2008 and June 30, 2009 over 600 banks and bank holding companies accepted money from the United States government in exchange for preferred shares and warrants. Based on a matched sample of banks participating and not participating in this Capital Purchase Program (CPP), of each dollar of new government equity, on average participants levered roughly 13 cents to support increased lending while they used roughly 60 cents to increase their regulatory capital ratios. Over the previous business cycle, 2000–2008, allocation of new capital to support lending was higher than in 2008–2009 by nearly 30 cents per dollar of new capital. Moreover, in the previous downturn, 2000–2001, allocation to new lending was higher by an even greater amount. Banks’ exposure to past-due loans, which was higher in 2008 than in 2000 or in any other sample year, negatively predicts allocation of new capital to new lending. Characteristics of CPP participants suggest they were of two types: those with high commitments and opportunities for new lending, and those with exposures to certain troubled loan classes. Banks with high leverage and high expected costs of regulatory downgrades also were more likely participants. All of these results are consistent with banks having an optimal, target capital structure based on some form of tradeoff theory.
{"title":"How Do Banks Use Bailout Money? Optimal Capital Structure, New Equity, and the TARP","authors":"Ryan Taliaferro","doi":"10.1142/s2010139221500087","DOIUrl":"https://doi.org/10.1142/s2010139221500087","url":null,"abstract":"Between October 28, 2008 and June 30, 2009 over 600 banks and bank holding companies accepted money from the United States government in exchange for preferred shares and warrants. Based on a matched sample of banks participating and not participating in this Capital Purchase Program (CPP), of each dollar of new government equity, on average participants levered roughly 13 cents to support increased lending while they used roughly 60 cents to increase their regulatory capital ratios. Over the previous business cycle, 2000–2008, allocation of new capital to support lending was higher than in 2008–2009 by nearly 30 cents per dollar of new capital. Moreover, in the previous downturn, 2000–2001, allocation to new lending was higher by an even greater amount. Banks’ exposure to past-due loans, which was higher in 2008 than in 2000 or in any other sample year, negatively predicts allocation of new capital to new lending. Characteristics of CPP participants suggest they were of two types: those with high commitments and opportunities for new lending, and those with exposures to certain troubled loan classes. Banks with high leverage and high expected costs of regulatory downgrades also were more likely participants. All of these results are consistent with banks having an optimal, target capital structure based on some form of tradeoff theory.","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"12 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2020-11-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138539266","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 : 2020-10-27DOI: 10.1142/s2010139220500159
Archana Jain, Chinmay Jain, R. Khanapure
Hendershott et al. (2011, Does Algorithmic Trading Improve Liquidity? Journal of Finance 66, 1–33) show that algorithmic traders improve liquidity in equity markets. An equally important and unanswered question is whether they improve liquidity when information asymmetry is high. We use days surrounding earnings announcement as a period of high information asymmetry. First, we follow Hendershott et al. (2011, Does Algorithmic Trading Improve Liquidity? Journal of Finance 66, 1–33) to use introduction of NYSE autoquote as a natural experiment. We find that increased algorithmic trading (AT) as a result of NYSE autoquote does not improve liquidity around earnings announcements. Next, we use trade-to-order volume % and cancel rate as a proxy for algorithmic trading and find that abnormal spreads surrounding the days of earnings announcement are significantly higher for stocks with higher AT. Our findings indicate that algorithmic traders reduces their role of liquidity provision in markets when information asymmetry is high. These findings shed further light on the role of liquidity provision by algorithmic traders in the financial markets.
Hendershott et al.(2011)，算法交易提高流动性吗?金融学报，66,1-33)表明算法交易者提高了股票市场的流动性。一个同样重要但尚未解决的问题是，当信息高度不对称时，它们是否会改善流动性。我们将财报公布前后的几天作为信息高度不对称的时期。首先，我们遵循Hendershott et al.(2011)，算法交易是否改善流动性?《金融学报》(Journal of Finance) 66, 1-33)将纽约证券交易所的自动报价作为自然实验。我们发现，由于纽约证券交易所自动报价而增加的算法交易(AT)并没有改善收益公告周围的流动性。接下来，我们使用交易订单量百分比和取消率作为算法交易的代理，发现收益公告日周围的异常点差对于具有较高AT的股票显着更高。我们的研究结果表明，当信息不对称高时，算法交易者减少了他们在市场流动性提供中的作用。这些发现进一步揭示了算法交易员在金融市场中提供流动性的作用。
{"title":"Do Algorithmic Traders Improve Liquidity When Information Asymmetry is High?","authors":"Archana Jain, Chinmay Jain, R. Khanapure","doi":"10.1142/s2010139220500159","DOIUrl":"https://doi.org/10.1142/s2010139220500159","url":null,"abstract":"Hendershott et al. (2011, Does Algorithmic Trading Improve Liquidity? Journal of Finance 66, 1–33) show that algorithmic traders improve liquidity in equity markets. An equally important and unanswered question is whether they improve liquidity when information asymmetry is high. We use days surrounding earnings announcement as a period of high information asymmetry. First, we follow Hendershott et al. (2011, Does Algorithmic Trading Improve Liquidity? Journal of Finance 66, 1–33) to use introduction of NYSE autoquote as a natural experiment. We find that increased algorithmic trading (AT) as a result of NYSE autoquote does not improve liquidity around earnings announcements. Next, we use trade-to-order volume % and cancel rate as a proxy for algorithmic trading and find that abnormal spreads surrounding the days of earnings announcement are significantly higher for stocks with higher AT. Our findings indicate that algorithmic traders reduces their role of liquidity provision in markets when information asymmetry is high. These findings shed further light on the role of liquidity provision by algorithmic traders in the financial markets.","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"1 1","pages":"2050015"},"PeriodicalIF":0.7,"publicationDate":"2020-10-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77073807","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 : 2020-09-15DOI: 10.1142/s2010139220500123
Natasha Burns, Kristina Minnick, K. Raman
We examine if firms with directors with related industry expertise (DRIs), or directors that are supply chain partners, exhibit a greater propensity to forecast earnings, and improve the specificit...
{"title":"Director Industry Expertise and Voluntary Corporate Disclosure","authors":"Natasha Burns, Kristina Minnick, K. Raman","doi":"10.1142/s2010139220500123","DOIUrl":"https://doi.org/10.1142/s2010139220500123","url":null,"abstract":"We examine if firms with directors with related industry expertise (DRIs), or directors that are supply chain partners, exhibit a greater propensity to forecast earnings, and improve the specificit...","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"68 1","pages":"2050012"},"PeriodicalIF":0.7,"publicationDate":"2020-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85336686","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 : 2020-09-09DOI: 10.1142/s201013922050010x
Y. Chung, Sun‐Joong Yoon
We show that the highly volatile variance risk premium (VRP) can be theoretically and empirically reconciled with investor sentiment captured by temporary variation in risk aversion. In an effort t...
{"title":"The Variation in Variance Risk Premium and its Predictive Power: Evidence from Option Market Sentiments","authors":"Y. Chung, Sun‐Joong Yoon","doi":"10.1142/s201013922050010x","DOIUrl":"https://doi.org/10.1142/s201013922050010x","url":null,"abstract":"We show that the highly volatile variance risk premium (VRP) can be theoretically and empirically reconciled with investor sentiment captured by temporary variation in risk aversion. In an effort t...","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"8 9 1","pages":"2050010"},"PeriodicalIF":0.7,"publicationDate":"2020-09-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86655308","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 : 2020-09-04DOI: 10.1142/s2010139220500135
G. J. Alexander, M. Peterson
We study the pricing of exchange traded funds (ETFs) and the associated arbitrage trading of them in the primary and secondary markets. We find a direct relation between primary and secondary market trading that is consistent with market-makers using the primary market to hedge their inventory risk in the secondary market, as well as to facilitate arbitrage. Such trading in both markets keeps ETF prices in line with their net asset value. We conclude that the existence of the primary market enhances secondary market efficiency.
{"title":"The Pricing of Exchange Traded Funds and the Roles of Primary and Secondary Market Participants","authors":"G. J. Alexander, M. Peterson","doi":"10.1142/s2010139220500135","DOIUrl":"https://doi.org/10.1142/s2010139220500135","url":null,"abstract":"We study the pricing of exchange traded funds (ETFs) and the associated arbitrage trading of them in the primary and secondary markets. We find a direct relation between primary and secondary market trading that is consistent with market-makers using the primary market to hedge their inventory risk in the secondary market, as well as to facilitate arbitrage. Such trading in both markets keeps ETF prices in line with their net asset value. We conclude that the existence of the primary market enhances secondary market efficiency.","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"16 1","pages":"2050013"},"PeriodicalIF":0.7,"publicationDate":"2020-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80164365","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 study convenience yield dynamics using a dataset of inventories to proxy for relative scarcity. We confirm that convenience yields are negatively related to inventories although they plateau during periods of scarcity for crude oil. Inventory withdrawals are non-monotonically related to the convenience yield and they forecast significant futures returns. Testing for the effect of demand shocks, we document both temporary and permanent price components. Importantly, we show that mean reversion in expected equilibrium prices varies with relative scarcity. This result suggests an important bias in contingent claims models in extant practice.
{"title":"An Empirical Analysis of Commodity Convenience Yields","authors":"C. Dinçerler, Zeigham Khoker, Timothy T. Simin","doi":"10.2139/SSRN.748884","DOIUrl":"https://doi.org/10.2139/SSRN.748884","url":null,"abstract":"We study convenience yield dynamics using a dataset of inventories to proxy for relative scarcity. We confirm that convenience yields are negatively related to inventories although they plateau during periods of scarcity for crude oil. Inventory withdrawals are non-monotonically related to the convenience yield and they forecast significant futures returns. Testing for the effect of demand shocks, we document both temporary and permanent price components. Importantly, we show that mean reversion in expected equilibrium prices varies with relative scarcity. This result suggests an important bias in contingent claims models in extant practice.","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"76 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83869463","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 : 2020-03-03DOI: 10.1142/s2010139220500044
R. Jarrow, Sujan Lamichhane
On 21st September, 2016, the Bank of Japan (BOJ) embarked on a new unconventional monetary policy called yield curve control (YCC). We show that YCC creates an arbitrage opportunity in an otherwise frictionless and arbitrage-free government bond market which financial institutions can exploit. This arbitrage creates a wealth transfer from the BOJ to these financial institutions. We estimate the lower bound on this wealth transfer for the first 28 months to be $5.25 billion or ¥582.32 billion, which constitutes an unexplored policy externality. This corresponds to 7.49% per annum on the notional employed in this arbitrage strategy.
{"title":"The Effects of Yield Control Monetary Policy: A Helicopter Money Drop to Financial Institutions","authors":"R. Jarrow, Sujan Lamichhane","doi":"10.1142/s2010139220500044","DOIUrl":"https://doi.org/10.1142/s2010139220500044","url":null,"abstract":"On 21st September, 2016, the Bank of Japan (BOJ) embarked on a new unconventional monetary policy called yield curve control (YCC). We show that YCC creates an arbitrage opportunity in an otherwise frictionless and arbitrage-free government bond market which financial institutions can exploit. This arbitrage creates a wealth transfer from the BOJ to these financial institutions. We estimate the lower bound on this wealth transfer for the first 28 months to be $5.25 billion or ¥582.32 billion, which constitutes an unexplored policy externality. This corresponds to 7.49% per annum on the notional employed in this arbitrage strategy.","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"100 1","pages":"1-38"},"PeriodicalIF":0.7,"publicationDate":"2020-03-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79330263","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 : 2020-02-14DOI: 10.1142/s2010139220500020
Beni Lauterbach, Yevgeny Mugerman
We study the impact of institutional investors' “voice” on 201 going private tender offers by controlling shareholders ("freeze-out" offers) in Israel. Israeli regulatory intervention in freeze-out tender offers is relatively mild, thus institutional investors’ activism becomes crucial. We find that institutional voice has dual effects. On one hand, when there are pre-negotiations with institutional investors’ (their voice is heard), accepted offers’ premiums increase. On the other hand, when institutional investors express their voice, yet reject the offer, these rejections appear to hurt shareholders’ value. We also document significant institutional investor exit after rejected offers, especially after offers preceded by voice (pre-negotiations with institutional investors).
{"title":"The Effect of Institutional Investors’ Voice on the Terms and Outcome of Freeze-out Tender Offers","authors":"Beni Lauterbach, Yevgeny Mugerman","doi":"10.1142/s2010139220500020","DOIUrl":"https://doi.org/10.1142/s2010139220500020","url":null,"abstract":"We study the impact of institutional investors' “voice” on 201 going private tender offers by controlling shareholders (\"freeze-out\" offers) in Israel. Israeli regulatory intervention in freeze-out tender offers is relatively mild, thus institutional investors’ activism becomes crucial. We find that institutional voice has dual effects. On one hand, when there are pre-negotiations with institutional investors’ (their voice is heard), accepted offers’ premiums increase. On the other hand, when institutional investors express their voice, yet reject the offer, these rejections appear to hurt shareholders’ value. We also document significant institutional investor exit after rejected offers, especially after offers preceded by voice (pre-negotiations with institutional investors).","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"84 1","pages":"2050002"},"PeriodicalIF":0.7,"publicationDate":"2020-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76182501","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 : 2019-12-30DOI: 10.1142/s2010139220500019
Jens Dick‐Nielsen, Jacob Gyntelberg
We show that pass-through funding of mortgages with covered bonds supported by strong creditor rights is one way of providing highly liquid mortgage bonds. Despite a 30% drop in house prices during the 2008 crisis, these mortgage bonds remained as liquid as comparable government bonds with high trading volume and low bid-ask spreads. Market liquidity of these covered bonds is primarily driven by the availability of funding liquidity. Funding liquidity is the main concern because the pass-through funding approach effectively eliminates other types of risks from the investor’s perspective. Banking regulators should take into account the implications of these findings, particularly when it comes to the interplay between liquidity and capital requirements.
{"title":"Highly Liquid Mortgage Bonds Using the Match Funding Principle","authors":"Jens Dick‐Nielsen, Jacob Gyntelberg","doi":"10.1142/s2010139220500019","DOIUrl":"https://doi.org/10.1142/s2010139220500019","url":null,"abstract":"We show that pass-through funding of mortgages with covered bonds supported by strong creditor rights is one way of providing highly liquid mortgage bonds. Despite a 30% drop in house prices during the 2008 crisis, these mortgage bonds remained as liquid as comparable government bonds with high trading volume and low bid-ask spreads. Market liquidity of these covered bonds is primarily driven by the availability of funding liquidity. Funding liquidity is the main concern because the pass-through funding approach effectively eliminates other types of risks from the investor’s perspective. Banking regulators should take into account the implications of these findings, particularly when it comes to the interplay between liquidity and capital requirements.","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"119 1","pages":""},"PeriodicalIF":0.7,"publicationDate":"2019-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77961831","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 : 2019-12-23DOI: 10.1142/s2010139219500125
S. Tsyplakov
The integration of two merging firms takes time to complete, and synergy gains from a merger can be captured only after the firms go through a costly and often lengthy post-merger integration period. This paper presents a dynamic model of capital structure for the target firm and the acquirer to examine the effects of the integration period on acquiring firms’ financing behavior around mergers. The model generates predictions that provide rational (non-behavioral) explanations for documented empirical evidence regarding leverage dynamics around mergers. When anticipating a longer and costlier integration period, acquiring firms strategically plan ahead by choosing a lower leverage prior to and at the time of the merger, and gradually lever up as the post-merger integration process nears completion. Deals with longer integration periods are financed with a larger fraction of equity. The model also implies that acquiring firms optimally time takeovers of underleveraged firms that experience negative shocks to their earnings.
{"title":"Can Post-Merger Integration Costs and Synergy Delays Explain Leverage Dynamics of Mergers?","authors":"S. Tsyplakov","doi":"10.1142/s2010139219500125","DOIUrl":"https://doi.org/10.1142/s2010139219500125","url":null,"abstract":"The integration of two merging firms takes time to complete, and synergy gains from a merger can be captured only after the firms go through a costly and often lengthy post-merger integration period. This paper presents a dynamic model of capital structure for the target firm and the acquirer to examine the effects of the integration period on acquiring firms’ financing behavior around mergers. The model generates predictions that provide rational (non-behavioral) explanations for documented empirical evidence regarding leverage dynamics around mergers. When anticipating a longer and costlier integration period, acquiring firms strategically plan ahead by choosing a lower leverage prior to and at the time of the merger, and gradually lever up as the post-merger integration process nears completion. Deals with longer integration periods are financed with a larger fraction of equity. The model also implies that acquiring firms optimally time takeovers of underleveraged firms that experience negative shocks to their earnings.","PeriodicalId":45339,"journal":{"name":"Quarterly Journal of Finance","volume":"34 1","pages":"1950012"},"PeriodicalIF":0.7,"publicationDate":"2019-12-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76557745","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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