International Review of Finance最新文献

In this paper, we examine the relationship between Hofstede national cultures and de jure central bank independence. We propose theoretical hypotheses to explain how cultural dimensions determine central bank independence and test these hypotheses using an international dataset. We find that two cultural dimensions, namely, individualism and uncertainty avoidance, are significantly related to central bank independence. Central bank independence is higher in collectivistic and uncertainty avoidance countries. We further reveal that these cultural dimensions affect central bank independence in different ways. Individualism and uncertainty avoidance are related to independence in policy formulation and limitations on lending to governments. Although power distance and masculinity are insignificantly related to total central bank independence, they affect independence in objectives, policy formulation and limitation on lending to governments. Our results are robust through a series of checks.

We investigate the predictive role of global economic uncertainty exposure at the firm level in the top-five developed stock markets outside the US. Applying portfolio-level sorting strategies, we find that exposure to global idiosyncratic uncertainty exhibits stronger predictive power than either total or common uncertainty. Further, the idiosyncratic uncertainty betas are negatively related to future stock returns over multiple trading horizons in the UK, Europe, and Canada, and this relationship cannot be explained by common risk factors, including market, size, value, investment, profitability, and momentum. Our findings are robust to the use of firm-level Fama–MacBeth regressions and additional trading horizons.

Empirical studies report inconclusive assessment of duration-based immunization, notably showing that more sophisticated strategies do not outperform immunization relying on Macaulay duration. This article provides a mean–variance framework to explain this puzzle. We characterize the efficient portfolio allocations for a stylized barbell strategy trading off reinvestment risk with discounting risk. We show, in a model-free setting, that barbell allocations form a convex set in the mean–variance space, and the endpoints of the efficient frontier can switch as time passes, reversing the set of efficient allocations. Consequently, duration-based immunization, which is not minimum variance, can exhibit temporary inefficiency. This result is numerically illustrated in a one-factor Gaussian and a two-factor non-Gaussian model. Using yield curve scenarios resampled from U.S. data over the 1977–2020 period, we further corroborate our conclusions non-parametrically, and find that duration-based immunization is sometimes inefficient.

This article examines the relationship between bank diversification and performance in the Japanese banking sector. We use panel data from 141 banks over the period 2000–2022 to investigate whether banks can improve profitability and reduce risk through diversification strategies. Our evidence shows that diversification can improve bank profitability at the cost of a decline in net interest margins, suggesting banks are using the interest business as a loss leader to promote other business lines. We find that asset diversification has a risk-reducing effect, which supports the portfolio hypothesis. Some evidence also implies that there is a more complex nonlinear relationship. This can be partly attributed to bank type, as the diversification effects vary across different types of banks. Furthermore, the decomposition of non-interest income reveals that fees and commissions negatively influence return on assets while simultaneously reducing bank risk.

This research investigates the effect of sentiment on the time-series and cross-section of mean, variance and correlation of asset returns to examine how investor sentiment creates predictable variations in financial markets. Based on the method proposed by Baker and Wurgler (2007, Investor sentiment in the stock market, Journal of Economic Perspectives 21, 129-152), we build composite sentiment indexes with a focus on international markets. Our time-series results show that optimistic (pessimistic) sentiment leads to overpricing (underpricing) and that variance and correlation of asset returns increase when investors are pessimistic. Our cross- section results suggest that these effects tend to become more pronounced for stocks with more exposure to sentiment or the market.

Using listed Japanese firms, we examine changes in R&D investment decisions during periods of high economic policy uncertainty and politics uncertainty (EPU). We find that under high EPU, firms are more persistent in their previous R&D investment and reduce their responsiveness to sales growth, while the mechanism of EPU occurs mainly through fiscal policy. We also identify heterogeneities in ownership structure and find that high director ownership encourages R&D in firms with greater growth opportunities despite higher EPU. Moreover, Japanese directors suffer from the “quiet life problem,” which further reduces their incentive to change R&D investment during periods of EPU.

Existing studies show that firms with large macroeconomic risk do not earn higher returns, incompatible with the theoretical predictions of standard economic models. Using a broad set of macro-related factors, we find the January seasonality of the macroeconomic risk–return relation. Firms with high macro risk deliver higher returns than firms with low risk in January, that is, the positive risk–return trade-off holds. Conversely, the negative risk–return relation is observed in non-January months. The seasonal variation in the macro risk–return relation cannot be explained by existing January effects, including the tax-loss selling, window dressing, and pronounced gambling preference around New Year.

Earnings announcement (EA) poses a non-diversifiable risk to investors. This study examines whether investors demand higher returns for stocks with high systematic EA risk. We find evidence that systematic EA risk is priced, however, the premium is realized only during periods with intensified cash-flow news. Specifically, we construct an ex-ante measure of expected information intensity (EII) and find that in the subsample of high-EII firms, those with high systematic EA risk earn significantly higher future returns. Controlling for known risk factors, stocks with high systematic EA risk outperform those with low systematic EA risk by 0.43% in monthly Fama–French five-factor alpha. We also confirm the well-documented announcement premium, i.e., high-EII firms outperform low-EII firms and show that the EA risk premium is distinct from the announcement premium. To exploit both premiums, a feasible strategy of long stocks with both high-EII and high systematic EA risk and short stocks with low-EII yields monthly 0.81% five-factor alpha.