Pub Date : 2025-12-25DOI: 10.1016/j.jbankfin.2025.107612
Da-Hea Kim
We study the relation between options trading volume and stock price volatility, providing causal evidence that options trading stabilizes underlying stock prices. Exploiting the implementation of the Penny Pilot Program as an exogenous shock to options trading, we find that increased options trading reduces stock price volatility. We identify two mechanisms driving the volatility-reducing effect of options trading: (1) providing a buffer for liquidity shocks to stocks, which mitigates extreme price movements, and (2) correcting mispricing, thereby anchoring stock prices closer to their intrinsic values. Our findings support the beneficial role of options trading in enhancing price stability and efficiency.
{"title":"Does options trading stabilize stock prices? : Evidence from a natural experiment","authors":"Da-Hea Kim","doi":"10.1016/j.jbankfin.2025.107612","DOIUrl":"10.1016/j.jbankfin.2025.107612","url":null,"abstract":"<div><div>We study the relation between options trading volume and stock price volatility, providing causal evidence that options trading stabilizes underlying stock prices. Exploiting the implementation of the Penny Pilot Program as an exogenous shock to options trading, we find that increased options trading reduces stock price volatility. We identify two mechanisms driving the volatility-reducing effect of options trading: (1) providing a buffer for liquidity shocks to stocks, which mitigates extreme price movements, and (2) correcting mispricing, thereby anchoring stock prices closer to their intrinsic values. Our findings support the beneficial role of options trading in enhancing price stability and efficiency.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"185 ","pages":"Article 107612"},"PeriodicalIF":3.8,"publicationDate":"2025-12-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146015805","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-24DOI: 10.1016/j.jbankfin.2025.107613
Katherine Wood
Community banks are a crucial part of the economy, so evaluating the consequences of regulatory changes impacting this subset of banks is important. Using amendments in 2005 to the FDIC Improvement Act (FDICIA) and the Community Reinvestment Act (CRA), I examine how changes to a community bank’s regulatory requirements affect liquidity creation. I show that treating each regulatory change as a separate event leads to confounding results. When ignoring the overlap of the regulatory requirement, the results suggest that both regulations lead to increases in liquidity creation. However, after disentangling the effects of the two regulatory changes, I show that only the amendment to the CRA drives the results. Failure to disentangle the two changes leads to an overstatement of the increase in liquidity creation. Additionally, I find no evidence that the regulatory change leads to outcomes contradictory to the purposes of the CRA.
{"title":"A tale of two banking regulations: Impact of regulatory overlap on the analysis of liquidity creation","authors":"Katherine Wood","doi":"10.1016/j.jbankfin.2025.107613","DOIUrl":"10.1016/j.jbankfin.2025.107613","url":null,"abstract":"<div><div>Community banks are a crucial part of the economy, so evaluating the consequences of regulatory changes impacting this subset of banks is important. Using amendments in 2005 to the FDIC Improvement Act (FDICIA) and the Community Reinvestment Act (CRA), I examine how changes to a community bank’s regulatory requirements affect liquidity creation. I show that treating each regulatory change as a separate event leads to confounding results. When ignoring the overlap of the regulatory requirement, the results suggest that both regulations lead to increases in liquidity creation. However, after disentangling the effects of the two regulatory changes, I show that only the amendment to the CRA drives the results. Failure to disentangle the two changes leads to an overstatement of the increase in liquidity creation. Additionally, I find no evidence that the regulatory change leads to outcomes contradictory to the purposes of the CRA.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"183 ","pages":"Article 107613"},"PeriodicalIF":3.8,"publicationDate":"2025-12-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145885273","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-23DOI: 10.1016/j.jbankfin.2025.107610
Marcel Fischer , Patrick Hauf , Simon Stehle
Property taxes are commonly levied as a percentage of a home’s assessed value (AV). AVs should affect home prices through opposing channels. An unexpected increase in AV implies higher tax payments, which should hurt a home’s selling price (tax channel). On the other hand, the increase should have a positive effect since AVs serve as reference prices (anchoring channel). In a quasi-experimental setting exploiting geographic variations in AV-publication dates and reassessment frequencies, we find that a higher AV leads to a lower transaction price, indicating that the tax channel prevails. Disentangling the aggregate effect, we document that empirically, the anchoring channel does not play a major role. Our results thus suggest an exacerbation of previously documented inequities caused by taxation.
{"title":"How do assessed values affect the transaction prices of homes?","authors":"Marcel Fischer , Patrick Hauf , Simon Stehle","doi":"10.1016/j.jbankfin.2025.107610","DOIUrl":"10.1016/j.jbankfin.2025.107610","url":null,"abstract":"<div><div>Property taxes are commonly levied as a percentage of a home’s assessed value (AV). AVs should affect home prices through opposing channels. An unexpected increase in AV implies higher tax payments, which should hurt a home’s selling price (tax channel). On the other hand, the increase should have a positive effect since AVs serve as reference prices (anchoring channel). In a quasi-experimental setting exploiting geographic variations in AV-publication dates and reassessment frequencies, we find that a higher AV leads to a lower transaction price, indicating that the tax channel prevails. Disentangling the aggregate effect, we document that empirically, the anchoring channel does not play a major role. Our results thus suggest an exacerbation of previously documented inequities caused by taxation.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"184 ","pages":"Article 107610"},"PeriodicalIF":3.8,"publicationDate":"2025-12-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145898050","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-23DOI: 10.1016/j.jbankfin.2025.107611
Wenbin Cao , Xiaoman Duan , Scott Linn , Pierre Six
We expand the frequency domain asset pricing literature, traditionally focused on equities and bonds, to include the oil market. Our analysis extends to both the frequency and calendar time domains, offering new tests for the theories of storage and normal backwardation (hedging pressure). Our study highlights that the main relationships of both theories operate continuously in time at intermediate frequencies. Our analysis in the time–frequency domain enables us to refine extant conclusions regarding financialization in the oil market.
{"title":"New tests of the theory of storage and the theory of normal backwardation: Time and frequency dimensions","authors":"Wenbin Cao , Xiaoman Duan , Scott Linn , Pierre Six","doi":"10.1016/j.jbankfin.2025.107611","DOIUrl":"10.1016/j.jbankfin.2025.107611","url":null,"abstract":"<div><div>We expand the frequency domain asset pricing literature, traditionally focused on equities and bonds, to include the oil market. Our analysis extends to both the frequency and calendar time domains, offering new tests for the theories of storage and normal backwardation (hedging pressure). Our study highlights that the main relationships of both theories operate continuously in time at intermediate frequencies. Our analysis in the time–frequency domain enables us to refine extant conclusions regarding financialization in the oil market.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"183 ","pages":"Article 107611"},"PeriodicalIF":3.8,"publicationDate":"2025-12-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145885187","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-13DOI: 10.1016/j.jbankfin.2025.107609
Jonathan A. Batten , Lanlan Liu , Yezhou Sha
This study examines how provincial legal environments shape the profitability of illegal insider trading in China. Using 521 adjudicated insider-trading cases from 2006 to 2018, we hand-collect detailed information from court judgments and CSRC sanction documents to reconstruct holding-period returns and illicit gains. We combine these data with established provincial indices of legal development and firm-level measures of ex ante litigation risk to test whether legal risk is priced in illegal insider trades. We find that stronger provincial legal environments are associated with significantly higher per-trade profitability among illegal trades that insiders execute after accounting for enforcement risk. This pattern is consistent with a risk-compensation mechanism rather than a failure of enforcement, as stricter legal environments deter low-return trades and leave only trades with sufficiently high expected gains. Firm-level litigation exposure further strengthens this effect. The results remain robust to sample-selection corrections, alternative return measures and a range of heterogeneity tests. Overall, our findings show how institutional variation in enforcement shapes insider incentives and the risk–return trade-off of illegal trading.
{"title":"Illegal insider trading profitability and the legal environment","authors":"Jonathan A. Batten , Lanlan Liu , Yezhou Sha","doi":"10.1016/j.jbankfin.2025.107609","DOIUrl":"10.1016/j.jbankfin.2025.107609","url":null,"abstract":"<div><div>This study examines how provincial legal environments shape the profitability of illegal insider trading in China. Using 521 adjudicated insider-trading cases from 2006 to 2018, we hand-collect detailed information from court judgments and CSRC sanction documents to reconstruct holding-period returns and illicit gains. We combine these data with established provincial indices of legal development and firm-level measures of ex ante litigation risk to test whether legal risk is priced in illegal insider trades. We find that stronger provincial legal environments are associated with significantly higher per-trade profitability among illegal trades that insiders execute after accounting for enforcement risk. This pattern is consistent with a risk-compensation mechanism rather than a failure of enforcement, as stricter legal environments deter low-return trades and leave only trades with sufficiently high expected gains. Firm-level litigation exposure further strengthens this effect. The results remain robust to sample-selection corrections, alternative return measures and a range of heterogeneity tests. Overall, our findings show how institutional variation in enforcement shapes insider incentives and the risk–return trade-off of illegal trading.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"185 ","pages":"Article 107609"},"PeriodicalIF":3.8,"publicationDate":"2025-12-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146015806","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-08DOI: 10.1016/j.jbankfin.2025.107606
Felix Bekemeier , Fabian Schär , Hato Schmeiser
This paper presents a model in which risk-averse individuals can purchase insurance via traditional indemnity contracts or Decentralized Finance (DeFi) smart contract-based instruments. The model incorporates key features of DeFi insurance, including parametric payouts, basis risk arising from imperfect loss verification and pooled collateralization involving the risk of liquidity shortfalls. We characterize optimal insurance choices as a function of pricing, payout correlation and risk preferences. Numerical results show that DeFi insurance can complement or replace traditional coverage, improving welfare when basis and default risks are moderate or pricing advantages are substantial. The analysis reveals how DeFi-specific frictions shape insurance demand and provides insight into how DeFi instruments may shift market structure and expand the set of attainable risk transfer outcomes.
{"title":"Decentralized Finance risk transfer and smart contract-based insurance","authors":"Felix Bekemeier , Fabian Schär , Hato Schmeiser","doi":"10.1016/j.jbankfin.2025.107606","DOIUrl":"10.1016/j.jbankfin.2025.107606","url":null,"abstract":"<div><div>This paper presents a model in which risk-averse individuals can purchase insurance via traditional indemnity contracts or Decentralized Finance (DeFi) smart contract-based instruments. The model incorporates key features of DeFi insurance, including parametric payouts, basis risk arising from imperfect loss verification and pooled collateralization involving the risk of liquidity shortfalls. We characterize optimal insurance choices as a function of pricing, payout correlation and risk preferences. Numerical results show that DeFi insurance can complement or replace traditional coverage, improving welfare when basis and default risks are moderate or pricing advantages are substantial. The analysis reveals how DeFi-specific frictions shape insurance demand and provides insight into how DeFi instruments may shift market structure and expand the set of attainable risk transfer outcomes.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"183 ","pages":"Article 107606"},"PeriodicalIF":3.8,"publicationDate":"2025-12-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145885186","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-04DOI: 10.1016/j.jbankfin.2025.107599
Guillaume Coqueret , Bertrand Tavin , Yuxin Zhou
We examine the asset pricing implications of sustainability in commodity markets. We focus on metals and agricultural goods, for which we collect production-based environmental footprint data, namely greenhouse gas emissions and water consumption. We then build green-minus-brown portfolios and find no evidence that sustainability is priced in the cross-section of metals’ and agricultural commodities’ returns. We also document strong welfare benefits when diversifying equity and bond allocations with low-carbon commodities. Investor welfare, measured by the certainty equivalent return, increases by 22% when the commodity share is 20%. These results reveal the dual opportunities, both financial and environmental, brought by low footprint commodities.
{"title":"Sustainability in commodity markets","authors":"Guillaume Coqueret , Bertrand Tavin , Yuxin Zhou","doi":"10.1016/j.jbankfin.2025.107599","DOIUrl":"10.1016/j.jbankfin.2025.107599","url":null,"abstract":"<div><div>We examine the asset pricing implications of sustainability in commodity markets. We focus on metals and agricultural goods, for which we collect production-based environmental footprint data, namely greenhouse gas emissions and water consumption. We then build green-minus-brown portfolios and find no evidence that sustainability is priced in the cross-section of metals’ and agricultural commodities’ returns. We also document strong welfare benefits when diversifying equity and bond allocations with low-carbon commodities. Investor welfare, measured by the certainty equivalent return, increases by 22% when the commodity share is 20%. These results reveal the dual opportunities, both financial and environmental, brought by low footprint commodities.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"184 ","pages":"Article 107599"},"PeriodicalIF":3.8,"publicationDate":"2025-12-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145929230","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-02DOI: 10.1016/j.jbankfin.2025.107598
Christian Fieberg , Matthies Hesse , Gerrit Liedtke , Adam Zaremba
Can generative artificial intelligence (GenAI) help us predict financial stability? To address this question, we employ TopicGPT, a prompt-based framework for topic modeling powered by large language models. By analyzing over 238,000 corporate earnings calls and 4300 Federal Reserve speeches over the period from 2002 to 2023, we combine microeconomic and macroeconomic perspectives to forecast key measures of financial stability. TopicGPT’s ability to generate interpretable and tailored topics improves predictions for systemic risk measures, such as the National Financial Conditions Index and a capital shortfall, outperforming traditional models, particularly for long-term horizons. The two data sources complement each other: earnings calls provide dynamic, firm-specific insights critical for short-term forecasts, while Fed speeches highlight systemic risks, offering a long-term perspective. Together, they identify critical themes – such as economic conditions, debt management, and the housing market – and enable real-time risk assessment.
{"title":"Predicting financial stability with TopicGPT: Insights from corporate and central bank communications","authors":"Christian Fieberg , Matthies Hesse , Gerrit Liedtke , Adam Zaremba","doi":"10.1016/j.jbankfin.2025.107598","DOIUrl":"10.1016/j.jbankfin.2025.107598","url":null,"abstract":"<div><div>Can generative artificial intelligence (GenAI) help us predict financial stability? To address this question, we employ TopicGPT, a prompt-based framework for topic modeling powered by large language models. By analyzing over 238,000 corporate earnings calls and 4300 Federal Reserve speeches over the period from 2002 to 2023, we combine microeconomic and macroeconomic perspectives to forecast key measures of financial stability. TopicGPT’s ability to generate interpretable and tailored topics improves predictions for systemic risk measures, such as the National Financial Conditions Index and a capital shortfall, outperforming traditional models, particularly for long-term horizons. The two data sources complement each other: earnings calls provide dynamic, firm-specific insights critical for short-term forecasts, while Fed speeches highlight systemic risks, offering a long-term perspective. Together, they identify critical themes – such as economic conditions, debt management, and the housing market – and enable real-time risk assessment.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"183 ","pages":"Article 107598"},"PeriodicalIF":3.8,"publicationDate":"2025-12-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145712143","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-11-25DOI: 10.1016/j.jbankfin.2025.107596
Heiko Jacobs, Alexander Lauber
Recent literature shows that investors’ revealed beliefs often point to the use of comparatively simple valuation approaches or heuristics rather than complex models with several dimensions of systematic risk to price assets. Against this background, we comprehensively analyze how different stock-level performance measures affect media tone in firm-specific articles in several major markets. While the realized risk-adjusted abnormal returns of all tested models are positively related to media sentiment, the CAPM-adjusted return as well as the raw stock return have the strongest impact in direct comparisons. Overall, the results are most consistent with the conjecture that, on average, reporting tends to be influenced more by straightforward valuation approaches than by risk adjustments derived from multi-factor asset pricing models. Further largely supportive evidence comes from return decompositions, subsample tests, reporting about mutual funds as well as from survey results.
{"title":"Media reporting and asset pricing models","authors":"Heiko Jacobs, Alexander Lauber","doi":"10.1016/j.jbankfin.2025.107596","DOIUrl":"10.1016/j.jbankfin.2025.107596","url":null,"abstract":"<div><div>Recent literature shows that investors’ revealed beliefs often point to the use of comparatively simple valuation approaches or heuristics rather than complex models with several dimensions of systematic risk to price assets. Against this background, we comprehensively analyze how different stock-level performance measures affect media tone in firm-specific articles in several major markets. While the realized risk-adjusted abnormal returns of all tested models are positively related to media sentiment, the CAPM-adjusted return as well as the raw stock return have the strongest impact in direct comparisons. Overall, the results are most consistent with the conjecture that, on average, reporting tends to be influenced more by straightforward valuation approaches than by risk adjustments derived from multi-factor asset pricing models. Further largely supportive evidence comes from return decompositions, subsample tests, reporting about mutual funds as well as from survey results.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"182 ","pages":"Article 107596"},"PeriodicalIF":3.8,"publicationDate":"2025-11-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145623516","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-11-20DOI: 10.1016/j.jbankfin.2025.107597
Doron Avramov , Si Cheng , Andrea Tarelli
This paper develops and tests an equilibrium model of active fund management with ESG considerations. Heterogeneous sustainability preferences lead fund managers to intensify information acquisition on assets across the ESG spectrum, broadening the scope of active management. This information channel enhances price informativeness, lowers discount rates, and increases portfolio deviation from benchmarks. The model predicts a negative and concave ESG-expected return relation, stronger for green assets and weaker for brown assets. Using data on U.S. mutual funds and stocks from 2007–2021, we find supporting evidence based on price informativeness and the implied cost of equity capital.
{"title":"Active fund management when ESG matters","authors":"Doron Avramov , Si Cheng , Andrea Tarelli","doi":"10.1016/j.jbankfin.2025.107597","DOIUrl":"10.1016/j.jbankfin.2025.107597","url":null,"abstract":"<div><div>This paper develops and tests an equilibrium model of active fund management with ESG considerations. Heterogeneous sustainability preferences lead fund managers to intensify information acquisition on assets across the ESG spectrum, broadening the scope of active management. This information channel enhances price informativeness, lowers discount rates, and increases portfolio deviation from benchmarks. The model predicts a negative and concave ESG-expected return relation, stronger for green assets and weaker for brown assets. Using data on U.S. mutual funds and stocks from 2007–2021, we find supporting evidence based on price informativeness and the implied cost of equity capital.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"182 ","pages":"Article 107597"},"PeriodicalIF":3.8,"publicationDate":"2025-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145623517","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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