{"title":"Creating value through ESG: Assessing, measuring, and managing risks and opportunities","authors":"Atreya Chakraborty","doi":"10.1002/rfe.1217","DOIUrl":"https://doi.org/10.1002/rfe.1217","url":null,"abstract":"","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142264687","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}
This study has been conducted using 200 articles from 1984 to 2023, by undertaking a meta‐literature review on the subject of energy markets and financial markets linkage (EFML). Our study consists of content analysis of 200 articles along with other analyses such as (i) co‐citation analysis, (ii) co‐authorship analysis, and (iii) cartographic analysis. We have identified five research streams: (1) Oil, stock, commodities markets, crypto currency, real estate, exchange rate linkage; (2) Oil and stock market linkage; (3) Energy as a portfolio diversification tool; (4) Dynamic linkage between the oil‐commodity market and stock market; and (5) Oil and other market linkages with respect to the COVID‐19 pandemic, the subsequent financial crisis, and other events. We have performed a comprehensive review of the EFML literature and provided the influential aspects of top journals and authors, the characteristics of the most studied topics, past and current key research streams in the EFML literature. We have also suggested 63 future research questions. Looking at the widespread interest of finance scholarship in the area of energy market linkages, the assessment of energy market linkages, and possible portfolio diversification opportunities and benefits, is of great importance and interest to researchers, policy holders, and portfolio managers.
{"title":"Analyzing the energy markets and financial markets linkage: A bibliometric analysis and future research agenda","authors":"Ritesh Patel","doi":"10.1002/rfe.1216","DOIUrl":"https://doi.org/10.1002/rfe.1216","url":null,"abstract":"This study has been conducted using 200 articles from 1984 to 2023, by undertaking a meta‐literature review on the subject of energy markets and financial markets linkage (EFML). Our study consists of content analysis of 200 articles along with other analyses such as (i) co‐citation analysis, (ii) co‐authorship analysis, and (iii) cartographic analysis. We have identified five research streams: (1) Oil, stock, commodities markets, crypto currency, real estate, exchange rate linkage; (2) Oil and stock market linkage; (3) Energy as a portfolio diversification tool; (4) Dynamic linkage between the oil‐commodity market and stock market; and (5) Oil and other market linkages with respect to the COVID‐19 pandemic, the subsequent financial crisis, and other events. We have performed a comprehensive review of the EFML literature and provided the influential aspects of top journals and authors, the characteristics of the most studied topics, past and current key research streams in the EFML literature. We have also suggested 63 future research questions. Looking at the widespread interest of finance scholarship in the area of energy market linkages, the assessment of energy market linkages, and possible portfolio diversification opportunities and benefits, is of great importance and interest to researchers, policy holders, and portfolio managers.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-09-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142223586","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}
This paper evaluates stock return predictability with inflation and output gap, which typically enter the Federal Reserve Bank's interest rate setting rule. We introduce Taylor rule fundamentals into the Fed model that relates stock returns to earnings and long‐term yields. Using real‐time data from 1970 to 2008, we find evidence that the Fed model with Taylor rule fundamentals performs better in‐sample and out‐of‐sample than the constant return and original Fed models. Economic significance tests indicate that the models with Taylor rule fundamentals consistently produce higher utility gains than the benchmark models. Though the performance of the Taylor rule model weakens when we extend the sample to include the post‐2008 period characterized by prolonged zero lower bound episodes, it still outperforms the benchmark models.
{"title":"Stock return predictability and Taylor rules","authors":"Onur Ince, Lei Jiang, Tanya Molodtsova","doi":"10.1002/rfe.1215","DOIUrl":"https://doi.org/10.1002/rfe.1215","url":null,"abstract":"This paper evaluates stock return predictability with inflation and output gap, which typically enter the Federal Reserve Bank's interest rate setting rule. We introduce Taylor rule fundamentals into the Fed model that relates stock returns to earnings and long‐term yields. Using real‐time data from 1970 to 2008, we find evidence that the Fed model with Taylor rule fundamentals performs better in‐sample and out‐of‐sample than the constant return and original Fed models. Economic significance tests indicate that the models with Taylor rule fundamentals consistently produce higher utility gains than the benchmark models. Though the performance of the Taylor rule model weakens when we extend the sample to include the post‐2008 period characterized by prolonged zero lower bound episodes, it still outperforms the benchmark models.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-09-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142223587","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}
Many economists have demonstrated that shareholder return constraints can negatively affect investment managers' decisions. While most studies are empirical, their findings are mixed. The real options literature provides a theoretical foundation for why a simple net present value rule based on a firm's cost of capital could lead to either insufficient investment or excessive investment. This study analyzes how the pursuit of shareholder value impacts optimal investments using Tobin's Q model in perfect competition. The study demonstrates that Tobin's Q, modified by shareholder constraints, can either hinder or promote optimal investment, thereby explaining the divergent results of empirical studies on this issue.
{"title":"Tobin's Q and shareholder value: Does “shareholder return” impede investment?","authors":"Nicolas Piluso","doi":"10.1002/rfe.1214","DOIUrl":"https://doi.org/10.1002/rfe.1214","url":null,"abstract":"Many economists have demonstrated that shareholder return constraints can negatively affect investment managers' decisions. While most studies are empirical, their findings are mixed. The real options literature provides a theoretical foundation for why a simple net present value rule based on a firm's cost of capital could lead to either insufficient investment or excessive investment. This study analyzes how the pursuit of shareholder value impacts optimal investments using Tobin's Q model in perfect competition. The study demonstrates that Tobin's Q, modified by shareholder constraints, can either hinder or promote optimal investment, thereby explaining the divergent results of empirical studies on this issue.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142176308","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}
Abootaleb Shirvani, Svetlozar T. Rachev, Frank J. Fabozzi
We address the stock predictability puzzle, a challenge in the stock market often discussed in behavioral finance. Our approach formulates a statistical model within rational finance, avoiding reliance on behavioral finance assumptions, and integrates stock return predictability into the Black–Scholes option pricing framework. Empirical analysis focuses on the predictability of stock prices by option and spot traders, introducing a forward‐looking measure we term “implied excess predictability.” Results show that option traders' predictability of stock returns positively correlates with moneyness, whereas for spot traders, this relationship is inverse. These findings suggest a potential asymmetry in stock price predictability between spot and option traders. Additionally, we demonstrate the importance of incorporating stock return predictability into option pricing formulas, particularly for options with strike prices significantly different from the stock price. Conversely, when moneyness is close to unity, predictability is not integrated into option pricing, indicating equal information among spot and option traders. Comparison of volatility measures reveals the difference between implied and realized variances or variance risk premia as potential predictors of stock returns.
{"title":"A rational finance explanation of the stock predictability puzzle","authors":"Abootaleb Shirvani, Svetlozar T. Rachev, Frank J. Fabozzi","doi":"10.1002/rfe.1210","DOIUrl":"https://doi.org/10.1002/rfe.1210","url":null,"abstract":"We address the stock predictability puzzle, a challenge in the stock market often discussed in behavioral finance. Our approach formulates a statistical model within rational finance, avoiding reliance on behavioral finance assumptions, and integrates stock return predictability into the Black–Scholes option pricing framework. Empirical analysis focuses on the predictability of stock prices by option and spot traders, introducing a forward‐looking measure we term “implied excess predictability.” Results show that option traders' predictability of stock returns positively correlates with moneyness, whereas for spot traders, this relationship is inverse. These findings suggest a potential asymmetry in stock price predictability between spot and option traders. Additionally, we demonstrate the importance of incorporating stock return predictability into option pricing formulas, particularly for options with strike prices significantly different from the stock price. Conversely, when moneyness is close to unity, predictability is not integrated into option pricing, indicating equal information among spot and option traders. Comparison of volatility measures reveals the difference between implied and realized variances or variance risk premia as potential predictors of stock returns.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-07-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141552643","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}
This study examines whether future stock returns and earnings persistence decline when a firm has issued equity within 1 month of its earnings announcement (post‐EA equity financing), considering managerial ability and overconfidence. The results show that when overconfident managers engage in post‐EA equity financing, buy‐and‐hold returns significantly decrease in the subsequent month and earnings persistence is low within the subsequent year. However, firms with overconfident, high‐ability managers do not experience lower returns following post‐EA equity financing and have larger earnings variability within the subsequent 3 years. The decline in returns in the month during post‐EA equity financing is more pronounced for firms with high financial constraints or low financial flexibility with overconfident managers. Overall, our results highlight the managerial traits of firms that engage in equity issuance after information release.
本研究在考虑管理能力和过度自信的情况下，研究了当公司在盈利公布后 1 个月内发行股票（EA 后股权融资）时，未来股票回报率和盈利持续性是否会下降。研究结果表明，当过度自信的管理者进行后 EA 股权融资时，买入并持有回报率在随后的一个月内会显著下降，并且在随后的一年内盈利持续性较低。然而，过度自信、高能力经理人的公司在 EA 后股权融资后的回报率并没有降低，而且在随后 3 年内的收益变异性较大。对于财务约束较高或财务灵活性较低、管理者过于自信的企业来说，EA 股权融资后当月收益的下降更为明显。总体而言，我们的研究结果凸显了在信息发布后进行股票发行的公司的管理特征。
{"title":"Stock returns and earnings persistence following equity financing and earnings announcement: Considering managerial characteristics","authors":"Jing‐Chi Chen, Li‐Kai (Connie) Liao","doi":"10.1002/rfe.1199","DOIUrl":"https://doi.org/10.1002/rfe.1199","url":null,"abstract":"This study examines whether future stock returns and earnings persistence decline when a firm has issued equity within 1 month of its earnings announcement (post‐EA equity financing), considering managerial ability and overconfidence. The results show that when overconfident managers engage in post‐EA equity financing, buy‐and‐hold returns significantly decrease in the subsequent month and earnings persistence is low within the subsequent year. However, firms with overconfident, high‐ability managers do not experience lower returns following post‐EA equity financing and have larger earnings variability within the subsequent 3 years. The decline in returns in the month during post‐EA equity financing is more pronounced for firms with high financial constraints or low financial flexibility with overconfident managers. Overall, our results highlight the managerial traits of firms that engage in equity issuance after information release.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-06-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141339924","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 examine a rationale for entrepreneurial spin‐outs, when employing firms are not protected from expropriation by their employees, built on the resource‐based view of the firm. We consider a repeated innovations setting and develop the dynamics of the entrepreneurial spin‐out decision. The implications for the gradual development of a sector of activity are in line with existing empirical findings.
{"title":"A resource‐based view of entrepreneurial spin‐outs","authors":"Pierre Mella‐Barral","doi":"10.1002/rfe.1207","DOIUrl":"https://doi.org/10.1002/rfe.1207","url":null,"abstract":"We examine a rationale for entrepreneurial spin‐outs, when employing firms are not protected from expropriation by their employees, built on the resource‐based view of the firm. We consider a repeated innovations setting and develop the dynamics of the entrepreneurial spin‐out decision. The implications for the gradual development of a sector of activity are in line with existing empirical findings.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-06-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141375828","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}
Mohamed A. Ayadi, Donald A. Cyr, Skander Lazrak, Zhangwei Lu
This paper examines whether financial derivatives usage impacts firm value in seven developed countries from 2007 to 2016. We rely on textual analysis to identify derivatives users and address the potential reverse causality problem through propensity score matching and the difference‐in‐differences approach. Empirical findings suggest that the use of derivatives has a negative effect on firm value. Interestingly, we observe asymmetric valuation effects for specific countries when comparing firms that adopt derivatives with those that abandon them. US, UK, and Australian firms adopting derivatives experience a significant decrease in their valuation. Contrary to expectations, this adverse effect diminishes and may become insignificant at best when firms choose to abandon derivatives. Furthermore, most of the significant value effects disappear when using the industry relative valuation measure.
{"title":"Firm value and the use of financial derivatives: Evidence from developed countries","authors":"Mohamed A. Ayadi, Donald A. Cyr, Skander Lazrak, Zhangwei Lu","doi":"10.1002/rfe.1206","DOIUrl":"https://doi.org/10.1002/rfe.1206","url":null,"abstract":"This paper examines whether financial derivatives usage impacts firm value in seven developed countries from 2007 to 2016. We rely on textual analysis to identify derivatives users and address the potential reverse causality problem through propensity score matching and the difference‐in‐differences approach. Empirical findings suggest that the use of derivatives has a negative effect on firm value. Interestingly, we observe asymmetric valuation effects for specific countries when comparing firms that adopt derivatives with those that abandon them. US, UK, and Australian firms adopting derivatives experience a significant decrease in their valuation. Contrary to expectations, this adverse effect diminishes and may become insignificant at best when firms choose to abandon derivatives. Furthermore, most of the significant value effects disappear when using the industry relative valuation measure.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-05-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141195314","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}
Mustafa Raza Rabbani, M. Kabir Hassan, Austin Dejan, Abu Bashar, Md. Bokhtiar Hasan
We apply bibliometric analysis to the review papers published in the finance domain, considering 264 review and qualitative studies. The approach applied in this study involves using review studies published in finance literature from 2000 to 2022, predominantly aiming at the pedigree of such papers and unfolding the renaissance experienced by such papers in recent years. We apply bibliometric analysis to know the most influential countries, authors, institutions, and journals publishing review papers. Results of the study identified four literature review clusters: The first cluster is related to ‘corporate finance and financial markets’, the second cluster combines the studies related to ‘financial innovations and Fintech’, the third cluster is related to ‘social finance and financial inclusion’, and finally, the fourth cluster combines the studies related to ‘CSR and corporate governance’. We conclude that the bibliometric analysis and literature review papers are critical for identifying and highlighting the emerging problems in finance and motivating future academics to pursue further investigations and provide solutions.
{"title":"A bibliometric analysis of the review papers in finance: Evidence from the last two decades","authors":"Mustafa Raza Rabbani, M. Kabir Hassan, Austin Dejan, Abu Bashar, Md. Bokhtiar Hasan","doi":"10.1002/rfe.1197","DOIUrl":"https://doi.org/10.1002/rfe.1197","url":null,"abstract":"We apply bibliometric analysis to the review papers published in the finance domain, considering 264 review and qualitative studies. The approach applied in this study involves using review studies published in finance literature from 2000 to 2022, predominantly aiming at the pedigree of such papers and unfolding the renaissance experienced by such papers in recent years. We apply bibliometric analysis to know the most influential countries, authors, institutions, and journals publishing review papers. Results of the study identified four literature review clusters: The first cluster is related to ‘corporate finance and financial markets’, the second cluster combines the studies related to ‘financial innovations and Fintech’, the third cluster is related to ‘social finance and financial inclusion’, and finally, the fourth cluster combines the studies related to ‘CSR and corporate governance’. We conclude that the bibliometric analysis and literature review papers are critical for identifying and highlighting the emerging problems in finance and motivating future academics to pursue further investigations and provide solutions.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140827295","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}
René Weh, Peter Joakim Westerholm, Marco Wilkens, Juan Yao
Examining risk‐adjusted returns for executed trades over horizons of up to 1 year, we document strong evidence of short‐term trading skill using daily mutual fund transactions from Finland. We find that trading performance is highly persistent up to the 1 month horizon, with an annualized Carhart abnormal return of 5.03% observed for both buys and sells. Moreover, the returns observed for the first week account for almost 36% of a fund's 1 year trade return, underscoring the significance of short‐term trading in mutual funds. For the best‐performing funds, this short‐term performance also translates into sustained long‐term outperformance. Investigating possible sources, we find that liquidity provision, rather than price pressure, is a significant contributor. In addition, short‐term trading performance is significantly positively related to trade size, fund size, and expenses, depending on whether buys or sells are considered.
{"title":"Liquidity provision and trading skill: Evidence from mutual funds' daily transactions","authors":"René Weh, Peter Joakim Westerholm, Marco Wilkens, Juan Yao","doi":"10.1002/rfe.1196","DOIUrl":"https://doi.org/10.1002/rfe.1196","url":null,"abstract":"Examining risk‐adjusted returns for executed trades over horizons of up to 1 year, we document strong evidence of short‐term trading skill using daily mutual fund transactions from Finland. We find that trading performance is highly persistent up to the 1 month horizon, with an annualized Carhart abnormal return of 5.03% observed for both buys and sells. Moreover, the returns observed for the first week account for almost 36% of a fund's 1 year trade return, underscoring the significance of short‐term trading in mutual funds. For the best‐performing funds, this short‐term performance also translates into sustained long‐term outperformance. Investigating possible sources, we find that liquidity provision, rather than price pressure, is a significant contributor. In addition, short‐term trading performance is significantly positively related to trade size, fund size, and expenses, depending on whether buys or sells are considered.","PeriodicalId":51691,"journal":{"name":"Review of Financial Economics","volume":null,"pages":null},"PeriodicalIF":1.2,"publicationDate":"2024-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140802279","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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