Find us on Facebook Find us on LinkedIn Follow us on Twitter Subscribe to our YouTube channel

2012 Seminars

17th Feb 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Marco Wilkens, University of Augsburg

Title: The Pricing Policy of Banks on the German Secondary Market for Leverage Certificates: Interday and Intraday Effects

This paper is the first thorough analysis of finite leverage certificates on the German market. Our study, based on a unique data set at investor- and certificate-specific level, contains more than half a million trades in DAX leverage certificates by more than 7,000 retail costumers of a large German direct bank for the years 2007 and 2008. We analyse the order flow induced by the investors and compare traded prices - rather than quotes - with corresponding theoretical fair product values. We examine deviations between the prices and the values in two directions: interday, i.e. the development of the deviations over a certificate's lifetime and intraday, i.e. deviations depending on the time of day the trade is made. Our major results can be summarized as follows: (i) Leverage certificates are overpriced. (ii) The "Life Cycle Hypothesis" by Stoimenov and Wilkens (JBF, 2005), initially developed for long-term investment certificates, also holds for short-term leverage certificates. This interday effect is more pronounced the less likely a premature knock-out of the certificate is. (iii) At the end of the underlying's trading hours issuers increase the prices. (iv) The issuers' pricing policy is consistent with the customer-driven order flow and the overnight gap risk issuers face.

16th Mar 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Seng Xiao, University of Minnesota

Title: How important is the industry experience of independent directors?

We analyze a newly available data set with the full employment history of independent directors at S&P 1500 companies and show that the proportion of independent directors with industry experience (IDIEs) is positively and significantly correlated with firm performance, but the proportion of independent directors without industry experience (IDNIEs) is not. We find that higher proportions of IDIEs are associated with fewer earnings restatements and more cash holdings. Firms with IDIEs have higher CEO pay-performance sensitivity, higher CEO turnover-performance sensitivity, and more patents with more citations. We also find that CEO power is negatively correlated with the presence of IDIEs.

23rd Mar 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Jongmoo Jay Choi, Temple University, Philadelphia

Title: Labor as a monitor of the CEO: A Power Game of Outsourcing

Consistent with a stakeholder model, we propose a power play hypothesis that the CEO power is balanced by labor that can monitor the CEO behavior. We develop a theory of a cooperative power game between the CEO and labor in corporate outsourcing, and test the model's predictions concerning the decision to outsource, division of profit, and post-outsourcing firm performance using a sample of 162 outsourcing deals by U.S. firms during 1992-2005. In accord with the model, a firm is more likely to outsource the greater is CEO power, the greater is the firm's production cost, and the more homogeneous is the industry; the greater is CEO power, the greater is the CEO's share of profits. And the outsourcing decision does not affect the CEO's share of profits, and CEO power is positively related to post-outsourcing performance. Interestingly poor prior firm performance moderates power dynamics between the CEO and labor. The implication is that in addition to the traditional governance mechanisms such as board, institutional investors or banks, labor can also be an effective managerial monitor when the firm undergoes a major restructuring.

27th Mar 2012 - 11:30 am

Venue: Darlington Main Building: Conference Room 1

Speaker: Tarun Chordia, Emory University of Atlanta

Title: Buyers versus Sellers: Who Initiates Trades and When?

We study the relation between order imbalance and past returns and firm characteristics and test a number of hypothesis including the disposition effect, momentum and contrarian trading, taxloss selling and flight-to-quality hypothesis. These hypotheses make predictions about investors' buy or sell decisions, but previous studies that test these hypotheses use turnover data that combine both buyer and seller-initiated trades. We find that investors behave as contrarians over short horizons and as momentum traders over longer horizons. We find strong support for seasonal tax induced trading but little evidence of flight-to-quality.

6th Apr 2012 - 11:30 am

Venue: Room 498, Merewether Building (H04)

Speaker: Heitor Almeida, University of Illinois Urbana

Title: Credit Lines as Monitored Liquidity Insurance, Theory and Evidence

20th Apr 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Eliza Wu, University of Technology, Sydney

Title: Characterizing Global Financial and Economic Integration through Analyst Forecast

This paper presents new evidence on international financial market integration using stock analyst earnings forecasts from 37 countries around the world. By examining cash flow (CF) and discount rate (DR) news co-movements, we find that the influence of these two driving forces of global market integration have diverged over time as DR news have become more important than CF news over the past decade. However, this divergence is less severe in emerging markets compared with developed markets where expected return news has played a less prominent role. We interpret this as being that financial integration has developed relatively slowly in emerging markets due to the hampering effects of their poor information environments.

26th Apr 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Emir Hrnjić, National University of Singapore

Title: Investor Sentiment and Seasoned Equity Offerings

We document that  investor sentiment is positively related with pre-SEO overpricing and plays an  important role in managers' equity issuance decisions. Further, we provide  evidence that investor sentiment impacts the SEO discounting and underpricing.  High sentiment periods are followed by low long run returns suggesting that  sentiment does not proxy for unobservable fundamentals. Overall, our findings  are consistent with market timing and behavioural explanations for equity  offerings.

27th Apr 2012 - 11:30 am

Venue: Room 498, Merewether Building (H04)

Speaker: Jialan Wang, Washington University of St.Louis

Title: Liquidity Constraints and Consumer Bankruptcy: Evidence from Tax Rebates

This paper estimates the extent to which legal fees prevent liquidity-constrained households from declaring bankruptcy. To do so, it studies how the 2001 and 2008 tax rebates affected consumer bankruptcy filings. We exploit the randomized timing of the rebate checks and estimate that the rebates caused a significant, short-run increase in consumer bankruptcies in both years, with larger effects in 2008 when the rebates were more generous and more widely distributed. Using hand-collected data from individual bankruptcy petitions, we document that the rebates caused an increase in the average liabilities and the liabilities-to-income ratios of filers.

4th May 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Breno Schmidt, Goizueta Business School, Emory University Atlanta

Title: Co-Insurance in Mutual Fund Families

We apply a bootstrap approach to show that mutual fund families coordinate actions across member funds in order to support those that are forced to sell due to heavy outflows. We show how such strategy can affect the pricing implications of asset fire sales and how it distorts the incentives of fund managers. First, we show that coordination is more likely to be observed within families that have a sufficiently large number of funds. Consistent with internal coordination, we document weak or no price pressure coming from the widespread selling by financially distressed mutual funds that are affiliated with large families, while the effect is very strong for their small-family peers. Moreover, we show that affiliation with large families significantly reduces the sensitivity of outflows to poor past performance, in particular for funds holding more illiquid portfolios. However, by improving the convexity of their implicit payoff structures, we show that risk-sharing strategies at the family level can encourage individual fund managers to take extra risks.

11th May 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Roberto Gutierrez Jr., University of Oregon

Title: The Aggregate Information in Unexpected Media Coverage of Firms' Earnings Reports

Economists have recently begun to explore the roles of the financial media in the stock market.

We extend this line of inquiry by assessing the aggregate information contained in the Wall Street Journal's decisions to cover firms' earnings reports. Since the information in earnings announcements varies across firms and time, we first measure unexpected coverage of each firm's announcement and then aggregate unexpected coverage across firms each month. The resulting measure quantifies the monthly flow of market-wide information regarding stock valuation -- arising from the Wall Street Journal's perception of the informativeness of the earnings reports. In months when the level of coverage is surprisingly high, returns on the CRSP value-weighted index are high and continue to be high for roughly six months. The six-month predictability in returns seems due to the persistence in the flow of market-wide news rather than aggregate media coverage capturing investor sentiment.

We conclude that high aggregate unexpected coverage identifies periods of high valuation uncertainty and that high returns are compensation for bearing this time-varying risk. In addition, we find that exposure to this risk varies across stocks and is priced in the cross section of returns. Finally, serial correlation in the index return is highly dependent on our measure of aggregate news flow, switching from positive to negative serial correlation as aggregate unexpected coverage changes from high to low.

18th May 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Gjergji Cici, College of William and Mary, Virginia

Title: The Valuation of Hedge Funds' Equity Positions

We provide evidence on the valuation of equity positions by hedge fund advisors. Reported valuations deviate from standard valuations based on closing prices from CRSP for roughly seven percent of the positions. These deviations are economically significant for about 25 percent of the hedge fund advisors. Advisors with more pronounced valuation deviations show a stronger discontinuity in their reported returns around zero, manage a higher fraction of potentially fraudulent funds, show smoother reported returns, self-report to commercial databases, and are domiciled in offshore locations. Additional tests suggest that the documented equity valuation deviations respond to past performance.

25th May 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Byoung-Hyoun Hwang, Perdue University, Indiana

Title: Customers as Advisor: The Role of Social Media in Financial Markets

This paper investigates the extent to which peer-based advice transmitted through social media affects the stock market. We conduct textual analysis of articles published on Seeking Alpha, a popular social-media platform among investors. We find that the views expressed in these articles associate strongly with contemporaneous and subsequent stock returns, and help predict earnings surprises. The social media effect is stronger for articles that receive more attention and for companies likely to be neglected by traditional advice sources. The association remains strong for companies with no mentioning in the Dow Jones News Service in the week surrounding the publication of the Seeking Alpha article. Together, these findings point to the importance of social media as both a source of peer-based advice and a channel through which views become reflected in stock prices.

1st Jun 2012 - 11:30 pm

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Josephine Smith, Stern School of Business, New York University

Title: The Term Structure of Money Market Spreads During the Financial Crisis

I estimate a no-arbitrage model of the term structure of money market spreads during the recent financial crisis to identify how much of the sharp movements in spreads can be attributed to observable interest rate, credit, and liquidity factors. The restrictions of the model imply that longer- term spreads are linear, risk-adjusted expected values of future short-term spreads. In addition, the linear representation of spreads can be partitioned into two distinct components: one related to time-varying expectations of spreads, and the second to time-variation in risk premia. Estimation of the model highlights the importance of time-variation in risk premia. Up to 50% of the Variation of spreads is explained by time-varying risk premia, and risk premia has significant predictive power for spreads.

8th Jun 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Miles Livingston, University of Florida

Title: The Value of a Third Opinion: Split Ratings, Information Opacity and Fitch Ratings

We examine the marginal impact of Fitch rating on the yields at issuance of industrial and utility bonds rated by both Moody's and S&P.  We find that Fitch ratings reduce the yield premiums on information opaque bond issues. The finding is robust even when a Fitch rating exactly equals the average of the two major ratings. However, for non-opaque bonds, an additional rating from Fitch has no impact on bond yields. We measure opacity in two ways: split ratings and an index of commonly used proxies for opacity. We estimate that a Fitch rating reduces the opacity premium on informational opaque bond issues proportionally by 30% to 40%, or 9-14 basis points. When ratings are split and the opacity levels are high, a Fitch rating has the largest reduction in bond yields.

17th Aug 2012 - 11:30 am

Venue: Room 214/215 Economics and Business Building

Speaker: Fernando Zapatero, Marshall School of Business, University of Southern California

Title: Labor Income, Relative Wealth Concerns, and the Cross-section of Stock Returns

The finance literature documents the relation between labor income and the cross- section of stock returns. A possible explanation is the hedging of investors with relative wealth concerns who pay a premium for securities that help them to keep up with their peers. At the census division level we find that the risk premium associated with labor income risk is negative and statistically significant. This premium is predominantly local in nature, as opposed to the aggregate, country-wide cross-sectional effect so far documented. Also, it is larger in areas with lower population density, as expected when investors have relative wealth concerns.

31st Aug 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Chu Zhang, Hong Kong University of Science and Technology

Title: Analyst Forecasts, Errors-in-expectations, and the Value Premium

Investors' extrapolative errors-in-expectations about future corporate earnings have been hypothesized in the literature as an explanation for the value premium. The extant literature uses analysts' earnings forecasts as a proxy for investors' expectations and has found certain evidence consistent with the hypothesis. But researchers have not reached consensus on whether the value premium is indeed caused by extrapolative errors-in-expectations. In this paper, we examine analysts' long-term earnings growth forecasts, compare them with the earnings growth predicted by an empirical model, and use the difference between the analyst forecast and the model forecast as a measure of the errors-in-expectations. We find evidence that analysts extrapolate in their earnings forecasts, although not for all types of stocks, but we conclude that the errors-in-expectations are not the cause of the value premium because the errors-in-expectations measure we construct does not have strong predictive power for future returns and does not subsume the market-to-book ratio in generating the value premium.

11th Sep 2012 - 11:15 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Professor Henk Berkman, Business School, University of Auckland New Zealand

Title: Informed Trading through the Accounts of Children

This study argues that a high proportion of trading through underaged accounts is  likely to be controlled by informed guardians seeking to share the benefits of their information advantage with young children, or camouflaging their potentially illegal trades. Consistent with this conjecture, we find that the  guardians behind underaged accounts are very successful at picking stocks. Moreover, they tend to channel their best trades through the accounts of  children, especially when they trade just before major earnings announcements, large price changes, and takeover announcements. Building on these results, we argue that the proportion of total trading activity through underaged accounts  (labeled BABYPIN) should serve as an effective proxy for the probability of information trading in a stock. Consistent with this claim, we show that investors demand a higher return for holding stocks with a greater likelihood  of private information, as proxied by BABYPIN.

14th Sep 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Stephan Siegel, University of Washington

Title: Why Do Individuals Exhibit Investment Biases?

We find that a long list of  investment biases, e.g., the reluctance to realize losses, performance chasing,  and the home bias, are "human" in the sense that investors are born  with them. Genetic factors explain up to 50% of the variation in these biases  across individual investors. We also find that genetic factors influencing  investment biases affect behaviors in other, non-investment, domains. For  example, those with a preference for familiar stocks exhibit a preference for  familiarity also in other domains. Our results provide empirical support for a  biological basis for investment behaviors that have been shown to be  wide-spread and persistent. Finally, we find that education does not seem to  significantly reduce genetic predispositions to investment biases, and we  demonstrate that accounting for confounding genetic factors is important when  assessing whether, e.g., education reduces investment biases.

18th Sep 2012 - 11:15 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Robert Webb, Business School, University of Virginia USA

Title: Asymmetric and negative return-volatility relationship: the case of the VKOSPI

KOSPI 200 index options are the most actively traded exchange-listed derivative contracts in the world. And, unlike most other active options markets, trading is dominated by individual investors. This study examines the short-term relationship between stock market returns and implied volatility in the Korean financial market using high frequency data on the recently introduced volatility index (VKOSPI) implied by KOSPI 200 options. We find a strong asymmetric and negative return-volatility relationship at both the daily and intraday levels, which cannot be explained by either leverage or volatility feedback hypotheses on the asymmetric volatility phenomenon. Moreover, we also find that the asymmetric relationship is more pronounced for extremely negative stock market returns. We conjecture that behavioral factors better explain the observed asymmetric return-volatility relationship.

21st Sep 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Robert Kosowski, Imperial College London UK

Title: Momentum Strategies in Futures Markets and Trend-following Funds

In this paper we study time-series momentum strategies in futures markets and their relationship to commodity trading advisors (CTAs). First, we construct one of the most comprehensive sets of time-series momentum portfolios by extending existing studies in three dimensions: time-series (1974-2002), cross-section (71 contracts) and frequency domain (monthly, weekly, daily).

Our timeseries momentum strategies achieve Sharpe ratios of above 1.20 and provide important diversification benefits due to their counter-cyclical behaviour. We find that monthly, weekly and daily strategies exhibit low cross-correlation, which indicates that they capture distinct return continuation phenomena.

Second, we provide evidence that CTAs follow time-series momentum strategies, by showing that time-series momentum strategies have high explanatory power in the time-series of CTA returns.

Third, based on this result, we investigate whether there exist capacity constraints in time-series momentum strategies, by running predictive regressions of momentum strategy performance on lagged capital flows into the CTA industry. Consistent with the view that futures markets are relatively liquid, we do not find evidence of capacity constraints and this result is robust to different asset classes.

Our results have important implications for hedge fund studies and investors.

26th Sep 2012 - 11:30 am

Venue: The Board Room, Darlington Centre

Speaker: Clifton Green, Goizueta Business School, Emory University Atlanta USA

Title: Access to Management and the Informativeness of Analyst Research

We study the effects of broker-hosted investor conferences on the informativeness of analyst research. We find analysts' stock recommendations have significantly larger price impacts when the broker has a conference-hosting relationship with the firm. The incremental effect is most pronounced in the quarter following the conference and remains significant for three quarters. The post-conference effect is stronger for small, volatile stocks and when the analyst has more experience covering the firm. Analysts at brokers with a conference-hosting relation also issue more accurate earnings forecasts than non-hosts in the post-conference period. Our findings suggest access to management remains an important source of analysts' informational advantage following the passage of Regulation Fair Disclosure.

5th Oct 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Shawn Mobbs, Culverhouse College of Commerce University of Alabama, USA

Title: Director Experience

Do directors learn from their prior CEO turnover experiences?

This study examines independent directors who have had prior experience with a CEO turnover event. Experienced directors are more active in subsequent boards as evident in fewer meeting absences and greater involvement in the nominating committee relative to other independent directors. Interestingly, they are less likely to be a member of the audit committee and subsequent CEO turnover events are less sensitive to accounting performance. Conversely, as the number of CEO turnover experiences increase, each event the director is involved with becomes increasingly sensitive to firm stock performance. These results are consistent with experienced directors learning from their prior associations with CEO turnover and their becoming more concerned with indicators of long run performance expectations. Not surprisingly, there is also evidence that CEOs are less supportive of experienced director appointments to their boards.

23rd Oct 2012 - 11:15 am

Venue: Room 214/215 Economics and Business Building

Speaker: David Smith, The McIntire Center for Financial Innovation

Title: Private Equity and the Resolution of Financial Distress

We  explore the financial distress costs of private equity-backed firms by  examining the default likelihood and restructuring behavior of 2,156 firms that  obtained leveraged loan financing between 1997 and 2010. We show that PE-backed  firms are no more likely to default during this period than other firms with  similar leverage characteristics. When private equity-backed firms do become  financially distressed, they are more likely to restructure out of court, take  less time to complete a restructuring, and are more likely to survive as an  independent going concern, compared to financially distressed peers that are  not backed by a private equity investor. Private equity investors also  frequently remain in control of their firm following the restructuring, an occurrence  that is rare among non private equity owners. Private equity investors appear  not to exacerbate the likelihood of financial distress and, when a default  occurs, resolve the distress fairly efficiently.

2nd Nov 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Matti Keloharju; Juhani T. Linnainmaa; Peter Nyberg, School of Business Aalto University, Finland

Title: The Sum of All Seasonalities

Heston and Sadka (2008) document that stock returns 'repeat' themselves in the cross-section every twelve months. We explain this puzzling pattern with a model where past same-month returns serve as noisy signals of stock characteristics associated with return seasonalities; for example, stocks that have generated high January returns in the past tend to be small and generate high returns also in future Januarys. Our model predicts that even small individual seasonalities can sum up to an economically significant cyclical pattern, that this pattern exists at any interval at which returns exhibit seasonalities, and that it is subsumed by the average past same-month return. The data are consistent with the model's predictions, offering evidence of cyclicality in daily returns at annual and weekly lags.

16th Nov 2012 - 11:30 am

Venue: Room 214/215, H69 - Economics and Business Building

Speaker: Praveen Kumar, Bauer College of Business, University of Houston, USA

Title: Innovative Capacity and the Asset Growth Anomaly

Innovative capacity (IC) is a firm's ability to produce and commercialize multiple innovations. Expected returns need not fall following asset growth (AG) by high IC firms because investment can generate new growth options. Using patents and citations based IC measures, we find that the well-known negative relation between AG and subsequent excess returns (the "asset growth anomaly") holds only for low IC firms. However, there is no asset growth anomaly for high IC firms and rapid asset expansion in these firms is significantly positively related to future excess returns. Direct tests on the relation of IC to growth options proxies following the asset growth events suggest that asset expansion converts growth options to assets-in-place in low IC firms, while generating new growth options in high IC firms. Our analysis indicates that IC plays an important role in the dynamics between asset growth and stock returns.

23rd Nov 2012 - 11:30 am

Venue: Room 214/215 Economics and Business Building

Speaker: Vikas Mehrotra, University of Alberta, Canada

Title: Exit and Transitions in Family Firms in Post-War Japan

Abstract: The involvement of families in post-war corporate control has not been widely researched. In this study, we provide two novel contributions to the literature on family successions. First, we develop a new technique to measure the decay in fractional firm ownership. We call this the half-life of ownership, and find considerable variation in half-lives across firms. Specifically, we find that half-lives are shorter firms with for older CEOs, high growth, and less liquidity. Second, we describe various ways in which families may exit the firms that they found, either partially by retaining ownership but not control (e.g. hiring a professional manager) or by disposing off ownership but continuing to serve as CEO, or a full exit by selling out. We provide evidence on the cross-sectional determinants of such exit.

7th Dec 2012 - 11:30 am

Venue: Boardroom - Darlington Center

Speaker: Juhani Linnainmaa, University of Chicago - Booth School of Business

Title: The Unpriced Side of Value

Book-to-market (BE/ME) ratios explain variation in expected returns because they correlate with recent changes in the market value of equity. Although the remaining variation in BE/ME ratios captures comovement among stocks, it does not predict returns. Therefore, the HML factor consists of a priced and unpriced component, leading multi-factor models to assign spurious alphas to strategies that covary with the unpriced component. Portfolio managers can exploit the unpriced component--a portfolio long the "true" and short the "false" value strategy has an annual three-factor model alpha of 7.7%. The unpriced component also distorts inferences regarding known anomalies. Five-year changes in the market value of equity provide a better measure of value: they spread returns more than BE/ME ratios and are free of the unpriced component.