Pricing executive stock options with averaging features under the Heston–Nandi GARCH model

In this paper, we focus on the pricing issue of four types of executive stock options (ESOs) in the Heston–Nandi generalized autoregressive conditional heteroskedasticity option pricing model. Based on the derived benchmark strike prices in the proposed framework, we obtain the closed-form pricing formulae for four types of ESOs. In the numerical part, we investigate the sensitivity and cost efficiency of ESOs and suggest that systematic risk (stock β) and the fraction of wealth invested in restricted stock could impede the cost efficiency of ESOs.     

管理者金融危机经历影响企业金融化水平吗？——基于中国上市公司的实证研究

文章以我国2008—2017年非金融上市公司为样本，结合“烙印理论”，考察了管理者金融危机经历对非金融企业金融化水平的影响，研究发现：管理者的金融危机经历对其所在企业的金融化水平具有显著的正向影响，在一系列的稳健性检验后，该结论依然成立。且该效应在融资约束严重的企业和制度环境较好地区的企业中更加显著，而在金融危机期间遭受财务困境的企业中受到明显抑制。拓展的研究表明，经历过金融危机的管理者持有金融资产的动机并不单一，但获利动机更强烈。最后文章还发现，管理者的获利动机和管理者自信可能是金融危机经历影响企业金融化水平的关键作用机制。文章从企业微观层面拓展了非金融企业金融化水平的影响因素研究，并对企业管理者经历对非金融企业金融化的影响及作用机制研究进行了一定的探索。     

Smooth breaks and nonlinear mean reversion in real interest parity: Evidence from East Asian countries

This study aims to explore the empirical validity of the real interest rate parity (RIP) hypothesis for East Asian countries using Japan as the base country. To this end, we employ the recently proposed unit root tests of Christopoulos and Leon-Ledesma that account for both multiple smooth structural breaks of unknown form and nonlinear mean reversion in the series. Our empirical results uncover overwhelming evidences in favor of the RIP hypothesis for the whole countries in our sample. More specifically, through a Fourier approximation, it is observed that all real interest rate differentials display a mean-reverting behavior around an infrequently smooth-breaking mean, with the breaks being in accordance with the financial reforms and economic crises witnessed by the countries. Moreover, the degree of mean reversion appears to vary nonlinearly with the size of real interest rate appreciations and depreciations.     

Assessing the historical role of credit: Business cycles,financial crises and the legacy of Charles S. Peirce

This paper provides a historical overview of financial crises and their origins. The objective is to discuss a few of the modern statistical methods that can be used to evaluate predictors of these rare events. The problem involves the prediction of binary events, and therefore fits modern statistical learning, signal processing theory, and classification methods. The discussion also emphasizes the need for statistics and computational techniques to be supplemented with economics. The success of a forecast in this environment hinges on the economic consequences of the actions taken as a result of the forecast, rather than on typical statistical metrics of prediction accuracy.     

There is no smoke without a fire: The effect of government interventions in less advanced economies

The lack of liquidity in the interbank market during the crisis of 2007–2011 led governments to impose different policies to rescue their countries’ banking sectors. While in advanced countries interventions in the banking sector were mostly related to a lack of liquidity and significant asymmetric information regarding counterparty risk, in many less advanced countries they had a precautionary motive. In our article, we investigate the effectiveness of policy interventions on healthy banking markets, with possible negative spill-over effects from other countries. To this extent, we use an event study methodology to test the effect of liquidity and financial sector policy announcements on interbank spread changes in six Central and Eastern European (CEE) countries over the period between 2007 and 2011. We find that standard liquidity interventions did not provide effective stabilization. In fact, our evidence suggests that the spread widened after their announcement, probably as a result of the negative signal and consequently increased risk aversion of banks. In such situations, regulators should consider policy instruments that aim to decrease uncertainty in the market.     

Corporate Social Responsibility,Firm Value and Corporate Governance Code Revisions: The Asian Evidence*

The present study examines the relationship between corporate social responsibility (CSR) and firm value, and the effects of corporate governance code revisions on the relationship. We examine this relationship for: (i) a high‐income country, Japan; (ii) middle‐income countries China, Malaysia and Thailand; and (iii) low‐income countries India and Indonesia. We use the Heckman two‐stage sample selection bias approach for the empirical analysis. We find that Japanese stakeholder CSR and environmental CSR have a smaller positive effect on firm value compared to the middle‐income countries, but we do not find any statistically significant association for the low‐income countries. In addition, we find that only Japanese corporate governance code revisions significantly contribute to the positive relationship between CSR and firm value, which concurs with the new recommendations documented in the revised codes of corporate governance. The present study reveals that foreign major shareholders matter to the value creation of CSR in Japan and the middle‐income countries of China, Malaysia and Thailand.     

Financial integration and banking crisis. A critical analysis of restrictions on capital flows

We investigate the effect of financial integration on a banking crisis. In contrast to existing works, we allow for capital restrictions while studying the impact of financial integration on a banking crisis. Using firm-level lending and borrowing information in the global market of syndicated loans; we generate aggregate measures of financial integration and examine how countries with capital flow restrictions thrive in the wake of a banking crisis. We concentrate on basic network measures of integration for a panel of 62 countries that allow for capital restriction at any time within the sample period. Financial integration increases the incidence of a banking crisis, and capital restrictions worsen a banking crisis. However, capital restrictions reduce the negative impact of financial integration on the incidence of a banking crisis. Thus, financial integration becomes beneficial when countries allow for some forms of capital control.     

Why Do Politicians Intervene in Accounting Regulation? The Role of Ideology and Special Interests

Politicians frequently intervene in the regulation of financial accounting. Evidence from the accounting literature shows that regulatory capture by special interests helps explain these interventions. However, many accounting rules have broad economic or social consequences, such as their effects on income distribution or private sector subsidies. The perception of these consequences varies with a politician's ideology. Therefore, if accounting rules produce those consequences, ideology plausibly spills over and explains a politician's stance on the technical accounting issue, beyond special interest pressure. We use two prominent U.S. political debates about fair value accounting and the expensing of employee stock options to disentangle the role of ideology from special interest pressure. In both debates, ideology explains politicians’ involvement at exactly those points when the debate focuses on the economic consequences of accounting regulation (i.e., bank bailouts and top management compensation). Once the debates focus on more technical issues, connections to special interests remain the dominant force.     

Real estate prices and systemic banking crises

The collapse of real estate prices has historically jeopardized banking stability and triggered systemic banking crises. This paper studies risk contagion in a banking system in real estate price shock by adopting complex network theory. Modelling the real estate-related asset as a common exposure of banks to the real estate market, we propose a model that incorporates two main risk contagion channels, i.e., the financial network and asset fire sales, and reveal how the real estate price shock is transmitted and propagated across banks. We demonstrate that banking stability is highly sensitive to the real estate price shock. Moreover, due to the particularly low liquidity of the real estate market, the asset fire-sales of real estate assets overwhelms the financial network, playing the dominant role in risk contagion. Our model can be adopted by regulators to conduct stress testing and to forge effective risk management strategies.     

Which financial stocks did short sellers target in the subprime crisis?

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposure in the subprime crisis. Evidence suggests that short sellers sold short stocks that had the greatest asset and insolvency risk exposures, and that the short selling of financial firms’ stocks was not significantly greater than that of non-financial firms after we match them on firm size and insolvency risk. When the short ban was in effect, the market quality of financial stocks without subprime assets exposure had deteriorated to a larger degree than that of financial companies with subprime assets exposure. The findings imply that such a regulation may mute the market disciplining effects of investors and may also be seen as a counterweight to any perceived macro or systemic risk reduction benefits resulting from such a ban.