Understanding in‐house transactions in the real estate brokerage industry

About 20% of residential real estate transactions in North America are in‐house transactions, for which buyers and sellers are represented by the same brokerage. We examine to what extent in‐house transactions are explained by agents' strategic incentives as opposed to matching efficiency. Using home transaction data, we find that agents are more likely to promote internal listings when they are financially rewarded and such effect becomes weaker when consumers are more aware of agents' incentives. We further develop a structural model and find that about one third of in‐house transactions are explained by agents' strategic promotion, causing significant utility loss for home buyers.     

Investor risk evaluation in the determination of management incentives in the mutual fund industry

This paper examines the way in which investors evaluate risk in deciding which mutual funds to invest. New fund investment is found to be positively related to a distributed lag of past fund performance with a strong degree of inertia. The relationship is mostly linear with significant nonlinearities at the upper (and possibly the lower) end of the performance spectrum. Investors appear to use publicly available data in a way that is consistent with the theory, giving equal weight in their decisions to the return and market risk components of the performance measure, while ignoring diversifiable risk. Finally, it is shown that improved performance in any year has a significant impact on the earnings of the management company. Because managers are rewarded on the basis of risk adjusted returns, risk neutral managers have no incentive to manipulate risk, except at very high performance levels.     

Broker recommendations and Australian small‐cap equity fund management

This study examines whether the abnormal performance of active Australian small‐cap equity fund managers is associated with broker recommendations. Our evidence supports the investment value of broker recommendations, showing significant abnormal returns (ARs) both pre‐ and post‐broker recommendations. We find that when a factor‐mimicking portfolio based on broker recommendations is added to a Carhart (1997) model, annual alphas are reduced by 48 basis points. Using transaction‐level data, buy trades following broker recommendations earn significant cumulative ARs of 1.56 per cent after 60 days. Overall, we find that broker recommendations account for an economically significant component of alphas.     

Exploring attitudes to financial reporting in the Australian not‐for‐profit sector

The current level of satisfaction among different stakeholders about the current approaches and practises of financial reporting of not‐for‐profit (NFP) entities is underexplored ( Christensen and Mohr, 2003 ; Lee, 2004 ; Gray et al., 2006 ; Parker, 2007 ). This paper uses content analysis to examine submissions to the 2008 Australian Senate Economics Standing Committee for its inquiry into the disclosure regimes of charities and NFP organisations, which aimed to explore attitudes about financial reporting in the NFP sector. Financial reporting is viewed as an important part of accountability, but the sector identifies deficiencies in the current regime in terms of consistency, efficiency and transparency. Respondents to this inquiry believed that a sector‐specific accounting standard was important. Financial reporting standards, regulations and legal structures should be uniform across the entire sector, but with some variation allowed for smaller NFPs. The cost of complying with standards was a significant issue for smaller NFPs.     

A New Method to Measure the Performance of Leveraged Exchange‐Traded Funds

We examine the effects of daily return compounding, financing costs, and management factors on the performance of leveraged exchange‐traded funds (LETFs) over various holding periods. We propose a new method to measure LETFs’ tracking errors that allows us to disentangle these effects. Our results show that the compounding effect generally has more influence on tracking errors than other factors, especially for long holding periods and in a “sideways” market. The explicit costs (i.e., the expense ratios) and other factors (e.g., financing costs) can materially affect the performance of LETFs, especially for those with high leverage ratios and bear funds.     

In‐Work Credits in the UK and the US

In‐work credits grew in popularity worldwide during the late 1990s and 2000s as a means of reforming welfare systems in ways that could both encourage work and reduce poverty. This paper reviews the role of in‐work tax credits in the UK and the US, what is known and remains to be known about their impacts and distributional consequences, and the possibilities for reform. Evidence is clear that in‐work credits reduce poverty and can encourage lone parents to work, but have minimal impacts, in aggregate, on second earners. Spending on in‐work credits has grown in the UK, but there have been two major overhauls of the way these are structured so that, on current plans, the UK will not have an identifiable in‐work credit by 2023. In the US, in‐work assistance has grown in generosity and reach since the 1980s, thanks to broad political support for the Earned Income Tax Credit (EITC) and the (less‐targeted) Child Tax Credit. Future debates in the UK should focus on the rise of in‐work poverty, particularly amongst couples, with some needed focus on the design of in‐work benefits, a debate where economic analysis and evidence should have a major role to play. In the US, the policy discussion should be about whether to increase substantially the EITC for those without children, and how best to maintain or expand the credit's generosity for those with children.     

Effects of Temporary In‐Work Benefits for Welfare Recipients: Examination of the Australian Working Credit Programme*

We investigate the impact of ‘Working Credit’, a nationally‐implemented programme which created increased incentives for welfare recipients to undertake temporary work. Highlighting the difficulties in identifying programme effects in the absence of a randomised controlled trial or a natural experiment, we produce estimates of impacts under alternative identifying assumptions and also undertake various robustness checks. Unconditional and regression‐adjusted difference‐in‐difference estimates suggest that the introduction of the Working Credit programme increased employment rates, earnings and exits for those on income support, but matching methods and various robustness checks provide conflicting evidence on the impact on movements from welfare to work for unemployment benefit recipients. Moreover, estimated effects on earnings while on benefits are sensitive to identifying assumptions. Notwithstanding our inability to conclusively identify causal effects of the programme, we note that our findings are broadly consistent with the incentive effects of the programme, with recipients making use of the credits to increase earnings while on benefits, but not increasing movements off welfare.     

The Over‐the‐Counter Theory of the Fed Funds Market: A Primer

We present a dynamic over‐the‐counter model of the fed funds market and use it to study the determination of the fed funds rate, the volume of loans traded, and the intraday evolution of the distribution of reserve balances across banks. We also investigate the implications of changes in the market structure, as well as the effects of central bank policy instruments such as open market operations, the discount window lending rate, and the interest rate on bank reserves.     

Australian not‐for‐profit sector views on the conceptual framework,accounting standards and accounting information

In this paper, we examine the conceptual framework, accounting standards and accounting information relevant to the not‐for‐profit (NFP) sector. Based on the responses of 242 Australian NFP managers, we find support for the inclusion of accountability in the conceptual framework, and for a common set of accounting standards across NFP and for‐profit sectors with additional standards or paragraphs to recognise NFP specific issues. Respondents also rated information within general‐purpose financial reports to be useful for decision making within their organisations. We offer suggestions as to what our findings mean for the development of accounting standards for the NFP sector.     

Persistence and the four‐factor model in the Australian funds market: a note

We investigate whether Australian fund managers are able to deliver persistent performance using Carhart’s (1997) four‐factor model. Short‐ and long‐term persistence is examined and the sample is also divided into unit trusts and superannuation funds. We do not find evidence of persistence in any sample of funds. We find that winner (loser) funds tend to hold past winner (loser) stocks. Winner and loser unit trusts both appear to have positive exposure to small stocks.     

A neural‐network‐based decision‐making model in the peer‐to‐peer lending market

This study proposes an investment recommendation model for peer‐to‐peer (P2P) lending. P2P lenders usually are inexpert, so helping them to make the best decision for their investments is vital. In this study, while we aim to compare the performance of different artificial neural network (ANN) models, we evaluate loans from two perspectives: risk and return. The net present value (NPV) is considered as the return variable. To the best of our knowledge, NPV has been used in few studies in the P2P lending context. Considering the advantages of using NPV, we aim to improve decision‐making models in this market by the use of NPV and the integration of supervised learning and optimization algorithms that can be considered as one of our contributions. In order to predict NPV, three ANN models are compared concerning mean square error, mean absolute error, and root‐mean‐square error to find the optimal ANN model. Furthermore, for the risk evaluation, the probability of default of loans is computed using logistic regression. Investors in the P2P lending market can share their assets between different loans, so the procedure of P2P investment is similar to portfolio optimization. In this context, we minimize the risk of a portfolio for a minimum acceptable level of return. To analyse the effectiveness of our proposed model, we compare our decision‐making algorithm with the output of a traditional model. The experimental results on a real‐world data set show that our model leads to a better investment concerning both risk and return.     

Investment Horizon and Repo in the Over‐the‐Counter Market

This paper presents a three‐period model featuring a short‐term investor in the over‐the‐counter bond market. A short‐term investor stores cash because of a need to pay cash at some future date. If a short‐term investor buys bonds, then a deadline for retrieving cash lowers the resale price of bonds for the investor through bilateral bargaining in the bond market. Ex‐ante, this hold‐up problem explains the use of a repo by a short‐term investor, the existence of a haircut, and the vulnerability of a repo market to counterparty risk. This result holds without any uncertainty about bond returns or asymmetric information.     

As you like it: Explaining the popularity of life‐cycle funds with multi cumulative prospect theory

Life‐cycle (or target‐date) funds are funds, which typically decrease their risk exposure over time. They have been very successful in many countries, particularly in the segment of old age provision. However, Expected Utility Theory (EUT) cannot explain their popularity. Moreover, recent results of Graf (2016), imply that not only EUT but also its behavioral counterpart Cumulative Prospect Theory (CPT) is often not able to explain the popularity of these products, since for each life‐cycle fund a corresponding balanced fund can be constructed, which is preferable from the investor's perspective in most circumstances. In a recent paper, Ruß and Schelling (2018), have argued that potential future changes in an investment's value already impact the decision of long‐term investors at outset. Based on this, they have introduced Multi Cumulative Prospect Theory (MCPT), which is based on CPT and considers the subjective utility generated by annual value changes. This paper shows that for MCPT‐investors, life‐cycle funds are typically more attractive than their corresponding balanced funds since they reduce the potential losses toward the end of the investment horizon. Hence, our findings provide an explanation for inferior decisions in old age provision. This can serve as a basis to improve such decisions.     

Marketing Closed‐End Fund IPOs: An Analysis of the International Stock Funds

Various studies argue that underwriting fees are excessive and investment bankers prolong the price stabilization period in aftermarket trading of closed‐end fund (CEF) shares. The poor performance of these funds also raises questions about the financial sophistication of initial public offering (IPO) buyers. In this study, we examine these issues for a sample of international stock CEFs. Our findings indicate that underwriting fees are not excessive relative to industrial issues, and we do not find that investment bankers prolong the stabilization period to camouflage the underwriting cost. Our findings are consistent with earlier studies that discounts contribute significantly to the poor performance during the first six months of aftermarket trading.     

Impact of earnings performance on price‐sensitive disclosures under the Australian continuous disclosure regime

This study examines the relation between accounting earnings and the frequency of price‐sensitive corporate disclosure under Australia's statutory continuous disclosure requirements. Despite low litigation threats and excepting loss‐making firms, results show that firms with earnings declines (bad news) are more likely to make continuous disclosure than firms with earnings increases (good news). This suggests that market forces and regulators’ scrutiny are sufficient to induce a ‘bad news’ disclosure bias. This study also examines the ‘materiality’ requirement under the continuous disclosure requirements and finds a positive relation between disclosure frequency and the magnitude of earnings news. The earnings–return correlation is positively associated with disclosure frequency for the financial services industry.     

Price Discovery in the Treasury‐Bill When‐Issued Market

When‐issued (i.e., forward) trading in T‐bills yet to be auctioned provides a unique environment for examining price discovery. Because T‐bills are auctioned in a sealed‐bid process, when‐issued traders cannot observe the spot market price. Yet the forward price must ultimately converge on the auction outcome price. Our results indicate that traders in the when‐issued market “discover” the ultimate auction price. Little evidence is found that standard order flow variables contribute to price discovery. Instead, the ability to observe a few trades with relatively small volume in the when‐issued market is sufficient to discover the auction price resulting from the sealed‐bid process.     

Time‐Varying Risk–Return Trade‐off in the Stock Market

We uncover a strong comovement of the stock market risk–return trade‐off with the consumption–wealth ratio (CAY). The finding reflects time‐varying investment opportunities rather than countercyclical aggregate relative risk aversion. Specifically, the partial risk–return trade‐off is positive and constant when we control for CAY as a proxy for investment opportunities. Moreover, conditional market variance scaled by CAY is negatively priced in the cross‐section of stock returns. Our results are consistent with a limited stock market participation model, in which shareholders require an illiquidity premium that increases with CAY, in addition to the risk premium that is proportional to conditional market variance.     

Information Asymmetry,Trade Size,and the Dynamic Volume‐Return Relation: Evidence from the Australian Securities Exchange

This paper investigates the influence of information asymmetry on the cross‐sectional variation of volume‐return relation. We find that the dynamic volume‐return relation within medium‐size trades has the most significant response to the degree of information asymmetry. We also show that the effect of information asymmetry on the volume‐return dynamics migrates to small‐size trades in recent years, especially in larger stocks. These results are consistent with the notion that informed traders prefer medium‐size trades and this preference has shifted to small‐size trades. Our findings highlight the importance of incorporating informed traders’ trade‐size decision in the examination of the dynamic volume‐return relation.