Membership On Editorial Boards And Finance Department Rankings

We examine membership on editorial boards of sixteen leading finance journals in 1985, 1990, 1995, and 2000. Membership on a board of a high‐quality journal is highly selective. Editors and members of editorial boards of quality journals are trusted by their peers who submit their research for publication consideration. Thus, the number of faculty represented on editorial boards of quality journals should provide a quality indication of the finance department. We use membership representation to provide a ranking of finance departments adjusted for department size and journal quality.     

A careful re-examination of seasonality in international stock markets: Comment on sentiment and stock returns

In questioning Kamstra, Kramer, and Levi’s (2003) finding of an economically and statistically significant seasonal affective disorder (SAD) effect, Kelly and Meschke (2010) make errors of commission and omission. They misrepresent their empirical results, claiming that the SAD effect arises due to a “mechanically induced” effect that is non-existent, labeling the SAD effect a “turn-of-year” effect (when in fact their models and ours separately control for turn-of-year effects), and ignoring coefficient-estimate patterns that strongly support the SAD effect. Our analysis of their data shows, even using their low-power statistical tests, there is significant international evidence supporting the SAD effect. Employing modern, panel/time-series statistical methods strengthens the case dramatically. Additionally, Kelly and Meschke represent the finance, psychology, and medical literatures in misleading ways, describing some findings as opposite to those reported by the researchers themselves, and choosing selective quotes that could easily lead readers to a distorted understanding of these findings.     

A framework for journal assessment: The case of the Journal of Banking & Finance

We propose a citation-based framework for the assessment of journal influence and demonstrate its application with the Journal of Banking and Finance. The framework assesses the current position of the journal, its trends and the reasons behind the trends. The Journal of Banking and Finance is found to be one of the leading journals in the field of finance and its influence is increasing. In fact, it appears to be part of a group of leading journals that is separating itself from the other journals that are generally regarded as peers. Finally, the Journal of Banking and Finance is found to be the only leading finance journal with a high concentration of banking articles, making it a primary outlet for influential articles in this area.     

An Analysis of Risk, Insurance, and Actuarial Research: Citations From 1996 to 2000

This article evaluates the relative significance of research published in 16 risk, insurance, and actuarial journals by examining the frequency of citations in these risk, insurance, and actuarial journals and 16 of the leading finance journals during the years 1996 through 2000. First, the article provides the frequency with which each sample risk, insurance, and actuarial journal cites itself and the other sample journals so as to communicate the degree to which each journal's published research has had an influence on the other sample journals. Then the article divides the 16 journals into two groups: (1) the risk and insurance journal group, and (2) the actuarial journal group, and ranks them within their group based on their total number of citations, including and excluding self‐citations. A ranking within each group is based on the journals’ influence on a per article published basis. Finally, this study observes and reports on the most frequently cited articles from the sample risk, insurance, and actuarial journals.     

Finance models as metaphors

Quantitative models in the social science of finance such as the Capital Asset Pricing Model (CAPM) and the Black-Scholes Option Pricing Model (OPM) are metaphors. They cannot be applied literally, but do provide us with figurative knowledge—an epistemologically meaningful form that might legitimately be called a “useful framework,” as the CAPM is commonly referred to in textbooks. This paper describes the scientific value of metaphors and discusses why the OPM ought to be seen as one and what this might mean. As a result of finance research and the development of what has been called “modern finance theory,” of which the CAPM and OPM are important parts, we can certainly understand financial relationships much better, but that “understanding” is quite different from what our research methods imply that it is.     

Did the crisis induce credit rationing for French SMEs?

This paper focuses on the access of independent French SMEs to bank lending and analyzes whether the observed evolution of credit to SMEs over the recent period was “demand driven” as a result of the decrease in firms’ activity and investment projects or was “supply driven” with an increase in credit “rationing” stemming from a more cautious behavior of banks. Based on a sample of around 60,000 SMEs, we come to the conclusion that, despite the stronger standards used by banks when granting credit, French SMEs do not appear to have been strongly affected by credit rationing since 2008. This result goes against the common view that SMEs suffered from a strong credit restriction during the crisis but is perfectly in line with the results of several surveys about the access to finance of SMEs recently conducted in France.     

Payout taxes and the allocation of investment

When corporate payout is taxed, internal equity (retained earnings) is cheaper than external equity (share issues). If there are no perfect substitutes for equity finance, payout taxes may therefore have an effect on the investment of firms. High taxes will favor investment by firms who can finance internally. Using an international panel with many changes in payout taxes, we show that this prediction holds well. Payout taxes have a large impact on the dynamics of corporate investment and growth. Investment is “locked in” in profitable firms when payout is heavily taxed. Thus, apart from any level effects, payout taxes change the allocation of capital.     

Early-stage financing and firm growth in new industries

This paper shows that active investors, such as venture capitalists, can affect the speed at which new ventures grow. In the absence of product market competition, new ventures financed by active investors grow faster initially, though in the long run those financed by passive investors are able to catch up. By contrast, in a competitive product market, new ventures financed by active investors may prey on rivals that are financed by passive investors by “strategically overinvesting” early on, resulting in long-run differences in investment, profits, and firm growth. The value of active investors is greater in highly competitive industries as well as in industries with learning curves, economies of scope, and network effects, as is typical for many “new economy” industries. For such industries, our model predicts that start-ups with access to venture capital may dominate their industry peers in the long run.     

Short-horizon contrarian and momentum strategies in Asian markets: An integrated analysis

In this paper, we test the profitability of short-term contrarian and momentum strategies, which take into account the effects of trading activity, size/value characteristics, and asymmetric investor responses to news regarding stock markets in Japan, Taiwan, Korea, Hong Kong, Malaysia, Thailand, and Singapore during 1990-2000. Except for the Taiwanese and Korean markets, “winner” (“loser”) portfolios experience subsequent reversal (momentum) of stock prices. Among actively traded stocks, significant contrarian profits can be obtained from only “winner” portfolios in Japan, while sizeable momentum profits from “loser portfolios” in both Japan and Hong Kong.     

Is it the weather? Response

Kamstra, Kramer and Levi (KKL) in their comment seem to miss the main point of our paper. Many things are correlated with the seasons so it is difficult to distinguish between them when we try to explain the well-known summer winter pattern in stock returns. Finding an isolated seasonal affective disorder (SAD) effect without proper control variables does not disprove our point but strengthens it. To sidestep all of the issues they raise and take our point to the extreme, we show using plain vanilla regressions that the seasonal stock market pattern they attribute to SAD can also be “explained” by variables like ice cream consumption or airline travel. The new variations of SAD variables (“onset” and “incidence”) KKL propose in their recent work for North America are even more problematic than the original SAD variables. We find that these new SAD proxies are not significant in countries where according to KKL they should be: Canada and the United States.     

The economic function of credit rating agencies – What does the watchlist tell us?

Credit rating agencies do not only disclose simple ratings but announce watchlists (rating reviews) and outlooks as well. This paper analyzes the economic function underlying the review procedure. Using Moody’s rating data between 1982 and 2004, we find that for borrowers of high creditworthiness, rating agencies employ watchlists primarily in order to improve the delivery of information. For low-quality borrowers, in contrast, the review procedure seems to have developed into an implicit contract á la Boot et al. (2006), inducing the companies “on watch” to abstain from risk-augmenting actions. The agencies’ economic role hence appears to have been enhanced from a pure information certification towards an active monitoring function.     

Do investment banks listen to their own analysts?

To what extent conflicts of interest affect the investment value of sell-side analyst research is an ongoing debate. We approach this issue from a new direction by investigating how asset-management divisions of investment banks use stock recommendations issued by their own analysts. Based on holdings changes around initiations, upgrades, and downgrades from 1993 to 2003, we find that these bank-affiliated investors follow recommendations from sell-side analysts in general, increasing (decreasing) their relative holdings following positive (negative) recommendations. More importantly, these investors respond more strongly to recommendations issued by their own analysts than to those issued by analysts affiliated with other banks, especially for recommendations on small and low-analyst-coverage firms. Thus, we find that investment banks “eat their own cooking,” showing that these presumably sophisticated institutional investors view sell-side recommendations as having investment value, particularly when the recommendations come from their own analysts.     

Practical methods for measuring and managing operational risk in the financial sector: A clinical study

This paper analyzes the implications of the advanced measurement approach (AMA) for the assessment of operational risk. Through a clinical case study on a matrix of two selected business lines and two event types of a large financial institution, we develop a procedure that addresses the major issues faced by banks in the implementation of the AMA. For each cell, we calibrate two truncated distributions functions, one for “normal” losses and the other for the “extreme” losses. In addition, we propose a method to include external data in the framework. We then estimate the impact of operational risk management on bank profitability, through an adapted measure of RAROC. The results suggest that substantial savings can be achieved through active management techniques.     

Competition and cooperation among exchanges: A theory of cross-listing and endogenous listing standards

We analyze firms’ choice of exchange to list equity and exchanges’ choice of listing standards when insiders have private information about firm value, but outsiders can produce (noisy) information at a cost. Exchanges are populated by two kinds of investors, whose numbers vary across exchanges: sophisticated (low information production cost) investors and ordinary (high–cost) investors. While firms are short-lived, exchanges are long-lived, value-maximizing agents whose listing and disclosure standards evolve over time. The listing standards chosen by exchanges affect their “reputation,” since outsiders can partially infer the rigor of these standards from the post-listing performance of firms. We show that, while exchanges use their listing standards as a tool in competing for listings with other exchanges, this will not necessarily lead to a “race to the bottom” in listing standards. Further, a merger between two exchanges may result in a higher listing standard for the combined exchange relative to that of either of the merging exchanges. We develop several other implications for firms’ listing choices and resulting valuation effects, the impact of competition and co-operation among exchanges on listing standards, and the optimal regulation of exchanges.     

Author Affiliation Index, finance journal ranking, and the pattern of authorship

In this paper we use a new method to rank finance journals and study the pattern of authorship/co-authorship across journals. Defined as the ratio of articles authored by faculty at the world's top 80 finance programs to the total number of articles by all authors, the Author Affiliation Index is a cost-effective and intuitively easy-to-understand approach to journal rankings. Forty-one finance journals are ranked according to this index. If properly constructed, the Author Affiliation Index provides an easy and credible way to supplement the existing journal ranking methods. Our ranking system reveals the journal–researcher clientele, and we find that collaboration (co-authoring) between faculty within elite programs exists only in top-tier and near-top-tier journals. Publications in lower-tier journals by researchers of elite programs are driven by their co-authors. Collaboration between faculty in elite and non-elite programs, however, is more prevalent than that within elite programs across all tiers of journals. Co-authorship among top 80 programs, nevertheless, is more common in top-tier journals, while co-authorship between top 80 and other programs is more dominant in lower-ranked journals.     

Foreign bank entry,credit allocation and lending rates in emerging markets: Empirical evidence from Poland

Earlier studies have documented that foreign banks charge lower lending rates and interest spreads than domestic banks. We hypothesize that this may stem from the superior efficiency of foreign entrants that they decide to pass onto borrowers (“performance hypothesis”), but could also reflect a different loan allocation with respect to borrower transparency, loan maturity and currency (“portfolio composition hypothesis”). We are able to differentiate between the above hypotheses thanks to a novel dataset containing detailed bank-specific information for the Polish banking industry. Our findings demonstrate that banks differ significantly in terms of portfolio composition and we attest to the “portfolio composition hypothesis” by showing that, having controlled for portfolio composition, there are no differences in lending rates between banks.     

Ranking accounting journals using dissertation citation analysis: A research note

Prior literature on accounting journal rankings has provided different journal lists depending on the type of examination (citations- vs. survey-based) and the choice of journals covered. A recent study by Bonner, Hesford, Van der Stede, and Young (2006) [Bonner, S., Hesford, A., Van der Stede, W. A., & Young, M. S. (2006). The most influential journals in academic accounting. Accounting, Organizations and Society, 31(7), 663–685] documents disproportionately more citations in the financial accounting area, suggesting a financial accounting bias in the accounting literature. We use citations from accounting dissertations completed during 1999–2003 to provide a ranking of accounting journals. The database allows us to assess the research interests of new accounting scholars and the literature sources they draw from. Another innovation is our ranking of accounting journals based on specialty areas (auditing, financial, managerial, tax, systems, and other) and research methods (archival, experimental, modeling, survey, and other). To mitigate the financial accounting bias documented by Bonner et al. (2006), we derive a ranking metric by scaling (normalizing) the journal citations by the number of dissertations within each specialty area and research method. Overall, the top journals are, JAR, AOS, TAR, and JAE. We also provide evidence that top journal rankings do vary by specialty area as well as by research methods.     

Misreaction or misspecification? A re-examination of volatility anomalies

Existing research examines the impact of volatility shocks on the relative pricing of long-term vs. short-term options and documents patterns of “short-horizon underreaction” and “long-horizon overreaction” in the options market. These studies, however, rely on implied volatilities derived from specific option-pricing models and are thus subject to model specification errors. In this paper, we show that these anomalous patterns are the result of model misspecification as opposed to market misreaction. We provide evidence that these patterns are consistent with, in both direction and magnitude, inherent biases in the misspecified models. We also apply a model-free approach to re-examine the anomalous patterns and find no evidence of market misreaction.     

A Retrospective Evaluation of European Financial Management (1995–2008)

We provide a retrospective evaluation of European Financial Management (EFM) from 1995 to 2008. In 14 years, EFM has published a total of 333 articles, with 564 authors from 299 academic and non-academic institutions. The authors and institutions represent 26 different countries. Two interesting results emerge from this analysis. First, although EFM is a young finance journal, it has achieved a highly respectable status among all finance journals. In fact, EFM has surpassed a number of well-established finance journals in its research impact. Second, consistent with its mission, EFM has published articles whose authors have European affiliations and research content. Nonetheless, we find that EFM is the publication outlet of authors outside the European region as well. The rising readership and variety of articles published suggest that EFM is a general finance journal that has done very well in serving the interests of the finance profession for the last 14 years.     

Calendar anomaly in the Greek stock market: Stochastic dominance analysis

Using stochastic dominance (SD) analysis, this paper examines calendar anomalies in the Athens Stock Exchange (ASE), an emerging market thrust into a path of rapid transition by the economic integration of Greece with the European Union. SD offers two essential analytical attributes: It requires no assumptions regarding the normality of return distributions, and it imposes few restrictions on investors' risk-return tradeoff preference. Between 1985 and 2004, we find temporal predictability of returns in the ASE — a strong “day” effect and rather weak “week” and “January” effects. Our findings on the week and January effects are far less robust as compared to those reported in earlier studies based on parametric tests.