Are disposition effect and skew preference correlated? Evidence from account-level ELW transactions

This paper examines whether two well-known cognitive biases, disposition effect and skew preference, may reflect a common feature of certain investors. On the basis of a unique proprietary dataset that provides the details of all transactions in the Korean equity-linked warrant (ELW) market between 2009 and 2011, we find that investors who realize gains faster than losses are also more likely to trade out-of-the-money ELWs. Investors who are less (more) subject to both biases exhibit the best (worst) risk-adjusted trading performance. Our findings suggest that disposition effect and skew preference occur simultaneously, which could adversely affect trading performance.     

Investment Patterns of Informal Investors in the Alberta Private Equity Market*

This study identifies three main types of informal investors in private equity markets: relationship investors, opportunity‐based investors, and angel investors. We find evidence that the first two investor types are a major total source of capital and they prefer to invest smaller amounts close to home and in the context of existing relationships. With respect to angel investors, we find evidence of stratification in their desired investment amount which is consistent with a model where their investments evolve though a life cycle of investing. We also find evidence that changes to capital market regulations that allow for lower investment amounts by this type of investor increase the amount of capital available for early‐stage firms.     

Institutional Ownership and Corporate Investment Performance

This paper examines the role of institutional investors in improving firm performance through the channel of corporate investment decisions. We find that the interaction effect between institutional ownership and capital expenditures is significantly related to firm performance. We examine this relationship for different types of institutional investors, and find that investment advisors are most effective monitors in improving firm performance through corporate investment. Moreover, we find that the monitoring role of institutional investors becomes more important when internal governance is weak. Institutional ownership and other forms of corporate governance mechanisms (including CEO incentive compensation and control, shareholder right provisions, and board of director monitoring) operate as substitutes, rather than complements, in improving capital expenditure decisions. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.     

Does the Quality of Investment Protection Affect FDI Flows to Developing Countries? Evidence from Latin America

Studies on the impact of international investment agreements (IIAs), including bilateral investment treaties (BITs), on foreign direct investment (FDI) inflows have been inconclusive. This paper contributes to the debate about the effectiveness of IIAs using an original database that differentiates between investment agreements according to the quality of investor protection, and which covers a wide variety of trade and investment agreements signed and ratified in the Americas. We find evidence that in the least likely case of south–south FDI flows, high‐quality international investment treaties have a demonstrable effect on foreign direct investment inflows. Moreover, international investment agreements appear to be most effective in a context of deeper economic integration. That is, they work better when they provide higher quality protection to investors and when they are combined with other preferential economic integration agreements, such as trade agreements.     

机构投资者投资风格变动与上市公司绩效

根据我国2006-2008年之间存续的基金数据分析,发现不同投资风格类别的机构投资者所持股的上市公司表现出显著的差异。无论从短期还是长期来看,由投资风格保持不变的机构投资者持股的上市公司业绩更好。与以往文献不同的是本研究不仅验证了机构投资者已经发挥了积极的治理作用,同时还为深入理解机构投资者内部组成的差异提供了经验证据,这对理论界、投资者和政府监管部门具有参考价值。     

Regime switching in the reactions of stock markets in Saudi Arabia to oil price variations

The study revisits the stock–oil nexus by examining the reactions of equity markets to oil price shocks at national and sectoral levels for Saudi Arabia in a time‐varying framework by employing the Markov switching EGARCH model developed by Henry (2009, Journal of Banking and Finance, 33, 405). Based on weekly data, the findings reveal that the behaviour of all stock markets switches between an expansion regime and a recession regime, with more persistence for the expansion state. Additionally, influential international events associated with stock market drops are clearly identified in the recession regime. Furthermore, there is evidence of asymmetric reactions of the equity index returns and the probabilities of transition from one state to another to oil price variations, with heterogeneous impacts across sectors and regimes. The stock markets are more sensitive to oil price decreases than to oil price increases. Although the evidence of relatively slight differences in some findings across weekdays, the study allows investors and policymakers to understand well the interactions of stock sector markets vis‐à‐vis the world oil market in a regime‐switching framework, in order to make the right decision as regards portfolio diversification and regulation of the stock markets.     

Foreign institutional investors and dividend policy: Evidence from China

This study examines whether foreign institutional investment influences firms’ dividend policies. Using data from all domestically listed nonfinancial firms in China during the period of 2003–2013, we find that foreign shareholding influences dividend decisions and vice versa.Furthermore, changes in dividend payments over time positively affect subsequent changes in foreign shareholding, but the opposite is not true. Our study indicates that foreign institutional investors do not change firms’ future dividend payments once they have made their investment choices in China. Moreover, they self-select into Chinese firms that pay high dividends. Our evidence suggests that in an institutional setting where foreign investors have tightly restricted access to local securities markets and a relatively high risk of expropriation by controlling shareholders exists, firms can use dividends to signal good investment opportunities to foreign investors.     

An Empirical Examination of Institutional Investor Preferences for Corporate Social Performance

This study investigates the pattern of institutional shareholding in the U.K. and its relationship with socially responsible behavior by companies within a sample of over 500 UK companies. We estimate a set of ownership models that distinguish between long- and short-term investors and their largest components and which incorporate both aggregated and disaggregated measures of corporate social performance (CSP). The results suggest that long-term institutional investment is positively related to CSP providing further support for earlier studies by Johnson and Greening (1999, Academy of Management Journal 42, 564–576) and Graves and Waddock (1994, Academy of Management Journal 37, 1034–1046). Disaggregation of CSP into its constituent components suggests that the pattern of institutional investment is also related to the form which CSP takes. Investigation of the impact of investment screens on the selection of stocks suggests that long-term institutional investors select primarily through exclusion, rejecting those firms which have the worst CSP.     

What attracts foreign direct investment into autocratic states? Regime time horizon and institutional design

States play a critical role in designing institutions to facilitate international business. We study the effect of autocratic states' time horizons on their attraction of foreign direct investment (FDI) through designing domestic and international institutions. We argue that autocrats with a long time horizon tend to build credible domestic commitment-institutions that attract foreign investors; however, they are also likely to affect the design of commitment carve-outs in international institutions, in particular bilateral investment treaties, thus weakening their institutional effect on foreign investment. We test these dual effects of regime time horizon on FDI inflow using data from 80 autocratic states over a 33-year period and find substantial support for our arguments.     

Owls,larks, or investment sharks? The role of circadian process in early-stage investment decisions

Investors in early-stage companies want to detect and select high-potential opportunities to maximize their long-term returns. However, in uncertain and risky early-stage investment contexts, company information is often opaque, and decision-making timeframes are compressed. Although there is an abundance of prior work on how investors make structured decisions based on their experience and expertise, there is a very limited understanding of how time-based factors can sway investment decisions. The circadian process is the 24-hour sequence that serves as an individual's internal timer influencing not only sleep cycles, but also attention and performance on a wide range of cognitive tasks. Understanding how the circadian process impacts early-stage investment holds implications for optimal investment decisions. We build on social cognitive theory and propose that investor-level factors (i.e., chronotypes) and environmental factors (time of the day) interact to influence the amount of information investors search for, and consequently, their investment decisions. We hypothesize and find that investors are influenced by the time of day they make early-stage investment decisions. Lark investors make better investment decisions in the morning, whereas owl investors make better decisions in the evening. Information search effort mediates this relationship.     

Oil price volatility and real options: 35 years of evidence

There has been a surge in interest in the effects of uncertainty on investment decisions, motivated at least in part by the theory of real options. For example, Bloom (2009, Econometrica, 77, 623–685) shows that higher uncertainty causes firms to temporarily pause investment and hiring, generating sharp economic downturns. This paper investigates these effects by examining the response of disaggregated measures of production to volatility in oil prices. We find that increased oil price volatility has strong negative effects on the production of durable goods, such as transportation equipment, and oil exploration, such as the drilling of oil and gas wells.     

A Consumer Perspective of the Investment Services Market

Some thirty million American consumers pursue their financial objectives through individual participation in the stock market. They clearly view the stock market as a savings alternative which offers at least normal returns to persons outside the circle of professional investors. In the absence of data reflecting the performance of personal portfolios it is difficult to assess the validity of this view. However, as an initial step this paper evaluates the performance of the market servicing individual investors. The evidence indicates that noninstitutional investors have reason to question stock brokerage pricing, service and sales practices. Moreover on the basis of more than 1,000 sampled investment recommendations, it appears that investment publications directed at individual investors have failed to identify superior investment alternatives.     

Socially Responsible Investing: An Investor Perspective

Given the growing importance of Socially Responsible Investing (SRI), it is surprising that there is no consensus of what the term SRI means to an investor. Further, most studies of this question rely solely on the views of investors who already invest in SRI funds. Our study surveys a unique pool of approximately 5,000 investors that contains both investors who have used SRI criteria in investment decisions and those who have not, and involves a broad array of criteria associated with SR investing. Our findings offer new insight into the SRI debate. For both sets of investors, environmental and sustainability issues dominate as the major category associated with SR investing. We find strong agreement in the ranking of the relative importance of various SRI factors despite differences between these two groups in their opinion of their overall importance. We also find that investors prefer to consider the SRI question in more holistic terms rather than using the exclusionary format favored by most SRI funds. Investors seem to prefer to reward firms who display overall positive social behavior rather than to exclude firms on the basis of certain products or practices. These findings can help providers of SR investment vehicles to improve the SRI products that they offer to the general investor, thus both encouraging the initial adoption of SR criteria by investors and increasing overall investment in SR choices.     

The influence of dispositional affect and cognition on venture investment portfolio concentration

We explore how an investor's dispositional affect and cognitive style influence venture investment portfolio concentration. Based on a field study using a sample of 128 judges from a business plan competition, we find that high positive affectivity investors construct more concentrated investment portfolios than their low positive affectivity counterparts, whereas high negative affectivity investors construct more diversified investment portfolios than their low negative affectivity counterparts. Further, investors who rely on analytical decision making display a weaker relationship between negative affectivity and investment diversification whereas investors who rely on emotion-based decision making display a stronger relationship between positive affectivity and investment concentration.     

How does capital control spur economic growth?

This paper provides a conceptual and empirical framework for evaluating the effect of capital controls on long‐term economic growth. In a small open economy which relies on successful investment projects to provide capital goods, taking out short‐term loans has two contradictory impacts: (i) it reduces the interest costs of financing investment projects; and (ii) it also leads to larger asset losses in the scenario of short‐term debt run. In this work, we hypothesise that private financing decisions made by domestic investors are distorted towards excessive risk‐taking, leading to ineffective capital formation. Thus, capital control policies, particularly regulations on short‐term loans, can be socially beneficial as they alter the debt composition, promote capital formation and achieve a higher output level. Using a panel data set covering 77 countries from 1995 to 2009, we employ a system generalised method of moments (GMM) estimator to sequentially test three hypotheses and find strong empirical evidence that supports our theory.     

The Ethical Mutual Fund Performance Debate: New Evidence from Canada

Although the academic interest in ethical mutual fund performance has developed steadily, the evidence to date is mainly sample-specific. To tackle this critique, new research should extend to unexplored countries. Using this as a motivation, we examine the performance and risk sensitivities of Canadian ethical mutual funds vis-à-vis their conventional peers. In order to overcome the methodological deficiencies most prior papers suffered from, we use performance measurement approaches in the spirit of Carhart (1997, Journal of Finance 52(1): 57–82) and Ferson and Schadt (1996, Journal of Finance 51(2): 425–461). In doing so, we investigate the aggregated performance and investment style of ethical and conventional mutual funds and allow for time variation in the funds’ systematic risk. Our␣Canadian evidence supports the conjecture that any␣performance differential between ethical mutual funds and their conventional peers is statistically insignificant.      

Are socially responsible exchange-traded funds paying off in performance?

This study examines the Socially Responsible (SR) exchange-traded funds (ETFs) by comparing their risk-adjusted performance with a matched group of conventional ETFs in the U.S. equity market. In contrast to prior studies that focus on actively managed mutual funds, we find that the risk-adjusted returns of SR ETFs are significantly lower than those of conventional ETFs during the 2005–2020 period. Such underperformance is only observed in non-crisis periods but not in economic crisis periods (i.e., the 2020 pandemic recession and 2008 financial turmoil). We attribute the observed underperformance of SR ETFs during the non-crisis periods to their limited diversification of unsystematic risks resulting from various negative or positive screens employed in the funds. We also find that net fund flows of the SR ETFs are less sensitive to past negative performance than are conventional fund flows. Collectively, our findings suggest that, instead of seeking wealth maximization, socially conscious investors may choose SR ETFs to gain non-economic utility.     

Mixed ownership and firm performance: Evidence from the Chinese venture capital industry

We examine the impact of mixed ownership on the performance of venture capital (VC) firms in China. We use successful/unsuccessful exits from VC-financed entrepreneurial companies and number of patent applications by VC-financed companies as proxies for VC firms' performance. Consistent with existing research on the inferior performance of SOEs relative to non-SOEs, we find that on average government-controlled VC firms (GVCs) underperform domestic private investors-controlled VC firms (PVCs). More importantly, we find that introducing minority private investors (i.e., mixed ownership) helps improve the performance of GVCs. However, we find no evidence that introducing minority government investors (i.e., mixed ownership) helps improve the performance of PVCs. Our results provide relevant information to the ongoing debate on the role of the government investors and private investors in developing the VC industry in emerging markets.     

Foreign direct investment via M&A and domestic entrepreneurship: blessing or curse?

There are conflicting predictions in the literature about the relationship between FDI and entrepreneurship. This paper explores how foreign direct investment (FDI) inflows, measured by lagged cross-border mergers and acquisitions (M&A), affect entrepreneurial entry in the host economy. We have constructed a micro-panel of more than two thousand individuals in each of seventy countries, 2000–2009, linked to FDI by matching sectors. We find the relationship between FDI inflows and domestic entrepreneurship to be negative across all economies. This negative effect is much more pronounced in developed than developing economies and is also identified within industries, notably in manufacturing. Policies to encourage FDI via M&A need to consider how to counteract the prevailing adverse effect on domestic entrepreneurship.     

Do XBRL filings enhance informational efficiency? Early evidence from post-earnings announcement drift

In 2009, the Securities Exchange Commission (SEC) mandated public firms to file their financial statements using eXtensible Business Reporting Language (XBRL). The SEC's main motive behind this mandate is that XBRL filings would enhance the informational efficiency in the stock markets by making financial data easier to use and analyze for a broad range of investors. Using a sample from the first wave of mandated XBRL filers, we find a decline in post earnings announcement drift for the good news portfolio in the post-XBRL adoption period. Instead of a drift associated with underreaction, we find that markets overreact to negative earnings surprises for the bad news portfolio during our observation period, which coincides with the financial crisis. We detect limited evidence that XBRL adoption mitigates overreaction, which is another form of market inefficiency. We also find limited evidence that XBRL particularly benefits small investors.