Investment‐Specific News Shocks and U.S. Business Cycles

We provide robust evidence that news shocks about future investment‐specific technology (IST) constitute a significant force behind U.S. business cycles. Positive IST news shocks induce comovement, that is, raise output, consumption, investment, and hours. These shocks account for 70% of the business cycle variation in output, hours, and consumption, and 60% of the variation in investment, and have played an important role in 9 of the last 10 U.S. recessions. Our findings provide strong support for shifting focus to IST news shocks when investigating the role of news in driving U.S. business cycles.     

Investment–cash flow sensitivity measures investment thirst,but not financial constraint

Literature streams disagree about the capacity of investment–cash flow sensitivity (ICFS) to measure both investment thirst and financial constraint. We argue that ICFS measures the former but not the latter. Therefore, we use Fazzari et al.'s study (1988) to develop a model to test the relationship between ICFS and financial constraint, but extend that model using Kornai (1979) to include investment thirst. We demonstrate: because the ICFS–financial constraint relationship varies, ICFS cannot measure financial constraint. Conversely, using a natural experiment of China's Four Trillion Stimulus policy, we show ICFS significantly and positively correlates with investment thirst after controlling for financial constraint.     

Inflation and Innovation in a Schumpeterian Economy with North–South Technology Transfer

This study analyzes how inflation affects innovation and international technology transfer via cash‐in‐advance constraints on R&D. We consider a North–South quality‐ladder model that features innovative Northern R&D and adaptive Southern R&D. We find that higher Southern inflation causes a permanent decrease in technology transfer, a permanent increase in the North–South wage gap, and a temporary decrease in the Northern innovation rate. Higher Northern inflation causes a temporary decrease in the Northern innovation rate, a permanent decrease in the North–South wage gap, and ambiguous effects on technology transfer. Finally, we calibrate the model to China–U.S. data to perform a quantitative analysis.     

The present value model with time-varying discount rates: Implications for commercial property valuation and investment decisions

A vector autoregressive model is developed for predicting cash flow and returns in the private (unsecuritized) commercial property markets. The model predicts both of these variables quite well during the sample period. The forecasting model is then used to develop a simple buy/sell rule for identifying property market value peaks and troughs. An improved present value model, taking account of the predictability of property returns, is described and found to track historical market values much more closely than does either the appraisal-based index or the traditional present value model with constant expected returns. Analysis in this paper suggests that most of the change in commercial property market values has been due to changes in expected returns, rather than to changes in expected future operating cash flows.     

Measuring performance in a dynamic world: Conditional mean–variance fundamentals

We develop conditional alpha performance measures that are consistent with conditional mean–variance analysis and the magnitude and sign of the implied true conditional time-varying alphas. The sequence of conditional alphas and betas is estimable from surprisingly simple unconditional regressions. Other common performance measures are derivable from the conditional investment opportunity set based on its conditional asset return moments. Our bootstrap analysis of Morningstar mutual fund returns data demonstrates that the differences between existing conditional alpha measures and our proposed alpha are substantive for typical parameterizations.     

Contemporary public–private partnership: Towards a global research agenda

This paper reviews the research agenda lineage on public–private partnerships (PPPs) from Broadbent and Laughlin's seminal piece in 1999. The PPP phenomenon is viewed at five levels: project delivery, organisational form, policy, governance tool and as a phenomenon within a broader historical and cultural context. We argue that whilst a variety of research issues will continue to be relevant, five corresponding areas deserve future visibility for a renewed research agenda: (1) Financialisation of PPPs, (2) global PPP market actors, (3) internationalisation of policy on PPPs, (4) long‐term complex contracts as a governing regime and (5) PPPs in BRICS and developing countries.     

On the independence of assets and liabilities: Evidence from U.S. commercial banks, 1990–2005

Traditional asset–liability management techniques limit banks’ abilities to structure their balance sheets—but more recently, financial innovations have allowed banks the chance to manage interest rate risk without constraining their asset–liability choices. Using canonical correlation analysis, we examine how the relationships between asset and liability accounts at U.S. commercial banks changed between 1990 and 2005. Importantly, we show that asset–liability linkages are weaker for banks that are intensive users of risk-mitigation strategies such as interest rate swaps and adjustable loans. Perhaps surprisingly, we find that asset–liability linkages are stronger at large banks than at small banks, although these size-based differences have diminished over time, both because of increased asset–liability linkages at small banks and decreased linkages at large banks.     

The Australian asset‐pricing debate

Utilising a comprehensive data set for Australian firms, we examine a range of competing asset‐pricing models, including the four‐ and five‐factor models where the equity‐risk premium is augmented by size, value, momentum and liquidity premia, and find that none of the models tested appears to adequately explain the cross section of Australian returns. A model accounting for Australia's integration with the US equity market appears to be the best of the competing models we study. Our argument that a model recognising Australia's integration with the USA is supported when we apply the portfolio and factor construction methodology suggested by Brailsford et al. (2012a,b).     

On the use of the Box–Cox transformation on conditional variance models

We investigate the effects of using the Box–Cox transformation on conditional variance specifications. By deriving its autocorrelation functions, we infer “rich” autocorrelation structures due to the existence of the specification parameter in this non-linear transformation. To illustrate transformation's effects on conditional variance models, we first generate its theoretical autocorrelation function and then investigate model's fit using real financial time-series data.     

Hourly index return autocorrelation and conditional volatility in an EAR–GJR-GARCH model with generalized error distribution

We study the autocorrelation and conditional volatility of the hourly Dow Jones Industrial Index return data from October 1974 to September 2002 using an exponential asymmetric AR–GARCH specification with a generalized error distribution. Our findings document a positive autocorrelation in hourly return data in the early years of the sampling period, but the autocorrelation turns negative after 1986 and the negative shock causes more impact on the conditional volatility. This latter period evidence stands in contrast to prior findings employing lower frequency and/or earlier year data. In addition, our results present some evidence of a negative relation between autocorrelation and conditional volatility before 1986 (albeit weaker than prior findings), but this negative relationship disappears after 1986.     

Anticipated Earnings Announcements and the Customer–Supplier Anomaly

I test whether the anticipation of earnings news stimulates acquisition of customer information and mitigates returns to the customer–supplier anomaly documented by Cohen and Frazzini (“Economic Links and Predictable Returns.” The Journal of Finance 63 (2008): 1977–2011). I find that attention to a firm's publicly disclosed customers increases shortly before the firm announces earnings, and that customer stock returns predict supplier stock returns shortly before, but not after, the supplier's earnings announcement. I further find some evidence that these predictable returns are increasing in the level of customer information acquisition. These results are unique to anticipated disclosure events and suggest that anticipation of supplier earnings announcements resolves investor limited attention to customer information and accelerates price discovery of customer news.     

Economic value of analyst recommendations in Australia: an application of the Black–Litterman asset allocation model

This study empirically examines the investment value of security analyst recommendations on constituent stocks of the S&P/ASX 50 index. We find that stocks with favourable (unfavourable) recommendations on average outperformed (underperformed) the benchmark index. An investment strategy using the Black–Litterman asset allocation model that incorporates consensus analyst recommendations, in conjunction with daily rebalancing, outperforms the market in terms of return and risk‐adjusted performance measures. The investment strategy involves high levels of trading, and no significant abnormal returns are achieved after transaction costs. Less frequent rebalancing, under most situations, causes a decrease in both performance and turnover. Filtering of dated recommendations causes an increase in turnover, while having mixed effects on investment returns.     

Analyst firm parent–subsidiary relationship and conflict of interest: evidence from IPO recommendations

We uncover a new source for the conflict of interest in analyst coverage existed before the Regulation FD period by examining whether recommendations within the parent–subsidiary (PS) relationship are more optimistic and whether they have better investment value than non‐PS recommendations. We find evidence consistent with the conflict of interest: PS analysts on average issue more optimistic recommendations, but their recommendations have worse or no better investment value in the calendar‐time portfolio analysis. Analyst firm PS relationship is another source for the conflict of interest in analyst coverage that has not been identified before.     

Putting our money where their mouth is: Alignment of charitable aims with charity investments – Tensions in policy and practice

Given the values-driven nature of the mission of most charities, it might be expected that investment behaviour would be similarly values-driven. This paper documents the ethical investment policies and practices of the largest UK charities and explores how these are aligned with the charitable aims, drawing upon accountability, behavioural and managerial perspectives as theoretical lenses. The study employs two distinct research methods: responses to a postal questionnaire and follow-up semi-structured interviews with selected charities. The evidence indicates that a significant minority of large charities do not have a written ethical investment policy. Charities with larger investments, fundraising charities and religious charities were more likely to have a written ethical policy. We suggest that there is a pressing need for improved alignment between charities' aims and their investment practices and better monitoring of investment policies.     

Regulatory impact on voluntary climate change–related reporting by Australian government‐owned corporations

This paper concerns voluntary climate change–related reporting of government‐owned corporations (GOCs). We investigate whether the Australian National Gresenhouse and Energy Reporting Scheme (NGERS), a regulation stipulating the disclosure of greenhouse gas emissions to government, subsequently made publicly available on a Website, has a positive impact on the voluntary disclosure of climate change–related information not required by the regulation. We find that implementation of NGERS has a positive effect on voluntary climate change‐related disclosures by GOCs. Hence, mandating disclosure of organisations’ negative environmental performance, such as greenhouse gas emissions, can influence voluntary disclosures of a broad range of related information particularly in organisations that are not subject to capital markets incentives. However, upon later but concurrent implementation of a Carbon Tax after a highly partisan and divisive political debate, climate change–related disclosures by GOCs reduce, consistent with the de Villiers and van Staden (2006) argument that when disclosures might increase awareness of sensitive issues, avoidance of attention to the issue might be the best strategy to retain legitimacy.     

The Role of Durables Replacement and Second‐Hand Markets in a Business‐Cycle Model

Transactions of used durables are large and cyclical, but their interaction with purchases of new durables has been neglected in business‐cycle studies. I fill this gap by introducing a new business‐cycle model of consumer durables where households resell their goods on the second‐hand market and the production of new durables is affected by the supply of used goods. The model delivers three conclusions: Markups are smaller for goods that are more durable and more frequently replaced; markups are countercyclical for durables, resolving the comovement puzzle of Barsky, House, and Kimball (2007); and procyclical replacement demand amplifies durables spending.     

Risk,return and mean‐variance efficiency of Islamic and non‐Islamic stocks: evidence from a unique Malaysian data set

We find that Islamic stocks are more mean–variance efficient than non‐Islamic stocks and the market because they reduce risk of the same level of returns. We combine a unique Malaysian data set of individual Islamic stocks (as opposed to aggregate stock indices) since 1997 with a new method where we apply Islamic business activity and financial ratio screens to the universe of Malaysian stocks. Both data sets show that Islamic stocks have an annualised standard deviation that is on average 3.43–3.78 percent points lower compared to non‐Islamic stocks. This lower variance of Islamic stocks is exclusively driven by financial ratio screens.     

The Ontario Securities Commission on Accounting and Auditing from the 1960s to 2008–Part 2: The First Four Chief Accountants, 1986–1996*

This article, Part 2 of a historical review and analysis of the Ontario Securities Commission (OSC), describes the role played by the first four Chief Accountants in the regulation of accounting and auditing from 1986 to 1996. Part 1 dealt with the period from the 1960s to 1985. Part 3 will treat the role played by the fifth Chief Accountant, from 1996 to 2008. As the principal Canadian stock exchange in recent times has been the Toronto Stock Exchange, the OSC has been the most important securities market regulator in Canada. Prior to this article, the academic and professional accounting literature has been largely barren on the OSC’s evolving role on accounting and auditing issues.     

The Distributional Efficiency of Alternative Regulatory Regimes: A Real Option Approach

This paper studies the effects of regulatory constraints on firm's irreversible investment decisions. The RPI–x rule is compared to a profit sharing rule, which increases the x factor in case profits go beyond a given level.When the firm has an option to delay investment, these rules have the same impact on investment choices. As profit sharing has a greater ability to extract rents, however, it is more efficient than the RPI–x rule.