Is Busy Really Busy? Board Governance Revisited

We investigate the relationship between firm governance and the board's position in the social network of directors. Using a sample of 133 German firms over the four‐year period from 2003 to 2006, we find that firms with intensely connected supervisory boards are (1) associated with lower firm performance, and (2) pay their executives significantly more. We interpret these results as evidence of poor monitoring in firms with directors who are more embedded in the social network. In both cases, simple measures for busy directors that were used by other studies in the past fail to show any significant pattern. The findings suggest that the quality and structural position of additional board seats may play a bigger role than simply the number of board appointments.     

Who buys Bitcoin? The cultural determinants of Bitcoin activity

We examine the relationship between national culture and a country's Bitcoin activity. Given that Bitcoin is a high-risk currency/investment that is frequently used for illegal purposes and whose market is relatively opaque, we focus on the cultural dimension of individualism, which has been related to financial market participation, risk-taking behavior, and overconfidence. Using unique data that includes the originating country for Bitcoin transactions, we examine the relationship between individualism and a country's Bitcoin activity for a sample of 80 countries between 2009 and 2020. We find a significant and positive relationship between a country's individualism and its use of Bitcoin consistent with cultural values affecting the demand for such high-risk currency/investments.     

Is Bitcoin a better portfolio diversifier than gold? A copula and sectoral analysis for China

This paper aims to compare Bitcoin with gold in the diversification of Chinese portfolios using daily data over the 2010–2020 period. We propose a new development of copula-based joint distribution function of returns to simulate the Value-at-Risk and expected shortfall of portfolios including Bitcoin (or gold) and those without it. The stochastic dominance method is also used to compare the return distributions of the three types of portfolios. Empirical results show that gold is a better portfolio diversifier than Bitcoin as it helps better reduce the risk of portfolios. On the other hand, Bitcoin better increases the return but also increases the risk. The stochastic dominance results further show that portfolios diversified by gold dominate those diversified by Bitcoin. Based on these findings, we conclude that in China, gold is a better portfolio diversifier than Bitcoin for risk-averse investors. However, for risk-seeking investors, Bitcoin can be a better choice. This result is found to be robust to the time, frequency and currency effects.     

Is CEO Pay Really Inefficient? A Survey of New Optimal Contracting Theories

Bebchuk and Fried (2004) argue that executive compensation is set by CEOs themselves rather than boards on behalf of shareholders, since many features of observed pay packages may appear inconsistent with standard optimal contracting theories. However, it may be that simple models do not capture several complexities of real-life settings. This article surveys recent theories that extend traditional frameworks to incorporate these dimensions, and show that the above features can be fully consistent with efficiency. For example, optimal contracting theories can explain the recent rapid increase in pay, the low level of incentives and their negative scaling with firm size, pay-for-luck, the widespread use of options (as opposed to stock), severance pay and debt compensation, and the insensitivity of incentives to risk.     

Are IPOs Really Underpriced?

While IPOs have been underpriced by more than 10% during thepast two decades, we find that in a sample of more than 2,000IPOs from 1980 to 1997, the median IPO was significantly overvaluedat the offer price relative to valuations based on industrypeer price multiples. This overvaluation ranges from 14% to50% depending on the peer matching criteria. Cross-sectionalregressions show that "overvalued" IPOs provide high first-dayreturns, but low long-run risk-adjusted returns. These overvaluedIPOs have lower profitability, higher accruals, and higher analystgrowth forecasts than "undervalued" IPOs. Ex post, the projectedhigh growth of overvalued IPOs fails to materialize, while theirprofitability declines from pre-IPO levels. These results suggestIPO investors are deceived by optimistic growth forecasts andpay insufficient attention to profitability in valuing IPOs.     

Is the Abnormal Post-IPO Underperformance Really Abnormal? The Evidence from CEE Emerging Markets

Using sorting procedures and cross-sectional tests, we investigate the long-run post-IPO performance and its sources in the Central and Eastern European (CEE) markets. We examine over 1100 stocks from 11 CEE countries for the period 2002–2014. We find that “old stocks” perform significantly better than “young stocks”, but only when the market beta is the sole risk factor considered. After accounting for the size and value effects, the IPO firms perform neither better nor worse than non-issuing companies. The sources of the initial low B/M ratios of debuting companies may lie in time-varying financial quality. The market newcomers are financially healthier than their older counterparts. However, over 2–5 years the fundamentals deteriorate and the financial standing regresses to the mean.     

Does Bitcoin still own the dominant power? An intraday analysis

The study investigates the intraday dynamics and price patterns of the primary cryptocurrencies. The Granger Mackey-Glass (M-G) model is employed to examine the asymmetric and nonlinear dynamic interactions in the first moment using positive and negative returns. The bivariate BEKK-GARCH model is applied to identify cross-market volatility shocks and volatility transmissions in the cryptocurrency market. The intra-cryptocurrency market analysis reveals that Bitcoin contains predictive information that can nonlinearly forecast the performance of other digital currencies when cryptocurrency prices either are rising or declining. The dominant power of Bitcoin is not dismissed using the intraday data. Further, Bitcoin's intraday lagged shocks and volatility induces more rapid and destabilizing effects on the conditional volatility of other currencies than each of the other currencies does on BTC's conditional volatility. The virtual currency markets are dynamically correlated and integrated through first and second-moment spillovers.     

How do economic policy uncertainty and geopolitical risk drive Bitcoin volatility?

We investigate how economic policy uncertainty (EPU) and geopolitical risks (GPR) impact Bitcoin volatility with respect to factors related to type and nationality of uncertainty, investigated period, relationship horizon and extreme conditions. Applying ARDL model and quantile regression for monthly data from August 2010 to September 2021, we reveal that June 2014 corresponds to a key date that marks a reversal in the investigated relationship. Furthermore, we show that the relationship between uncertainty and bitcoin volatility changes according to different factors. US uncertainty has short run effects on Bitcoin volatility, while China’s uncertainty has rather long run effects. Moreover, Bitcoin volatility responds in the same manner to US EPU and GPR, while, it responds differently to China's EPU and GPR. In extreme quantiles, we find that Bitcoin hedges against US EPU and GPR. Further, Bitcoin hedges against either individual or joint effects of US uncertainty, but not both.     

Do Credit Ratings Really Affect Capital Structure?

This paper revisits recent investigations into the role credit ratings play in the marginal financing behavior of firms. Although it has long been documented that credit ratings may be an important determinant of firm capital structure policy, academics have only recently subjected this motivation to empirical scrutiny. We add to the brief existing literature by investigating the sensitivity of marginal financing behavior of firms to a number of attributes deemed to capture firms’ affinity to emphasize credit ratings in their financing behavior. Our results suggest that credit ratings are not a first‐order concern in capital structure decisions.     

How well do investor sentiment and ensemble learning predict Bitcoin prices?

Investor sentiment is widely recognized as the major determinant of cryptocurrency prices. Although earlier research has revealed the influence of investor sentiment on cryptocurrency prices, it has not yet generated cohesive empirical findings on an important question: How effective is investor sentiment in predicting cryptocurrency prices? To address this gap, we propose a novel prediction model based on the Bitcoin Misery Index, using trading data for cryptocurrency rather than judgments from individuals who are not Bitcoin investors, as well as bagged support vector regression (BSVR), to forecast Bitcoin prices. The empirical analysis is performed for the period between March 2018 and May 2022. The results of this study suggest that the addition of the sentiment index enhances the predictive performance of BSVR significantly. Moreover, the proposed prediction system, enhanced with an automatic feature selection component, outperforms state-of-the-art methods for predicting cryptocurrency for the next 30 days.     

Housing Really Is the Business Cycle: What Survives the Lessons of 2008–09?

The downturn of 2008–09 has confirmed that: (i) housing is the single most critical part of the U.S. business cycle, (ii) the proper conduct of monetary policy needs to be cognizant that choices made at one point in time affect the options later, and (iii) the best time to intervene in the housing cycle is when the volume of building is above normal and growing more so. What was different this time was the rapid and substantial decline in home prices.     

Are Some Forecasters Really Better Than Others?

In any data set with individual forecasts of economic variables, some forecasters will perform better than others. However, it is possible that these ex post differences reflect sampling variation and thus overstate the ex ante differences between forecasters. In this paper, we present a simple test of the null hypothesis that all forecasters in the U.S. Survey of Professional Forecasters have equal ability. We construct a test statistic that reflects both the relative and absolute performance of the forecaster and use bootstrap techniques to compare the empirical results with the equivalents obtained under the null hypothesis of equal forecaster ability. Results suggest little support for the idea that the best forecasters are actually innately better than others, though there is evidence that a relatively small group of forecasters perform very poorly.     

Speculation or currency? Multi-scale analysis of cryptocurrencies—The case of Bitcoin

This paper proposes a novel two-stage VMD-based multi-scale regression to analyze various cryptocurrency attributes that are still unclear in the existing literature. In the first stage, Variational Mode Decomposition (VMD) is used to decompose the cryptocurrency prices into low, medium and high frequency modes with different attributes. In the second stage, the VMD-based multi-scale regression is proposed for these modes with selected explanatory variables. Using the proposed framework, we focus on analyzing the multiple attributes of daily Bitcoin price data as a case study. Empirical results indicate that the low-frequency mode has specific currency or long-term investment characteristics, unlike the short/medium-term investment attributes for the medium-frequency mode, while the high-frequency mode represents some speculation. Some events merely affect a single frequency mode, but others impact all frequency modes. The results of events analysis based on VMD could enhance the identification of the multiple attributes of Bitcoin. Our findings are insightful for future regulation and management of virtual currencies.     

Should investors include Bitcoin in their portfolios? A portfolio theory approach

Many papers in recent years have examined the benefits of adding alternative assets to traditional portfolios containing stocks and bonds. Bitcoin has emerged as a new alternative investment for investors which has attracted much attention from the media and investors alike. However relatively little is known about the investment benefits of Bitcoin and therefore this paper examines the benefit of including Bitcoin in a traditional benchmark portfolio of stocks and bonds. Specially, we employ data up to June 2018 and analyse the potential out-of-sample portfolio benefits resulting from including Bitcoin in a stock-bond portfolio for a range of eight popular asset allocation strategies. The out-of-sample analysis shows that, across all different asset allocation strategies and risk aversions, the benefits of Bitcoin are quite considerable with substantially higher risk-adjusted returns. Our results are robust to rolling estimation windows, the incorporation of transaction costs, the inclusion of a commodity portfolio, alternative indices, short-selling as well as two additional optimization techniques including higher moments with (and without) variance-based constraints (VBCs). Therefore, our results suggest that investors should include Bitcoin in their portfolio as it generates substantial higher risk-adjusted returns.     

Does Bitcoin affect decomposed oil shocks differently? Evidence from a quantile-based framework

This paper studies the impact of Bitcoin on decomposed oil price shocks within a quantile-based framework, through which the underlying investment sheltering role of Bitcoin for various oil price fluctuations is explored. The aggregate oil price shock is decomposed into three perspectives of the demand, the supply, and the changing attitudes towards risk. A comparison of the sheltering role between Bitcoin and gold is further evaluated. By using a non-parametric causality test, we find that there exists an asymmetric and unidirectional causal relationship from Bitcoin/gold to oil shocks. Such the unidirectional causality appears only to the demand and supply shocks of oil instead of the risk-specific shocks, and is more evident at median quantiles. By jointly considering the data distribution of both dependent and independent variables realized by a quantiles-on-quantiles method, both Bitcoin and gold generally depict the hedge and safe haven abilities for oil shocks, and such the ability is shown to be different not only between Bitcoin and gold but also for various sources of oil shocks. The sheltering role of gold is found to be greater than that of Bitcoin for the supply shock, while the results reverse for the demand shock. Moreover, shocks from the identified shocks from the COVID-19 pandemic and the Russia–Ukraine conflict are found to not change the cross-market relationship. A series of robustness checks confirm our findings that possess important implications for various stakeholders.     

Does Bitcoin behave as a currency?: A standard monetary model approach

We derive the Bitcoin exchange rate dynamics by solving the exchange rate equation of the standard flexible-price monetary model to investigate any characteristics of Bitcoin like a currency. The dynamics is driven by an asymmetric mean-reverting fundamental shock which can be attributed to a money demand shock. A crash occurs when the exchange rate with a weakened mean-reverting force breaches a lower boundary where a smooth-pasting condition is imposed. The empirical results show the exchange rate dynamics can be calibrated according to the model, in which the mean reversion of the dynamics is positively co-integrated with the Bitcoin transaction volume indicating demand for Bitcoin; and with the risk reversals of the commodity currencies (Australian dollar and Canadian dollar) in currency option markets. The analysis shows that the Bitcoin exchange rate shares some characteristics of commodity currencies with crash risk. This suggests that Bitcoin behaves as a currency between fiat money and a crypto-commodity used for trading and investment purposes.     

Does global economic uncertainty matter for the volatility and hedging effectiveness of Bitcoin?

We assess whether the long-run volatilities of Bitcoin, global equities, commodities, and bonds are affected by global economic policy uncertainty. Empirical results provide evidence supporting this hypothesis, except in the case of bonds. For Bitcoin investors, the results imply the ability to use information about the state of global economic uncertainty to enhance the predictions of Bitcoin volatility. We further examine whether the correlation between Bitcoin and global equities, commodities, and bonds are affected by global economic policy uncertainty. Empirical results reveal that global economic policy uncertainty has a negative significant impact on the Bitcoin-bonds correlation and a positive impact on both Bitcoin-equities and Bitcoin-commodities correlations, suggesting the possibility of Bitcoin acting as a hedge under specific economic uncertainty conditions. Interestingly, the hedging effectiveness of Bitcoin for both global equities and global bonds enhances slightly after considering the level of global economic policy uncertainty. Such a weak effect of the state of global economic uncertainty on the hedging ability of Bitcoin implies that investors cannot substantially enhance the hedging performance of Bitcoin under different economic uncertainty conditions.     

Gold or Bitcoin,which is the safe haven during the COVID-19 pandemic?

This study compares the dynamic spillover effects of gold and Bitcoin prices on the oil and stock market during the COVID-19 pandemic via time-varying parameter vector autoregression. Both time-varying and time-point results indicate that gold is a safe haven for oil and stock markets during the COVID-19 pandemic. However, unlike gold, Bitcoin's response is the opposite, rejecting the safe haven property. Further analysis shows that the safe-haven effects of gold on the stock market become stronger when the pandemic critically spreads.