Negative earnings,positive earnings and stock return predictability: An empirical examination of market timing

We examine the predictive ability of earnings-price ratios or yields for the S&P 500 index. We decompose the aggregate earnings-price ratio into its positive and negative components (“winners” vs “losers”) and find that the negative component has the most predictive ability. We also find that the earnings-price measures forecast both future returns and earnings growth. Our models display substantial variation in explanatory power over time with forecast power resurfacing in the latter 1990s. We conclude that to the extent that earnings-price yields predict future S&P 500 returns, the negative earnings component is the driving factor.     

Serial CEO incentives and the structure of managerial contracts

I explore CEOs’ incentives to select firm strategies and to acquire firm-specific skills when CEOs have job-hopping opportunities. Several features of managerial compensation, such as benchmarking of pay to larger and more prestigious companies, payments unrelated to past performance, unrestricted stock awards for highly paid CEOs, long-term incentives, and higher pay in companies granting long-term incentives, emerge in the optimal contract. I argue that the model can explain the change in the structure and the surge in US CEO compensation as well as differences across countries and across firms within a country.     

The dynamics of leveraged ETFs returns: a panel data study

Leveraged exchange-traded funds (LETFs) are limited liability securities that allow investors to take daily constant leverage bets on a reference index. This work proposes a new empirical design to investigate the dynamics of quarterly LETFs returns. Rather than relying on fund-by-fund overlapping regressions, as in existing literature, the paper exploits a large panel of non-overlapping data covering the whole universe of Proshares, the US primary LETFs provider. Overall, it is found that the variables prescribed by theory broadly explain cross-sectional variability. It is also found that inverse LETFs and more generally, leveraged funds operating in asset classes like international equity, bonds and commodities underperform theoretical predictions. This underperformance is mainly attributed to frictions in the process of implementing the required daily leverage.     

Social Interactions and Entrepreneurial Activity

We show that individuals residing in highly entrepreneurial neighborhoods are more likely to become entrepreneurs and invest more into their own businesses, even though their entrepreneurial profits are lower and their alternative job opportunities more attractive. Our results suggest that peer effects create nonpecuniary benefits from entrepreneurial activity and play an important role in the decision to become an entrepreneur. Alternative explanations, such as entry costs, social learning, and informal credit markets, are not supported by the data.     

“Lending by example”: Direct and indirect effects of foreign banks in emerging markets

Using a novel dataset that allows us to trace the bank relationships of a sample of mostly unlisted firms, we explore which borrowers are able to benefit from foreign bank presence in emerging markets. Our results suggest that the limits to financial integration are less tight than the static picture of firm-bank relationships implies. Even though foreign banks are more likely to engage large and foreign-owned firms, after an acquisition, a bank is 20% less likely to terminate a relationship with a firm if the acquirer is foreign rather than domestic. Most importantly, within a credit market, firms appear to have the same access to financial loans and ability to invest whether they borrow from a foreign bank or not, while foreign banks benefit all firms by indirectly enhancing credit access.     

How can biases affect entrepreneurial decision making? toward a behavioral approach to unicorns

International Entrepreneurship and Management Journal - How can cognitive biases affect the birth and evolution of entrepreneurial ventures? In Entrepreneurial Decision Making (EDM), this lively...     

Temporary Migration and Foreign Direct Investment

The question of complementarity or substitutability of FDI and international labour mobility has not yet been answered. The substitutability assumption does not take into consideration the technological spillover of FDI in the host countries. Moreover, migration flows reveal cultural characteristics and labour force properties of their native country which may stimulate bilateral business networks, strengthening the complementarity assumption between capital and labour flows. In this paper we build a continuous time dynamic model where these offsetting forces are at work. We analyze whether, and to what extent, the increase in labour mobility might affect FDI outflows. A numerical simulation is performed showing that a higher income growth rate corresponds to a higher labour mobility. Some policy implications and further research direction are suggested.