Tagging the triggers: an empirical analysis of information events prompting sell-side analyst reports

In order to fulfill their function as information intermediaries in capital markets, sell-side equity analysts regularly issue updated forecasts on the stocks they cover. Quite often, the publication of (revised) analysts’ reports is subject to certain trigger events such as the publication of annual figures or the announcement of an upcoming merger. In this exploratory study, we develop a two-step procedure to identify the core events that trigger the release of analysts’ reports on companies that constitute the Dow Jones EuroSTOXX50 index during the three-year period from 2004 to 2006. These can be grouped into Financial Disclosures, Corporate Management, Corporate Strategy, Business Activity, Operating Environment and Share. The results suggest that sell-side analysts attach great importance to non-financial information events when transforming their earnings estimates into valuation forecasts and stock recommendations. Additionally, we link the information events identified as reasons of issuance to the summary measures disclosed in the reports in order to investigate the relationship between the report trigger and associated analyst reaction. Our findings indicate that the forecasting activity of sell-side analysts is greatly influenced by forward-looking statements made by management, strategy-related news flow, and non-company-specific information relating to the covered firm’s operating environment.     

Combining equilibrium,resampling, and analyst’s views in portfolio optimization

This paper proposes the use of a portfolio optimization methodology which combines features of equilibrium models and investor’s views as in Black and Litterman (1992), and also deals with estimation risk as in Michaud (1998). In this way, our combined methodology is able to meet the needs of practitioners for stable and diversified portfolio allocations, while it is theoretically grounded on an equilibrium framework. We empirically test the methodology using a comprehensive sample of developed countries fixed income and equity indices, as well as sub-samples stratified by geographical region, time period, asset class and risk level. In general, our proposed combined methodology generates very competitive portfolios when compared to other methodologies, considering three evaluation dimensions: financial efficiency, diversification, and allocation stability. By generating financially efficient, stable, and diversified portfolio allocations, our methodology is suitable for long-term investors such as Central Banks and Sovereign Wealth Funds.     

VIX futures term structure and the expectations hypothesis

Tests of the expectations hypothesis reveal that the slope of the VIX futures term structure predicts the direction but not the magnitude of the evolution of the short-end of the curve, but predicts neither the direction nor the magnitude of short-term changes in the long-end of the curve. Relative value seeking spread trades, constructed to exploit such violations, deliver excess returns with annualized Sharpe ratios equal or greater than those of volatility-writing strategies deployed by VIX ETN's for a majority of the 32 spread trade combinations tested. I demonstrate that profits from beta-neutral variations of the spread trades, which are not compensation for taking on equity downside risk by design, are propagated by inflows of capital into VIX futures markets, after controlling for factors that measure changes in the availability of hedge fund capital, risk appetite, and momentum. At the heart of profits, and by extension the term structure anomalies, is a disproportionally elevated basis propagated by long VIX demand that enters the futures market through ETN channels.     

Three decades of research on corporate governance and R&D investments: a systematic review and research agenda

This paper reviews and systematizes the empirical research on the nexus between corporate governance (CG) and investments in research and development (R&D) published in leading business, management, economics and finance journals over the past 30 years. We find that CG is key in shaping R&D investments. Moreover, the effects of both firm- and country-level CG are important for both internal and external R&D investments. Drawing on our review, we welcome future studies to examine the effect of the interplay between various CG mechanisms and different types of R&D investments, and possibly identify mediating variables besides the moderating ones. Moreover, we highlight the need for future interdisciplinary studies, as well as investigations of private companies and across developing countries. Whenever causal interpretations are attempted, both sample selection and endogeneity problems should be addressed, along with testing the CG-R&D investment nexus for nonlinear dynamics. The implications of the study for both theory and practice are also discussed.     

Investment opportunities and R&D investments in family and nonfamily firms

The firm’s investment opportunity set (IOS) reflects the prospective growth opportunities related to physical and human capital investments. IOSs are largely firm specific, embedded in assets-in-place, or generated by experience curves, learning-by-doing, and other similar phenomena. However, the value of an IOS can be destroyed if a firm does not exercise the option to invest. In this study, we theorize that a firm’s ability to invest in R&D is conditional on the availability of a favorable IOS. We test our theoretical propositions in the European business environment using a sample of large publicly traded firms with concentrated ownership. Our findings support the notion that the IOS is a significant determinant of corporate R&D investments, but the magnitude of this effect depends on the identity of the ultimate owner. Specifically, the sensitivity of R&D investments of family- and state-owned corporations is higher to favorable IOS than that of widely held corporations, suggesting these firms are more responsive to favorable IOS than others. By introducing the IOS dimension, our results have interesting implications for both theory and practice.     

Speculative hyperinflations and currency substitution

We propose a rational expectations framework for understanding speculative hyperinflations that end in response to ‘orthodox’ stabilization programs. Motivated by a strong degree of hysteresis in the stock of real balances after the end of hyperinflations, we provide a cash-and-credit model in which the money demand exhibits persistence because individuals can establish long-lasting credit relationships. We use the model to show that if hysteresis in real balances is possible then a fiscal–monetary reform that successfully stops a speculative hyperinflation may fail to prevent it. We argue that speculative hyperinflationary equilibria are consistent with some key stylized facts observed in extreme hyperinflations.     

Analytical derivation and behavioral interpretation of a model combining trip generation and distribution

The disjointedness of the planning sequence of trip generation and trip distribution is the main subject of this paper. We approach this disjointedness problem by analyzing the central properties of the independently discovered balancing methods of trip-distribution models in relation to two critical issues. First, in the current planning sequence, it is usual to start by forecasting how many trips will begin (production) and end (attraction) in each zone. This forecasting is done by estimating the production of trips independently from the attraction of trips and vice versa, and then forcing some mechanical balance of total trips being generated in the urban system. Second, in the same planning sequence, the output of this trip-generation process is the input to the next one (trip-distribution process): forecasting the matrix that describes the number of trips between each pair of zones. This forecasting is done in general by updating an equivalent obsolete matrix that was obtained from an origin-and-destination survey. The updating is generally accomplished by adjusting the outdated matrix with the so-called balancing factors. It is the purpose of this paper to support the balancing-factors approach in forecasting trip-distribution matrices with a methodological interpretation and to explain behaviorally the balancing factors; and in the process, to show the spatial interaction between trip production and attraction and the emerging need for simultaneous specification and estimation of the whole trip-generation process.     

The impact of public regulation on housing quality and on structural changes

This paper represents a theoretical investigation of profit maximizing behavior of a landlord under rent control. The situation envisioned is one that the landlord owns, free and clear, either two housing units ready to merge or one large one ready to convert into two small ones; in each case the units are already in place, such that capital costs are sunk and treated as bygones. Each unit has a technology of production of housing services with a fixed input of quantity of space (shelter) and a variable input of quality, that is affected by physical ageing (non-controllable) and by maintenance (controllable). At starting time t₀, we have a state of quality and a historical state of initial quality Q?_i, at the time the building was built, with the implicit constraint that Q_i(t) < Q?_i, for all t> t₀. The analysis addresses the general question of housing structural changes—conversion or merger—and how these changes are being accelerated under the threat of rent control.