The Persistence of Mutual Fund Performance

This paper analyzes how mutual fund performance relates to past performance. These tests are based on a multiple portfolio benchmark that was formed on the basis of securities characteristics. We find evidence that differences in performance between funds persist over time and that this persistence is consistent with the ability of fund managers to earn abnormal returns.     

The Role of Tacit Knowledge in Auditor Expertise and Human Capital Development

Two critical aspects of the model of auditor expertise development in Tan and Libby [1997] are that audit firms do not value tacit knowledge in inexperienced auditors but do value it in experienced auditors. We update the former and extend the latter. Our paper predicts and finds that audit firms now do value tacit knowledge in inexperienced auditors, especially when their supervisors have higher tacit knowledge. Our proxies of value include higher promotability assessments, annual evaluations, and cash bonuses. Our paper also extends Tan and Libby [1997] by positing that enhanced development of expertise and audit firm human capital are two reasons audit firms value tacit knowledge in experienced auditors. As predicted, higher tacit knowledge in experienced auditors is positively associated with higher tacit knowledge acquisition by their inexperienced subordinates and with stronger firm commitment of inexperienced subordinates having higher tacit knowledge.     

What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance

Using laboratory experiments, we provide evidence on three factors influencing trader performance: fluid intelligence, cognitive reflection, and theory of mind (ToM). Fluid intelligence provides traders with computational skills necessary to draw a statistical inference. Cognitive reflection helps traders avoid behavioral biases and thereby extract signals from market orders and update their prior beliefs accordingly. ToM describes the degree to which traders correctly assess the informational content of orders. We show that cognitive reflection and ToM are complementary because traders benefit from understanding signals’ quality only if they are capable of processing these signals.     

The Long‐Run Fisher Effect: Can It Be Tested?

In this paper, I provide a plausible explanation as to why past studies have been unable to find support for the long-run Fisher effect. My argument is that exogenous shocks to the inflation rates in industrialized economies have not produced the permanent change to inflation necessary for testing the Fisher effect. Instead of finding a nonstationary, unit-root process for inflation like previous Fisher effect studies, here each country's inflation rate is found to follow a mean-reverting, fractionally integrated, long-memory process. Applying a bivariate, maximum likelihood estimator to a multivariate, fractionally integrated model of inflation and nominal interest, I find that the estimated inflation rates in 17 developed countries are highly persistent, fractionally integrated, mean-reverting processes with order of integration parameters significantly less than one. Since a permanent change to inflation has not occurred, a test of whether a permanent change to inflation affects the nominal interest rate one-for-one will be uninformative as to the truth or fallacy of the Fisher effect hypothesis.     

Bank Loan Supply, Lender Choice, and Corporate Capital Structure

This paper explores the relevance of capital market supply frictions for corporate capital structure decisions. To identify this relationship, I study the effect on firms' financial structures of two changes in bank funding constraints: the 1961 emergence of the market for certificates of deposit, and the 1966 Credit Crunch. Following an expansion (contraction) in the availability of bank loans, leverage ratios of bank-dependent firms significantly increase (decrease) relative to firms with bond market access. Concurrent changes in the composition of financing sources lend further support to the role of credit supply and debt market segmentation in capital structure choice.     

Catastrophic Risk and Credit Markets

We provide a model of the effects of catastrophic risk on real estate financing and prices and demonstrate that insurance market imperfections can restrict the supply of credit for catastrophe-susceptible properties. Using unique micro-level data, we find that earthquake risk decreased commercial real estate bank loan provision by 22% in California properties in the 1990s, with more severe effects in African–American neighborhoods. We show that the 1994 Northridge earthquake had only a short-term disruptive effect. Our basic findings are confirmed for hurricane risk, and our model and empirical work have implications for terrorism and political perils.     

What We Might Know (But Aren't Sure) About Public-Sector Accrual Accounting

This article responds to the preceding paper by Allan Barton by reviewing the practitioner and academic literature on accrual accounting in a general government sector context. It considers why that literature has a preponderance of assertion and is underweight in evidence. It argues that Barton's paper, while being a useful addition to the calls for improvements to the model of accrual accounting applied to GGS organisations, has flaws in its assertions as to the superiority of accrual accounting per se. These flaws are an absence of supporting evidence and a confusion between internal and external accounting.     

It's power that counts: reflections on recent consumer market-place research

The consumer protection literature relies for much of its theoretical support upon concepts such as ‘market power’ and ‘inequalities of bargaining power’. This article seeks to fill a perceived gap in the literature by providing examples of market place application of ‘power, will and skill’—concepts drawn from the literature of management strategy. These examples have arisen as side benefits from research into the workings of Fair Trading Act 1973 based codes of practice, the Consumer Credit Act 1974, and the Scottish used car market. The authors seek to demonstrate, for the benefit of those involved in the regulation of the consumer market place, how the effectiveness of regulation in a variety of forms and situations is determined, significantly, by economic muscle and by an associated will on the part of powerful enforcers to exercise meaningful sanctions on trader organizations.