An Experimental Study on Dividing Gains through Politics

This article offers experimental evidence to examine an important case in politics where a monopolistic proposer seeks a majority's consent from competitive responders to split the gain. The unique subgame perfect equilibrium prediction is that the side of trade with a monopoly will exploit the side of trade with competition to reap almost all of the gain. Our experimental evidence reveals that while responders do compete with each other to race to the bottom (consistent with the prediction), the monopolistic proposer settles down to offer a ‘fair’ share of the pie to those from whom he or she seeks majority support (contrary to the prediction).     

Interest Rates and Credit Risk

This paper explores the effects of shifts in interest rates on corporate leverage and default in the context of a dynamic model in which the link between leverage and default risk comes from the lower incentives of overindebted entrepreneurs to guarantee firm survival. The need to finance new investment pushes firms' leverage ratio above some state‐contingent target toward which firms gradually adjust through earnings retention. The response to interest rate rises and cuts is both asymmetric and heterogeneously distributed across firms. Our results help rationalize some of the evidence regarding the risk‐taking channel of monetary policy.     

Do Prices Reveal the Presence of Informed Trading?

Using a comprehensive sample of trades from Schedule 13D filings by activist investors, we study how measures of adverse selection respond to informed trading. We find that on days when activists accumulate shares, measures of adverse selection and of stock illiquidity are lower, even though prices are positively impacted. Two channels help explain this phenomenon: (1) activists select times of higher liquidity when they trade, and (2) activists use limit orders. We conclude that, when informed traders can select when and how to trade, standard measures of adverse selection may fail to capture the presence of informed trading.     

Fundamentals and Exchange Rate Prediction Revisited

This paper measures latent fundamental exchange rates with independent component‐based rates constructed from a cross‐section of exchange rates and then uses their deviations from exchange rates to forecast. Empirical results indicate that the independent component‐based model and its Taylor rule and purchasing power parity augmented models are superior to the random walk in predicting exchange rates. These results are robust to several scenarios and are likely to be observed if the U.S. sources and the recursive scheme are applied. Our results reveal that information regarding the third moment of exchange rate changes is helpful to explain exchange rate movements.     

Failures to Deliver,Short Sale Constraints,and Stock Overvaluation

Studying a large sample of publicly available data on failures to deliver, we find that stocks reaching threshold levels of failures become significantly overvalued. Where short sale constraints are especially binding, we report extreme overpricing and subsequent reversals. These findings support the overvaluation hypothesis, although the mispricing is likely to be difficult to arbitrage because of extreme shorting costs. In addition, threshold stocks with low short interest become more overvalued than threshold stocks with high short interest. This suggests that the level of short interest reflects supply‐side effects when the examination conditions on the difficulty of borrowing shares.     

Performance of Foreign and Global Mutual Funds: The Role of Security Selection,Region‐Shifting,and Style‐Shifting Abilities

We examine the performance of U.S.‐based foreign and global funds after controlling for their regional and style exposure. We show that, on average, the total performance (TP) and security selection abilities of both foreign and global funds are significantly negative and exhibit short‐term predictability. Additionally, R² reflects funds’ security selection abilities, consistent with previous findings for domestic mutual funds. Investors can earn higher abnormal returns and TP in the short run by purchasing past winners with low R² than by purchasing past losers with high R². However, there is no evidence of predictability in the funds' region‐shifting and style‐shifting abilities.     

Does Labor Power Affect the Likelihood of a Share Repurchase?

This research examines the impact of labor power on the firm's repurchase decisions. Firms facing stronger labor power repurchase fewer shares, suggesting that, on average, repurchases are against the interests of labor. However, the negative effect of labor power on repurchases is significantly reduced when repurchases benefit employees by fending off an unwanted takeover or countering the dilution effects of employee stock options. We also examine the ex post consequences of share repurchases. Repurchases are positively related to the probability of a strike. Repurchase announcement returns and the operating performance of repurchasing firms are negatively related to labor power.     

Management Roles and Sustainability Information. Exploring Corporate Practice

Little empirical research has been conducted on perceptions of the types of sustainability information dealt with by different managers in internal company processes. In this study the roles of different managers are distinguished based on contingency theory and using the categorisation in the sustainability balanced scorecard concept. Expected sustainability information types are identified for these roles and hypotheses are derived and tested about perceptions of the types of sustainability information in different management roles. Interviews identified 116 roles involved with sustainability information in a set of leading German and UK sustainability reporting companies. Results from analysing sustainability information types contingent upon different management roles contribute to the understanding of sustainability accounting systems and practices and how companies can best support different management roles with appropriate sustainability information.     

Constructing a Multifactor Model for the Shanghai Stock Exchange

ABSTRACT

We examine the validity of five factor models for explaining the time-series and cross-sectional variations in stock returns in the Shanghai Stock Exchange. The factor models include four models proposed by previous literature. Moreover, we propose a four-factor model (comprising market, size, book-to-market, and sales-to-price factors) to explain variations of stock returns in the Shanghai Stock Exchange. The results show that the Shanghai stock market exhibits size, book-to-market, and sales-to-price effects. Both the adjusted coefficient of determination and regression model intercepts indicate that the proposed four-factor model explains variations of stock returns in the Shanghai Stock Exchange more effectively in comparison with other multifactor models.