Forecasting stock market returns over multiple time horizons

In this paper, we seek to demonstrate the predictability of stock market returns and explain the nature of this return predictability. To this end, we introduce investors with different investment horizons into the news-driven, analytic, agent-based market model developed in Gusev et al. [Algo. Finance, 2015, 4, 5–51]. This heterogeneous framework enables us to capture dynamics at multiple timescales, expanding the model’s applications and improving precision. We study the heterogeneous model theoretically and empirically to highlight essential mechanisms underlying certain market behaviours, such as transitions between bull and bear markets and the self-similar behaviour of price changes. Most importantly, we apply this model to show that the stock market is nearly efficient on intraday timescales, adjusting quickly to incoming news, but becomes inefficient on longer timescales, where news may have a long-lasting nonlinear impact on dynamics, attributable to a feedback mechanism acting over these horizons. Then, using the model, we design algorithmic strategies that utilize news flow, quantified and measured, as the only input to trade on market return forecasts over multiple horizons, from days to months. The backtested results suggest that the return is predictable to the extent that successful trading strategies can be constructed to harness this predictability.     

No-arbitrage bounds for the forward smile given marginals

We explore the robust replication of forward-start straddles given quoted (Call and Put options) market data. One approach to this problem classically follows semi-infinite linear programming arguments, and we propose a discretisation scheme to reduce its dimensionality and hence its complexity. Alternatively, one can consider the dual problem, consisting in finding optimal martingale measures under which the upper and the lower bounds are attained. Semi-analytical solutions to this dual problem were proposed by Hobson and Klimmek [Financ. Stochastics, 2015, 19, 189–214] and by Hobson and Neuberger [Math. Financ., 2012, 22, 31–56]. We recast this dual approach as a finite-dimensional linear program, and reconcile numerically, in the Black–Scholes and in the Heston model, the two approaches.     

What Is the Cost of Financial Flexibility? Theory and Evidence for Make‐Whole Call Provisions

Firms commonly incorporate make-whole call provisions in their newly issued debt, presumably to improve their ability to retire debt early if circumstances require. In return for increased financial flexibility, firms must compensate bondholders with additional (incremental) yield. To estimate theoretical incremental yields, we use and calibrate a structural model for a large sample of callable and noncallable US corporate bonds issued between 1995 and 2004. In a frictionless model where calls occur only when they are in-the-money, theoretical incremental yields average approximately 2 basis points (bp). In an extended model that incorporates taxes, transactions costs, and randomly occurring exogenous events requiring early bond retirement, incremental yields average approximately 5 bp. Empirical analysis, however, indicates that observed incremental yields are significantly greater than model-generated values, averaging between 13 and 24 bp. In the later years of our sample period, however, observed incremental yields begin to converge to model-generated values.     

Investment frictions and leverage dynamics

The paper examines the effect of investment frictions on leverage dynamics, using a model of a firm whose investment projects are (1) indivisible and lumpy, and (2) subject to time-to-build. Regressions on the model-simulated data demonstrate that investment frictions can provide alternative interpretations of the observed leverages shown in the empirical literature. Cross-sectional analysis of firms in the oil and gas extraction industries, as well as analysis across all industries, reveals the evidence that small firms have more volatile investments and longer time-to-build, which may explain the observed differences in leverage dynamics across small and large firms.     

In pursuit of impeccable veracity

I study the institution of avoiding hiring one’s own Ph.D. graduates for assistant professorships. I argue that this institution is necessary to create better incentives for researchers to incorporate new information in studies, facilitating the convergence to asymptotic learning of the studied fundamentals.     

Innovation Processes in the Russian Manufacturing Subsidiaries of Multinational Corporations: An Integrated View from Case Studies

The extant literature acknowledges the role of overseas subsidiaries in the growth and development of multinational companies (MNCs). Such subsidiaries are viewed as critical players in the innovation process at MNCs. This topic remains largely under-researched in the Russian context. This study aims to fill this gap by examining the dynamics of the innovation process in Russian-based subsidiaries of global MNCs. We present qualitative findings that indicate Russian subsidiaries are not only recipients of knowledge and technology developed elsewhere in the MNCs but are active developers of innovative products and solutions.     

The impact of financial and human resources on the export performance of Russian firms

This study contributes to the literature by investigating for the first time the effects of the entrepreneurial environment on export survival in Russia. Using the continuous-time Cox model and discrete-time complementary log-log and probit models, we study the effects of the availability of human and financial resources on export survival across Russian regions between 2002 and 2010. Taking into account uncertainty and time effects reveals that these effects are falling over time and are more important for larger exporters. Thus, there is evidence of a learning curve for exporters when the latter become more efficient in dealing with regional-level resources and the regulatory environment over time.     

Industrial clusters,flagship enterprises and regional innovation

ABSTRACT

For a sample of all 88 counties in the State of Ohio over a 5-year period, this study documents the effect of flagship enterprises and concentrated industrial clusters on regional innovation. Consistent with the agglomeration arguments and the knowledge spillover theory of entrepreneurship, both appear to affect regional innovation positively. Additionally, regional educational attainment positively moderates the effect of industrial clusters on innovation. At the same time, flagship enterprises primarily affect regional innovation in regions with low education levels. Results are obtained with the help of conservative econometric techniques and are robust to the choice of alternative dependent variables and estimators. The findings have major policy implications and provide insights into alternative routes to encouraging regional innovation.     

Quality Meets Structure: Generalized Reciprocity and Firm‐Level Advantage in Strategic Networks

In this paper we extend previous research by combining network structural and network process approaches. Specifically, in a six‐year, three‐wave study of 41 firms in two strategic networks, we found that the interaction between generalized reciprocity among a focal firm's partners and network tie intensity and betweenness centrality improved firm performance. No influences were observed for the interaction involving degree centrality and generalized reciprocity. Our research suggests that managers in strategic networks may need to consider the balance between relationship‐extensive and relationship‐intensive strategies.     

Entrepreneurship, innovation, and corruption

Efforts to control corruption increase levels of trust in the ability of the state and market institutions to reliably and impartially enforce law and the rules of trade. Such trust facilitates the development of arms-length trade and the coordination of complex economic activities. We posit that better control of corruption will also be associated with rising levels of innovation and entrepreneurship. Absent such trust, however, monitoring and other transactions cost should restrict the scale and scope of trade and thus, hamper productivity and investment in innovation and entrepreneurship. Longitudinal data from 64 nations lends support to our propositions, thus helping unpack the puzzling relationship between entrepreneurship, innovation, and corruption.