A return-based approach to identify home bias of European equity funds

This paper introduces a return-based approach to studying a possible home bias of European equity funds by estimating their exposures to their domestic markets. We first confirm the robustness of our approach using simulated portfolios with different proportions of domestic and foreign stocks. The empirical analysis examines equity funds domiciled in 15 European countries that invest in European stocks. We examine individual funds as well as portfolios comprising funds that are all domiciled in a particular country. Our findings reveal that the portfolios of four domiciles show a significant home bias. Moreover, we observe that in seven domiciles more than a quarter of the individual funds are home-biased. These results are robust when controlling for fund-specific benchmarks or for the average country exposures of all funds in our final sample. Finally, a home bias of individual funds is not related to superior performance, but actually results in higher investment risk consistent with underdiversification.     

DEEP sleep: The impact of sleep on financial risk taking

In this paper, we examine the relationship between sleep and financial risk taking. The results indicate that individuals who have better sleep display less distortion of probability, are less susceptible to the present bias, and have a lower discounting rate. Specifically, individuals with better self‐reported sleep quality have less distortion of probability, a more curved utility function, and are less loss averse, while those with fewer sleep disturbances display less probability distortion and have more curvature in their utility function. Overall, the results show that there are cognitive deficits in financial decision making by having poor sleep habits that can have important consequences.     

The Impact of Better‐than‐Average Bias and Relative Performance Pay on Performance Outcome Satisfaction

Drawing on equity and expectancy theories, we hypothesize that the perception of accountants about their ability to contribute relative to a peer (operationalized as the better‐than‐average [BTA] bias) negatively influences their satisfaction with the outcomes of the performance evaluation process (operationalized as performance outcome satisfaction [POS]). We hypothesize further that this negative influence is mitigated by the amount of relative performance pay. We test these hypotheses using data collected from a survey of and an experiment involving 164 entry‐level accountants. We found that in general our participants rated themselves better than the average audit professional and their immediate work associate; that is, they displayed a BTA bias. Moreover, we found that both the BTA bias and performance pay individually influenced POS; we also found a moderately significant interaction effect. In their entirety, the results indicate that the greater an entry‐level accountant believes that she or he is better than average the more likely her or his performance outcome satisfaction will fall.     

The home bias is here to stay

Over the last 15 years, dramatically decreasing foreign investment costs have not reduced the home bias. We show that the home bias induced by a given cost is proportional to the factor ρ/(1 − ρ), where ρ is the average correlation between markets. This factor is very sensitive to the correlation, especially when the correlation is high. Empirically, correlations have been steadily increasing from 0.4 in the 90’s to about 0.9 today. Thus, the decreasing extra costs are increasingly magnified, explaining the persistence of the home bias, and predicting its continuation.     

Are consistent pegs really more prone to currency crises?

This paper evaluates the treatment effect of consistent pegs (i.e., a policy in which countries actually adopt announced pegged regimes) on the occurrence of currency crises to examine whether consistent pegs are indeed more prone to currency crises than other regimes. Using matching estimators as a control for the self-selection problem of regime adoption, we find that countries with consistent pegs have a significantly lower probability of currency crises than countries with other exchange rate policies. More interestingly, we find that countries with consistent pegs have a significantly lower probability of currency crises than those with a “fear of announcing a peg” policy (i.e., a policy in which countries actually adopt pegged regimes but do not claim to have pegged regimes). The results stand up to a wide variety of robustness checks.     

Mountain or molehill? Downward biases in the conglomerate discount measure

The Berger and Ofek (1995) excess value measure, comparing a conglomerate’s actual market value to an imputed value based on standalones, has become the standard method to determine value effects of diversification. In this paper, we address a significant bias in this procedure stemming from the difference in cash holdings between diversified and standalone firms. Excess values are based on firm values, including corporate cash positions. As standalones hold significantly more cash, the imputed cash value is higher than the conglomerate’s actual cash value, resulting in a downward biased excess value. We thus propose to calculate excess values based on enterprise values, replacing total debt by net debt. Based on an extensive US sample, we show that there is significantly less evidence of a diversification discount when adjusting for the cash bias. In terms of average dollar losses, the firm value-based models overestimate the conglomerate discount by at least 25%. Apart from removing the cash bias, we propose a second modification to the excess value measure, arguing that standalone industry multipliers should be calculated using geometric mean aggregation instead of median aggregation.     

Do lower yielding farmers benefit from Bt corn? Evidence from instrumental variable quantile regressions

There have been serious questions about whether lower-yielding farmers in developing countries, who are typically poor smallholders, benefit from genetically-modified crops like Bacillus thuringensis (Bt) corn. This article examines this issue by estimating the heterogeneous impacts of Bt corn adoption at different points of the yield distribution using farm-level survey data from the Philippines. A recently developed estimation technique called instrumental variable quantile regression (IVQR) is used to assess the heterogeneous yield effects of Bt corn adoption and at the same time address potential selection bias that usually plague impact assessment of agricultural technologies. We find that the positive yield impact of Bt corn in the Philippines tend to be more strongly felt by farmers at the lower end of the yield distribution. This result suggests that Bt corn could be a “pro-poor” technology since most of the lower-yielding farmers in the Philippines are poor smallholders with low incomes.     

Status reinforcing: Unintended rating bias on online shopping platforms

Online shopping platforms have gradually begun to use hierarchical loyalty programs to distinguish customers. Previous studies have focused mainly on the effect of such programs on loyalty and repurchase behavior, and little is known about how customer statuses in hierarchical loyalty programs affect their online product evaluations. Drawing on social status and social conformity theory, this study investigates the impact of customer status on the valence of online reviews. An instrumental variable is proposed to address the endogeneity issue. The results show that a customer's need for status leads to a negative rating bias when leaving online reviews. At the same time, people encounter social pressure from crowds. The need for social conformity can alleviate such rating bias. This study contributes to the understanding of the effect of social status on post-purchase behavior and provides practical implications for both managers and platforms.     

Place attachment,audit pricing and audit quality

Place attachment is an affective bond whereby people interact with and describe themselves as belonging to specific places. This study investigates the presence of place attachment in the auditing process. Using a large sample of listed clients in China, the findings reveal that auditors are likely to charge higher fees if their colleges are located in the same cities or provinces as their clients, supporting the familiarity bias hypothesis. This effect is more concentrated among smaller auditors, non-state-owned clients, and clients who switch auditors between years. In addition, a negative relationship is found between audit quality and geographical connections between auditors and clients. Overall, the results indicate the existence of place attachment in the auditing process.