Spurious Regressions in Financial Economics?

Even though stock returns are not highly autocorrelated, there is a spurious regression bias in predictive regressions for stock returns related to the classic studies of Yule (1926) and Granger and Newbold (1974) . Data mining for predictor variables interacts with spurious regression bias. The two effects reinforce each other, because more highly persistent series are more likely to be found significant in the search for predictor variables. Our simulations suggest that many of the regressions in the literature, based on individual predictor variables, may be spurious.     

Are there permanent valuation gains to overseas listing?

This paper tests whether foreign equity listings are associatedwith permanent valuation gains and examines how market and firmcharacteristics influence any valuation effects. Using a globalsample of 1,676 listings placed in 25 countries, we find thatmuch of the valuation gains to overseas listings are not permanent.The transitory nature of valuation gains holds for both averageUS listings and average first-time firm listings. We find littleevidence of a permanent effect on returns for firms that listabroad, even for firms’ listings in markets that are moreliquid, provide better legal protection, or have a larger shareholderbase.     

Incomplete Consumption Risk Sharing and Currency Risk Premiums

This article studies the impact of imperfect consumption risksharing across countries on the formation of time-varying riskpremiums in the foreign exchange market and on their cross-sectionaldifferences. These issues are addressed within the frameworkof the Constantinides and Duffie (1996) model applied to a multicountryworld. The article shows that the cross-country variance ofconsumption growth rates is counter-cyclical and that this featureof consumption data is mildly helpful for currency pricing.In particular, unlike the standard CCAPM, the new model is ableto generate currency risk premiums at lower values of risk aversionand provide certain explanatory power for cross-sectional differencesin currency returns.     

The Overseas Listing Decision: New Evidence of Proximity Preference

Using a cross section of effectively the entire universe ofoverseas listings across world markets, we examine the marketpreferences of firms listing their stock abroad. We find thatgeographic, economic, cultural, and industrial proximity playthe dominant role in the choice of overseas listing venue. Contraryto the notion that firms maximize international portfolio diversificationgains in listing abroad, cross-listing activity is more commonacross markets for which diversification gains are relativelylow. Our findings imply that the same proximity constraintsthat are believed to lead to "home bias" in investment portfoliodecisions also exert a profound influence on financing decisions.     

The nature of the foreign listing premium: A cross-country examination

An expanding literature asserts that non-US firms achieve a unique valuation premium for listing on US equity markets. In this paper we test the uniqueness of the US foreign listing premium by examining the premium achieved by foreign listings across a global set of stock exchanges. We highlight that the documented valuation premium for listing on US exchanges is not unique but common to many home and host markets including US firms that list abroad. The cross-sectional variation in the valuation premium appears to have little association with such cross-country institutional features as investor protection rules, law enforcement practice, or accounting disclosure standards. Rather the premium appears most related to variation in pre-listing valuation ratios.     

City size and fund performance

The literature predicts that the average skill level and productivity are higher in larger cities. Prior studies use workers’ wage or education differentials to indirectly link city size and output. This article relates city size and productivity directly, using performance data of U.S. equity mutual funds. On average, funds in financial centers perform better than other funds in terms of both gross and risk-adjusted returns, but this difference is driven only by more experienced managers. Among funds in financial centers there is strong evidence of a positive relation between performance and manager experience in a given city, especially among New York funds. More importantly, we observe performance improvements of the same manager at the same fund in financial centers but not elsewhere. Our tests provide novel evidence of knowledge spillovers and learning in cities.