Search

Mutual funds investing in illiquid corporate bonds actively manage Treasury positions to buffer redemption shocks. This liquidity management practice can transmit non-fundamental fund flow shocks onto Treasuries, generating excess return volatility. Consistent with this hypothesis, we find that Treasury excess return volatility is positively associated with bond fund ownership, and this pattern is more pronounced among funds conducting intensive liquidity management. Causal evidence is provided by exploiting the U.S. Securities and Exchange Commission's 2017 Liquidity Risk Management Rule. Evidence also suggests that the COVID-19 Treasury market turmoil was attributed to intensified liquidity management, an unintended consequence of the 2017 Liquidity Risk Management Rule. [ABSTRACT FROM AUTHOR]

I exploit a Dutch reform in the regulatory discount curve that makes the liabilities of pension funds and insurance companies (P&Is) more sensitive to changes in 20-year interest rates but less so to longer maturity rates. Following the reform, P&Is reduced their longest maturity bond holdings but increased those with 20-year maturities, steepening the long end of the yield curve. Using the reform as a shock to identify price elasticities of demand at the sector level based on holdings across maturity buckets and time, I show that banks are more price elastic than other investors and absorb demand shocks. [ABSTRACT FROM AUTHOR]

Abstract: We develop a theory of elite embeddedness in which social organizations parallel to the economy can provide advantages via private information and reciprocity from other elites. The growing representation of private equity and hedge fund managers on university boards of trustees is analyzed to show how this increasingly wealthy sub-group of financiers gained elite social ties despite the decline of bank-based interlocks between corporate boards. We find evidence that financiers secured trustee positions both because of their high rates of elite degree holding and their attraction to trustee appointments at the most selective schools. We also find that private equity firms attained higher investment returns when their general partners held more trustee positions. The results suggest that benefits accrue to elite intermediaries from social closure in parallel social organizations such as universities.

Little is known about the motivations and outcomes of sellers in remunerated markets for human materials. We exploit dramatic growth in the U.S. blood plasma industry to shed light on the sellers of plasma. Sellers tend to be young and liquidity-constrained with low incomes and limited access to traditional credit. Plasma centers absorb demand for nontraditional credit. After a plasma center opens nearby, demand for payday loans falls by over 13% among young borrowers. Meanwhile, foot traffic increases by over 4% at nearby stores, suggesting that constrained households use plasma markets to smooth consumption without appealing to high-cost debt. [ABSTRACT FROM AUTHOR]

We argue that institutional brokerage networks facilitate liquidity provision and mitigate the price impact of large non-information-motivated trades. Using commissions, we map trading networks of mutual funds (institutions) and their brokers. Central funds (institutions) tend to outperform their peripheral counterparts in terms of return gap (execution shortfall). This outperformance is more pronounced when funds experience large outflows and for large trades in less liquid stocks. Central brokers can deliver superior trade execution compared to peripheral brokers, but mainly for central institutions. We use the collapse of Lehman Brothers as a quasi-natural experiment to establish the likely causality of our findings. [ABSTRACT FROM AUTHOR]

We conjecture that mutual funds with large shares of outstanding bond issues are more inclined to internalize the negative price spillovers of fire sales and thus sell their holdings in those issues, to a lower extent, when they experience redemptions. We provide evidence consistent with this conjecture and further show that ownership concentration limits bonds' exposures to flow-induced fire sales. We exploit variation in negative spillovers arising from the Fed's SMCCF to confirm the economic mechanism and explore our findings' implications for fund performance and fire-sale spillovers to other funds. [ABSTRACT FROM AUTHOR]

Collecting large asset managers' capital market assumptions, we revisit the relationships between subjective equity premium expectations, equity valuations, and financial portfolios. In contrast to the well-documented extrapolative expectations of retail investors, asset managers' equity premium expectations are countercyclical: they are high (low) when valuations are low (high). We find that asset managers' portfolios reflect their heterogeneous expectations: allocation funds of asset managers with larger U.S. equity premium expectations invest significantly more in U.S. equities. The sensitivity of portfolios to expectations seems to be muted by investment mandates and is smaller than the one predicted by a standard portfolio choice model. [ABSTRACT FROM AUTHOR]

Following the Global Settlement, analysts extensively use a top pick designation allowing for greater granularity of information among buy recommended stocks, but conflicts of interest can potentially influence this designation. Examining a novel sample of top picks, we find that a calendar-time portfolio of top picks generates an abnormal performance of 17.6% per year. Top picks have greater investment value than do buy recommendations and alternative analyst investment strategies. Both institutional and retail investors trade in response to top picks. However, only institutional investors appear to identify top picks that have greater investment value when they are announced. [ABSTRACT FROM AUTHOR]

We examine the value of due diligence recommendations on Reddit's Wallstreetbets (WSB) platform. Before the Gamestop (GME) short squeeze, recommendations are significant predictors of returns and cash-flow news. This predictability is eliminated post-GME. Post-GME, the fraction of reports emphasizing price-pressure or attention-grabbing stocks dramatically increases, and the decline in informativeness is concentrated in these reports. Similarly, retail trade informativeness is particularly strong following DD reports in the pre-GME period, but not post-GME. Our findings are consistent with the view that the Gamestop event altered the culture of WSB , leading to a deterioration in investment quality that adversely affected smaller investors. [ABSTRACT FROM AUTHOR]

The number of short campaigns by hedge funds has dramatically increased over the last two decades. Nearly 80% of campaigns are undertaken by activist hedge funds, particularly those that employ hostile tactics in their long campaigns. Short campaigns are associated with negative abnormal returns of –7%, with aggregate valuation effects similar in magnitude to the gains from long activism campaigns. In contrast to long campaigns, public communication is a critical component of short campaigns. We do not find evidence that such communication is manipulative. Overall, our analysis highlights the importance of short campaigns for understanding the economic impact of activist hedge funds. [ABSTRACT FROM AUTHOR]

Using the exclusion of business development companies (BDCs) from stock indexes, this paper studies the effectiveness of market discipline in the direct lending space. Amid share sell-offs by institutional investors, a drop in BDCs' valuations limits their ability to raise new equity capital. Following this funding shock, BDCs do not adjust their capital structure. At the same time, they are reducing the risk exposure of their portfolios. We document a greater reduction in risk for BDCs subject to stronger market discipline from their debtholders. BDCs pass through the capital shock to their portfolio firms by reducing their investment intensity. [ABSTRACT FROM AUTHOR]

Amid an aging population and a growing role for private equity (PE) in the care of older adults, this paper studies how PE ownership affects U.S. nursing homes using patient-level Medicare data. We show that PE ownership leads to a patient cohort with lower health risk. However, after instrumenting for the patient-nursing home match, we find that PE ownership increases mortality by 11%. Declines in measures of patient well-being, nurse staffing, and compliance with care standards help to explain the mortality effect. Overall, we conclude that PE has nuanced effects with adverse outcomes for a subset of patients. [ABSTRACT FROM AUTHOR]

Hedge fund teams with heterogeneous educational backgrounds, academic specializations, work experiences, genders, and races, outperform homogeneous teams after adjusting for risk and fund characteristics. An event study of manager team transitions, instrumental variable regressions, and an analysis of managers who simultaneously operate solo- and team-managed funds address endogeneity concerns. Diverse teams deliver superior returns by arbitraging more stock anomalies, avoiding behavioral biases, and minimizing downside risks. Moreover, diversity allows hedge funds to circumvent capacity constraints and generate persistent performance. Our results suggest that diversity adds value in asset management. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online [ABSTRACT FROM AUTHOR]

Big data technologies change the way in which data and labor combine to create knowledge. Is this a modest innovation or a data revolution? Using hiring and wage data, we estimate firms' data stocks and their knowledge production functions. Quantifying changes in production functions informs us about the likely long-run changes in output, in factor shares, and in the distribution of income, due to big data technologies. For the investment management industry, our structural estimates predict a 5% decline in the labor share of income; that change is comparable to similar estimates for the industrial revolution. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online [ABSTRACT FROM AUTHOR]

Purpose: Bank–fintech associations are significant globally, establishing purposeful eco-systems towards extending and complementing capabilities, reach and customer experiences. This paper aims to explore 39 leading fintechs in India catering across payments, lending, wealth management, regulation, neo-banks and other banking functions. Alongside fintechs, the research studies 19 leading banks (public and private) to understand the nature of bank–fintech associations in the Indian context. Design/methodology/approach: The research focuses on narratives from leading banks and top fintechs in India, captured from public disclosures and leadership interviews. The study leverages qualitative research techniques, including grounded theory approaches of inductive analysis, to codify interview and narrative observations to discover relevant objectives, scenarios, challenges and outcomes in India-centric bank–fintech associations. Findings: Bank–fintech associations in India are increasingly focusing on financial services portfolio diversification and improvement in customer experience. Simultaneously, both banks and fintechs, differentiate with innovations and extend offerings to target underserved customer segments. The associations are beneficial for both banks and fintechs in transforming offerings and improving efficiency, scale across channels. Through codification of observations, review of existing literature and evaluation of best practices, alongside subject matter expertise, the study evolves a generalized "Association Model". The model can steer meaningful bank–fintech associations in India and globally. The association model relates to observables like objectives, enablers of bank–fintech associations, challenges and association-driven value outcomes. Built from study of practices, the proposed model is relevant for strategic orientation in bank–fintech associations. Originality/value: The findings reveal practices in bank–fintech associations in India with significant learning opportunity for organizational leaders globally. Understanding the nature of association is relevant for strategic interventions, particularly in scenarios of inter-organization collaborations. Central banks, policymakers, governments, investors, banks and fintechs can use the derived association model to establish, govern and steer purposeful value-driven associations. [ABSTRACT FROM AUTHOR]

This paper analyses the impact of enrollment in the recently launched contributory pension scheme, Atal Pension Yojana (APY), on formal retirement savings using a unit-level sample of households from an extensive, nationally representative survey for India. We address the endogeneity in the enrollment in APY using a novel semiparametric copula regression methodology. This methodology allows us to address and control for endogeneity due to observed and unobserved confounding, nonlinear covariate effects, and non-Gaussian distributions. Our results indicate that APY positively impacts formal retirement savings. APY crowd-in other forms of formal retirement savings. Our results suggest that marginalized populations, especially the Scheduled Tribe, are more likely to enroll in APY, and digital financial technologies can bring greater financial inclusion in India. The findings have significant policy implications on how households allocate their retirement savings and help us understand the role of APY in bringing additional savings. [ABSTRACT FROM AUTHOR]

The last few decades have seen the ascendency of the so-called Non-Bank Financial Intermediaries (NBFIs). This paper maintains that the Monetary Circuit Theory offers a useful lens for interpreting this new banking system, namely the concepts of flux or creation of money, and of reflux or destruction of money. A more comprehensive interpretation of these concepts, extending beyond the original Monetary Circuit formulation of initial finance and final finance, facilitates a more nuanced analysis of the nature and functional roles of NBFIs in the workings of modern economies. The paper also adopts a functional classification of NBFIs proposed by the Financial Stability Board, which shows a noteworthy resemblance and consistency with the Monetary Circuit Theory. The main conclusion of the paper is that NBFIs do not create money, as commercial banks do, though as creditworthy borrowers, they have helped commercial banks to establish, directly or indirectly, new channels of creation of money. NBFIs have also amplified the ways existing money circulates into the system, before being used by borrowers to repay their original banks debts. [ABSTRACT FROM AUTHOR]

Using survey data on secured funding arrangements provided by broker–dealers for their clients—a class of contracts that includes bilateral repo—we document that financing rates, collateral haircuts, lending maturities, and position limits move strongly together over time and across asset classes. Liquidity of the underlying securities, as opposed to their volatility or credit risk, is the main driver of this behavior, with dealer balance-sheet constraints also playing a role in the funding of less-liquid security types. A simple model of dealer–client interaction rationalizes these findings. Instrumenting with changes in market conventions, we find that funding conditions had little effect on cash securities markets between 2011 and 2019, but the tightening of terms during the market stress of early 2020 likely impaired liquidity and reduced asset returns to some degree. [ABSTRACT FROM AUTHOR]

We identify a novel economic mechanism through which passive ownership positively affects informational efficiency in the cross-section of firms. Passive investors' inelastic demand lowers a firm's cost-of-capital, inducing it to take more risk. The higher cash flow variance, in turn, incentivizes active investors to acquire more precise private information, pushing up price informativeness for firms with high passive ownership. High passive ownership also implies higher stock prices and higher stock-return variances. An increase in the aggregate size of passive investors amplifies these cross-sectional differences. We also document complementarities in firms' real investment and investors' information choices that can cause information crashes. Received May 31, 2020; editorial decision January 4, 2023 by Editor Holger Mueller. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online [ABSTRACT FROM AUTHOR]

Mutual funds often invest in other funds. In this paper, we analyze the economics behind such cross-fund investments and investigate their financial stability implications. Using granular data for the German fund sector, our main findings are that cross-fund investments (a) are becoming increasingly important over time, (b) were heavily liquidated during March 2020, and (c) display measurable contagion effects. Overall, cross-fund investments can elevate structural fund sector vulnerabilities. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

We find that firms reduce toxic emissions at their local plants following EPA enforcement actions against nearby plants operated by peer firms that compete in the same product market. These reductions are more pronounced for plants located near socially responsible mutual funds (SRMFs) that hold these plants' parent firms' shares. Close proximity to SRMFs is associated with real investment in abatement measures to mitigate emissions. While plants increase emissions again in the long run, such reversals do not occur in plants located near SRMFs. Taken together, our results suggest that local SRMFs complement EPA enforcement in influencing plants' emissions. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

We study how the growth of exchange-traded funds (ETFs) affects the sensitivity of international capital flows to the global financial cycle. Using comprehensive fund-level data on investor flows, we show that their sensitivity to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. This higher sensitivity can be directly linked to ETFs underlying shorter-trading-horizon clientele that trades more often in response to shocks. Using country-level data, we find that where ETFs hold a larger share of financial assets, equity inflows and prices become more sensitive to global risk. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

We propose and test a framework of private information acquisition and decision timing for asset allocators hiring outside investment managers. Using unique data on due diligence interactions between an institutional allocator and 860 hedge fund managers, we find that the production of private information complements public information. The allocator strategically chooses how much proprietary information to collect, reducing due diligence time by 18 months and improving outcomes. Funds selected by the manager outperform those not selected by 9 |$\%$| over 20 months. The outperformance relates to the allocator learning about fund return-to-scale constraints and manager skill before other investors. [ABSTRACT FROM AUTHOR]

Female poverty and financial exclusion of women often reflect patriarchy, a societal logic that consists of norms, beliefs, and traditions that rationalise the marginalisation of women. Microfinance institutions (MFIs) have a developmental objective of promoting women’s empowerment through the provision of banking services. Yet, it remains the case that patriarchy not only influences the extent of outreach to women but also the relationship and contractual terms between MFIs and the female clients they serve. In this study, we revisit the debate on the relationship between lending to women and credit risk and test the moderating effects of the level of patriarchy in the host country and the existence of female leadership in the MFI. Using data on 415 MFIs, we find that patriarchy negatively moderates the impact of lending to women on credit risk. The results further show that the observed effect is less pronounced in female-led MFIs than in male-led ones. We argue that, in comparison to their male counterparts, female leaders of MFIs possess heightened skills and a deeper understanding necessary to effectively serve women in patriarchal societies. [ABSTRACT FROM AUTHOR]

The current research investigates the impact of financial development, digitalization, green trade, manufacturing, and national income on carbon dioxide (CO2) emissions of six Mediterranean countries (MEDIT-6). The study uses a nonlinear panel quantile regression model with panel data of MEDIT-6 countries from 1994 to 2022. The study asserts that higher financial development will reduce CO2 emissions for MEDIT-6 countries, as it provides more financing options to invest in green energy and potentially curb excessive energy consumption which in turn reduces CO2 emissions. The study also provides evidence that digitalization in MEDIT-6 countries has led to dematerialization, thereby reducing CO2 emissions. Digitalization makes trade and commerce platforms more efficient by facilitating the smooth flow of information and enhancing the efficiency of production processes. The positive relationship between manufacturing and national income and CO2 emissions exhibits a U-shaped pattern, which supports the existence of Environmental Kuznets Curve (EKC) hypothesis. The study shows how the MEDIT-6 countries have been successful in promoting financial development and digitalization, which helps reduce their CO2 emissions. However, it also raises concerns for policymakers as promoting developmental activities such as manufacturing is inevitable, but it comes with environmental challenges such as higher CO2 emissions. The current study contributes to the reservoir of existing literature by providing fresh evidence from the Mediterranean region on the impact of financial development and digitalization on CO2 emissions. Highlights: • Policymakers have difficulties since encouraging developmental activities is unavoidable, but it leads to increased CO2 emissions. • Study examines the asymmetric impact of digitization and financial development on CO2 emissions of MEDIT-6 countries. • The MEDIT-6 countries have been effective in advancing digitization and financial development, which lowers their carbon footprints. [ABSTRACT FROM AUTHOR]

Purpose: Fish farmers in Africa often operate on small-scale culture units, primarily due to poor access to funding and low technology adoption. Digital innovation platforms seek to enhance farmers' access to finance, production and farmers' income. However, there is a lack of empirical evidence to support these claims. Therefore, this study investigated the factors influencing fish farmers' access to microcredit from digital innovation platforms and the impact of this microcredit on fish farms' yield and income in Nigeria. Design/methodology/approach: A mixed-methods approach was adopted, and data were gathered from 387 fish farmers through a well-structured questionnaire and focus group discussion. The data were analyzed using probit regression and instrumental variable two-stage least squares regression. Findings: The results revealed that ownership of smartphones, awareness of digital agricultural innovation platforms, farmers' education, income, fish farming as a primary occupation, cooperative society and extension contacts positively influenced farmers' access to microcredit from digital innovation platforms. The age of farmers and household size negatively influenced their access to digital microcredit. Digital microcredit positively and significantly impacted fish farms' yield and farmers' income. Practical implications: Digital microcredit significantly increased fish farm yield and income. Therefore, digital innovation platforms should be encouraged and promoted through the creation of awareness about their ability to solve inadequate financing in agriculture by agricultural extension agents. Originality/value: This study contributes to our understanding of the influencing factors for farmers accessing digital microcredit and how digital microcredit enhances farm yield and income. [ABSTRACT FROM AUTHOR]

The corporate bond market is larger, more illiquid, and presumably less efficient than the equity market. These features provide numerous profit opportunities for corporate bond mutual funds that are unique to the corporate bond market. However, whether corporate bond mutual funds have the valuation skills needed to take advantage of these opportunities is unclear. We introduce a novel measure to assess the valuation skills of investment-grade corporate bond mutual funds, which we refer to as the valuation accuracy score (VAS). VAS recognizes funds holding more underpriced and less overpriced corporate bonds as ex-ante having better valuation skills. It predicts future fund performance, is stable over time, and is unrelated to other sources of skill. Investors chase the performance of higher-VAS funds more aggressively and exhibit a convex flow–performance relation among these funds. [ABSTRACT FROM AUTHOR]