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Journal of Banking & Finance
Number of Followers: 203  
 
  Hybrid Journal Hybrid journal (It can contain Open Access articles)
ISSN (Print) 0378-4266
Published by Elsevier Homepage  [3181 journals]
  • Measuring banks’ liquidity risk: An option-pricing approach
    • Abstract: Publication date: Available online 20 November 2019Source: Journal of Banking & FinanceAuthor(s): Jinqing Zhang, Liang He, Yunbi AnAbstractThis paper proposes a new approach to evaluating banks’ liquidity needs, which is not only well-grounded theoretically, but is also easy to apply practically. Within the framework of a global game with imperfect information, we first establish a boundary condition for bank runs and show that there exists a unique Nash equilibrium for bank runs. Using the option-pricing approach, we then obtain a closed-form formula for the value of bank equity with both run risk and insolvency risk. Finally, a bank's optimal liquidity ratio is derived by maximizing the value of bank equity. Using data on Chinese listed banks, we show that the deviation of the actual liquidity ratio from the optimal liquidity ratio in a bank represents a robust proxy for its liquidity risk. An increased liquidity shortfall leads to worsening liquidity problems, and this is particularly pronounced when the liquidity shortfall is high.
       
  • Liquidity Risk and Expected Option Returns
    • Abstract: Publication date: Available online 19 November 2019Source: Journal of Banking & FinanceAuthor(s): Siu Kai Choy, Jason WeiAbstractWe establish the existence of liquidity risk premium in option returns via sorting analyses and Fama-MacBeth regressions. In leverage-adjusted, hedged returns, the alpha due to liquidity risk ranges from 8.5 to 14.6 basis points per month. In hedged returns unadjusted for leverage, the alpha ranges from 165.9 to 185.1 basis points per month. Compared with the option bid-ask spread, the premium is small in magnitude. In contrast to the findings for stocks and bonds, the liquidity risk premium uncovered in option returns is negative. We explain the negative premium by noting that option end-users write options in net and they might care more about liquidity risk than market makers.
       
  • Economic Policy Uncertainty, Cost of Capital, and Corporate Innovation
    • Abstract: Publication date: Available online 18 November 2019Source: Journal of Banking & FinanceAuthor(s): Zhaoxia XuAbstractWe examine the impact of government economic policy uncertainty (GEPU) on corporate innovation and identify a cost-of-capital transmission channel. We find that GEPU increases firms’ cost of capital, which translates into lower innovation. As economic policy uncertainty rises, firms with more exposure to such uncertainty face a higher weighted average cost of capital and innovate less. Innovations of financially constrained firms and firms relying on external finance in a competitive environment are affected more. Our study provides novel evidence that higher economic policy uncertainty hinders innovation not only through the traditional investment irreversibility channel, but also through the cost-of-capital channel.
       
  • What drives the market for exchange-traded notes'
    • Abstract: Publication date: Available online 16 November 2019Source: Journal of Banking & FinanceAuthor(s): David Rakowski, Sara ShirleyAbstractExchange-traded notes (ETNs) are a relatively new form of security design that appear similar to exchange-traded funds (ETFs), but with no underlying portfolio holdings. We identify those characteristics of ETNs that are distinct from ETFs, and we test which ETN characteristics are most associated with interest from investors. We find that some ETNs have return patterns that are not spanned by ETFs, while other ETNs employ different strategies to attract investors. We show that the market activity for ETNs is associated with the distinctiveness of ETN returns, improvements in tracking errors, access to leverage, and the extent of risk transformation that ETNs allow.
       
  • Leverage, Bank Employee Compensation and Institutions
    • Abstract: Publication date: Available online 15 November 2019Source: Journal of Banking & FinanceAuthor(s): Ata Can Bertay, Burak R. UrasAbstractThis paper investigates the empirical relationship between financial structure and employee compensation in the banking industry. Using an international panel of banks, we show that well-capitalized banks pay higher wages to their employees. Our results are robust to changes in measurement, model specification and estimation methods. In order to account for the positive association between bank capital and employee compensation, we illustrate a stylized 3-period model and show that well-capitalized banks have incentives to pay higher wages to induce monitoring. Such monitoring rents of employees at capitalized banks are expected to be higher in societies with weak institutions. Further empirical analysis shows that the weaker is institutional quality of a country the stronger is the positive relationship between bank capital and wages - supporting our theoretical conjectures.
       
  • Business-Linkage Volatility Spillovers Between US Industries
    • Abstract: Publication date: Available online 15 November 2019Source: Journal of Banking & FinanceAuthor(s): Linh Xuan Diep Nguyen, Simona Mateut, Thanaset ChevapatrakulAbstractWe examine the volatility transmission across industries and its dependence on the inter-industry business linkages. Our analysis reveals significant cross-industry volatility spillovers, which are clearly associated with the strength of the trade relationship between industries. An industry that is more important to its trade partner – as measured by the shares of inputs or revenue – tends to have stronger volatility spillovers toward its partner and it is less affected by the volatility originating from its partner. Importantly, the strength of the business relationship appears highly relevant for shock spillovers in bad market conditions and is also confirmed at the portfolio level.
       
  • Customer-Supplier Relationships and the Cost of Debt
    • Abstract: Publication date: Available online 7 November 2019Source: Journal of Banking & FinanceAuthor(s): Kelly Cai, Hui ZhuAbstractWe study whether the presence of major customer-supplier relationships affects a supplier's cost of debt. Using 5,704 U.S. corporate bonds issued from 1983 to 2013, we find that the cost of debt tends to be reduced when there are major customer-supplier relationships. This finding is robust to alternative measures of major customer-supplier relationships, subsample analyses, a propensity score matched sample analysis, and an instrumental variables approach. The results are consistent with the certification hypothesis, where a major customer serves as a monitoring and certifying entity for its supplier, thereby reducing information asymmetry between the supplier and its creditors. Moreover, the supplier's cost of debt is further reduced if the issuing supplier has higher asset specificity, whereas suppliers in more competitive industries do not incur the benefits of the validation.
       
  • How a Pre-IPO Audit Committee Improves IPO Pricing Efficiency in an
           Economy with Little Value Uncertainty and Information Asymmetry
    • Abstract: Publication date: Available online 6 November 2019Source: Journal of Banking & FinanceAuthor(s): Lanfeng Kao, Anlin ChenAbstractWe examine the effect of a pre-IPO audit committee on IPO pricing from the perspectives of information asymmetry and agency problems. We propose a bargaining power hypothesis to disentangle the information asymmetry explanation (financial reporting quality) from the agency problems explanation (underwriter bargaining power) on IPO pricing. IPO underpricing can be reduced by increasing the financial reporting quality under information asymmetry and/or by decreasing the underwriter bargaining power under agency problems. An audit committee can raise the quality of financial reporting and reduce the bargaining power of underwriters. With a pre-IPO market, the IPO markets in Taiwan have little information asymmetry, thus leading to the weak importance of reducing information asymmetry. We show that the establishment of a pre-IPO audit committee improves IPO pricing efficiency by reducing underwriter bargaining power rather than by raising the quality of financial reporting in Taiwan.
       
  • Sparse Portfolio Selection via the sorted ℓ1 - Norm
    • Abstract: Publication date: Available online 6 November 2019Source: Journal of Banking & FinanceAuthor(s): Philipp J. Kremer, Sangkyun Lee, Małgorzata Bogdan, Sandra PaterliniAbstractWe introduce a financial portfolio optimization framework that allows to automatically select the relevant assets and estimate their weights by relying on a sorted ℓ1-Norm penalization, henceforth SLOPE. To solve the optimization problem, we develop a new efficient algorithm, based on the Alternating Direction Method of Multipliers. SLOPE is able to group constituents with similar correlation properties, and with the same underlying risk factor exposures. Depending on the choice of the penalty sequence, our approach can span the entire set of optimal portfolios on the risk-diversification frontier, from minimum variance to the equally weighted. Our empirical analysis shows that SLOPE yields optimal portfolios with good out-of-sample risk and return performance properties, by reducing the overall turnover, through more stable asset weight estimates. Moreover, using the automatic grouping property of SLOPE, new portfolio strategies, such as sparse equally weighted portfolios, can be developed to exploit the data-driven detected similarities across assets.
       
  • Gender Differences in the Repayment of Microcredit: The Mediating Role of
           Trustworthiness
    • Abstract: Publication date: Available online 1 November 2019Source: Journal of Banking & FinanceAuthor(s): Abu Zafar M. Shahriar, Luisa A. Unda, Quamrul AlamABSTRACTGrowing evidence suggests that women are more likely to repay collateral-free microloans than men. However, we know little about what explains such gender differences. We hypothesize that better repayment performance of women microcredit borrowers can largely be explained by gender differences in innate trustworthiness. We conduct a trust game and a microloan repayment game in rural Bangladesh. We find that women are more trustworthy than men and that they are more likely to repay their loans irrespective of any control mechanisms, such as joint liability or dynamic repayment incentives. The results of a mediation test suggest that the gender effect on loan repayment is significantly mediated by differences in innate trustworthiness. We conduct a sensitivity test to check the extent to which unobserved confounders might have influenced the mediation effect, and find no evidence of significant omitted variables bias.
       
  • Election uncertainty, economic policy uncertainty and financial market
           uncertainty: A prediction market analysis
    • Abstract: Publication date: Available online 22 October 2019Source: Journal of Banking & FinanceAuthor(s): John W. Goodell, Richard J. McGee, Frank McGroartyAbstractWe examine the relationship between election uncertainty, economic policy uncertainty, and financial market uncertainty in a prediction-market analysis, covering seven US presidential election campaigns. We argue theoretically that changes in the incumbent party re-election probability should be a key driver of changes in policy uncertainty. Consistent with this theory, we find that a large portion of changes in financial uncertainty in the final stages of election campaign seasons is explained by changes in the probability of the incumbent party getting re-elected. Our findings suggest that the incumbent-party election probability, derived from prediction markets, is an important measure of economic policy uncertainty in the days leading up to US elections.
       
  • Endogenous Asymmetric Money Illusion
    • Abstract: Publication date: Available online 22 October 2019Source: Journal of Banking & FinanceAuthor(s): Diogo Duarte, Yuri F. SaporitoAbstractWe show that when investors suffer from endogenous asymmetric money illusion, the usual proportionality between money supply and nominal prices commonly present in frictionless economies is eliminated. This drives changes in the money supply to cause real price fluctuations. Nevertheless, the combined effect on the real state price density and the price of money leads the nominal state price density, and consequently nominal bond prices, to be independent of money illusion. This article thus provides a theoretical foundation for Modigliani-Cohn’s conjecture that money illusion impacts stock markets but not bond markets.
       
  • Stock vs. Bond Yields and Demographic Fluctuations
    • Abstract: Publication date: Available online 17 October 2019Source: Journal of Banking & FinanceAuthor(s): Arie Gozluklu, Annaïg MorinAbstractThis paper analyzes the strong comovement between real stock and nominal bond yields at generational frequencies. Using a stochastic overlapping generations model with cash-in-advance constraints, we show that the simulated life-cycle patterns in savings behavior make both real stock and nominal bond yields comove with the changing population age structure. These persistent comovements account for the equilibrium relation between stock and bond markets. A stochastic Fisher decomposition of nominal bond yields reveals that, while having a moderate effect on both the inflation risk premium and expected inflation, demographic changes affect nominal yields mainly through real bond yields. Using both U.S. data and a cross-country panel, we find empirical support for these theoretical predictions. Finally, we show that the strength of the demographic effect on real yields explains cross-country differences in the comovement between stock and bond markets, while alternative demographic channels fail to explain such cross-country heterogeneity.
       
  • Skewness Preference and the Popularity of Technical Analysis
    • Abstract: Publication date: Available online 16 October 2019Source: Journal of Banking & FinanceAuthor(s): Sebastian Ebert, Christian HilpertAbstractWe propose a simple model of how investors evaluate a trading rule, and show that the market timing of technical trading rules induces lottery-like trading profits. Therefore, investors’ preference for positive skewness caters to the popularity of technical analysis. Since prospect theory implies strong skewness preference, it can explain why investors trade extensively on chart patterns that are meaningless in light of the efficient market hypothesis. Technicians often invoke behavioral finance as its theoretical foundation. Contrary to this view, we show that ideas from behavioral finance explain why technical analysis is popular despite the lack of theoretical foundation and empirical success.
       
  • Geographic diversification and credit risk in microfinance
    • Abstract: Publication date: Available online 14 October 2019Source: Journal of Banking & FinanceAuthor(s): Stephen Zamore, Leif Atle Beisland, Roy MerslandAbstractThis paper examines the relation between geographic diversification and credit risk in microfinance. The empirical findings from the banking industry are mixed and inconclusive. This study extends the discussion into a new international setting: the global microfinance industry with lenders having both social and financial objectives. Using a large global sample of microfinance institutions (MFIs), we find that geographic diversification comes with more credit risks. However, this finding is more pronounced among non-shareholder MFIs like NGOs and cooperatives, compared to shareholder-owned MFIs. Moreover, the results show that MFIs can mitigate the effect of geographic diversification on risk with group lending methodology.
       
  • News Media Coverage and Corporate Leverage Adjustments
    • Abstract: Publication date: Available online 12 October 2019Source: Journal of Banking & FinanceAuthor(s): Tung Lam Dang, Viet Anh Dang, Fariborz Moshirian, Lily Nguyen, Bohui ZhangAbstractWe examine the impact of the media on firms’ leverage adjustments. Using a comprehensive sample of global news across 33 countries, we find that greater news coverage and more positive news sentiment are associated with greater leverage adjustment speeds. This finding is consistent with the argument that media coverage and content help lower the cost of firms’ adjustment toward target leverage. We further find evidence supporting two mechanisms through which the news media affects leverage adjustments: information dissemination and monitoring. Overall, our results are consistent with the dynamic trade-off theory of capital structure.
       
  • Bank Management Expertise and Asset Securitization Policies
    • Abstract: Publication date: Available online 10 October 2019Source: Journal of Banking & FinanceAuthor(s): Tsung-Kang Chen, Hsien-Hsing Liao, Jing-Syuan YeAbstractWe explore how the expertise of a bank holding company's management team affects its asset securitization policies. We find management team members with an MBA degree and top management experience securitize more low risk loans while those with core functional executive experience securitize fewer high risk loans. In addition, internal liquidity, governance quality, and risk management quality moderate these effects. Moreover, risk management concerns are the main driver of the negative effect of the percentage of core functional executives on asset securitization. We also provide evidence that core functional executives deem securitized mortgage loans riskier after the subprime crisis.
       
  • Network Origins of Portfolio Risk
    • Abstract: Publication date: Available online 8 October 2019Source: Journal of Banking & FinanceAuthor(s): Abalfazl ZareeiAbstractThis paper shows that shocks, in the presence of asymmetric propagation structures, diminish investors’ diversification benefits. First, we construct an interdependency network with assets as nodes, and links corresponding to cross-dependency in returns. Second, we show that higher heterogeneity in the structure of the network increases portfolio risk. In particular, diversification among assets with star-like network structures, where a central asset cross-affects other assets in the portfolio, results in the lowest level of diversification benefits. Finally, we empirically demonstrate that two distinct datasets of U.S. industries and international stock markets greatly resemble star-like network structures.
       
  • Loan supply, credit markets and the euro area financial crisis
    • Abstract: Publication date: Available online 4 October 2019Source: Journal of Banking & FinanceAuthor(s): Carlo Altavilla, Matthieu Darracq Paries, Giulio NicolettiAbstractWe derive a measure of loan supply shocks from proprietary bank-level information on credit standards from the euro area Bank Lending Survey (BLS) controlling for both macroeconomic and bank-specific demand factors. Using this indicator as an external instrument in a Bayesian vector autoregressive (BVAR) model, we find that a tightening of credit standards – i.e. banks’ internal guidelines or loan approval criteria – leads to a protracted contraction in credit volumes intermediated by banks and higher lending margins. This fosters firms’ incentives to substitute bank loans with market finance, ultimately producing a significant increase in debt securities issuance and higher corporate bond spreads. We also show that widely-used measures of financial uncertainty do not influence or drive our results.
       
  • The effect of experts’ and laypeople’s forecasts on
           others’ stock market forecasts
    • Abstract: Publication date: Available online 30 September 2019Source: Journal of Banking & FinanceAuthor(s): Christoph Huber, Jürgen Huber, Laura HueberAbstractWith a large-scale online experiment with 1593 participants from the U.S. and the U.K. we explore whether and how people working in the finance industry and laypeople from the general population are influenced by information on other people’s forecasts when making forecasts on the future development of two indices and two stocks. We find that (i) laypeople’s forecasts are strongly influenced by information they get on other subjects’ forecasts, while financial professionals are much less influenced by information signals; (ii) signals by financial professionals influence all subject groups more than forecasts by laypeople; (iii) we observe a home bias in all subject groups, which can be mitigated by information signals; (iv) all subject groups expect lower forecast errors for financial professionals than for laypeople, hence we find evidence for trust in experts.
       
  • Banking Regulation and Market Making
    • Abstract: Publication date: Available online 26 September 2019Source: Journal of Banking & FinanceAuthor(s): David Cimon, Corey GarriottAbstractWe model how securities dealers respond to regulations on leverage, position, and liquidity such as those imposed by the Basel III framework. The dealers respond by endogenously moving to make markets on an agency basis, matching buyers to sellers rather than taking client positions on the balance sheet. Agency-based market making creates a cost-risk tradeoff in which investor welfare declines but dealers become less risky. The costs to investors do not show up in all liquidity metrics: While asset prices exhibit greater price impact, bid-ask spreads do not change and trading volumes can even increase, which can help explain the varying findings from the empirical literature.
       
  • CSR-Contingent Executive Compensation Contracts
    • Abstract: Publication date: Available online 23 September 2019Source: Journal of Banking & FinanceAuthor(s): Atif Ikram, Zhichuan Li, Dylan MinorAbstractFirms have increasingly started tying their executives’ compensation to CSR-related objectives. In this paper, we attempt to understand why firms offer CSR-contingent compensation and the conditions under which such compensation improves corporate social performance. Using hand-collected data from proxy statements, we find that this emerging compensation practice varies significantly across industries and across different CSR categories. Further, well-governed firms are more likely to offer CSR-contingent compensation, and such compensation does lead to higher corporate social standing. Such firms are more likely to offer formula-based, Objective CSR-contingent compensation. However, our results suggest that non-formulaic, Subjective CSR-contingent compensation also helps improve companies’ social performance when firm outcomes are more volatile and unpredictable, and therefore executives’ effort and performance are harder to evaluate, and when firms have better corporate governance.
       
  • Shareholder Investment Horizons and Bank Debt Financing
    • Abstract: Publication date: Available online 23 September 2019Source: Journal of Banking & FinanceAuthor(s): Brandon Cline, Xudong Fu, Tian TangAbstractThis paper investigates the impact of institutional shareholder investment horizons on a firm's use of bank debt. We find that short-term institutional ownership of the borrowing firm has a negative effect on bank debt financing. This finding provides evidence consistent with the monitoring avoidance incentives of short-term shareholders. In contrast, long-term institutional ownership has a positive impact on the firm's reliance on bank debt financing. These effects are attenuated by higher managerial ownership and more motivated investors and are exacerbated by higher information opacity. Our results are robust to potential endogeneity concerns, firm size effects, and alternative investment horizon measures. Investigating the effects of investment horizons on debt security, debt maturity, and debt covenants corroborate our main findings.
       
  • Gender Gap in Peer-to-Peer Lending: Evidence from China
    • Abstract: Publication date: Available online 10 September 2019Source: Journal of Banking & FinanceAuthor(s): Xiao Chen, Bihong Huang, Dezhu YeAbstractThis paper documents and analyzes the gender gap in the online credit market. Using data from Renrendai, a leading peer-to-peer lending platform in China, we show that lending to female borrowers is associated with better loan performance, including a lower probability of default, a higher expected profit, and a lower expected loss than for their male peers. However, despite the higher creditworthiness, we don't find any measurable gender impact on funding success rate, meaning that female borrowers have to compensate lenders by providing higher profitability to achieve a similar funding probability. These evidences indicate the existence of a gender gap that discriminate against female borrowers. Further analysis implies that this gender gap is independent of the amount of information disclosed by borrowers.
       
  • Together or apart' The relationship between currency and banking
           crises
    • Abstract: Publication date: Available online 5 September 2019Source: Journal of Banking & FinanceAuthor(s): Sylvester C.W. Eijffinger, Bilge KarataşAbstractThe purpose of this study is to provide empirical evidence on the links between currency and banking crises. Panel data probit and bivariate probit models are estimated to a sample of 21 developed and developing countries having monthly observations between the years 1985 and 2010. The findings indicate that banking crises precede currency crises, and vice versa. Currency crises also indirectly influence future banking crises probability through external shocks, liberalized financial markets, or highly-leveraged banking sectors. The study also finds evidence of contemporaneous correlation between the two crises. The results not only confirm the theoretical links between banking and currency crises, but also underline the importance of higher frequency data in analyzing the relationship between various financial crises.
       
  • Portfolio Selection with Mental Accounts: An Equilibrium Model with
           Endogenous Risk Aversion
    • Abstract: Publication date: Available online 29 July 2019Source: Journal of Banking & FinanceAuthor(s): Gordon J. Alexander, Alexandre M. Baptista, Shu YanAbstractIn Das et al. (2010), an agent divides his or her wealth among mental accounts that have different goals and optimal portfolios. While the moments of the distribution of asset returns are exogenous in their normative model, they are endogenous in our corresponding positive model. We obtain the following results. First, there are multiple equilibria that we parameterize by the implied risk aversion coefficient of the agent’s aggregate portfolio. Second, equilibrium asset prices and the composition of optimal portfolios within accounts depend on this coefficient. Third, altering the goal of any given account affects the composition of each portfolio.
       
  • The Risk-Shifting Value of Payout: Evidence from Bank Enforcement Actions
    • Abstract: Publication date: Available online 19 July 2019Source: Journal of Banking & FinanceAuthor(s): Leonid PugachevAbstractThis paper reexamines whether investors value payout and why. I study abnormal stock returns around regulatory enforcement actions that restrict bank dividends and repurchases. Market reactions are significantly worse for enforced banks that pay out than for those that do not. Withstanding alternative explanations and parallel trend concerns, these results present rare, causal evidence of a value to corporate distribution. The cross-section of abnormal returns suggests that risk-shifting, not agency cost-reduction, drives payout. In my sample of distressed banks, especially around financial crises, the ability to shift risk through payout has value.
       
  • Purchases of Sovereign Debt Securities by Banks During the Crisis: The
           Role of Balance Sheet Conditions
    • Abstract: Publication date: Available online 13 June 2019Source: Journal of Banking & FinanceAuthor(s): Raffaele Santioni, Massimiliano Affinito, Giorgio AlbaretoAbstractThe literature exploring the determinants of the increase in sovereign debt securities in banks’ portfolios during the crisis generally adopted a macroeconomic perspective (governments’ moral suasion, redenomination risk, etc.). This study adopts a microeconomic approach and analyzes the main bank-by-bank determinants of the purchases by investigating Italian banks’ balance sheet conditions from 2007 to 2013. The results show that banks’ specific balance sheet characteristics matter, and banks buy government securities to support their financial conditions. The high liquidity of government bonds, high yields, and convenience in terms of capital charges make them well suited to satisfying banks’ needs in periods of intense liquidity demand, declining bank profitability and loan quality, and rising capital constraints.
       
  • U.S. bank M&As in the post-Dodd-Frank Act era: Do they create value'
    • Abstract: Publication date: Available online 11 June 2019Source: Journal of Banking & FinanceAuthor(s): George N. Leledakis, Emmanouil G. PyrgiotakisAbstractWe analyze the impact of the Dodd-Frank Act on the shareholder wealth gains using a sample of 640 completed U.S. M&As announced between 1990 and 2014. Our results indicate a positive DFA effect on announcement period abnormal returns in small bank mergers. In fact, mergers with combined firm assets of less than $10 billion create more shareholder value after the DFA, than ever before. This positive announcement effect in small deals appears to be linked with merger-related compliance cost savings and profitability improvements. By examining long-run abnormal returns, we find that the documented DFA effect on small deals announcement abnormal returns does not disappear overtime. Finally, we do not find such effects for non-U.S. bank M&As over the same period.
       
  • Determinants of Household Broker Choices and Their Impacts on Performance
    • Abstract: Publication date: Available online 11 June 2019Source: Journal of Banking & FinanceAuthor(s): Kingsley Fong, Juliane D. Krug, Henry Leung, Joakim P. WesterholmAbstractWe use Finnish OMX Helsinki data to examine the relationship between demographic variables, individual investors' broker choices and trade informativeness. We find that men prefer to use Full-Service-Retail over Discount-Retail brokers and that a higher level of income leads to a higher likelihood of using Discount-Retail brokers. Women present more heterogenous broker choice behaviors. However, both genders are more likely to carry out larger trades through Discount-Retail brokers. We show that trades executed via Discount-Retail brokers are more informative than those of Full-Service-Retail brokers and that only Discount-Retail brokers show trade informativeness differences across gender after controlling for age. Collectively, women make more informative trades then men, but this result reverses after partitioning by age. We conclude that conditioning on the type of broker reduces unobserved individual investor heterogeneity and that demographic variables are essential to the understanding of broker clientele effect. Furthermore, clientele differences observed across broker types are market specific and dominate the effects of financial advice in determining trade informativeness.
       
  • Risk-Taking Spillovers of U.S. Monetary Policy in the Global Market for
           U.S. Dollar Corporate Loans
    • Abstract: Publication date: Available online 7 June 2019Source: Journal of Banking & FinanceAuthor(s): Seung Jung Lee, Lucy Qian Liu, Viktors StebunovsAbstractWe study the effects of U.S. interest rates and other factors on risk-taking in the global market for U.S. dollar syndicated term loans. We find that, before the Global Financial Crisis, both U.S. and non-U.S. lenders originated ex ante riskier loans to non-U.S. borrowers in response to a decline in short-term U.S. interest rates and, after the crisis, in response to a decline in longer-term U.S. interest rates. After the crisis, this behavior was more prominent for shadow banks and less prominent for banks with relatively low capital. Separately, before the crisis, lenders originated less risky loans in response to U.S. dollar appreciation. Across the periods, the responses to risk appetite and economic uncertainty varied. To the extent that the Federal Reserve affects U.S. interest rates, we provide evidence of global risk-taking spillovers of U.S. monetary policy, which are important but not dominant factors for risk-taking in the market.
       
  • International effects of a compression of euro area yield curves
    • Abstract: Publication date: Available online 27 March 2019Source: Journal of Banking & FinanceAuthor(s): Martin Feldkircher, Thomas Gruber, Florian HuberAbstractIn this paper, we use a Bayesian global vector autoregressive model to analyze the macroeconomic effects of a flattening of euro area yield curves. Our findings indicate positive effects on real activity and prices, both within the euro area as well as in neighboring economies. Spillovers transmit through an exchange rate channel and a broad financial channel. We complement our analysis by conducting a portfolio optimization exercise. Our results show that multi-step-ahead forecasts conditional on the euro area yield curve shock improve Sharpe ratios relative to other investment strategies.
       
  • Does banks’ systemic importance affect their capital structure and
           balance sheet adjustment processes'
    • Abstract: Publication date: Available online 7 March 2019Source: Journal of Banking & FinanceAuthor(s): Yassine Bakkar, Olivier De Jonghe, Amine TaraziAbstractFrictions prevent banks to immediately adjust their capital ratio towards their desired and/or imposed level. This paper analyzes (i) whether or not these frictions are larger for regulatory capital ratios vis-à-vis a plain leverage ratio; (ii) which adjustment channels banks use to adjust their capital ratio; and (iii) how the speed of adjustment and adjustment channels differ between large, systemic and complex banks versus small banks. Our results, obtained using a sample of listed banks across OECD countries for the 2001-2012 period, bear critical policy implications for the implementation of new (systemic risk-based) capital requirements and their impact on banks’ balance sheets, specifically lending, and hence the real economy.
       
  • Risk Taking and Low Longer-term Interest Rates: Evidence from the U.S.
           Syndicated Term Loan Market
    • Abstract: Publication date: Available online 22 February 2019Source: Journal of Banking & FinanceAuthor(s): Sirio Aramonte, Seung Jung Lee, Viktors StebunovsAbstractWe use supervisory data to investigate the ex-ante credit risk taken by different types of lenders in the U.S. syndicated term loan market during the LSAPs period. We find that nonbank lenders, mutual funds and structured-finance vehicles, take higher risk when longer-term interest rates decrease. The results are stronger for mutual funds that charge higher fees. Banks accommodate other lenders’ investment choices by originating riskier loans and selling them off. These results are consistent with “search for yield” by nonbanks and with a risk-taking channel of monetary policy. Over the sample we study, lower longer-term interest rates appear to have only a minimal effect on loan spreads.
       
  • The Distributional Effects of Conventional Monetary Policy and
           Quantitative Easing: Evidence from an Estimated DSGE model
    • Abstract: Publication date: Available online 8 January 2019Source: Journal of Banking & FinanceAuthor(s): Stefan Hohberger, Romanos Priftis, Lukas VogelThis paper compares the distributional effects of conventional monetary policy and quantitative easing (QE) within an estimated open-economy DSGE model of the euro area. The model includes two groups of households: (i) wealthier households, who own financial assets and are able to smooth consumption over time, and (ii) poorer households, who only receive labor and transfer income and live 'hand to mouth'. We use the model to compare the impact of policy shocks on constructed measures of income and wealth inequality (net disposable income, net asset position, and relative per-capita income). Except for the short term, expansionary conventional policy and QE shocks tend to mitigate income and wealth inequality between the two population groups. In light of the coarse dichotomy of households that abstracts from richer income and wealth dynamics at the individual level, the analysis emphasizes the functional distribution of income.
       
  • Does CDS trading affect risk-taking incentives in managerial
           compensation'
    • Abstract: Publication date: Available online 7 January 2019Source: Journal of Banking & FinanceAuthor(s): Jie Chen, Woon Sau Leung, Wei Song, Davide AvinoABSTRACTWe find that managers receive more risk-taking incentives in their compensation packages once their firms are referenced by credit default swap (CDS) trading, particularly when institutional ownership is high and when firms are in financial distress. These findings provide suggestive evidence that boards offer pay packages that encourage greater risk taking to take advantage of the reduced creditor monitoring after CDS introduction. Further, we show that the onset of CDS trading attenuates the effect of vega on leverage, consistent with the threat of exacting creditors restraining managerial risk appetite.
       
 
 
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