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Journal Cover Journal of Banking & Finance
  [SJR: 1.264]   [H-I: 102]   [168 followers]  Follow
    
   Hybrid Journal Hybrid journal (It can contain Open Access articles)
   ISSN (Print) 0378-4266
   Published by Elsevier Homepage  [3043 journals]
  • The impact of conventional and unconventional monetary policy on
           expectations and sentiment
    • Authors: Emilios Galariotis; Panagiota Makrichoriti; Spyros Spyrou
      Pages: 1 - 20
      Abstract: Publication date: January 2018
      Source:Journal of Banking & Finance, Volume 86
      Author(s): Emilios Galariotis, Panagiota Makrichoriti, Spyros Spyrou
      This paper offers evidence on the effect of ECB's conventional and unconventional monetary policy on economic expectations in Euro-area countries during the US and EU crisis. We employ a range of research methodologies in a sample of nine Eurozone countries and combine expectations/sentiment indicators with a set of macroeconomic and financial variables. We find that ECB's conventional monetary policy (and Fed's monetary policy stance) has a positive and significant effect on economic expectations for Core Eurozone countries and a weak effect on Peripheral Eurozone countries. ECB's unconventional policy measures, however, have a negative short term effect on Core countries’ economic expectations. This result is robust to different methodologies (PVAR, QVAR, FAVAR) and different datasets. Overall, our findings highlight the importance of monetary policy in the determination of economic expectations.

      PubDate: 2017-10-04T08:19:09Z
      DOI: 10.1016/j.jbankfin.2017.08.014
      Issue No: Vol. 86 (2017)
       
  • Evaluating VPIN as a trigger for single-stock circuit breakers
    • Authors: David Abad; Magdalena Massot; Roberto Pascual
      Pages: 21 - 36
      Abstract: Publication date: January 2018
      Source:Journal of Banking & Finance, Volume 86
      Author(s): David Abad, Magdalena Massot, Roberto Pascual
      We study if VPIN (Easley et al., 2012a) is an efficient advance indicator of toxicity-induced liquidity crises and related sharp price movements. We find that high VPIN readings rarely signal abnormal illiquidity, and very occasionally anticipate large intraday price changes leading to actual trading halts. We find significant differences in illiquidity and price impact between VPIN-identified toxic and non-toxic halts, but they tend to vanish when we control for ex ante realized volatility. We conclude that the capacity of VPIN to anticipate truly toxic events is limited.

      PubDate: 2017-10-04T08:19:09Z
      DOI: 10.1016/j.jbankfin.2017.08.009
      Issue No: Vol. 86 (2017)
       
  • China's “Mercantilist” Government Subsidies, the Cost of Debt
           and Firm Performance
    • Authors: Chu Yeong Lim; Jiwei Wang; Cheng (Colin) Zeng
      Pages: 37 - 52
      Abstract: Publication date: January 2018
      Source:Journal of Banking & Finance, Volume 86
      Author(s): Chu Yeong Lim, Jiwei Wang, Cheng (Colin) Zeng
      China has been adopting a “mercantilist” policy by lavishing massive government subsidies on Chinese firms. Using hand-collected subsidy data on Chinese listed companies, we find that firms receiving more subsidies tend to have a lower cost of debt. However, such firms fail to have superior financial performance. Instead, firms with more subsidies tend to be overstaffed, which demonstrates higher social performance. These results are mainly driven by non-tax-based subsidies rather than tax-based subsidies. Overall, our results suggest that the Chinese government uses non-tax-based subsidies to achieve its social policy objectives at the expense of firms’ profitability.

      PubDate: 2017-10-04T08:19:09Z
      DOI: 10.1016/j.jbankfin.2017.09.004
      Issue No: Vol. 86 (2017)
       
  • Shortability and asset pricing model: Evidence from the Hong Kong stock
           market
    • Authors: Min Bai; Xiao-Ming Li; Yafeng Qin
      Pages: 15 - 29
      Abstract: Publication date: December 2017
      Source:Journal of Banking & Finance, Volume 85
      Author(s): Min Bai, Xiao-Ming Li, Yafeng Qin
      This study explores how the violation of free short selling assumption affects the performance of CAPM and the Fama-French three-factor model, as existing studies show that short-sales constraints affect asset pricing of the stocks. Using data from the Hong Kong Stock Market which has unique regulations on short selling, we conduct both time-series and cross-sectional regression analyses to evaluate the performance of the two models under the short-sales-constraints and the no-constraints market environment. The two models perform much worse in the former environment than in the latter, indicating a significant impact of the short sales constraints on the explanatory power of the models. We then augment the two models with a shortability-mimicking factor. Our results show that the factor has a significant power in explaining both time-series and cross-sectional variation in the size-B/M portfolio returns. The addition of the factor to the two models considerably increases their overall performance.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2017.08.007
      Issue No: Vol. 85 (2017)
       
  • The case for herding is stronger than you think
    • Authors: Martin T. Bohl; Nicole Branger; Mark Trede
      Pages: 30 - 40
      Abstract: Publication date: December 2017
      Source:Journal of Banking & Finance, Volume 85
      Author(s): Martin T. Bohl, Nicole Branger, Mark Trede
      In this paper, we challenge the often implemented herding measure by Chang et al. (2000). They regress the cross-sectional absolute deviation of returns on the absolute and squared excess market return. A coefficient on the squared excess market return significantly smaller than zero is interpreted as evidence for herding. However, we show that the true coefficient is positive under the null hypothesis of no herding. Hence, their test is biased against finding evidence in favour of herding. Empirical examinations for the S&P 500 and the EuroStoxx 50 confirm the misleading implications of Chang, Cheng and Khorana’s measure, while our modified test provides clear-cut evidence for herding behaviour.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2017.08.006
      Issue No: Vol. 85 (2017)
       
  • Do bond credit ratings lead to excess comovement'
    • Authors: Louis Raffestin
      Pages: 41 - 55
      Abstract: Publication date: December 2017
      Source:Journal of Banking & Finance, Volume 85
      Author(s): Louis Raffestin
      We investigate whether non-fundamental comovement results from investors using credit ratings to group assets into different “styles”. We find that bonds that join a new rating class start comoving more with the bonds in this class, even when fundamental factors suggest otherwise. We show that this comovement effect varies according to the nature of the bond considered, and the modalities of the rating action. Downgrades have a larger impact than upgrades, and rating reviews matter as much as actual movements. Finally, rating changes between grades BBB and BB, which lead bonds to be reclassified as either “high-yield” or “investment grade” assets, seem to be of particular importance.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2017.08.010
      Issue No: Vol. 85 (2017)
       
  • Investor protection, taxation and dividend policy: Long-run evidence,
           1838–2012
    • Authors: Leentje Moortgat; Jan Annaert; Marc Deloof
      Pages: 113 - 131
      Abstract: Publication date: December 2017
      Source:Journal of Banking & Finance, Volume 85
      Author(s): Leentje Moortgat, Jan Annaert, Marc Deloof
      We investigate whether investor protection and taxation legislation affect dividend policy, using a unique sample of all Belgian firms listed on the Brussels Stock Exchange between 1838 and 2012. Investor protection was very weak in Belgium before World War I, but gradually improved over time. Dividend taxation was introduced only in 1920. While it is generally believed that investor protection and taxation affect dividend policy, we find that dividend policy has been remarkably stable over time, even after controlling for firm characteristics. Changes in investor protection and taxation legislation seem to have had little impact on dividend policy.

      PubDate: 2017-09-20T03:01:53Z
      DOI: 10.1016/j.jbankfin.2017.08.013
      Issue No: Vol. 85 (2017)
       
  • The effect of payday lending restrictions on liquor sales
    • Authors: Harold E. Cuffe; Christopher G. Gibbs
      Pages: 132 - 145
      Abstract: Publication date: December 2017
      Source:Journal of Banking & Finance, Volume 85
      Author(s): Harold E. Cuffe, Christopher G. Gibbs
      We exploit a change in lending laws to estimate the causal effect of restricting access to payday loans on liquor sales. Leveraging lender- and liquor store-level data, we find that the changes reduce sales, with the largest decreases at stores located nearest to payday lenders. By focusing on states with state-run liquor monopolies, we account for endogenous supply-side variables that are typically unobserved. Further analysis of consumer-level data indicates that the lending restrictions reduce alcohol expenditures without affecting total household spending. This is consistent with a distinct relationship between payday lending access and alcohol purchases, and suggests that present biased motivations underlie some loan use. The finding is significant because it shows that payday loan access is associated with unproductive borrowing, and directly links payday loan access to public health issues.

      PubDate: 2017-09-20T03:01:53Z
      DOI: 10.1016/j.jbankfin.2017.08.005
      Issue No: Vol. 85 (2017)
       
  • The market price of risk of the variance term structure
    • Authors: George Dotsis
      Pages: 41 - 52
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): George Dotsis
      In this paper I examine the market price of risk of the variance term structure. To this end, the S&P 500 option implied variance term structure is used as a proxy for aggregate variance risk. Principal component analysis shows that time variation in the variance term structure over the 1996–2012 period can be explained mainly by two factors which capture changes in the level and slope. The market price of risk of each factor is estimated in the cross-section of stock returns. The slope of the variance term structure is the most significant factor in the cross-section of stocks returns and carries a negative risk premium. The slope factor has also some predictive ability over long horizon equity returns.

      PubDate: 2017-09-20T03:01:53Z
      DOI: 10.1016/j.jbankfin.2015.10.008
      Issue No: Vol. 84 (2017)
       
  • Determinants of the crude oil futures curve: Inventory, consumption and
           volatility
    • Authors: Christina Sklibosios Nikitopoulos; Matthew Squires; Susan Thorp; Danny Yeung
      Pages: 53 - 67
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): Christina Sklibosios Nikitopoulos, Matthew Squires, Susan Thorp, Danny Yeung
      Since 2008, the WTI oil futures curve has been positively sloped for extended periods. We test whether changes in inventory alone can explain this atypically long contango. To do this, we estimate monthly VARs of the CME WTI oil futures spread and OECD and U.S. inventory in line with standard theory, and add petroleum consumption and implied volatility to the vector of endogenous variables. When we model the futures spread as one continuous series, results confirm two-way causation between inventory and the futures curve, as predicted by the theory of storage. However when we separate negative and positive futures spreads we find that: two-way causation between the futures spread and U.S. inventory breaks down; shocks to OECD petroleum consumption cause more negative spreads and shocks to U.S. consumption cause more positive spreads in addition to inventory-driven changes; and increases in volatility directly raise positive spreads. These new causal channels have become significant since 2008 and can be related to higher inventory, inelastic supply of oil and uncertainty about global economic conditions.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2017.07.006
      Issue No: Vol. 84 (2017)
       
  • Financial overconfidence over time: Foresight, hindsight, and insight of
           investors
    • Authors: Christoph Merkle
      Pages: 68 - 87
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): Christoph Merkle
      Financial overconfidence leads to increased trading activity, higher risk taking, and less diversification. In a panel survey of online brokerage clients in the UK, we ask for stock market and portfolio expectations and derive several overconfidence measures from the responses. Overconfidence is identified in the sample in various forms. By matching survey data with participants’ transactions and portfolio holdings, we find an influence of overplacement on trading activity, of overprecision and overestimation on diversification, and of overprecision and overplacement on risk taking. We explore the evolution of overconfidence over time and identify a role of past success and hindsight on subsequent investor overconfidence in line with learning to be overconfident.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2017.07.009
      Issue No: Vol. 84 (2017)
       
  • Unemployment fluctuations and the predictability of currency returns
    • Authors: Federico Nucera
      Pages: 88 - 106
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): Federico Nucera
      We investigate whether unemployment fluctuations generate predictability in the cross-section of currency excess returns. We find that currencies with lower growth in the unemployment rate appreciate while currencies with higher growth in the unemployment rate depreciate. As a result, an investment strategy that involves investing in the former and short selling of the latter produces positive and sizable excess returns. Asset pricing tests show that the predictability is not driven by exposure to traditional risk factors such as global equity risk, global foreign exchange volatility risk, and downside risk but is related instead to an idiosyncratic unemployment risk.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2017.07.007
      Issue No: Vol. 84 (2017)
       
  • Analysing the determinants of insolvency risk for general insurance firms
           in the UK
    • Authors: Guglielmo Maria Caporale; Mario Cerrato; Xuan Zhang
      Pages: 107 - 122
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): Guglielmo Maria Caporale, Mario Cerrato, Xuan Zhang
      This paper estimates a reduced-form model to assess the insolvency risk of General Insurance (GI) firms in the UK. In comparison to earlier studies, it uses a much larger sample including 30 years of data for 515 firms, and also considers a much wider set of possible determinants of insolvency risk. The empirical results suggest that macroeconomic and firm-specific factors both play important roles. Other key findings are the following: insolvency risk varies across firms depending on their business lines; there is default clustering in the GI industry; different reinsurance levels also affect the insolvency risk of insurance firms. The implications of these findings for regulators of GI firms under the newly launched Solvency II are discussed.

      PubDate: 2017-09-26T15:35:10Z
      DOI: 10.1016/j.jbankfin.2017.07.011
      Issue No: Vol. 84 (2017)
       
  • It's all in the name: Mutual fund name changes after SEC Rule 35d-1
    • Authors: Susanne Espenlaub; Imtiaz ul Haq; Arif Khurshed
      Pages: 123 - 134
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): Susanne Espenlaub, Imtiaz ul Haq, Arif Khurshed
      We study how investors respond to ‘superficial’ mutual-fund name changes that occur for no fundamental reasons. We find that such name changes remain widespread even after regulation to curb potentially misleading name changes (SEC Rule 35d-1). Superficial changes are more widespread than previously studied ‘misleading’ changes that are not accompanied by corresponding portfolio adjustments reflecting the investment style suggested by the new name. Superficial changes appear to be driven by managerial incentives. Investors react to superficial changes with increased fund flows but appear to gain no benefit through improved performance or lower fees. On the contrary, name-change funds underperform as a group. Our findings highlight inefficiencies in the mutual-fund market and hold important implications for the stakeholders involved.

      PubDate: 2017-09-26T15:35:10Z
      DOI: 10.1016/j.jbankfin.2017.07.008
      Issue No: Vol. 84 (2017)
       
  • Do all new brooms sweep clean' Evidence for outside bank appointments
    • Authors: Thomas Kick; Inge Nehring; Andrea Schertler
      Pages: 135 - 151
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): Thomas Kick, Inge Nehring, Andrea Schertler
      Banks in bad financial shape are more likely to appoint executive directors from the outside than those in good shape. It is, however, not clear whether all of these appointments necessarily lead to the desired turnaround. We analyze the performance effects of new board members with external boardroom experience (outsiders) by distinguishing between good and bad managerial abilities of executives based on either ROA or risk-return efficiency of their previous employers. Our results show that banks appointing bad outsiders underperform other banks while those appointing good outsiders do so to a lesser extent. The performance differentials are highly pronounced in high-risk banks and in the post-crisis period.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2017.07.005
      Issue No: Vol. 84 (2017)
       
  • Government ownership and exposure to political uncertainty: Evidence from
           China
    • Authors: Zhengyi Zhou
      Pages: 152 - 165
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): Zhengyi Zhou
      The government of China started its anti-corruption campaign in December 2012. Since then, more than 600 government officials have been investigated. We regard the investigations involving senior officials as signals of increased political uncertainty. Focusing on these events, we study how firms’ exposure to political uncertainty varies with government ownership. It is found that the stock performance of private firms is worse on the event days than in normal times, whereas state-owned enterprises (SOEs) suffer less from the events. Moreover, the event-day effects are not quickly reversed in the post-event periods. Among SOEs, the negative impact of the events also decreases with government ownership. The evidence indicates that government ownership mitigates firms’ exposure to political uncertainty.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2017.08.001
      Issue No: Vol. 84 (2017)
       
  • Risk-sharing, market imperfections, asset prices: Evidence from China’s
           stock market liberalization
    • Authors: Marc K. Chan; Simon Kwok
      Pages: 166 - 187
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): Marc K. Chan, Simon Kwok
      We examine the roles of risk-sharing and other factors in stock price revaluation during a recent liberalization episode in China. Consistent with the theoretical prediction that liberalizations reduce systematic risk, we find that risk-sharing explains approximately one-fourth of the price revaluation of investible stocks during the eight-month window between reform announcement and implementation. The firm-specific information generated by the reform is more efficiently priced into stocks that have a higher degree of market liquidity, information transparency, and informed trading.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2017.06.003
      Issue No: Vol. 84 (2017)
       
  • Out-of-sample equity premium predictability and sample
           split–invariant inference
    • Authors: Gueorgui I. Kolev; Rasa Karapandza
      Pages: 188 - 201
      Abstract: Publication date: November 2017
      Source:Journal of Banking & Finance, Volume 84
      Author(s): Gueorgui I. Kolev, Rasa Karapandza
      For a comprehensive set of 21 equity premium predictors we find extreme variation in out-of-sample predictability results depending on the choice of the sample split date. To resolve this issue we propose reporting in graphical form the out-of-sample predictability criteria for every possible sample split, and two out-of-sample tests that are invariant to the sample split choice. We provide Monte Carlo evidence that our bootstrap-based inference is valid. The in-sample, and the sample split invariant out-of-sample mean and maximum tests that we propose, are in broad agreement. Finally we demonstrate how one can construct sample split invariant out-of-sample predictability tests that simultaneously control for data mining across many variables.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2016.07.017
      Issue No: Vol. 84 (2017)
       
  • Risky lending: Does bank corporate governance matter'
    • Authors: Olubunmi Faleye; Karthik Krishnan
      Pages: 57 - 69
      Abstract: Publication date: October 2017
      Source:Journal of Banking & Finance, Volume 83
      Author(s): Olubunmi Faleye, Karthik Krishnan
      We study the effect of bank governance on risk-taking in commercial lending. Banks with more effective boards are less likely to lend to riskier borrowers. This effect is restricted to periods of distress in the banking industry and is stronger at banks with board-level credit committees. Banks with more effective boards are less likely to lend to riskier borrowers right after the Russian default, which exogenously imposed distress conditions on U.S. banks. Thus, value-maximizing banks appear to ration credit to riskier borrowers precisely when such firms might be credit-constrained, suggesting that bank governance regulations may have potential unintended consequences.

      PubDate: 2017-08-03T12:12:18Z
      DOI: 10.1016/j.jbankfin.2017.06.011
      Issue No: Vol. 83 (2017)
       
  • Gini-type measures of risk and variability: Gini shortfall, capital
           allocations, and heavy-tailed risks
    • Authors: Edward Furman; Ruodu Wang; Ričardas Zitikis
      Pages: 70 - 84
      Abstract: Publication date: October 2017
      Source:Journal of Banking & Finance, Volume 83
      Author(s): Edward Furman, Ruodu Wang, Ričardas Zitikis
      We introduce and explore Gini-type measures of risk and variability, and develop the corresponding economic capital allocation rules. The new measures are coherent, additive for co-monotonic risks, convenient computationally, and require only finiteness of the mean. To elucidate our theoretical considerations, we derive closed-form expressions for several parametric families of distributions that are of interest in insurance and finance, and further apply our findings to a risk portfolio of a bancassurance company.

      PubDate: 2017-08-03T12:12:18Z
      DOI: 10.1016/j.jbankfin.2017.06.013
      Issue No: Vol. 83 (2017)
       
  • Equity index variance: Evidence from flexible parametric
           jump–diffusion models
    • Authors: Andreas Kaeck; Paulo Rodrigues; Norman J. Seeger
      Pages: 85 - 103
      Abstract: Publication date: October 2017
      Source:Journal of Banking & Finance, Volume 83
      Author(s): Andreas Kaeck, Paulo Rodrigues, Norman J. Seeger
      This paper analyzes a wide range of flexible drift and diffusion specifications of stochastic-volatility jump–diffusion models for daily S&P 500 index returns. We find that model performance is driven almost exclusively by the specification of the diffusion component whereas the drift specifications is of second-order importance. Further, the variance dynamics of non-affine models resemble popular non-parametric high-frequency estimates of variance, and their outperformance is mainly accumulated during turbulent market regimes. Finally, we show that jump diffusion models yield more reliable estimates for the expected return of variance swap contracts.

      PubDate: 2017-08-03T12:12:18Z
      DOI: 10.1016/j.jbankfin.2017.06.010
      Issue No: Vol. 83 (2017)
       
  • Does bank competition reduce cost of credit' Cross-country evidence
           from Europe
    • Authors: Zuzana Fungáčová; Anastasiya Shamshur; Laurent Weill
      Pages: 104 - 120
      Abstract: Publication date: October 2017
      Source:Journal of Banking & Finance, Volume 83
      Author(s): Zuzana Fungáčová, Anastasiya Shamshur, Laurent Weill
      Despite the extensive debate on the effects of bank competition on economic welfare and growth, only a handful of single-country studies deal with the impact of bank competition on the cost of credit. We contribute to the literature by investigating the impact of bank competition on the cost of credit in a cross-country setting. Using a panel of firms from 20 European countries covering the period 2001–2011, we consider a broad set of measures of bank competition, including two structural measures (Herfindahl–Hirschman index and CR5), and two non-structural indicators (Lerner index and H-statistic). We find that bank competition increases the cost of credit and observe that the positive influence of bank competition is stronger for smaller companies. Our findings accord with the information hypothesis, whereby a lack of competition incentivizes banks to invest in soft information and conversely increased competition raises the cost of credit. This positive impact of bank competition is however influenced by the institutional and economic framework, as well as by the crisis.

      PubDate: 2017-08-03T12:12:18Z
      DOI: 10.1016/j.jbankfin.2017.06.014
      Issue No: Vol. 83 (2017)
       
  • The effect of the term auction facility on the London interbank offered
           rate
    • Authors: James McAndrews; Asani Sarkar; Zhenyu Wang
      Pages: 135 - 152
      Abstract: Publication date: October 2017
      Source:Journal of Banking & Finance, Volume 83
      Author(s): James McAndrews, Asani Sarkar, Zhenyu Wang
      The Term Auction Facility (TAF), the first auction-based liquidity initiative by the Federal Reserve during the global financial crisis, was aimed at improving conditions in the dollar money market and bringing down the significantly elevated London interbank offered rate (Libor). The effectiveness of this innovative policy tool is crucial for understanding the role of the central bank in financial stability, but academic studies disagree on the empirical evidence of the TAF effect on Libor. We show that the disagreement arises from mis-specifications of econometric models. Regressions using the daily level of the Libor-OIS spread as the dependent variable miss either the permanent or temporary TAF effect, depending on whether the dummy variable indicates the events of the TAF or the regimes before and after an TAF event. Those regressions also suffer from the unit-root problem and produce unreliable test statistics. By contrast, regressions using the daily change in the Libor-OIS spread are robust to the persistence of the TAF effect and the unit-root problem, consistently producing reliable evidence that the downward shifts of the Libor-OIS spread were associated with the TAF. The evidence indicates the efficacy of the TAF in helping the interbank market to relieve liquidity strains.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2016.12.011
      Issue No: Vol. 83 (2017)
       
  • The effect of TARP on the propagation of real estate shocks: Evidence from
           geographically diversified banks
    • Authors: Karen Y. Jang
      Pages: 173 - 192
      Abstract: Publication date: October 2017
      Source:Journal of Banking & Finance, Volume 83
      Author(s): Karen Y. Jang
      This study examines the effect of TARP on the propagation of real estate shocks via geographically diversified banks in the U.S. I find that TARP money provided for banks exposed to distressed areas (i.e., “affected” banks) was positively associated with small business loan originations in “non-distressed” areas (i.e., counties with smaller real estate shocks), mitigating the shock transmission. In addition, the bailout funds facilitated “affected” banks’ faster return to their pre-crisis level of franchise value. Overall, the marginal benefit of TARP funds seems to have been greater for “affected” TARP banks. I conclude that this policy helped “affected” banks cleanse/strengthen their balance sheets and recapitalize, which paved the way for increased lending.

      PubDate: 2017-09-02T17:25:36Z
      DOI: 10.1016/j.jbankfin.2016.12.009
      Issue No: Vol. 83 (2017)
       
  • The asymmetric effect of international swap lines on banks in emerging
           markets
    • Authors: Alin Marius Andrieș; Andreas M. Fischer; Pınar Yeșin
      Pages: 215 - 234
      Abstract: Publication date: Available online 1 August 2017
      Source:Journal of Banking & Finance
      Author(s): Alin Marius Andrieș, Andreas M. Fischer, Pınar Yeșin
      This paper investigates the effect of international swap lines on stock returns using data from banks in emerging markets. The analysis first shows that swap lines by the Swiss National Bank (SNB) had a positive impact on bank stocks in Central and Eastern Europe. It then highlights the importance of individual bank characteristics in identifying the asymmetric effect of swap lines on bank stocks. Bank-level evidence suggests that stock prices of local and less-well capitalized banks as well as banks with high foreign currency exposures and high reliance on short-term funding responded more strongly to SNB swap lines. This new evidence is consistent with the view that swap lines not only enhanced market liquidity but also reduced risks associated with micro-prudential issues.

      PubDate: 2017-08-03T12:12:18Z
      DOI: 10.1016/j.jbankfin.2016.11.021
      Issue No: Vol. 75 (2017)
       
  • The Dawn of an ‘Age of Deposits’ in the United States
    • Authors: Matthew Jaremski; Peter L. Rousseau
      Abstract: Publication date: Available online 16 October 2017
      Source:Journal of Banking & Finance
      Author(s): Matthew Jaremski, Peter L. Rousseau
      Individual deposits in the United States grew from 5% to 23% of GDP between 1863 and 1913. A comprehensive database shows bank entry underlying this trend while historical events, including the National Banking Acts, resumption in 1879, and the election of 1896, influenced deposits at the bank-level. The nation's embrace of deposits was thus driven by stability of the monetary system and confidence in the safety and utility of established and well-capitalized banks. Bank-level and county-level regressions confirm these patterns for national banks over the entire postbellum period and for a sample of Midwest state and national banks after 1888.

      PubDate: 2017-10-18T04:40:10Z
      DOI: 10.1016/j.jbankfin.2017.10.010
       
  • Regional Banking Instability and FOMC Voting
    • Authors: Stefan Eichler; Tom Lähner; Felix Noth
      Abstract: Publication date: Available online 16 October 2017
      Source:Journal of Banking & Finance
      Author(s): Stefan Eichler, Tom Lähner, Felix Noth
      This study analyzes if regionally affiliated Federal Open Market Committee (FOMC) members take their districts’ regional banking sector instability into account when they vote. Considering the period 1979–2010, we find that a deterioration in a district's bank health increases the probability that this district's representative in the FOMC votes to ease interest rates. According to member-specific characteristics, the effect of regional banking sector instability on FOMC voting behavior is most pronounced for Bank presidents (as opposed to Governors) and FOMC members who have career backgrounds in the financial industry or who represent a district with a large banking sector.

      PubDate: 2017-10-18T04:40:10Z
      DOI: 10.1016/j.jbankfin.2017.10.011
       
  • An Examination of the Relation between Strategic Interaction among
           Industry Firms and Firm Performance
    • Authors: Tumennasan Bayar; Marcia Millon Cornett; Otgontsetseg Erhemjamts; Ty Leverty; Hassan Tehranian
      Abstract: Publication date: Available online 16 October 2017
      Source:Journal of Banking & Finance
      Author(s): Tumennasan Bayar, Marcia Millon Cornett, Otgontsetseg Erhemjamts, Ty Leverty, Hassan Tehranian
      This paper examines the relation between the degree and type of strategic interaction among industry firms and firm performance. As a measure of firm performance, we use data envelopment analysis (DEA) to estimate the efficiency of a firm relative to the ‘best practice’ firms in its industry. We find that firms in industries with higher levels of strategic interaction are less efficient and the negative relation is more pronounced in industries where firms compete in strategic substitutes. This finding is consistent with the idea that there is significantly more cooperation (tacit collusion) under strategic complements than strategic substitutes. We also find that frontier efficiency methodology outperforms other measures of firm performance in explaining the relation between strategic interaction and firm performance.

      PubDate: 2017-10-18T04:40:10Z
      DOI: 10.1016/j.jbankfin.2017.10.009
       
  • Bid-to-cover and yield changes around public debt auctions in the euro
           area
    • Authors: Roel Beetsma; Massimo Giuliodori; Jesper Hanson; Frank de Jong
      Abstract: Publication date: Available online 14 October 2017
      Source:Journal of Banking & Finance
      Author(s): Roel Beetsma, Massimo Giuliodori, Jesper Hanson, Frank de Jong
      Earlier research has shown that euro-area primary public debt markets affect secondary markets. We find that more successful auctions of euro area public debt, as captured by higher bid-to-cover ratios, lead to lower secondary-market yields following the auctions. This effect is stronger when market volatility is higher. We rationalize both findings using a simple theoretical model of primary dealer behavior, in which the primary dealers receive a signal about the value of the asset auctioned.

      PubDate: 2017-10-18T04:40:10Z
      DOI: 10.1016/j.jbankfin.2017.10.006
       
  • Q-theory, Mispricing, and Profitability Premium: Evidence from China
    • Authors: Fuwei Jiang; Xinlin Qi; Guohao Tang
      Abstract: Publication date: Available online 13 October 2017
      Source:Journal of Banking & Finance
      Author(s): Fuwei Jiang, Xinlin Qi, Guohao Tang
      Using various empirical measures, we find that, in China, firms with high profitability generate substantially higher future stock returns than those with low profitability. This positive effect of profitability on expected returns is robust to controlling for other firm characteristics and risks. We show that the profitability premium is stronger among firms with low investment friction, which is consistent with the implications of investment-based q-theory asset pricing models. However, the premium is not stronger among firms with high limits to arbitrage, contradicting behavioral mispricing explanations.

      PubDate: 2017-10-18T04:40:10Z
      DOI: 10.1016/j.jbankfin.2017.10.001
       
  • Corporate Litigation and Debt
    • Authors: Matteo P. Arena
      Abstract: Publication date: Available online 13 October 2017
      Source:Journal of Banking & Finance
      Author(s): Matteo P. Arena
      This study examines the effect of litigation risk and litigation costs on firms’ credit ratings and debt financing. The results show that litigation affects a firm's creditworthiness and debt costs in two stages. Before a lawsuit filing, firms at higher risk of litigation have lower credit ratings, are more likely to be rated speculative grade, pay higher yields on loans and bonds, and are less likely to rely on debt financing. At the time of the lawsuit resolution, settlement costs have an additional effect on firm credit quality. Companies facing larger settlement disbursements in relation to their available cash experience a decline in credit ratings and an increase in yield spread. The results are robust to endogeneity concerns and different proxies of litigation risk.

      PubDate: 2017-10-18T04:40:10Z
      DOI: 10.1016/j.jbankfin.2017.10.005
       
  • Are Chinese Credit Ratings Relevant' A Study of the Chinese Bond
           Market and Credit Rating Industry
    • Authors: Miles Livingston; Winnie P.H. Poon; Lei Zhou
      Abstract: Publication date: Available online 12 October 2017
      Source:Journal of Banking & Finance
      Author(s): Miles Livingston, Winnie P.H. Poon, Lei Zhou
      We investigate the nascent but fast-growing Chinese bond market and credit rating industry. We find Chinese bond ratings are informative and significantly correlated with bond offering yields. In addition, the Chinese bond investors distinguish ratings from different credit rating agencies (CRAs), demanding lower yields on bonds rated by global-partnered CRAs. However, the empirical results suggest that the rating scales used by Chinese CRAs are not comparable to those of international CRAs. Furthermore, Chinese CRAs have very broad rating scales and pool bonds with significantly different default risks into a single rating category, resulting in over 90% of bonds in only three rating categories.

      PubDate: 2017-10-18T04:40:10Z
      DOI: 10.1016/j.jbankfin.2017.09.020
       
  • Measuring firm size in empirical corporate finance
    • Authors: Chongyu Dang; Zhichuan (Frank) Chen Yang
      Abstract: Publication date: January 2018
      Source:Journal of Banking & Finance, Volume 86
      Author(s): Chongyu Dang, Zhichuan (Frank) Li, Chen Yang
      In empirical corporate finance, firm size is commonly used as an important, fundamental firm characteristic. However, no research comprehensively assesses the sensitivity of empirical results in corporate finance to different measures of firm size. This paper fills this hole by providing empirical evidence for a “measurement effect” in the “size effect”. In particular, we examine the influences of employing different proxies (total assets, total sales, and market capitalization) of firm size in 20 prominent areas in empirical corporate finance research. We highlight several empirical implications. First, in most areas of corporate finance the coefficients of firm size measures are robust in sign and statistical significance. Second, the coefficients on regressors other than firm size often change sign and significance when different size measures are used. Unfortunately, this suggests that some previous studies are not robust to different firm size proxies. Third, the goodness of fit measured by R-squared also varies with different size measures, suggesting that some measures are more relevant than others in different situations. Fourth, different proxies capture different aspects of “firm size”, and thus have different implications. Therefore, the choice of size measures needs both theoretical and empirical justification. Finally, our empirical assessment provides guidance to empirical corporate finance researchers who must use firm size measures in their work.

      PubDate: 2017-10-11T17:13:46Z
       
  • Timing of Banks’ Loan Loss Provisioning During the Crisis
    • Authors: Leo Haan; Maarten R.C. van Oordt
      Abstract: Publication date: Available online 10 October 2017
      Source:Journal of Banking & Finance
      Author(s): Leo de Haan, Maarten R.C. van Oordt
      We estimate a panel error correction model for loan loss provisions, using unique supervisory data on flow of funds into and out of the allowance for loan losses of 25 Dutch banks in the post-2008 crisis period. We find that these banks aim for an allowance of 49% of impaired loans. In the short run, however, the adjustment of the allowance is only 29% of the change in impaired loans. The deviation from the target is made up by (a) larger additions to allowances in subsequent quarters and (b) smaller reversals of allowances when loan losses do not materialize. After one quarter, the adjustment toward the target level is 32%, and after four quarters it is 79%. For individual banks, there are substantial differences in timing of provisioning for bad loan losses.

      PubDate: 2017-10-11T17:13:46Z
       
  • Can Lenders Discern Managerial Ability from Luck' Evidence from Bank
           Loan Contracts
    • Authors: Dien Giau Bui; Yan-Shing Chen; Iftekhar Hasan; Chih-Yung Lin
      Abstract: Publication date: Available online 2 October 2017
      Source:Journal of Banking & Finance
      Author(s): Dien Giau Bui, Yan-Shing Chen, Iftekhar Hasan, Chih-Yung Lin
      We investigate the effect of managerial ability versus luck on bank loan contracting. Borrowers showing a persistently superior managerial ability over previous years (more likely due to ability) enjoy a lower loan spread, while borrowers showing a temporary superior managerial ability (more likely due to luck) do not enjoy any spread reduction. This finding suggests that banks can discern ability from luck when pricing a loan. Firms with high-ability managers are more likely to continue their prior lower loan spread. The spread-reduction effect of managerial ability is stronger for firms with weak governance structures or poor stakeholder relationships, corroborating the notion that better managerial ability alleviates borrowers’ agency and information risks. We also find that well governed banks are better able to price governance into their borrowers’ loans, which helps explain why good governance enhances bank value.

      PubDate: 2017-10-04T08:19:09Z
      DOI: 10.1016/j.jbankfin.2017.09.023
       
  • The Skewness of Commodity Futures Returns
    • Authors: Adrian Fernandez-Perez; Bart Frijns; Ana-Maria Fuertes; Joelle Miffre
      Abstract: Publication date: Available online 25 September 2017
      Source:Journal of Banking & Finance
      Author(s): Adrian Fernandez-Perez, Bart Frijns, Ana-Maria Fuertes, Joelle Miffre
      This article studies the relation between the skewness of commodity futures returns and expected returns. A trading strategy that takes long positions in commodity futures with the most negative skew and shorts those with the most positive skew generates significant excess returns that remain after controlling for exposure to well-known risk factors. A tradeable skewness factor explains the cross-section of commodity futures returns beyond exposures to standard risk premia. The impact that skewness has on future returns is explained by investors’ preferences for skewness under cumulative prospect theory and selective hedging practices.

      PubDate: 2017-09-26T15:35:10Z
      DOI: 10.1016/j.jbankfin.2017.06.015
       
  • Absorptive capacity, technology spillovers, and the cross-section of stock
           returns
    • Authors: Jong-Min
      Abstract: Publication date: December 2017
      Source:Journal of Banking & Finance, Volume 85
      Author(s): Jong-Min Oh
      In the presence of potential technology spillovers, I demonstrate that a firm's absorptive capacity (AC), as proxied by R&D investments, is crucial to benefit from spillovers. I find that higher AC firms, when exposed to large potential spillovers, exhibit stronger future real outcomes (cite-weighted patents and operating performance) and market value. Importantly, however, this value-relevant information does not appear to be immediately incorporated into stock prices, leading to high future abnormal stock returns for firms with high AC and spillover exposure. Furthermore, the undervaluation is most pronounced among low investor attention stocks, suggesting that limited attention contributes to the undervaluation.

      PubDate: 2017-09-20T03:01:53Z
       
  • Monetary Policy Uncertainty and the Market Reaction to Macroeconomic News
    • Authors: Alexander Kurov; Raluca Stan
      Abstract: Publication date: Available online 14 September 2017
      Source:Journal of Banking & Finance
      Author(s): Alexander Kurov, Raluca Stan
      We examine whether monetary policy uncertainty influences the reaction of the equity, Treasury security, foreign exchange and crude oil markets, as well as medium-term interest rates, to U.S. macroeconomic announcements. Using intraday futures data, we show that in the presence of higher policy uncertainty the response to macroeconomic news weakens in the stock and crude oil markets and strengthens in the Treasury, interest rate and foreign exchange markets. In times of elevated monetary policy uncertainty, macroeconomic announcements impact the financial and crude oil markets to a large extent through expectations of future monetary policy.

      PubDate: 2017-09-14T09:26:44Z
      DOI: 10.1016/j.jbankfin.2017.09.005
       
  • Are Correlations Constant' Empirical and Theoretical Results on
           Popular Correlation Models in Finance
    • Authors: Zeno Adams; Roland Füss; Thorsten Glück
      Abstract: Publication date: Available online 14 July 2017
      Source:Journal of Banking & Finance
      Author(s): Zeno Adams, Roland Füss, Thorsten Glück
      Multivariate GARCH models have been designed as an extension of their univariate counterparts. Such a view is appealing from a modeling perspective but imposes correlation dynamics that are similar to time-varying volatility. In this paper, we argue that correlations are quite different in nature. We demonstrate that the highly unstable and erratic behavior that is typically observed for the correlation among financial assets is to a large extent a statistical artefact. We provide evidence that spurious correlation dynamics occur in response to financial events that are sufficiently large to cause a structural break in the time-series of correlations. A measure for the autocovariance structure of conditional correlations allows us to formally demonstrate that the volatility and the persistence of daily correlations are not primarily driven by financial news but by the level of the underlying true correlation. Our results indicate that a rolling-window sample correlation is often a better choice for empirical applications in finance.

      PubDate: 2017-07-24T00:40:07Z
      DOI: 10.1016/j.jbankfin.2017.07.003
       
  • Intraday online investor sentiment and return patterns in the U.S. stock
           market
    • Authors: Thomas Renault
      Abstract: Publication date: Available online 12 July 2017
      Source:Journal of Banking & Finance
      Author(s): Thomas Renault
      We implement a novel approach to derive investor sentiment from messages posted on social media before we explore the relation between online investor sentiment and intraday stock returns. Using an extensive dataset of messages posted on the microblogging platform StockTwits, we construct a lexicon of words used by online investors when they share opinions and ideas about the bullishness or the bearishness of the stock market. We demonstrate that a transparent and replicable approach significantly outperforms standard dictionary-based methods used in the literature while remaining competitive with more complex machine learning algorithms. Aggregating individual message sentiment at half-hour intervals, we provide empirical evidence that online investor sentiment helps forecast intraday stock index returns. After controlling for past market returns, we find that the first half-hour change in investor sentiment predicts the last half-hour S&P 500 index ETF return. Examining users’ self-reported investment approach, holding period and experience level, we find that the intraday sentiment effect is driven by the shift in the sentiment of novice traders. Overall, our results provide direct empirical evidence of sentiment-driven noise trading at the intraday level.

      PubDate: 2017-07-24T00:40:07Z
      DOI: 10.1016/j.jbankfin.2017.07.002
       
  • House Prices, Consumption and the Role of Non-Mortgage Debt
    • Authors: Katya Kartashova; Ben Tomlin
      Abstract: Publication date: Available online 3 July 2017
      Source:Journal of Banking & Finance
      Author(s): Katya Kartashova, Ben Tomlin
      This paper evaluates the strength of the relationship between house prices and consumption, through the use of debt. Whereas the existing literature has largely studied the effects of house prices on homeowner total or mortgage debt, we focus on the non-mortgage component of household borrowing, using Canadian household-level data for 1999-2007. We rely on variation in regional house prices, homeownership status and age to establish the relationship between house prices and non-mortgage debt. Then, using direct information on debt uses, we determine that house price growth was associated with a non-trivial fraction of concurrent aggregate non-housing consumption growth.

      PubDate: 2017-07-12T01:38:37Z
      DOI: 10.1016/j.jbankfin.2017.06.012
       
  • The q-Factors and Expected Bond Returns
    • Authors: Benedikt Franke; Sebastian Müller; Sonja Müller
      Abstract: Publication date: Available online 16 June 2017
      Source:Journal of Banking & Finance
      Author(s): Benedikt Franke, Sebastian Müller, Sonja Müller
      This study provides new insight into the recent debate on profitability and investment patterns in the cross-section of expected returns. Relying on implied risk premia of U.S. corporate bonds, we document a strong negative relation between exposure to the profitability factor and cost of debt. We do not observe a robust relation between exposure to the investment factor and cost of debt. Our findings are consistent with profitability being a risk factor, but suggest that high profitability implies lower (and not higher) risk. Because the market portfolio consists of all risky assets including corporate bonds, our findings challenge a risk-based explanation for the profitability and investment patterns in stock returns.

      PubDate: 2017-06-22T11:49:00Z
      DOI: 10.1016/j.jbankfin.2017.06.005
       
 
 
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