Recent Submissions

  • Jach, Agnieszka; Felixson, Karl (2019-12-16)
    Using novel, nonparametric comovement measures based on the Thick Pen Transform, we study the OMXH25 stocks in the post-financial-crisis decade. The new measures allow us to work with stationary returns and with nonstationary volumes. The comovement can be monitored in time, it is possible to distinguish between comovement on different time scales, and even cross-term comovement can be quantified. The approach is visually-interpretable and multivariate in nature. The results indicate the presence of a cyclical pattern in the relatively strong comovement of returns on semi-annual and annual time scales, with more oscillations in the comovement on quarterly and monthly time scales, and the presence of a slight increasing pattern in the relatively weak comovement of volumes on semi-annual and annual time scales. Cross-term dependence between Nokia’s weekly and monthly features in returns and longer-term features in returns of other stocks is more variable than that based on volumes.
  • Grinblatt, Mark; Wan, Kam-Ming (2019-11-06)
    Event study, panel regression, and difference-in-difference techniques are among the most prominent research methodologies in corporate finance. However, these techniques are inappropriate if corporate events are anticipated to some degree, as most events are. This paper proposes options as an additional model-free source of information to identify the likelihood and impact of corporate events. We show how to quantify event impact in a simple example and assert that few restrictions on the state space are required for the approach to work in more complex settings.
  • Cooper, Ilan; Fraga Martins Maio, Paulo (2018)
    We show that recent prominent equity factor models are to a large degree compatible with the Intertemporal CAPM (ICAPM) framework. Factors associated with alternative profitability measures forecast the equity premium in a way that is consistent with the ICAPM. Several factors based on firms’ asset growth predict a significant decline in stock market volatility, thus being consistent with their positive prices of risk. The investment-based factors are also strong predictors of an improvement in future economic activity. The time-series predictive ability of most equity state variables is not subsumed by traditional ICAPM state variables. Importantly, factors that earn larger risk prices tend to be associated with state variables that are more correlated with future investment opportunities or economic activity. Moreover, these risk price estimates can be reconciled with plausible risk-aversion parameter estimates. Overall, the ICAPM can be used as a common theoretical background for recent multifactor models.
  • Cooper, Ilan; Fraga Martins Maio, Paulo (2019)
    We estimate conditional multifactor models over a large cross section of stock returns matching 25 CAPM anomalies. Using conditioning information associated with different instruments improves the performance of the Hou, Xue, and Zhang (HXZ) (2015) and Fama and French (FF) (2015), (2016) models. The largest increase in performance holds for momentum, investment, and intangibles-based anomalies. Yet, there are significant differences in the performance of scaled models: HXZ clearly dominates FF in explaining momentum and profitability anomalies, while the converse holds for value-growth anomalies. Thus, the asset pricing implications of alternative investment and profitability factors (in a conditional setting) differ in a nontrivial way.
  • Liljeblom, Eva; Maury, Benjamin; Hörhammer, Alexander (2019-07-30)
    Purpose – State ownership has been common especially in industries with restricted competition. In Russia, state controlled firms represent around 41% of the market value of all listed firms (Deloitte, 2015). Yet, there is a significant gap in the literature regarding the effects of various forms of government control in listed firms. The purpose of this study is to fill this gap by exploring the impact of the complexity of state ownership and competition on the performance of Russian listed firms. Design/methodology/approach – The sample consists of data for 72 firms (360 firm-years) in the Russian MOEX broad market index during 2011-2015. The complexity of state ownership is captured by studying forms of state control including majority/minority, direct/indirect, federal/regional, mixed structures, and golden shares. Findings – We find significant differences in performance relating to different forms of state ownership. State control is negatively related to firm valuation and the sales/employees ratio. Performance is weakest when state ownership takes the form minority, regional, or direct ownership. State control through golden shares typically outperforms other state controlled firms. We find indications of employment prioritization beyond the economical optimum. In addition, the relation between state ownership and profitability becomes positive in sectors where state firms appear to enjoy lower competition. Originality/value – While the effects of state ownership have been studied on many markets, there is a lack of studies on the effects of different forms, or the complexity, of state ownership beyond direct and indirect ownership. We contribute to the literature on the performance effects of state ownership by studying a multitude of forms of governmental ownership as well as the role of competition in Russia. Especially the profitability of state controlled firms is significantly affected by industry characteristics. Implications of the results are discussed both from firm and policy maker perspectives.
  • Lundqvist, Alex; Liljeblom, Eva; Löflund, Anders; Maury, Benjamin (2019-07-24)
    Purpose The cultural and legal differences between foreign acquirers and African target firms can be substantial. There is also a large variation in cultures and legal systems within Africa. However, there is limited research on merger and acquisition (M&A) performance by foreign firms in Africa. The purpose of this paper is to fill this gap by exploring the “spillover by law” hypothesis (Martynova and Renneboog, 2008) that focuses on the influence of the external environment on the governance and performance of foreign M&As in Africa.   Design/methodology/approach The data set covers 415 M&A transactions by foreign firms in Africa during the period of 1999–2016. Dynamic data covering the country’s legal, cultural and political environment are collected from the World Bank, the Heritage Foundation and Transparency International.   Findings The authors find that the legal environment significantly affects the returns of bidders on African firms. For complete acquisitions, bidder returns are significantly higher when the bidder’s country has higher shareholder protection and higher creditor protection compared with the target firm’s country. The results show that the effects are significant when there is a full control change (including a change in the target firm’s nationality) but not in the case of partial control transfers. The results are consistent with the “spillover by law” hypothesis.   Originality/value The authors contribute to the literature on cross-border M&As by separately studying the valuation effects of full, majority and minority changes in control; by being the first study of the legal spillover effects in Africa; and by being the most extensive study of the legal determinants of the valuations of non-African acquirers of African firms.
  • Korkeamäki, Timo; Virk, Nader; Wang, Haizhi; Wang, Peng (2019-07-01)
    We analyze preferences of foreign institutional investors in the Chinese stock market in a sample that covers 2003 to 2014. We find that foreign investors changed their investment behavior during the sample period from generic patterns found in much of the world to China-specific patterns. The results suggest that foreign institutions learned to adjust their investment behavior to account for unique features of the Chinese market. Rather than following the diversified portfolio approach, they follow investment strategies that focus on a limited number of firm features.
  • Eckerberg, Katarina; Mertz, Ole; Liljeblom, Eva; Helmersson-Bergmark, Karin; Mitchell, Jon; Vestergaard, Niels (Research Council of Norway, 2018-08-30)
    The aim of the evaluation of Social Science research in Norway (SAMEVAL) was to review the present state of social science research in Norway as a basis for recommendations on the future development of research. The evaluation covered six research areas: geography, economics, political science, sociology, social anthropology and the economic-administrative research area. It included 3005 social scientists in total and 42 institutions, both 27 faculties/departments at universities and university colleges, and 15 publicly financed social science research institutes. The evaluation further comprised 136 research groups within those institutions. Based on the six disciplinary evaluation reports, the principal committee finds that a large number of institutions and research groups are performing well across the social sciences, above the Nordic and OECD averages in terms of the bibliometric analysis (Damvad 2017). A high proportion of the research groups evaluated are performing very well. The distribution of scientific grades is rather even among the six evaluated disciplines, and centred around the two grades good and very good, but with Social Anthropology and Economics performing particularly well compared to international standards. Still, there is an opportunity to get much more out of the social science research, to make further international impact, advance theoretical debates and develop critical thinking. The principal committee therefore calls for striking a better balance between basic and applied research. For institutions with high levels of core funding, this might involve directly allocating core funding to basic research. Elsewhere, more funding might be allocated to ‘free research’ in pursuit of more theoretically driven research as formulated by the researchers themselves rather than steered by programmatic topics. All of the panels were struck by the large number of institutions pursuing social science research, spread extensively over the country, with many research units separated even within a particular region. Creating critical mass of disciplinary research in rather small research groups and/or multidisciplinary environments therefore constitutes a considerable challenge. Various forms of national as well as international networking and collaboration within the disciplines is therefore imperative. The situation also calls for more strategic thought both by the Government and by the respective institutions as to who should do what, and how this might be sufficiently funded. In addition, the principal committee suggests that the PhD education could be strengthened by national coordination given the small numbers of disciplinary PhD students in almost all environments except the Oslo region. Interdisciplinary research is a strong feature of the Norwegian research landscape as compared with many other countries. Partly, this could be a reaction to the stronger emphasis on strategic and/or thematic research but it is also likely a response to resolving the issue of many small social science environments. While the strong interdisciplinary research is a considerable asset, there are also associated risks in how to assure sufficient disciplinary depth and methodological innovation in such research. The SAMEVAL evaluation called for assessing societal relevance and impact of social science research. However, a majority of institutions reported largely their dissemination activities, rather than the relevance and impact for different societal actors, suggesting that the methods and application of such assessments need to be further discussed and developed. Overall, however, there is no doubt that Norwegian social science has considerable relevance for a large range of public and private societal actors and activities, and that a large number of ‘good practice’ research impact cases were displayed by the social science institutions.
  • Mollah, Sabur; Liljeblom, Eva (2016-09-24)
    The global financial sector recently suffered from two interrelated crises: the credit crisis and the sovereign debt crisis. A common question is whether the recent experience with the credit crisis has helped in dealing with the sovereign debt crisis. We study more specifically whether banks with powerful CEOs perform better or worse than other banks, and if there is any difference in this relationship between the two crises. Using unique hand-collected data for 378 large global banks, we find that CEO power has a significant positive relation to bank profitability and asset quality, but also to insolvency risk, during the sovereign debt crisis. Thus, strong CEOs do not appear to be detrimental to bank performance. Our results also support the idea that deposit insurance may have contributed to the credit crisis.
  • Badshah, Ihsan; Frijns, Bart; Knif, Johan; Tourani-Rad, Alireza (2016-12)
    This study investigates the asymmetry of the intraday return-volatility relation at different return horizons ranging from 1, 5, 10, 15, up to 60 min and compares the empirical results with results for the daily return horizon. Using data on the S&P 500 (SPX) and the VIX from September 25, 2003 to December 30, 2011 and a Quantile-Regression approach, we observe strong negative return-volatility relation over all return horizons. However, this negative relation is asymmetric in three different aspects. First, the effects of positive and negative returns on volatility are different and more pronounced for negative returns. Second, for both positive and negative returns, the effect is conditional on the distribution of volatility changes. The absolute effect is up to five times larger in the extreme tails of the distribution. Third, at the intraday level, there is evidence of both autocorrelation in volatility changes and cross-autocorrelation with returns. This lead-lag relation with returns is also very asymmetric and more pronounced in the tails of the distribution. These effects are, however, not observed at the daily return horizon.
  • Fraga Martins Maio, Paulo; Philip, Dennis (2018)
    We show that economic activity plays an important role in explaining momentum-based anomalies. A simple two-factor model containing the market and alternative indicators of economic activity as risk factors—industrial production, capacity utilization rate, retail sales, and a broad economic index—offers considerable explanatory power for the cross-section of price and industry momentum portfolios. Hence past winners enjoy higher average returns than past losers because they have larger macroeconomic risk. The model compares favorably with popular multifactor models used in the literature. Moreover, our model is consistent with Merton’s Intertemporal CAPM framework, since the macro variables forecast stock market volatility and future economic activity.
  • Korkeamäki, Timo; Sihvonen, Jukka; Vähämaa, Sami (2018)
    We propose a novel approach to comparing publications across business disciplines. Specifically, we aim to provide an objective method for evaluating the interdisciplinary value of publications based on intradisciplinary author rankings. Using publication data from the leading journals in accounting, economics, finance, management, and marketing, we first construct intradisciplinary author rankings and then utilize these rankings to estimate the marginal effect of an additional publication on the individual's ranking within her own discipline. Based on the implied effort required to improve an individual's intradisciplinary ranking, we infer interdisciplinary “exchange rates” to evaluate the value of top-tier publications across disciplines. Our estimates indicate that the value of a single single-authored publication in a top-ranked journal is highest in accounting and lowest in marketing. We confirm the validity of our “exchange rate” approach by constructing an interdisciplinary author ranking in which authors from different disciplines are uniformly distributed across the ranking list.
  • Délèze, Frédéric; Korkeamäki, Timo (2018-06-01)
    In comparison to bank financing, public debt market may allow firms to more readily match maturity and risk structures between their assets and liabilities. We test whether new issuers on the European corporate bond markets experience a change in their interest rate sensitivity upon their bond issuance. We find that stock returns have become significantly less sensitive to interest rate fluctuations for firms that enter the publicly traded bond market. Our findings support the notion that firms manage their interest rate risk with new debt issues.
  • Colak, Gonul; Durnev, Artem; Qian, Yiming (2017-12-04)
    We analyze IPO activity under political uncertainty surrounding gubernatorial elections in the U.S. There are fewer IPOs originating from a state when it is scheduled to have an election. To establish identification, we develop a neighboring-states method that uses bordering states without elections as a control group. The dampening effect of elections on IPO activity is stronger for firms with more concentrated businesses in their home states, firms that are more dependent on government contracts (particularly state contracts), and harder-to-value firms. This dampening effect is related to lower IPO offer prices (hence higher costs of capital) during election years.
  • Högholm, Kenneth; Högholm, Victor (2017)
  • Maury, Benjamin (2017)
    This paper explores whether signals from changes in investors’ portfolio concentrations can be used to enhance the performance of portfolios based on value and quality at a reasonable price. Using data on all the more than a million investor portfolios participating in the Finnish stock market, I find that the information content of increases in average shareholder portfolio concentration can improve the performance of value and quality portfolios under certain conditions. Overall, the results show that portfolio concentration can be used as an additional signal to improve the performance of popular value- and quality-oriented investing strategies.
  • Buchanan, Bonnie; Cao, Xuying; Liljeblom, Eva; Weichrich, Susan (2016-06-01)
    We examine how firms respond to uncertainty around U.S. tax policy changes, namely the individual level tax rate increases set to take effect on January 1, 2011 and January 1, 2013. We provide evidence that firms time the uncertainty in the tax environment and revise their dividend policy to an expected tax increase. We find that firms are likely to initiate their dividends or intensively increase their existing dividend amount one year before the expected tax increase. In addition, in 2012 when there is much less uncertainty on dividend tax changes than in 2010, firms are less likely to initiate a regular dividend but are more likely to initiate special dividends. The results suggest that firms facing less tax uncertainty are less likely to make long-term commitments on regular dividend payments but are more likely to take advantage of the last-minute low tax benefits by issuing special dividends. Furthermore, the response to the possible elimination of tax cut was strongest in firms with high levels of tax-affected ownership, supporting the argument that when facing policy uncertainty, firms behave to prepare for the worst scenarios, where the worst scenario in our case is a tax increase.
  • Korkeamäki, Timo; Liljeblom, Eva; Pfister, Markus (2016-12)
    We study whether hedging affects firm value within the U.S. airline industry. In contrast to prior work in the area, we study hedging during a time window that includes periods of very high price risk. We find a relatively weak relationship between firm value and hedging. We further find that management ownership increases the firm’s degree of hedging. Finally, we find that especially during periods when firms are more heavily exposed to fuel price risk, the market value of passive hedgers is significantly higher than that of selective hedgers.
  • Korkeamäki, Timo; Sihvonen, Jukka; Vähämaa, Sami (2016)

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