Research seminars

The end-of-the-year effect: Global economic growth and expected returns around the world

Finance

Speaker: Jesper Rangvid
Copenhagen Business School

7 May 2015

Download

We show that global economic growth at the end of the year strongly predicts returns on a wide spectrum of international asset markets, such as global, regional, and individual-country stock markets, foreign exchange, bonds, and commodities. Global economic growth at other times of the year does not predict international returns. Global economic growth at the end of the year, and only at the end of the year, predicts returns both in countries where institutional (end of tax year) and cultural events (New Year) are concentrated at the end of the year, but also in countries where they are not. We find that it is global, and not, e.g., US economic growth, that predicts returns. We also find that global economic growth at the end of the year predicts returns because it predicts shocks to discount rates but not shocks to cash flows. Finally, year-end global economic activity does not predict global stock market uncertainty or business cycle indicators.

Operating Leverage, Risk Taking and Coordination Failures

Finance

Speaker: Matthieu Bouvard
Desautels Faculty of Management

14 June 2018 - S125 - From 2:00 pm to 3:15 pm

Download

We study an economy with demand spillovers where firms' decisions to produce are strategic complements. Firms have access to an increasing returns to scale technology and choose their operating leverage trading off higher fixed costs for lower variable costs. Operating leverage raises the sensitivity of firms' profits to an aggregate labor productivity shock, thereby magnifying systematic risk. We show that firms take excessive risk as they do not internalize that higher operating leverage increases the likelihood of a coordination failure where output is infficiently depressed across the economy. More generally, our analysis suggests that individual risk-taking decisions aggregate into excessive output volatility in the presence of strategic complementarities among agents.

The Origins and Real Effects of the Gender Gap: Evidence from CEOs’ Formative Years∗

Finance

Speaker: Mikhail Simutin
Rotman School of Management

7 June 2018 - T004 - From 10:00 am to 12:30 pm

Download

CEOs allocate more investment capital to male than female division managers. Using data from individual Census records, we find that this gender gap is driven by CEOs who grew up in male-dominated families—those where the father was the only income earner and had more education than the mother. The gender gap also increases for CEOs who attended all-male high schools and grew up in neighborhoods with greater gender inequality. The effect of gender on capital budgeting introduces frictions and erodes investment efficiency. Overall, the gender gap originates in CEO preferences developed during formative years and produces significant real effects.

Disclosure, Competition, and Learning from Asset Prices

Finance

Speaker: Liyan Yang
Rotman School of Management

31 May 2018 - T027 - From 2:00 pm to 3:15 pm

Download

This paper studies the classic information-sharing problem in a duopoly setting in which firms learn information from a financial market. By disclosing information, a firm incurs a proprietary cost of losing competitive advantage to its rival firm but benefits from learning from a more informative asset market. Firms' disclosure decisions can exhibit strategic complementarity, which is strong enough to support both a disclosure equilibrium and a nondisclosure equilibrium. Allowing minimal learning from asset prices dramatically changes firms' disclosure behaviors: without learning from prices, firms do not disclose at all; but with minimal learning from prices, firms can almost fully disclose their information. Learning from asset prices benefits firms, consumers, and liquidity traders, but harms financial speculators.

Alpha Decay*

Finance

Speaker: Anton Lines
Columbia Business School

24 May 2018 - T020 - From 2:00 pm to 3:15 pm

Download

Using a novel sample of professional asset managers, we document positive incremental alpha on newly purchased stocks that decays over twelve months. While managers are successful forecasters at these short-to-medium horizons, their average holding period is substantially longer (2.2 years). Both slow alpha decay and the horizon mismatch can be explained by strategic trading behavior. Managers accumulate positions gradually and unwind gradually once the alpha has run out; they trade more aggressively when the number of competitors and/or correlation among information signals is high, and do not increase trade size after unexpected capital flows. Alphas are lower when competition/correlation increases.

What is the Expected Return on a Stock?

Finance

Speaker: Ian Martin
LSE

17 May 2018 - From 2:00 pm to 3:15 pm


We derive a formula that expresses the expected return on a stock in terms of the risk-neutral variance of the market and the stock’s excess risk-neutral variance relative to the average stock. These quantities can be computed fromindex and stock option prices; the formula has no free parameters. We run panel regressions of realized stock returns onto risk-neutral variances, and find that the theory performs well at 6-month, 1-year, and 2-year forecasting horizons. The formula drives out beta, size, book-to-market and momentum, and outperforms a range of competitors in forecasting stock returns out of sample. Our results suggest that there is considerably more variation in expected returns, both over time and across stocks, than has previously been acknowledged.


JavaScriptSettings