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on Financial Markets |
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Issue of 2024‒03‒04
five papers chosen by |
| By: | B. N. Kausik |
| Abstract: | Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient markets the utility of money is polymorphic, with risk aversion dependent on the information available in each context, i.e. the discount on each future cash flow depends on all information available on that cash flow. Specifically, we prove that in efficient markets, informed investors maximize return on volatility by being risk-neutral with riskless bonds, and risk-averse with equities, thereby resolving the puzzle. We validate our results on historical data with surprising consistency. JEL Classification: C58, G00, G12, G17 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.09265&r=fmk |
| By: | Cici, Gjergji; Schuster, Philipp; Weishaupt, Franziska |
| Abstract: | Mutual fund families are increasingly assigning traders to manage corporate bond mutual funds. Using this setting to study the role of traders in investment management, we document that trader managers identify and exploit short-term trading opportunities at lower transaction costs. These skills are particularly valuable during periods of market stress. Moreover, trader managers exhibit sophisticated risk management behavior: They reduce credit risk during periods of market stress and take more maturity risk during periods of large interest rate fluctuations, while holding portfolios with greater convexity. The combination of these skills produces relative outperformance during periods of large interest rate fluctuations. |
| Keywords: | traders, fund managers, transaction costs, corporate bonds |
| JEL: | G11 G23 D83 J24 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfrwps:283003&r=fmk |
| By: | Renjie, Rex Wang; Xia, Shuo |
| Abstract: | This paper documents the rise of "poison bonds", which are corporate bonds that allow bondholders to demand immediate repayment in a change-of-control event. The share of poison bonds among new issues has grown substantially in recent years, from below 20% in the 90s to over 60% since mid-2000s. This increase is predominantly driven by investment-grade issues. We provide causal evidence that the pressure to eliminate poison pills has led firms to issue poison bonds as an alternative. Our analysis suggests that this practice entrenches incumbent managers and destroys shareholder value. Holding a portfolio of firms that remove poison pills but promptly issue poison bonds results in negative abnormal returns of -7.3% per year. Our findings have important implications for the agency theory of debt: (i) more debt may not discipline the management; and (ii) even without financial distress, managerial entrenchment can lead to agency conflicts between shareholders and creditors. |
| Keywords: | Abschottung des Managements, Agenturkosten für Schulden, Poison Pills, Poison Put, Schuldverträge |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:282993&r=fmk |
| By: | Dengxin Huang |
| Abstract: | This document presents a stock market analysis conducted on a dataset consisting of 750 instances and 16 attributes donated in 2014-10-23. The analysis includes an exploratory data analysis (EDA) section, feature engineering, data preparation, model selection, and insights from the analysis. The Fama French 3-factor model is also utilized in the analysis. The results of the analysis are presented, with linear regression being the best-performing model. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.10903&r=fmk |
| By: | Müller, Karsten (National University of Singapore, Department of Finance); Pan, Yuanyuan (National University of Singapore, Department of Finance); Schwarz, Carlo (Bocconi University, Department of Economics) |
| Abstract: | We investigate the effect of social media adoption on stock market participation in the United States. Using plausibly exogenous variation in the early adoption of Twitter across counties, we show that a 10% increase in social media usage is associated with a 2.5% higher rate of stock ownership and an overall increase in stock market wealth. Consistent with the idea that social media can lower the cost of accessing information, we find that Twitter adoption is associated with a decline in the number of financial advisors and has larger effects on stock ownership in counties with lower levels of pre-existing stock market knowledge. Twitter adoption also fuels interest in “meme stocks, †which tend to be more volatile and owned by retail investors. Overall, our results suggest a distinct impact of social media platforms on household portfolio choices that differs from that of other modern information technologies. |
| Keywords: | Social Media, Stock Market Participation, Household Finance, Participation Puzzle JEL Classification: |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:699&r=fmk |