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We propose target date funds modified to exploit stock return predictability driven by the variance risk premium. The portfolio rule of these tactical target date funds (TTDFs) is extremely simplified relative to the optimal one, making it easy to implement and to communicate to investors. We show that saving for retirement in TTDFs generates economically large welfare gains, even after we introduce turnover restrictions and transaction costs, and after taking into account parameter uncertainty. This predictability also appears to be uncorrelated with individual household risk, suggesting that households are in a prime position to exploit it. This paper was accepted by Tomasz Piskorski, finance.

We examine international equity allocations at the fund level and show how excess foreign returns influence portfolio rebalancing, capital flows, and currencies. Our equilibrium model of incomplete foreign exchange (FX) risk trading where exchange rate risk partially segments international equity markets is consistent with the observed dynamics of equity returns, exchange rates, and fund-level capital flows. We document that rebalancing is more intense under higher FX volatility and find heterogeneous rebalancing behavior across different fund characteristics. A granular instrumental variable approach identifies a positive currency supply elasticity. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Research background: An investment appraisal applies a single discount rate across all effects. However, this may be insufficient for heterogenous environmental impacts, mixing private and public goods as well as use and non-use values, where individuals may have multiple intertemporal preferences due to their duality to act as consumer or citizen. Purpose: The paper aims at identifying the scope of discrepancies in the level of discount rate for public and private as well as use-and non-use investment gains. Research methodology: The contingent valuation method is used to elicit stated discount rates for 2 hypothetical investments: environmental or financial gains to distinguish between public and private domain accompanied by two time-frames: short (use values) and long (non-use values). Results: The discount rate for the environment is lower than for money. It is also lower for the long-term horizon in comparison with the short-term perspective. The discrepancies are observed also for explanatory variables in respect to a socio-economic profile and attitude characteristics. Novelty: The paper adds to the discussion on valuation discrepancies between self-interested consumers and socially oriented citizens. The scarcity of previous research examining discount rates for public/private goods as well as the short/long-time horizon make the results relevant for public policy dealing with climate change and environmental protection, providing an insight into individual intertemporal preferences.

We present a simple, linear asset pricing model of the cross section of Mortgage-Backed Security (MBS) returns. MBS earn risk premia as compensation for their exposure to prepayment risk. We measure prepayment risk and estimate security risk loadings using real data on prepayment forecasts vs. realizations. Estimated loadings on prepayment risk are monotonically decreasing in securities’ coupons relative to the par coupon, as predicted by the fundamental effect of prepayment on the value of bonds trading above and below par. Prepayment risks appear to be priced by specialized MBS investors. In particular, we find convincing evidence that prepayment risk prices change sign over time with the sign of a representative MBS investor’s exposure to prepayment risk.

Relying on gender-role congruity theory, this paper investigates the relationship between the gender of the top management teams of venture philanthropy firms and their business risk-taking orientation. The research also assesses if and how experience moderates this relationship. Using a combination of survey data to capture the venture philanthropy firm’s risk orientation and biographical data to identify managers’ gender and experience, it finds that only gender affects business risk-orientation in these firms. Surprisingly, this is the opposite direction than expected, whereby teams with a higher proportion of women have a higher risk-taking profile. This suggests the need to revise the applicability of gender role congruity theory, the existence of a gender-bind dilemma, and the relevance of context in venture philanthropy.

This study provides descriptive evidence on how firms respond to activist short seller reports and how these responses are associated with outcomes for the targeted firms. We show that the frequency of these reports has grown substantially in recent years. Although we find that firms respond only 31% of the time, this rate increases substantially when the report is accompanied by significantly negative abnormal returns and when the report contains new evidence. Not responding is associated with a less negative stock price response at report release and fewer adverse outcomes. Firms that launch internal investigations following the report release have significantly higher subsequent rates of stock exchange delisting and SEC enforcement actions, and lower rates of being acquired. Overall, our results highlight the impact of activist short sellers on target firms and that firm responses are associated with material outcomes.

Value investing involves buying securities that appear cheap relative to some fundamental anchor. For equity investors, that anchor is typically a measure of intrinsic value linked to financial statements. Recently, much has been written about the death of value investing. Although undoubtedly many approaches to value investing have suffered recently, the authors find the suggestion that value investing is dead to be premature. Both from a theoretical and empirical perspective, expectations of fundamental information have been and continue to be an important driver of security returns. The authors also address critiques leveled at value investing and find them generally lacking in substance. TOPICSAnalysis of individual factors/risk premia, factor-based models, fundamental equity analysis Key Findings ▪ The authors address a series of possible (ex post) rationalizations of the recent underperformance of value strategies. They find little empirical evidence or theoretical foundation to support the criticisms. ▪ Building on prior academic research, the authors find strong evidence that fundamental information is relevant for stock prices. ▪ However, the authors find that there are periods in which stock prices become less connected to fundamental information; when value underperforms significantly, it is primarily attributable to a widening gap between prices and fundamentals.

Using the first reported case of COVID-19 in a given U.S. county as the event day, we find that firms headquartered in an affected county experience, on average, a 27-bps lower return in the 10-day post-event window. This negative effect nearly doubles in magnitude for firms in counties with a higher infection rate (−50 bps). We test a number of transmission channels. Firms belonging to labor-intensive industries and those located in counties with a large mobility decline have worse stock performance. Firms sensitive to COVID-19-induced uncertainty also exhibit more negative returns. Finally, more negative stock returns are associated with downward revisions in earnings forecasts.

We examine the economic determinants and consequences associated with the inclusion of covenants with similar levels of restrictiveness in bond contracts. Using a unique Moody’s bond covenant dataset, we develop measures that capture similarity in the restrictiveness of bond covenants relative to previously issued peer bonds. We document that the demand for similarity by issuers, their advisors and bond investors follows the predictions of sociological and economic theories. Further, consistent with similarity in covenants reducing bond investors’ information acquisition and processing costs, we show that bonds with more similar covenant restrictiveness receive lower yields at issuance. These bonds are also more likely to be held by long-term bond investors, such as insurance companies, and are characterized by greater liquidity in the secondary market, providing a partial explanation for the lower bond yields. Our results highlight the benefits of covenant similarity and suggest that the use of covenants with similar restrictiveness levels brings information acquisition and processing cost savings that may be larger than the monitoring benefits provided by covenants with more tailored features.

Using a novel pairwise measure of firms’ acquisition of rivals’ disclosures, we show that investment opportunities drive interfirm information flows. We find that these flows predict subsequent mergers and acquisitions as well as how and how much firms invest, relative to rivals. Moreover, firms’ use of rivals’ information often hinges on the similarities of their products. Our results suggest that rivals’ public information, far from being unusable, helps facilitate investment and product decisions, including acquisitions and product differentiation strategies. The findings also support a learning mechanism that could partly underlie the emerging literature on peer investment effects.

This study presents a field experiment we conducted in which media articles for a random sample of firms with earnings announcements are promoted to a one percent subset of Yahoo Finance users. The promoted firms have similar fundamental and earnings-news characteristics as control firms, yet we find that promoted firms have higher abnormal returns on the day of the earnings announcement, and some evidence of lower bid-ask spreads. Moreover, these results are more pronounced for less visible firms, negative earnings news, and on days with fewer promoted firms. We do not find evidence of significant increases in trading volume, or of information acquisition by users subject to the promotion. These findings suggest that investor attention affects the pricing of earnings and that retail investors buy stocks that catch their attention, in a setting where attention is randomly assigned.

Over the last few years, a lot of press, pundit, and political attention has been paid to share repurchases, much of it critical. Most repurchase critics assert that share repurchases are at historical highs and that dollars spent repurchasing shares would otherwise be directed toward profitable investment. Some also credit recent stock market gains to the “sugar high” of share repurchases. The authors show that most of these criticisms are without merit (at least, merit that can be demonstrated), sometimes glaringly so. Aggregate share repurchase activity has not been at historical highs when measured properly, and when netted against debt issuance it is almost a non-event: It does not mechanically create earnings growth, does not stifle aggregate investment activity, and has not been the primary cause for recent stock market strength. These myths should be discarded.

Style investing has become part of the investing nomenclature for equity markets. To date, despite the massive size of fixed-income markets, little research has examined the efficacy of style-based investing in fixed income. In this article, the authors summarize a common style-based framework for capturing excess returns for both government and corporate bonds. Importantly, from an investor perspective, these style-based excess returns are highly diversifying with respect to the classic risk premiums in fixed-income markets (i.e., term premium and credit risk premium) and exhibit low macroeconomic sensitivities.

In the article the analysis of international data collection systems for analysis of investment projects. Examples of the international statistical, financial and audit organizations publish articles and data which are necessary in the analysis of investment at the level of a single project, and at the level of the country. Analyzes the volume of investments in EU countries and Russian Federation, as well as comparative analysis. In Russia the analysis of dynamics of investments in fixed capital by kinds of economic activities are considered sources of financing. According to the results of the analysis of the findings and practical recommendations for improving the efficiency of the organization's funds.

Empirical evidence suggests that investor protection significantly affects ownership concentration and asset prices. We develop a dynamic asset pricing model to address the empirical regularities and uncover some of the underlying mechanisms at play. Our model features a controlling shareholder that endogenously accumulates control over a firm, and diverts a fraction of its output. Better investor protection decreases stock holdings of controlling shareholders, increases stock mean returns, and increases stock return volatilities when ownership concentration is sufficiently high, consistent with the related empirical evidence. The model also predicts that better protection increases interest rates and decreases the controlling shareholder’s leverage.Received August 14, 2017; editorial decision January 15, 2019 by Editor Stijn Van Nieuwerburgh. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Prior studies on the relation between corporate taxes and future macroeconomic growth present contradictory evidence. We argue this mixed evidence is at least partly due to the use of statutory corporate tax rates which ignore the complexity of tax exemptions, tax deductions, tax enforcement and firms’ tax planning. We propose an alternative tax rate measure that aggregates cash effective tax rates of listed firms, which reflect not only statutory tax rates, but also other features of the tax code, enforcement, and firms' tax planning. We find a strong robust negative relation between country-level effective tax rates and future macroeconomic growth.

We examine whether there is a correlation between personal wealth interests of politicians and their decisions to intervene in the economy. We use the setting of the government’s support of financial institutions under the 2008 Emergency Economic Stabilization Act (ESSA). We find that the personal wealth interests of politicians are positively associated with voting in favour of the EESA.

We use daily page views of analyst estimates, ratings, and target prices on Yahoo Finance to understand when users seek sell-side analyst research. Demand for this information is most pronounced on days with earnings announcements, management guidance, and All-Star analyst reports. Surprisingly, demand does not increase at Form 10-K and Form 10-Q filings. While the overall demand for analyst estimates is 19.9 percent less than for analyst ratings and target prices, on earnings announcement and management guidance days, this preference is reversed. Moreover, the demand for analyst information substantially trumps that of SEC filings and financial statement information. JEL Classifications: M41; G14; G24.

We propose two explanations for the previously documented relation between aggregate earnings growth and future inflation: one based on firms changing their investment in response to earnings growth, and the other based on consumers varying their consumption in response to wealth effects of profitability growth. As the supply of goods and services is relatively inelastic in the short run, our arguments imply that changes to near-term demand for investment (consumption) will affect the prices of investment (consumption) goods and services. Consistent with the investment-based argument, we find that profitability changes predict investment and Producer Price Index (PPI) shifts in subsequent quarters. Our analyses also reveal that aggregate earnings growth predicts future investment and PPI forecast errors. We find, at best, weak evidence for the consumption-based link between aggregate earnings growth and future inflation.

This paper examines how uncertainty affects corporate investment under varying degrees of asset redeployability. We develop new measures of asset redeployability by accounting for the usability of assets within and across industries. We identify plausibly exogenous shocks to economic uncertainty by using major economic and political events. We find that after an increase in uncertainty, firms using less redeployable capital reduce investment more. More redeployable assets exhibit higher recovery rates and are traded more actively in secondary markets. Overall, our results suggest that frictions in redeploying assets affect liquidation values and therefore make firms cautious about investment decisions under uncertainty.

Africa is a potential domain for international business. However, numerous uncertainties characterize this environment and the challenge for multinationals remains the ability to assess the true value of an Africa-bound investment project. A telecommunications’ survey was conducted on Siemens Southern Africa (Siemens) and Mobile Telecommunications’ Network (MTN) and the following observations were made: (1) Approaches used by the businesses to value Africa-bound investments were not comprehensive and inclusive. (2) Neutrality existed to the suggestion that Africa is unique and that investment decisions should be customized to suit it. (3) Certain approaches used by the businesses were modified to suit pertaining investment circumstances thereby differing from literature, and (4), participants desired to learn new ways of improving this process suggesting dissatisfaction with the current norm. This paper presents the conflicting ideologies about the decision-making process for business expansion into Africa and suggests ways of improving the process.

This paper exploits inter-temporal variations in employment protection across countries and finds that rigidities in labor markets are an important determinant of firms’ capital structure decisions. Over the 1985-2007 period, we find that reforms increasing employment protection are associated with a 187 basis point reduction in leverage. We interpret this finding to suggest that employment protection increases operating leverage, crowding out financial leverage. This result is robust across measures of employment protection and leverage, and does not appear to be due to pre-treatment differences between treated and control firms, omitted variables, unobserved changes in regional economic conditions, and reverse causality. Heterogeneous treatment effects are consistent with our economic intuition: we find that the negative effect is more pronounced in firms that are subject to frequent hiring and firing.

Risk management is an important component of project management. Nevertheless, such process begins with risk assessment and evaluation. In this research project, a detailed analysis of the methodologies used to treat risks in investment projects adopted by the Banco da Amazonia S.A. was made. Investment projects submitted to the FNO (Constitutional Fund for Financing the North) during 2011 and 2012 were considered for that purpose. It was found that the evaluators of this credit institution use multiple indicators for risk assessment which assume a central role in terms of decision-making and contribute for the approval or the rejection of the submitted projects; namely, the proven ability to pay, the financial records of project promotors, several financial restrictions, level of equity, level of financial indebtedness, evidence of the existence of a consumer market, the proven experience of the partners/owners in the business, environmental aspects, etc. Furthermore, the bank has technological systems to support the risk assessment process, an internal communication system and a unique system for the management of operational risk.

PurposeUncertainty affects all aspects of the property market, but one area where the impact of uncertainty is particularly significant is within feasibility analyses. Any development is impacted by differences between market conditions at the conception of the project and the market realities at the time of completion. This paper sets out to address this issueDesign/methodology/approachThe feasibility study needs to address the possible outcomes based on an understanding of the current market. This requires the appraiser to forecast the most likely outcome relating to the sale price of the completed development, the construction costs and the timing of both. It also requires the appraiser to understand the impact of finance on the project.FindingsThis allows the appraiser to address the issues of uncertainty involved and thus provide the decision maker with a better understanding of the risk of development. This technique is then refined using a “two‐dimensional technique” to distinguish between “uncertainty” and “variability” and thus create a more robust model.Originality/valueThe feasibility study needs to address the possible outcomes based on an understanding of the current market. This requires the appraiser to forecast the most likely outcome relating to the sale price of the completed development, the construction costs and the timing of both. It also requires the appraiser to understand the impact of finance on the project.