Learning, Fast or Slow

2019 ◽  
Vol 10 (1) ◽  
pp. 61-93 ◽  
Author(s):  
Brad M Barber ◽  
Yi-Tsung Lee ◽  
Yu-Jane Liu ◽  
Terrance Odean ◽  
Ke Zhang
Keyword(s):  
Trading Volume ◽  
Learning Models ◽  
Day Trading ◽  
Rational Models ◽  
Oxford University ◽  
Rational Learning ◽  
History Of ◽  
Editorial Decision ◽  
Speculative Trading ◽  
Published Paper

Abstract Rational models claim “trading to learn” explains widespread excessive speculative trading and challenge behavioral explanations of excessive trading. We argue rational learning models do not explain speculative trading by studying day traders in Taiwan. Consistent with previous studies of learning, unprofitable day traders are more likely than profitable traders to quit. Consistent with models of overconfidence and biased learning (but not with rational learning), the aggregate performance of day traders is negative; 74% of day trading volume is generated by traders with a history of losses; and 97% of day traders are likely to lose money in future day trading. Received: March 4, 2019; Editorial decision: May 16, 2019 by Editor: Jeffrey Pontiff. 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.

scholarly journals First to “Read” the News: News Analytics and Algorithmic Trading

2019 ◽  
Vol 10 (1) ◽  
pp. 122-178 ◽  
Author(s):  
Bastian von Beschwitz ◽  
Donald B Keim ◽  
Massimo Massa
Keyword(s):  
Stock Price ◽  
Trading Volume ◽  
Press Releases ◽  
Oxford University ◽  
Volume Response ◽  
Speed Up ◽  
Editorial Decision ◽  
Price Distortions ◽  
Published Paper ◽  
Identification Strategy

Abstract Exploiting a unique identification strategy based on inaccurate news analytics, we document an effect of news analytics on the market independent of the informational content of the news. We show that news analytics speed up the stock price and trading volume response to articles, but reduce liquidity. Inaccurate news analytics lead to small price distortions that are corrected quickly. The market impact of news analytics is greatest for press releases, as news analytics exhibit a particular skill in “seeing through” the positive spin of press releases. Furthermore, we provide evidence that high-frequency traders rely on the information from news analytics for directional trading on company-specific news. Received: May 17, 2018; Editorial decision: June 14, 2019 by Editor: Thierry Foucault. 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.

Financial Markets with Trade on Risk and Return

2019 ◽  
Vol 32 (10) ◽  
pp. 4042-4078 ◽  
Author(s):  
Kevin Smith
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Private Information ◽  
Trading Volume ◽  
Variance Risk Premium ◽  
Oxford University ◽  
Editorial Decision ◽  
Variance Risk ◽  
The Relationship ◽  
Published Paper

Abstract In this paper, I develop a model in which risk-averse investors possess private information regarding both a stock’s expected payoff and its risk. These investors trade in the stock and a derivative whose payoff is driven by the stock’s risk. In equilibrium, the derivative is used to speculate on the stock’s risk and to hedge against adverse fluctuations in the stock’s risk. I analyze the derivative price and variance risk premium that arise in this equilibrium and their predictive power for stock returns. Finally, I examine the relationship between prices and trading volume in the stock and derivative. Received July 31, 2017; editorial decision December 3, 2018 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.

scholarly journals Multinational Banks and Supranational Supervision

2018 ◽  
Vol 32 (8) ◽  
pp. 2997-3035 ◽  
Author(s):  
Giacomo Calzolari ◽  
Jean-Edouard Colliard ◽  
Gyongyi Lóránth
Keyword(s):  
Organizational Structure ◽  
Organizational Structures ◽  
Unintended Consequences ◽  
Coordination Failures ◽  
The Public ◽  
Oxford University ◽  
Multinational Banks ◽  
Editorial Decision ◽  
Public Costs ◽  
Published Paper

Abstract Supervision of multinational banks (MNBs) by national supervisors suffers from coordination failures. We show that supranational supervision solves this problem and decreases the public costs of an MNB’s failure, taking its organizational structure as given. However, the MNB strategically adjusts its structure to supranational supervision. It converts its subsidiary into a branch (or vice versa) to reduce supervisory monitoring. We identify the cases in which this endogenous reaction leads to unintended consequences, such as higher public costs and lower welfare. Current reforms should consider that MNBs adapt their organizational structures to changes in supervision. Received January 9, 2017; editorial decision September 15, 2018 by Editor Philip Strahan. 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.

scholarly journals The Effects of Losing a Business Group Affiliation

2018 ◽  
Vol 32 (8) ◽  
pp. 3036-3074 ◽  
Author(s):  
Borja Larrain ◽  
Giorgo Sertsios ◽  
Francisco Urzúa I
Keyword(s):  
Business Group ◽  
The Other ◽  
Group Affiliation ◽  
Oxford University ◽  
Capital Misallocation ◽  
Editorial Decision ◽  
Business Group Affiliation ◽  
Industry Peers ◽  
Published Paper ◽  
Identification Strategy

Abstract We propose a novel identification strategy for estimating the effects of business group affiliation. We study two-firm business groups, some of which split up during the sample period, leaving some firms as stand-alone firms. We instrument for stand-alone status using shocks to the industry of the other group firm. We find that firms that become stand-alone reduce leverage and investment. Consistent with collateral cross-pledging, the effects are more pronounced when the other firm had high tangibility. Consistent with capital misallocation in groups, the reduction in leverage is stronger in firms that had low (high) profitability (leverage) relative to industry peers. Received July 3, 2017; editorial decision April 7, 2018 by Editor Wei Jiang. 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.

scholarly journals Noncognitive Abilities and Financial Distress: Evidence from a Representative Household Panel

2019 ◽  
Vol 32 (10) ◽  
pp. 3884-3919 ◽  
Author(s):  
Gianpaolo Parise ◽  
Kim Peijnenburg
Keyword(s):  
Financial Distress ◽  
Web Site ◽  
Income Shocks ◽  
Oxford University ◽  
Editorial Decision ◽  
Differential Exposure ◽  
Published Paper ◽  
Oxford University Press ◽  
Low Ability

AbstractThis paper provides evidence of how noncognitive abilities affect financial distress. In a representative panel of households, we find that people in the bottom quintile of noncognitive abilities are 10 times more likely to experience financial distress than those in the top quintile. We provide evidence that this relation largely arises from worse financial choices and lack of financial insight by low-ability individuals and reflects differential exposure to income shocks only to a lesser degree. We mitigate endogeneity concerns using an IV approach and an extensive set of controls. Implications for policy and finance research are discussed.Received September 24, 2017; editorial decision September 26, 2018 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.

scholarly journals Contingent Capital Trigger Effects: Evidence from Liability Management Exercises

2019 ◽  
Vol 8 (2) ◽  
pp. 235-259 ◽  
Author(s):  
Boris Vallée
Keyword(s):  
Time Series ◽  
Cross Section ◽  
Web Site ◽  
Regulatory Capital ◽  
Oxford University ◽  
Contingent Capital ◽  
Liability Management ◽  
Editorial Decision ◽  
Debt Holders ◽  
Published Paper

AbstractThis paper studies liability management exercises (LME) by banks, which have comparable regulatory capital effects than contingent capital triggers. LMEs are concentrated on low capitalization situations, both in the cross-section and in the time series and are frequently associated with equity issuances. These exercises prove effective at improving bank capitalization levels. The market reaction to LMEs is positive and mostly accrues to debt holders. These findings strengthen the case for innovative liabilities securities as a tool to improve bank resilience.Received February 8, 2019; editorial decision May 16, 2019 by Editor Andrew Ellul. 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.

scholarly journals Auto Credit and the 2005 Bankruptcy Reform: The Impact of Eliminating Cramdowns

2019 ◽  
Vol 32 (12) ◽  
pp. 4734-4766 ◽  
Author(s):  
Rajashri Chakrabarti ◽  
Nathaniel Pattison
Keyword(s):  
Interest Rates ◽  
Strong Evidence ◽  
Web Site ◽  
Causal Effect ◽  
Oxford University ◽  
Editorial Decision ◽  
Historical Variation ◽  
The Impact ◽  
Published Paper ◽  
Rule Out

Abstract Auto lenders were perhaps the biggest winners of the 2005 Bankruptcy Reform, as Chapter 13 bankruptcy filers can no longer “cramdown” the amount owed on recent auto loans. We estimate the causal effect of this anticramdown provision on the price and quantity of auto credit. Exploiting historical variation in states’ usage of Chapter 13 bankruptcy, we find strong evidence that eliminating cramdowns decreased interest rates and some evidence that loan sizes increased among subprime borrowers. The decline in interest rates is persistent and is robust to a battery of sensitivity checks. We rule out other reform changes as possible causes. Received September 29, 2016; editorial decision January 15, 2019 by Editor Philip Strahan. 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.

Resiliency and Stock Returns

2019 ◽  
Vol 33 (2) ◽  
pp. 747-782
Author(s):  
Jian Hua ◽  
Lin Peng ◽  
Robert A Schwartz ◽  
Nazli Sila Alan
Keyword(s):  
Stock Returns ◽  
Web Site ◽  
Trading Volume ◽  
Expected Returns ◽  
Control Variables ◽  
Oxford University ◽  
And Control ◽  
Published Paper ◽  
Extensive List ◽  
Oxford University Press

Abstract We present resiliency as a measure of liquidity and assess its relationship to expected returns. We establish a covariance-based measure, RES, that captures opening period resiliency, and use it to find a significant nonresiliency premium that ranges from 33 to 57 basis points per month. The premium persists after accounting for an extensive list of other liquidity-related measures and control variables. The results are significant for both value-weighted and equal-weighted returns, when micro-cap stocks are excluded, and for a sample of large cap stocks. The premium is particularly pronounced when trading volume is high. 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.

scholarly journals Socioeconomic Status and Macroeconomic Expectations

2019 ◽  
Vol 33 (1) ◽  
pp. 395-432 ◽  
Author(s):  
Sreyoshi Das ◽  
Camelia M Kuhnen ◽  
Stefan Nagel
Keyword(s):  
Socioeconomic Status ◽  
Stock Market ◽  
Durable Goods ◽  
Low Ses ◽  
Market Returns ◽  
Stock Market Returns ◽  
Oxford University ◽  
Editorial Decision ◽  
Business Conditions ◽  
Published Paper

Abstract We show that individuals’ macroeconomic expectations are influenced by their socioeconomic status (SES). People with higher income or higher education are more optimistic about future macroeconomic developments, including business conditions, the national unemployment rate, and stock market returns. The spread in beliefs between high- and low-SES individuals diminishes significantly during recessions. A comparison with professional forecasters and historical data reveals that the beliefs wedge reflects excessive pessimism on the part of low-SES individuals. SES-driven expectations help explain why higher-SES individuals are more inclined to invest in the stock market and more likely to consider purchasing homes, durable goods, or cars. Received November 13, 2017; editorial decision February 12, 2019 by Editor Wei Jiang. 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.

scholarly journals The Wisdom of Crowds in FinTech: Evidence from Initial Coin Offerings

2021 ◽  
Author(s):  
Jongsub Lee ◽  
Tao Li ◽  
Donghwa Shin
Keyword(s):  
Career Concerns ◽  
Wisdom Of Crowds ◽  
Diverse Group ◽  
Oxford University ◽  
Long Run ◽  
Diverse Backgrounds ◽  
Editorial Decision ◽  
Published Paper ◽  
Initial Coin Offerings ◽  
The Wisdom Of Crowds

Abstract Certification by analysts on a FinTech platform that harnesses the “wisdom of crowds” is associated with successful initial coin offerings (ICOs). We show that favorable ratings by a group of analysts with diverse backgrounds positively predict fundraising success and long-run token performance. Analysts’ ratings also help detect potential fraud ex ante. We document that analysts have career concerns and are incentivized by the platform to issue informative ratings. Overall, our results suggest that a market-based certification process that relies on a diverse group of individuals is at play in financing blockchain startups. (JEL D82, G11, G24, G32, G34, L26). Received February 25, 2021; editorial decision July 7, 2021 by Editor Andrew Ellul. 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.

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