Symmetric and Asymmetric Market Betas and Downside Risk

Abstract Our paper explores whether a symmetric plain or an asymmetric down-beta is a better hedging measure (Roy 1952; Markowitz 1959). Unlike Ang, Chen, and Xing (2006) and Lettau, Maggiori, and Weber (2014), we find that the prevailing plain market beta is the better predictor, even for crashes. It also predicts the subsequent down-beta (i.e., beta measured only on days when the stock market had declined) better than down-beta itself. Stocks with higher down-betas ex ante also do not earn higher average rates of return ex post. Thus, down-betas are useful for neither hedging nor risk-pricing purposes.

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Do Rewards Encourage Professional Skepticism? It Depends

The Accounting Review ◽

10.2308/tar-2019-0361 ◽

2021 ◽

Author(s):

Joseph F. Brazel ◽

Justin Leiby ◽

Tammie Schaefer

Keyword(s):

Audit Quality ◽

Downside Risk ◽

Willingness To Communicate ◽

Red Flags ◽

Cultural Shift ◽

Professional Skepticism ◽

Ex Post ◽

Expected Outcome ◽

Gain Frame ◽

Better Than

In three experiments, we find that rewarding professional skepticism can backfire and decrease skepticism on future audit tasks where red flags are present. We focus on rewards for costly skepticism: skepticism that is ex ante appropriate but generates incremental ex post costs and does not identify a misstatement. Auditors interpret a reward for costly skepticism as a better-than-expected outcome and view subsequent tasks from a risk-averse gain frame. As a result, auditors seek to avoid the downside risk of skeptical action, which decreases auditors' sensitivity to red flags and their willingness to communicate severe red flags to their managers, compromising audit quality. However, we also find that a supervisor consistently rewarding costly skepticism decreases auditors' risk aversion and increases their skepticism. In sum, auditors believe skeptical action has downside risk. A cultural shift towards credible, consistent rewards for appropriate skepticism likely helps ensure that rewards have their intended effect.

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The Economics of the Fed Put

Review of Financial Studies ◽

10.1093/rfs/hhaa116 ◽

2020 ◽

Author(s):

Anna Cieslak ◽

Annette Vissing-Jorgensen

Keyword(s):

Decision Making ◽

Stock Market ◽

Moral Hazard ◽

Stock Returns ◽

Risk Taking ◽

Textual Analysis ◽

Policy Makers ◽

Primary Mechanism ◽

Ex Post ◽

Ex Ante

Abstract Since the mid-1990s, negative stock returns comove with downgrades to the Fed’s growth expectations and predict policy accommodations. Textual analysis of FOMC documents reveals that policy makers pay attention to the stock market. The primary mechanism is their concern with the consumption wealth effect, with a secondary role for the market predicting the economy. We find little evidence of the Fed overreacting to the market in an ex post sense (reacting beyond the market’s effect on growth expectations). Although policy makers are aware that the Fed put could induce risk-taking, moral hazard considerations appear not to significantly affect their decision-making ex ante.

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Resource Complementarity and Performance in Technology-Intensive Mergers and Acquisitions

International Studies Review ◽

10.1163/2667078x-00701003 ◽

2006 ◽

Vol 7 (1) ◽

pp. 47-73

Author(s):

Won-Seok Woo

Keyword(s):

Stock Market ◽

Mergers And Acquisitions ◽

Sales Growth ◽

Market Returns ◽

Performance Impact ◽

Stock Market Returns ◽

Positive Effects ◽

Ex Post ◽

Resource Complementarity ◽

Ex Ante

This paper examines the influence of complementarity between technological resources and functional resources in ex-post performance of mergers and acquisitions. While prior work has looked at complementarity as an indication of fit within a particular resource domain, this study focused on the complementarity between different resource domains. We specifically tested the performance impact associated with complementarity between the technological resources of the one merger partner and the functional resources of the other merger partner, including financial, marketing and operational resources. Performance was measured in both marker-based (i.e., ex ante stock market returns at announcement) and operational terms (i.e., ex post increases in sales revenues of the combined firm). Our results indicate that complementarities between a target’s technological resources and the acquirer’s financial and marketing resources produce positive effects on post-merger sales growth and ex-ante stock market returns. Surprisingly, our results also revealed that complementarity between the target's technological resources and the acquirer’s operational resources had a negative effect on posr merger sales growth. We discuss the implications of these findings for managers contemplating mergers and acquisitions.

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