ICAPM and the Accruals Anomaly

2020 ◽  
Vol 10 (03) ◽  
pp. 2050014 ◽  
Author(s):  
Hui Guo ◽  
Paulo Maio
Keyword(s):  
Business Cycle ◽  
Explanatory Power ◽  
Risk Premia ◽  
Key Factors ◽  
Baseline Model ◽  
Cross Sectional ◽  
Multifactor Models ◽  
Accruals Anomaly ◽  
The Business Cycle

We propose new multifactor models to explain the accruals anomaly. Our baseline model represents an application of Merton’s ICAPM in which the key factors represent (innovations on) the term and small-value spreads. The model shows large explanatory power for cross-sectional risking premia associated with three accruals portfolio groups. A scaled version of the model shows better performance, suggesting that accruals risk premia are related with the business cycle. Both models compare favorably with popular multifactor models used in the literature, and also perform well in pricing other important anomalies. The risk price estimates of the hedging factors are consistent with the ICAPM framework.

scholarly journals Risk and Performance of European Green and Conventional Funds

2021 ◽  
Vol 13 (8) ◽  
pp. 4226
Author(s):  
Tiago Gonçalves ◽  
Diego Pimentel ◽  
Cristina Gaio
Keyword(s):  
Business Cycle ◽  
Mutual Funds ◽  
Factor Model ◽  
World Market ◽  
The European Union ◽  
Single Factor ◽  
Multifactor Models ◽  
Multifactor Model ◽  
Negative Results ◽  
The Business Cycle

This paper analyzes how the risk-adjusted returns of green funds compare to those of conventional funds, between the years 2005 and 2020 for the European Union countries. Additionally, we tested how the performance of green funds correlates to the business cycle, subdividing their performance through expansionary and recessionary times. The findings are summarized as follows: our regression results demonstrated green and conventional funds exhibiting negative abnormal adjusted-returns against the developed world market benchmark for the single-factor and multifactor models. For the European market benchmark, we found environmental mutual funds presenting a positive performance for both models and conventional funds displaying negative results for the single-factor model and positive results for the multifactor model. The factor loadings for green funds indicated a negative load on momentum, book-to-market (HML) and size (SMB) factors, revealing a higher exposure to big and value companies. Subsampling per business cycle exhibited green mutual funds providing higher risk-adjusted returns to investors during crisis periods and mixed results for the non-crisis periods.

Risk Shocks

2014 ◽  
Vol 104 (1) ◽  
pp. 27-65 ◽  
Author(s):  
Lawrence J. Christiano ◽  
Roberto Motto ◽  
Massimo Rostagno
Keyword(s):  
Business Cycle ◽  
General Equilibrium ◽  
Equilibrium Model ◽  
Dynamic General Equilibrium ◽  
General Equilibrium Model ◽  
Cross Sectional ◽  
Dynamic General Equilibrium Model ◽  
The Business Cycle ◽  
Idiosyncratic Uncertainty ◽  
Over Time

We augment a standard monetary dynamic general equilibrium model to include a Bernanke-Gertler-Gilchrist financial accelerator mechanism. We fit the model to US data, allowing the volatility of cross-sectional idiosyncratic uncertainty to fluctuate over time. We refer to this measure of volatility as risk. We find that fluctuations in risk are the most important shock driving the business cycle. (JEL D81, D82, E32, E44, L26)

scholarly journals Investment Dispersion and the Business Cycle

2014 ◽  
Vol 104 (4) ◽  
pp. 1392-1416 ◽  
Author(s):  
Rüdiger Bachmann ◽  
Christian Bayer
Keyword(s):  
Business Cycle ◽  
Adjustment Costs ◽  
Firm Risk ◽  
Firm Level ◽  
Cross Sectional ◽  
Capital Adjustment ◽  
Investment Rates ◽  
Business Cycle Model ◽  
The Business Cycle ◽  
Heterogeneous Firm

The cross-sectional dispersion of firm-level investment rates is procyclical. This makes investment rates different from productivity, output, and employment growth, which have countercyclical dispersions. A calibrated heterogeneous-firm business cycle model with nonconvex capital adjustment costs and countercyclical dispersion of firm-level productivity shocks replicates these facts and produces a correlation between investment dispersion and aggregate output of 0.53, close to 0.45 in the data. We find that small shocks to the dispersion of productivity, which in the model constitutes firm risk, suffice to generate the mildly procyclical investment dispersion in the data but do not produce serious business cycles. (JEL D42, D92, E32, G31, G32)

scholarly journals Trade in Commodities and Business Cycle Volatility

2021 ◽  
Vol 13 (3) ◽  
pp. 173-208
Author(s):  
David Kohn ◽  
Fernando Leibovici ◽  
Håkon Tretvoll
Keyword(s):  
Business Cycle ◽  
Open Economy ◽  
Emerging Economies ◽  
Small Open Economy ◽  
Commodity Price ◽  
Cross Sectional ◽  
Developed Economies ◽  
Show Evidence ◽  
The Business Cycle ◽  
Sectoral Trade Flows

This paper studies the role of differences in the patterns of production and international trade on the business cycle volatility of emerging and developed economies. We study a multisector small open economy in which firms produce and trade commodities and manufactures. We estimate the model to match key cross-sectional and time-series differences across countries. Emerging economies run trade surpluses in commodities and trade deficits in manufactures, while sectoral trade flows are balanced in developed economies. We find that these differences amplify the response of emerging economies to commodity price fluctuations. We show evidence consistent with this mechanism using cross-country data. (JEL E23, E32, F14, F41, F44)

scholarly journals The role of spillovers in Okun’s law: Empirical evidence from Spain

2020 ◽  
pp. 6-6
Author(s):  
José Villaverde ◽  
Adolfo Maza
Keyword(s):  
Business Cycle ◽  
Labour Market ◽  
Indirect Effects ◽  
Temporary Workers ◽  
Key Factors ◽  
Spatial Panel ◽  
The Great Recession ◽  
Output Performance ◽  
The Business Cycle

The Great Recession of the late 2000s has brought to the fore, once again, the relevance of the relationship between output performance and labour market developments all over the world. This paper analyses the validity of Okun?s law in Spain by using regional data from 2000 to 2014, which roughly encompasses a complete business cycle. By estimating a Spatial Panel Durbin Model, the results not only show that a robust, inverse relationship between unemployment and output holds for Spain but also the existence of regional spillovers (indirect effects). In addition, they reveal that there are no time asymmetries between the expansion and recession phases of the business cycle and that human capital, the share of the construction sector, and the share of temporary workers are key factors in explaining unemployment changes. From a policy perspective, our findings support the idea of implementing region-specific policies, since indirect effects are less relevant than direct ones. In any case, national policies would also be effective. These policies, whatever their scope, should be mainly supply-side oriented in expansions (largely labour market policies) and demand-side focused in contractions.

scholarly journals Clustered Disclosures by Competing Firms: The Choice of Fiscal Year-Ends

2008 ◽  
Vol 23 (4) ◽  
pp. 493-516 ◽  
Author(s):  
Nishi Sinha ◽  
Dov Fried
Keyword(s):  
Business Cycle ◽  
Information Transfer ◽  
Relevant Information ◽  
Fiscal Year ◽  
Cross Sectional ◽  
Managerial Decisions ◽  
Primary Determinant ◽  
Business Conditions ◽  
The Business Cycle ◽  
Stochastic Setting

In some industries, firms schedule their disclosure at about the same time, usually around the end of the business season, whereas in others such disclosures are more dispersed over time. This paper examines firms' choice of fiscal year-ends (and hence of disclosure timing) relative to the business cycle and to the timing chosen by other firms in the industry. We model a stochastic setting in which the periodic closing of books yields information that is relevant for subsequent managerial decisions. The results show that although it is business seasonality that is the primary determinant of reporting period choice, competitive forces in the form of information transfer effects and proprietary disclosure costs have the ability to make firms' fiscal years deviate from the business season. Such deviations are more likely in industries in which costs exhibit low serial correlation across seasons, where cross-sectional correlation between firms' costs is high, or where within-season variations in business conditions are moderate. Furthermore, if incumbent firms are already reporting at the end of the business season, newer firms may have a greater inclination to make a different choice. The results also offer a novel rationale for what makes the end of the business cycle an attractive fiscal year-end. In our setting it is the desire to acquire managerially relevant information at an opportune time, rather than the ease of collecting information or the desire to optimize disclosure timing, that makes the end of a business cycle a preferred fiscal year-end.

The relevance of credit ratings over the business cycle

2016 ◽  
Vol 17 (2) ◽  
pp. 152-168
Author(s):  
Christian Fieberg ◽  
Richard Lennart Mertens ◽  
Thorsten Poddig
Keyword(s):  
Business Cycle ◽  
Agency Costs ◽  
Credit Rating ◽  
Credit Ratings ◽  
Credit Rating Agencies ◽  
Cross Sectional ◽  
Content Type ◽  
Rating Agencies ◽  
The Business Cycle ◽  
Rating Changes

Purpose Credit market models and the microstructure theory of the ratings market suggest that information provided by credit rating agencies becomes more relevant in recessions when agency costs are high and less relevant in expansions when agency costs are low. The purpose of this paper is to empirically test these hypotheses with regard to equity markets. Design/methodology/approach The authors use business cycle identification algorithms to map rating events (credit rating changes and watchlist inclusions) to business cycle phases and apply the event study methodology. The results are backed by cross-sectional regressions using a variety of control variables. Findings The authors find that the relevance of information provided by credit rating agencies for equity prices heavily depends on the level of agency costs. Furthermore, the authors detect a “flight-to-quality” during recessions in the speculative grade segment and a weakened relevance of rating events in expansions in the investment grade segment. Originality/value This paper is the first to empirically analyse how equity investors perceive credit rating changes and watchlist inclusions over the business cycle. In the empirical analysis, the authors use a large sample of about 25,000 rating events in all Organisation for Economic Co-operation and Development markets. The presented results underline that credit ratings address the agency problem in financial markets and can thus be regarded as useful for risk management or regulation.

The Effect of Intensive Margin Changes to Task Content on Employment Dynamics over the Business Cycle

ILR Review ◽  
2020 ◽  
pp. 001979392091074
Author(s):  
Matthew Ross
Keyword(s):  
Business Cycle ◽  
Technological Change ◽  
Empirical Studies ◽  
Transition Rates ◽  
Cross Sectional ◽  
The Great Recession ◽  
Employment Transitions ◽  
Occupational Tasks ◽  
Routine Tasks ◽  
The Business Cycle

Previous empirical studies investigating the employment impact of technological change have relied on cross-sectional measures of occupational tasks. Here, the author links microdata on individual workers to panel data on occupational tasks while controlling for individual unobservables. In examining the association between routine and abstract tasks and employment transitions, he finds new and economically important evidence that changes to tasks within occupations are strongly related to variation in the transition rates to non-employment and to different occupations. Consistent with recent work focused on technological change during the Great Recession, within-occupation increases in routine tasks are found to increase outgoing transition rates but these effects are concentrated during periods of economic turmoil. The results also show that increases in abstract tasks are associated with decreases in the outgoing transition rates, but this relationship is relatively invariant to business cycle conditions.

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