limit order submission strategies under asymmetric information abstract this paper provides evidence that informed traders dominate the response of limit order submissions to shocks in a pure limit order market in the market we study informed traders are highly sensitive to spreads volatility momentum and depth by contrast uninformed traders are relatively insensitive to all these market conditions the dominance of the informed over limit order submissions is magnified by contrasts between them and the uninformed in the use of aggressively priced limit orders

one security many markets determining the contributions to price discovery when homogeneous or closely linked securities trade in multiple markets it is often of interest to determine where price discovery the incorporation of new information occurs this article suggests an econometric approach based on an implicit unobservable efficient price common to all markets the information share associated with a particular market is defined as the proportional contribution of that market s innovations to the innovation in the common efficient price applied to quotes for the thirty dow stocks the technique suggests that the preponderance of the price discovery takes place at the new york stock exchange nyse a median 92 7 percent information share although most of the classic paradigms in market microstructure concern a security that trades in a single centralized market such situations are becoming increasingly rare in practice fragmentation the dispersal of trading in a security to multiple sites has emerged as a dominant institutional trend this process is of concern to financial economists and regulators because price information and price discovery the impounding of new information into the security price arguably the most important products of a security market have many attributes of public goods as the process of fragmentation accelerates it may be important to determine where the price information and price discovery are being produced 1 this paper suggests a practical econometric approach to this problem the technique is illustrated with an application to u s equity markets many stocks listed on the new york stock exchange nyse trade concurrently on the regional exchanges and the national association of securities dealers national market system nasd nms since a share of ibm stock is the same security whether purchased on the midwest or pacific exchange this is a particularly clear instance of multiple markets nevertheless the expres

the social ecology of the post fordist global city economic restructuring and socio spatial polarisation in the toronto urban region numerous authors have asserted that globalisation and occupational changes associated with post fordist economic restructuring have led to a growth in intraurban social disparity and even polarisat

black residential centralization and the spatial mismatch hypothesis abstract black residential centralization is found to be an important determinant of black employment status when estimated across metropolitan areas mas to avoid neighborhood selection the effects are greatest in large mas for the young and elderly and for individuals with less than a college education instrumental variable iv estimates support ordinary least squares ols results black residential centralization can account for 48 62 of the black white employment differential among 18 30 year olds living in large mas when estimated together black residential centralization job centralization and segregation all have large effects but the effects of black centralization and job centralization are considerably larger

where is the market evidence from cross listings in the united states we analyze the location of stock trading for firms with a us cross listing the fraction of trading that occurs in the united states tends to be larger for companies from countries that are geographically close to the united states and feature low financial development and poor insider trading protection for companies based in developed countries trading volume in the united states is larger if the company is small volatile and technology oriented while this does not apply to emerging country firms the domestic turnover rate increases in the cross listing year and remains higher for firms based in developed markets but not for emerging market firms domestic trading volume actually declines for companies from countries with poor enforcement of insider trading regulation

labor market competition among youths white women and others we estimate substitution possibilities among a set of age race sex groups in the labor force the estimates are based on cross section data from smsas in 1969 and they allow us to consider how substitutable adult women are for young women or young men the estimates are used along with assumptions about the extent of wage rigidity and elasticities of labor supply to simulate the direct and indirect effects of the growth of the female labor force on job opportunities for youth assuming rigid wages for young workers and on the wage rates of adult males assuming these wages are flexible this abstract was borrowed from another version of this item

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

culture marketization and owner manager agency costs a case of merchant guild culture in china this study explores cultural influence on corporate behavior employing the case of merchant guild culture in china and further the moderating role of marketization using hand collected data on merchant guild culture we find that merchant guild culture is significantly negatively associated with owner manager agency costs suggesting that merchant guild culture in ancient china still has its continuous and remarkable effects on managerial behavior in contemporary corporations this finding also implies that merchant guild culture motivates managers to upgrade the efficiency of controlling operating costs reduces agency conflicts between management and shareholders and eventually mitigates owner manager agency costs moreover provincial marketization level attenuates the negative association between merchant guild culture and owner manager agency costs above results are robust to a variety of alternative measures of merchant guild culture and owner manager agency costs furthermore our findings are still valid after controlling for the potential endogeneity between merchant guild culture and owner manager agency costs

how the market values greenwashing evidence from china in china many firms advertise that they follow environmentally friendly practices to cover their true activities a practice called greenwashing which can cause the public to doubt the sincerity of greenization messages in this study i investigate how the market values greenwashing and further examine whether corporate environmental performance can explain different and asymmetric market reactions to environmentally friendly and unfriendly firms using a sample from the chinese stock market i provide strong evidence to show that greenwashing is significantly negatively associated with cumulative abnormal returns car around the exposure of greenwashing in addition corporate environmental performance is significantly positively associated with car around the exposure of greenwashing furthermore my findings suggest that corporate environmental performance has two distinct effects on car around the exposure of greenwashing the competitive effect for environmentally friendly firms and the contagious effect for potential environmental wrongdoers respectively the results are robust to various sensitivity tests

does religion shape corporate cost behavior using u s listed firms during the period from 1971 to 2010 this paper investigates the effect of religion on corporate cost behavior we find that religion mitigates cost stickiness induced by agency or behavioral biases of managers this result holds for several robustness tests that address endogeneity concerns the mitigating effect of religion on cost stickiness is through the channel of reducing top managers overconfidence and optimistic bias regarding future demand change risk aversion mechanism and promoting managers adherence to fiduciary responsibilities and consideration of shareholder benefits ethic mechanism further evidence shows that the reduction in cost stickiness caused by religion increases firm value overall our findings suggest that religion reduces the wedge between a firm s actual and optimal resource commitments which helps to improve firm value and resource allocation efficiency

international order flows explaining equity and exchange rate returns macroeconomic models of equity and exchange rate returns perform poorly at high frequencies the proportion of daily returns that these models explain is essentially zero instead of relying on macroeconomic determinants we model equity price and exchange rate behavior based on a concept from microstructure order flow the international order flows are derived from belief changes of different investor groups in a two country setting we obtain a structural relationship between equity returns exchange rate returns and their relationship to home and foreign equity market order flow to test the model we construct daily aggregate order flow data from 800 million equity trades in the u s and france from 1999 to 2003 almost 60 of the daily returns in the s p100 index are explained jointly by exchange rate returns and aggregate order flows in both markets as predicted by the model daily exchange rate returns and order flow into the french market have significant incremental explanatory power for the daily s p returns the model implications are also validated for intraday returns

home bias in global bond and equity markets the role of real exchange rate volatility abstract this paper focuses on the role of real exchange rate volatility as a driver of portfolio home bias and in particular as an explanation for differences in home bias across financial assets we present a markowitz type portfolio selection model in which real exchange rate volatility induces a bias towards domestic financial assets as well as a stronger home bias for assets with low local currency return volatility we find empirical support in favour of this hypothesis for a broad set of industrialized and emerging market countries not only is real exchange rate volatility an important factor behind bilateral portfolio home bias but we find that a reduction of monthly real exchange rate volatility from its sample mean to zero reduces bond home bias by up to 60 percentage points while it reduces equity home bias by only 20 percentage points

can information heterogeneity explain the exchange rate determination puzzle empirical evidence shows that most exchange rate volatility at short to medium horizons is related to order flow and not to macroeconomic variables we introduce symmetric information dispersion about future macroeconomic fundamentals in a dynamic rational expectations model in order to explain these stylized facts consistent with the evidence the model implies that a observed fundamentals account for little of exchange rate volatility in the short to medium run b over long horizons the exchange rate is closely related to observed fundamentals c exchange rate changes are a weak predictor of future fundamentals and d the exchange rate is closely related to order flow

does confucianism reduce minority shareholder expropriation evidence from china using a sample of 12 061 firm year observations from the chinese stock market for the period of 2001 2011 and geographic proximity based confucianism variables this study provides strong evidence that confucianism is significantly negatively associated with minority shareholder expropriation implying that confucianism does mitigate agency conflicts between the controlling shareholder and minority shareholders this finding suggests that confucianism has important influence on business ethics and thus can serve as an important ethical philosophy or social norm to mitigate the controlling shareholder s unethical expropriation behavior moreover my findings reveal that the nature of the ultimate owner attenuates the negative association between confucianism and minority shareholder expropriation suggesting that confucianism s negative impact on minority shareholder expropriation is less pronounced for state owned enterprises than for non state owned enterprises the above results are robust to a variety of sensitivity tests and my findings are valid after controlling for the potential endogeneity between confucianism and minority shareholder expropriation

what determines mutual fund trading in foreign stocks abstract we examine the portfolio rebalancing measured by the equity churn rate of mutual funds from 29 countries based on annual stockholdings over the 1999 2006 period we find that funds more often trade the stocks of companies located in countries with higher degree of information asymmetry and are less familiar to fund managers after we control for the effects of stock market development and investor protection consistent with the behavioral bias fund managers more often rebalance stocks in foreign markets that perform well this bias is exacerbated when fund managers are less familiar with and less informed about those markets

the effects of new public projects to expand urban rail transit abstract many us cities invest in large public transit projects in order to reduce private vehicle dependence and to reverse the downward trend in public transit use using a unique panel data set for five major cities that upgraded their rail transit systems in the 1980s we estimate new rail transit s impact on usage and housing values using distance as a proxy for transit access new rail transit has a small impact on usage and housing values this impact is enough to represent tangible benefits of new transit to nearby residents new transit s benefits are not uniformly distributed we document which demographic groups are over represented in transit growth areas and the changes in transit usage by different demographic groups

employment impact of inner city development projects the case of underground atlanta this paper makes use of a unique data set to explore the issue of whether inner city residents are more likely to be hired by a new inner city development than non residents a selection model with partial observability is specified and estimated this partial observability estimates at the hiring stage we determine holding individual and neighbourhood characteristics constant that while inner city residents are less likely to be considered hireable their greater propensity to apply for jobs at this development means that they were at least as likely as non residents to both apply and be hired we also tentatively conclude that distances between an applicant s residence and the location of the development does not appear to have been an issue in the application decision

commercially available order flow data and exchange rate movements caveat emptor research suggests that customer order flow should help predict exchange rates we make two contributions first we provide a review of the recent literature on order flow and exchange rate movements second we critically evaluate the practical value of customer order flow data that are commercially available to the wider market as well as the forecasting properties of inter dealer order flow in line with microstructure theory we find little evidence that the latter can forecast exchange rates but our results also cast considerable doubt on the practical value to market practitioners of commercially available customer order flow data

customer discrimination and employment outcomes for minority workers this paper investigates the effects of customer discrimination on the employment and earnings of minorities particularly blacks data are used from a new survey of employers in four large metropolitan areas in the united states our results show that the racial composition of an establishment s customers has sizable effects on the race of who gets hired particularly in jobs that involve direct contact with customers and in sales or service occupations race of customers also affects wages with employees in establishments that have mostly black customers earning less than those in establishments with mostly white customers

does confucianism reduce board gender diversity firm level evidence from china this study extends previous literature on the association between confucianism and corporate decisions by examining confucianism s influence on board gender diversity using a sample of chinese listed firms during the period of 2001 2011 and geographic proximity based confucianism variables i provide strong and consistent evidence to show that confucianism is significantly negatively associated with board gender diversity suggesting that the proportion of women directors in the boardroom is significantly lower for firms surrounded by strong confucianism atmosphere than for firms located in regions with weak confucianism atmosphere this finding also implies that confucian philosophical system has important impacts on business ethics and women s status in corporate governance moreover gdp per capita the proxy for economic development level in a province in which a firm is located attenuates the negative association between confucianism and board gender diversity above results are robust to different measures of confucianism and board gender diversity and are still valid after controlling for the potential endogeneity between confucianism and board gender diversity

geographic patterns of trading profitability in xetra abstract transaction data from the electronic trading system xetra of the german security exchange is used to explore the relationship between trader location and trading profitability the non discriminatory nature of the electronic trading system and its wide international adoption allows interesting conclusions about the information geography of international equity trading we use spectral analysis to examine trading profitability over intraday intraweek and intraquarter inventory cycles proprietary trader accounts reveal the underperformance of foreign traders at all three trading horizons our analysis confirms the hypothesis of financial market segmentation due to international information barriers

are foreign institutional investors good for emerging markets in den 1990er jahren waren die portfolio flows institutioneller investoren die dynamischsten kapitalstrome in die emerging markets in dieser arbeit leiten wir in einem rahmen asymmetrischer information funf aussagen ab stellen diese in einen zusammenhang mit der existierenden empirischen literatur und entwickeln daraus entsprechende wirtschaftspolitische implikationen die undurchsichtige informationslage auf den emerging markets behindert vor allem auslandische marktteilnehmer daruber hinaus konnen institutionelle investoren in folge finanzwirtschaftlicher offnung die position lokaler investoren unabsichtlich durch unausgewogene diversifikation und undurchsichtige risiken verschlechtern schlieslich verstarken institutionelle investoren aus dem ausland oft investitionsbooms oder finanzielle ansteckung deshalb sollten kapitalverkehrs und finanzielle liberalisierung stets von sorgfaltiger regulierung begleitet werden

asymmetric information and the lack of portfolio diversification there is pervasive evidence that individuals invest primarily in local stocks and thus hold poorly diversified portfolios the present article develops a theoretical model in which the presence of informational asymmetries introduces home equity bias the main departure from previous theoretical work is the assumption that local investors outperform nonlocal investors in identifying the correct ranking of local investment opportunities instead of possessing superior information about the aggregate performance of the local stock market the second key assumption is based on the evidence that short selling is a costly activity

religion and the method of earnings management evidence from china previous studies argue that religious firms are more ethical and thus engage less in accrual earnings management at odds with the ethical view we use a sample of chinese listed firms and show that firms in religious regions use more real earnings management we postulate that besides ethics religion also proxies for risk aversion which motivates firms to substitute accrual earnings management with real earnings management consistent with this view we show that the positive negative association between religiosity and real accrual earnings management is more pronounced for firms with lower litigation risk and for firms with less reputable auditors in addition we use a mediation model introduced by baron and kenny j pers soc psychol 51 6 1173 1182 1986 to show that religiosity affects earnings management through the channel of risk aversion we conclude that firms choose real earnings management over accrual based earnings management because of risk aversion rather than ethical reasons

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

information sophistication and foreign versus domestic investors performance abstract using an intraday transaction dataset with trader identity we study foreign and domestic investors trading activities and investment performance ahead of open ending events of taiwanese closed end funds simply buying the funds at a discount and holding until open ending generates large abnormal returns all information required to execute this strategy is made public so the events set up natural experiments to examine how investors trade holding constant access to information foreign investors are net buyers ahead of the open endings more than doubling their positions and earning large abnormal returns domestic investors are net sellers while the discounts are still large and forego large abnormal returns the results suggest that investor sophistication in interpreting the same information is potentially an important determinant of investment performance differences across foreign and domestic investors

does religion mitigate earnings management evidence from china using a sample of 11 357 firm year observations from the chinese stock market for the period of 2001 2011 we investigate whether and how religion can mitigate earnings management specifically based on geographic proximity based religion variables we provide strong and robust evidence to show that religion is significantly negatively associated with the extent of earnings management suggesting that religion can serve as a set of social norms to mitigate corporate unethical behavior such as earnings management our findings also reveal that the negative association between religion and earnings management is less pronounced for firms with closer distance to the regulatory centers than for their counterparts implying the substitutive effects between religion and the distance to regulators the proxy for regulatory intensity on mitigating earnings management the above results are robust to different measures of earnings management various religion variables and a variety of sensitivity tests

corporate environmental responsibility in polluting industries does religion matter using a sample of chinese listed firms in polluting industries for the period of 2008 2010 we empirically investigate whether and how buddhism china s most influential religion affects corporate environmental responsibility cer in this study we measure buddhist variables as the number of buddhist monasteries within a certain radius around chinese listed firms registered addresses in addition we hand collect corporate environmental disclosure scores based on the global reporting initiative gri sustainability reporting guidelines using hand collected buddhism data and corporate environmental disclosure scores we provide strong and robust evidence that buddhism is significantly positively associated with cer this finding is consistent with the following view buddhism can serve as social norms to evoke the consciousness of social responsibility and thereof strengthen cer our findings also reveal that the positive association between buddhism and cer is attenuated for firms with higher law enforcement index the results are robust to various measures of buddhism and a variety of sensitivity tests

segmentation and time of day patterns in foreign exchange markets abstract this paper sheds light on a puzzling pattern in spot foreign exchange markets domestic currencies appreciate depreciate systematically during foreign domestic working hours this phenomenon spans many years and several exchange rates and overrides calendar effects we argue that it is mainly due to liquidity and inventory patterns that emerge from the combination of two factors domestic agents tend to be net buyers of foreign currency and to trade mostly in their country s working hours the prevalence of domestic foreign traders demanding the counterpart currency during domestic foreign working hours implies sell price buy price pressure on the domestic currency during domestic foreign working hours

informational integration and fx trading abstract this paper addresses international financial integration in a new way we focus on informational integration specifically the importance of information conveyed by order flow in major currencies for pricing minor currencies we develop a multi currency model of portfolio allocation in the presence of dispersed information we then test the model s implications using four months of concurrent transaction data on nine currencies the model explains 45 to 78 of daily returns in all nine currencies moreover its prediction that order flow in individual markets should be relevant for determining prices in other markets is borne out

equity home bias a review essay this paper reviews the relatively more recent literature on equity home bias the empirical finding that people overinvest in domestic stocks relative to the optimal investment portfolio implied by the modern portfolio theory it reviews six broad classes of explanation of this puzzling phenomenon 1 hedging home risks 2 barriers to foreign investments 3 information asymmetries and 4 behavioral factors the consensus is that none of the explanations can account for the full extent of the bias by itself thus the home bias should be explained by a combination of rational and behavioral factors

do neighborhoods affect hours worked evidence from longitudinal data using a confidential version of the nlsy79 we estimate large effects of neighborhood social characteristics and job proximity on labor market activity a variety of neighborhood social characteristics are associated with less market work social characteristics have nonlinear effects with the greatest impact in the worst neighborhoods social characteristics are also more important for less educated workers exploiting the panel aspects of our data we find that estimates that do not account for neighborhood selection on the basis of time invariant and time varying unobserved individual characteristics substantially overstate the social effects of neighborhoods but understate the effects of job access

race segregation and postal employment new evidence on spatial mismatch abstract the spatial mismatch hypothesis posits that employment decentralization isolated urban blacks from work opportunities this paper focuses on one large employer that has remained in the central city over the twentieth century the u s postal service we find that blacks substitute towards postal work as other employment opportunities leave the city circa 1960 the response is particularly strong in segregated areas where black neighborhoods are clustered near the central business district furthermore this pattern only holds for non mail carriers many of whom work in central processing facilities more recently the relationship between black postal employment and segregation has declined suggesting that spatial mismatch has become less important over time

is foreign exchange intervention effective some microanalytical evidence from the czech republic abstract i estimate a two equation system on the czech koruna euro exchange rate and order flow at hourly frequency with transactions data from the reuters spot matching market in the second half of 2002 during which the czech national bank intervened to stem the appreciation of the koruna i find a significant impact of order flow on the exchange rate equal to 7 6 basis points per 10 million of which 80 persists throughout the day the news of intervention increases the price impact of order flow by 3 9 basis points per 10 million the order flow equation yields inconclusive results

home bias in open economy financial macroeconomics standard theory would predict that investors hold a well diversified portfolio of equities across the world but despite the process of financial globalization investors still hold a disproportionate share of local equities in their portfolio the equity home bias french and poterba 1991 we review the various explanations of this puzzling phenomenon in the context of recent developments in macroeconomic modelling that have allowed to incorporate sophisticated international portfolio choices in standard two country general equilibrium models we refer to this literature as open economy financial macroeconomics we focus on three broad classes of explanations i hedging motives in frictionless financial markets real exchange rate and non tradable income risk ii asset trade costs in international financial markets such as transaction costs differences in tax treatments between national and foreign assets iii informational frictions and behavioural biases these recent developments raise the need for new portfolio facts beyond the equity home bias and we will present some new evidence on cross border asset holdings across different types of assets equities bonds and bank lending we also present some new micro data on institutional holdings of equity at the fund level these data should inform macroeconomic modelling of the open economy and a growing literature of models of delegated investment

asset pricing in large information networks we study asset pricing in economies with large information networks we focus on networks that are sparse and have power law degree distributions in line with empirical studies of large scale social networks our theoretical framework yields a rich set of novel asset pricing implications we derive closed form expressions for price volatility profitability and trading volume as functions of the network topology we also study agent welfare and show that the network that optimizes total welfare is typically a uniform one with an intermediate degree of connectedness

does religion mitigate tunneling evidence from chinese buddhism in the chinese stock market controlling shareholders often use inter corporate loans to expropriate a great amount of cash from listed firms through a process called tunneling using a sample of 10 170 firm year observations from the chinese stock market for the period of 2001 2010 i examine whether and how buddhism china s most influential religion can mitigate tunneling in particular using firm level buddhism data measured as the number of buddhist monasteries within a certain radius around chinese listed firms registered addresses this study provides strong evidence that buddhism intensity is significantly negatively associated with tunneling this finding is consistent with the view that buddhism has important influence on corporate behavior and can serve as a set of social norms and or an alternative mechanism to mitigate controlling shareholders unethical tunneling behavior in addition my findings also reveal that the negative association between buddhism intensity and tunneling is attenuated for firms that have high analyst coverage the results are robust to various measures of buddhism intensity and a variety of sensitivity tests

does religion matter to owner manager agency costs evidence from china in china buddhism and taoism are two major religions using a sample of 10 363 firm year observations from the chinese stock market for the period of 2001 2010 i provide strong and robust evidence that religion i e buddhism and taoism on the whole is significantly negatively associated with owner manager agency costs in particular using firm level religion data measured by the number of religious sites within a radius of certain distance around a listed firm s registered address i find that religion is significantly negatively positively associated with expense ratio asset utilization ratio the positive reverse proxy for owner manager agency costs this finding is consistent with the following view religiosity has remarkable effects on the way how an individual thinks and behaves and thereof can curb managers from unethical business practices moreover my findings suggest that the negative association between religion and owner manager agency costs is attenuated for firms with strong external monitoring mechanisms such as higher marketization and high quality auditors furthermore after separating buddhism from taoism my finding indicates that above conclusions are only available for buddhism suggesting that different religions may have asymmetric influence on owner manager agency costs above results are robust to various measures of religiosity and a variety of robustness checks

does religion matter to informal finance evidence from trade credit in china informal finance plays an important role in transitional economies with weak legal institutions such as china as a major informal finance instrument trade credit relies on informal institutions

distance and private information in lending we study the effects of physical distance on the acquisition and use of private information in informationally opaque credit markets using a unique data set of all loan applications by small firms to a large bank we show that borrower proximity facilitates the collection of soft information leading to a trade off in the availability and pricing of credit which is more readily accessible to nearby firms albeit at higher interest rates ceteris paribus analyzing loan rates and firms decision to switch lenders provides further evidence for banks strategic use of private information however distance erodes our lender s ability to collect proprietary intelligence and to carve out local captive markets suggesting that the requisite soft information is primarily local the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

transactions volume and volatility we show that the positive volatility volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions thus it is the occurrence of transactions per se and not their size that generates volatility trade size has no information beyond that contained in the frequency of transactions our results suggest that theoretical research needs to entertain scenarios in which 1 both the frequency and size of trades are endogenously determined yet 2 the size of trades has no information content beyond that contained in the number of transactions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

foreign subsidiary csr as a buffer against parent firm reputation risk this study examines the influence of parent firm reputation risk on the level of corporate social responsibility activities of foreign subsidiaries we first argue that a strong reputation risk spillover occurs from parent firms to their foreign subsidiaries due to the high visibility of multinationals the control of parent firms over their subsidiaries and the liability of foreignness associated with foreign firms in host countries then we argue that subsidiaries may resort to csr in their host country to reduce the spillover effect thus we hypothesize a positive relationship between parent firm reputation risk and foreign subsidiary csr activities moreover we explore several contingency factors at both the parent firm and subsidiary levels that affect the extent of spillover and the need for subsidiaries to use csr as a buffer against parent firm reputation risk we find that the positive relationship between parent firm reputation risk and foreign subsidiary csr activities is weaker for foreign subsidiaries that directly report to the parent firm with longer operations in the host country and larger institutional distance between host and home countries using a unique sample of subsidiaries of large multinationals in china from 2009 to 2016 we find general support for our arguments

when jobs move do black and latino men lose the effect of growth in job decentralisation on young men s jobless incidence and duration the spatial mismatch hypothesis suggests that the movement of jobs from central cities to suburbs negatively affects blacks employment both absolutely and relative to whites in this paper data a

domestic banks as lightning rods home bias and information during the eurozone crisis european banks have been criticized for holding excessive domestic government debt during the recent eurozone crisis which may have intensified the diabolic loop between sovereign and bank credit risks by using a novel bank level data set covering the entire timeline of the eurozone crisis i first reconfirm that the crisis led to the reallocation of sovereign debt from foreign to domestic banks in contrast to the recent literature focusing only on sovereign debt i show that the banks private sector exposures were at least equally affected by the rise in home bias consistent with this pattern i propose a new debt reallocation channel based on informational frictions and show that the informationally closer foreign banks increase their relative exposures when the sovereign risk rises the effect of informational closeness is economically meaningful and robust to the use of different information measures and controls for alternative channels of sovereign debt reallocation

the pecking order of cross border investment abstract is there a pecking order of cross border investment in that countries become financially integrated through some types of investment rather than others using a novel database of bilateral capital stocks for all types of investment fdi portfolio equity securities debt securities as well as loans for a broad set of 77 countries we show that such a pecking order indeed exists the paper focuses on two key determinants of this pecking order information frictions and the quality of host country institutions overall we find that in particular fdi and to some extent also loans are substantially more sensitive to information frictions than investment in portfolio equity and debt securities we also show that the share as well as the size of fdi that a country receive are largely insensitive to institutional factors in host countries while portfolio investment is by far the most sensitive to the quality of institutions this provides new evidence in favor of some hypotheses but contradicts others put forward in the literature on trade in financial assets

does religion matter in corporate decision making in america abstract we examine how corporate culture influences firm behavior prior research suggests a link between individual religiosity and risk aversion we find that this relationship also influences organizational behavior firms located in counties with higher levels of religiosity display lower degrees of risk exposure as measured by variances in equity returns or returns on assets they exhibit a lower investment rate and less growth but generate a more positive market reaction when they announce new investments finally chief executive officers are more likely to join a firm with a similar religious environment as in their previous firm when they switch employers

conditioning carry trades less risk more return abstract prior studies show that extreme interest rate differentials irds and high foreign exchange rate fx volatility have substantial explanatory power for the validity of uip we show that these contemporaneous drivers also have predictive power by implementing a conditional currency carry trade ct strategy that excludes regimes for which uip is likely to hold conditioning high fx volatility only or on both fx volatility and extreme irds outperforms the base case unconditional ct strategy in virtually any of the settings analyzed conditioning on very large irds only shows mixed findings our strategy works best for smaller ct portfolios

ethics incentives and conflicts of interest a practical solution couched in positive agency theory it is shown that the straight commission compensation system sccs creates a conflict of interest between the agent s and the client s self interests based on this it is hypothesized that the sccs will encourage agents to intend to act unethically towards their clients two hundred and forty five insurance agents in the u s were surveyed with 59 responding the results suggest that the sccs does not significantly affect agents ethical intentions positively or negatively this lack of empirical evidence may be due to the unique nature of the sample indeed the company which enabled this sample appears to have found a practical solution to temper the potential negative effects of the sccs in its commitment to selective hiring and marketing products which benefit both the client and the agent

macroeconomic announcements and price discovery in the foreign exchange market this study shows that the dominance of the overlapping trading hours of london and new york in the price discovery of the eur usd and usd jpy markets only applies on days with u s announcements different from cai et al 2008 and wang and yang 2011 we highlight the informational advantage of local traders at the arrival of macroeconomic announcements in the local market and find that macroeconomic announcements affect the pattern of price discovery across different markets consistent with chen and gau 2010 and jiang et al 2012 we also examine changes in information shares before and after the announcement a significant increase in price discovery before the announcement suggests the possibility of information leakage while enhanced price discovery efficacy after the announcement suggests that prices gradually adjust to new information not just immediately respond to the arrival of announcements

effects of market reform on the trading costs and depths of nasdaq stocks the relative merits of dealer versus auction markets have been a subject of significant and sometimes contentious debate on january 20 1997 the securities and exchange commission began implementing reforms that would permit the public to compete directly with nasdaq dealers by submitting binding limit orders additionally superior quotes placed by nasdaq dealers in private trading venues began to be displayed in the nasdaq market we measure the impact of these new rules on various measures of performance including trading costs and depths our results indicate that quoted and effective spreads fell dramatically without adversely affecting market quality

introduction to the economics of religion after a very long hiatus economists have begun again to study the relationship between economics and religion this article seeks to summarize and evaluate the principal themes and empirical findings that have appeared in some 200 recent papers on the economics of religion although some of the research concerns the economic consequences of religiosity most applies standard economic theory to the study of individual religious activity the characteristics of religious groups and the impact of regulation and competition on religious markets

large foreign ownership and stock price informativeness around the world abstract this study investigates the relation between large foreign ownership lfo and the informativeness of stock prices in 40 markets we show that lfo is positively related to price informativeness measured by probability of informed trading pin and price non synchronicity nonsync which reflects firm specific variations in stock returns we also find a stronger association between stock returns and future earnings innovations for firms with higher lfo further analysis reveals that the effect of lfo on price informativeness is stronger in developed economies and markets with strong investor protection and a transparent information environment

the geography of trade in goods and asset holdings gravity models have been widely used to describe bilateral trade in goods portes and rey portes r rey h 2005 the determinants of cross border equity flows journal of international economics 65 2 269 296 applied this framework to cross border equity flows and found that distance which proxies information asymmetries is a surprisingly very large barrier to cross border asset trade we adopt a different point of view and explore the complementarity between bilateral trade in goods and bilateral asset holdings in a simultaneous gravity equations framework providing different instruments for both endogenous variables we show that a 10 increase in bilateral trade raises bilateral asset holdings by 6 to 7 the reverse causality is also significant albeit smaller controlling for trade the impact of distance on asset holdings is drastically reduced keywords gravity models international finance international trade simultaneous equations

forecasting ecb monetary policy accuracy is a matter of geography abstract monetary policy in the euro area is conducted within a multi country multi cultural and multi lingual context how does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the european central bank ecb using a database of surveys of professional ecb policy forecasters in 24 countries we find remarkable differences in forecast accuracy and show that these have important repercussions on market behaviour explaining the differences in forecast accuracy we provide evidence that they are partly related to geography and clustering around informational hubs as well as to country specific economic conditions in large part this heterogeneity can be traced to differences in forecasting models

incentive pay and bank risk taking evidence from austrian german and swiss banks we use payroll data in the austrian german and swiss banking sector to identify incentive pay in the critical banking segments of treasury capital market management and investment banking for 67 banks we document an economically significant correlation of incentive pay with both the level and volatility of bank trading income particularly for the pre crisis period 2003 2007 in which incentive pay was strongest this result is robust if we instrument the bonus share in the capital market divisions with the strength of incentive pay in unrelated bank divisions like retail banking moreover pre crisis incentive pay appears too strong for an optimal trade off between trading income and risk which maximizes the net present value of trading income further analyses indicate that the bonus moderation during the crisis has removed excessive pre crisis incentive pay

location matters an examination of trading profits the electronic trading system xetra of the german security exchange provides a unique data source on the equity trades of 756 professional traders located in 23 different cities and eight european countries we explore informational asymmetries across the trader population traders located outside germany in non german speaking cities show lower proprietary trading profit their underperformance is not only statistically significant it is also of economically significant magnitude and occurs for the 11 largest german blue chip stocks we also examine whether a trader location in frankfurt as the financial center or local proximity of the trader to the corporate headquarters of the traded stock or affiliation with a large financial institution results in superior trading performance the data provide no evidence for a financial center advantage or of increasing institutional scale economies in proprietary trading however we find evidence for an information advantage due to corporate headquarters proximity for high frequency intraday trading

the spatial mismatch hypothesis what has the evidence shown this paper reviews 20 years worth of empirical evidence on the spatial mismatch hypothesis after briefly surveying the relevant models from urban and labour economics and recent trends in employment and population suburbanisation the empirical evidence on spatial effects is examined this literature includes evidence on the effects of residential segregation residential suburbanisation and employment suburbanisation and direct measures of access such as travel times the most recent evidence suggests that spatial mismatch is relevant for explaining black white employment differences though the magnitudes of these effects remain unclear

intra metropolitan shifts in labor demand and the adjustment of local markets abstract i offer new evidence on the adjustment of local labor markets to geographic shifts in labor demand within us metropolitan areas using a unique data set in which metropolitan subregions are geographically matched across the 1970 1980 and 1980 1990 decades the evidence uncovered paints the following picture workers especially those with less education make incomplete adjustments within metropolitan areas in response to intra metropolitan demand shifts although blacks may not make especially limited adjustments they have disproportionately suffered deleterious effects from job movements because the demand shifts have tended to be away from their places of residence

order flow information and spot rate dynamics abstract this paper examines why order flows are empirically important drivers of spot exchange rate dynamics we consider a decomposition for the depreciation rate that must hold in any model and show that order flows will appear as important proximate drivers when they convey significant incremental information about future interest rate differentials risk premiums and or long run exchange rate levels i e information that cannot be inferred from publicly observed variables we estimate the importance of these incremental information flows for the eurnok spot exchange rate using eight years of high quality disaggregated end user order flow data collected by the norges bank

international portfolio choice liquidity constraints and the home equity bias puzzle this paper solves for optimal international portfolio choice in the presence of liquidity constraints and undiversifiable labor income risk optimal portfolios are internationally diversified while positive correlation between domestic stock market returns and permanent labor income shocks can generate a complete portfolio specialization in foreign stocks nevertheless either small costs associated with investing abroad or a slightly positive domestic to foreign equity premium differential are sufficient to either deter households from participating in a foreign market or generate a substantial bias for home equities the benefits of international diversification are limited because consumption fluctuations can be smoothed with a small amount of buffer stock saving while exchange rate risk makes foreign investments less appealing to risk averse investors

the dynamics of international equity market expectations this paper develops a noisy rational expectations model of the way in which international investors adjust their expectations of asset payoffs in a given country in response not only to public information signals but also to private information signals whose precision differs across investors the model predicts that the perceptions of investors in one country about the future market returns in another country are related differently to realized past returns depending on their informational disadvantage relative to other investors the greater is that informational disadvantage the greater is the change in perception associated with returns the predictions are confirmed by monthly survey data of institutional money managers investing in developed markets from 1995 to 2000

do demand curves for currencies slope down evidence from the msci global index change traditional portfolio balance theory derives a downward sloping currency demand function from limited international asset substitutability historically this theory enjoyed little empirical support we provide direct evidence by examining the exchange rate effect of a major redefinition of the msci international equity index in 2001 and 2002 the index changes implied large changes in the representation of different countries in the msci world index and therefore produced strong exogenous equity flows by index funds our event study shows a strong announcement effect in which countries with a decreasing equity representation vis a vis the u s depreciated against the dollar

firm geographic dispersion and financial analysts forecasts using a text based measure of geographic dispersion that captures the economic ties between a firm and its geographically distributed economic interests this study provides evidence that financial analysts issue less accurate more dispersed and more biased earnings forecasts for geographically dispersed firms we observe the degree to which a firm has an overlapping distribution of economic centers in comparison to industry competitors and suggest that geographically similar firms have lower information gathering costs and thereby more precise earnings forecasts empirical evidence supports this prediction we further find that the geographic dispersion across the u s is less likely to affect forecast precision when a firm has economic activities in states with highly correlated local shocks our findings suggest that the effect of geographic dispersion is more pronounced for soft information environments where information is more difficult to make impersonal by using technological advances consistent with the information asymmetry argument we find that geographically dispersed firms have less comparable and more discretionary managed earnings have less extensive than industry competitors segment information are more likely to restate sale segment information and issue annual and quarterly filings with a delay

risk versus ambiguity and international security design abstract we study portfolio allocation and characterize contracts issued by firms in the international financial market when investors exhibit ambiguity aversion and perceive ambiguity in assets issued in foreign locations increases in the variance of their risky production process cause firms to issue assets with a higher variable payment equity hikes in investors perceived ambiguity have the opposite effect and lead to less risk sharing entrepreneurs from capital scarce countries finance themselves relatively more through debt than equity they are thus exposed to higher volatility per unit of consumption the expected returns on capital invested in capital scarce countries may also be lower such results do not hold in the absence of ambiguity that is when investors only perceive risk new facts uncovered from cross country firm level data are consistent with our model

local information in foreign exchange markets abstract this study shows that order flow in a foreign exchange market appears to have permanent price impact only if it comes from certain regions these regions are as predicted by the local information hypothesis centers of political and financial decision making it is revealing that orders from other regions only show a very short lived but no permanent price impact local information is so important that it carries over from the usually considered market orders to aggressively priced limit orders too the finding is robust to common news shocks to the consideration of feedback trading and to further controls

racial differences in residential and job mobility evidence concerning the spatial mismatch hypothesis abstract the spatial mismatch hypothesis asserts that job decentralization adversely impacts the labor market outcomes of african americans this paper tests whether race and job access have an independent effect on the probability of a joint residential move and job change no evidence is found to indicate that race directly influences the joint probability the paper finds however that poor job access has an independent negative effect on the probability of a joint residential move and job change because african american residences are heavily concentrated in american central cities these results suggest that african american workers may not be able to fully adjust as new jobs are created in the suburbs

sovereign wealth funds cross border investments assessing the role of country level drivers and spatial competition abstract the aim of this paper is to identify the driving forces of cross border investments emanating from sovereign wealth funds and to test the existence of spatial competition among recipient countries for this we develop an original econometric framework that quantifies the role of spatial dependence in the location of investments and that uses a modified version of the standard estimation procedure of spatial panel model which accommodates the inverse hyperbolic sine transformation of the dependent variable this transformation copes with two critical features of net capital flows namely an highly skewed distribution and the presence of zero and negative values using a large scale database we provide evidence of negative spatial dependence investments in one country being on average at the expense of its neighbors

information asymmetry and asset prices evidence from the china foreign share discount we examine the effect of information asymmetry on equity prices in the local a and foreign b share market in china we construct measures of information asymmetry based on market microstructure models and find that they explain a significant portion of cross sectional variation in b share discounts even after controlling for other factors on a univariate basis the price impact measure and the adverse selection component of the bid ask spread in the a and b share markets explains 44 and 46 of the variation in b share discounts on a multivariate basis both measures are far more statistically significant than any of the control variables the extent of information asymmetry in the international equity market has become a very important topic the question of whether domestic investors have better information than foreign investors has also become increasingly controversial for instance a few papers argue that domestic investors have a linguistic and cultural advantage brennan and cao 1997 choe kho and stulz 2001 and hau 2001 others argue that foreign investors have an informational advantage because they possess a significant amount of investment experience and expertise seasholes 2000 grinblatt and keloharju 2000

order flows and the exchange rate disconnect puzzle abstract the aim of this paper is to establish the link between the high frequency dynamics of spot exchange rates and developments in the macroeconomy to do so i first present a theoretical model of exchange rate determination that bridges the gap between existing microstructure and traditional models the model examines how dispersed microeconomic information known to individual agents outside the foreign exchange market is aggregated and transmitted to dealers via transaction flows i e order flow and how the information is then embedded in the spot exchange rate i then report empirical evidence that strongly supports the presence of the link between the macroeconomy order flow and high frequency exchange rate returns implied by the model in fact my empirical results indicate that between 20 and 30 of the variance in excess currency returns over one and two month horizons can be linked back to developments in the macroeconomy this level of explanatory power is an order of magnitude higher than that found in traditional models even the newly developed monetary models incorporating central banks reaction functions moreover it provides a straightforward solution to the exchange rate disconnect puzzle namely the high frequency behavior of spot exchange rates reflects the flow of new information reaching dealers concerning the slowly evolving state of the macroeconomy rather than the effects of shocks that drive rapidly changing macroeconomic conditions

contagion of wishful thinking in markets prior research provides only weak and controversial evidence that people overestimate the likelihood of desirable events wishful thinking but strong evidence that people bet more heavily on those events wishful betting two experiments show that wishful betting contaminates beliefs in laboratory financial markets because wishful betters appear to possess more favorable information than they actually do as a consequence market interaction exacerbates rather than mitigates wishful thinking this phenomenon contagion of wishful thinking could be problematic in many settings where people infer others beliefs from their behavior

meese rogoff redux micro based exchange rate forecasting meese rogoff redux micro based exchange rate forecasting by martin d d evans and richard k lyons this paper compares the true ex ante fore casting performance of a micro based model against both a standard macro model and a random walk in contrast to existing literature which is focused on longer horizon forecasting we examine forecasting over horizons from one day to one month the one month horizon being where micro and macro analysis begin to over lap over our three year forecasting sample we find that the micro based model consistently outperforms both the random walk and the macro model micro based forecasts account for almost 16 percent of the sample variance in monthly spot rate changes these results pro vide a level of empirical validation as yet unat tained by other models the forecasting experiment proposed by richard meese and kenneth rogoff 1983 re mains a benchmark against which exchange rate models are judged their result that structural macro models cannot outperform a naive random walk has proved robust over the decades yet the meese rogoff paper was never about forecasting in the true sense i e using tirrie f information to forecast exchange rates at t 1 b y using concurrent realized values of the forcing variables their regressions were more about concurrent explanation than about ex ante forecasting their only forecast ing element is in their reliance on ex ante data to estimate equation parameters which appro priately penalized models whose estimated pa rameters were unstable tion for the random walk nature of exchange rates is that there exists some unobserved fun damental that itself follows a random walk un observed being important because fundamentals proposed in most macro models do not follow random walks they offer a different explana tion one rooted in the asset approach to ex change rates and the present value relation that follows from it specifically they show that i f fundamentals are 1 1 but not necessarily ran dom walks then as the discount factor in the present value relation approaches 1 the ex change rate will follow a process arbitrarily close to a random walk intuitively given that an 1 1 process can be split into random walk and stationary components a discount factor near 1 means that most all of the weight is placed on fundamentals far into the future ex pectations of which are dominated by the random walk component charles engel and kenneth west 2004 2005 provide a valuable perspective on the forecastability of exchange rates one explana this paper takes the analysis of engel and west as an important reorientation of thinking and brings it to the natural next step specifi cally if there is little room for forecasting based on stationary components of fundamentals then one needs to focus on where all the action is namely exchange rate dynamics that come from expectational surprises though the sur prise part is by definition orthogonal to public information our micro based model shows that there should exist types of nonpublic infor mation that are useful for forecasting this part and where to look for these types of informa tion we then locate data on these types of nonpublic information and test whether they have true ex ante forecasting power we should evans department of economics georgetown uni versity washington dc 20057 and nber lyons haas school of business university of california berkeley c a 94720 1900 and nber we are grateful to ken west for his comments and to the national science foundation for financial support we refrain from using the word news because it has too strong an association with macro information that is public which even in the most careful of event studies explains less than 5 percent of exchange rate variation in total see torben andersen et al 2003

modelling round the clock price discovery for cross listed stocks using state space methods u s trading in non u s stocks has grown dramatically around the clock these stocks trade in the home market in the u s market and potentially in both markets simultaneously we develop a general methodology based on a state space model to study 24 hour price discovery in a multiple markets setting as opposed to the standard variance ratio approach this model deals naturally with 1 simultaneous quotes in an overlap 2 missing observations in a nonoverlap 3 noise due to transitory microstructure effects and 4 contemporaneous correlation in returns due to market wide factors we apply our model to dutch stocks cross listed in the united states our findings suggest a minor role for the new york stock exchange in price discovery for dutch shares in spite of its nontrivial and growing market share