Miracle-dz/UniFAR-FTUs huggingface dataset:
Distribution Shifts in Predictive Panels

In this article, we link the realized accuracy of predictive panels to changes in distributions that occur between the training (in-sample) phase and the testing (out-of-sample) phase. We obtain polynomial upper bounds for the loss of accuracy between training and testing. We model covariate shift and concept drift as positive autoregressive processes and predict future variations in changes (improvement versus deterioration in accuracy). Based on two different datasets, our empirical results show that our indicators for distribution turbulence are contrarian, but have a strong explanatory power over realized portfolio returns.
Location of Housing and Industry Around a Central Shopping District

We investigate the endogenous emergence of residential and industrial districts around a central shopping district (CSD). Households wish to locate near firms and near the CSD due to commuting costs proportional to distance. Firms wish to locate near households because this reduces the wage they need to pay to attract workers, and near the CSD due to the iceberg cost of transporting their output to the CSD. Depending on the relative magnitude of three cost parameters (commuting to work, commuting to shop, transporting output), different urban structures arise. If the cost of commuting to shop is large and the cost of commuting to work is small (relatively to the cost of transporting output), households locate in the centre and firms in the periphery. The opposite occurs if both costs are very small. If the cost of commuting to shop is small and that of commuting to work is large, housing and industry become integrated. Complex urban structures emerge in intermediate cases.
Nanny State on Tour

This study calculates how much UK foreign aid was spent on lifestyle interventions targeting smoking, drinking, eating, and sedentary behaviour. UK taxpayers spent £44.6million on 35 "nanny state" foreign aid projects in 47 countries between 2005 and 2018. Such foreign aid has ballooned in recent years. The majority (84.4%) of the £44.6 million was spent from 2016 to 2018. The three biggest categories of spending were anti-smoking projects (65.7% of total "nanny state" aid), salt-reduction schemes (20.2%) and weight-loss interventions for children and adolescents (1.9%). DfID-commissioned projects accounted for 51.3% of lifestyle intervention spending. The Department of Health, responsible for only 0.7% of Official Development Assistance (ODA) in 2017, funded 27.8% of "nanny state" projects. Similarly, the Department for Business, Energy, and Industrial Strategy commissioned 20.8% of the projects, while only commanding 5.4% of ODA in 2017. This supports the theory that non-DfID spenders of UK foreign aid are less likely to prioritise poverty reduction. Our analysis finds that there are better uses for health-related foreign aid than the ‘nanny state’ projects identified in this study. For example, insecticide-treated bednets to prevent malaria in Sub-Saharan Africa are twenty times more cost-effective in terms of life-years saved than implementing smoke-free workplaces, a policy that was pursued in Cape Verde, Chad, Madagascar, Sierra Leone and Zambia as part of a £5.3million tobacco-control programme in the region in 2016. Misallocating resources means wasting opportunities to save lives. <br>
Resolving Mortgage Distress after COVID-19: Some Lessons from the Last Crisis

We analyse micro data on Irish mortgages and distressed households’ balance sheets in the last decade to assess the debt resolution process in the Irish mortgage market in the lead up to the COVID-19 shock. We highlight the widespread engagement of Irish borrowers with debt resolution mechanisms during a decade in which one sixth of mortgage accounts were restructured by 2016. Lenders favoured short-term mortgage modifications at the beginning of the decade and three-quarters of performing mortgages with short-term modifications in 2011-2012 remained performing at end-2017. However, close to half of these cases involved a subsequent longer-term restructure, consistent with concerns that short-term modification alone is not sufficient to ensure mortgage sustainability. In other cases, an over-reliance on unsustainable short-term arrangements translated into longer-term arrears accumulation. Turning to the financial distress of households seeking a resolution to their arrears, we find an average income fall of roughly one third since mortgage origination and that one third had already reduced their non-housing expenditures to below the recommended minimum level used in the personal insolvency system. Finally, we show that larger cuts in repayment burdens and lower ex-post payment-to-income ratios are both highly predictive of successful long-term restructures. JEL Classification: F21, F28, G51
Estimating Demand With Substitution and Intraline Price Spillovers

Standard choice models used to optimize product line prices are effective at capturing the effects of prices on the affordability of products but do not incorporate intraline price spillovers, or the effects of prices on consumer preferences for branded product lines. To date, no approach exists to measure such spillovers, and thus their existence and characteristics are subject to controversy. Different authors have proposed that different product line items, here referred to as known value items (KVIs), generate price spillovers. Yet product line prices and quality levels are typically highly correlated, and thus it is not clear which spillovers should be modeled. No empirical approach exists to test for multiple price spillovers simultaneously while controlling for quality spillovers. This study proposes an empirical approach that includes a choice model to abstract rich demand patterns and an estimation algorithm that addresses the endogeneity and collinearity of KVI prices. An empirical application based on vehicle choice data illustrates how the approach can be implemented in practice and demonstrates the importance of modeling spillovers while yielding interesting managerial implications. The results establish that different KVIs generate separate spillovers and illustrate their distinct roles. KVI price spillovers can be economically important, inducing large cross-price elasticities that range from – 1.31 to . 72. Furthermore, neglecting spillovers can bias own-price elasticity estimates by up to 15% and cross-price elasticities by more than 100%. The empirical results generate KVI-specific insights that managers in the automobile industry can use to improve their pricing strategies. For other industries, the manuscript proposes an approach and an implementation algorithm that managers can use to estimate spillovers and optimize product line prices. The empirical application illustrates the implementation of the approach and shows how managers can model price spillovers to increase profits by almost 3%.
Asset Pricing Implications of Firms' Financing Constraints

We incorporate costly external finance in an investment-based asset pricing model and investigate whether financing frictions are quantitatively important for pricing a cross-section of expected returns. We show that common assumptions about the nature of the financing frictions are captured by a simple financing cost' function, equal to the product of the financing premium and the amount of external finance. This approach provides a tractable framework for empirical analysis. Using GMM, we estimate a pricing kernel that incorporates the effects of financing constraints on investment behavior. The key ingredients in this pricing kernel depend not only on fundamentals', such as profits and investment, but also on the financing variables, such as default premium and the amount of external financing. Our findings, however, suggest that the role played by financing frictions is fairly negligible, unless the premium on external funds is procyclical, a property not evident in the data and not satisfied by most models of costly external finance.
Capital Structure Decisions in Islamic Banking: Empirical Evidence from Pakistan

This study aims to explore the determinants of capital structure in the Islamic banking industry of Pakistan. It also aims at exploring the effects of macroeconomic conditions and policy variables on the financing decisions of Islamic banking industry. To do this, the study uses an unbalanced panel data covering the period from 2006 to 2012. The results from fixed effect model indicate that bank-specific variables, namely bank size, tangibility, and growth are positively related to banks’ capital structure, whereas profitability, liquidity, and capital adequacy ratio are negatively related to the capital structural decisions of banks. On the other hand, real interest rate and inflation are negatively related to the capital structure of Islamic banking industry, while industrial production index has a positive impact upon the capital structure decisions of the Islamic banking industry of Pakistan.
On the Equivalence between the Apv and the Wacc Approach in a Growing Levered Firm

One of the most discussed topics in the corporate valuation theory is the choice between the wacc approach (Modigliani-Miller [1963]) and the APV (Myers [1974]). Although in a steady state framework the choice is irrelevant since the two approaches provide the same result, in a growing firm context the WACC equation seems to be inconsistent with the APV result. In this paper we propose a new scheme to evaluate the tax savings in a growing firm. The main idea is first to split the tax savings generated by the outstanding debt (at time zero) from tax savings generated by the future debt issues (undertaken according with the assumption of a constant debt to equity ratio). Once we've separated the two different tax savings we discount them using two different discount rates: the cost of debt (kd) for the 'outstanding' tax savings and the unlevered cost of equity (ku) for the tax savings due to the future debt issues. Finally we show that using our model the MM [1963] equation works both in a growing firm (g > 0) and in a steady state firm (g = 0).
Group Monitoring, Endogenous Crackdown and Anti-corruption: An Experiment

We explore the effectiveness of an anti-corruption mechanism that combines the top-down institutions and the bottom-up monitoring from the masses. Based on a repeated stranger matching harassment bribe game, we introduce the interventions of the group monitoring and the endogenous crackdown. With the group monitoring, participants in the role of citizens can pay a fixed cost to monitor, while the corrupt officials’ probability of being punished increases with the number of citizens who choose to pay. With the endogenous crackdown, the probability of punishing corrupt officials increases to 50% automatically in the next period if more than 60% of citizens choose to monitor in the current period. Though citizens face the social dilemma of anti-corruption, a high proportion of citizens paid to monitor, and this significantly decreases the officials’ bribe demanding. The endogenous crackdown mechanism further increases the monitoring of citizens and decreases the bribe demanding of officials.
Probability Distortions, Collectivism, and International Stock Prices

We introduce a novel composite probability distortion (CPD) score based on investors’ stock valuations derived from a pure-probability-weighting version of cumulative prospect theory and from salience theory. This measure is strongly and consistently priced in the cross-section of international stock returns: low-CPD-score stocks are underpriced while those with high scores appear overpriced. Individualism is the main driver of differences in the CPD premium across countries and U.S. states. Consistent with the substantially lesser degree of probabilistic thinking in collectivist cultures documented by the psychology literature, we find that the CPD premium is substantially higher in these than in individualist cultures.
Stock Repurchases and Cash Acquisitions - a Payout Policy Perspective

We examine a firm's repurchase and acquisition decision in a cash payout framework with a focus on the interaction between corporate finance and governance. A comparison of repurchase and acquisition gives us a unique perspective in a sense that they both deal with the question of how to expend cash in a hierarchy of spending priorities that involve decisions not only about payout policy but also on investment strategies. Ours is the first empirical study to investigate a possible pecking order among a set of cash spending options as recently documented in a field survey of financial executives. We find evidence that both repurchase and acquisition will not be considered until cash requirements of internal investment, dividend payout and debt reduction have been satisfied. Furthermore, repurchase is of secondary importance to acquisition in that the former is usually initiated only after substantial amount of cash are accumulated while the latter can be prompted when strong free cash flow starts to generate. This also points to the observation that repurchase firms are often bigger with more cash, better operating performance and low debt, signs of firms that are in later stages of the life cycle. Our results from the study of repurchase in conjunction with cash acquisitions prove to be particularly enlightening in the context of free cash flow hypothesis (Jensen 1986). We conjecture that managers are prone to wasting free cash on acquisitions when cash flow is strong and it is only when cash stock begins to pile up that they are thinking about paying back extra cash to shareholders. This is a strong version of free cash problem as originally pointed out by Jensen. To mitigate the agency problem as manifested by value destroying acquisitions and facilitate repurchase as a way of giving value back to shareholders, the classic theories that propose more management ownership and advocate greater role of institution monitoring seem to be supported in our empirical exercises. Our event study results buttress the assumption that repurchase is more value enhancing than acquisition in that it may alleviate the agency problem of free cash flow.
The Determinants of Insiders' Selling at Initial Public Offerings: An Empirical Analysis

The paper examines the effect of information asymmetry on equity selling by pre-IPO shareholders as part of the offering. Consistent with the implications of models that use equity retention as a signaling mechanism, the magnitude of selling is positively related to the firm age, size and the underwriter's reputation. In addition, insiders that are more likely to possess private information about the firm prospects sell almost no shares at the offer itself but often use the over-allotment option as a second stage mechanism for selling equity. However, the cross sectional variation in sales of secondary shares is primarily affected by the magnitude of the price revision during the "road show" and by the likelihood the firm would conduct a seasoned equity offering soon after the IPO.
Foreign Banks and the Doom Loop

This paper explores whether foreign intermediaries stabilise or destabilise lending to the real economy in the presence of sovereign stress in the domestic economy and abroad. Tensions in the government debt market may lead to serious disruptions in the provision of lending (i.e., the so-called “doom loop”). In this context, the presence of foreign banks poses a fundamental, yet unexplored, trade-off. On the one hand, domestic sovereign shocks are broadly inconsequential for the lending capacity of foreign banks, given that their funding conditions are not hampered by such shocks. On the other, these intermediaries may react more harshly than domestic banks to a deterioration in local loan risk and demand conditions. We exploit granular and confidential data on euro area banks operating in different countries to assess this trade-off. Overall, the presence of foreign lenders is found to stabilise lending, thus mitigating the doom loop. JEL Classification: E5, G21
The Effects of High Estimate Uncertainty in Auditor Negligence Litigation

We examine how jurors’ negligence judgments and attorneys’ out-of-court settlements are differently impacted by two features of a materially misstated accounting estimate — the amount of estimate uncertainty and whether the misstated account is disaggregated into its own line-item or aggregated with other accounts into a single financial statement line-item. We find that jurors and attorneys react to estimate uncertainty in opposite directions under common conditions. Specifically, jurors hold auditors more responsible for misstatements of lower estimate uncertainty when the misstated account is disaggregated, as opposed to misstatements that are of higher uncertainty and/or aggregated with other, clean accounts. However, attorneys negotiate auditor settlements under the incorrect assumption that jurors will hold auditors more responsible for failing to prevent misstatements of higher uncertainty. Our results illustrate that accounting research should not focus solely on juror judgments in the study of how specific factors impact auditor liability, and that attorneys would benefit from a better understanding of juror decision making.
Do Female Leaders Promote Gender-Sensitive Policies?

We study whether female-headed local governments in Spain are more likely to engage in gender sensitive policies such as long-term care support, pre-schooling, or work and family-life balancing services. Using a fuzzy regression discontinuity design estimated on the set of mixed electoral races, we find no evidence of female mayors being more likely to implement these policies at the local level. We do find evidence of differences between parties in the probability of implementing these policies, suggesting that the gender of the politician is less important than their partisan or ideological position when it comes to these policy levers.
The Effects of SFAS 131 Geographic Segment Disclosures by U.S. Multinational Companies on the Valuation of Foreign Earnings

Foreign operations are becoming increasingly important for U.S. companies. We investigate whether the market's valuation of foreign earnings is a function of the firm's geographic segment disclosures. Specifically, we examine the effects of an increase in the number of geographic segments disclosed and the inclusion of earnings measures in geographic segment disclosures following the adoption of SFAS 131. We find strong evidence that our proxies for increased disclosure are positively associated with the valuation of foreign earnings. Our results are robust to a number of sensitivity analyses. Taken together, our results suggest that the pricing of foreign earnings is associated with important aspects of the firm's information environment.
Institutional Trading around Scheduled Announcements

Recent literature documents a large return premium around scheduled news announcements. Using transaction-level data, we find that institutions, i.e. both hedge funds and mutual funds, have relatively more negative order flow in the period leading to these scheduled announcements. Several elements suggest that this behavior is motivated by uncertainty avoidance. In particular, we show that mutual funds and hedge funds with a more volatile capital base are more prone to liquidating their positions ahead of the announcements. This pattern is present for several types of scheduled news – earnings announcements, M&A completions, and Federal Open Market Committee (FOMC) meetings. The evidence suggests that mutual funds on average forego about 0.49% abnormal returns per year because of sales before earning announcements. Finally, the findings lend credibility to the risk-based explanations of the return premium around scheduled news.
Learning from Monetary and Fiscal Policy

We present a dynamic incomplete information model where monetary and fiscal policy instruments serve as endogenous signals for the private sector. We highlight a novel information channel of policy interactions, and show the general equilibrium (GE) information feedback between policies largely shapes the economy's response to policy shocks. We document a non-monotone signaling effect of policies with respect to the policy rule parameters. Our analysis shows the GE information feedback is quantitatively significant, and the model provides a unified explanation of the various policy impacts on inflation, the dynamics of survey expectations, and the missing inflation after the Great Recession.
Decomposed Higher-Moment Risk Premiums and Market Return Predictability

In an empirical study of Standard &amp; Poor's 500 index options, this paper analyses the predictability of future market excess returns by means of decomposed higher-moment risk premiums. The study proposes a new measure of kurtosis risk premium and suggests a decomposition of higher-moment risk premiums up to the fourth moment into downside and upside premiums. Thereby, the paper enhances the understanding of higher-moment risk premiums. The decomposition uncovers valuable information for return forecasts, as decomposed higher-moment risk premiums deliver improved in-sample predictions. In an out-of-sample study, the predictive power of decomposed higher-moment risk premiums is shown to be particularly driven by downside higher-moment risk premiums.
Short-Term Institutional Investors and the Diffusion of Supply Chain Information

This paper investigates how a firm's customer base shapes its investor clientele. We show that more concentrated customer base is associated with higher holdings of short-term, but not long-term, institutional investors. The results remain unchanged after addressing endogeneity concerns and considering short sellers as short-term investors. This evidence is consistent with the public information transfer channel, where short-term investors are able to process public, but slowly diffusing, supply chain information ahead of other market participants. Further evidence suggests that the link between customer concentration and short-term institutional ownership is stronger in the environment of high information asymmetry, as well as after the passage of Reg FD reform. Overall, our results suggest that the implications of a concentrated customer base extend beyond their impact on the product market space and key firm characteristics, and affect shareholder composition. <br>
Securities Markets Where Some Investors Receive Information About Cash Flow Betas

We analyze a setting in which investors have private information about cash flows as well as their betas. The unique feature of beta information is that it affects cash flow volatility in a multiplicative way. This feature, together with risk aversion of market makers, implies that equilibrium price impact is higher for large buy orders than for large sell orders. The positive covariance between stochastic price impacts and order flows drives a wedge between the equilibrium asset price and the expected cash flows, which helps explain phenomena such as the beta anomaly and the leverage effect in stock prices. Our analysis implies a positive (inverse) relation between this covariance and average betas (expected returns). Empirical tests confirm these relations.