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This paper analyzes how trading after shareholder meetings changes the composition of the shareholder base. Analyzing daily trades, we find that mutual funds reduce their holdings if their votes are opposed to the voting outcome. ...
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This paper analyzes how trading after shareholder meetings changes the composition of the shareholder base. Analyzing daily trades, we find that mutual funds reduce their holdings if their votes are opposed to the voting outcome. Trading volume is high even when stock prices do not change, peaks on the meeting date, and remains high up to four weeks after shareholder meetings. The results support models based on differences of opinion that predict that shareholders' beliefs may diverge more after observing voting outcomes. Hence, trading after meetings creates a more homogeneous shareholder base, which has important implications for corporate governance.
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Abstract Financial intermediaries often provide guarantees resembling out-of-the-money put options, exposing them to undiversifiable tail risk. We present a model in the context of the U.S. life insurance industry in which the reg...
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Abstract Financial intermediaries often provide guarantees resembling out-of-the-money put options, exposing them to undiversifiable tail risk. We present a model in the context of the U.S. life insurance industry in which the regulatory framework incentivizes value-maximizing insurers to hedge variable annuity (VA) guarantees, though imperfectly, and shifts risks into high-risk and illiquid bonds. We calibrate the model to insurer-level data and identify the VA-induced changes in insurers’ risk exposures. In the event of major asset and guarantee shocks and absent regulatory intervention, these shared exposures exacerbate system-wide fire sales to maintain capital ratios, plausibly erasing over half of insurers’ equity capital.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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Abstract Variable annuities, the largest liability of U.S. life insurers, are investment products containing long-dated minimum return guarantees. I show that guarantees with similar economic risks are treated differently by regul...
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Abstract Variable annuities, the largest liability of U.S. life insurers, are investment products containing long-dated minimum return guarantees. I show that guarantees with similar economic risks are treated differently by regulation and these differences impact insurers’ hedging behavior. When the regulatory regime recognizes certain risks, insurers start to hedge these risks in a substantial way. For some guarantees, this involves hedging both interest rate and equity market risks. However, for others, it involves hedging only equity market risk. As the regulatory regime still does not recognize the interest rate risk of all guarantees, insurers remain exposed to substantial interest rate risk.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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Abstract Using the near universe of U.S. consumer credit cards, we show that banks transmit their wholesale funding shocks to consumers by reducing their credit card limits. Credit-constrained consumers who are unable to hedge aga...
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Abstract Using the near universe of U.S. consumer credit cards, we show that banks transmit their wholesale funding shocks to consumers by reducing their credit card limits. Credit-constrained consumers who are unable to hedge against the transmitted shock by accessing other credit cards experience a stronger and more persistent reduction in aggregate credit card limits at the consumer level. Consequently, these credit-constrained consumers reduce their aggregate credit card borrowing. Our results document a credit card lending channel for the transmission of adverse bank shocks and show who bears the costs of fragile bank funding structures.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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This paper contains results concerning a conjecture made by Lang and Silverman, predicting a lower bound for the canonical height on abelian varieties of dimension 2 over number fields. The method used here is a local height decom...
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This paper contains results concerning a conjecture made by Lang and Silverman, predicting a lower bound for the canonical height on abelian varieties of dimension 2 over number fields. The method used here is a local height decomposition. We derive as corollaries uniform bounds on the number of torsion points on families of abelian surfaces and on the number of rational points on families of genus 2 curves.
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Abstract Drawing upon more than 12 million observations over the period from 1996 to 2020, we find that allowing for nonlinearities significantly increases the out-of-sample performance of option and stock characteristics in predi...
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Abstract Drawing upon more than 12 million observations over the period from 1996 to 2020, we find that allowing for nonlinearities significantly increases the out-of-sample performance of option and stock characteristics in predicting future option returns. The nonlinear machine learning models generate statistically and economically sizable profits in the long-short portfolios of equity options even after accounting for transaction costs. Although option-based characteristics are the most important standalone predictors, stock-based measures offer substantial incremental predictive power when considered alongside option-based characteristics. Finally, we provide compelling evidence that option return predictability is driven by informational frictions and option mispricing.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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We document the existence of a strategy designed to circumvent limits to arbitrage. Faced with short-sale constraints and noise trader risk, small arbitrageurs publicly reveal their information to induce the target's shareholders ...
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We document the existence of a strategy designed to circumvent limits to arbitrage. Faced with short-sale constraints and noise trader risk, small arbitrageurs publicly reveal their information to induce the target's shareholders (" the longs") to sell, thereby accelerating price discovery. Using data for 124 short-sale campaigns in the United States between 2006 and 2011, we show that investors respond strongly to the information, with spikes in SEC filing views, volatility, order imbalances, realized spreads, turnover, and selling by the longs. Share prices fall by an aggregate $ 14.8 billion. Our findings imply that even extreme short-sale constraints need not constrain arbitrage.
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We show that mutual fund investors rely on simple signals and likely do not engage in sophisticated learning about managers' alpha as widely believed. Simplistic performance chasing best explains aggregate flows to the mutual fund...
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We show that mutual fund investors rely on simple signals and likely do not engage in sophisticated learning about managers' alpha as widely believed. Simplistic performance chasing best explains aggregate flows to the mutual fund space and flows across funds. These results hold for both actively managed and passive index funds. Empirical patterns commonly interpreted as reflecting learning about managerial skill also appear in falsification tests and are mechanical. Our results are consistent with the view that, on average, households are homo sapiens with limited financial sophistication rather than hyperrational alpha-maximizing agents, as often assumed in the literature.
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This paper identifies a strong tendency for Canadian private equity investors to finance entrepreneurs that reside in the same province. For all types of investors and entrepreneurial firms, in terms of the number of investments (...
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This paper identifies a strong tendency for Canadian private equity investors to finance entrepreneurs that reside in the same province. For all types of investors and entrepreneurial firms, in terms of the number of investments (13,729 transactions), 84.42% of investments were intra-provincial. In terms of the total value of these transactions ($20,193,896,909 in 1997 dollars), 61.15% of the investment value was intra-provincial. We provide evidence that both agency costs and information asymmetries systematically give rise to differences in the frequency of inter- versus intra-provincial investments, and compare the importance of agency versus institutional factors leading to home bias.
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We exploit a U.K. government-sponsored product and provide evidence on shared equity mortgages. The analysis shows how the interaction of house price growth and leverage regulation promotes product adoption. Following an increase ...
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We exploit a U.K. government-sponsored product and provide evidence on shared equity mortgages. The analysis shows how the interaction of house price growth and leverage regulation promotes product adoption. Following an increase in the equity limit, households use the additional financing to buy more expensive properties rather than reduce leverage. Equity used as a complement to debt is likely less beneficial for financial stability than when used as a substitute. Equity borrowers are less likely to change lenders when refinancing their senior debt. Finally, we measure the equity provider returns, which are affected by selection and undervaluation at repayment.
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