Publication Search Results

Now showing 1 - 7 of 7
  • (2022) Dienemann, Fabian
    This dissertation consists of three essays on asset pricing and market microstructure topics within the U.S. corporate bond market. The first essay investigates asymmetry in price pressure between customer buy and sell orders and demonstrates that it is a valuable measure of downside liquidity for corporate bonds. While evidence of a characteristic premium for illiquidity in the cross-section of corporate bonds is mixed, aggregate liquidity asymmetry has high explanatory power for the time series of market returns. Its statistical and economic significance justify it as a credible asset pricing factor. Average market-wide liquidity asymmetry comoves with interest rate and credit spread changes, investor sentiment, funding liquidity, dealer inventory, exchange-traded fund flows, and post-crisis regulatory change. The second essay documents the properties of market-wide corporate bond liquidity and demonstrates that liquidity risk is an important determinant of returns. In market downturns, transaction costs rise for sellers and fall for buyers. The negative relation between buyer and seller liquidity motivates a new across-measure liquidity factor that incorporates an asymmetric liquidity component. Shocks to market-wide liquidity explain a large portion of bond return variation in the time series. Primarily driven by the asymmetric component, the liquidity factor attracts a cross-sectional risk premium that is robust to controls for credit, equity, and interest rate factors, as well as the illiquidity level. The third essay provides new evidence of retail investors’ ability to predict returns based on transactions in U.S. corporate bonds with equity-like risk. Retail order flow is persistent and contrarian, and it predicts future returns in the cross-section. The profits of an equal-weighted, long-short strategy that buys (sells) bonds that experience high (low) net retail buying are economically meaningful. The alpha based on decile portfolios is significant at the 10% level when controlling for common equity and bond risk factors. However, due to high transaction costs and because retail purchase volume is concentrated in underperforming bonds, retail traders lose money in aggregate.

  • (2021) Besley, Michael
    Both industry and academic research document the sustained outperformance of Australian small capitalisation (cap) managers with regard to market benchmarks and standard academic models. In contrast to both their large company peers and overseas fund manager returns, the high relative returns generated by these small company managers have continued despite increased competition from new managers. This paper confirms the persistence of these anomalous returns and explores the sources of alpha generation by Australian small cap managers. The commonly used Carhart factor model does not explain the persistence of this alpha. Carhart alpha averages 0.3% per month for the group, with 22 out of 46 funds having statistically significant alphas. By adding a combination of factors to the standard Carhart model approximately two thirds of this alpha can be explained. These factors include betting against beta, avoidance of stocks with lottery characteristics, a preference for stocks with strong profitability and strong balance sheets while avoiding ‘junk’ stocks. After controlling for all these factors, average alpha declines to 0.08% per month with only four funds still having statistically significant alpha. While most managers avoid high beta and lottery stocks, the better performing funds demonstrate higher loadings away from lottery and distressed stocks and towards profitability factors than their poorer performing peers.

  • (2023) Wang, Haoxu
    My thesis consists of three essays. My first essay is on relative strength anomalies. After long being one of the main puzzles in asset pricing, momentum has ironically become a case of observational equivalence. It can now be explained both by behavioral factors capturing mispricing and by the neoclassical-inspired investment q-factors. Besides, q-factors explain the related 52-week-high anomaly. We note that recent tests subsuming both anomalies are unconditional exercises while the bulk of momentum profits are predictable and occur in bull markets and after periods of low volatility. Comparing asset pricing models conditionally, we find the unconditional fit is misleading. The models fit well most of the time but not when the profits are produced. Noticeably, q-theory implies time-varying loadings that are not consistent with the data. On the other hand, consistent with an underreaction channel, earnings announcement returns and analyst forecast errors both decrease steeply with lagged volatility. My second essay is on portfolio optimization. We comprehensively examine whether advances in the asset-pricing and covariance matrix literatures can jointly improve the out-of-sample (OOS) performance of mean-variance efficient (MVE) portfolios. Focusing on the 500 largest stocks, we find that, after accounting for transaction costs, MVE portfolios formed using improved inputs do not outperform the passive strategy. However, their after-cost performance can be substantially improved by combining several ideas available in the literature. Portfolios that simultaneously target risk, manage transaction costs, correct the covariance matrix for OOS errors, and use simple linear Fama-MacBeth return forecasts attain net Sharpe ratios greater than one, significantly outperforming the passive portfolio. My third essay is on factor momentum. Factor momentum recently joined the ongoing debate over the causes of stock momentum. We find that neither momentum in “off-the-shelf” factors nor momentum in high-eigenvalue principal component factors can explain any previously proposed momentum driver. Also, compared to previous drivers, factor momentum does not exhibit superior performance in capturing momentum-like anomalies. Like the competing models, it cannot explain stock momentum conditionally. Moreover, it cannot explain stock momentum after accounting for transaction costs while these can explain the persistence of factor momentum, especially in less systematic factors.

  • (2023) Cai, Tianyu
    This thesis consists of three papers on corporate governance, with a focus on firm’s ESG engagement, real earnings management, and short seller scrutiny. The first paper investigates whether firm ESG policies could be attributed to a CEO’s style. We find that firms led by CEOs with not-for-profit sector experience (socially engaged CEOs) possess better ESG ratings and superior real ESG outcomes. They receive higher employee satisfaction ratings, develop more green innovations, and produce fewer harmful emissions. Mirroring the rise of ESG, the proportion of socially engaged CEOs has increased four-fold over the last 20 years. While corporate boards appear to be increasingly selecting these CEOs to enhance their ESG performance, we show that these effects can, to some extent, be attributed to a causal CEO style. Overall, this study suggests that career experience serving the interests of a broader group of stakeholders in the not-for-profit sector better equips CEOs to achieve corporate ESG objectives. The second paper examines the governance role of short sellers on firms’ real earnings management (REM). Exploiting an exogenous shock to short selling costs brought by the RegSHO, we find that short seller monitoring restrains REM. The effect is concentrated in firms with lower costs of REM. Litigation risk and reduced CEO wealth gain from REM are two plausible channels through which short seller threats deter REM. Lastly, we find that short interests on pilot firms increase after the announcement of the RegSHO relative to non-pilot firms, and the effect is concentrated in the firms with high REM. This third paper explores whether EPS-motivated share repurchases attract scrutiny from short sellers, and how firms’ social capital, built up through CSR activities, plays a role in this process. Exploiting the discontinuity of repurchases around the zero-earnings surprise, we find EPS-motivated repurchases lead to more short interests. The firms under the protection of CSR are more likely to engage in EPS-motivated repurchases but suffer less short selling attack. Moreover, we also show that firms intend to rebuild their reputations through more CSR engagement following EPS-motivated repurchases. However, there is little evidence on real environmental outcomes due to such engagement. Collectively, this study highlights short sellers’ monitoring function and provides insights into the insurance benefits of CSR on REM.

  • (2023) Tran, Jimmy
    This thesis studies Private Equity (PE), with a focus on recent developments by market participants aimed at addressing new issues and existing problems facing a mature, competitive industry from the perspective of PE investors (Limited Partners (LPs)) and managers (General Partners (GPs)). The first study investigates the value that private market financial intermediaries offer LPs through Funds of Funds (FoFs). This value proposition differs between primary FoFs who invest in new private capital funds undergoing fundraising, and secondary FoFs who invest in mature fund interests sold by LPs. Secondary FoFs circumvent the illiquidity feature of PE investing and have superior performance compared to primary FoFs. There is no evidence to suggest that certain LPs are better FoF investors than others, but investments in FoFs can help LPs learn how to make future private market investments. The second study analyses infrastructure investment through a PE structure. PE investment in infrastructure is a recent phenomenon, allowing institutional investors to receive exposure to infrastructure without requiring direct investments. This has led to increasingly international investment from US and UK managers to the rest of the world in assets that are generally regarded as mature, physically asset intensive and providing essential services. This cross-border activity results in the flow of funds which are affected by asset, country and investor characteristics. Mechanism typically used by PE managers are not as effective when used for infrastructure investments, likely due to the lower degrees of information asymmetry and moral hazard when compared with venture capital and buyout transactions. The third study evaluates one way in which operating partners have become key components of investment strategy for many PE managers by focusing on their appointment to board level positions and evaluating their impact on investee success. Operating partners are more likely to be appointed to the board of the investee when deals are completed in a recessionary and uncertain environment. While the appointment of operating partners to the board generally does not have a significant impact on exit success, operating partners may add value in specialised sectors such as energy. This thesis contributes to the literature on PE and alternative investments. The findings have significant implications for PE investors and managers.

  • (2023) Wang, Qi
    This dissertation examines various behaviors of directors and shareholders in China, a regime with concentrated ownership and conflicts between the controlling and minority shareholders. Chapter One documents shareholder-shareholder conflicts surrounding board decision-making in two consecutive processes. (1) Tunneling-related board proposal initiation is promoted (deterred) by the largest (minority) shareholders through their appointed directors. (2) Directors appointed by the largest shareholder (minority shareholders) agree (dissent) more on tunneling-related proposals in boardroom voting. Directors appointed by larger minority shareholders more strongly deter tunneling-related proposals’ initiation and dissent more in voting than those appointed by smaller ones. Minority shareholders’ monitoring against tunneling weakens if they are connected with the largest shareholder or management or when the largest shareholder is politically entrenched. Chapter Two finds that minority (the largest) shareholders sell (buy) more shares after their appointed directors dissent in boardroom voting. Smaller minority shareholders sell more than larger minority shareholders. Minority-shareholder-appointed directors’ dissent on tunneling-related (disclosure-related) proposals triggers negative (insignificant) price impacts, and the dissenting minority shareholders subsequently do not significantly sell or buy shares (significantly sell more shares), showing that ‘voice’ and ‘exit’ exhibit substitute (complement) effects. The phenomenon that smaller minority shareholders sell more than larger minority shareholders is mainly found in disclosure-related dissensions. When the largest-shareholder-appointed directors dissent on more disclosure-related proposals than tunneling-related ones, the ex-ante largest shareholding is smaller. However, the largest shareholding is still not too small, and buying for control is still not too costly; the dissenting largest shareholder buys more shares afterward. Chapter Three finds critical independent directors with more monitoring power (nomination, auditing, or compensation committee member, hereafter, ‘CRID’) mitigate tunneling. They pre-emptively hinder tunneling-related proposal initiation, and they dissent less on these kinds of proposals in board voting. Negative post-dissension career consequence helps explain why privately hindering proposals is more attractive than publicly dissenting. Once CRIDs dissent on tunneling-related proposals, shareholders and media react negatively. The adverse reactions of regulators and debtholders focus less on tunneling concerns than topics where they have greater monitoring legitimacy (e.g., disclosure). Greater CRID presence also appears to mitigate (substitute) minority-shareholder-appointed director dissension about tunneling-related proposals.

  • (2024) Du, Jinzhao
    This thesis comprises three standalone essays on corporate finance. In Chapter 2, we use novel data to track the movements of senior managers and executives across firms to investigate how family business groups allocate human capital within their Internal Labor Markets (ILMs). We show that groups actively leverage their ILMs to source talent. Despite having an overall greater demand for talent, group firms hire significantly fewer executives from the external labor market than comparable standalone firms, and such external hiring only rises in periods of poor performance. Within a group, the reallocation of talent is mainly directed towards younger and bottom-of-pyramid member firms, and those with relatively weaker performance and that receive within-group investments. Overall, our findings imply that family business groups maintain active ILMs, through which critical human capital can be reallocated to support the development of group members. Chapter 3 examines customer-supplier relationships and trade financing within business groups. We find that business group firms actively trade among themselves and utilize trade financing to assist their affiliates in mitigating operating risks. Compared to standalone firms, group firms trading with suppliers from the same group receive greater trade credit, especially when facing difficult sales conditions and cash shortages. Trade financing is a substitute for direct investment as a way to allocate internal capital within a group, except for the most capital-dependent affiliates, where both channels matter. An identification strategy based on major natural disasters strengthens the causal interpretation of our main results. Chapter 4 explores the role of firms' ownership and common ownership by institutional investors in shaping firms' product market strategies. Using comprehensive trademark data, we find that institutional ownership encourages the more frequent introduction and removal of product lines, resulting in the firm's product scope expansion. Using exogenous industry shocks, we present causal evidence that institutional investor distractions discourage product scope expansion and product shifting. Our findings support the career concerns' hypothesis that institutional investors alleviate managers' concerns over short-term performance fluctuations due to changes in the product mix. We find little evidence to support the anticompetitive effects of common ownership on firms' product market strategies.