Pages: 1019-1019 | Published: 5/2016 | DOI: 10.1111/jofi.12328 | Cited by: 0
Pages: 1020-1020 | Published: 5/2016 | DOI: 10.1111/jofi.12329 | Cited by: 0
Pages: 1021-1021 | Published: 5/2016 | DOI: 10.1111/jofi.12327 | Cited by: 0
Pages: 1027-1070 | Published: 5/2016 | DOI: 10.1111/jofi.12389 | Cited by: 117
WENXIN DU, JESSE SCHREGER
We introduce a new measure of emerging market sovereign credit risk: the local currency credit spread, defined as the spread of local currency bonds over the synthetic local currency risk‐free rate constructed using cross‐currency swaps. We find that local currency credit spreads are positive and sizable. Compared with credit spreads on foreign‐currency‐denominated debt, local currency credit spreads have lower means, lower cross‐country correlations, and lower sensitivity to global risk factors. We discuss several major sources of credit spread differentials, including positively correlated credit and currency risk, selective default, capital controls, and various financial market frictions.
Asymmetric Information about Collateral Values
Pages: 1071-1112 | Published: 5/2016 | DOI: 10.1111/jofi.12288 | Cited by: 87
JOHANNES STROEBEL
I empirically analyze credit market outcomes when competing lenders are differentially informed about the expected return from making a loan. I study the residential mortgage market, where property developers often cooperate with vertically integrated mortgage lenders to offer financing to buyers of new homes. I show that these integrated lenders have superior information about the construction quality of individual homes and exploit this information to lend against higher quality collateral, decreasing foreclosures by up to 40%. To compensate for this adverse selection on collateral quality, nonintegrated lenders charge higher interest rates when competing against a better‐informed integrated lender.
Information Acquisition in Rumor‐Based Bank Runs
Pages: 1113-1158 | Published: 5/2016 | DOI: 10.1111/jofi.12202 | Cited by: 62
ZHIGUO HE, ASAF MANELA
We study information acquisition and dynamic withdrawal decisions when a spreading rumor exposes a solvent bank to a run. Uncertainty about the bank's liquidity and potential failure motivates depositors who hear the rumor to acquire additional noisy signals. Depositors with less informative signals may wait before gradually running on the bank, leading to an endogenous aggregate withdrawal speed and bank survival time. Private information acquisition about liquidity can subject solvent‐but‐illiquid banks to runs, and shorten the survival time of failing banks. Public provision of solvency information can mitigate runs by indirectly crowding‐out individual depositors' effort to acquire liquidity information.
Exporting Liquidity: Branch Banking and Financial Integration
Pages: 1159-1184 | Published: 5/2016 | DOI: 10.1111/jofi.12387 | Cited by: 244
ERIK P. GILJE, ELENA LOUTSKINA, PHILIP E. STRAHAN
Using exogenous liquidity windfalls from oil and natural gas shale discoveries, we demonstrate that bank branch networks help integrate U.S. lending markets. Banks exposed to shale booms enjoy liquidity inflows, which increase their capacity to originate and hold new loans. Exposed banks increase mortgage lending in nonboom counties, but only where they have branches and only for hard‐to‐securitize mortgages. Our findings suggest that contracting frictions limit the ability of arm's length finance to integrate credit markets fully. Branch networks continue to play an important role in financial integration, despite the development of securitization markets.
The Boats That Did Not Sail: Asset Price Volatility in a Natural Experiment
Pages: 1185-1226 | Published: 5/2016 | DOI: 10.1111/jofi.12312 | Cited by: 49
PETER KOUDIJS
What explains short‐term fluctuations of stock prices? This paper exploits a natural experiment from the 18 century in which information flows were regularly interrupted for exogenous reasons. English shares were traded on the Amsterdam exchange and news came in on sailboats that were often delayed because of adverse weather conditions. The paper documents that prices responded strongly to boat arrivals, but there was considerable volatility in the absence of news. The evidence suggests that this was largely the result of the revelation of (long‐lived) private information and the (transitory) impact of uninformed liquidity trades on intermediaries' risk premia.
Worrying about the Stock Market: Evidence from Hospital Admissions
Pages: 1227-1250 | Published: 5/2016 | DOI: 10.1111/jofi.12386 | Cited by: 92
JOSEPH ENGELBERG, CHRISTOPHER A. PARSONS
Using individual patient records for every hospital in California from 1983 to 2011, we find a strong inverse link between daily stock returns and hospital admissions, particularly for psychological conditions such as anxiety, panic disorder, and major depression. The effect is nearly instantaneous (within the same day) for psychological conditions, suggesting that anticipation over future consumption directly influences instantaneous utility.
Short Selling and Earnings Management: A Controlled Experiment
Pages: 1251-1294 | Published: 5/2016 | DOI: 10.1111/jofi.12369 | Cited by: 317
VIVIAN W. FANG, ALLEN H. HUANG, JONATHAN M. KARPOFF
During 2005 to 2007, the SEC ordered a pilot program in which one‐third of the Russell 3000 index were arbitrarily chosen as pilot stocks and exempted from short‐sale price tests. Pilot firms’ discretionary accruals and likelihood of marginally beating earnings targets decrease during this period, and revert to pre‐experiment levels when the program ends. After the program starts, pilot firms are more likely to be caught for fraud initiated before the program, and their stock returns better incorporate earnings information. These results indicate that short selling, or its prospect, curbs earnings management, helps detect fraud, and improves price efficiency.
Collateralization, Bank Loan Rates, and Monitoring
Pages: 1295-1322 | Published: 5/2016 | DOI: 10.1111/jofi.12214 | Cited by: 175
GERALDO CERQUEIRO, STEVEN ONGENA, KASPER ROSZBACH
We show that collateral plays an important role in the design of debt contracts, the provision of credit, and the incentives of lenders to monitor borrowers. Using a unique data set from a large bank containing timely assessments of collateral values, we find that the bank responded to a legal reform that exogenously reduced collateral values by increasing interest rates, tightening credit limits, and reducing the intensity of its monitoring of borrowers and collateral, spurring borrower delinquency on outstanding claims. We thus explain why banks are senior lenders and quantify the value of claimant priority.
From Wall Street to Main Street: The Impact of the Financial Crisis on Consumer Credit Supply
Pages: 1323-1356 | Published: 5/2016 | DOI: 10.1111/jofi.12209 | Cited by: 59
RODNEY RAMCHARAN, STÉPHANE VERANI, SKANDER J. VAN DEN HEUVEL
How did the collapse of the asset‐backed securities (ABS) market during the 2007 to 2009 financial crisis affect the supply of credit to the broader economy? Using new data on the U.S. credit union industry, we find that ABS‐related losses are associated with a large contraction in the supply of credit to consumers, especially among those credit unions that began the crisis with weaker capitalization. We also find that this credit supply shock restricted the availability of mortgage and automobile credit. These results show how movements in the prices of financial assets can affect the real economy.
The Total Cost of Corporate Borrowing in the Loan Market: Don't Ignore the Fees
Pages: 1357-1392 | Published: 5/2016 | DOI: 10.1111/jofi.12281 | Cited by: 231
TOBIAS BERG, ANTHONY SAUNDERS, SASCHA STEFFEN
More than 80% of U.S. syndicated loans contain at least one fee type and contracts typically specify a menu of spreads and fee types. We test the predictions of existing theories on the main purposes of fees and provide supporting evidence that: (1) fees are used to price options embedded in loan contracts such as the drawdown option for credit lines and the cancellation option in term loans, and (2) fees are used to screen borrowers based on the likelihood of exercising these options. We also propose a new total‐cost‐of‐borrowing measure that includes various fees charged by lenders.
Information in the Term Structure of Yield Curve Volatility
Pages: 1393-1436 | Published: 5/2016 | DOI: 10.1111/jofi.12388 | Cited by: 72
ANNA CIESLAK, PAVOL POVALA
Using a novel no‐arbitrage model and extensive second‐moment data, we decompose conditional volatility of U.S. Treasury yields into volatilities of short‐rate expectations and term premia. Short‐rate expectations become more volatile than premia before recessions and during asset market distress. Correlation between shocks to premia and shocks to short‐rate expectations is close to zero on average and varies with the monetary policy stance. While Treasuries are nearly unexposed to variance shocks, investors pay a premium for hedging variance risk with derivatives. We illustrate the dynamics of the yield volatility components during and after the financial crisis.
Risk‐Adjusting the Returns to Venture Capital
Pages: 1437-1470 | Published: 5/2016 | DOI: 10.1111/jofi.12390 | Cited by: 113
ARTHUR KORTEWEG, STEFAN NAGEL
We adapt stochastic discount factor (SDF) valuation methods for venture capital (VC) performance evaluation. Our approach generalizes the popular Public Market Equivalent (PME) method and allows statistical inference in the presence of cross‐sectionally dependent, skewed VC payoffs. We relax SDF restrictions implicit in the PME so that the SDF can accurately reflect risk‐free rates and returns of public equity markets during the sample period. This generalized PME yields substantially different abnormal performance estimates for VC funds and start‐up investments, especially in times of strongly rising public equity markets and for investments with betas far from one.
To Those Seeking Permissions for Academic Classroom Use
Pages: 1475-1475 | Published: 5/2016 | DOI: 10.1111/jofi.12333 | Cited by: 0
Issue Information ‐ Style Instuctions
Pages: 1476-1476 | Published: 5/2016 | DOI: 10.1111/jofi.12330 | Cited by: 0
Pages: 1477-1477 | Published: 5/2016 | DOI: 10.1111/jofi.12331 | Cited by: 0
Pages: 1478-1478 | Published: 5/2016 | DOI: 10.1111/jofi.12332 | Cited by: 0