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A general option pricing framework for affine fractionally integrated models
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107346
Maciej Augustyniak , Alexandru Badescu , Jean-François Bégin , Sarath Kumar Jayaraman
{"title":"A general option pricing framework for affine fractionally integrated models","authors":"Maciej Augustyniak ,&nbsp;Alexandru Badescu ,&nbsp;Jean-François Bégin ,&nbsp;Sarath Kumar Jayaraman","doi":"10.1016/j.jbankfin.2024.107346","DOIUrl":"10.1016/j.jbankfin.2024.107346","url":null,"abstract":"<div><div>This article studies the impact of fractional integration on volatility modelling and option pricing. We propose a general discrete-time pricing framework based on affine multi-component volatility models that admit ARCH(<span><math><mi>∞</mi></math></span>) representations. This not only nests a large variety of option pricing models from the literature, but also allows for the introduction of novel covariance-stationary long-memory affine GARCH pricing models. Using an infinite sum characterization of the log-asset price’s cumulant generating function, we derive semi-explicit expressions for the valuation of European-style derivatives under a general variance-dependent stochastic discount factor. Moreover, we carry out an extensive empirical analysis using returns and S&amp;P 500 options over the period 1996–2019. Overall, we find that once the informational content from options is incorporated into the parameter estimation process, the inclusion of fractionally integrated dynamics in volatility is beneficial for improving the out-of-sample option pricing performance. The largest improvements in the implied volatility root-mean-square errors occur for options with maturities longer than one year, reaching 28% and 18% when compared to standard one- and two-component short-memory models, respectively.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107346"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102361","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Diamond cuts diamond: News co-mention momentum spillover prevails in China
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107356
Shuyi Ge , Shaoran Li , Hanyu Zheng
{"title":"Diamond cuts diamond: News co-mention momentum spillover prevails in China","authors":"Shuyi Ge ,&nbsp;Shaoran Li ,&nbsp;Hanyu Zheng","doi":"10.1016/j.jbankfin.2024.107356","DOIUrl":"10.1016/j.jbankfin.2024.107356","url":null,"abstract":"<div><div>We conduct a comprehensive study on momentum spillovers in the Chinese stock market using various types of economic linkages, with particular attention to momentum spillover via news co-mention linkages. We utilize millions of Chinese business news articles and develop a flexible and innovative algorithm to identify linkages among listed firms. We find that news co-mention momentum spillover is stronger than others, unifying various forms of momentum spillover effects in the Chinese market and replacing the role of analyst co-coverage in the U.S. News co-mention identifies a wide range of economically important linkages, particularly recovering more cross-industry linkages than other link identification methods, which contributes to its strong performance.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107356"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102389","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Incentive contracting in the shadow of litigation risk: Evidence from universal demand laws
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107352
Mark Humphery-Jenner , Emdad Islam , Vikram Nanda , Lubna Rahman
{"title":"Incentive contracting in the shadow of litigation risk: Evidence from universal demand laws","authors":"Mark Humphery-Jenner ,&nbsp;Emdad Islam ,&nbsp;Vikram Nanda ,&nbsp;Lubna Rahman","doi":"10.1016/j.jbankfin.2024.107352","DOIUrl":"10.1016/j.jbankfin.2024.107352","url":null,"abstract":"<div><div>We hypothesize and show that the impact of a regulatory shock depends both on the shock itself and on how firms respond, which can itself depend on the firm's governance attributes. To explore this, we use the staggered passage of Universal Demand (UD) laws, which insulate managers from derivative lawsuits. We find that, on average, firms respond to UD laws by increasing risk-taking incentives (vega), thereby compensating for weaker external discipline, and incentivizing valuable risky investments. Corporate governance, institutional ownership, and CEO power influences the likelihood of adjusting compensation. The firms that do boost vega subsequently experience greater innovation, and a stronger market response to new product announcements. Our results help to reconcile extant findings on the effects of UD laws by showing that the beneficial impact of the laws is conditional on firms’ strengthening their CEOs’ risk-taking incentives, a choice affected by their latent governance arrangements.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107352"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102352","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Do venture capital-driven top management changes enhance corporate innovation in private firms?
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107353
Qianqian Yu
{"title":"Do venture capital-driven top management changes enhance corporate innovation in private firms?","authors":"Qianqian Yu","doi":"10.1016/j.jbankfin.2024.107353","DOIUrl":"10.1016/j.jbankfin.2024.107353","url":null,"abstract":"<div><div>Using hand-collected data from Form Ds on executives in venture capital (VC)-backed private firms, I show that VC-driven top management changes lead to a significantly greater quantity and quality of innovation, which potentially occurs through new management teams hiring more and higher quality inventors. My evidence demonstrates that both founder replacements and non-founder management changes are associated with enhanced innovation. Further, adding top managers with general managerial skills enhances innovation, whereas changing managers with a prior technical background does not. Finally, top management changes lead to the adoption of an exploitative (rather than explorative) innovation search strategy by private firms.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107353"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102360","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Downside risk and hedge fund returns
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107345
Christos Argyropoulos , Ekaterini Panopoulou , Spyridon Vrontos
{"title":"Downside risk and hedge fund returns","authors":"Christos Argyropoulos ,&nbsp;Ekaterini Panopoulou ,&nbsp;Spyridon Vrontos","doi":"10.1016/j.jbankfin.2024.107345","DOIUrl":"10.1016/j.jbankfin.2024.107345","url":null,"abstract":"<div><div>This study compares the predictive power of downside risk for hedge funds and fund of hedge funds returns. We find a positive relationship between downside risk and return for hedge funds but not for funds of hedge funds. This result is robust to the downside risk measure employed and additional control variables. Furthermore, we find that funds of hedge funds perform significantly worse than hedge funds during adverse equity market regimes, exhibiting an inverse (negative) risk–return relationship. Finally, we form realistic portfolios to determine whether an investor can construct a portfolio that outperforms the average fund of hedge funds. These portfolios display superior risk-adjusted performance and rank among the top performers of funds of hedge funds in our sample.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107345"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102362","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Multivariate crash risk in China
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107365
Tongshuai Qiao , Yang Zhao , Liyan Han , Donghui Li
{"title":"Multivariate crash risk in China","authors":"Tongshuai Qiao ,&nbsp;Yang Zhao ,&nbsp;Liyan Han ,&nbsp;Donghui Li","doi":"10.1016/j.jbankfin.2024.107365","DOIUrl":"10.1016/j.jbankfin.2024.107365","url":null,"abstract":"<div><div>This study examines the pricing of multivariate crash risk (MCRASH) in the Chinese stock market. Our findings indicate a significantly positive influence of MCRASH on the cross-section of future stock returns, with the MCRASH premium being notably higher in China than in the US. A plausible explanation for China's higher MCRASH premium is that Chinese stocks may experience greater loss magnitudes in left-tail events, leading investors to demand higher expected returns as compensation for bearing a unit of MCRASH. Additionally, the return effect of MCRASH is found to be significantly stronger for stocks of non-state-owned enterprises and those with lower media coverage. Finally, we construct a four-factor model comprising market, size, value, and MCRASH factors, which demonstrates superior explanatory power compared with the CH3 and CH4 models proposed in the literature.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107365"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102364","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
The market for corporate control and firm information environment: Evidence from five decades of data
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107350
Xiaoran Ni , Ye Wang , David Yin
{"title":"The market for corporate control and firm information environment: Evidence from five decades of data","authors":"Xiaoran Ni ,&nbsp;Ye Wang ,&nbsp;David Yin","doi":"10.1016/j.jbankfin.2024.107350","DOIUrl":"10.1016/j.jbankfin.2024.107350","url":null,"abstract":"<div><div>This paper reconciles conflicting empirical findings in the takeover and firm transparency literature by utilizing a comprehensive takeover index from Cain, McKeon, and Solomon (2017). Examining a broad sample of U.S. public firms from 1970 to 2020, we document a negative relation between takeover susceptibility and firm opacity, measured primarily through stock price crash risk, and also through accrual/real earnings management, financial statement readability, analyst forecast dispersion, and voluntary disclosure. Stronger takeover threats mitigate crash risk by curtailing managerial empire-building incentives, promoting timely information disclosure, and constraining manipulative accounting practices. Our research confirms the effectiveness of the market for corporate control in addressing information-related agency problems and enhancing firm transparency. These findings persist across a broad range of firms and an extended time period, addressing the limitations of earlier studies. By employing a more holistic measure of takeover vulnerability and examining multiple facets of transparency, we provide a nuanced understanding of how corporate governance mechanisms influence firm performance and risk.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107350"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102353","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Uncertainty and cross-sectional stock returns: Evidence from China
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107374
Bruno Deschamps, Tianlun Fei, Ying Jiang, Xiaoquan Liu
{"title":"Uncertainty and cross-sectional stock returns: Evidence from China","authors":"Bruno Deschamps,&nbsp;Tianlun Fei,&nbsp;Ying Jiang,&nbsp;Xiaoquan Liu","doi":"10.1016/j.jbankfin.2024.107374","DOIUrl":"10.1016/j.jbankfin.2024.107374","url":null,"abstract":"<div><div>We study the impact of macroeconomic and financial uncertainties on cross-sectional returns in the Chinese stock market. We find that stocks with a lower macroeconomic uncertainty beta generate higher excess returns, implying that macroeconomic uncertainty commands a negative risk premium. Meanwhile, the exposure to financial uncertainty is not priced in stock returns. Unlike financial uncertainty, macroeconomic uncertainty is a state variable that predicts a deterioration in economic activity, suggesting that investors require a premium for holding stocks that correlate negatively with it.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107374"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102387","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Short selling and product market competition
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107335
Rafael Matta , Sergio H. Rocha , Paulo Vaz
{"title":"Short selling and product market competition","authors":"Rafael Matta ,&nbsp;Sergio H. Rocha ,&nbsp;Paulo Vaz","doi":"10.1016/j.jbankfin.2024.107335","DOIUrl":"10.1016/j.jbankfin.2024.107335","url":null,"abstract":"<div><div>We empirically investigate how short selling affects firms’ product market performance via a managerial monitoring channel. Using both historical data and exogenous shocks to short selling, we find robust evidence that short interest negatively impacts market shares, especially in large firms. Our Reg SHO results are stronger in concentrated industries and industries where firms compete in strategic substitutes. Further tests show that these effects are driven by low <em>ex-ante</em> stock price informativeness. The evidence suggests that the interaction between market power and price opacity generates incentives for overproduction, which short selling attenuates. Our results support policies that facilitate price discovery in the presence of market power.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107335"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102356","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Information spillovers and cross monitoring between the stock market and loan market
IF 3.6 2区 经济学
Journal of Banking & Finance Pub Date : 2025-02-01 DOI: 10.1016/j.jbankfin.2024.107351
Matthew T. Billett , Fangzhou Liu , Xuan Tian
{"title":"Information spillovers and cross monitoring between the stock market and loan market","authors":"Matthew T. Billett ,&nbsp;Fangzhou Liu ,&nbsp;Xuan Tian","doi":"10.1016/j.jbankfin.2024.107351","DOIUrl":"10.1016/j.jbankfin.2024.107351","url":null,"abstract":"<div><div>We explore information spillovers and cross-monitoring between the stock and loan markets, focusing on the roles of short sellers and banks. Using Regulation SHO that directly affects short-selling constraints in the stock market but is exogenous to the loan market, we find that only those firms without bank monitors exhibit significant stock price declines upon the announcement of SHO. We also document that while short interest increases following SHO, it increases far less for firms with bank monitors. Using bank and lending relationship characteristics, we find SHO returns increase in the bank's ability and incentive to monitor. Our exploration of equity ownership structure reveals that the presence of block holders and dedicated owners has little to no effect on our results, suggesting that bank monitors complement shareholder monitoring efforts.</div></div>","PeriodicalId":48460,"journal":{"name":"Journal of Banking & Finance","volume":"171 ","pages":"Article 107351"},"PeriodicalIF":3.6,"publicationDate":"2025-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143102391","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
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