We examine the contagion effect of residential foreclosures and find strong evidence of a social interactions influence on default decisions where the interaction is based on neighbors' behavior in a ...previous period. Using a unique spatially explicit parcel-level dataset documenting residential foreclosures in Maryland for the years 2006-2009 and a highly localized neighborhood definition, based on 13 nearest neighbors, we find that a neighbor in foreclosure increases the hazard of additional defaults by 18 percent. This feedback effect goes beyond a temporary reduction in local house prices and implies a negative social multiplier effect of foreclosures.
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This article addresses the debate regarding the role of index funds in commodity futures markets. Many have argued that index funds are speculators that are responsible for bubbles in commodity ...futures prices. The argument is based on the premise that the sheer size of index investment can overwhelm the normal functioning of these markets. Importantly, an empirical linkage must be made between commodity index fund positions and prices, or there is no obvious mechanism by which a bubble can form. The authors' empirical analysis uses new data from the U.S. Commodity Futures Trading Commission contained in the "Disaggregated Commitments of Traders" report. Granger-style causality regressions provide no convincing evidence that positions held by swap dealers impact market returns. Surprisingly, the results do suggest that larger commodity index positions are associated with declining market volatility, although these results may be market specific. PUBLICATION ABSTRACT
The authors find that privately held firms owned by women were less likely than those owned by men to downsize their workforces during the Great Recession. Year-to-year employment reductions were as ...much as 29% smaller at women-owned firms, even after controlling for industry, size, and profitability. Using data that allow the authors to control for additional detailed firm and owner characteristics, they also find that women-owned firms operated with greater labor intensity after the previous recession and were less likely to hire temporary or leased workers. These patterns extend previous findings associating female business leadership with increased labor hoarding.
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We investigate the effects of central bank liquidity and possible implicit government guarantees against default on Norwegian overnight interbank interest rates. We conduct an econometric study of ...these interest rates over the period 2006–09, which includes the sharp fall in interbank trading during the financial crisis. Our findings suggest relatively lower funding costs for banks of systemic importance, particularly for banks with many and valuable linkages to other banks. Moreover, interest rates are found to depend not only on overall liquidity in the interbank market, but on its distribution among banks as well. There is also evidence of stronger effects on interest rates of systemic importance, creditworthiness and liquidity demand and supply factors during the financial crisis.
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Market Liquidity and Flow-driven Risk Deuskar, Prachi; Johnson, Timothy C.
The Review of financial studies,
03/2011, Volume:
24, Issue:
3
Journal Article
Peer reviewed
Using a unique dataset of trades and limit orders for S&P 500 futures, we decompose the aggregate risk into a component driven by the impact of net market orders and a component unrelated to net ...orders. The first component—flow-driven risk—is large, accounting for approximately 50% of market variance, and it is not transient. This risk represents the joint effect of net trade demand and the price impact of that demand—i.e., illiquidity. We find that flows are largely unpredictable, and lagged flows have no price impact. Flow-driven risk is time varying because price impact is highly variable. Illiquidity rises with market volatility, but not with flow uncertainty. Net selling increases illiquidity, which amplifies downside flow-driven risk. The findings are consistent with flow-driven shocks resulting from fluctuations in aggregate risk-bearing capacity. Under this interpretation, investors with constant risk tolerance should trade against such shocks (i.e., "supply liquidity") to achieve substantial utility gains. Quantitatively accounting for the scale of flow-driven risk poses a major challenge for asset pricing theory.
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This paper develops a critique of the concept of 'ethical identity' as this has been used recently to distinguish between 'cynical' and 'authentic' forms of corporate responsibility. Taking as our ...starting point Levinas' demanding view of responsibility as 'following the assignation of responsibility for my neighbour', we use a case study of a packaging company—PackCo—to argue that a concern with being seen and/or seeing oneself as responsible should not be confused with actual responsibility. Our analysis of the case points first to the allure of programmes of strategic corporate responsibility and the ways in which, through identification, they can provide a tacit form of moral sanction to managers in their aggressive pursuit of profit. It then contrasts the responses of different managers to negative staff feedback to illustrate the difference between managers' attempts to defend their identity of being 'responsible' managers, and responsible conduct itself. The paper concludes that a potent danger of programmes of corporate responsibility is that they allow managers to deceive not just others, but also themselves in relation to the exercise of responsibility.
Global indices of economic competitiveness, such as the World Bank's Ease of Doing Business Index (EDBI), score and rank states according to the quality of local business regulations. Quantifying and ...indexing regulatory quality to a singular ranking constructs a "best practice" model that characterizes regulation in the highest-ranked states. States that outcompete others in transferring regulatory best practices from higher-ranked states are rewarded with an improved international reputation for having investor-friendly policies. By helping to attract the interest of foreign investors, the production of higher competitiveness rankings serves as an extraterritorial state strategy for gaining from globalization. This article details the reform strategy that was used to produce the (post-Soviet) Republic of Georgia's 2006-2009 vault up the EDBI rankings. These higher rankings were the centerpiece of an investment-promotion campaign that accompanied strong inflows of foreign direct investment. Making full use of EDBI as a strategic resource for promoting increased foreign investment involved the composition of an institutional assemblage of the Georgian government, USAID, and the World Bank's Doing Business project. Ethnographic research revealed how power geometries emerged among the assembled organizations to enable the transfer of EDBI's best practice regulations in some areas, and to impede it in others. The case study reveals how limits to policy transfer are created by geographic context and how EDBI rankings can be exploited to obfuscate problematic business conditions that are overlooked by its measurement methodology.
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The scope of this paper is to analyze the impact of corporate governance quality (namely board size, board independence, managerial ownership, institutional ownership and CEO duality) on the earnings ...management behaviour of European Union's football clubs over the period 2006-2009. Empirical results documented that corporate governance quality mitigates aggressive earnings manipulation (income smoothing, accrual manipulation and reporting small positive income) by football managers and specifically clubs with increased board independence, managerial ownership and institutional ownership and small board size are associated with high quality financial reporting through the deterioration of earnings management behaviour. These findings dictate the necessity of sound corporate governance principles to protect the interests of shareholders and various stakeholders, and prevent the expropriation of wealth by managers and maximize the clubs' economic results and social return. The empirical findings are robust to several sensitivity tests concerning the functioning form of the models and the measures of earnings management.
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The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to the domain over which the Central Bank can vary its official policy ...rate. They are: (1) abolishing currency (which would also be a useful crime-fighting measure); (2) paying negative interest on currency by taxing currency; and (3) decoupling the numéraire from the currency/medium of exchange/means of payment and introducing an exchange rate between the numéraire and the currency; this exchange rate can be set over time to achieve a forward discount (expected depreciation) of the currency vis-à-vis the numéraire when the nominal interest rate in terms of the numéraire is set at a negative level for monetary policy purposes.
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