Mutual funds hold 32% of the U.S. equity market and comprise 58% of retirement savings, yet retail investors consistently make poor choices when selecting funds. Theory suggests poor choices are ...partially due to fund managers creating unnecessarily complex disclosures and fee structures to keep investors uninformed and obfuscate poor performance. An empirical challenge in investigating this “strategic obfuscation” theory is isolating manipulated complexity from complexity arising from inherent differences across funds. We examine obfuscation among S&P 500 index funds, which have largely the same regulations, risks, and gross returns but charge widely different fees. Using bespoke measures of complexity designed for mutual funds, we find evidence consistent with funds attempting to obfuscate high fees. This study improves our understanding of why investors make poor mutual fund choices and how price dispersion persists among homogeneous index funds. We also discuss insights for mutual fund regulation and academic literature on corporate disclosures.
•We find fund managers create unnecessarily complex disclosures and fee structures to keep investors uninformed.•We isolate manipulated complexity by examining S&P 500 index funds, which holds constant regulations, risks, and gross returns.•Using bespoke measures of complexity, we find evidence consistent with funds obfuscating high fees.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
492.
Regulatory effects on short-term interest rates Ranaldo, Angelo; Schaffner, Patrick; Vasios, Michalis
Journal of financial economics,
August 2021, 2021-08-00, 20210801, Volume:
141, Issue:
2
Journal Article
Peer reviewed
Open access
We analyze the effects of prudential regulation on short-term interest rates. The European Market Infrastructure Regulation (EMIR) induces clearing houses (CCPs) to supply large amounts of cash in ...reverse repurchase agreements (repos). Basel III, in contrast, disincentivizes the borrowing demand by tightening banks’ balance sheet constraints. Using unique regulatory data of CCP investment activity and repo transactions, we find compelling evidence for both the supply and demand channels. The overall effects are decreasing short-term rates and increasing market imbalances in various forms, all of which entail unintended consequences due to the new regulatory framework.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
Risk correlation is an important feature of financial institutions and a source of systemic risk. Despite the importance of risk correlation, few studies have examined its mechanism. Based on 538,269 ...textual risk disclosures of 1,953 financial institutions during 2006-2020, this study uses text mining methods to identify the risks and construct risk disclosure similarity measurements to verify that financial institutions with similar risk disclosures have a stronger risk correlation. The channel analysis reveals that when different financial institutions disclose infective risks simultaneously, the market perceives their susceptibility to common factors, leading to a more pronounced left-tail dependence. Additionally, a cross-sectional analysis is conducted to explore the heterogeneity among different subsectors, suggesting that risk disclosure similarity within the same subsector is higher due to the peer effect. However, this heightened similarity tends to mitigate the positive impact of risk disclosure similarity on risk correlation. A two-stage regression analysis considering endogeneity supports the main findings.
•This paper verifys that risk disclosure similarity promotes risk correlation.•Advanced text mining algorithms are used to identify risks in disclosures.•Channel analysis reveals the role of infective risk disclosures in the effect.•Peer effects on disclosures within subsectors weaken the effect.•Research is based on 538,269 risk disclosures from U.S. financial institutions.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
This article provides a discussion on some issues associated with digital finance – an area which has not been critically addressed in the literature. Digital finance and financial inclusion has ...several benefits to financial services users, digital finance providers, governments and the economy; notwithstanding, a number of issues still persist which if addressed can make digital finance work better for individuals, businesses and governments. The digital finance issues discussed in this article are relevant for the on-going debate and country-level projects directed at greater financial inclusion via digital finance in developing and emerging economies.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UILJ, UL, UM, UPCLJ, UPUK, ZAGLJ, ZRSKP
Assessing TARP Bayazitova, Dinara; Shivdasani, Anil
The Review of financial studies,
02/2012, Volume:
25, Issue:
2
Journal Article
Peer reviewed
We study the government equity infusions into banks under the Capital Purchase Program (CPP) of the Troubled Asset Relief Program (TARP). Strong banks opted out of CPP, and equity infusions were ...provided to banks that posed systemic risk and faced high financial distress costs but had strong asset quality. Concerns over executive compensation led banks to reject CPP infusions and exit the program. CPP infusions did not have meaningful certification effects, but the subsequent stress tests conducted for the major banks had significant certification effects. CPP equity infusions increased investor expectations regarding future regulatory interventions in the banking sector.
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BFBNIB, INZLJ, NMLJ, NUK, PNG, SAZU, UL, UM, UPUK, ZRSKP
I exploit the price differential of credit default swap (CDS) contracts written on debts with different levels of seniority to measure the implicit government guarantees enjoyed by European financial ...institutions from 2005 to 2013. I determine that the aggregate guarantee increased substantially during the recent financial crises and peaked at an average of 89 bps in 2011. My analysis suggests that the extent of implicit support depends on the type of financial institutions and there exists a eurozone effect. Further investigation of feedback relationship shows that the guarantee implicitly offered by a government positively ‘Granger causes’ the sovereign's default risk.
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FZAB, GIS, IJS, IZUM, KILJ, NLZOH, NUK, OILJ, PILJ, SAZU, SBCE, SBMB, UL, UM, UPUK
498.
Dealer Networks LI, DAN; SCHÜRHOFF, NORMAN
The Journal of finance (New York),
February 2019, Volume:
74, Issue:
1
Journal Article
Peer reviewed
Dealers in the over-the-counter municipal bond market form trading networks with other dealers to mitigate search frictions. Regulatory data show that this network has a core-periphery structure with ...10 to 30 hubs and over 2,000 peripheral broker-dealers in which bonds flow from periphery to core and partially back. Central dealers charge investors up to double the round-trip markups compared to peripheral dealers. In turn, central dealers provide immediacy by matching buyers with sellers more directly and prearranging fewer trades, especially during stress times. Investors thus face a trade-off between execution cost and speed, consistent with network models of decentralized trade.
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BFBNIB, FZAB, GIS, IJS, INZLJ, KILJ, NLZOH, NMLJ, NUK, OILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
499.
Life below Zero Heider, Florian; Saidi, Farzad; Schepens, Glenn
The Review of financial studies,
10/2019, Volume:
32, Issue:
10
Journal Article
Peer reviewed
Open access
We show that negative policy rates affect the supply of bank credit in a novel way. Banks are reluctant to pass on negative rates to depositors, which increases the funding cost of highdeposit banks, ...and reduces their net worth, relative to low-deposit banks. As a consequence, the introduction of negative policy rates by the European Central Bank in mid-2014 leads to more risk-taking and less lending by euro-area banks with a greater reliance on deposit funding. Our results suggest that negative rates are less accommodative and could pose a risk to financial stability, if lending is done by high-deposit banks.
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BFBNIB, INZLJ, NMLJ, NUK, PNG, SAZU, UL, UM, UPUK, ZRSKP
Mobile e-commerce has grown rapidly in the last decade because of the development of mobile network services, computing capabilities and big data’s applications. Financial institutions have been ...undergoing fundamental transformation in credit risk areas, specifically to traditional credit policy, that is now inadequate for accurately evaluating an individual’s credit risk profile in a timely manner. A big-scale dataset representing deep mobile usage of 450,722 anonymous mobile users with a 28-month loan history and mobile behavior of both iOS and Android is designed, can add value for credit scoring in terms of better accuracy and lower feature acquisition cost by introducing a cost-based quantum-inspired evolutionary algorithm (QIEA) feature selection method. The QIEA adopts quantum-based individual representation and quantum rotation gate operator to improve feature exploration capability of conventional genetic algorithm (GA). The expected feature yield fitness function introduced in QIEA able to identify cost-effective feature subsets. Experimental results show that quantum-based method achieves good predictive performances even with only 70–80% number of features selected by GAs, and hence achieve lower feature acquisition costs with budget constraints. Additionally, computational time can be reduced by 30–60% compared with GAs depending on different feature set sizes.
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EMUNI, FIS, FZAB, GEOZS, GIS, IJS, IMTLJ, KILJ, KISLJ, MFDPS, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, SBMB, SBNM, UKNU, UL, UM, UPUK, VKSCE, ZAGLJ
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