Option Return Predictability Zhan, Xintong (Eunice); Han, Bing; Cao, Jie ...
The Review of financial studies,
03/2022, Letnik:
35, Številka:
3
Journal Article
Recenzirano
Odprti dostop
Abstract
We uncover new return predictability in the cross-section of delta-hedged equity options. Expected returns to writing delta-hedged calls are negatively correlated with stock price, profit ...margin, and firm profitability, but positively correlated with cash holding, cash flow variance, new shares issuance, total external financing, distress risk, and dispersion of analysts’ forecasts. Our option portfolio strategies have annual Sharpe ratio above two and remain profitable after transaction costs. Their profits can be explained by two option factors, while equity risk factors have no explanatory power. We find support for several economic channels at work, yet the option return predictability remains puzzling.
The increasing presence of women in upper echelon positions draws attention to the possible effects of executive gender on corporate decisions and actions. In this study, we formulate theory about ...the impact of chief financial officer (CFO) gender on financial misreporting to generate two key insights. First, we hypothesize that firms with female CFOs will have a lower likelihood of financial misreporting than comparable firms with male CFOs. Second, we argue that the relation between CFO gender and financial misreporting will be contingent on governance mechanisms (e.g., institutional ownership and analyst coverage), such that misreporting of firms with male CFOs will differ more compared to that of firms with female CFOs when governance is weak. Our results, based on a novel leading indicator of the likelihood of financial misreporting, provide support for our predictions. Various alternative econometric specifications, including (but not limited to) exogenous shocks, propensity score matching, and modeling treatment effects, random effects, firm fixed effects, and hybrid effects provide general support for our theory and hypotheses. Implications and directions for future research are discussed.
Beta Risk in the Cross-Section of Equities Boloorforoosh, Ali; Christoffersen, Peter; Fournier, Mathieu ...
The Review of financial studies,
09/2020, Letnik:
33, Številka:
9
Journal Article
Recenzirano
We develop a conditional capital asset pricing model in continuous time that allows for stochastic beta exposure. When beta comoves with market variance and the stochastic discount factor (SDF), beta ...risk is priced, and the expected return on a stock deviates from the security market line. The model predicts that low-beta stocks earn high returns, because their beta positively comoves with market variance and the SDF. The opposite is true for high-beta stocks. Estimating the model on equity and option data, we find that beta risk explains expected returns on low- and high-beta stocks, resolving the “betting against beta” anomaly.
Abstract
Previous literature has explored the effects of economic conditions on voting behavior. In this article, I analyze how the economy affects legislative polarization. Using recently available ...state legislator ideal point estimates, I find a strong negative relationship between state economic activity and political polarization. States that fared worse economically have experienced greater increases in legislative polarization. I show this relationship is causal by employing an instrumental variables strategy. The instrument isolates exogenous variation in state economic activity by exploiting time-series variation in oil prices, which differentially affects individual states according to their economic dependence on oil production. The estimated polarization effects are stronger for Republicans. The findings have implications for understanding the interaction between the economy and political outcomes. (JEL H7, H83).
Local governments aim to accumulate slack resources to mitigate economic turbulence. Yet efforts to increase multiple slack resources could hinder accumulation. This paper examines whether increasing ...one form of slack is detrimental to the accumulation of another. By using data from 672 New York local governments from 1996 to 2016, this article examines the impact of excess taxing capacity, or unused property taxing authority, on unrestricted cash and short‐term borrowing. Regression results indicate that short‐term resources are reduced to boost excess taxing capacity for counties to suggest cash flows can be hindered by increasing political forms of slack.
Applications For Practice
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Financial slack resources with lower visibility and monitoring, such as cash reserves and short‐term debt, are likely to be used to maintain the excess taxing capacity of local governments.
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Subnational governments are justified in creating tailored approaches that alter short‐term resources while building up excess taxing capacity.
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Suggestive evidence indicates counties and villages reduce unrestricted cash, counties increase short‐term borrowing, villages reduce short‐term borrowing, and cities are largely not impacted when excess taxing capacity is increased.
The animal slaughtering and processing industry was the epicenter of work site immigration raids from 2006 to 2008 that were aimed at rooting out unauthorized immigrant workers in the United States. ...This study examines whether the industry shifted toward legal workers in the wake of the raids and whether wages, worker turnover, and other labor market outcomes changed as well. We find that the industry initially shifted toward legal foreign-born workers, particularly refugees, but the change faded over time. We also find a substantial increase in industry worker turnover, but not in average wages, at the national level.
Using a natural experiment in Singapore, we examine the economic impact of temporarily restricting owners’ rights to transfer their property. Executive condominiums (ECs), introduced to provide ...affordable housing for middle-class citizens, are subject to restrictions on transferability in the first 10 years, unlike private condominiums (PCs). As per the option theory, EC buyers have the forward-start American put option with the right to sell their properties only after the contract date. Among transacted units matched by location, completion and transaction dates, and complex- and unit-level characteristics, we find that prices of new ECs are about 21 percent lower than those of PCs. After the 10th year, when property rights restrictions are completely removed, the price gap between ECs and PCs narrows to about 3 percent. These results suggest that property rights restrictions and illiquidity generated by the forward-start American put option for 10 years results in an 18 percent discount.
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