2021

The Leverage–Profitability Puzzle Resurrected
B Espen Eckbo, Michael Kisser
Review of Finance, Volume 25, Issue 4, July 2021, Pages 1089–1128, https://doi.org/10.1093/rof/rfaa032

The leverage-profitability puzzle is the tension between the positive leverage-profitability correlation predicted by classical tradeoff theory of capital structure choice and the robust negative correlation observed for industrial companies.… Read more...

The Role of Internal M&A Teams in Takeovers
Nihat Aktas, Audra Boone, Alexander Witkowski, Guosong Xu, Burcin Yurtoglu
Review of Finance, Volume 25, Issue 4, July 2021,Pages 1047–1088, https://doi.org/10.1093/rof/rfaa034

The economic importance of mergers and acquisitions (M&As) has spurred extensive research into the drivers of takeover activity and associated gains.… Read more...

Financial Media, Price Discovery, and Merger Arbitrage
Matthias M M Buehlmaier, Josef Zechner
Review of Finance, Volume 25, Issue 4, July 2021, Pages 997–1046, https://doi.org/10.1093/rof/rfaa037

Using merger announcements and applying methods from computational linguistics we find strong evidence that stock prices underreact to information in financial media.… Read more...

ETF Arbitrage, Non-Fundamental Demand, and Return Predictability
David C Brown, Shaun William Davies, Matthew C Ringgenberg
Review of Finance, Volume 25, Issue 4, July 2021, Pages 937–972, https://doi.org/10.1093/rof/rfaa027

Non-fundamental demand shocks have significant effects on asset prices, but observing these shocks is challenging.… Read more...

Spillovers in Prices: The Curious Case of Haunted Houses
Utpal Bhattacharya, Daisy Huang, Kasper Meisner Nielsen
Review of Finance, Volume 25, Issue 3, May 2021, Pages 903–935, https://doi.org/10.1093/rof/rfaa030

Exploiting the unique institutional setting of Hong Kong’s housing market, we uncover a curious ripple effect of haunted houses on the prices of nearby houses.… Read more...

Is Currency Risk Priced in Global Equity Markets?
George Andrew Karolyi, Ying Wu
Review of Finance, Volume 25, Issue 3, May 2021, Pages 863–902, https://doi.org/10.1093/rof/rfaa026

Whether currency risk is priced or not has challenged international asset pricing scholars for four decades.… Read more...

Managing Liquidity in Production Networks: The Role of Central Firms
Janet Gao
Review of Finance, Volume 25, Issue 3, May 2021, Pages 819–861, https://doi.org/10.1093/rof/rfaa025

In the U.S. economy, firms are closely connected in a production network and are exposed to the spillover effects of negative shocks from their connected firms.… Read more...

Equilibrium Asset Pricing in Directed Networks
Nicole Branger, Patrick Konermann, Christoph Meinerding, Christian Schlag
Review of Finance, Volume 25, Issue 3, May 2021, Pages 777–818, https://doi.org/10.1093/rof/rfaa035

The existence of network linkages between firms, industries, or countries can turn microeconomic shocks into aggregate fluctuations.… Read more...

More is Less: Publicizing Information and Market Feedback
Andrew Bird, Stephen A Karolyi, Thomas G Ruchti, Phong Truong
Review of Finance, Volume 25, Issue 3, May 2021, Pages 745–775, https://doi.org/10.1093/rof/rfaa028

Financial markets are important to the real economy (Hayek 1945; Baumol 1965).… Read more...

Bank of Japan Equity Purchases: The (Non-)Effects of Extreme Quantitative Easing
Ben Charoenwong, Randall Morck, Yupana Wiwattanakantang
Review of Finance, Volume 25, Issue 3, May 2021, Pages 713–743, https://doi.org/10.1093/rof/rfaa029

With the onset of the Covid-19 pandemic, the financial press has reported that central banks around the world such as the European Central Bank and the Bank of Israel have contemplated buying equity to further boost economic growth.… Read more...