Digests

Tick Size Wars: The Market Quality Effects of Pricing Grid Competition
Sean Foley, Tom G Meling, Bernt Arne Ødegaard
Review of Finance, Volume 27, Issue 2, March 2023, Pages 659–692, https://doi.org/10.1093/rof/rfac032

We examine the market quality effects of explicit tick size competition between trading venues.… Read more...

A Quarter Century of Mortgage Risk
Morris A Davis, William D Larson, Stephen D Oliner, Benjamin R Smith
Review of Finance, Volume 27, Issue 2, March 2023, Pages 581–618, https://doi.org/10.1093/rof/rfac034

This paper provides a comprehensive account of the evolution of default risk for newly originated home mortgages over the past quarter century.… Read more...

Determinants of Short-Term Corporate Yield Spreads: Evidence from the Commercial Paper Market
Jing-Zhi Huang, Bibo Liu, Zhan Shi
Review of Finance, Volume 27, Issue 2, March 2023, Pages 539–579, https://doi.org/10.1093/rof/rfac030

What drives short-term credit spreads is a very important question in credit markets, especially given the role played by short-term corporate debt in the global financial crisis.… Read more...

Long-Horizon Stock Returns Are Positively Skewed
Adam Farago, Erik Hjalmarsson
Review of Finance, Volume 27, Issue 2, March 2023, Pages 495–538, https://doi.org/10.1093/rof/rfac021

Individual investors often have long investment horizons. For certain saving purposes, like retirement savings, the relevant horizon can easily span several decades.… Read more...

Currency Carry Trade by Trucks: The Curious Case of China’s Massive Imports from Itself
Xuepeng Liu, Heiwai Tang, Zhi Wang, Shang-Jin Wei
Review of Finance, Volume 27, Issue 2, March 2023, Pages 469–493, https://doi.org/10.1093/rof/rfac015

Capital controls are common in many developing countries.… Read more...

Bank Stress Testing: Public Interest or Regulatory Capture?
Thomas Schneider, Philip E Strahan, Jun Yang
Review of Finance, Volume 27, Issue 2, March 2023, Pages 423–467, https://doi.org/10.1093/rof/rfac027

Bank stress testing by the U.S. Federal Reserve (the Fed) is the most important innovation in bank capital regulation to have emerged after the 2008 Global Financial Crisis.… Read more...

Liquidity Risk and Funding Cost
Alexander Bechtel, Angelo Ranaldo, Jan Wrampelmeyer
Review of Finance, Volume 27, Issue 2, March 2023, Pages 399–422, https://doi.org/10.1093/rof/rfac020

We propose a new channel that outlines how liquidity risk impacts interest rates in short term funding markets, the liquidity risk channel.… Read more...

Data versus Collateral
Leonardo Gambacorta, Yiping Huang, Zhenhua Li, Han Qiu, Shu Chen
Review of Finance, Volume 27, Issue 2, March 2023, Pages 369–398, https://doi.org/10.1093/rof/rfac022

Collateral is used in debt contracts to mitigate agency problems arising from asymmetric information. Banks usually require their borrowers to pledge tangible assets, such as real estate, to lessen ex ante adverse selection problems or as a way to reduce ex post frictions, such as moral hazard.… Read more...

Bear Beta or Speculative Beta?—Reconciling the Evidence on Downside Risk Premium
Tong Wang
Review of Finance, Volume 27, Issue 1, February 2023, Pages Pages 325–367, https://doi.org/10.1093/rof/rfac006

Our research shows that the most fundamental principle in investments fails when it comes to managing bear market risk exposure of your stock portfolio.… Read more...

Moneyness, Underlying Asset Volatility, and the Cross-Section of Option Returns
Kevin Aretz, Ming-Tsung Lin, Ser-Huang Poon
Review of Finance, Volume 27, Issue 1, February 2023, Pages Pages 289–323, https://doi.org/10.1093/rof/rfac003

While a large literature in finance suggests that the expected returns of European call (put) options fall (rise) with underlying asset volatility, the studies in that literature implicitly assume that variations in underlying asset volatility are exclusively driven by idiosyncratic volatility.… Read more...