Digests

Default Option Exercise over the Financial Crisis and beyond
Xudong An, Yongheng Deng, Stuart A Gabriel
Review of Finance, Volume 25, Issue 1, February 2021, Pages 153 – 187, https://doi.org/10.1093/rof/rfaa022

Default on residential mortgages skyrocketed during the late-2000s, giving rise to widespread financial institution failure and global financial crisis.… Read more...

Credit Default Swaps and Bank Regulatory Capital
Chenyu Shan, Dragon Yongjun Tang, Hong Yan, Xing (Alex) Zhou
Review of Finance, Volume 25, Issue 1, February 2021, Pages 121 – 152, https://doi.org/10.1093/rof/rfaa021

A major development in bank capital regulation (Basel II and III) is the allowance of capital relief using credit derivatives such as credit default swaps (CDS).… Read more...

Sentiment in Central Banks’ Financial Stability Reports
Ricardo Correa, Keshav Garud, Juan M Londono, Nathan Mislang
Review of Finance, Volume 25, Issue 1, February 2021, Pages 85–120, https://doi.org/10.1093/rof/rfaa014

We use the text of financial stability reports (FSRs) published by central banks to analyze the relation between the sentiment they convey and the financial cycle.… Read more...

Making Room for the Needy: The Credit-Reallocation Effects of the ECB’s Corporate QE
Óscar Arce, Sergio Mayordomo, Ricardo Gimeno
Review of Finance, Volume 25, Issue 1, February 2021, Pages 43–84, https://doi.org/10.1093/rof/rfaa020

We analyse how the ECB’s purchases of corporate bonds under its Corporate Sector Purchase Programme (CSPP) affected the financing of Spanish firms.… Read more...

An Augmented q-Factor Model with Expected Growth
Kewei Hou, Haitao Mo, Chen Xue, Lu Zhang
Review of Finance, Volume 25, Issue 1, February 2021, Pages 1–41, https://doi.org/10.1093/rof/rfaa004

In the investment theory, firms with high expected investment growth should earn higher expected returns than firms with low expected investment growth, holding current investment and profitability constant.… Read more...

Forecasting the Equity Premium: Mind the News!
Philipp Adämmer, Rainer A Schüssler
Review of Finance, Volume 24, Issue 6, November 2020, Pages 1313–1355, https://doi.org/10.1093/rof/rfaa007

We introduce a novel strategy to predict the equity premium by extracting news from more than 700000 newspaper articles, which were published in The New York Times and Washington Post between 1980 and 2018.… Read more...

The Duration Puzzle in Life-Cycle Investment
Servaas van Bilsen, Ilja A Boelaars, A. Lans Bovenberg
Review of Finance, Volume 24, Issue 6, November 2020, Pages 1271–1311, https://doi.org/10.1093/rof/rfaa009

Figure 1. Duration of fixed income portfolios in TDFs. The figure illustrates the (weighted) mean (solid line), the (weighted) 10% quantile (dash-dotted line) and the (weighted) 90% quantile (dashed line) of the modified duration of fixed income portfolios in TDFs in 2019 as a function of age.… Read more...

Does the Market Correctly Value Investment Options?
Evgeny Lyandres, Egor Matveyev, Alexei Zhdanov
Review of Finance, Volume 24, Issue 6, November 2020, Pages 1159–1201, https://doi.org/10.1093/rof/rfaa002

Investment options are one of the most important components of firm value. At the same time, they are notoriously difficult to value.… Read more...

Regulatory Certification, Risk Factor Disclosure, and Investor Behavior
Ruben Cox, Peter de Goeij
Review of Finance, Volume 24, Issue 5, September 2020, Pages 1079–1106, https://doi.org/10.1093/rof/rfaa003

Externalities of Regulatory Oversight on Investor Behavior in Financial Markets

Does regulatory approval of prospectuses act as a “certification” or “approval” of securities offerings?… Read more...

Signal on the Margin: Behavior of Levered Investors and Future Economic Conditions
Prachi Deuskar, Nitin Kumar, Jeramia Allan Poland
Review of Finance, Volume 24, Issue 5, September 2020, Pages 1039–1077, https://doi.org/10.1093/rof/rfaa006

Investor behavior, being forward-looking, ought to tell us something about the future.… Read more...