Forthcoming Articles

De Facto Bank Bailouts

Phong T. H. Ngo and Diego L. Puente-Moncayo

The U.S. government uses its voting power to direct IMF loans to countries where U.S. banks are exposed to sovereign default – a de facto bailout. This effect is stronger in years when the costs of direct bailouts are higher and is also found among major European IMF members. We find that de facto bailouts reduce government incentives to default and that U.S. Congressional voting on IMF funding is consistent with a private interest view of government. Overall, we identify an alternative mechanism through which governments can backstop the losses of large multinational banks.

Consolidating Product Lines via Mergers and Acquisitions: Evidence from the USPTO Trademark Data

Po-Hsuan Hsu, Kai Li, Xing Liu, and Hong Wu

Using a new trademark-based product market competition measure and a novel trademark-merger dataset over the period 1983–2016, we show that companies facing greater product market competition are more likely to be acquirers. We further show that postmerger, compared to their non-acquiring peers, acquirers consolidate their product offerings by discontinuing more existing product lines and developing fewer new product lines. Using a quasi-experiment based on bids withdrawn due to exogenous reasons helps us establish the causal effect of deal completion on product market consolidation. We conclude that acquisitions create product market synergies by cutting overlapping product offerings to achieve cost efficiency.

International Yield Co-Movements

Geert Bekaert and Andrey Ermolov

We decompose long-term nominal bond yields into real and inflation components in an international context using inflation-linked and nominal bonds. In contrast to extant results, real rate variation dominates the variation in inflation-linked and nominal yields. Cross-country nominal and inflation-linked yield correlations have declined since the Great Recession. Real rates are the main source of the correlation between nominal yields. Our results are robust to various alternative measurements of inflation expectations and the liquidity premium. They continue to hold when a no-arbitrage term structure model with real, nominal, and inflation factors is used to effect the yield decomposition.

Who Supplies PPP Loans (and Does It Matter)? Banks, Relationships and the COVID Crisis

Lei Li and Philip E. Strahan

We analyze bank supply of credit under the Paycheck Protection Program (PPP). The literature emphasizes relationships as a means to improve lender information, which helps banks manage credit risk. Despite imposing no risk, however, PPP supply reflects traditional measures of relationship lending: decreasing in bank size; increasing in prior experience, in commitment lending, and in core deposits. Our results suggest a new benefit of bank relationships, as they help firms access government-subsidized lending. Consistent with this benefit, we show that bank PPP supply, based on the structure of the local banking sector, alleviates increases in unemployment.

Equity Trading Activity and Treasury Bond Risk Premia

Stefanie Schraeder, Elvira Sojli, Avanidhar Subrahmanyam, and Wing Wah Tham

We link equity and treasury bond markets via an informational channel. When macroeconomic state shifts are more probable, informed traders are more likely to have valid signals about fundamentals, so that uninformed traders are less willing to trade against informed ones. This implies low volume and high volatility, i.e., a high volatility-volume ratio (VVR). Central banks react to state shifts, but their actions are uncertain. Therefore, a higher state shift likelihood implies larger bond risk premia. These arguments together imply that VVR should positively predict bond excess returns. We empirically test and confirm this prediction, both in- and out-of-sample.


Shadow Banking in a Crisis: Evidence from FinTech During COVID-19

Zhengyang Bao and Difang Huang

We analyze lending by traditional and FinTech lenders during COVID-19. Comparing samples of FinTech and bank loan records across the outbreak, we find that FinTech companies are more likely to expand credit access to new and financially constrained borrowers after the start of the pandemic. However, this increased credit provision may be unsustainable; the delinquency rate of FinTech loans triples after the outbreak, but there is no significant change in bank loans. Borrowers holding both loan types prioritize bank loan repayments. These results shed light on the benefits of shadow banking and the potential fragility of such institutions.

Institutional Investors, Households, and the Time-Variation in Expected Stock Returns

Rüdiger Weber

I document a new stylized fact: The higher the degree of institutional ownership (IO) in a portfolio, the more time-varying expected returns rather than changes in expected cash flows drive changes in its valuation. Empirical evidence suggests that institutions’ time-varying sensitivity to the risk of holding stocks translates into time-varying expected returns on high-IO stocks. In my model, imperfect risk sharing between different types of investors generates cross-sectional differences in return predictability based on ownership, even among a priori identical stocks. My findings suggest an economic rationale for weak return predictability of small stocks and predictability reversals of stocks and REITs.

Language Skills and Stock Market Participation: Evidence from Immigrants

Xu Gan, Frank M. Song, and Yang Zhou

Do language skills affect investment decisions? This paper addresses this question by identifying the effect of English proficiency on the stock market participation of immigrants in the United States and Australia. To establish causality, we construct an instrumental variable for English proficiency by exploiting the phenomenon that younger children acquire languages more easily than older children. We find that English proficiency has a significant positive effect on stock ownership among immigrants in both countries. Moreover, we provide evidence that a reduction in information costs and an increase in trust may serve as the mechanisms underlying the language ability effect.