Finance

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    Company news affects the way in which a stock’s returns co-move with those of other firms

Company news affects the way in which a stock’s returns co-move with those of other firms

It is well known that the release of new information about a firm affects its stock price, as investors update their expectations about the firm’s fundamentals and future profitability. For example, unexpectedly good earnings news cause price increases, while negative surprises cause drops in prices. However, little is known about the impact of news on the co-variance structure of […]

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    How investment analysts frame information matters to their careers

How investment analysts frame information matters to their careers

Institutional Investor’s All-American ranking is the Oscars of sell-side securities analysis. Sell-side analysts work for investment banks or independent research firms to gather, interpret, and disseminate knowledge about a particular industry. Unlike buy-side analysts, who make actual investment decisions, sell-side analysts offer their audience of institutional investors – such as chief investment officers and portfolio managers of money management […]

How is big data transforming the financial sector?

Using big data for finance is a trend at the centre of the UK financial sector. The emerging financial services sector is commonly termed ‘fintech’ and while it includes firms in retail financial services, risk analytics and aspects of extensive payment systems, a major element of it focuses on the use of big data and the algorithms appropriate to […]

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    The Brexit question will increase financial market volatility

The Brexit question will increase financial market volatility

In late February, UK Prime Minister David Cameron announced that the referendum on the country’s continued membership of the European Union (EU) would be held on 23 June. Over the following weekend, a number of leading Conservative MPs announced their support for the campaign to leave the EU – ‘Brexit’. The pound sterling declined as trading opened on the […]

What will the bank of the future look like?

Lionel Barber, the editor of the FT, summed it up at Davos: “Nobody wants to be in banking, everyone wants to be in fintech”. Fintech – or financial technology – has reached the mainstream, but what does this mean for the banks?

The Fourth Industrial Revolution is taking hold in banking. The rise of fintech came about over the last […]

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    Some currency trading positions yield increased returns around Fed announcements

Some currency trading positions yield increased returns around Fed announcements

Announcements by the Federal Open Market Committee (FOMC), which occur regularly at pre-specified dates, are one of the most highly anticipated events by investors around the world. Through these announcements, the Federal Reserve communicates monetary policy in the form of setting the target federal funds rate which is the interest rate at which financial institutions lend to each other […]

European banking union: should the ‘outs’ join in?

The ultimate rationale of banking union

Banking union was conceived as a reply to one of the root causes of the European debt crisis: the sovereign-bank loop. To break the loop, euro-area leaders decided to move responsibility for banking supervision and resolution to the European level.

Banking union consists of the SSM (Single Supervisory Mechanism) and the SRM (Single Resolution Mechanism). […]

Overconfident CEOs prefer short-term debt

Debt maturity represents an important dimension of corporate financing policies. Inferior debt maturity structure can lead to suboptimal liquidation of the firm. The impact of firm characteristics on the choice of debt maturity structure is well understood. More recently, studies have turned to examine how the personal characteristics of corporate executives affect debt maturity decisions. This makes intuitive sense […]

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    Venture capital increases a startup’s chances of issuing stocks or finding a buyer

Venture capital increases a startup’s chances of issuing stocks or finding a buyer

An ultimate challenge for technology entrepreneurs is the need for capital to continue to innovate, sustain, and commercialise their innovation. The considerable risks associated with the technological feasibility, business model credibility, and product or service viability severely limits access to capital, yet angel investors and venture capitalists fill this need by investing in startups in exchange for an equity […]

Socially connected fund managers share investment ideas

Despite the important role professional money managers play in financial markets, and decades of academic study, relatively little is known about how they generate investment ideas. Some choices are likely driven by information gathered through connections to particular firms. Previous research has shown that managers invest in companies headquartered nearby and in companies to which they are linked through […]

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    When firms increase advertising spending, their stock prices climb in tandem

When firms increase advertising spending, their stock prices climb in tandem

Recent research has found that advertising has an important impact on the liquidity and breadth of ownership of stocks. This is intriguing as advertising is intended to increase the awareness of a firm’s products rather than its securities. Nevertheless, there appears to be a spillover effect. In a recent paper, I start by providing evidence of the spillover effect […]

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    The individual style of audit partners influences how firms are rated

The individual style of audit partners influences how firms are rated

We examine the persistence and economic consequences of variations in reporting style across audit partners in individual engagements. Based on an analysis of audits performed over a six-year period by the Swedish subsidiaries of the Big 4 accounting firms (Deloitte, Ernst & Young, KPMG, and PwC), we find that:

aggressive or conservative reporting is associated with the particular engagement partners […]

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    In search of greater regulatory freedom, some banks resort to cross-border acquisitions

In search of greater regulatory freedom, some banks resort to cross-border acquisitions

The recent global financial crisis, caused in part by systemic failures in bank regulation, has sparked, among other things, a strong push for both stricter capital requirements and greater international coordination in regulation. For example, seven of the 10 recommendations of the 2011 Report of the Cross-Border Bank Resolution Group of the Basel Committee for Banking Supervision (BCBS) propose […]

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    Investment in life sciences leads the growth of the UK start-up market

Investment in life sciences leads the growth of the UK start-up market

As large investors in the UK become more willing to inject capital in less liquid assets, the investment in the UK’s fast-growth company sector has been growing at increasing speed. It has now become obsolete to talk about recovery – we should now be talking about growth in unqualified terms.

In our study of the UK equity investment market, we […]

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    The less economic freedom a state has, the more political connections local firms need

The less economic freedom a state has, the more political connections local firms need

The linkages between firm performance, the economic environment and influential political connections have long been of interest across the spectrum of business and politics. These links can be particularly important for banks and other firms in heavily regulated industries where a simple change in law or regulatory policy can result in significant costs, open new profitable opportunities, or otherwise […]

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    Lower restrictions for start-ups to list on stock exchanges have mixed results

Lower restrictions for start-ups to list on stock exchanges have mixed results

Firms can finance their activities by selling their stocks in public equity markets, thus becoming public companies. An initial public offering (IPO) is the first time a company issues stocks to raise capital. In general, since these companies have limited access to external finance, it is expected that raising capital through an IPO will help them invest in growth […]

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    How can countries protect their banks against international contagion?

How can countries protect their banks against international contagion?

Financial crises which turn global pose risks for domestic banking sectors, sometimes escalating to fully-fledged domestic banking crises. Regulatory policy aims to reduce the probability of the spread of risk to the domestic financial sector and to prevent banking crises during periods of stress. Doing this effectively requires an understanding of how crises spread — what are the transmission mechanisms, […]

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    Mutual funds that concentrate on a specific industry earn superior returns

Mutual funds that concentrate on a specific industry earn superior returns

International investment has gained popularity in the past two decades. Both the number of international mutual funds and assets under management have increased dramatically. These funds enable households to enjoy the diversification benefits and return opportunities provided by international markets. However, despite their increasing popularity, little is known about their investment behaviours in international financial markets: How do they allocate […]

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    We need to address the role private debt and real estate play in our economies

We need to address the role private debt and real estate play in our economies

Almost no economist or financial commentator saw the 2008 crisis coming: next to no one anticipated in early 2009 that recovery would prove so difficult and slow: nobody foresaw that seven years after the crisis, interest rates today would be close to zero in all major advanced economies.

I became chair of the UK Financial Services Authority in September 2008, […]

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    Large EU banks have remained undercapitalised for long stretches of time

Large EU banks have remained undercapitalised for long stretches of time

The Basel Committee on Banking Supervision (BCBS) has designed complex rules for defining sufficient capital at internationally active financial institutions. Pillar II of the Basel Accord requires national supervisors to assure continuous compliance with capital standards, which require a minimum ratio of the book value of equity capital to a bank’s risky assets. An adequate Tier 1 capital ratio […]