Abstracts of Volume 43, Number 3, August 2008
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Real-Time
Forecasting and Political Stock Market Anomalies:
Evidence for the U.S
Martin T. Bohl, Jörg Döpke and
Christian Pierdzioch
Political Views and
Corporate Decision Making: The Case of Corporate Social
Responsibility
Amir Rubin
The Sarbanes-Oxley
Act of 2002 and Market Liquidity
Pankaj K. Jain, Jang-Chul Kim,
Zabihollah Rezaee
Risk shifts
following Sarbanes-Oxley: Influences of disclosure and
governance
Aigbe Akhigbe, Anna D. Martin,
Melinda Newman
Lease Financing and
Corporate Governance
Sara H. Robicheaux, Xudong Fu and
James A. Ligon
Cointegration and
Exogeneity in Eurobanking and Latin American Banking:
Does Systemic Risk Linger?
John L Simpson
Bahram Adrangi, Arjun Chatrath
Real-Time Forecasting and Political Stock Market Anomalies:
Evidence for the U.S
Martin T. Bohl, Jörg Döpke and
Christian Pierdzioch
Using monthly data for 1953–2003, we apply a real-time
modeling approach to investigate the implications of
U.S. political stock market anomalies for forecasting
excess stock returns in real-time. Our empirical
findings show that political variables, chosen on the
basis of widely used model-selection criteria, are often
included in real-time forecasting models. However,
political variables do not contribute systematically to
improving the performance of simple trading rules. For
this reason, political stock market anomalies are not
necessarily an indication of market inefficiency.
Keywords: Political stock market
anomalies, predictability of stock returns, efficient
markets hypothesis, real-time forecasting
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Political Views and Corporate Decision Making: The Case of
Corporate Social Responsibility
Amir Rubin
This paper conducts an empirical analysis of the relationship
between corporate social responsibility (CSR) and
political beliefs in the United States. By analyzing the
2004 presidential election results of communities in
which corporate headquarters are located, we establish a
correlation between the political beliefs of corporate
stakeholders and the CSR ratings of their firms.
Companies with a high CSR rating tend to be located in
Democratic, or "blue" states and counties, while
companies with a low CSR rating tend to be located in
Republican, or "red" states and counties.
Keywords: CSR, decision making,
elections, headquarters, political views
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The Sarbanes-Oxley Act of 2002 and Market Liquidity
Pankaj K. Jain, Jang-Chul Kim,
Zabihollah Rezaee
Investors rely heavily on the trustworthiness and accuracy of
corporate information to provide liquidity to the
capital markets. We find that the rash of financial
scandals caused a severe deterioration in market
liquidity in the form of wider spreads, lower depths,
and a higher adverse selection component of spreads
vis-à-vis their benchmark levels. Regulatory responses
including the Sarbanes-Oxley Act of 2002 (SOX) had
inconsequential short-term liquidity effects but highly
significant and positive long-term liquidity effects.
These liquidity improvements are positively associated
with the improved quality of financial reports, several
firm-specific variables (e.g., size), and market factors
(e.g., price, volatility, volume).
Keywords: Sarbanes-Oxley Act, SOX,
Sarbox, stock-market liquidity, corporate governance,
financial reporting, accounting fraud
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Risk shifts following Sarbanes-Oxley: Influences of
disclosure and governance
Aigbe Akhigbe, Anna D. Martin,
Melinda Newman
The Sarbanes-Oxley Act of 2002 (SOX) aimed to improve
financial reporting by enhancing corporate disclosure
and governance. We find statistically significant
increases, from before to after the passage of SOX, in
total return variance, market risk and idiosyncratic
risk. The risk increases are consistent with predictions
that the legislation would cause firms to disclose more
negative information, resulting in increased investment
risk. However, in cross-sectional tests, post-SOX
improvements in information certainty, board
independence and monitoring are associated with smaller
increases or greater decreases in risk. If SOX is
responsible for these improvements, its effects are
consistent with its purpose.
Keywords: Sarbanes-Oxley, risk
shifts, corporate governance, disclosure
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Lease Financing and Corporate Governance
Sara H. Robicheaux, Xudong Fu and
James A. Ligon
Lease financing is a well-recognized mechanism for reducing
the agency costs of debt. This study examines whether
firms that attempt to control the agency costs of equity
through strong governance structures, including chief
executive officer compensation alignment and board
structure, are more likely to use an agency cost
reducing debt structure such as leasing. For a sample of
large firms, we find that firms who use more incentive
compensation and have more outside directors also tend
to use more lease financing, suggesting these agency
cost reducing measures are complements.
Keywords: Leasing, Corporate
Governance, Debt Structure
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Cointegration and Exogeneity in Eurobanking and Latin
American Banking: Does Systemic Risk Linger?
John L Simpson
This paper examines financial integration, interdependence
and exogeneity within and between Latin American banking
and Eurobanking systems during a period of relative
stability after the oil and debt crises of the 1980s.
Significant evidence of cointegration in both long- and
short-term relationships is reported. Within Latin
America, exogeneity lies mainly with the Brazilian
system. Within Eurobanking, the USA system is the
dominant influence. Between Eurobanking and Latin
American banking systems, the USA system is the major
driving force. With continued interdependence of these
banking systems, systemic risk lingers, and vigilance is
required in banking supervision.
Keywords: Contagion, integration,
interdependence, Eurobanking systems, Latin American
banking systems
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Bahram Adrangi, Arjun Chatrath
We test for herding using data on aggregate trader positions
for four commodities over twenty years. We show that
while the positions of commodity traders are highly
related, the relatedness falls short of herding. The
crosscommodity relatedness in trader positions is almost
entirely explained by common demand and supply factors.
Keywords: Commodity co-movement,
herding, speculation
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