Organizations & Markets

After a multi-decade bond bull market, to what alternative strategies could institutional investors allocate that have a positive expected return, irrespective of interest rates?

Measuring the impact of political risk on investment projects is one of the most vexing issues in international business. One popular approach is to assume that the sovereign yield spread captures political risk and to augment the project discount rate by this spread. We show that this approach is flawed. While the sovereign spread is influenced by political risk, it also reflects other risks that are likely included in the valuation analysis — leading to the double counting of risks.

This paper provides a comprehensive and detailed analysis of Central and Eastern European (CEE) equity markets from the mid-1990s until now. Using firm-level data and custom-made indices and indicators, we show that (1) there is considerable heterogeneity in the degree, dynamics, and determinants of market development across the different markets, (2) that especially the smaller markets still offer diversification benefits to global investors, and (3) that there are substantial premiums associated with investing in small, value, low volatility and illiquid CEE stocks.

This paper integrates social norm constructs from different disciplines into an integrated model. Norms exist in the objective social environment in the form of behavioral regularities, patterns of sanctioning, and institutionalized practices and rules. They exist subjectively in perceived descriptive norms, perceived injunctive norms, and personal norms. We also distil and delineate three classic theories of why people adhere to norms: internalization, social identity, and rational choice.

Past research encourages expatriates to immerse themselves in the host culture, avoiding reminders of their home culture. We counter that, for expatriates still struggling to adjust, home culture stimuli might prime a sense of relational security, emboldening them to reach out to locals and hence boost cultural adjustment. In Study 1, American exchange students in Hong Kong felt more adjusted to Hong Kong after incidental exposure to iconic American practices (vs. Chinese or neutral), an effect partially mediated by relational security and not by other exchange student concerns.

Fraud occurs when there is an incentive and the opportunity to commit fraud and the fraudster can rationalize his behavior. Academic literature in financial economics has investigated incentives and opportunities to commit fraud but has largely ignored the fraudsters' ability to rationalize fraud. We address this gap by positing that economic actors, whose earnings are restricted by regulations, cheat more and rationalize such behavior as an effort to get "out of the hole" that regulations have forced them into.

Organizing collective action to secure support from local communities provides a source of power for elites to protect their interests, but community structures constrain the ability of elites to use this power. Elites’ power is not static or self-perpetuating but changing and dynamic. There are situations in which elites are forced into movement-like struggles to mobilize support from their community.

We propose an extension of standard asymmetric volatility models in the generalized autoregressive conditional heteroskedasticity (GARCH) class that admits conditional non-Gaussianities in a tractable fashion. Our "bad environment-good environment" (BEGE) model utilizes two gamma-distributed shocks and generates a conditional shock distribution with time-varying heteroskedasticity, skewness, and kurtosis. The BEGE model features nontrivial news impact curves and closed-form solutions for higher-order moments.

Contingent capital (CC), which intends to internalize the costs of too-big-to-fail in the capital structure of large banks, has been under intense debate by policy makers and academics. We show that CC with a market trigger, in which direct stake-holders are unable to choose optimal conversion policies, does not lead to a unique competitive equilibrium, unless value transfer at conversion is not expected ex-ante. The "no value transfer" restriction precludes penalizing bank managers for taking excessive risk.