7 January 2013
Embedded leverage is the amount of market exposure per unit of committed capital associated with a security. Many financial instruments, including options and leveraged exchange traded funds, are designed with embedded leverage. Andrea Frazzini
and Lasse Pedersen
find that asset classes with embedded leverage offer low risk-adjusted returns. They conclude that a portfolio long in low-embedded-leverage securities and short in high-embedded-leverage securities earns large abnormal returns.
4 January 2013
analyzes weekly data from seven emerging nations -- Brazil, Chile, Colombia, Mexico, Indonesia, Korea, and the Philippines -- all of which had flexible exchange rates and followed some kind of inflation targeting during the period he examines. He confirms that there is interest-rate “pass through” from the U.S. Federal Reserve System to these emerging markets during the 2000s. However, the transmission of interest rate shocks differs -- in terms of impact, steady state effect, and dynamics -- in Latin America and Asia. He also finds little evidence that capital controls can isolate emerging countries from global interest rate disturbances.
3 January 2013
and Alexander Popov
find a positive short-term relationship between the volatility and skewness of growth in a sample of 110 countries. This relationship is driven by differences in the rate of industrialization, macroeconomic stabilization, and in the discovery and exploitation of natural resources in mostly developing countries. However, in panel data looking at the longer term, they find a negative relationship between volatility and skewness, driven by business cycle variation in rich countries. They suggest that this correlation is due to sudden and short-lived growth spurts in mostly developing countries and sharp crises in mostly developed countries.
2 January 2013
, Ravi Jagannathan
, and Jianfeng Shen
find that there are time periods when market conditions are more favorable to growth firms and that during those times, firms with strong growth but weak margins may be overvalued. Focusing on a set of firms in the same industry that went public at about the same time in a cluster -- which is called an IPO wave -- they find that firms with relatively high valuations (price-to-book ratios) and historical sales growth rates but low gross margins during their first three years after the IPO wave under-performed their industry peers by more than 1 percent per month during the subsequent four-year period.
31 December 2012
and Ryan Dunn
analyze the results of a small field experiment in which students from disadvantaged high schools in Toronto were invited to participate in two short internet surveys. They could receive $20 for their participation. At the end of the first survey, half of the students, selected at random, were shown a 3-minute video describing the costs and benefits of post-secondary education and how to make it affordable. Three weeks later, all the students were asked to complete a second survey, with questions about their impressions of the costs and benefits of post-secondary education, as well as their own educational attainment expectations. The students who had seen the video were more convinced of the benefits of continuing their education, less concerned about the costs, and they reported themselves more likely to go on to post-secondary school.