EconJobMarket

The Institute of Finance from Corvinus University of Budapest is actively hiring Assistant and Associate Professors in the market. In January 2024, we are hosting presentations from the following researchers through the EconJobMarket. 

Yujie SONG - [Online Session] 5th of January, Friday, from 11:00 a.m. - 12:30 p.m. (CET)

Paper Title: Around the Clock: Sleep Deprivation and Financial Analysts Performance

Abstract: Issues pertaining to the grueling working hours and resultant sleep deprivation of financial professionals have received increasing attention from regulatory bodies and the public. Using an innovative dataset sourced from PDF time stamps, this study constructs a novel measure to identify the occurrence and degree of sleep deprivation among individual financial analysts. I next examine whether analysts’ sleep deprivation affects their job performance and find that sleep loss is significantly associated with diminished job performance. I then revisit the “protected-weekend” policy in the investment banks and find the policy exacerbates the sleep problem and impairs the performance of analysts with ex-ante severe sleep deficits.

Author: Yujie SONG - Finance Department, ESSEC Business School

Access their profile, the full paper, and more information on their website: https://www.yujiesong.com/ 

Matteo Vacca - 8th of January, Monday, from 11:40 a.m. - 1:00 p.m. (CET)
Venue: Institute of Finance - Corvinus University of Budapest, Main Building, Second Floor, Office E.279.1.

Paper Title: Insider trading with options

Abstract: This paper examines employees’ trading of own-company options. Using data from Finland, I show that employees’ direct and indirect purchases of call options represent 4%-14% of aggregate retail option volume. These purchases contain price-relevant information: weekly returns on the underlying stocks are approximately 50 basis points. The informativeness is most evident before earnings announcements, extends to firms in the employer’s supply chain, is not driven by industry knowledge, and disappears upon job separation. Consistent with prospect theory, employees who experience recent losses in their stock portfolios are more willing to exploit their information advantage by trading own-company options.

Author: Matteo Vacca - Department of Finance, Aalto University

Access their profile, the full paper, and more information on their website: https://www.matteovacca.com/ 

Patrick Schwarz - 9th of January, Tuesday, from 11:40 a.m. - 1:00 p.m.
Venue: Institute of Finance - Corvinus University of Budapest, Main Building, Second Floor, Office E.279.1.

Paper Title: Measuring Business Social Irresponsibility: The Case of Sin Stocks

Abstract: Negative screening (of ”sin” stocks) is one of the most common strategies used by socially responsible investors. The existing literature identifies sin companies using industry classification codes (IC). We propose an alternative continuous measure of firms’ exposure to sin activities (sinfulness) based on textual analysis (TA) of their annual reports. Sinfulness captures both cross-sectional and time-series variation in firms’ exposure to sin activities. The correlation between the IC and TA sin indicators is only 0.69, with twice as many sin stocks in TA than in IC. TA reveals several important false positive and numerous false negative sin stocks in IC. A sinfulness-weighted portfolio of sin stocks earns an annualized Fama-French 6-factor alpha of 5%. Further tests suggest that the abnormal performance is not explained by crash risk or mispricing, but is significantly related to litigation (legal) risk.

Author: Patrick Schwarz - Faculty of Business Admin. and Economics,  University of Duisburg-Essen
Co-author: Hamid Boustanifar - EDHEC Business School

Access their profile, the full paper, and more information on their website:  https://sites.google.com/view/patrick-schwarz 

Valentina Semenova - [Online Session] 12th of January, Friday, from 11:00 a.m. - 12:30 p.m. (CET)

Paper Title: Social Contagion and Asset Prices

Abstract: Can unstructured text data from social media help explain the drivers of large asset price fluctuations? This paper investigates how social forces affect asset prices, by using machine learning tools to extract beliefs and positions of ‘hype’ traders active on Reddit’s WallStreetBets (WSB) forum. We empirically document that sentiments expressed by WSB users about assets’ future performances (bullish or bearish) are in part due to the sentiments of their peers and past asset returns. Our stylized model shows that information assimilation from peers can help explain return predictability and reversals, as well as bubble dynamics. The paper directly estimates the effect of WSB activity on asset prices. We document: that retail trader demand follows WSB discussions through using Trade and Quote data, the predictability of prices from retail trader discourse, the amplified market impact of idiosyncratic investor sentiment from viral content online, and the greater exposure of hype investors to bubbles in the markets.

Author: Valentina Semenova - Institute for New Economic Thinking - Oxford University
Co-Author: Julian Winkler - Oxford University

Access their profile, the full paper, and more information on their website: https://sites.google.com/view/valentinams 

Lukas M. Diebold - [Online Session] 12th of January, Friday, from 13:00 a.m. - 2:30 p.m. (CET)

Paper Title: Golden Fetters or Credit Boom Gone Bust? A Reassessment of Capital Flows in the Interwar Period

Abstract: This paper uses newly digitized Balance of Payments data, covering 33 countries, to study international capital flows and their economic implications in the interwar period. This setting allows me to extend the study of capital flows, well researched around the 2008 crisis, to the only other truly global economic crisis: the Great Depression. I begin by documenting the boom-bust pattern in capital flows centered on the Depression and, linking flows to business cycles, show that gross foreign credit is the decisive link between capital flows and adverse economic outcomes. When countries are more exposed to gross foreign credit before financial crises, recessions following these crises become more severe. Looking at the channels facilitating this relationship, the Gold Standard plays a crucial role by exposing countries to foreign capital via integration into the global financial system, while at the same time restricting the scope of action to respond to increased inflows. Equally important in determining how much foreign credit individual countries receive, is the foreign supply of capital. I propose two instrumental variable approaches to identify foreign capital supply and show that it is key to understanding the documented dynamics.

Author: Lukas Maximilian Diebold - Department of Economics, University of Mannheim

Access their profile, the full paper, and more information on their website: https://sites.google.com/view/lukas-diebold 

Zixuan Huang - [Online Session] 12th of January, Friday, from 3:00 p.m. - 4:30 p.m. (CET)

Paper Title: Effects of Deposits on Banks’ Choices of Balance - Sheet Composition

Abstract: This paper examines, theoretically and empirically, the impact of deposits on banks’ balance-sheet composition. I propose a novel mechanism where a bank’s wholesale borrowing constraint determines the effect of deposits on the bank. Unconstrained banks treat deposits and wholesale funding as substitutes. However, deposits relax the wholesale borrowing constraint because deposits are effectively subordinate to wholesale debt. Thus for constrained banks, deposits and wholesale funding can be complements. For such banks, an increase in deposits enables them to borrow more aggressively from wholesale creditors and hence issue more loans. Empirically, using the cross-sectional variation in deposit fluctuations driven by monetary policy rate changes, I estimate the causal effect of deposits on banks’ balance-sheet composition. The empirical evidence supports the model predictions. In response to a 1% increase in deposit growth as a share of assets, unconstrained banks reduce wholesale funding growth by 0.2% of assets, while constrained banks increase their wholesale funding growth by 0.76% of assets. At the aggregate level of the banking sector, I find that deposit shocks account for a significant share of the variance of wholesale funding and loan growth. My findings also shed light on how monetary policy affects bank funding composition and vulnerability.

Author: Zixuan Huang - Department of Economics, Johns Hopkins University

Access their profile, the full paper, and more information on their website: https://zixuanhuang.com/ 

Jurica Zrnc - 15th of January, Monday, from 11:40 a.m. - 1:00 p.m.
Venue: Institute of Finance - Corvinus University of Budapest, Main Building, Second Floor, Office E.279.1.

Paper Title: The Trade Credit Clearinghouse: Liquidity and Coordination

Abstract: We study the economic effects of a clearinghouse that allows a network of firms to reduce their gross debt burden through netting. The clearinghouse netted a sizable 8% of debt relative to GDP in the analyzed period. Exploiting unique data on the debt network and the clearinghouse algorithm, we identify plausibly exogenous variation in clearing for a particular firm that derives from changes in debts far away in the network. We find that clearing reduces the probability of default, especially for financially distressed and cash-poor firms. Consistent with reductions in firm risk, clearing increases sales, while it increases investment only for cash-rich firms. We argue that the clearinghouse is an exchange technology that alleviates both ”missing market” and coordination failure issues.

Author: Jurica Zrnc - Croatian National Bank
Co-author: Milan Bozic - Banja Luka Stock Exchange

Access their profile, the full paper, and more information on their website: https://sites.google.com/view/jurica-zrnc 

Vincent Wolff - 18th of January, Thursday, from 11:40 a.m. - 1:00 p.m.
Venue: Institute of Finance - Corvinus University of Budapest, Main Building, Second Floor, Office E.279.1.

Paper Title: Taxing Financial Transactions in Multiple Markets

Abstract: What are the effects of taxing stock and derivative transactions on market liquidity and welfare? My theoretical model predicts asymmetric responses to equivalent tax rates across markets, resulting in welfare improvements upon taxation. Stock volume decreases significantly relative to options volume, and liquidity improves in the taxed market due to reduced adverse selection. I causally test the model’s predictions by leveraging three separate FTT introductions on stocks and derivatives. Empirical results show reduced trading in the taxed markets and migration of informed trading to the untaxed market. I reject the common conception that the synthetic replication of stocks is a practiced alternative to avoid the tax.

Author: Vincent Wolff - Department of Banking and Finance, University of Zurich

Access their profile, the full paper, and more information on their website: https://vincentwolff.de/ 

Noemie Cabau  - 23rd of January, Tuesday, from 11:40 a.m. - 1:00 p.m.
Venue: Institute of Finance - Corvinus University of Budapest, Main Building, Second Floor, Office E.279.1.

Paper Title: Signaling Effort: Information Structures in a Principal-Agent Model

Abstract: We consider a principal-agent model in which the agent commits to a signal structure that generates messages based on his actions. There are also signals about the agent’s performance that he cannot control. The principal designs a payment scheme that depends on both types of signals. Both players are risk-neutral, and the negative payments only enter the agent’s payoff (e.g., criminal prosecution or daunting bureaucratic procedures). If the agent provides information, the principal can pay less to incentivize his effort. However, the agent may benefit because providing information can make punishment less likely. Because of this trade-off, the agent may choose an information structure such that he sometimes receives punishment when he exerts high effort. The model applies to a scenario where a bureaucrat or manager can affect reports about his performance.

Author: Noemie Cabau - QSMS Research Group, BME
Co-author: Arseniy Samsonov - QSMS Research Group, BME

Access their profile and more information on the website: https://qsms.bme.hu/index.php/cabau/ 

Jiyuan [Justin] Huang -  [Online Session] 8th of March, Friday, from 8:30 a.m. - 10:00 a.m. 

Paper: Difference-in-differences with Economic Factors and the Case of Housing Returns

Abstract: When the dependent variable has a factor structure difference-in-differences estimators suffer from an omitted factor bias. A common way to control for factor variation is to directly add factors with unit-specific loadings (e.g., unit-specific time trends) into the difference-in-differences estimation. However, we show that this leads to biased estimates even under random assignment. This bias, which we term the “bad time control problem” arises when the treatment effect covaries with the factor variation. Studying housing returns while using bank deregulation as shocks we verify both the existence of omitted factor bias and the bad time control problem. Both of these problems are substantial enough to alter conclusions. We provide two solutions that circumvents both of these problems. Overall, our paper emphasizes the importance of controlling for factor variation and highlights how sensitive the results are to the chosen factor control method. 

Keywords: Difference-in-differences, Factor models, House prices. 

JEL: C22, C54, G28, R30.

Author:  Jiyuan [Justin] Huang - Postdoctoral Fellow, Department of Banking and Finance, University of Zurich

Joint work with Per Östberg - University of Zurich