The events surrounding the stock-price peak of March 2000 are commonly interpreted as the bursting of a technology or Internet bubble, with some researchers pointing out that the pattern could also arise in fundamental models. We inform the debate by studying the long-run performance of Internet and technology stocks from March 2000 onward. Using calendar-time regressions, we do not find conclusive evidence of negative abnormal returns. The results are consistent with a new interpretation of the events; namely, the price drop of the early 2000s was not warranted in light of future cash flows and risk.
We study whether corporate governance and social responsibility are related to data breaches. We find that socially responsible companies with smaller boards and greater financial expertise are less likely to be breached. The financial impact of a breach is visible in the long-term. Specifically, data breach firms have -3.5% one year buy-and-hold abnormal returns. Additionally, banks with breaches have significant declines in deposits and nonbanks have significant declines in sales in the long run. Finally, we find that following a data breach, companies are more likely to replace their chief executive officer and chief technology officer as well as improve their governance and social responsibility.
Wolfers (2006) first documented that heavy favorites in college basketball win but fail to cover the pre-game point spread at a statistically higher rate than expected. We generate a hedged strategy to exploit the “win but does not cover” phenomenon using two wagers: a bet on the underdog sides line and a bet on the favorite money line. While one bet is guaranteed to win regardless of the outcome, both bets win if the favorite wins but does not cover. We show that the minimum-variance portfolio best exploits this anomaly, yielding an average return of 0.34% per game and a positive return in five of the seven seasons of college basketball analyzed.
Using scaled wealth-performance sensitivity as our measure of CEO incentives, and utilizing cross-sectional variations in industry innovativeness, product market competition and firms’ degree of exposure to the market for corporate control for identification purposes, we find that higher long-term incentives that stem from CEO holdings of unvested options are associated with greater subsequent corporate innovation, exactly where incentivizing innovation is a matter of necessity. We address the endogeneity concern with systems of simultaneous equations estimated using 3SLS. A possible channel for the observed relation is that unvested-options-based incentives encourage managers to undertake riskier projects to achieve long-term economic benefits.
We produce convincing new evidence the turn of the year (TOY), turn of the month (TOM), and January effects are critically dependent on the sample period over which they are estimated. The TOY effect is significant in the value-weight portfolio from 1962 to 1997. It becomes insignificant in the medium-size portfolio after 1994 and in the equal-weight and low-size portfolios after 1997. The TOM effect becomes insignificant in the value-weight and high-size portfolios after 1978, in the equal-weight and medium-size portfolios after 1997, and in the low-size portfolio after 1998. January effects are significant in some sub-periods but not others.
Using the informational sufficiency procedure from Forni and Gambetti (2014) along with data from McCracken and Ng (2014), we update the results of Lee (1992) and find that his Vector Autoregression (VAR) is informationally deficient. To correct this problem, we estimate a Factor Augmented VAR (FAVAR) and analyze the differences once informational deficiency is corrected with an emphasis on the relationship between real stock returns and inflation. In particular, we examine Modigliani and Cohn’s (1979) inflation illusion hypothesis, Fama’s (1983) proxy hypothesis, and the “anticipated policy hypothesis.”