This study investigates whether financial data providers serve as information intermediaries in capital markets. To this end, I examine whether the timeliness of earnings information disseminated by First Call (Thomson Reuters) affects the market's reaction to earnings announcements. I document that the immediate price and volume response is weaker and the post-earnings announcement drift stronger for earnings news disseminated with a delay by First Call. To mitigate endogeneity concerns, I study the market reaction on the day of the delayed dissemination and show that a significant part of the stronger drift is clustered around this day.
This paper studies the behavioral mechanisms underlying the increase in strategic defaults during an economic crisis. We report data from a laboratory experiment in which we exogenously vary the state of the economy. Our data reveal two main reasons for why an economic contraction adversely affects repayments. First, weak economic conditions seem to soften debtors' moral constraints. When surrounded by insolvency, solvent debtors become less hesitant to default strategically. Second, an economic downturn also undermines the enforcement of social repayment norms by peers. However, we find that the decrease in norm enforcement is not caused by a break-down of the repayment norm itself, but rather is a consequence of the additional informational uncertainty that weak economic conditions create. In a crisis peers are reluctant to sanction defaulters, because the risk of harming innocent debtors is higher.
Networks can establish business connections and facilitate information flows; but how valuable are they in competitive settings, such as in the deal generation of private equity funds? We find that educational ties between management teams of acquiring fund and target company are frequent (around 15%) and increase the odds of winning a deal (by 79%). When competing with other funds, exclusivity tends to matter more than the university from which it derives. In addition, educational ties also allow prevailing home bias to be mitigated. Yet, the pure existence of network-based relationships does not automatically lead to better deal performance.
We document a drift in exchange rates before monetary policy changes across major economies. Currencies tend to depreciate by 0.7 percent over ten days before policy rate cuts and appreciate by 0.5 percent before policy rate increases. We show that available fixed income instruments allow to accurately forecast monetary policy decisions and thus that the drift is foreseeable and exploitable by investors. A simple trading strategy buying currencies against USD ten days ahead of predicted local interest rate hikes and selling currencies before predicted cuts earns on average a statistically significant return of 42 basis points per ten-day period. We further demonstrate that this return is robust to the choice of holding horizon and monetary policy forecast rule. Our results thus pose a major challenge for the risk-based explanations of the exchange rate dynamics.
