Applied Finance Letters (E-Journal - Auckland Centre for Financial Research)
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149 research outputs found
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Investor Behavior in Hedged Mutual Funds: Evidence on Risk Chasing and Misallocation
Full text linkHedged mutual funds (HMFs), employing hedge-fund-like strategies such as leverage, short-selling, and derivatives, have become a significant segment of the U.S. fund industry. These strategies generate returns tied to nontraditional or exotic risk factors, raising the question of whether investors can distinguish managerial skill from HMFS’ exotic risk exposures. Using U.S. data from 1994–2023, we examine fund flows with portfolio sorts, Fama–MacBeth regressions, and sentiment-based tests. We find that the apparent outperformance of positive-flow funds disappears once exotic risk factors are accounted for using the Fung–Hsieh (2001, 2004) model. Flows respond strongly to raw returns and Carhart alphas but not to Fung–Hsieh alphas, and they increase with exotic-risk exposures. These effects are concentrated in high-sentiment periods and among retail investors-tilted funds. Overall, our results show that HMF investors chase risk exposures rather than skill, amplifying misallocation risks in complex products
Do Research Topics and Abstract Readability Affect Citation Impact in Leading Finance Journals? Topics and Abstract Readability
No full textThis study examines how research topics and abstract readability influence citation impact in finance journals. Using BERTopic modeling on over 7,000 abstracts from 13 top-tier journals, we identify four core themes—financial markets, banking & credit, corporate finance, and insurance & actuarial science—along with one interdisciplinary topic. Our results show that topic choice significantly affects citations: corporate finance attracts the highest average citations, whereas insurance & actuarial science receives the fewest. Interdisciplinary research has emerged as a major trend over the past decade. Abstract readability, measured by textual analysis, is also a key determinant: clearer abstracts are associated with higher citation counts. Page length, co-authorship, and journal impact factors further enhance citations. Overall, these findings underscore the importance of topic selection and highly readable abstracts in maximizing research visibility
Sample selection bias for Jackson Pollock auctions: A case study: What can Jackson Pollock tell us about the Art Market?
No full textJackson Pollock is one of the most influential Post-War American artists. The art critic Clement Greenberg claimed that Pollock’s drip paintings were the culmination of modern art. In this case study, we construct a novel dataset on the auctions of Pollock’s paintings from 1984 to 2023. We consider whether the artwork was sold or ‘bought in’ and explore the determinants of the auction hammer price correcting for sample selection bias. The robust method suggests that five variables explain 85.34% of the hammer price variation for the iconic artist’s paintings
Systemic and Failure Risk Effects of the U.S. Regional Bank Crisis
No full textThis study investigates the effects of recent large U.S. regional bank failures on industrywide systemic risk as well as individual bank failure risk. We begin by using a logit model of individual bank failure risks to construct aggregate measures of systemic risk over time. Subsequently, mimicking bank supervisory practice, predicted systemic risks are estimated by mean reversion models. Lastly, using these estimates, we forecast the failure risk of individual banks. We find that, in response to increasing systemic risks, all bank experienced higher predicted failure risk. While regional banks were more affected than national banks, community banks were particularly sensitive to rising systemic risks. Future research on regulatory efforts to control systemic risk is recommended
Impacts of Financial Knowledge and Health on Household Savings Behavior: : Evidence from the U.S. Survey of Consumer Finances
No full textThe increasing longevity of individuals, coupled with rising financial uncertainty, underscores the critical need for adequate household savings. Despite the importance of financial preparedness, nearly 50% of U.S. households nearing retirement (ages 55-64) lack sufficient savings (U.S. Federal Reserve, 2023). This study examines the relationship between life cycle variables, including expected longevity, financial knowledge, and health-related factors in shaping household savings. Using data from the 2022 Survey of Consumer Finances, we employ binary logistic regression to examine factors associated with household saving behavior. The Life Cycle Hypothesis (Ando & Modigliani, 1963) provides the theoretical foundation, extended to incorporate expected lifespan, financial knowledge and health related factors as key predictors. Findings reveal that households with high subjective financial knowledge have 71% higher odds of saving, while smokers have 30% lower odds of saving. Additionally, socioeconomic disparities were found to be significant, with single females and Hispanic households exhibiting lower savings rates compared to their counterparts. These findings underscore the need for targeted programs and policies that enhance financial literacy and health, promoting long-term saving habits and healthy lifestyles, particularly among vulnerable demographic groups. The study contributes to personal finance by integrating cognitive, health, and demographic influences into household saving decisions
ETF flows on volatility of NAV returns: Evidence from Chinese markets
No full textThe main purpose of this study is to empirically investigate the relationship between ETF flows and the volatility of NAV returns in Chinese ETF markets. Our empirical findings show that there is a positive relationship between ETF flows and the volatility of NAV returns. Additional analysis using flows–interaction terms shows that ETF demand and arbitrage flows are the main drivers of the volatility of NAV returns, compared to unexpected flows. From the analysis of IRFs, demand flow shock emerges as the most influential factor in long-term volatility compared to the other two shocks. Understanding the dynamics of flow-volatility can aid in designing regulatory frameworks that ensure market stability while promoting the advantages of ETF investments to market participants in order to reduce information asymmetry and maintain market efficiency
Green or gray: government-business relations and urban greening construction
Full text linkThis study examines the impact of the government-business relations on urban greening investments in major Chinese cities. We find that the government-business index (GBI) is positively related to urban greening construction. However, the corruption sub-index within the GBI shows a negative relationship, suggesting the risk of vanity projects that prioritize officials’ visibility over genuine sustainability. Notably, the presence of hometown mayors weakens the positive effect of the GBI on urban greening construction. Moreover, while the GBI is associated with a reduction in green total factor productivity (GTFP), hometown mayors are shown to enhance GTFP, highlighting their significant roles in promoting sustainable urban development
Effectiveness of Central Bank Swap Lines in Alleviating the Mispricing of FX Swaps at the Start of the COVID-19 Pandemic
Full text linkAt the start of the COVID-19 pandemic the increased market volatility and risk aversion led to a deterioration of U.S. Dollar funding conditions in the Euro Area. The swap line interventions by the ECB and Federal Reserve on March 15, 2020 aimed to alleviate the mispricing of EUR/USD FX swaps. We find that these swap line interventions were effective since they alleviated part of the mispricing. The announcement effect of the interventions is however limited; the impact of the swap line interventions is larger and more significant closer to the implementation date. This study provides insight into the effectiveness of central bank interventions in the FX swap market during turbulent periods
Document Complexity and Trading Volume: Evidence from Risk Factor Disclosures
Full text linkThis study examines whether the linguistic complexity of corporate risk factor disclosures affects trading behavior. Using a sample of 8,297 firm-year observations from 1,489 unique firms spanning 2006-2024, the analysis examines the relationship between multiple readability measures and abnormal trading volume. The findings reveal that more complex disclosures are associated with reduced trading activity, consistent with theoretical predictions that complex information increases processing costs and reduces investor participation. The effect is economically meaningful, with a one-standard-deviation increase in complexity associated with a 42% reduction in abnormal trading volume for the median firm. The relationship is stronger for larger firms and has intensified over time, suggesting growing importance of disclosure clarity in modern markets
Term Premium Estimates for Brazil in a Model with Survey Expectations
Full text linkThis paper estimates the term premium and equilibrium rates im- plied in the Brazilian yield curve, using a term structure model that incorporates data from survey expectations. Nominal long-term yields in Brazil are explained mostly by fluctuations in the equilibrium real rate.