Abstract: In recent years, the emergence of mini flash crashes has become a distinctive concern within contemporary electronic trading markets, garnering attention from scholars, market participants, and regulators alike. These rapid, unforeseen market disruptions have been attributed to the breakneck pace of trading activity. This study employs data from the NYSE Trade and Quote database (TAQ) to examine the efficacy of implementing a ``speed bump" mechanism in mitigating the risks associated with mini flash crashes. Utilizing machine learning techniques to estimate the likelihood of mini flash crashes occurring within the NYSE American market, this analysis offers empirical insights. The findings of this research demonstrate that the introduction of a speed bump mechanism can indeed reduce the probability of mini flash crashes. However, it is noteworthy that this mitigation strategy also leads to an influx of noise traders and an increase in short-term market volatility.
Motahhareh Moravvej Hamedani, Haskayne School of Business, University of Calgary
Abstract: I study the causal effects of noise traders' removal on price efficiency. In September 2022, an unexpected internet disruption in Iran restricted noise traders, while informed traders maintained trading access through brokers. I document a 6.65-fold increase in the bid-ask spread and a 46.8% decrease in trade speed due to market access asymmetry. Social media censorship increased information asymmetry, leading to a substantial 7.2% price impact in affected regions. By conducting an extensive analysis of firm-specific characteristics, this study demonstrates the significant role noise traders play in market efficiency and provides novel insights into emerging markets through a natural experiment.
Abstract: I exploit quasi-exogenous variation in passive ownership around the Russell 1000/2000 cutoff to
explore the causal effects of passive ownership on debt covenants. I find that passive ownership
causes a decrease in bond covenants, and in particular, reduced levels of (a) Investment, (b)
Dividend, and (c) Subsequent financing restrictions. However, I observe weaker results for loan
covenants, implying that loans, usually collateralized, are less sensitive to changes in passive
ownership. The overall effect of passive ownership on bond covenants supports the argument that
passive investors are effective monitors, and their interests are closely aligned with creditors’,
thereby leading to lowering monitoring costs for creditors and reduced dependence on tighter
bond covenant restrictions.
Abstract: This paper introduces a dynamic agency model that examines the impact of potential shareholder activism aimed at improving firm governance. While shareholder activism creates value ex-post through reducing the excessive pay or aligning incentives, it destroys value ex-ante by limiting shareholders' ability to leverage future excessive pay or termination as motivation for present-day hard work. The threat of activism distorts the internal governance policies, leading to more front-loaded compensation, higher compensation growth after strong performance, and increased CEO turnover. Following an extremely good or bad performance, the board assumes a more advisory than monitoring role, and the manager is incentivized with higher pay-for-performance sensitivity. Additionally, the paper highlights a possible decline in debt value despite improvements in operational performance after the activist's engagement, shedding light on the credit spread puzzle.
Abstract: I analyze the cash flows of 174 anomalies, categorized into accounting and non-accounting, to explore the reasons behind their abnormal returns. Tracking their cash flow growth at both the firm and anomaly levels reveals distinct patterns: accounting anomalies show procyclical growth, aligning with risk-based models. In contrast, non-accounting anomalies exhibit countercyclical growth and thus provide a hedge against economic downturns. These findings suggest diverse causes for anomalies, indicating the need for different explanations for each category.
Abstract: We investigate the causes of the well-known failure of the expectations hypothesis (EH) by analyzing its performance in an idealized setting: repurchase (repo) agreements, the ultra-short term funding market underlying the yield curve. We isolate the source of the EH failure by showing it holds in general collateral repo, but breaks down in the "special" segment. We explain this failure by identifying a preferred habitat of agents who use special repo to fund their positions in fixed income markets. We leverage a regulatory reform which shortened the settlement time of bond markets; trading patterns adjust accordingly in repo, allowing us to observe the habitat move from one maturity to another. A triple-differences identification strategy causally demonstrates that this shock deteriorated the performance of the EH in the affected segment, thus showing that preferred habitat effects are remarkably pervasive and can distort pricing even in pristine conditions, emphasizing the role of market segmentation. Furthermore, our results are indicative of a high degree of leveraging in repo, demonstrating that agents take advantage of the convenience yield provided by the safe asset status of their bond holdings.
Mohammadhossein Lashkaripour, Haskayne School of Business, University of Calgary
Abstract: This paper explores the impact of carbon intensity on cryptocurrency pricing through two channels: (1) the investment decisions of carbon-sensitive green investors, and (2) carbon emissions associated with cryptocurrency production. The CAPM-like pricing relation reveals two phenomena: first, ceteris paribus, the carbon premium in cryptocurrencies is lower compared to equities. Second, carbon intensity heightens cryptocurrencies' market portfolio exposure, which can be mitigated by utilizing green resources in production. Speculative behavior weakens carbon sensitivity, thereby lowering carbon premium in cryptocurrencies. Additionally, regulations targeting cryptocurrency carbon footprints may provoke negative market reactions as security concerns from lower energy use outweigh environmental benefits.
Abstract: I examine the role of In-The-Money (ITM) options, a relatively underexplored yet economically significant segment of the options market, characterized by higher dollar investment. Using a unique options database, I find that ITM trading is concentrated in large-cap stocks, short-maturity options, and is strongly correlated with retail investor activity on social media. Despite their low leverage, ITM options attract unsophisticated investors who view them as bets with a higher probability of exercise and consistent, albeit smaller, profits compared to lottery-like Out-of-the-Money (OTM) options. However, these investors often underperform, as they tend to trade ITM options during periods of increase attention and high stock volatility. I propose a model suggesting an optimal short-term strategy for such investors investing in ITM options, providing new insights into their trading behavior and performance.
Abstract: This paper provides evidence that holding executives and directors personally liable for environmental corporate misconduct has a significant economic impact. Using the variation in legal systems across Canada and exploiting a court case where personal liability for environmental violations was enforced, I find that personal liability leads companies to reduce pollution. I show that it is associated with a decline in stock return performance, highlighting a cost for shareholders. Overall, this paper presents evidence of both the benefits and costs of enforcing personal liability for corporate environmental externalities.
Abstract: Employees who are laid-off are often forced to resort to entrepreneurial activities to generate income. The prevailing argument in the literature is that these entrepreneurial activities are of low quality because displaced workers have low entrepreneurial skills. In this paper we challenge this conclusion, by examining entrepreneurial outcomes across different kinds of business structures, i.e. incorporated businesses, unincorporated businesses, and gig work. Our data is taken from the universe of Canadian matched employer-employee tax files. Our main conclusion is that displaced workers can generate successful enterprises if they “aim low” and select into unincorporated businesses or gig type activities.
Abstract: This study examines the impact of retail investors' social network communications on price informativeness. By observing the online forum wallstreetbets on Reddit, which has strong cultural characteristics of creating memes, this study examines under what conditions retail investors' social communication can create informational value in stock trading or mislead other market participants. The results indicate that the more stock tickers were mentioned regardless of the contents of conversations, the higher the price informativeness. Furthermore, when online communications unrelated to firms become more active, stock price informativeness decreases. However, this increased retail investors' general attention to stock trading strengthens the positive impact of firm-specific discussions on price informativeness.
Valentina Rutigliano, University of British Columbia
Abstract: Women are less likely than men to start firms and female entrepreneurs are less likely to succeed.
This paper studies the effect of childbirth on women's entrepreneurial activity.
Drawing on rich administrative data from Canada and using an event study and instrumental variable design, I show that childbirth has substantial negative effects on women's founding rates and start-up performance, accounting for a large portion of the gender gap in entrepreneurship. The effects are permanent: entrepreneurial outcomes never recover to their pre-birth levels. These results are not fully explained by household specialization based on labor market advantage. Childcare availability and progressive gender norms reduce the adverse effect of childbirth on the entrepreneurship gap.
