Abstract We study firms' return and volatility connectedness in the stock and corporate bond markets. Our approach to capturing firm‐specific return and volatility time series in the corporate bond market is based on a repeat‐sales index at the firm level. Measuring the pairwise connectedness of firms, we show that the two markets share similar dynamics in the connectedness of their firms. Firms tend to cluster within their own sectors and ties between firms in the corporate bond market are proportionally weaker. Financial firms play a critical role in the propagation of shocks, but this role differs markedly in the two markets.

Abstract We investigate the impact of quantitative investment on market efficiency in China. We provide an illustrative model to show that quantitative investment enhances market efficiency. Empirically, we conduct both time‐series and cross‐sectional analysis. Regarding the time series dimension, we construct QuantDegree to measure the level of quantitative investment. We find that the performance of most anomalies decreases as QuantDegree increases. In the cross‐sectional dimension, we sort stocks into portfolios based on quant fund holdings and traditional anomalies. We find the anomaly return is lower within the groups with higher quant fund holdings, a result further confirmed by Fama–MacBeth regressions.

Abstract We investigate the impact of macroeconomic variables on bond risk premia prediction via machine learning techniques. On the basis of Chinese treasury bonds from March 2006 to December 2022, we show that adding macroeconomic factors improves bond return forecasts and generates higher economic benefits to investors. This is achieved when the nonlinear relationship between macroeconomic variables and bond returns is modelled via machine learning methods. Furthermore, the importance of macroeconomic determinants changes along the yield curve. Our study sheds new light on the information contained in macroeconomic variables for treasury bond valuation and highlights the importance of utilizing appropriate machine learning methods.

Abstract This study examines the impact of geographic income diversification of large European banks on performance and risk‐taking by using unique data. By dividing the total operating income into three regions as the home country, the rest of Europe and the rest of the world, we find evidence that geographic income diversification reduces bank performance and increases risk‐taking. Particularly, shifting operations from home countries to other European countries or the rest of the world reduces bank performance and enhances risk‐taking unless the bank is highly concentrated in these areas. We also identify contributing channels, including the “follow‐the‐customer” hypothesis, new subsidiaries and board diversity, to explain the adverse effect.

The Americas), US$155 (Rest of World), 137 (Europe), 93 (UK

Abstract We study how a CFO's risk‐taking incentives affect corporate hedging by utilising hand‐collected data from 2009 to 2019 on corporate hedging and managerial compensation for a sample of US oil and gas firms. The relative convexity of CFO equity compensation negatively affects the likelihood and extent of hedging. When the CFO and CEO have diverging risk‐taking incentives, the relative convexity of the CFO's equity payoff prevails over that of the CEO. This evidence underscores the primary role of the CFO in steering a firm's hedging strategy.

Abstract This paper investigates the relationship between default probability and value when there is a selection bias due to missing controls for firm heterogeneous likelihood to survive in the sample. Our model delivers the following implications for the conglomerate case: (a) the sample conglomerate value increases in their default probability, (b) the sample conglomerate discount falls together with their excess default probability with respect to focused companies, (c) both effects disappear when the analyst controls for survival probability. The data support the presence of a selection bias distorting downwards the relative value of sample firms with higher survival probability.

Abstract This paper examines the relation between ownership concentration and stock price informativeness around the world. Using a sample of banks from 59 countries between 2002 and 2019, we find robust evidence from a linear model supporting the entrenchment effect. However, the nonlinear model shows that the effect of control rights on the informativeness of stock prices forms a U‐shaped curve. We also document that banks with controlling shareholders have more volatility in the information content of bank stock prices in a poor regulatory environment or developing countries.

Abstract In this study, we examine the effects of lead independent directors (LIDs) on firms' earnings management. On the basis of US firms from 2000 to 2018, those with LIDs managed earnings less, as reflected by the absolute value of discretionary accruals. Specifically, we find the effect is likely to be more prominent among firms with less disclosure transparency, weaker corporate governance and higher risk. In addition, we find that firms with LIDs tend to increase R&D and capital expenditures, reduce leverages and enhance firm values. Overall, the findings indicate the monitoring of LIDs can effectively reduce firms' earnings management and enhance firm values.