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New research on financial instruments from Harvard Business School faculty on issues including annuities, credit cards, and stocks.
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Currency Hedging in Emerging Markets: Managing Cash Flow Exposure

by Laura Alfaro, Mauricio Calani, and Liliana Varela

Economies with less liquid foreign exchange derivative markets offer firms fewer options to hedge their currency risk. Given the limitations of natural hedging, these firms are more exposed to systemic risk.

A New Way to Cut Credit Card Debt: Pay Off One Purchase at a Time

by Kristen Senz

Letting credit card customers pay back specific purchases encourages borrowers to go beyond the minimum, says research by Michael Norton and colleagues. Open for comment; 0 Comments.

Accounting for Product Impact in the Consumer Finance Industry

by George Serafeim and Katie Trinh

A framework and method for measuring and monetizing product impact across industries, applying it to two competitors in the consumer finance space.

Measuring the Perceived Liquidity of the Corporate Bond Market

by Sergey Chernenko and Adi Sunderam

The liquidity of corporate bond markets is crucial to their functioning. This paper proposes a novel measure of bond market liquidity based on portfolio holdings instead of transaction data. The measure can be applied to asset-backed securities, syndicated loans, and municipal securities for which publicly available data on transactions are not available.

Weak Credit Covenants

by Victoria Ivashina and Boris Vallée

Prior to the 2020 pandemic, the leveraged loan market experienced an unprecedented boom, which came hand in hand with significant changes in contracting terms. This study presents large-sample evidence of what constitutes contractual weakness from the creditors’ perspective.

Aggregate and Firm-Level Stock Returns During Pandemics, in Real Time

by Laura Alfaro, Anusha Chari, Andrew Greenland, and Peter K. Schott

This paper explains the seemingly conflicting narratives from the stock and labor market about the underlying state of the economy. We show that day-to-day changes in the predictions of standard models of infectious disease forecast changes in aggregate stock returns in pandemics.

Corporate Leadership and Creditor Recovery Rates: Evidence from Executive Gender

by Clarissa Hauptmann and Anywhere Sikochi

This paper examines the relationship between executive gender and creditor recovery rates, showing that creditors to female-run firms have higher recovery rates in the event of default.

Gender Bias Complaints against Apple Card Signal a Dark Side to Fintech

by Karen G. Mills

The possibility that Apple Card applicants were subject to gender bias opens a new frontier for the financial services sector in which regulators are largely absent, argues Karen Mills. Open for comment; 0 Comments.

How Entrepreneurs Can Turn Lead Into Gold

by Michael Blanding

Innovative about creating new products, entrepreneurs often lose imagination when it comes to funding their dreams. Andy Wu reveals alternatives beyond friends and family. Open for comment; 0 Comments.

'Green Bonds' May Be Our Best Bet for Environmental Damage Control

by Michael Blanding

The popularity of green bonds as a way to finance environmentally friendly projects is on the upswing, say Malcolm Baker and George Serafeim. Open for comment; 0 Comments.

The Creation and Evolution of Entrepreneurial Public Markets

by Shai Bernstein, Abhishek Dev, and Josh Lerner

Since 1990, new stock exchanges geared toward fast-growing, entrepreneurial companies have proliferated around the world. This analysis shows that exchanges in countries with better shareholder protection allowed younger and less profitable companies to raise more capital. These markets alone cannot boost entrepreneurial activity but need enabling institutions.

Financing the Response to Climate Change: The Pricing and Ownership of US Green Bonds

by Malcolm Baker, Daniel Bergstresser, George Serafeim, and Jeffrey Wurgler

Green bonds are used for environmentally friendly purposes like renewable energy. Complementing previous research, this paper explores the US corporate and municipal green bond and shows that a subset of investors is willing to give up some return to hold green bonds.

Investing Outside the Box: Evidence from Alternative Vehicles in Private Capital

by Josh Lerner, Jason Mao, Antoinette Schoar, and Nan R. Zhang

Private equity vehicles that differ from the traditional structure have become a major portion of investors’ portfolios, especially over the past decade. This study identifies differences in performance across limited and general partners participating in such vehicles, as well as across the two broad classes of alternative vehicles.

The Impact of Pensions and Insurance on Global Yield Curves

by Robin Greenwood and Annette Vissing-Jorgensen

The global financial crisis and its aftermath had a dramatic impact on the solvency of pension funds and insurance companies. Drawing on a large cross-section of countries, this paper shows the importance of pension and insurance companies in determining the yields on long maturity bonds around the world.

How Chase Sapphire Made Credit Cool for Millennials

The Chase Sapphire Reserve card was one of the hottest product launches in 2016. But what would be its next act, now that the introductory offer of 100,000 points was reduced? Shelle Santana discusses JP Morgan's strategy. Open for comment; 0 Comments.

Brokers and Order Flow Leakage: Evidence from Fire Sales

by Andrea Barbon, Marco Di Maggio, Francesco Franzoni, and Augustin Landier

This study finds that brokers tend to reveal the occurrence of a fire sale to their best clients, allowing them to generate significant profits by predating on the liquidating fund. Such information leakage comes at the expense of higher price impact, and leads to a more costly liquidation for the fire sale originator.

Mutual Funds as Venture Capitalists? Evidence from Unicorns

by Sergey Chernenko, Josh Lerner, and Yao Zeng

Larger mutual funds and those having more stable funding are more likely to invest in privately held startups known as unicorns. Mutual funds are less involved in corporate governance, especially boards of directors, but have more protections when it comes to liquidating their stakes.

Debt Redemption and Reserve Accumulation

by Laura Alfaro and Fabio Kanczuk

This study examines how reserve accumulation affects governments’ decisions to default. The analysis assumes that countries can accumulate reserves and borrow internationally using their own currency. Results suggest that the optimal level of international reserves is fairly large because their cost is mitigated by valuation-smoothing gains. The model matches some features of Brazil’s economic fluctuations.

Stock Price Synchronicity and Material Sustainability Information

by Jody Grewal, Clarissa Hauptmann, and George Serafeim

This paper seeks to understand and provide evidence on the characteristics of emerging accounting standards for sustainability information. Given that a large number of institutional investors seek sustainability data and have committed to using it, it is increasingly important to develop a robust accounting infrastructure for the reporting of such information.

Equality and Equity in Compensation

by Jiayi Bao and Andy Wu

Why do some firms such as technology startups offer the same equity compensation packages to all new employees despite very different cash salaries? This paper presents evidence that workers dislike inequality in equity compensation more than salary compensation because of the perceived scarcity of equity.