Decentralizing Money: Bitcoin Prices and Blockchain Security
Emiliano Pagnotta (SMU) | Published in The Review of Financial Studies, Volume 35, Issue 2, Feb 2022, Pages 866–907 | Financial Technology

This paper studies the equilibrium determination of bitcoin prices and its blockchain security. Complementarities between users and miners lead to multiple equilibria: the same blockchain technology is consistent with different price-security levels. Bitcoin’s design embeds price volatility amplification of demand shocks and is prone to exhibit seemingly irrational price jumps. The results clarify when bitcoin demand strengthens against conventional currencies. 

View the working paper.


Japanese Monetary Policy and Its Impact on Stock Market Implied Volatility During Pleasant and Unpleasant Weather
Marinela Adriana Finta (SKBI) | Published in Pacific-Basin Finance Journal, Volume 67, Jun 2021| Financial Education & Inclusion

We investigate the effect of Japan's Monetary Policy Meeting releases on the intraday dynamics of the Nikkei Stock Average Volatility Index and its futures during pleasant and unpleasant weather. We show that at the time of a monetary policy release when the temperature is pleasant, there is a significant decline in Japanese equities' implied volatility and futures, which lasts for about 10 min and 5 min, respectively. This decline is longer and exhibits a greater variation when releases occur during cold days. Finally, we emphasize the achievable economic profits and losses, given the reaction of Nikkei VI futures to the Japanese monetary policy releases during pleasant and unpleasant weather days, respectively. In particular, taking a short position at the start of the trading day on pleasant days and closing this position at the end of the trading day generates an average annual return of 5.6%.

View the working paper.


Risk Premium Spillovers among Stock Markets: Evidence from Higher-Order Moments
Marinela Adriana Finta (SKBI) and Sofiane Aboura (University of Paris XIII) | Published in Journal of Financial Markets, Volume 49, Jun 2020 | Financial Education & Inclusion

We investigate the volatility and skewness risk premium spillovers among the U.S., U.K., German, and Japanese stock markets. We define risk premia as the difference between risk-neutral and realized moments. Our findings highlight that during periods of stress, cross-market and cross-moment spillovers increase and that these increases are mirrored by a decrease in within-market effects. We document strong bidirectional spillovers between volatility and skewness risk premia and emphasize the prominent role played by the volatility risk premium. Finally, we show that several announcements drive the time-varying risk premium spillovers.

View the working paper.


The Global Sustainability Footprint of Sovereign Wealth Funds
Hao Liang (SMU LKCSB) and Luc Renneboog (Tilburg University) | Published in Oxford Review of Economic Policy, Volume 36, Issue 2, Summer 2020, Pages 380–426 | Sustainable Finance

With the emergence of sovereign wealth funds (SWFs) around the world managing equity of over $8 trillion, their impact on the corporate landscape and social welfare is being scrutinized. This study investigates whether and how SWFs incorporate environmental, social, and governance (ESG) considerations in their investment decisions in publicly listed corporations, as well as the subsequent evolution of target firms’ ESG performance. We find that SWF funds do consider the level of past ESG performance as well as recent ESG score improvement when taking ownership stakes in listed companies. These results are driven by the SWF funds that do have an explicit or implicit ESG policy and are most transparent, and by SWF originating from developed countries and countries with civil law origins. In relation to engagement, we find by means of two natural experiments with exogenous shocks (the Deepwater Horizon catastrophe and Volkwagen diesel scandal) that the ESG scores do not change significantly more for firms in which SWFs have ownership stakes. This potentially suggests that SWFs in general do not actively steer their target firms towards higher levels of ESG.


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