Journal of Business Accounting and Finance Perspectives

Cheap money can become very expensive in the long run. Unconventional monetary policies have been the main tools of central banks to tackle the economic crisis. In this paper we aim to understand whether these policies have created distortions in the fi nancial markets and if we can be concerned about the creation of “bubbles”, considering whether quantitative easing has impacted fi nancial asset classes’ valuations beyond reasonable fundamentals. I conclude that there is empirical evidence of inordinate expansion of multiples and that central bank policy makers should include “fi nancial market infl ation” as well as consumer price indices (CPI) in their assessment of infl ation expectations. I believe that this should be an essential analysis to avoid unintended consequences in the future, and a possible next fi nancial crisis that central banks will be unable to face with the same tools of the past. Full article

Over the last two decades academic literature has addressed much attention to the relationship between corporate ethical practices and financial performance. Results however remain contradictory, especially in terms of direction and effectiveness of their connection. Broadly speaking, most theorizing on the link between social and economic indicators assumes that the evidence is insufficient or too contrasting to draw any generalizable conclusions. In this perspective, this study aims to better explain the connection between corporate ethical practices and corporate financial performance, verifying that it is impacted by a large number of key variables. The empirical research is based on a longitudinal study on Italian listed companies operating in the banking sector. The adoption of the code of ethics is considered to measure their ethical practices, while regarding financial performance several accounting indicators are taken into consideration, including some control variables. To process the dataset a panel regression with fixed effect is applied. The paper aims at strengthening recent studies that consider bidirectional causality in the theory that “corporate social responsibility is both a predictor and consequence of firm financial performance”. Thus, the interest of the study lies in the identification of a reverse causality between positive financial performance and ethical orientation of Italian banking services companies. Full article

his study examines (i) the dynamic shocks and volatility interactions between each of the eleven U.S. economic sectors and the oil market; (ii) riskminimizing optimal capital allocations between each sector and oil; and (iii) the hedging effectiveness resulting from the inclusion of oil in each sector portfolio. Using weekly data spanning the period June 1994 through February 2016, we document the following regularities: (i) the conditional correlation between each sector and the oil market is time-varying and slowly decaying; (ii) there is either volatility or shock transmission from oil to each sector but not the reverse; and (iii) investors can minimize and hedge risk by allocating a portion of their wealth to oil commodities and forming a portfolio consisting of sector stocks and oil commodities. however, they will need to overweight their investment in sector stocks. Our findings indicate that oil commodities offer diversification potential to U.S. investors holding sector portfolios such as sector ETFs and mutual funds. Further, the risk parity portfolio weights significantly differ from the capital allocation weights. Full article

Recently, financial innovations have given rise to complex derivatives within the asset management industry. Although traditional assets pay dividends or coupons, vIX futures contracts have been partly misunderstood by unsophisticated investors, as they only provide portfolio insurance against stock market crashes. Therefore, over the calmer period 2009-2014, the most traded vIX futures exchange-traded product lost practically all of its value, ruining unexperienced investors. hence, this paper investigates appropriateness of these complex derivatives with investor's risk aversion. We address portfolio-choice optimality under uncertainty, for overlay allocations composed of equities, bonds, and vIX futures. This paper proposes a non-trivial solution based on the expected utility theory to simulate investor's behavior with risk aversion. Furthermore, it derives an investor's surprise metric defined as a welfare criterion measure, and a modelimplied risk premium defined as the insurance premium investor pays ex post to hedge. Empirical results show investing in vIX futures significantly beats traditionally diversified portfolios, but they turn to be particularly inappropriate for risk-loving investors. From the asset management perspective, this paper has practical implications since it recommends pedagogical efforts to raise investors' awareness of overlay strategies. Full article

This study seeks to understand “how” economic shocks drive industry merger activity. We test whether economic shocks from deregulation and technological change drive industry merger activity by increasing industry competition, controlling for the effect of valuations. We find that these shocks drive merger activity through three channels related to industry competition; deregulation drives merger activity by increasing entry and cash flow volatility; technological change drives merger activity by increasing entry and inter-firm dispersion in the quality of production technology. These findings underscore the role of the competitive mechanism in how managers reallocate assets via mergers and support the view that the industry-level clustering of merger activity is an efficiency-driven restructuring response to increased competition. Full article