Browsing by Author "Paye, Bradley S."

Now showing 1 - 6 of 6
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    The Economics of Cryptocurrencies
    Yang, Zichao (Virginia Tech, 2021-04-26)
    This paper has four chapters. The first chapter serves as an introduction. The second chapter studies the transaction fees in the bitcoin system. The transaction fees and transaction volume in the bitcoin system increase whenever the network is congested and results from a simple VAR show that it is indeed the case. To account for the empirical findings, we build a model where users and miners together determine the transaction fee and transaction volume endogenously. Even though the fluctuating transaction fee mechanism in bitcoin introduces the extra cost of uncertainty to users, a back-of-envelope calculation shows that the cost of using the bitcoin network for transactions is still smaller than the cost of using the current conventional payment system with a fix transaction fee rate. The second chapter studies the time-varying price dispersion among different bitcoin exchanges. We identify the sources of price dispersion using a standard time-varying vector autoregression model with stochastic volatility. The results show that shocks to transaction fees and bitcoin price growth explain on average 20%, and sometimes more than 60%, of the variation of price dispersion. The third chapter studies the relationship between connections and returns in the bitcoin investor network. Using transaction data from the bitcoin blockchain, we reach three conclusions. First, on average, the annualized returns of connected addresses in the network are 20.75% above those of their unconnected peers. Second, returns also differ among those connected addresses. By dividing the connected ad- dresses into ten deciles based on their centrality, we find that addresses in the two most-connected deciles earn higher returns than the other connected addresses. Third, eigenvector centrality is more related than degree centrality to higher returns, implying that quality of connections matters.
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    Examination of long-run performance of momentum portfolios: Implications for the sources and profitability of momentum
    Li, Yao (Virginia Tech, 2019-09-20)
    This dissertation investigates the long-term performance of momentum portfolios. Its results show striking asymmetries for winners and losers and imply potentially different causes for the winner and loser components of momentum. After separately examining winners and losers relative to their respective benchmark portfolios with no momentum, we find winner momentum is smaller in magnitude, persists only for six months, and its higher return fully reverses. This is consistent with the notion that winner momentum is an overreaction to positive news and potentially destabilizing. Loser momentum is larger in magnitude, lasts for about one year, and its lower return does not reverse in the long run. This is consistent with the notion that loser momentum is an underreaction to negative news and suggests investors hold on to losers for too long. The lack of reversal for losers departs from prior studies whose findings are driven by the use of monthly rebalanced portfolio. Rebalancing cumulates an upward bias caused by noise-induced price volatility, which disproportionately affects losers more. This greater upward bias in losers creates an illusion that the winner minus loser return reverses. More appropriate approaches such as the buy-and-hold portfolio documents significantly less reversal. Existing theories that potentially conform to the overreaction of winners and underreaction of losers include overconfidence (Daniel, Hirshleifer, and Subrahmanyam, 1998), representativeness and conservatism (Barberis, Shleifer, and Vishny, 1998), interaction between agents holding asymmetric information (Hong and Stein, 1999), and investors' asymmetric response to fund performance (Vayanos and Woolley, 2013).
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    Institutional segmentation of equity markets: causes and consequences
    Hosseinian, Amin (Virginia Tech, 2022-07-27)
    We re-examine the determinants of institutional ownership (IO) from a segmentation perspective -- i.e. accounting for a hypothesized systematic exclusion of stocks that cause high implementation or agency costs. Incorporating segmentation effects substantially improves both explained variance in IO and model parsimony (essentially requiring just one input: market capitalization). Our evidence clearly establishes a role for both implementation costs and agency considerations in explaining segmentation effects. Implementation costs bind for larger, less diversified, and higher turnover institutions. Agency costs bind for smaller institutions and clienteles sensitive to fiduciary diligence. Agency concerns dominate; characteristics relating to the agency hypothesis have far more explanatory power in identifying the cross-section of segmentation effects than characteristics relating to the implementation hypothesis. Importantly, our study finds evidence for interior optimum with respect to the institution's scale, due to the counteracting effect between implementation and agency frictions. We then explore three implications of segmentation for the equity market. First, a mass exodus of publicly listed stocks predicted to fall outside institutions' investable universe helps explain the listing puzzle. There has been no comparable exit by institutionally investable stocks. Second, institutional segmentation can lead to narrow investment opportunity sets, which limit money managers' ability to take advantage of profitable opportunities outside their investment segment. In this respect, we construct pricing factors that are feasible (ex-ante) for institutions and benchmark their performance. We find evidence consistent with the demand-based asset pricing view. Specifically, IO return factors yield higher return premia and worsened institutional performance relative to standard benchmarks in an expanding institutional setting (pre-millennium). Third, we use our logistic model and examine the effect of aggregated segmentation on the institutions' portfolio returns. Our findings suggest that investment constraints cut profitable opportunities and restrict institutions from generating alpha. In addition, we find that stocks with abnormal institutional ownership generate significant positive returns, suggesting institution actions are informed.
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    Taking Over the Size Effect: Asset Pricing Implications of Merger Activity
    Easterwood, Sara; Netter, Jeffry; Paye, Bradley S.; Stegemoller, Michael (Elsevier, 2022-07-26)
    We show that merger announcement returns account for virtually all of the measured size premium. An empirical proxy for ex ante takeover exposure positively and robustly relates to cross-sectional expected returns. The relation between size and expected returns becomes positive or insignificant, rather than negative, conditional on this takeover characteristic. Asset pricing models that include a factor based on the takeover characteristic outperform otherwise similar models that include the conventional size factor. We conclude that the takeover factor should replace the conventional size factor in benchmark asset pricing models.
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    Two Essays on Corporate Finance
    Xie, Yutong (Virginia Tech, 2019-09-11)
    This Dissertation consists of two essays. The first essay examines how corporate financial policies depend on the properties of future cash flows. In contrast to prior literature, we investigate the role of asymmetries in the distributionof cash flows. We document the relevance of such asymmetries for firms' payout, liquidity, and capital structure policies. Policies are more sensitive to downside volatility and the directional effect of upside variation is often opposite that of downside. Controlling for cash flow volatility,policies significantly relate to measures of skewness. Firms adopt more conservative policies (lower propensity to pay, more cash, less leverage) when cash flow news is more negatively skewed. The second essay addresses a mythical relationship between corporate payout and short-termism. Over the past 30 years, aggregate investment by US public corporations has declined, and corporate payout has increased. These facts are interpreted as evidence that public firms are plagued by short-termism and are foregoing valuable investment opportunities to support the large payouts. We find that large increases in corporate payout do not impact firm investment or innovative activities in the short run. In the long run, firms which increase their payout invest more in physical capital than control firms and that their RandD spending is comparable. Firms which increase their payout do not experience a decline in operating profitability or valuation in the long run. These conclusions hold when we restrict our attention to firms who persist in making large payouts and for those high payout firms that rely on internal funds. Our results are inconsistent with the view that unusually high payout harms the long-term viability of US firms. The evidence in the paper suggests that the high payers are from industries with declining growth opportunities but the firms themselves are expecting their high profitability and cash flow to persist.