Aggregate Price Effects of Institutional Trading: A Study of Mutual Fund Flow and Market Returns

We study the relation between market returns and aggregate flow into U.S. equity funds, using daily flow data. The concurrent daily relation is positive. Our tests show that this concurrent relation reflects flow and institutional trading affecting returns. This daily relation is similar in magnitude to the price impact reported for an individual institution's trades in a stock. Aggregate flow also follows market returns with a one-day lag. The lagged response of flow suggests either a common response of both returns and flow to new information, or positive feedback trading.

Stock Returns, Aggregate Earnings Surprises, and Behavioral Finance.

Abstract We study the stock market reaction to aggregate earnings news. Previous research shows that, for individual firms, stock prices react positively to earnings news but require several quarters to fully reflect the information in earnings. We find that the relation between returns and earnings is substantially different in aggregate data. First, returns are unrelated to past earnings, suggesting that prices neither underreact nor overreact to aggregate earnings news. Second, aggregate returns are negatively correlated with concurrent earnings; over the last 30 years, stock prices increased 6.5% in quarters with negative earnings growth and only 1.9% otherwise. This finding suggests that earnings and discount rates move together over time, and provides new evidence that discount-rate shocks explain a significant fraction of aggregate stock returns

Governance and Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds

Based on the records of 1183 individual fund managers from 1985 to 2010, we investigate the compensation and discipline mechanisms in the closed-end fund industry and their implications for manager performance and fund premium. We find that managers generating high surplus, as proxied by fund premium, capture rents on their skills by expansions of assets under management and increases in management fees; however, managers with a high discount are not penalized accordingly. Managers with poor NAV performance suffer from asset contractions, but such discipline is insignificant for managers with long tenure. Consistent with manager entrenchment and decreasing returns to scale, NAV performance and premium decline with manager tenure and the size of assets under management. Finally, in support of the notion that adjustments of assets under management and management fees in response to extreme performance break the premium-performance relation, we find that the fund premium responds positively only to the medium-range NAV performance

Keeping the Board in the Dark: CEO Compensation and Entrenchment

We study a model in which a CEO can entrench himself by hiding information from the board that would allow the board to conclude that he should be replaced. Assuming that even diligent monitoring by the board cannot fully overcome the information asymmetry visà- vis the CEO, we ask if there is a role for CEO compensation to mitigate the inefficiency. Our analysis points to a novel argument for high-powered, non-linear CEO compensation such as bonus pay or stock options. By shifting the CEO’s compensation into states where the firm’s value is highest, a high-powered compensation scheme makes it as unattractive as possible for the CEO to entrench himself when he expects that the firm’s future value under his management and strategy is low. This, in turn, minimizes the severance pay needed to induce the CEO not to entrench himself, thereby minimizing the CEO’s informational rents. Amongst other things, our model suggests how deregulation and technological changes in the 1980s and 1990s might have contributed to the rise in CEO pay and turnover over the same period

Aggravation of Chronic Stress Effects on Hippocampal Neurogenesis and Spatial Memory in LPA1 Receptor Knockout Mice

The lysophosphatidic acid LPA₁ receptor regulates plasticity and neurogenesis in the adult hippocampus. Here, we studied whether absence of the LPA₁ receptor modulated the detrimental effects of chronic stress on hippocampal neurogenesis and spatial memory.Male LPA₁-null (NULL) and wild-type (WT) mice were assigned to control or chronic stress conditions (21 days of restraint, 3 h/day). Immunohistochemistry for bromodeoxyuridine and endogenous markers was performed to examine hippocampal cell proliferation, survival, number and maturation of young neurons, hippocampal structure and apoptosis in the hippocampus. Corticosterone levels were measured in another a separate cohort of mice. Finally, the hole-board test assessed spatial reference and working memory. Under control conditions, NULL mice showed reduced cell proliferation, a defective population of young neurons, reduced hippocampal volume and moderate spatial memory deficits. However, the primary result is that chronic stress impaired hippocampal neurogenesis in NULLs more severely than in WT mice in terms of cell proliferation; apoptosis; the number and maturation of young neurons; and both the volume and neuronal density in the granular zone. Only stressed NULLs presented hypocortisolemia. Moreover, a dramatic deficit in spatial reference memory consolidation was observed in chronically stressed NULL mice, which was in contrast to the minor effect observed in stressed WT mice.These results reveal that the absence of the LPA₁ receptor aggravates the chronic stress-induced impairment to hippocampal neurogenesis and its dependent functions. Thus, modulation of the LPA₁ receptor pathway may be of interest with respect to the treatment of stress-induced hippocampal pathology

CEO succession and the CEO’s commitment to the status quo

Chief executive officer (CEO) commitment to the status quo (CSQ) is expected to play an important role in any firm’s strategic adaptation. CSQ is used often as an explanation for strategic change occurring after CEO succession: new CEOs are expected to reveal a lower CSQ than established CEOs. Although widely accepted in the literature, this relationship remains imputed but unobserved. We address this research gap and analyze whether new CEOs reveal lower CSQ than established CEOs. By analyzing the letters to the shareholders of German HDAX firms, we find empirical support for our hypothesis of a lower CSQ of newly appointed CEOs compared to established CEOs. However, our detailed analyses provide a differentiated picture. We find support for a lower CSQ of successors after a forced CEO turnover compared to successors after a voluntary turnover, which indicates an influence of the mandate for change on the CEO’s CSQ. However, against the widespread assumption, we do not find support for a lower CSQ of outside successors compared to inside successors, which calls for deeper analyses of the insiderness of new CEOs. Further, our supplementary analyses propose a revised tenure effect: the widely assumed relationship of an increase in CSQ when CEO tenure increases might be driven mainly by the event of CEO succession and may not universally and continuously increase over time, pointing to a “window of opportunity” to initiate strategic change shortly after the succession event. By analyzing the relationship between CEO succession and CEO CSQ, our results contribute to the CSQ literature and provide fruitful impulses for the CEO succession literature