Takeovers, Governance and The Cross-Section of Returns

This paper considers the impact of the takeover channel on firm valuation. We use the idea that takeover activity responds to investor expectations of future rate of return and hence to state variable(s) related to the time variation in risk premia. Thus firms with higher exposure to takeovers, due to higher expectations of receiving a takeover premium, have a higher exposure to the state variable that dictates time variation in risk premia. Consequently, the difference in the returns between firms that differ in their takeover vulnerabilities can be used to used to proxy these state variables. To do so, we create a takeover-spread portfolio that buys firms with low cash-adjusted-leverage (cheaper targets) and shorts firms with high cash-adjusted-leverage and show that such a portfolio generates annualized abnormal returns of up to 11.20% between 1980 and 2003. Also, abnormal returns associated with governance-spread portfolios (Gompers, Ishii and Metrick, 2003 and Cremers and Nair, 2004) decrease significantly once the asset pricing model includes this ’cash-adjusted-leverage’ factor. Finally, we propose a new ‘takeover’ factor to proxy for the risk due to changes in these risk-premia related state variables, which is shown to be important in explaining cross-sectional differences in equity returns. The paper shows why investors require a higher rate of return on firms exposed to takeovers and yet value them higher than firms protected from takeovers

Takeovers, Governance and The Cross-Section of Returns

This paper considers the impact of the takeover channel on firm valuation. We use the idea that takeover activity responds to investor expectations of future rate of return and hence to state variable(s) related to the time variation in risk premia. Thus firms with higher exposure to takeovers, due to higher expectations of receiving a takeover premium, have a higher exposure to the state variable that dictates time variation in risk premia. Consequently, the difference in the returns between firms that differ in their takeover vulnerabilities can be used to used to proxy these state variables. To do so, we create a takeover-spread portfolio that buys firms with low cash-adjusted-leverage (cheaper targets) and shorts firms with high cash-adjusted-leverage and show that such a portfolio generates annualized abnormal returns of up to 11.20% between 1980 and 2003. Also, abnormal returns associated with governance-spread portfolios (Gompers, Ishii and Metrick, 2003 and Cremers and Nair, 2004) decrease significantly once the asset pricing model includes this ’cash-adjusted-leverage’ factor. Finally, we propose a new ‘takeover’ factor to proxy for the risk due to changes in these risk-premia related state variables, which is shown to be important in explaining cross-sectional differences in equity returns. The paper shows why investors require a higher rate of return on firms exposed to takeovers and yet value them higher than firms protected from takeovers

Improved Horizontal Directional Hearing in Bone Conduction Device Users with Acquired Unilateral Conductive Hearing Loss

We examined horizontal directional hearing in patients with acquired severe unilateral conductive hearing loss (UCHL). All patients (n = 12) had been fitted with a bone conduction device (BCD) to restore bilateral hearing. The patients were tested in the unaided (monaural) and aided (binaural) hearing condition. Five listeners without hearing loss were tested as a control group while listening with a monaural plug and earmuff, or with both ears (binaural). We randomly varied stimulus presentation levels to assess whether listeners relied on the acoustic head-shadow effect (HSE) for horizontal (azimuth) localization. Moreover, to prevent sound localization on the basis of monaural spectral shape cues from head and pinna, subjects were exposed to narrow band (1/3 octave) noises. We demonstrate that the BCD significantly improved sound localization in 8/12 of the UCHL patients. Interestingly, under monaural hearing (BCD off), we observed fairly good unaided azimuth localization performance in 4/12 of the patients. Our multiple regression analysis shows that all patients relied on the ambiguous HSE for localization. In contrast, acutely plugged control listeners did not employ the HSE. Our data confirm and further extend results of recent studies on the use of sound localization cues in chronic and acute monaural listening

Pension fund performance and costs: small is beautiful.

Abstract Using the CEM pension fund data set, we document the cost structure and performance of a large sample of US pension funds. To date, self-reporting biases and a deficiency of comprehensive return and cost data have severely hindered pension fund performance studies. The bias-free CEM dataset resolves these issues and provides detailed information on fund-specific returns, benchmarks and costs for all types of pension plans and equity mandates. We find that pension fund cost levels are substantially lower than mutual fund fees. The domestic equity investments of US pension funds tend to generate abnormal returns (after expenses and trading costs) close to zero or slightly positive, contrasting the average underperformance of mutual funds. However, small cap mandates of defined benefit funds have outperformed their benchmarks by about 3% a year. While larger scale brings costs advantages, liquidity limitations seem to allow only smaller funds, and especially small cap mandates, to outperform their benchmarks. JEL Classifications : G23, G11, G14 Acknowledgements Our thanks to Keith Ambachtsheer, CEM Benchmarking Inc. for providing the pension fun

How Active is Your Fund Manager? A New Measure That Predicts Performance

Abstract We introduce a new measure of active portfolio management, Active Share, which represents the share of portfolio holdings that di¤er from the benchmark index holdings. We compute Active Share for domestic equity mutual funds from 1980 to 2003. We relate Active Share to fund characteristics such as size, expenses, and turnover in the cross-section, and we also examine its evolution over time. Active Share predicts fund performance: funds with the highest Active Share signi…cantly outperform their benchmarks, both before and after expenses, and they exhibit strong performance persistence. Non-index funds with the lowest Active Share underperform their benchmarks. JEL classi…cation: G10, G14, G20, G2

Diagnostic exome sequencing in 266 Dutch patients with visual impairment

Inherited eye disorders have a large clinical and genetic heterogeneity, which makes genetic diagnosis cumbersome. An exome-sequencing approach was developed in which data analysis was divided into two steps: the vision gene panel and exome analysis. In the vision gene panel analysis, variants in genes known to cause inherited eye disorders were assessed for pathogenicity. If no causative variants were detected and when the patient consented, the entire exome data was analyzed. A total of 266 Dutch patients with different types of inherited eye disorders, including inherited retinal dystrophies, cataract, developmental eye disorders and optic atrophy, were investigated. In the vision gene panel analysis (likely), causative variants were detected in 49% and in the exome analysis in an additional 2% of the patients. The highest detection rate of (likely) causative variants was in patients with inherited retinal dystrophies, for instance a yield of 63% in patients with retinitis pigmentosa. In patients with developmental eye defects, cataract and optic atrophy, the detection rate was 50, 33 and 17%, respectively. An exome-sequencing approach enables a genetic diagnosis in patients with different types of inherited eye disorders using one test. The exome approach has the same detection rate as targeted panel sequencing tests, but offers a number of advantages. For instance, the vision gene panel can be frequently and easily updated with additional (novel) eye disorder genes. Determination of the genetic diagnosis improved the clinical diagnosis, regarding the assessment of the inheritance pattern as well as future disease perspective

Multifactor Efficiency and Bayesian Inference

This article reinvestigates the performance of risk-based multifactor models. We generalize the Bayesian methodology of Shanken and Kandel, McCulloch, and Stambaugh from mean-variance to multifactor efficiency. Using informative priors, our flexible framework handles severe small-sample problems. We introduce a new inefficiency metric that measures the maximum correlation between the market portfolio and any multifactor-efficient portfolio. Finally, we present new empirical evidence that neither the two additional Fama-French factors nor the momentum factor move the market portfolio robustly closer to being multifactor efficient or robustly decrease pricing errors relative to the Capital Asset Pricing Model.

Institutional Investors and Proxy Voting on Compensation Plans: The Impact of the 2003 Mutual Fund Voting Disclosure Rule

This article examines the impact on shareholder voting of the Securities and Exchange Commission (SEC)'s mutual fund voting disclosure rule, using a paired sample of management proposals on executive equity incentive compensation plans submitted before and after the rule change. In enacting the rule, the SEC intended to increase funds' engagement in corporate governance. While voting support for management has decreased over time, we find no evidence that mutual funds' support for management declined after the rule change, as expected by the SEC and advocates of disclosure. In fact, we find evidence of increased support for management by mutual funds after the change. Copyright 2011, Oxford University Press.

Turning over Turnover

This article applies the methodology of Bai and Ng (2002, 2004) for decomposing panel data into systematic and idiosyncratic components to both stock returns and turnover panels. This approach works well for both returns and turnover, despite the presence of severe heteroscedasticity and nonstationarity of individual stocks' turnover. We test the mutual fund separation model of Lo and Wang (2000). Trading due to systematic risk in returns can account for 66% of systematic turnover. Thus, portfolio rebalancing due to systematic risk is a very important motive for stock trading. Finally, several common turnover measures may understate the impact of stock trading. , Oxford University Press.