Research

Abstract: This study examines the impact of changes in government policy during Britain’s railway “mania” of 1844-45. We find that liberalizing policy actions during this period were associated with significantly positive above-trend returns to equity holders in a diversified portfolio of stocks and for railways stocks in particular. This research highlights how government policy shifts can stimulate stock market run-ups.

Financial History Review: Accepted

Abstract: Decentralized autonomous organizations (DAOs) are blockchain-based entities that rely on issuing crypto tokens for governance and financing. DAOs represent a departure from traditional corporate structures, as stakeholders directly control decisions and operations via embedded rules and on-chain votes. Despite their growing prominence, the financial management of DAOs remains underexplored. I find a robust positive link between the DAOs’ unissued governance tokens and their cash holdings, suggesting they provide strategic financing flexibility.  Each $1 increase in DAO governance token holdings associates with $0.05 higher liquidity levels. More broadly, DAO cash levels conform to corporate governance theory—they are larger when the DAOs face higher precautionary needs and lower when they engage in voluntary disclosure to lower information asymmetry. Voting power concentration relates to higher cash value, suggesting that the benefits of blockholder monitoring for liquidity management outweigh any potential costs from expropriation risks. In contrast, close stakeholder votes and simpler governance proposal structures correlate with reduced cash reserves. The paper provides foundational evidence on the emerging liquidity management practices of organizations with decentralized governance.

Abstract: Using industry indices spanning 1900–2018 we investigate the impact of sector screening for a well-diversified long-term investor and identify a number of risks associated with the strategy. Specifically, we examine the impact on the portion of the portfolio which is being replaced by other assets. Market returns are not a substitute for industry returns due to changes in sector composition over time and the large cross-sectional dispersion of sector returns. The net impact of sector exclusion can be proxied by allocating a portion of the portfolio to a strategy that is long the market and short a sector. This strategy would introduce unwanted geographic tilts into the portfolio and could suffer substantial and lengthy drawdowns.

Abstract: We survey industry professionals’ views on sector exclusions. Respondents consider negative portfolio screenings most useful for attracting funds from ethically concerned investors and least useful for risk management purposes. Professionals do not anticipate controversial sector outperformance. However, they disagree the least about the expected returns of non-controversial sectors relative to controversial sectors. Investor disagreement has been linked to higher realised returns, suggesting one reason why ex-ante expectations can differ from ex-post realisations. Exclusion scepticism does not seem to stem from an expectation of controversial stocks superior performance, indicating that favourable risk and return expectations are not its driving force.

Abstract: This paper analyses the impact of the quantitative liquidity requirement of Basel III on bank behaviour. In particular, we focus on corporate lending. Using a wide dataset of European, US, and Canadian banks between 2013-2018 and employing a fuzzy RDD, we find that banks below the median LCR charge higher interest rates for corporate lending and make smaller loans. The impact on lending is particularly pronounced for banks at the bottom and top tails of the liquidity distribution. This effect is caused by banks passing through their increased liquidity costs to private sector clients, implying that when the liquidity constraint binds banks have pricing power. The analysis in this study indicates that the Basel III liquidity regulation is a binding constraint for financial institutions and is likely to have a major impact on the private sector access to funding and cost of capital.