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We find that the degree and dynamics of sovereign bond market integration across 21 developed and 18 emerging countries is significantly heterogeneous. We show that better spanning can significantly enhance market integration through dissipating local risk premiums. Integration of the sovereign bond markets increases by about 10% on average, when a country moves from the 25th to the 75th percentile as a result of higher political stability and credit quality, lower inflation and inflation risk, and lower illiquidity. The 10% increase in integration leads to, on average, a decrease in the sovereign cost of funding of about 1% per annum.

This article analyzes the effect of liquidity risk on the performance of equity hedge fund portfolios. Similarly to Avramov, Kosowski, Naik, and Teo (2007), (2011), we observe that, before accounting for the effect of liquidity risk, hedge fund portfolios that incorporate predictability in managerial skills generate superior performance. This outperformance disappears or weakens substantially for most emerging markets, event-driven, and long/short hedge fund portfolios once we account for liquidity risk. Moreover, we show that the equity market-neutral and long/short hedge fund portfolios’ “alphas” also entail rents for their service as liquidity providers. These results hold under various robustness tests.

Unlocking SDG-relevant capital depends on coherent and robust impact performance metrics that enable ex ante decision-making across investment options and ex post assessment of both forecasted and realized impact. This study proposes a “synthetic” approach for measuring the impact performance of investments that can be adopted by impact investors and that complements standard impact reporting. We identify five criteria relevant for impact performance measurement—intentionality, measurability, feasibility, incrementality, and comparability—and use them to benchmark a sample of 84 metrics developed by academics and practitioners in the credit finance sector, which attracts the largest volume of impact investments. While over half of the metrics satisfy the criteria of intentionality, measurability, and feasibility—necessary for impact reporting—none meet all five, which are required for robust impact performance measurement. This highlights a significant gap between current practices and what is required to assess impact performance. Based on our findings, we propose a limited set of impact performance metrics suited to credit finance, underlined by a sector-specific theory of change. These metrics, and those that we plan to develop for other sectors, as well as for SDG themes like employment, gender, and climate, are essential to scale up the capital needed to meet the SDGs.

We conduct an experiment assessing the extent to which people trade off the economic costs of truthfulness against the intrinsic costs of lying. The results allow us to reject a type-based model. People's preferences for truthfulness do not identify them as only either “economic types” (who care only about consequences) or “ethical types” (who care only about process). Instead, we find that preferences for truthfulness are heterogeneous among individuals. Moreover, when examining possible sources of intrinsic costs of lying and their interplay with economic costs of truthfulness, we find that preferences for truthfulness are also heterogeneous within individuals.

This paper develops and empirically tests a two-factor model for pricing financial and real assets contingent on the price of oil. The factors are the spot price of oil and the instantaneous convenience yield. The parameters of the model are estimated using weekly oil futures contract prices from January 1984 to November 1988, and the model's performance is assessed out of sample by valuing futures contracts over the period November 1988 to May 1989. Finally, the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time.

How do wealth managers understand and comply with the social norms embedded in banks’ codes of conduct (CoC), and how do they cope with ethical dilemmas? Do they have a tendency after the global financial crisis to prioritize banks’ financial security over clients’ interests? To answer these and related questions, we conduct a nonincentivized online survey with wealth management employees of the Swiss legal entity of a large multinational bank. We propose a method to estimate the comprehension and the level of expected adherence to the CoC principles that we test with our sample. We further show that framing questions under the label of “Financial Security” increased response accuracy and that employees’ honesty helped guide their decision-making toward integrity in ethical dilemmas. Thus, in addition to validating a method for testing the level of CoC comprehension and the expected adherence to its principles, our study is among the first to show that in the wealth management business, honesty and social injunctive norms defined in the bank’s CoC reinforce one another.

Individuals differ profoundly when they decide whether to tell the truth or to be dishonest, particularly in situations where moral motives clash with economic motives, i.e., when truthfulness comes at a monetary cost. These differences should be expressed in the decision network, particularly in prefrontal cortex. However, the interactions between the core players of the decision network during honesty-related decisions involving trade-offs with economic costs remain poorly understood. To investigate brain connectivity patterns associated with individual differences in responding to economic costs of truthfulness, we used functional magnetic resonance imaging and measured brain activations, while participants made decisions concerning honesty. We found that in participants who valued honesty highly, dorsolateral and dorsomedial parts of prefrontal cortex were more tightly coupled with the inferior frontal cortex when economic costs were high compared to when they were low. Finer-grained analysis revealed that information flow from the inferior frontal cortex to the dorsolateral prefrontal cortex and bidirectional information flow between the inferior frontal cortex and dorsomedial prefrontal cortex was associated with a reduced tendency to trade off honesty for economic benefits. Our findings provide a novel account of the neural circuitry that underlies honest decisions in the face of economic temptations.

We build a structural two-factor model of default where the stock market index is one of the stochastic factors. We allow the firm to adjust its leverage ratio in response to changes in the business climate for which the past performance of the stock market index acts as a proxy. We assume that the firm's log-leverage ratio follows a mean-reverting process and that the past performance of the stock index negatively affects the firms target leverage ratio. We show that for most credit ratings our model may explain actual yield spreads better than other well-known structural credit risk models. Also, our model shows that the past performance of the stock index returns and the firm's assets beta have a significant impact on credit spreads. Hence, our model can explain why credit spreads may be different within the same credit rating groups and why spreads are lower during economic expansions and higher during recessions.

This paper develops a continuous-time real options’ pricing model to study managers’ incentives to cheat in the presence of equity-based compensation plans. It shows that managers’ incentives to cheat are strongly influenced by the efficiency of the justice. The model’s main result is that managers have greater incentives to commit fraudulent actions under stock options than under common stocks based compensation plans.