Public Information and Capital Flows: Evidence from a Betting Market

By Karthik Balakrishnan and Darren Bernard September 2, 2021 by renholding

What are the consequences of increasing public information in a market of risk-seeking participants? Academics and policy makers alike are grappling with this question following the influx of speculative capital flows from individual investors in financial markets. As platforms such …

Davis Polk Discusses FinCEN, CFTC Penalties on Cryptocurrency Derivatives Exchange

By Robert Cohen, Jai Massari, Daniel Stipano, Zachary Zweihorn and Kendall Howell August 19, 2021 by renholding

The CFTC and FinCEN recently announced a settlement with BitMEX for $100 million to resolve an enforcement action related to the exchange’s failure to register as a futures commission merchant and failure to establish a BSA/AML compliance program.

The Order

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The Triumph of a Local Focus in Troubled Times

By Samer Adra, Yang Gao and Jing-Ming Kuo August 16, 2021 by renholding

The emphasis on the contribution of local knowledge to economic growth is a key tenet of classical economic theory. The Hayekian worldview, for example, sees the dispersion of local pockets of knowledge across the economy as the primary reason why …

Moving Beyond Mutual Funds

By Shawn Bayern August 13, 2021 by renholding

As has become widely known in the past few years, the mutual-fund industry is more concentrated than ever, especially because of the growing use of index funds. Whether this is a problem and how to respond have been the topics …

ISS on Maximizing Good Results in Global Sustainable Finance Industry

By Soumya Munagala August 13, 2021 by renholding

The global sustainable finance industry has been described as an ‘industry in transition’, according to the recently-released Global Sustainable Investment Review 2020. This is reflective not only of the growth of the industry, but also the steps taken by

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Debevoise & Plimpton Discusses the State of the LIBOR Transition

By Ramya Tiller, Jeff Ross, Paul Brusiloff, Emilie Hsu and Courtney Bradford Pike August 11, 2021 by renholding

On March 5, 2021, LIBOR’s administrator, ICE Benchmarks Administration (the “IBA”), and LIBOR’s regulator, the U.K. Financial Conduct Authority (the “FCA”), announced that LIBOR will no longer be provided (i) for all sterling, euro, Swiss franc and Japanese yen settings, …

The Restructuring Landscape in Emerging Markets One Year into the Pandemic

By Steven T. Kargman August 10, 2021 by renholding

Like advanced economies, emerging economies were buffeted by the global economic slowdown stemming from the COVID-19 pandemic and the associated lockdowns of national economies. In 2020, emerging economies (and developing countries) contracted by 2.1 percent (their steepest decline in many …

Short-Term Institutions, Analyst Recommendations, and Mispricing: The Role of Higher-Order Beliefs

By Martijn Cremers, Ankur Pareek and Zacharias Sautner August 4, 2021 by renholding

Discussions on the role of higher-order beliefs (investor beliefs about the beliefs of other investors) in financial markets can be traced back to Keynes’ (1936) comparison of the stock market to a beauty contest. Investors “are concerned,” he famously said, …

National Blockchain Laws Are a Threat to Capital Markets Integration

By Matthias Lehmann August 3, 2021 by renholding

Since its creation in 2008, the blockchain has seemed incompatible with legal constraint. Satoshi Nakamoto, the pseudonymous inventor of Bitcoin, hailed the blockchain’s “unstructured simplicity.” Even now, apostles of distributed ledger technology (DLT) strongly resist the idea that …

Reforming the Macroprudential Regulatory Architecture in the United States

By Kathryn Judge and Anil Kashyap July 26, 2021 by renholding

When the COVID-19 pandemic shuttered major economies in March 2020, it also wreaked havoc on financial markets. In the first few weeks of March, investment-grade corporate bonds lost roughly a fifth of their value, on par with the declines in …

Why We Need to Verify and Unmask the Identity of Cryptocurrency Users

By Hadar Y. Jabotinsky and Michal Lavi July 23, 2021 by renholding

Cryptocurrencies are by now widely known as electronically generated and stored currencies that enable users to trade tokens. The tokens are exchanged anonymously through a decentralized payment system: the blockchain. To further anonymity, the parties to cryptocurrency transactions are identified …

How Does Removing the Tax Benefits of Debt Affect Firms?

By Ali Sanati July 20, 2021 by renholding

Almost all countries have historically allowed businesses to write off interest expenses against taxable income. Critics argue that the tax-favored status of debt has created a corporate debt pile-up, thereby exacerbating economic downturns. This argument, which gained more attention after …

Do Public Financial Statements Influence Venture Capital and Private Equity Financing?

By Brian K. Baik, Natalie Berfeld and Rodrigo S. Verdi July 13, 2021 by renholding

Venture capital and private equity funds are important equity investors in private companies (Hand 2005; Stromberg 2008; Kaplan and Stromberg 2009), and their investments are characterized by an extensive search process that imposes significant upfront costs for the funds (Chen …

Risk and Ambiguity in Turbulent Times

By Menachem Brenner and Yehuda Izhakian July 9, 2021 by renholding

Over the past 50 years, the financial markets have been rocked by major shocks, which have led to the introduction of financial instruments that could cope with uncertainty in general and extreme events in particular. To manage the uncertainty surrounding …

Sullivan & Cromwell Discusses New FDIC Guidance for Specified IDIs’ Resolution Plans

By Rebecca Simmons, Benjamin Weiner and C. Michelle Chen July 7, 2021 by renholding

On June 25, 2021, the Federal Deposit Insurance Corporation published new guidance for resolution plans to be filed by insured depository institutions with $100 billion or more in total assets. The guidance establishes a three-year filing cycle for these IDIs, …

The Importance of Context for Numbers in Earnings Conference Calls

By Kris Allee, Chuong Do and Huy Do June 28, 2021 by renholding

Numbers generally convey a sense of certainty – especially in accounting and finance. However, this perceived precision also makes it easier to use them in misleading ways. An extensive literature in political science and mass communications discusses how numbers, taken …

Are Earnings Announcements More Useful than Other News for IPO Pricing?

By Ivy Zhang, Yong Zhang and Xiaoxu Ling June 17, 2021 by renholding

We study the relative usefulness of earnings announcements for valuation from the perspective of information externalities: the use of industry peer information for valuation, particularly for IPO pricing. Externalities of accounting information are one of the primary justifications for disclosure …

The Psychology of Taxing Capital Income

By Zachary D. Liscow and Edward G. Fox June 15, 2021 by renholding

Facebook CEO Mark Zuckerberg’s wealth has increased by over $100 billion since 2004, but he has paid relatively little income tax. Why? Because of the “realization rule:” Zuckerberg has not sold—and thus “realized” the gains on—the great majority of …

ISS Discusses Liquidity Behavior in the S&P 500

By Henry Yegerman June 8, 2021 by renholding

As a large cap index all the constituents of the S&P 500 are highly liquid. This is certainly true compared to mid-cap or small cap stocks. There are, though, high, and low rent districts within the S&P and the most …

Who Will Regulate Central Bank Digital Currencies?

By Georges Ugeux May 12, 2021 by renholding

Though a bit provocative, this headline raises a liminal question on the various projects of Central Bank Digital Currencies (CBDBs): Which governance will apply to them? Or as Juvenal, the poet in ancient Rome, famously asked, “Who will guard the …

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