Size Premium Research Articles

The politics of teachers' union endorsements

AbstractSchool board candidates supported by local teachers' unions overwhelmingly win, and we examine the causes and consequences of the “teachers' union premium” in these elections. First, we show that union endorsement information increases voter support. Although the magnitude of this effect varies across ideological and partisan subgroups, an endorsement rarely hurts a candidate's prospects with the electorate. Second, we benchmark the size of the endorsement premium to other well‐known determinants of vote choice in local elections. Perhaps surprisingly, we show the effect can be as large as the impact of shared partisanship, and substantially larger than the boost from endorsements provided by other stakeholders. Finally, examining real‐world endorsement decisions, we find that union support for incumbents hinges on self‐interested pecuniary considerations and is unaffected by performance in improving student academic outcomes. The divergence between what endorsements mean and how voters interpret them has troubling normative democratic implications.

The use of age and growth techniques to quantify the age structure of carryover hybrid catfish (female Channel Catfish × male Blue Catfish) in commercial ponds in West Alabama

AbstractObjectiveIn West Alabama, catfish Ictalurus spp. producers routinely face the challenge of fish that exceed market size (aka “Big Fish”) in their commercial ponds. These fish are skilled at evading seine nets during harvest and can increase in size significantly before subsequent harvests occur. This is problematic for catfish producers because processing plants prefer catfish within the 0.45–1.81‐kg range and farmers are paid a premium price for catfish of this size. Due to their larger size and growth potential, hybrid catfish (female Channel Catfish Ictalurus punctatus × male Blue Catfish I. furcatus) can become a more significant issue than Channel Catfish if they evade harvest. The objective of this study was to describe and quantify the age structure and growth rate of hybrid catfish that evade capture and remain in commercial ponds following harvest and grow beyond acceptable market size as defined by catfish processing plants (i.e., Big Fish).MethodsHybrid catfish were collected from 12 recently harvested commercial ponds in West Alabama from December 2021 to August 2022 using an electroshocking boat. Total length (mm), body weight (kg), and sex of collected fish were recorded, and lapilli otoliths were removed to estimate fish age and determine total length and total body weight at estimated ages.ResultIn this study, 1005 hybrid catfish were collected with the successful age estimation for 1001 catfish, ranging from 1 to 11 years. Results of this study indicate that hybrid catfish exceeded the premium size threshold in 2.72 years ± 8 months. Additionally, from age 2 to age 3, the average hybrid catfish gained 2.90 kg, growing from 0.40 to 3.30 kg. Growth rate was significantly affected by sex; males overall were predicted to weigh more than females based on the weight‐at‐age model.ConclusionHybrid catfish should be completely harvested from commercial ponds following 1 year of harvest to receive the premium price per kilogram of live fish. If a complete harvest is unsuccessful, farmers can receive a discounted price per kilogram of leftover hybrid catfish based on current market trends.

MOOD SWINGS AND THE FIRM SIZE PREMIUM

Evidence accumulated in the literature indicates that the size effect is related to corporate and macroeconomic variables and is paid to compensate for bearing risk. We show that the size premium is also driven by daily variations in investors’ moods. We focus on two conditions often cited as possible mechanisms that drive variations in mood: Monday and seasonal affective disorder. The findings are consistent with the evidence that mood deteriorates on Mondays and in the fall and are consistent with the claim that the size effect manifests during economic expansion but weakens in the contraction phase of the economic cycle.

Educational and gender heterogeneity of the rural-urban earnings premium: New evidence from Norway

We explore urban earnings premiums for young, native, rural-to-urban movers in Norway. Using an augmented difference-in-differences estimator (DiD-TR) on microdata we challenge previous claims about urban earnings premium's size and sources. Conventional econometric estimators understate the static premium and overstate dynamic premiums. We find that migrants exhibit lower mean but faster pre-move earnings growth than non-migrants. Post-move, the static earnings premium dominates. The observed trajectory is related to frequent pre-move changes of industrial sector, presumably to obtain better job-worker matches. Post-move, these changes occur less frequently. Highly educated females exhibit largest static premiums (34%), less-educated females least (24%), males an intermediate amount. Our findings suggest that cities primarily generate earnings premiums through agglomeration-based efficiencies and superior job-worker matches varying heterogeneously by education and gender.

The resurrected size effect still sleeps in the (monetary) winter

In this paper, we provide evidence that the size premium (SMB) is more significantly related to monetary policy than to firm quality or to business cycle troughs. Across both economic expansion and contraction periods, whether we control for firm quality or not, we show that monetary tightening eliminates the size premium and easing of policy re-instates it. We further demonstrate that the effect holds even outside of business cycle troughs as found by Ahn et al. (2019). The channels through which monetary policy affects small firms differently than large firms are identified, such as a stock market liquidity effect, a firm-level liquidity effect and increased access to credit. Our findings indicate that monetary policy is an important factor to consider when assessing the size premium, and apparently more important than firm quality, and the business cycle.

Shareholder voting on golden parachutes: Effective governance or too little too late?

AbstractThe Dodd–Fank Act mandated shareholder votes on executive's change‐in‐control (golden parachute) payments at the time the firm is sold. We study bid premiums surrounding the introduction of the vote and find that they are lower in the post‐period. Moreover, there is a positive association between the relative size of parachute payments and premiums, particularly after the parachute vote was required. In contrast, we observe no association between premiums and parachute features questioned by many shareholders. Additionally, we find lower voting support for parachutes with features that are (i) of concern to shareholders, (ii) amended in the lead‐up to the vote and (iii) identified as problematic in proxy advisor analyst reports. However, we find little evidence that directors overseeing payments with opposition from shareholders or a leading proxy advisor are penalized with lost board seats, fewer key board committee memberships or increased shareholder opposition in subsequent director elections at other firms. Overall, our findings suggest that the parachute vote requirement is too little too late.

DIGITIZATION AS A FACTOR OF MTPL DEVELOPMENT

This article reveals the concept, essence and significance of compulsory motor third party liability insurance (MTPL). The topic of digitalization is touched upon as a factor in the development of compulsory motor liability insurance and the use of more advanced information technologies in order to simplify the process of carrying out work in insurance activities. The article highlights and describes the characteristic features of compulsory motor liability insurance in Russia and in foreign countries. The idea of introducing digitalization as a factor in the development of compulsory motor third party liability insurance in Russia is substantiated. The article discusses the methods of digitalization in the development of compulsory motor liability insurance, the scheme of its functioning, and also develops new ways of introducing digitalization as a factor in the development of compulsory motor liability insurance. The article also analyzes the features of the development of compulsory motor liability insurance in Russia, the size of insurance premiums and payments by type of insurance. The article substantiates the main problems of the development of digitalization in the auto insurance market (including compulsory motor liability insurance), which were identified in the process of studying scientific articles, information sources and educational literature. Activities are being developed that are aimed at increasing the interest of vehicle owners in complying with traffic rules and accident-free driving through the amount of the insurance premium, which is paid when concluding an MTPL insurance contract.

BANKRUPTCY RISK ASSESSMENT FOR INSURANCE COMPANIES UNDER UNCERTAINTY

The insurance market is an integral part of the country's financial system and is therefore extremely important for economic development. Any shocks in the insurance market may cause a slowdown in economic growth and development and have a negative impact on the country's financial system. The stability of the insurance market is ensured by the companies operating in it. That is why our analysis focuses on assessing the risk of insurance companies' bankruptcy and analyzing the main factors that affect the situation in the insurance market.This article analyzes the main approaches to assessing the risk of insurance companies depending on the size of the risk premium. A simple dynamic risk assessment model was applied.Our analysis of the literature has shown that general approaches to assessing the risk of insurance company failure depend on the overall situation in the country and the market itself. In countries with more frequent force majeure events, more complex and sophisticated models have been introduced to assess the required amount of risk premium to avoid bankruptcy.The market situation in Ukraine had been stable for a long time, but with the onset of the pandemic, certain problems began to arise. An analysis of one of the leading insurance companies in the market showed that before the war started, it had a bankruptcy risk close to zero. Unfortunately, it should be noted that military actions, which are force majeure circumstances, complicate the quantitative analysis, as Ukrainian companies do not have effective mechanisms to cover this type of risk.It is established that a company cannot arbitrarily determine the amount of risk premium based on its own needs. This value will also be influenced by external macroeconomic factors that will affect not only the overall economic situation but also all participants in the insurance market, including consumers of insurance services.

Willingness to Pay for Potting Mix Containing Eastern Redcedar Biochar under Alternative Information Sets

Biochar is considered an environmentally friendly potting mix ingredient because it sequesters carbon, and its biomass can be obtained from renewable resources. If the biomass is obtained from the undesirable eastern redcedar (Juniperus virginiana), then it has the additional benefit of helping to curtail its spread and protect natural habitats. If consumers recognize this benefit, then they may be willing to pay a premium for potting mix made from eastern redcedar biochar. This study used an internet survey of potting mix customers to measure the size of this potential premium. The results showed that consumers were willing to pay $2.42/ft3 more for potting mix containing 20% eastern redcedar biochar (by weight). This premium was even larger for respondents who were aware of the weedy nature of eastern redcedar.

Analysis of the level of penetration and protection of car owners by the compulsory motor third party liability insurance system in the Russian Federation

Subject. The article considers the effectiveness of existing measures of government control over road traffic safety. Objectives. The focus is on assessing the level of protection of car owners by the compulsory civil liability insurance (OSAGO) for the period from 2014 to 2021. Methods. The study rests on methods of correlation and regression analysis. Results. The analysis of statistical data and law enforcement practice demonstrated that an increase in the number of administrative charges entails a decrease in the number of those who comply with the requirements of Federal Laws "On Road Safety" and "On Compulsory Insurance of Civil Liability of Vehicle Owners". The rise in inflation and the average size of insurance premiums and insurance payments have no impact on the number of contracts for compulsory motor third-party liability insurance (OSAGO) concluded in Russia. Conclusions. The existing measures of State regulation in the field of compulsory civil liability insurance are not effective enough. The established administrative sanctions for violation of requirements of compulsory civil liability insurance by car owners negatively affect the penetration of the institution of OSAGO and lead to a decrease in the overall protection of car owners and other road users by the mandatory liability insurance system.

Quantifying the financial value of building decarbonization technology under uncertainty: Integrating energy modeling and investment analysis

The built environment accounts for approximately 40% of global emissions. The evaluation of returns linked to investments in building decarbonization is impeded when confronted with uncertainties surrounding future energy prices, building emission regulations, and real estate market conditions. This paper develops an integrated framework that combines energy modeling with investment analysis to support the adoption of decarbonizing technologies under a context of uncertainty. The integrated framework includes projections of costs and benefits associated with the adoption of technology (i.e., changes in rental cashflows, vacancy rates, maintenance and energy costs) under a wide range of potential pathways of the energy markets and regulatory environment, and local real estate market demand for green buildings using Monte Carlo simulations. Additionally, this paper develops the approach to investigate the potential value of flexibility in designing for building electrification (i.e., the ability to fully electrify gas heating systems at a later year). We illustrate the use of this approach in a case study of a new office building in New York City, faced with design choices between natural gas and electrified heating systems. We consider 10,000 scenarios changing future greenhouse emission penalties, investments in the local electric grid, local real estate market conditions and energy prices. In approximately 60 percent of simulations, the most profitable decision for the building owner is to adopt a natural gas-powered heating system. However, adopting a building design that provides a building the flexibility to fully electrify at a later date is more profitable than a natural gas-heating building in 96 percent of scenarios. A sensitivity analysis shows that the most influential parameter in the valuation of a design option is the size of the green premiums associated with improved energy efficiency.

Вовк (Canis lupus) у степовій зоні України на зламі ХХ–ХХІ ст. та динаміка його чисельності

The article presents data on the extirpation of the wolf in southern Ukraine in the 18th to the 20th century, which was financially supported by landowners and the state. This contributed to keeping the wolf population at a low level and then led to a reduction in its range. In the 1970s, in the steppe and forest-steppe zones, wolves permanently lived only in Moldova; in the north of Odesa Oblast; in the Pavlohrad district of Dnipropetrovsk Oblast; in Kharkiv and Donetsk oblasts, as well as in the north of Poltava Oblast. From here, they spread to neighbouring territories, where they were quickly extirpated. The level of wolf decline was so significant, that in 1970 only 18 wolves were recorded in the steppe zone, and 270 in the whole of Ukraine. This contributed to the dispersal of the roe deer, wild boar, and elk to the south. After the reduction in the size of wolf hunting premiums, hunting pressure on wolves also decreased. Since there is a significant positive correlation between wolf population and hunting pressure (r = 0.93), the wolf's range and population began to grow rapidly. While in 1970 it was found in 14 regions, in 1976 it was already recorded in 18, and in 1981 in 21; in 2000, the wolf occurred in all regions of mainland Ukraine, and in 2003 it entered the Crimea. The process of restoring the wolf's range was accompanied by the emergence of wolf–dog hybrids, some of which are still occurring. Despite the harvest of 616.8 ± 102.68 wolves per year in 1970–1981, the wolf population increased by 6.5 times in Ukraine, and by more than 10 times in the steppe zone. A significant increase in its numbers was facilitated by a decrease in hunting pressure due to the adoption of the USSR Law ‘On the Protection and Use of Wildlife’ in 1980, which prohibited the use of inhumane methods in hunting on wild animals. In 1982–1992, the volume of wolf culling in Ukraine reached 71.1% (45.3–81.5), and in 1993–1999 was equal to 43.1% (34.9–49.3) per year. Naturally, due to the decrease in wolf hunting, there was a sharp increase in the wolf population, which in the steppe zone increased by 1.51 times from 2000 to 2010, and in our country in general by 1.03 times. The process of intensive growth of its population stabilised only at the beginning of the 21st century, when the annual take increased from 34.9% (2000) to 84.0% (2009).

Capital appreciation bonds and the cost of borrowing

AbstractA Capital Appreciation Bond (CAB) is a financial instrument that is most attractive as a resource‐flow management instrument. It bridges multiple fiscal years for jurisdictions experiencing rapid growth, potentially stretching for decades, but may also be used by localities experiencing fiscal distress. Using debt issuance data by independent school districts in Texas, who utilized almost all such bonds in the state, we present empirical evidence that CABs are associated with both the service and fiscal pressure factors. We further observe that, though the threat from CABs in terms of borrowing costs may have been exaggerated, enacting limits on debt repayment ratios (ratio of payment size at maturity to premium size) was likely the right legislative intervention.

Factor-timing in the Chinese factor zoo: The role of economic policy uncertainty

In this study, we investigate the predictive power of economic policy uncertainty (EPU) on factor returns in the Chinese market. We find that EPU can significantly but negatively predict the size premium (i.e., small-minus-big returns) at short and long horizons. However, such results are not evident in the prediction of 15 other characteristic-related factor returns, including the market, momentum, value, profitability, investment, and a range of mispricing or risk factors. The results are robust to various control variables and out-of-sample tests. Evidence further confirms that EPU can contribute to factor timing, especially size timing, in stark contrast with the evidence found in the US market. Economically, the cash flow and flight-to-safety channels may account for the predictive power of EPU.

Understanding the Firm Specific Risk Premium

Abstract We seek to determine whether a firm specific risk premium (FSRP) exists for private firms. We show that private equity investors price firm specific risk as part of establishing the expected rate of return hurdle rate. Our research is based on survey data constructed by the Private Capital Markets Project. We decompose the rate of return into its component parts-market risk premium, size premium, liquidity premium and firm specific risk premium (FSRP). We find that on average PE FSRP varies between zero and six percent. These findings indicate that the cost of capital buildup used in valuing private firms should include a premium for firm specific risk unless facts and circumstances suggest otherwise.

Taking Over the Size Effect: Asset Pricing Implications of Merger Activity

AbstractWe show that merger announcement returns account for virtually all of the measured size premium. An empirical proxy for ex ante takeover exposure positively and robustly relates to cross-sectional expected returns. The relation between size and expected returns becomes positive or insignificant, rather than negative, conditional on this takeover characteristic. Asset pricing models that include a factor based on the takeover characteristic outperform otherwise similar models that include the conventional size factor. We conclude that the takeover factor should replace the conventional size factor in benchmark asset pricing models.

The Size Premium in a Granular Economy

The Size Premium in a Granular Economy

Understanding the dynamics of investment factors and exchange-traded funds performance in the U.S. market 2018-2022

The increasing popularity of exchange-traded funds (ETFs) among retail and professional investors necessitates a deeper understanding of their value-creation process. Recognizing inconsistencies between stated investment strategies and portfolio exposures is crucial for appropriate rebalancing in accordance with investment policy statements. Against the backdrop of evolving investment factors during the pandemic and changing geopolitical circumstances, the performance of ETFs has undergone significant shifts. Analyzing the directional changes of prevailing investment factors within specific macro environments is essential for optimizing portfolios composed out of ETFs. This study has a dual objective: firstly, to comprehend the dominant investment factors and their dynamics in the U.S. market, and secondly, to evaluate the performance of ETFs that adhere to specific investment philosophies and strategies. To achieve these objectives, the Fama-French three and five-factor models were employed to analyze a dataset comprising 72 U.S. ETFs. These ETFs were then categorized into four portfolios based on investment style and size. Performance appraisal measures were utilized to compare portfolios on a risk-adjusted basis relative to the benchmark. The bear market that commenced in early 2022 had a universally negative impact on observed ETFs due to their longonly exposures. This inflection point also marked a shift in the relative performance between value and growth styles, as well as the outperformance of more conservative investing approaches, underscoring the importance of adapting to changing market conditions. Additionally, the absence of a size premium throughout the observed period confirms investors' preference for large-cap stocks as a resilient factor. Furthermore, the size effect exerted a universal negative influence due to the size drift of ETFs employing a stated large-size investment strategy. During the observed period, the value style experienced a significant recovery, characterized by higher book-to-price ratios, operating profits, and more conservative investment policies that produced superior results compared to the previous longer period. The findings of this research enhance our understanding of the influence of investment factors on U.S. ETF performance, providing valuable insights for investors and portfolio managers who may need to adjust their strategies in response to observed changes in market dynamics.

Comparative Research of the Fitness of CAPM and Fama-French Three-factor Models

CAPM theory is the core of the modern financial theory. As time went on, more and more people began to invest in CAPM research, many of the contradictions of CAPM have emerged, not least the highly idealistic assumptions and harsh implementation conditions. Different from CAPM, which only has a single factor of market risk beta, The inclusion of size premium and book-to-market ratio premium in this model can effectively explain stock market results. By introducing the model concept of CAPM and FF3 and comparing the empirical evidence in Sattar, M., this paper explains why the explanatory power of CAPM factors is weak. By referring to previous scholars' articles, this essay contrasts and elucidates how the market factor, size premium, and book-to-market ratio premium may all effectively account for stock market returns. According to the study's findings, the three-factor Fama French model has a stronger capacity for explanation than the CAPM model.

A Bayesian analysis of time-varying jump risk in S&P 500 returns and options

We examine time-varying jump risk for modeling stock price dynamics and cross-sectional option prices. We explore jump-diffusion specifications with two independently evolving processes for stochastic volatility and jump intensity, respectively. We explicitly impose time-series consistency in model estimation using a Markov Chain Monte Carlo (MCMC) method. We find that both the jump size and standard deviation of jump size premia are more prominent under time-varying jump risk. Simultaneous jumps in returns and volatility help reconcile the time series of returns, volatility, and jump intensities. Finally, independent time-varying jump intensities improve the cross-sectional fit of option prices, especially at longer maturities.