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We show that eurozone bank risks during 2007-2013 can be understood as “carry trade” behavior. Bank equity returns load positively on peripheral (Greece, Italy, Ireland, Portugal, Spain, or GIIPS) bond returns and negatively on German government bond returns, which generated “carry” until the deteriorating GIIPS bond returns adversely affected bank balance sheets. We find support for risk-shifting and regulatory arbitrage motives at banks in that carry trade behavior is stronger for large banks and banks with low capital ratios and high risk-weighted assets. We also find evidence for home bias and moral suasion in the subsample of GIIPS banks.

With permission of Elsevier

We examine the relative weights hedge fund investors attach to past information in the fund selection process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund returns, alphas or Sharpe ratios. In particular, investor flows are highly sensitive to performance streaks despite their limited predictive power regarding fund performance. Further, allocations based on forecast models’ out-of-sample predictions beat investor allocations by a significant margin, which suggests that the latter are suboptimal and reflect overreaction to certain types of information. Our findings do not support the notion that sophisticated investors have superior information or superior information processing abilities.

 

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Errors are ubiquitous in organizations and may develop in catastrophes for the society at large. Leaders and top leaders are directly concerned as they are responsible for the errors of their organizations in addition to their own. Yet the role of leadership in handling organizational and managerial errors has been seldom explored. This panel will engage the audience with a series of insights: a) what may be expected from leaders in the management of errors; b) antecedents and outcomes of effective leadership behavior in error management; c) vivid examples of organizations where leadership issues are integrated in the management of organizational errors. The panel is composed of five scholars originating from as many countries. With expertise on industries - healthcare, aviation, nuclear energy - where errors may have severe consequences, it will propose an interactive debate that is relevant to both scholars and practitioners.

With permission of the Academy of Management