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Volume 34 - Numéro 3

December 2013

The value effect of operational hedging: Evidence from foreign takeovers - 15 December 2013


The paper examines cross-border takeovers using the lens of cur-
rency risk management. With a sample of 152 large, cross-border deals
undertaken by listed French firms, the findings reveal that acquirers
tend to be firms with greater exposure to the target currency prior to the
takeover announcement. The value of the acquiring firm becomes less
sensitive to the target currency after the transaction. Acquirer abnormal
returns also are positively associated with a decrease in exposure to the
target currency; this gain is economically substantial. For example, for
an acquirer worth €100 million in equity, a one-unit decrease in cur-
rency exposure leads to a gain of €1.68 million.

Legality and the Spread of Voluntary Investor Protection - 15 December 2013


We examine the spread of Undertakings for Collective Investment
in Transferable Securities (UCITS) funds around the world and consi-
der whether such mutual funds, which voluntarily adopt higher stan-
dards of investor protection, expand their operations to other countries
with higher or lower investor protection regimes. The data indicate
equity funds spread to countries with better anti-director rights and
bond funds spread to countries with better creditor rights; however,
either type of spread is uncorrelated with and unexplained by enforce-
ment standards. The data therefore indicate that the loss of insider
managerial benefits from UCITS constraints is smaller in countries
where legal standards are higher, and this mechanism is a primary
determinant of the spread of voluntary protection mechanisms among
mutual funds. This central finding holds over a wide range of robust-
ness checks and the use of treatment-effect models that account for self

What drives the herding behavior of individual investors? - 15 December 2013


We introduce a new measure of herding that allows for tracking
dynamics of individual herding. Using a database of nearly 8 million
trades by 87,373 retail investors between 1999 and 2006, we show that
individual herding is persistent over time and that past performance
and the level of sophistication influence this behavior. We are also able
to answer a question that was previously unaddressed in the literature:
is herding profitable for investors? Our unique dataset reveals that the
investors trading against the crowd tend to exhibit more extreme
returns and poorer risk-adjusted performance than the herders.