- Should employers pay their employees better ? An asset pricing approach
Sofiane Aboura - Université de Paris XIII, Sorbonne Paris Cité
Abstract: We uncover a new anomaly in asset pricing that is linked to the remuneration : the more a company spends on salaries and benefits per employee, the better its stock performs, on average. Moreover, the companies adopting similar remuneration policies share a common risk, which is comparable to that of the value premium. For this purpose, we set up an original methodology that uses firm financial characteristics to build factors that are less correlated than in the standard asset pricing methodology. We quantify the importance of these factors from an asset pricing perspective by introducing the factor correlation level as a directly accessible proxy of eigenvalues of the correlation matrix. A rational explanation of the remuneration anomaly involves the positive correlation between pay and employee performance.
- Securities, valuations and closed-end fund discounts
Michel Magnan - John Molson School of Business, Concordia University, CIRANO
Abstract: This paper examines the link between financial reporting uncertainty and discounts in closed-end funds. A discount in a closed-end fund exists when its unit share price is at a lower value than its net asset value. Prior research examining this phenomenon has uncovered factors that contribute to a portion of the discount. We use the disclosures required for fair value investments as proxies for different degrees of discretion and uncertainty in underlying valuations for financial reporting purposes. Results indicate that investments with higher discretion in their valuations contribute more to discounts than lower discretion valued investments. However, securities with intermediate discretion cause lower discounts than those with the least discretion in their valuations. Next, to explore this result further, we conduct a detailed examination of the investments to identify how different types of securities affect discounts in closed-end funds. We find that different investments with similar valuation techniques (i.e. similar managerial discretion) affect discounts differently, signifying that uncertainty towards the valuation method is investment specific rather than uniform across all investments. This evidence narrows the gap on the not fully explained phenomenon of closed-end fund discounts.