Paul Borochin

Identifying the Heterogeneous Impact of Highly Anticipated Events: Evidence from the Tax Cuts and Jobs Act

We develop a method for estimating the stock market impact of aggregate events. Based on using data on both stock and options prices, our technique accounts for two important sources of bias present in traditional methods. First, our method takes into account market anticipation, without the need for information on specific firm characteristics. Many event studies only measure a fraction of an event's full value effect, so the measured market reaction at event resolution can be misleading, particularly in the case of a very high degree of market anticipation. Second, our method is robust to the possibility of the event being good news for some firms and bad for others, without prior specification of this heterogeneity. We apply the method to the passage of the Tax Cuts and Jobs Act (TCJA), which exhibits both anticipation and heterogeneity. We estimate the market anticipated the probability of passage to be as high as 95% 30 days before the event. The full value impact of the TCJA is found to be 12.36%, compared to 0.68% when market anticipation is ignored. The firm-level impact of the TCJA is considerably heterogeneous, with large and innovative firms with high growth prospects being the largest winners. (Expand)

Does Diversity Help Minorities? Evidence From Sell-Side Equity Analysts

Using the economic setting of sell-side equity analysts, we demonstrate that racial/ethnic diversity does not always help the minority groups. Race/ethnicity of analysts influences the forecasting style and accuracy of equity analysts, where these accuracy differences primarily reflect the effects of brokerage diversity. Surprisingly, the accuracy of minority analysts is adversely affected by brokerage diversity while White analysts benefit from higher brokerage diversity. The career outcomes of analysts are affected by their race/ethnicity and brokerage diversity, while stock market participants do not perceive diversity-based accuracy differences accurately and mis-react to forecast revisions. Collectively, these results suggest that within-group competition may reduce the potential benefits of diversity. (Expand)

The Economic Value of Equity Implied Volatility Forecasting with Machine Learning

We evaluate the importance of nonlinear interactions in volatility forecasting by comparing the predictive power of decision tree ensemble models relative to classical ones for normalized at-the-money implied volatility innovations. We measure the economic significance of these predictions in cross-sectional and time series pricing tests of delta-hedged option returns. Classification tree ensembles meaningfully outperform a multinomial logit classifier in delta-hedged option portfolio sorts on volatility innovation forecast data, while regression tree ensembles outperform OLS and LASSO models as well. Since the predictive variables are the same across all models, these performance differences likely capture the value of nonlinear interactions in implied volatility forecasts. Our results are robust to look-ahead bias and model overfitting. (Expand)

Do Boards Have Style? Evidence from Director Style Divergence and Board Turnover

We identify persistent director style effects on corporate policies. Director style explains a significant amount of variances in finance, investment, operations, and governance, among others. The results are significantly different from counterfactual random assignments of directors to firms. We also aggregate director effects at the firm board level to create a board style. Directors with effects that deviate from the board’s overall policy are significantly more likely to leave the board or leave their appointment to key board committees such as the compensation committee. Style divergent directors are also more likely to leave the board as a CEO’s total compensation increases. (Expand)

Other working papers on SSRN

Informed Options Trading Before FDA Drug Advisory Meetings Journal of Corporate Finance (2024)

Information Networks in the Financial Sector and Systemic Risk Journal of Banking and Finance (2022)

The Effect of Option-implied Skewness on Delta- and Vega-hedged Option Returns Journal of International Financial Markets, Institutions and Money (2021)

Do Managers Seek Control and Entrenchment? Journal of Corporate Finance (2021)

Risk Neutral Skewness Predicts Price Rebounds and so can Improve Momentum Performance Critical Finance Review (2021)

The Information Content of the Term Structure of Risk-Neutral Skewness Journal of Empirical Finance (2020)

The Information Content of Real Operating Performance Measures from the Airline Industry Journal of Financial Markets (2020)

A General Method for Valuing Complex Capital Structures Finance Research Letters (2020)

Belief Heterogeneity in the Option Markets and the Cross-Section of Stock Returns Journal of Banking and Finance (2019)

Target Information Asymmetry and Takeover Strategy: Insights from a New Perspective European Financial Management (2019)

The Effects of Conference Call Content on Market Perceptions of Value Uncertainty and Firm Risk Journal of Financial Markets (2018)

Alternative Corporate Governance: Domestic Media Coverage of Mergers and Acquisitions in China Journal of Banking and Finance (2018)

The Effects of Institutional Investor Objectives on Firm Valuation and Governance Journal of Financial Economics (2017)

Using Option Market Liquidity to Predict REIT Leverage Changes Journal of Real Estate Finance and Economics (2017)

Options, Equity Risks, and the Value of Capital Structure Adjustments Journal of Corporate Finance (2017)

Using Options to Measure the Full Value-Effect of an Event: Application to Obamacare Journal of Financial Economics (2016)

The Role of the Chief Legal Officer in Corporate Governance Journal of Corporate Finance (2015)

When Does a Merger Create Value? Using Option Prices to Elicit Market Beliefs Financial Management (2014)

University of Miami

University of Connecticut

I enjoy meditation, karate, chess, online courses, public speaking, investing, and combining technology with finance. In my spare time I like film, the outdoors, and spending time with my family.

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