News and Events

(Feb. 9, 2012) CSUSB Financial Management Association is the top player in national stock trading competition. They are currently ranked 1st for the month and 5th since the competition started in October, beating all the other California schools that are participating.

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Professor John McGrath was appointed to the Board of Commissioners of the Housing Authority of the County of San Bernardino (HACSB) by the Board of Supervisors of the County of San Bernardino in January 2012. The HACSB is the largest provider of affordable housing in the County. It owns and/or manages 10,000 housing units and serves approximately 30,000 individuals. Annual revenues amount to approximately $115 million and expenses near $108 million. The board meets monthly where they approve policies and procedures, reviews and approves monthly financial statements, and annually attends several professional training meetings. Congratulations Professor McGrath!!!

Faculty Research Spotlight

Dr. Xiang Liu’s sole-authored paper “Venture Capitalists and Portfolio Companies’ Real Activities Manipulation” has been accepted by Review of Quantitative Finance and Accounting, a highly ranked accounting journal.

The study examines the relation between VC’s presence and real activities manipulation. She finds that compared to non-venture-backed companies, venture-backed companies show significantly less RM in the first post-IPO fiscal year. The results are robust after controlling for the VC selection endogeneity. This is consistent with the argument that VCs do not inflate earnings when they exit the IPO firm but instead exercise a monitoring role to reduce the RM by other insiders. By the end of the second post-IPO fiscal year when VCs exit the portfolio companies, their impact on portfolio companies’ RM decreases dramatically. This suggests that the impact of VCs on portfolio companies is mainly through direct monitoring rather than through the establishment of a governance structure. A partitioned sample analysis indicates that VCs lapse their control and do not restrain RM during the Internet Bubble. VCs also tighten their control and reduce significantly RM in technology companies where managers engage in more aggressive RM, but they have no influence on RM in non-tech companies. Furthermore, using alternative VCs’ reputation proxies, she finds that portfolio companies’ RM is negatively associated with VCs’ reputation.

Dr. Ghulam Sarwar’s sole-authored paper "Is VIX an investor fear gauge in BRIC equity markets?" has been accepted by Journal of Multinational Financial Management.

This study examines the intertemporal relationships between CBOE market volatility index (VIX) and stock market returns in Brazil, Russia, India, and China (BRIC), and between VIX and U.S. stock market returns, to uncover if VIX serves as an investor fear gauge in BRIC and U.S. markets. The results suggest a strong negative contemporaneous relation between daily changes (innovations) in VIX and U.S. stock market returns. This relation is stronger when VIX is higher and more volatile. A significant negative contemporaneous relation between VIX and equity returns also exists for China and Brazil during 1993–2007 and for India during 1993–1997. Similar to the U.S. market, the immediate negative relation between the Brazilian stock returns and VIX changes is much stronger when VIX is both high and more volatile. The results also indicate a strong asymmetric relation between innovations in VIX and daily stock market returns in U.S., Brazil, and China, suggesting that VIX is more of a gauge of investor fear than investor positive sentiment. However, the asymmetric relationship between stock market returns and VIX is much weaker when VIX is large and more volatile. These results have potential implications for portfolio diversification and for stock market and option trading timing in the equity markets of Brazil, India, and China. Overall, our results indicate that VIX is not only an investor fear gauge for the U.S. stock market but also for the equity markets of China, Brazil, and India.

Two of Dr. Francisca Beer’s articles made the top ten of the Social Science Research Network most downloaded articles list, which is an exemplary accomplishment. The completion of this research took several years. Dr. Beer’s research interest in behavioral finance has led to several publications in the field.

The article titled “Is Sentiment Risk Priced by Stock Market?” tests if the financial markets price the investor’s sentiment risk. Dr. Beer and her colleagues construct portfolios based upon the stock returns’ exposure to sentiment. Their results show that the portfolio returns are positively correlated with the exposure of stock to sentiment. The strategy that consists of buying stocks with the highest exposure to sentiment and selling stocks with the lowest exposure to sentiment generates a significant raw profit. Exploring the sources of profit, they find that neither the traditional risk factors nor the momentum factor can account for the profit. However, they find that the addition of the sentiment risk premium contributes to explain the profit.

The Financial Review recently published Dr. Francisca Beer’s collaborative article entitled, “How Does Investor Sentiment Affect Stock Market Crises? Evidence from Panel Data.” Publication in the journal is extremely competitive with an acceptance rate of less than 10%.

In the article, Dr. Beer and her co-authors test the impact of investor sentiment on a panel of international stock markets. Specifically, they examine the influence of investor sentiment on the probability of stock market crises. They find that investor sentiment increases the probability of occurrence of stock market crises within a one-year horizon. The impact of investor sentiment on stock markets is more pronounced in countries that are culturally more prone to herd-like behavior, overreaction and low institutional involvement.

Dr. Vishal Munsif's paper "Audit Fees after Remediation of Internal Control Weaknesses" is on the list of articles published in Accounting Horizons being considered for "2012 Best Paper in Accounting Horizons," a publication of the American Accounting Association (AAA). Being published in Accounting Horizons is quite an honor.

Dr. Hua Sun’ coauthored paper has been accepted by Journal of Real Estate Research, the flagship journal of American Real Estate Society. According to journal-ranking.com, JRER is ranked as 28th in Business Finance Category, which includes all major accounting and finance journals.

The influential work of Genesove and Mayer (2001) uses loss aversion theory to explain several puzzling behaviors in the housing market. In the study, he presents an alternative theory, which does not require an asymmetric value function, to observe the same “loss aversion” behavior. Specifically, this paper presents a model in which a reference-dependent home seller has a symmetric value function, but faces an inter-temporal decision problem. Furthermore, the framework presented in this paper also helps explain the positive price-volume relationship and price dispersion effect, two observations that are well-documented in the housing market.

Dr. Sun’s research interests include real estate finance, corporate finance and governance, behavior finance, urban/housing economics and spatial econometrics, etc. Hua is very active on academic research and his papers have been published by top journals in real estate such as Real Estate Economics, the Journal of Real Estate Finance and Economics and the Journal of Real Estate Research.

Dr. Jim Estes’s recent coauthored paper “Tax-Calendar Effects in the Municipal Bond Market: Tax-Loss Selling and Cherry Picking by Investors and Market Timing by Fund Managers” were published on The Financial Review, a top tier financial journal.

In the paper, he finds evidence of tax-calendar related rational opportunistic trading patterns by fund investors and fund managers. Specifically, fund shareholders conduct tax-loss selling in December and re-invest in January. In April, June, and September, fund investors rationally cherry pick to sell their shares of short-term bond funds instead of their shares of long-term bond funds to raise cash to pay estimated taxes. Unlike fund shareholders, fund managers adopt a contrarian strategy of buying in December and selling in January. There are several implications for practitioners. First, there is a need to examine the performance of a contrarian strategy designed to take advantage of the January effect under various assumptions about trading costs. Second, evaluation of performances by fund managers can incorporate the contribution (or exclusion) of active management in exploiting known market anomalies such as the January effect.

Dr. Estes has 19 publications with one additional due to be published in the Syracuse Law Review co-authored with Dr. John Dorocak, an accounting professor. Dr. Estes research is varied but tends to focus on practical applications to investing. He is currently writing a paper on the effect on the unemployment rate by the baby boomer's losses in the 2008 stock market and their inability to retire. A second one in progress is on the lack of federal criminal prosecutions from the 2008 financial crisis vs. the prosecutions savings and loan crisis in 1978. A third paper explores the effects of market fluctuations on charitable gifting.

Dr. Rick Lillie and his coauthor recently published an article in the Journal of Accounting Education (J. of Acc. Ed. 29 (2011) 1-13) entitled “Virtual Office Hours in accounting coursework: Leveraging technology to enhance an integrative learning environment.” The Journal of Accounting Education published by Elsevier is considered one of the top two accounting education journals.

The article describes our approach to using technology to improve instructor-student interaction both within and outside the classroom setting by offering virtual office hours in addition to traditional office hours. Many accounting students work full or part-time and commute to campus rather than living on campus. Because of this, making use of traditional office hours is either not convenient or often impossible to do. Dr. Lillie reports that using a technology platform like Skype makes it possible to extend office hours to all students.

Dr. Lillie’s research focuses on using technology in innovative ways to create a student-centered teaching-learning experience that works in traditional, blended, and online class formats. Technologies that Dr. Lillie and his coauthor incorporate into course design are similar to those employed in accounting practice.