2011 / 2012

Title: Towards a Multi-Market Model of North American Agricultural Commodities in the Interwar Period

Abstract: Not provided by author.

Date: Tuesday 11th October, 17:00 - 18:00

Event Location: Room 7, Lecture Block, Sidgwick

Title: The Price of Asymmetric Dependence

Abstract:

We examine the relative importance of asymmetric dependence (AD) and systematic risk in the cross-section of US equities. Using a β-invariant AD metric, we demonstrate a lower-tail dependence premium that is only 35% of the market risk premium, compared with an upper-tail dependence discount that is 41% of the market risk premium. Lowertail dependence displays a constant price between 1989-2009. Subsequently, we find that return changes in US equities between 2007-2009 reflected changes in systematic risk and upper-tail dependence. This suggests that both systematic risk and AD should be managed in order to reduce the return impact of market downturns.

Date:  Tuesday 25th October, 17:00 - 18:00

Event Location: Room 7, Lecture Theatre, Sidgwick Site

Title: Loan Guarantees for Consumer Credit Markets

Abstract:

Loan guarantees are arguably the most widely used policy intervention in credit markets, especially for consumer credit. However, despite their size, little is known about their quantitative effects on prices and allocations Moreover, loan guarantees have features that have the potential to make them particularly effective in consumer credit markets. In this paper, we provide a quantitative assessment of the price and allocational consequences of consumer loan guarantees. Our work is novel as it studies loan guarantees in a quantitativelyrich model where credit allocation is allowed to be affected by both asymmetric information and limited commitment frictions. Under symmetric information, we find that loan guarantees can improve welfare for all agents only if they are limited in generosity. Under asymmetric information, loan guarantees can improve welfare, especially if they are restricted to households hit by large expenditure shocks.

Date: Tuesday 8th November, 17:00 - 18:00

Event Location: Room 7, Lecture Block, Sidgwick Site

Title: Optimal Capital Structure and Growth Options in Mergers and Acquisitions

Abstract: Not Provided by Author

Date: Tuesday 15th November, 17:00 - 18:00

Event Location: Room 7, Lecture Theatre, Sidgwick Site

Title: Asymmetric Risk Shifting in Long and Short Positions and their Impact on Hedge Fund Performance

Abstract:

This paper investigates the impact of dynamic risk shifting on the performance of mutual funds, using a unique database with monthly portfolio holdings of Brazilian investment funds between 2005 and 2009. The availability of long and short positions allows us to breakdown the risk shifting of long and short holdings of stocks, uncovering significant differences in the behavior of managers when adjusting their risk exposure. We find that funds that increase the risk of their long positions tend to underperform while risk increases in short positions leave to overperformance.

Date: Tuesday 22nd November, 17:00 - 18:00

Event Location: Room 7, Lecture Theatre, Sidgwick Site

Title: Can External Shocks Explain the Asian Side of Global Imbalances? Lessons from a Structural VAR Model

Abstract:

During the last decade, we observed the accumulation of global imbalances resulting primarily from massive current account imbalances in the US and in Asia. Most of the attention has been focused on the US side of global imbalances and few studies have been dedicated to large current account surplus in Asia. The aim of this paper is to study the impact of external shocks on East Asian countries in order to determine if these can account for the Asian side of global imbalances. The three external shocks consist of an oil shock, a US monetary shock and a US financial shock. We estimate a structural VAR model with block exogeneity using contemporaneous and long-run restrictions. Our main findings are as follows: (i) external shocks account for the current account surplus in Malaysia, the Philippines, Singapore and Thailand and, to a lesser extent, in Japan, Korea and Indonesia; (ii) the oil shock and the US monetary shock seem to have influenced current account balances through real and monetary channels and the US financial shock through financial channel.

Date: Tuesday 29th November, 17:00 - 18:00

Event Location: Room 11, Lecture Theatre, Sidwick Site

Title: Cash-flow based valuation of pension liabilities

Abstract:

This paper presents a computational framework for cash-flow based valuation of insurance liabilities in incomplete markets. It accounts for the risks associated with both insurance claims and investment returns over the lifetime of the liabilities. The valuation framework is market consistent in the sense that it takes into account the investment opportunities available to the insurer at the time of valuation. The framework is easily adapted to different lines of insurance and it can effectively employ advanced tools for strategic portfolio management. As an application, we value the insurance portfolio of the Finnish private sector occupational pension system where the liabilities extend over 82 years.

Date: Tuesday, 31st January, 17:00 - 18:00

Event Location: Barbara White Room, Newnham College

Title: Capital in the Business Cycle: Renting versus Ownership

Abstract:

This paper studies how business cycle dynamics are affected by the possibility to rent as opposed to own productive capital. We provide empirical evidence based on firm-level data for the US which confirms the counter-cyclicality of the share of renting in capital expenditure over the business cycle. We develop a dynamic stochastic general equilibrium model with borrowing constraints and two types of agents, and allow for both owned and rented capital to be used in production. The model focuses on a fundamental trade-off between the two types of capital: only owned capital can serve as collateral, but owning requires more liquidity than renting. The model performs well in replicating the counter-cyclical behavior of the rental share and matching some of the key business cycle moments observed in the data. Finally, simulation results show that the presence of a renting sector alleviates the adverse impacts of a negative financial shock, and these results are confirmed by empirical cross-country evidence.

Date: Tuesday 14th February, 17:00 - 18:00

Event Location: Lucia Windsor Room, Newnham College

Title: How Does A Firm’s Default Risk Affect Its Expected Equity Return?

Abstract:

In a Black and Scholes (1973) economy, a firm’s default risk and its expected equity return are non-monotonically related. This result may explain the surprising relation found between these two variables in recent empirical research. Although changes in default risk induced by expected profitability and leverage effects correlate positively with changes in the expected equity return, an increase in default risk induced by changing asset volatility can have a negative impact on the expected equity return if default risk is high. Empirical evidence based on cross-sectional and time-series tests supports the main testable implications of the theoretical model.

Date: Tuesday 21st February, 17:00 - 18:00

Event Location: Barbara White Room, Newnham College

Title: The Impact of Jumps and Thin Trading on Realised Hedge Ratios

Abstract:

The use of intradaily data to produce daily variance measures has resulted in increased forecast accuracy and better hedging for many markets. However, this paper shows that improved hedging ratios can depend on the behaviour of price disruptions in the assets. When the spot and future prices for the same asset do not jump simultaneously within the day, then inferior hedging outcomes can be observed. We illustrate that this problem dominates bias from potential thin trading. Using US Treasury data we demonstrate how the extent of non-synchronised jumping, or disjoint jumping, leads to the finding that optimal hedging ratios are not improved with high frequency data in this market.

Date: Tuesday 6th March, 17:00 - 18:00

Event Location: Barbara White Room, Newnham College

*Please note, this affiliation is not confirmed. A light research shows this most frequently amongst a vague result.

Title: The Financing and Re-financing of the War of the Spanish Succession, and then Re-Financing the South Sea Company

Abstract:

The expense of the War of the Spanish Succession (1702-1713) left each of the great powers of Europe (Austria, Britain, France, the Netherlands, and Spain), with unprecedented burdens of government debt. The overlapping Great Northern War (1700-1721) between Sweden and Russia also encumbered those two European powers with pressing financial problems. The competitive experiments in dealing with the amassed debt that followed over the next decade left Britain alone among the contesting military powers of Europe holding the key to success in war finance. Only Britain managed to convince a large and diverse number of individuals to hold onto their claims against the government due to British institutions that allowed individuals to trade their claims with each other rather than redeeming them directly from the government. We support our argument by analysis of the thousands of individuals who had acquired various forms of the British government’s debt over the course of the War of the Spanish Succession after the government consolidated most of that debt into the capital stock of the Bank of England, the East India Company, and the South Sea Company in 1723.

Date: Tuesday 24th April, 17:00 - 18:00

Event Location: Lucia Windsor, Newnham College

Title: Towards a new institutional analysis of London's insurance market

Abstract:

This paper examines the development of London's marine insurance market, one of the City's most enduring success stories, through the analytical framework of New Institutional Economics - although from the standpoint of a sceptic of this theoretical construction. The paper shows how marine insurance institutions, endogenous and exogenous, developed alongside England's increasing importance in ocean-going trade to favour the early and sustained primacy of London marine insurers on the international stage.

Date: Tuesday 1st May, 17:00 - 18:00

Event Location: Barbara White Room, Newnham College

Title: The Incentives of Performance Fees, High-Water Marks and Personal Stakes

Abstract:

In this paper we present a mathematical framework for the optimal investment problem of a fund manager who gets paid a performance fee and a management fee from his investors. Through the equivalence to an optimal stopping problem, we find a simple characterisation of the solution and an early indicator that performance fees provide precarious incentives. We then incorporate more detailed specifications of the fee structure. The effects of a high-water mark, a hurdle rate or a manager's personal stake can all be demonstrated elegantly. Finally, we increase the complexity of our model by relaxing the conditions on the underlying assets and allowing for investors to enter and leave the fund over time, according to its performance. Our framework still allows for an illustrative characterisation of the manager's incentivisation in this case and we turn to numerical methods to demonstrate concrete examples.

Date: Tuesday 15th May, 17:00 - 18:00

Event Location: Sidgwick, Newnham, College

Title: Optimal contracts in incomplete markets with maturity-independent utilities

Abstract:

In this presentation we look at different problems in incomplete markets using maturity-independent utilities, including portfolio optimization and the design of optimal contracts between agents.

Date: Tuesday 22nd May, 17:00 - 18:00

Event Location: Sidgwick Hall, Newnham College

Title: Conceptualising EU/IMF Financial Assistance Negotiation in Latvia

Abstract:

This paper highlights the preconditions for a successful EU/IMF financial assistance programme by providing an analytical approach to the negotiation process for financial stabilisation in Latvia. We believe that auditing the negotiation process may help us to understand and improve the negotiation capability of an organisation. For instance, decision-makers engaged in a financial assistance negotiation might need to place a high priority on pinning down the difference that the process makes, net of other influences, to the outcome. Measuring decision-making successes and failures requires first choosing a conceptual framework for the analysis. Such a framework would allow for the testing of hypotheses concerning the negotiation process based on evidence from actual experience, in addition to laboratory evidence.

Date: Tuesday 29th May, 17:00 - 18:00

Event Location: Sidgwick Hall, Newnham College

Title: Did inflation targeting make a difference during the financial crisis?

Abstract:

This paper seeks to explore whether inflation targeters (ITers) fared better than non-ITers in the largest recession since the ‘Great Depression’. Early evidence by Roger (2010) and Carvalho-Filho (2011) has been rather positive in this regard; suggesting superior growth performance and lower market perceptions of risk. However, these papers do not formally address the sample selection issue that has plagued the inflation targeting (IT) literature. This paper therefore aims to contribute to the literature by taking IT to be a treatment. We employ a two-pronged approach to the analysis: borrowing from the program evaluation literature, we employ propensity score matching combined with differences-in-differences. Then to understand time-varying performance during the crisis, we also employ a panel fixed effects model with country and time-fixed effects, controlling for possible time-varying heterogeneity via instrumental variables (IV). We find that ITers did perform better in the crisis, with smaller output contractions and smaller increases in 5-year Sovereign CDS spreads. However, we only find weak evidence for superior consumption growth. Turning to possible drivers behind this performance, we find that ITers cut nominal policy rates by more (and these translated into real cuts), were more successful in avoiding deflationary pressures, experienced larger depreciations in their real exchange rate, and for emerging economies (EMEs) had less need for fiscal stimulus. Therefore, we interpret this superior performance as a culmination of factors that stem from a superior ability to anchor inflation expectations.

Date: Tuesday 5th June, 17:00 - 18:00

Event Location: Sidgwick Hall, Newnham College

Title: Macroeconomic Imbalances and the Eurozone Crisis

Abstract:

The euro is probably the only currency in the world that was created by economists thinking about the theory of optimum currency areas.  Nevertheless, it seems headed for disaster.  The purpose of this presentation is to explain why that is so.  The argument is that financial integration in a monetary union without a common ‘risk-free’ asset, deposit insurance, prudential oversight, and bank resolution program was fundamentally unstable.  The project started out well enough, as savings flowed from relatively mature industrial economies at the core of Europe to those on the periphery with more opportunities for investment and development.  But as the flow off savings accumulated into stocks of investment, they tended to push up prices on the periphery while holding down inflation at the core.  Over time, peripheral industries became dependent upon low interest rates and ready liquidity to maintain profitability and peripheral banks became dependent upon access to international interbank markets to service their assets.  This combination of factors created fragility in the face of external shocks for the monetary union as a whole.  Once investors became worried about the competiveness of peripheral economies and the solvency of peripheral banks, they began to liquidate their stocks of assets on the periphery in order to bring their savings back home.  This flight to quality created an interest rate shock that acted as a self-fulfilling prophecy by undermining the profits of firms on the periphery and eating into the capital buffers of peripheral banks.  Efforts by peripheral governments to shore up their national banking systems only succeeded in making matters worse by calling public finances on the periphery into question as well.  The result was a negative spiral on the periphery that increased the flight to quality from the peripheral countries to the core.  As the crisis deepened, Europe’s heads of state and government faced a stark pair of alternatives: either they must implement a financial union or they must accept that the euro would fail.

Date: Tuesday 12th June, 17:00 - 18:00

Event Location: Barbara White Room, Newnham College