2017 / 2018
CERF / Cambridge Finance Seminars in Chronological Order
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Hui Chen (University of Zurich)
Hui Chen (University of Zurich)
About Hui Chen
Title: Professor Hui Chen, University of Zurich
Abstract:
Stock price often provides firms with new information, which can be used in the firms' subsequent real decisions. We examine how this informational feedback from the financial market affects a myopic firm manager's incentive to misreport, and how the misreporting further affects the firm's price and value. We find that the manager overstates his report more in the presence of feedback, but this misreporting brings forth both positive price and real effects for the firm. Intuitively, overstating the report encourages information production in the market because (a) it renders accounting reports less reliable as a source of information, and (b) investors expect higher trading profits from larger capital investment. The new incremental information improves investment efficiency when it is revealed to the firm manager through trading and used in the firm's subsequent investment decisions. As a consequence, the capital investment is higher when there is feedback effect.
Date: Thursday 12th October, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Matthew Elliott (University of Cambridge)
Matthew Elliott (University of Cambridge)
Title: Firebreaks and Risk-Shifting in Financial Networks
Abstract:
Financial connections hedge risks, but also propagate large shocks. We characterise socially optimal financial networks in the presence of this tradeoff. These networks divide banks into groups, with strong connections within groups but weak connections between groups. The weak connections create firebreaks, which limit the spread of contagion. When financial distress costs are below a certain threshold, socially efficient networks cannot form in equilibrium. Shareholders engage in risk-shifting by altering financial connections—thereby increasing equity value, but also raising the likelihood of contagion. Equally, socially efficient networks are an equilibrium when financial distress costs are above this threshold. Contagion becomes so costly that banks are not willing to take the other side of a risk-shifting trade.
Date: Thursday 26th October, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Ilona Babenko (Arizona State University)
Ilona Babenko (Arizona State University)
About Ilona Babenko
Title: Do CEOs Affect Employees' Political Choices?
Abstract:
We analyze how the political preferences of CEOs affect their employees’ campaign contributions and electoral choices. We find that employees donate almost three times more money to CEO-supported political candidates than to candidates not supported by the CEO. This relation also holds around CEO departures, including plausibly exogenous departures due to retirement or death. CEO influence is strongest in firms that explicitly advocate for political candidates and firms with politically connected CEOs. We also find evidence that CEO influence increases political disagreement among members of the same household, which may be welfare-decreasing. Finally, employees are more likely to vote in elections in those congressional districts where CEOs are more politically active. Overall, our results suggest that CEOs are a political force.
Date: Thursday 9th November, 12:45 - 13:45
Event Location: Room W2.01 Cambridge Judge Business School
Michael Brennan (University of Manchester)
Michael Brennan (University of Manchester)
About Michael Brennan
Title: Expected Returns and Risk in the Stock Market
Abstract:
In this paper we present new evidence on the predictability of stock returns, and examine the extent to which time variation in expected returns on the market portfolio and other portfolios is due to time variation in the risk exposure of these portfolios or due simply to mispricing or sentiment. In doing this we develop two new models for the prediction of stock market returns, one risk-based, and the other purely statistical; both models rely on extracting information from past returns of portfolios. The pricing kernel model expresses the expected excess return as the covariance of the market return with a pricing kernel that is a linear function of portfolio returns. The discount rate model is based on the log-linea present value model od Campbell and Shiller and predicts the expected excess return directly as a function of weighted past portfolio returns. For aggregate market returns the two models provide independent evidence of predictable variation in returns, with R2 of 5-8% for quarterly returns and 8-17% for annual return. For spread portfolio returns, such as HMZ and HML, the story is different and we find considerable evidence of predictability from the discount rate model that is not captured by the risk based model , and the expected returns on these spread portfolios are found to be strongly related to measures of sentiment.
Date: Thursday 23rd November, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Héctor Calvo Pardo (University of Southampton)
Héctor Calvo Pardo (University of Southampton)
Title: Informative Social Interactions
Written in collaboration with Luc Arrondel (PSE), Chryssi Giannitsarou (U. of Cambridge) and Michael Haliassos (Goethe U. Frankfurt).
Abstract:
We design, field and exploit novel survey data, from a representative sample of the French population in December 2014 and May 2015 to provide insights regarding social interactions and whether they are informative for financial decisions, or they encourage imitation, mindful or mindless. We provide a model where purely informative social interactions influence subjective expectations of future stock market returns and demand for investing in stocks, and find strong support for the presence of informative social interactions. The extent to which the respondent’s financial circle is informed about or participates in stockholding appears to influence perceptions of recent stock returns and, only through them, expectations of future returns. Controlling for subjective expectations, stock market participation and the conditional portfolio share are positively influenced by the extent to which the financial circle is informed about or participating in the stock market. Alongside informative social interactions with the respondent’s financial circle, we also find some evidence of mindless imitation of stock market participation observed in the outer social circle. These findings suggest that informative social interactions are significant and create a social multiplier for financial education and information, even though the potential for mindless imitation is also present.
Date: Thursday 25th January, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Nobuyuki Hanaki (University of Nice)
Nobuyuki Hanaki (University of Nice)
Title: An experimental analysis of the effect of Quantitative Easing
Written in collaboration with A. Penalver, E. Akiyama, Y. Funaki.
Abstract:
In this paper we report the results of a repeated experiment in which a central bank buys bonds for cash in a quantitative easing (QE) operation in an otherwise standard asset market setting. The experiment is designed so that bonds have a constant fundamental value which is not affected by QE under rational expectations. By repeating the same experience three times, we investigate whether participants learn that prices should not rise above the fundamental price in the presence of QE (as found in. Penalver et al., 2017). We find that some groups do learn this but most do not, instead becoming more convinced that QE boosts bond prices.
These claims are based on significantly different behaviour of two treatment groups relative to a control group that doesn't have QE.
Date: Thursday 8th February, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
William H. Janeway (On Board of Managers at CERF)
William H. Janeway (On Board of Managers at CERF)
Title: The Digital Revolution and the State
Abstract:
All of the technologies which combined to enable the Digital Revolution were sponsored by the American state: stored program digital computers, silicon processing, software engineering and the internet. Deployment of the enabling infrastructure and exploration of its potential applications, in turn, were accelerated by the IT/Internet/Dotcom Bubble of 1998-2000. Since then, the Digital Revolution has taken on a life of its own. No longer in need of state support, the Digital Revolution now challenges the authority of the state along multiple dimensions. The IT-enabled globalization of markets and automation of work have overwhelmed the capacity of the state to buffer the consequent disruption of employment with destructive political consequences. At the microeconomic level, disruptive digital services like Uber and Airbnb attack existing modes of regulation in both the directly served markets and in the associated labor markets. Across industries, the application of machine learning techniques to the data generated and captured from interactions with customers has created a new mode of monopolization, additional to economies of scale and scope and network externalities, requiring new approaches to anti-trust regulation. Finally, at the most fundamental level of political economy, digital social media is being mobilized to undermine the political processes on which the legitimacy of the state depends.
Date: Thursday 22nd February, 13:00 -14:00
Event Location: Room W4.03, Cambridge Judge Business School
Marco Bonomo (Insper)
Marco Bonomo (Insper)
Title: Short-Selling Restrictions and Returns: a Natural Experiment.
Wirtten in collaboration with Fernando Barbosa, João De Mello and Lira Mota.
Abstract:
We estimate the causal impact of short-selling restrictions on stock returns. We take advantage of a unique dataset and exploit a source of exogenous variation in loan fees provided by a tax-arbitrage opportunity that existed in Brazil from 1995-2014. The tax-arbitrage opportunity stemmed from the fact that domestic investment funds were exempted from income taxes on dividends received by stocks they borrowed, whereas the original owner would be taxed if she did not lend out the stock. Because we observe all equity loan transactions, including the investor type, we can distinguish between equity lending transactions motivated by tax-arbitrage from those with the purpose of short-selling the stock. Variation in loan fees on tax-motivated transactions are a source of exogenous variation in borrowing fees in short-selling transactions, which allows us to estimate the causal impact of the loan fees on stock prices. We find that increases in stock loan fees have strong impact on stock prices.
Date: Thursday 8th March, 12:45 - 13:45
Event Location: KH107 (Keynes House), Cambridge Judge Business School
Richard G. Sloan (Haas Accounting Gorup)
Richard G. Sloan (Haas Accounting Gorup)
Title: Short-Sales Constraints and Aftermarket IPO Pricing
Written in collaboration with Panos N. Patatoukas and Annika Yu Wang.
Abstract:
It is well established that initial public offerings (IPOs) tend to experience positive first-day returns followed by abnormally low subsequent returns, especially around the expiration of lockup agreements. Miller’s (1977) overvaluation theory offers a unified explanation of aftermarket IPO pricing based on divergence of investor opinion about fundamental value combined with short-sales constraints. While prior studies are inconclusive with respect to the importance of short-sales constraints in the IPO aftermarket, we find robust evidence consistent with Miller’s theory. Our research design employs detailed data from the securities lending market and ex ante identifies IPOs with high divergence of investor opinion and limited floating stock. We show that these IPOs drive prior evidence of overpricing in the aftermarket, as indicated by positive first-day returns followed by negative lockup returns, and that the supply of lendable shares is severely constrained for these IPOs, thereby limiting short sellers’ effectiveness to arbitrage overpricing.
Date: Thursday 3rd May, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Kathy Yuan (London School of Economics)
Kathy Yuan (London School of Economics)
Title: Dynamic Liquidity-Based Security Design
Abstract: Not Disclosed
Date: Thursday 17th May, 12:30 - 13:30
Event Location: Room W2.01, Cambridge Judge Business School
Hui Chen (MIT)
Hui Chen (MIT)
Title: The Darkside of Circuit Breakers
Abstract:
Market-wide trading halts, also called circuit breakers, have been proposed and widely adopted as a measure to stabilize the stock market when experiencing large price movements. We develop an intertemporal equilibrium model to examine how circuit breakers impact the market when investors trade to share risk. We show that a downside circuit breaker tends to lower the stock price and increase its volatility, both conditional and realized. Due to this increase in volatility, the circuit breaker's own presence actually raises the likelihood of reaching the triggering price. In addition, the circuit breaker also increases the probability of hitting the triggering price as the stock price approaches it - the so-called ``magnet effect.'' Surprisingly, the volatility amplification effect becomes stronger when the wealth share of the relatively pessimistic agent is small.
Date: Thursday 31st May, 13:00 - 14:00
Event Location: Room W4.03, Cambridge Judge Business School
Luke Stein (Arizona State University)
Luke Stein (Arizona State University)
Title: Angels, Entrepreneurship, and Employment Dynamics: Evidence from Investor Accreditation Rules
Written in collaboration with Lindsey Laura.
Abstract:
This paper examines the effects of a shock to angel finance on entrepreneurial activity and employment. Using public micro data from the U.S. Census, we construct a state-level estimate of the fraction of accredited investors likely affected by Dodd-Frank's elimination of housing wealth in the determination of accreditation status. We demonstrate that a larger reduction in the pool of potential accredited investors negatively affects firm entry and reduces employment levels at small entrants. Employment increases at small and young incumbents as workers are absorbed, and relative wages for the startup sector decline. Angel finance appears to be a complement to organized venture capital and of greater importance in less concentrated and lower startup-capital-intensive industries. Our paper quantifies the impact of angel finance at the margin and offers insight on the geographies and sectors where it matters most.
Date: Thursday 14th June, 13:00- 14:00
Event Location: Room W4.03, Cambridge Judge Business School
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